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1 [1] (September 18, 2020)

handle is hein.crs/govdbvp0001 and id is 1 raw text is: Updated September 18,2020 Carbon Storage Requirements in the 45Q Tax Credit The IntemalRevenue 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) frompowerplants and other industrial sources. Geologic sequestration of carbon dioxide (CO2), a type of carbon storage, is aprocess 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 fromindus trial facilities originally placed in service before February 9, 2018; (2) CO2 and other carbon oxides captured directly from indus trial facilities origin ally placed in service on or after February 9, 2018; and (3) CO2 captured directly fromthe ambient air (direct air capture). In 2020, Section 45Q provides taxcredits of $31.77 per ton for carbon oxide that is geologically sequestered and $20.22per ton for carbon oxide that is sequestered during enhanced oilrecovery (EOR), or used in other qualified industrial processes. These taxcredits increase to $50 and $35 per ton, respectively, by 2026. In June 2020, the Internal Revenue Service (IRS) is sued a notice ofproposed rulemaking, Credit for Carbon Oxide Sequestration, which includes proposedrequirements for demonstrating the secure geological storage of carbon oxides in underground formations needed to qualify for 45Q tax credits (85 FederaIRegister 34050). Section 45Q and this proposed rule cover a larger set of chemical substances (i.e., carbonoxides) compared to some other federal GHG-related rules, which specifically target CO2. Sc-eGet,Io gikcad tr ei 450? 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 theDepartment of the Interior, to establish regulations forthe secure geological storageof qualified carbon oxide to prevent release into the atmosphere. Further, the provision defmedsecuregeological storage locations to include deeps aline 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. C Va>,k-,ec' cntEA G rkn, h ou's e Cas SRepo '.ting No nam ir., 'e In 2009, IRS Notice 2009-83 provided interimguidance on specific requirements for secure geological storage, pending issuanceofregulations. Theguidance established that taxpayers claiming the 45Q tax credits m ust 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 regulateGHG emiss ion levels but requires facilities designated as GHG sources to report annual GHG emiss ions as part ofEPA's Greenhouse Gas Reporting Pro gram(GHGRP) and to follow monitoring, recordkeeping, and verification requirements. Title 40, Part 98, Subparts RRand UU, of the Code ofFederalRegulations, added in 2010, apply to GHG sources associated with the underground injection and sequestration ofCO2. Subpart RR applies to facilities with wells that inject CO2 for long -tenngeologic s equestration. This includes all wells clas sified by EPA as Underground Injection Control (UIC) Class VI geologic s equestration wells. The facilities mru s t 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 ofCO2 emitted by surface leakage; (5) the mass ofCO2 emitted as equipment leakage or vented from surface equipment; (6) the mass ofCO2 sequestered in subsurface geologic formations; and (7) the cumrulative mass of CO2 sequestered sincethe startofrequired 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 is sues a final MRV plan. Table I. Subpart RR MRV Plan Requirements Delineation of the maximium and active monitoring areas F Identification of potential Co leakage pathways 1i the maximum monitoring area and the Iikelhood, manitude, and timing of surface leakage through these pathways u Strategy to detect and quantifyC02surface leakage * Strategy to establish the expected baselines for monitoring C02 surface leakage * Consider-ations intended to be used to calculate site- specific variables in the miass balance equation * IJIC well number, if permitted under the UIC progam * Proposed date to begin collecting data for calculating the total amiount Of C02~ sequestered Source: 40 C.F.R. Part 98, Subpart RR. From2016, the first yearof reporting, through20l8, the latest year for which GI-GRP data are available, five facilities injecting CO2 have reported CO2 data to EPA under Subpart RR. This includes one facility in Illinois A A '2 xa S 1,k pgpg\\\ \\

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