In Brief
- Available to companies that invest in Carbon Capture projects.
- Base Credit is $17 per ton based on geologically sequestered carbon oxide
- Credit amount is increased 2 times per ton using DAC
- Using prevailing wage and apprenticeship requirements further increases the Credit 5 times per ton.
- Claimed for 12 years starting when the equipment placed in service.
Companies involved with carbon sequestration have an opportunity for a new tax credit– commonly called 45Q referring to the code section. It incentives companies to receive tax benefits by making further investments in carbon capture, utilization, and storage.
45Q allows companies to receive tax credit for each metric ton of qualified carbon oxide (QCO) captured using carbon capture equipment, which could either be disposed of in a secure geological storage or used as a tertiary injection in certain oil or natural gas recovery projects.
A company can claim 45Q for a 12-year period beginning when the carbon capture equipment is originally placed in service.
Do You Qualify?
This credit is available to companies that invest in carbon capture, utilization, and storage (CCUS) projects. CCUS is a technology that captures carbon dioxide (CO2) from industrial processes and other sources, such as power plants, and stores it underground or uses it for other purposes.
How is the credit calculated?
45Q revolves around the production of gases and is based on the capturing of CO2. So, weight and storage capacity are factors that contribute to how much credit a company will generate. For Carbon Oxide that is disposed of in a secure storage, the applicable credit is $17 per ton. Carbon Oxide as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, commonly referred to as Enhanced oil recovery (EOR), the applicable credit is $12.
If a company uses direct air capture (DAC) facilities, the applicable credit is multiplied roughly 2 times per ton. Furthermore, for a company that satisfies 45Q’s prevailing wage and apprenticeship requirements, the credit amount is increased by 5 times per ton.
What are the steps to file?
The 45Q credit is one of the few credits that is available for the “elective payment” refundable to taxable entities. This allows taxpayers to receive a refund regardless of the tax liability. A company aiming to claim 45Q will need to pre-register online with the IRS to receive an identification number, which is consistent for all tax credits within Inflation Reduction Act (IRA). Once a company has received an identification number, they can claim the 45Q on the tax return. This registration process needs to be performed every year claiming the 45Q.
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