IRS Section 45Q
Transferable Production Tax Credit CO2 Capture

Summary:

Section 45Q is designed to incentivize and promote investments in carbon capture, utilization, and storage (“CCUS”) projects to mitigate climate change and reduce greenhouse gasses, specifically CO2. The Inflation Reduction Act (IRA) modified the credit by reducing the thresholds for base tax credits and capacity requirements. The new threshold is dependent on facility type.

• Power plants: 18,750 tonnes CO2 per year (provided at least 75% of the CO2 is captured) in the production process

• Other (non-power plant) facilities: 12,500 tonnes CO2 per year

• 1,000 tonnes per year for Direct Air Capture (DAC) facilities which are in place to pull CO2 directly out of the air

Date in Effect:

January 1, 2023 – December 31, 2044

Calculation Details:

Maximum credits for the 45Q tax credit are as follows:

• Direct Air Capture with >1000 tonnes per year sequestered

  • $180/Ton CO2 for permanently stored

  • $130/Ton CO2 for used CO2

[Total CO2 Ton Stored] x [$180 or $130] = Total Transferable Tax Credit

• Power plants or Other capture with >18,750 or 12,500 tonnes per year sequestered

  • $85/Ton CO2 for permanently stored

  • $60/Ton CO2 for used CO2

Power Plant: IF(Total CO2 Captured IS >=75%, THEN([Total CO2 Ton Stored] x [$85 or $60]), ELSE = 0) = Total Transferable Tax Credit

Other Non-direct air capture: ([Total CO2 Ton Stored] x [$85 or $60])

*Credits shown include maximum incentives (five times) available by using prevailing wage and apprenticeship bonuses. Base amounts may vary dependent on circumstances.*

Filing Requirements:

• Completion of IRS Form 8933

• Register and obtain unique identifier number from the Internal Revenue Service

• Independent third-party Life Cycle Assessment (LCA)

• File tax return for self, or if transferring the credit for cash, then reflect the sale of both buyer and seller’s tax return

Direct Pay:

Direct Pay is an election that allows the taxpayer to sell directly to the Internal Revenue Service. Section 45Q transferable tax credits allow the following entities to make this election:

• All individuals and entities – but restrictions apply and should consult a tax professional

• Tax-exempt organizations

• States

• Political subdivisions

• The Tennessee Valley Authority

• Indian Tribal governments

• Alaska Native Corporations

• Rural electricity co-ops.

Miscellaneous:

• Must complete a Life-Cycle Assessment (LCA) Report prior to claiming the credit