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Final regulations: Credit for carbon oxide sequestration under section 45Q (text of regulations)

Credit for carbon oxide sequestration under section 45Q

The IRS today posted to its website final regulations (T.D. 9944) concerning the credit for carbon oxide sequestration under section 45Q.

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The final regulations [PDF 680 KB] (187 pages) provide guidance regarding the credit for carbon oxide sequestration and with regard to the capture and disposal of qualified carbon oxide, the use of qualified carbon oxide as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, or the use of qualified carbon oxide in a manner that qualifies for the credit.

The version of the final regulations posted by the IRS today includes the following statement:

This document will be submitted to the Office of the Federal Register (OFR) for publication. The version of the final rule released today may vary slightly from the published document if minor editorial changes are made during the OFR review process. The document published in the Federal Register will be the official document.

Related IRS release

A related IRS release—IR-2021-05—explains that these final regulations provide guidance regarding the credit for qualified carbon oxide sequestration for those claiming two carbon capture credit amounts:

  • Up to $50 per metric ton of qualified carbon oxide for permanent sequestration
  • Up to $35 per metric ton of qualified carbon oxide for enhanced oil or natural gas recovery purposes

According to the IRS release, neither of these new credit amounts is subject to a limitation on the number of metric tons of qualified carbon oxide captured.

The final regulations provide rules to determine:

  • Adequate security measures for the geological storage of qualified carbon oxide
  • Exceptions to the general rule for determining to whom the credit is attributable
  • Procedures for a taxpayer to make an election to allow third-party taxpayers to claim the credit
  • The definition of carbon capture equipment
  • Standards for measuring utilization of qualified carbon oxide

In addition, the final regulations:

  • Allow smaller carbon capture facilities to be aggregated into one project for purposes of claiming the credit when certain factors are present, such as common ownership and location
  • Provide guidance on recapture, including introducing a recapture period of three years—under these rules, credits must be repaid if carbon oxide leaks into the atmosphere during a three-year period after the initial storage or injection

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