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1 [1] (September 01, 2020)

handle is hein.crs/govdbmp0001 and id is 1 raw text is: 01;0$S~l i~s $ch$e September 1, 2020 Carbon Storage Requirements in the 45Q Tax Credit The Internal Revenue Code Section 45Q tax credit is intended to promote investment in carbon capture and sequestration (CCS), a process designed to reduce emissions of greenhouse gases (GHGs) from power plants and other industrial sources. Geologic sequestration of carbon dioxide (C02), a type of carbon storage, is a process aiming to permanently store the captured gases deep underground. The Section 45Q tax credit can be claimed for the capture and sequestration of carbon oxides, categorized as (1) CO2 captured directly from industrial facilities originally placed in service before February 9, 2018; (2) CO2 and other carbon oxides captured directly from industrial facilities originally placed in service on or after February 9, 2018; and (3) CO2 captured directly from the ambient air (direct air capture). In 2020, Section 45Q provides tax credits of $31.77 per ton for carbon oxide that is geologically sequestered and $20.22 per ton for carbon oxide that is sequestered during enhanced oil recovery (EOR), or used in other qualified industrial processes. These tax credits increase to $50 and $35 per ton, respectively, by 2026. In June 2020, the Internal Revenue Service (IRS) issued a notice of proposed rulemaking, Credit for Carbon Oxide Sequestration, which includes proposed requirements for demonstrating the secure geological storage of carbon oxides in underground formations needed to qualify for 45Q tax credits (85 Federal Register 34050). Section 45Q and this proposed rule cover a larger set of chemical substances (i.e., carbon oxides) compared to some other federal GHG-related rules, which specifically target CO2. Scure Geological Stora',ge\ in 45Q Section 45Q tax credits were enacted as part of the Energy Extension and Improvement Act of 2008 (P.L. 110-343, Division B). Section 45Q(f)(2) of the act required the Department of the Treasury, in consultation with the Environmental Protection Agency (EPA), the Department of Energy, and the Department of the Interior, to establish regulations for the secure geological storage of qualified carbon oxide to prevent release into the atmosphere. Further, the provision defined secure geological storage locations to include deep saline formations, oil and gas reservoirs, and unmineable coal seams, under conditions as determined in regulations. Secure geological storage is required whether the taxpayer is claiming the credit for carbon oxides used as a tertiary injectant and consequently stored during EOR operations or injected into underground formations solely for geologic sequestration. Cnnection to EPA's Grenhouse Gas Reorting rogram Requirements In 2009, IRS Notice 2009-83 provided interim guidance on specific requirements for secure geological storage, pending issuance of regulations. The guidance established that taxpayers claiming the 45Q tax credits must demonstrate secure geological storage by calculating the amount of CO2 at the source of capture using methodologies contained in EPA's 2009 Mandatory Reporting of Greenhouse Gases Rule (40 C.F.R. Part 98). This rule does not regulate GHG emission levels but requires facilities designated as GHG sources to report annual GHG emissions as part of EPA's Greenhouse Gas Reporting Program (GHGRP) and to follow monitoring, recordkeeping, and verification requirements. Title 40, Part 98, Subparts RR and UU, of the Code ofFederal Regulations, added in 2010, apply to GHG sources associated with the underground injection and sequestration of CO2. S ub partk R R Subpart RR applies to facilities with wells that inject CO2 for long-term geologic sequestration. This includes all wells classified by EPA as Underground Injection Control (UIC) Class VI geologic sequestration wells. The facilities must calculate and report (1) the mass of CO2 received; (2) the mass of CO2 injected into the subsurface; (3) the mass of CO2 produced (mixed with produced oil, gas, or other fluids); (4) the mass of CO2 emitted by surface leakage; (5) the mass of CO2 emitted as equipment leakage or vented from surface equipment; (6) the mass of CO2 sequestered in subsurface geologic formations; and (7) the cumulative mass of CO2 sequestered since the start of required reporting. Subpart RR also requires facilities to submit a proposed monitoring, reporting, and verification (MRV) plan meeting certain requirements to EPA (Table 1). Once approved, EPA issues a final MRV plan. Table I. Subpart RR MRV Plan Requirements * Delineation of the maximum and active monitoring areas * Identification of potential COz leakage pathways in the maximum monitoring area and the likelihood, magnitude, and timing of surface leakage through these pathways * Strategy to detect and quantify C02 surface leakage * Strategy to establish the expected baselines for monitoring CO surface leakage * Considerations intended to be used to calculate site- specific variables in the mass balance equation * UIC well number, if permitted under the UIC program * Proposed date to begin collecting data for calculating the total amount of CO, sequestered Source: 40 C.F.R. Part 98, Subpart RR. From 2016, the first year of reporting, through 2018, the latest year for which GHGRP data are available, five facilities injecting CO2 have reported CO2 data to EPA under Subpart RR. This includes one facility in Illinois p\w -- , gnom goo mppm qq\ a , q 'S I 11LULANJILiN,

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