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

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

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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 117th 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 117th Congress to Modify Section 45Q
H.R. 2633—To
amend the Internal
H.R. 1062—
S. 2230/H.R. 3538—
S. 986—Carbon
Revenue Code of
Accelerating Carbon
Coordinated Action
Capture, Utilization,
1986 to increase and
Capture and
to Capture Harmful
and Storage Tax
expand the credit for
Extending Secure
(CATCH) Emissions
Credit Amendments
carbon oxide
Storage through 45Q

Act
Act of 2021
sequestration
(ACCESS 45Q) Act
Credit Amount Increase credit to $85
For direct air capture
Increase credit to $85
—
per metric ton for
projects, increase credit
per metric ton for
carbon oxide captured
to $120 per metric ton
carbon oxide captured
and stored (inflation-
for carbon oxide
and stored; $50 per
adjusted after 2020);
captured and stored;
metric ton for carbon
$60 per metric ton for
and to $75 per ton
oxide captured and used
carbon oxide captured
(through 2030 for
and used (inflation-
enhanced oil recovery)
adjusted after 2025,
for carbon oxide
2020 in House bil )
captured and used. Both
amounts inflation-
adjusted after 2020
Expiration
—
Start of construction
Make credit permanent
Start of construction
Date
deadline extended
deadline extended
through 2030
through 2035
Eligible
Any facility with carbon
—
Reduce minimum
—
Facilities
capture equipment
amount of carbon oxide
instal ed capturing
that must be
qualified carbon oxide
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
Direct Pay
—
Provides direct pay
—
Provides direct pay
Option
option
option
Other
—
Al ow credit against the
Extend time period for
Al ow credit against the
Provisions
base erosion minimum
receiving credit to 20
base erosion minimum
tax (effective after
years
tax (effective as if
December 31, 2017)
included in the
Bipartisan Budget Act of
2018)
Effective Date
December 31, 2021
December 31, 2021
December 31, 2020
Date of enactment
Source: CRS analysis of legislative language.

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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
H.R. 848—Growing
S. 1298—Clean Energy for
Biden Administration
Renewable Energy and

America Act
Proposal
Efficiency Now (GREEN) Act
Credit
For direct air capture projects,
For “hard-to-abate” industrial
—
Amount
increase credit to $175 per
sources, increase credit by $35
metric ton for carbon oxide
per metric ton (total credit of
captured and stored and to $150
$85 per metric ton in 2026)
per ton for carbon oxide

captured and used. Both amounts
inflation-adjusted after 2026
For direct air capture with secure
geologic storage, increase credit

by $70 per metric ton (total
credit of $120 per metric ton in
2026)
Expiration
Credit to phase out when sector
Start of construction deadline
Start of construction deadline
Date
emissions (e.g., electricity, other
extended through 2030
extended through 2026
industry) are 25% (or less) of
2021 emissions; phaseout does
not apply to direct air capture
facilities
Eligible
Minimum capture amounts for

—
Facilities
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
Provides direct pay option
Provides direct pay option
(effective December 30, 2020)
Other
Impose wage and workforce
Credits paired with “strong labor
—
Provisions
requirements (prevailing wage and standards”
apprenticeship program
requirements). Effective after
December 31, 2021

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Effective Date General y effective on date of
December 31, 2021
—
enactment (exceptions noted)
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 al ow certain energy-related
tax credits, including Section 45Q, to be received as direct pay (issues related to al owing tax credits to be
received as payments are discussed in this CRS report).
There are also proposals that would repeal al 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
universal y 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
Angela C. Jones
Specialist in Public Finance
Analyst in Environmental Policy

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