![handle is hein.crs/govedpb0001 and id is 1 raw text is: Con gre ional Research Service
0
Updated June 8, 2021
The Tax Credit for Carbon Sequestration (Section 45Q)
Carbon capture and sequestration (CCS) technologies are
being proposed as an option to 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 incentivize
investment in carbon capture and sequestration.
What Is Carbon Sequestration?
Geological sequestration of carbon is the process of
injecting carbon oxides into underground geological
formations, where they are either permanently trapped or
transformed. Usually this process involves carbon dioxide
(CO2), although injection and sequestration of other carbon
oxides (e.g., carbon monoxide) is also possible. Geological
sequestration is the final step in a CCS system. Geological
sequestration is intended to permanently trap CO2 emitted
from anthropogenic sources, such as power plants or
industrial facilities, thereby reducing net emissions of this
GHG into the atmosphere. CO2 can also be sequestered
when injected underground for tertiary oil recovery, also
known as enhanced oil recovery (EOR), from aging oil
fields, a process used in the United States since the 1970s.
Currently, CO2 used for EOR 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 injected for geological sequestration or
EOR. For additional information on the technical aspects of
CCS, see CRS Report R44902, Carbon Capture and
Sequestration (CCS) in the United States.
The Sequestration Tax Credit (45Q)
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 is 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
a carbon oxide that would have been released into the
atmosphere if not for the qualifying equipment. To claim a
tax credit, the emissions must be measured at the point of
capture as well as at the point of disposal, injection, or other
use. If the captured carbon oxide is intended to be
sequestered, 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. The taxpayer has to
repay the tax credit (credit recapture) 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).
Table 1. Key Elements of the Section 45Q Credit
Geologically Sequestered C02
$23.82 in 2020. $31.77 in 2020.
Inflation-adjusted annually. Increasing to $50 by 2026,
then inflation-adjusted.
Geologically Sequestered C02 with EOR
$11.91 in 2020. $20.22 in 2020.
Inflation-adjusted annually. Increasing to $35 by 2026,
then inflation-adjusted.
Other Qualified Use of C02
None. $20.22 in 2020.
Increasing to $35 by 2026,
then inflation-adjusted.
Available until 75 million tons
of CO2 have been captured
and sequestered.
Capture carbo
10/3/2008.
Capture at lea
metric tons.
12-year period once facility is
placed in service.
Qualifying Facilities
n after Begin construction before
I/I/2026.
Annual Capture Requirements
st 500,000
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.
Eligibility to Claim Credit
Person who captures and Person who owns the capture
physically or contractually equipment and physically or
ensures the disposal, contractually ensures the
utilization, or use as a tertiary disposal, utilization, or use as a
injectant of the CO2. tertiary injectant of the CO2.
Source: CRS analysis of IRC Section 45Q.
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