Carbon Capture and Sequestration Tax Credit (“Section 45Q”) Legislation in the 117th Congress

INSIGHTi

Carbon Capture and Sequestration Tax Credit

(“Section 45Q”) Legislation in the 117th

Congress

July 28, 2021

The tax credit for carbon oxide sequestration (Internal Revenue Code [IRC] Section 45Q) is intended to

incentivize investment in carbon capture and sequestration technologies (also known as carbon capture

and storage [CCS]). While deployment of CCS technology has been limited to date, academics and

industry experts (see here, here, and here) believe the technology has great potential for achieving GHG

emissions reductions. One barrier to CCS deployment has been cost. Tax credits, such as the current-law

tax credit in Section 45Q, are one policy option for addressing this barrier. There are a number of

proposals in the 117th Congress to modify and expand Section 45Q. This Insight highlights the key

changes that would be made to Section 45Q across different legislative proposals.

Legislative Proposals in the 117 th Congress to Modify

Section 45Q

Proposals introduced on a largely stand-alone basis are summarized and compared in Table 1.

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Table 1. Stand-Alone Legislative Proposals in the 117 th Congress to Modify Section 45Q

Credit Amount

H.R. 2633—To

amend the Internal

Revenue Code of

1986 to increase and

expand the credit for

carbon oxide

sequestration

S. 2230/H.R. 3538—

Coordinated Action

to Capture Harmful

(CATCH) Emissions

Act

S. 986—Carbon

Capture, Utilization,

and Storage Tax

Credit Amendments

Act of 2021

Increase credit to $85

per metric ton for

carbon oxide captured

and stored (inflationadjusted after 2020);

$60 per metric ton for

carbon oxide captured

and used (inflationadjusted after 2025,

2020 in House bill)

For direct air capture

projects, increase credit

to $120 per metric ton

for carbon oxide

captured and stored;

and to $75 per ton

(through 2030 for

enhanced oil recovery)

for carbon oxide

captured and used. Both

amounts inflationadjusted after 2020

Increase credit to $85

per metric ton for

carbon oxide captured

and stored; $50 per

metric ton for carbon

oxide captured and used

Start of construction

deadline extended

through 2030

Make credit permanent

H.R. 1062—

Accelerating Carbon

Capture and

Extending Secure

Storage through 45Q

(ACCESS 45Q) Act

—

Expiration

Date

—

Eligible

Facilities

Any facility with carbon

capture equipment

installed capturing

qualified carbon oxide

Direct Pay

—

Provides direct pay

option

—

Allow credit against the

base erosion minimum

tax (effective after

December 31, 2017)

Extend time period for

receiving credit to 20

years

Allow credit against the

base erosion minimum

tax (effective as if

included in the

Bipartisan Budget Act of

2018)

December 31, 2021

December 31, 2020

Date of enactment

Option

Other

Provisions

Effective Date

December 31, 2021

—

Source: CRS analysis of legislative language.

Reduce minimum

amount of carbon oxide

that must be

sequestered to 10,000

tons for direct air

capture, 25,000 tons for

nonpower

manufacturing plants,

and 100,000 tons for

electrical generating

facilities; and reduce the

minimum amount of

carbon oxide that must

be sequestered from

other qualifying facilities

to 10,000 tons

—

Start of construction

deadline extended

through 2035

—

Provides direct pay

option

Congressional Research Service

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Proposed Modifications to Section 45Q in Broad Energy

Tax Proposals

The Senate Finance Committee has considered comprehensive energy tax reform legislation, the Clean

Energy for America Act. The Administration has also proposed substantial energy tax policy changes. In

the House, the Growing Renewable Energy and Efficiency Now (GREEN) Act proposes substantive

changes to current-law energy tax policy. Each of these proposals would make changes to Section 45Q, as

summarized in Table 2.

Table 2. Proposed Modifications to Section 45Q in Comprehensive Energy Tax Policy

Proposals

S. 1298—Clean Energy for

America Act

Biden Administration

Proposal

For direct air capture projects,

increase credit to $175 per

metric ton for carbon oxide

captured and stored and to $150

per ton for carbon oxide

captured and used. Both amounts

inflation-adjusted after 2026

For “hard-to-abate” industrial

sources, increase credit by $35

per metric ton (total credit of

$85 per metric ton in 2026)

Expiration

Date

Credit to phase out when sector

emissions (e.g., electricity, other

industry) are 25% (or less) of

2021 emissions; phaseout does

not apply to direct air capture

facilities

Start of construction deadline

extended through 2030

Eligible

Facilities

Minimum capture amounts for

direct air capture eliminated;

minimum capture requirements

revised such that at least 75% of

carbon oxide at electricity

generating facility must be

captured; 50% for other facilities.

Credit cannot be claimed for

facilities that begin construction

after 2026 for carbon oxide used

as a tertiary injectant (i.e., for

enhanced oil recovery)

Direct Pay

Provides direct pay option

(effective December 30, 2020)

Provides direct pay option

Other

Provisions

Impose wage and workforce

requirements (prevailing wage and

apprenticeship program

requirements). Effective after

December 31, 2021

Credits paired with “strong labor

standards”

Credit

Amount

H.R. 848—Growing

Renewable Energy and

Efficiency Now (GREEN) Act

—

For direct air capture with secure

geologic storage, increase credit

by $70 per metric ton (total

credit of $120 per metric ton in

2026)

Start of construction deadline

extended through 2026

—

Provides direct pay option

—

Congressional Research Service

Effective Date

Generally effective on date of

enactment (exceptions noted)

4

December 31, 2021

—

Source: CRS analysis of legislative language or source documents.

Notes: The Joint Committee on Taxation has released a technical summary of S. 1298.

Other legislation, the Save America’s Clean Energy Jobs Act (S. 985), would allow certain energy-related

tax credits, including Section 45Q, to be received as direct pay (issues related to allowing tax credits to be

received as payments are discussed in this CRS report).

There are also proposals that would repeal all tax incentives that support the use of fossil fuels. The End

Polluter Welfare Act of 2021 (S. 1167/H.R. 2102) would terminate Section 45Q. Carbon capture is not

universally viewed as an effective tool for achieving long-run environmental or climate policy objectives.

Some environmental advocates oppose the policy because it supports continued use of fossil fuels.

Author Information

Molly F. Sherlock

Specialist in Public Finance

Angela C. Jones

Analyst in Environmental Policy

Disclaimer

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