The Internal Revenue Service (IRS) recently released two pieces of guidance relating to the implementation of the reformed 45Q tax credit, relating to requirements defining beginning and continuous construction requirements for projects and a revenue procedure that establishes rules for business partnerships claiming the tax credit. Clarity and financial certainty on 45Q tax credit implementation is vital for carbon capture projects which­­ have a narrow window of time to begin before the credit’s January 1, 2024 deadline for beginning of construction.­­

The guidance documents from the IRS were released more than two years after Congress passed the FUTURE Act to reform and expand the Section 45Q tax credit for the geologic storage and beneficial use of carbon captured from industrial facilities, power plants, and through direct air capture. The Carbon Capture Coalition has been calling for nearly a year on the Department of the Treasury and the IRS to provide urgently needed clarity and financial certainty for project developers and investors to move forward with carbon capture projects.

In the statement issued regarding the IRS announcement on 45Q tax credit implementation, the Carbon Capture Coalition said:

“We are still actively reviewing the details at this time. However, we are very pleased to see that the IRS has taken into account key recommendations of the Carbon Capture Coalition. The beginning construction guidance adopts well-established precedents based on years of experience with the wind and solar tax credits and adapts that experience to carbon capture. Importantly, the guidance incorporates both the well-understood physical work test and five percent safe harbor for determining whether a carbon capture project has begun construction to qualify for the credit. In addition, we are especially pleased that the IRS has embraced our recommendation to provide for a longer six-year continuity requirement to complete construction of carbon capture projects (wind and solar have a four-year requirement). Similarly, the revenue procedure on partnerships draws on well understood precedents that should provide confidence to project developers and investors structuring financial deals to move forward with carbon capture projects.

We appreciate the work of IRS staff in developing the guidance and revenue procedure and for their thoughtful consideration of extensive input from the Carbon Capture Coalition and many others. Nevertheless, this work took far too long and has delayed hundreds of millions, if not billions of dollars in investments in the development and deployment of carbon capture, use and geologic storage projects that Congress sought to incentivize through its bipartisan reform of 45Q.

The final remaining piece of the puzzle needed to unleash private investment into carbon capture projects is a rule to address remaining long-term issues associated with implementation of the 45Q tax credit. The Coalition urges Treasury officials to expedite the completion of the rule as quickly as possible to avoid any further delays in project development that threaten to undermine the full potential of the 45Q policy to help foster economywide deployment of carbon capture to meet midcentury emissions reduction goals while supporting domestic energy and industrial production and high-wage jobs.”

The Coalition submitted consensus recommendations to the Department of the Treasury and the IRS in November 2018 and July 2019 and those recommendations can be found on the Coalition website here.

In the IRS news release regarding the released guidance documents, the agency noted that a third piece of guidance on 45Q tax credit implementation will be issued relating to additional topics, including tax credit recapture, carbon utilization, and secure geologic storage.

The Great Plains Institute convenes the Carbon Capture Coalition, which brings together a broad and unusual coalition of executives from energy, industrial, and technology companies; labor unions; and environmental and energy policy organizations. Learn more about the Carbon Capture Coalition:  

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