Few taxpayers know there even is a Carbon Capture and Sequestration Tax Credit. Through 2019, ten taxpayers claimed virtually all of the "Section 45Q" tax credit.
The EPA explains carbon capture:
Carbon dioxide (CO2) capture and sequestration (CCS) is a set of technologies that can greatly reduce CO2 emissions from new and existing coal- and gas-fired power plants and large industrial sources. CCS is a three-step process that includes:
Capture of CO2 from power plants or industrial processes
Transport of the captured and compressed CO2 (usually in pipelines).
Underground injection and geologic sequestration (also referred to as storage) of the CO2 into deep underground rock formations. These formations are often a mile or more beneath the surface and consist of porous rock that holds the CO2. Overlying these formations are impermeable, non-porous layers of rock that trap the CO2 and prevent it from migrating upward.
The Carbon Capture and Sequestration Tax Credit authorized by Sec. 45Q of the tax code provides a tax credit based on the amount and type of carbon that is stored.
Why more taxpayers can claim the Sec. 45Q credit?
Congress in 2018 expanded the credit to cover both Carbon Oxide and Carbon Dioxide. The 2018 changes also lowered some thresholds for the amount of carbon to be captured. Most importantly, the 2018 changes eliminated a cap on the amount of credits available.
The IRS has since enacted regulations that settled questions that were holding up the financing and development of projects.
Who can use the credits?
Oil companies have historically been the big users of 45Q. The 2018 changes open the credit to a wider variety of industries, including:
- Ethanol plants
- Fertilizer production
- Chemical production
- Gas processing
- Power stations
- Cement plants
- Iron and steel production
To learn more, contact the Eide Bailly energy tax credit team.