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1 [1] (June 28, 2021)

handle is hein.crs/govedvk0001 and id is 1 raw text is: Congressional Research Service Inftr ning the legislative d bate siince 1914 0 Updated June 28, 2021 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 atmospheric emissions of greenhouse gases (GHGs) from power plants and other industrial sources. Geologic sequestration of carbon dioxide (CO2), 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 sequestration of carbon oxides that are disposed of through either injection into an underground reservoir for geologic sequestration, injection into aging oil fields for enhanced oil recovery (EOR), or another qualified use. In tax year 2020, Section 45Q provides tax credits of $31.77 per ton for carbon oxide that is injected for sequestration and $20.22 per ton for carbon oxide that is stored 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 January 2021, the Internal Revenue Service (IRS) issued a final rule, Credit for Carbon Oxide Sequestration, which includes requirements for demonstrating the secure geological storage of carbon oxides in underground formations needed to qualify for 45Q tax credits (86 Federal Register 4728-4773). Section 45Q and this rule cover a larger set of chemical substances (i.e., carbon oxides) compared to some other federal GHG-related rules, which specifically target CO2. Issues for Congress include the clarity of secure geologic storage requirements for CO2, the long-term status of injected CO2, and the sufficiency of agency resources for program management, as discussed under Issues for Congress below. Secure Geological Storage 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. Connection to EPA's G reenhouse Gas Reporting Program Requirerents In 2009, IRS Notice 2009-83 provided interim guidance (superseded by the 2021 IRS rule) 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 of Federal Regulations, added to the EPA regulations in 2010, apply to GHG sources associated with the underground injection and sequestration of CO2. Subpart RR 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 - Subnart RR MRV Plan Renuirements Source: 40 C.F.R. Part 98, Subpart RR. https://crsrepor

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