About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (August 25, 2023)

handle is hein.crs/govemqq0001 and id is 1 raw text is: Con gressionol Research Service nforming the IegisIative debate since 1914 S Updated August 25, 2023 The Section 45Q Tax Credit for Carbon Sequestration Carbon capture and sequestration (CCS) technologies are intended to reduce carbon dioxide (CO2) emissions from fossil fuel-fired power plants, as well as other large industrial sources. The tax credit for carbon sequestration- often referred to using its Internal Revenue Code (IRC) section, Section 45Q-is intended to incentivize investment in carbon capture and sequestration. What Is Carbon Sequestration? Geological sequestration of carbon (i.e., carbon sequestration) is the process of injecting carbon oxides into underground geological formations, where they are to be either permanently trapped or transformed. Geological sequestration is the final step in a CCS system. The process usually involves carbon dioxide (CO2), although injection and sequestration of other carbon oxides (e.g., carbon monoxide) is also possible. 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 greenhouse gas (GHG) into the atmosphere. 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. CO2 may be sequestered by injecting it underground solely for sequestration purposes or as part of tertiary oil recovery, also known as enhanced oil recovery (EOR), from aging oil fields. BOR has been used in the United States since the 1970s. For additional information on the technical aspects and deployment status of CCS, see CRS Report R44902, Carbon Capture and Sequestration (CCS) in the United States. Sequestration Tax Credi (Section 45Q) The amount that a taxpayer may claim as a Section 45Q tax credit is computed per metric ton of qualified carbon oxide captured and sequestered (before 2018, the tax credit was exclusively for CO2). 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. 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 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). To claim a tax credit, the carbon oxide emissions must be measured at the point of capture as well as at the point of disposal, injection, or other use. To be eligible based on geological sequestration, the captured carbon oxide 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. Legislatie and Regulatory Background The Energy Improvement and Extension Act of 2008 (Division B of P.L. 110-343) added a credit for CO2 sequestration to the tax code. The legislation included several provisions designed to encourage cleaner, more efficient, and environmentally responsible use of coal specifically, and to encourage GHG emissions reductions broadly. CO2 captured using equipment placed in service before February 9, 2018, was eligible for tax credits until tax credits were claimed for 75 million metric tons of CO2. In September 2022, the Internal Revenue Service (IRS) reported that the cap had been met and that 2022 would be the last calendar year that facilities placed in service prior to February 9, 2018, could claim the credit. The Bipartisan Budget Act of 2018 (P.L. 115-123) expanded and extended the Section 45Q tax credit. Changes included (1) a larger credit amount; (2) a start-of- construction deadline and 12-year claim period; (3) allowing the credit for CO2 utilization in addition to EOR and for DAC, as well as allowing smaller facilities to claim the credit; and (4) allowing owners of carbon capture equipment to claim tax credits instead of the entity capturing the CO2, which facilitates tax-equity investment. The deadline to begin construction was further extended for two years, to January 1, 2026, in the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Division EE of the Consolidated Appropriations Act, 2021; P.L. 116-260). P.L. 117-169, commonly referred to as the Inflation Reduction Act of 2022 (IRA), modified and further extended the Section 45Q tax credit. In addition to modifying the base credit rates and definition of qualified facilities, the IRA allowed a larger credit for qualified facilities or carbon capture equipment that meet certain prevailing wage and apprenticeship requirements. In addition, the IRA extended eligibility to claim the credit to certain nonprofits (direct pay) and entities without ownership interests (transferability) and extended the deadline to begin construction to the end of 2032.

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most