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March 12, 2020
The Tax Credit for Carbon Sequestration (Section 45Q)
Carbon capture and sequestration technologies can reduce
greenhouse gas (GHG) emissions from coal- and natural-
gas-fired power plants, as well as other large industrial
sources. The tax credit for carbon oxide sequestration
(Internal Revenue Code [IRC] Section 45Q) is intended to
promote investment in carbon capture and sequestration.
Geological sequestration of carbon is primarily the process
of storing carbon oxides by injecting them into underground
geological formations. Usually this process involves carbon
dioxide (C02), although sequestration of other carbon
oxides (e.g., carbon monoxide) is also possible. Geological
sequestration is the final step in a Carbon Capture,
Utilization, and Storage (CCUS) system. Geological
sequestration is intended to permanently trap CO2 emitted
from stationary anthropogenic sources, such as power
plants or industrial facilities, thereby reducing net emissions
of this GHG into the atmosphere. CO2 can also be stored
underground when injected for enhanced oil recovery
(FOR) from aging oil fields, a process used in the United
States since the 1970s. Currently, CO2 used for BOR comes
predominantly from natural underground CO2 reservoirs,
although small quantities also come from anthropogenic
sources.
An emerging technology to capture CO2 directly from the
atmosphere direct air capture (DAC)-could also serve
as a source of CO2 for geological sequestration or EOR. For
additional information on the technical aspects of CCUS,
see CRS Report R44902, Carbon Capture and
Sequestration (CCS) in the United States, by Peter Folger.
The tax credit for carbon oxide sequestration often
referred to using its IRC section, 45Q is computed per
metric ton of qualified carbon oxide captured and
sequestered. (Before 2018, the tax credit was exclusively
for CO2.) The amount of the credit, as well as various
features of the credit, depend on when the qualifying
capture equipment was placed in service (Table 1). The
Bipartisan Budget Act of 2018 (P.L. 115-123), which was
signed into law on February 9, 2018, made numerous
changes to the Section 45Q tax credit, as discussed below.
For the purposes of the tax credit, qualified carbon oxide is
that which would have been released into the atmosphere if
not for the qualifying equipment. To claim a tax credit for
emissions, the emissions must be measured at the point of
capture as well as point of disposal, injection, or other use.
If the captured carbon oxide is being stored, it must be
disposed of in secure geological storage. Per IRC Section
45Q, secure geological storage includes storage at deep
saline formations, oil and gas reservoirs, and unminable
coal seams. Tax credits claimed for captured and
sequestered carbon oxide may be recaptured, meaning the
taxpayer has to return the amount of the tax credit to the
Treasury if the carbon oxide ceases to be captured, disposed
of, or used in a qualifying manner (i.e., if it escapes into the
atmosphere).
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Geologically Sequestered C02
$23.40 in 2019. $28.74 in 2019.
Inflation-adjusted annually. Increasing to $50 by 2026,
then inflation-adjusted.
Geologically Sequestered C02 with EOR
$11.70 in 2019. $17.76 in 2019.
Inflation-adjusted annually. Increasing to $35 by 2026,
then inflation-adjusted.
Other Qualified Use of C02
None. $17.76 in 2019.
Increasing to $35 by 2026,
then inflation-adjusted.
......................................................................C...............m.............................
Available until 75 million tons
of C02 have been captured
and sequestered.
12-year period once facility is
placed in service.
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Capture carbon after Begin construction before
10/3/2008. I/l/2024.
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Capture at least 500,000
metric tons.
Power plants:
capture at least 500,000
metric tons.
Facilities that emit no more than
500,000 metric tons per year.
capture at least 25,000 metric
tons.
DAC and other capture facilities:
capture at least 100,000
metric tons.
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Person who captures and
physically or contractually
ensures the disposal,
utilization, or use as a tertiary
injectant of the C02.
Person who owns the capture
equipment and physically or
contractually ensures the
disposal, utilization, or use as a
tertiary injectant of the C02.
Source: CRS analysis of IRC Section 45Q.
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