45Q: Credit for Carbon Oxide Sequestration

Federal Agency

Sub-Department

Internal Revenue Service (IRS)

Purpose

To encourage and support the carbon oxide sequestration at industrial facilities.

Applicant and/or Project Eligibility Requirements

To be eligible, a taxpayer must (i) own an industrial facility at which carbon capture equipment is placed in service, (ii) capture not less than 500,000 metric tons of qualified CO2 during the taxable year at such industrial facility, and (iii) physically or contractually ensure that the qualified CO2 is securely stored in a geologic formation.

Decarbonization Considerations

Carbon sequestration is the process of capturing and storing atmospheric carbon dioxide to reduce the amount of carbon dioxide in the atmosphere with the goal of reducing global climate change. The extension of this tax credit will help decarbonize the industry and contribute to the development of carbon capture technology.

Equity Considerations

If a new carbon oxide sequestration facility is planned, consider engaging with community members in the early stage to address challenges and concerns through open conversations. Local governments may consider working with the facility owners to leverage such economic development opportunities to develop a carbon capture workforce.

Helpful Tips

Tax-exempt entities can leverage these credits through a new mechanism known as "elective" or "direct" pay. To learn more about how these tax credits work for entities with and without tax liability, check out our Funding Guidance here: https://cityrenewables.org/funding-guidance/understanding-available-incentives/tax-credits-for-renewable-energy/

Other Notes

Industrial facility refers to a facility that produces a CO2 stream from a fuel combustion source, a manufacturing process, or a fugitive CO2 emission source that, absent capture and disposal, would otherwise be released into the atmosphere as industrial emission of greenhouse gas. An industrial facility does not include a facility that produces CO2 from CO2 production wells at natural CO2-bearing formations.