Understanding Section 45Q is an Essential Piece of the CCUS Puzzle

Section 45Q tax credits can be a very effective tool for companies in the oil and gas industry that are looking to invest in and exploit the CCUS value chain.

Shariff Barakat and Matt Kapinos, Akin Gump

With billions of expected investment in carbon capture, utilization and storage projects over the next decade, Section 45Q is an important tool that companies looking to invest in this space must use. 

Section 45Q of the U.S. federal income tax code provides a tax credit for carbon, capture, utilization and sequestration (CCUS)  of carbon. While this tax credit has been around since 2008, the credit was expanded and enhanced in 2018. Since then, a proverbial wall of capital has been inching closer to deployment in CCUS projects. The capital is flowing in from all directions; companies historically invested in hydrocarbon industries, private equity, banks, power generation and the federal government. In light of qualification for the tax credit currently requiring projects to “begin construction” by 2025 and the longer development cycles involved in bringing carbon capture projects to life, the time to start getting smart on 45Q and carbon capture generally is now.

Section 45Q provides for a tax credit per metric ton (mt) of carbon that is captured and either sequestered into a secure geologic storage site, utilized as a tertiary injectant in an enhanced oil or gas recovery project, or utilized in some other manner approved by the Departments of Treasury and Energy that produces a reduction in life-cycle greenhouse-gas emissions during the first 12 years following placement in service of the capture assets. The amount of the credit changes each year. In 2026 the credit will be at least $35/mt of carbon utilized in an EOR project, or some other Departments of Treasury and Energy approved manner, and $50/mt of carbon permanently sequestered into a secure geologic storage site. 

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