Should the IRS Streamline Tax Credit Rules for Carbon Capture, Utilization and Storage Projects? (S. 2263)

What is S. 2263?

(Updated October 24, 2019)

This bill — the CO2 Regulatory Certainty Act — would amend the Internal Revenue Code to revise requirements for the secure geological storage of carbon dioxide for the purpose of the tax credit for carbon dioxide sequestration. It would direct the Department of Treasury to use its existing authorities to help ensure carbon capture, utilization and storage (CCUS) project developers can utilize the Section 45Q tax credit.

Currently, CCUS project developers can claim a tax credit for CO2 sequestration but IRS guidance doesn’t reflect differences between the two existing sequestration methods, permanent or geological storage and enhanced oil and gas recovery. Consequently, the IRS guidelines subject enhanced oil and gas recovery applications to regulations meant for geological storage, making it difficult to access the tax credit. This bill would clarify and align IRS guidelines to match current Environmental Protection Agency (EPA) regulations reflecting the operational and legal differences between enhanced oil and gas recovery and geological storage under the Clean Air Act and the Safe Drinking Water Act.

Argument in favor

Carbon capture, utilization and storage (CCUS) projects are eligible for the Section 45Q tax credit, but it’s difficult for developers to claim this credit for them. Clarifying the IRS rules regarding the 45Q tax credit would help make CCUS projects commercially viable sooner. Capturing more CO2 will help reduce emissions.

Argument opposed

The rules governing Section 45Q tax credits are meant to ensure that carbon capture, utilization and storage (CCUS) project developers can only claim the credits for eligible projects. Loosening the rules, as this bill would do, could allow developers to claim the 45Q credit for projects that don’t permanently sequester carbon.

Impact

Carbon capture, utilization and storage (CCUS) project developers; tax credits for carbon capture, utilization and storage (CCUS) project developers; the IRS; and the Internal Revenue Code.

Cost of S. 2263

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sen. John Hoeven (R-ND) reintroduced this bill from the 115th Congress with lead sponsor Sen. Cindy Hyde-Smith (R-MS) to align tax guidelines with existing federal regulations and accelerate work on carbon capture, utilization and storage (CCUS) projects: 

“CCUS technologies offer the capability to continue relying on all of our nation's vast energy resources while also improving environmental stewardship and reducing emissions. The IRS' guidelines for accessing the 45Q tax credit don't properly reflect regulations for CCUS at the EPA, unnecessarily increasing costs and holding back the development and use of this technology. As the IRS is in the process of implementing the recently expanded and extended 45Q tax credit, I believe this is the best opportunity to provide ongoing certainty and regulatory flexibility for project developers and to make CCUS technology more commercially-viable. I will continue to work with the IRS and through the legislative process to ensure that the 45Q tax credit more effectively advances CCUS technology."

Original cosponsor Sen. Kevin Cramer (R-ND) adds: 

“Under current regulations, energy companies are unsure if they can take advantage of the 45Q tax credit. This legislation aligns Treasury's regulations with the EPA's, which will provide much-needed clarity and consistency for North Dakota's energy stakeholders. If 45Q is going to successfully incentivize carbon capture, it must be applicable to all producers who participate, not just a select few."

Clean Water Action’s National Oil and Gas Program Director, John Noël, criticized this legislation in November 2017. In a post on the Clean Water Blog, he argued that this by allowing CCUS developers to qualify for Section 45Q tax credits without proving that their operations actually permanently sequester carbon, this bill would allow them to “qualify for tax credits without actually having to do any work.” Noël concludes that this bill would “dismantle commonsense and proven environmental protections while padding [CCUS developers’] bottom lines with taxpayer handouts.”

This legislation has four Republican cosponsors in the 116th Congress. Last Congress, it had four Republican Senate cosponsors and didn’t receive a committee vote. Its two House companion in the 115th Congress, H.R.4857 and H.R.2010, both had six Republican House cosponsors. None of the three bills received a committee vote last Congress.