Summary
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Details
Deep dive
Background
The Section 45Q Tax Credit was first established in 2008 (and last amended in 2021) under the Internal Revenue Code. It is a federal incentive aimed at reducing greenhouse gas emissions by encouraging carbon capture and storage (CCS) technologies. Managed by the Internal Revenue Service (IRS) in collaboration with the Environmental Protection Agency (EPA), the scheme provides financial incentives to businesses that capture and store carbon dioxide (CO₂) or other qualified carbon oxides. Section 45Q originally provides that qualifying entities receive a tax credit of $10 or $20 dollars per metric tonne of qualified carbon oxide depending on how the captured carbon is used. Adjusted for inflation by the IRS, the credit for the 2024 calendar year is $13.88 or $27.75. Initially limited in scope, the credit was significantly expanded under the Bipartisan Budget Act of 2018, which increased the credit amounts, extended eligibility to direct air capture (DAC) projects, and raised the annual capture thresholds. The 45Q credit is a key plank of U.S. efforts to address climate change by making CCS economically viable for industries and power plants.
Emissions reporting requirements
To qualify for the Section 45Q Tax Credit, facilities must adhere to strict carbon emissions reporting requirements. Captured carbon must be measured, monitored, and verified to ensure it is permanently stored or utilized following any of three approved ways: disposure in a secure geological storage, usage in an enhanced oil recovery (EOR) project, or conversion to material or chemical compounds. The IRS requires detailed documentation, including Form 8933 (Carbon Oxide Sequestration Credit), which must be filed annually with the company’s tax return. This form collects information on the volume of carbon oxide released and captured, storage or utilization methods, among other data. Additionally, projects must comply with EPA regulations under the Greenhouse Gas Reporting Program (GHGRP), which mandates annual reporting of emissions data to ensure transparency and accountability.
Affected entities
The Section 45Q Tax Credit applies to a wide range of industries, notably high-emission sectors like power generation, oil and gas, manufacturing, and chemical production, as well as emerging sectors like direct air capture. While the IRA has not officially disclosed specific companies benefitting from the scheme, recent beneficiaries according to media sources include Summit Carbon Solutions and Occidental Petroleum. A greater number of facilities across the U.S.—particularly in other high-emission industries like cement, steel, and refining—could qualify for the credit if they adopt carbon capture technologies. With the expanded 45Q credit and increasing focus on decarbonization, the scheme is expected to incentivize broader adoption of carbon capture technologies. By targeting high-emission industries and fostering innovation in carbon capture technologies, the 45Q credit plays a key role in the U.S. transition to a low-carbon economy.
