IRS solicits comments on carbon capture credit proposed rule

By Erin Voegele | June 02, 2020

A public comment period is now open on a proposed rule issued by the U.S. Treasury Department and Internal Revenue Service on May 28 that aims to help businesses understand how legislation passed in 2018 may benefit those claiming carbon capture credits. 

According to the IRS, the proposed regulations provide guidance regarding two new credits for carbon oxide captured using equipment originally placed in service on or after Feb. 9, 2018. The proposal allows for a credit of $50 per ton of qualified carbon oxide for permanent sequestration and up to $35 for enhanced oil recovery purposes. Neither of the credits is subject to a limitation on the number of metric tons of qualified carbon oxide captured.

The IRS also explained the new law also expanded carbon capture to include “qualified carbon oxide,” a broader term than “qualified carbon dioxide.” Prior to the change in law, carbon capture was limited to a total of 75 million metric tons of qualified carbon oxide.

The proposed regulations also addressed taxpayers had questions, including procedures for determine adequate security measures for the geological storage of qualified carbon oxide, exceptions to the general rule for determining who the credit is attributable to, procedures for a taxpayer to make an election to allow third-party taxpayers to claim the credit, standards for measuring utilization of qualified carbon oxide and rules for credit recapture.

The Carbon Capture Coalition issued a statement on May 29 welcoming the proposed regulations.

“The Carbon Capture Coalition is pleased that the Treasury Department and IRS have released proposed regulations addressing remaining long-term issues associated with implementation of the reformed 45Q tax credit, which was signed into law in early 2018,” said Brad Crabtree, director of the Carbon Capture Coalition. “The Coalition commends the IRS for its comprehensive and thorough approach and for being responsive to its recommendations.

“With the release of this proposed rule, developers and investors now have the remaining critical information they need to continue moving forward on roughly 30 identified commercial carbon capture projects already under development nationwide in response to the revamped 45Q credit,” he continued.

“The Coalition particularly welcomes the IRS’ proposed requirements for demonstrating secure geologic storage,” Crabtree said. “Importantly, the IRS explicitly rejected recommendations from some parties that would have relaxed existing robust monitoring, reporting and verification (MRV) requirements for demonstrating geologic storage and risked undermining policymaker and public faith in the 45Q program.”

“The IRS also explicitly agrees with the Coalition and others who have long advocated for increased transparency in public reporting, but it cites a lack of statutory authority to require it,” Crabtree added. “The Coalition will now consider existing IRS authorities and determine whether to recommend that Congress give the IRS additional legislative authority to bring more public sunlight into the process of companies demonstrating that they have met the requirements of the tax credit. Enhanced transparency, together with the IRS’ rigorous ongoing auditing and enforcement revealed in the recent IRS Inspector General’s report, should provide for public confidence in the reformed and expanded 45Q program going forward.

“The proposed rule also addresses in detail other key priorities identified by the Coalition in its recommendations, including credit recapture, transferability of the credit and contractual assurance, and the lifecycle analysis requirement to claim the 45Q credit for emission reductions achieved through the use of captured carbon in manufacturing low and zero-carbon fuels, chemicals, materials and other products,” he continued.

Comments can be filed through Aug. 3 on under Docket REG-112339-19. Additional information is available on the Federal Register website.