Investment in Section 45Q tax partnerships may soon increase rapidly as the Biden administration aims to increase the Section 45Q tax incentive for carbon capture, utilization and sequestration.[1] Specifically, President Biden’s American Jobs Plan includes proposals to extend the Section 45Q tax credit to make it “easier to use for hard-to-decarbonize industrial applications, direct air capture, and retrofits of existing power plants.”[2]

Moreover, in its General Explanations for 2022, the U.S. Treasury Department revealed three major proposals for enhancing the Section 45Q tax credit.[3] First, the proposals would extend the “commence construction” date for qualified facilities by five years, from Jan. 1, 2026, to Jan. 1, 2031. [4] This change would give developers and investors more time to plan, pool the necessary resources and wait for carbon capture to become more cost-efficient. Second, the Biden administration would provide an additional $35 credit for each ton of qualified carbon oxide captured from “hard-to-abate industrial carbon oxide capture sectors,” such as cement production, steelmaking, hydrogen production and petroleum refining, and disposed of in secure geological storage.[5] That would bring the total to $85 per ton for these projects in 2026 (adjusting, in part, for inflation afterward).[6] Third, the Biden administration would provide another additional $70 credit to DAC projects per ton of qualified carbon oxide disposed of in secure geological storage.[7] Thus, the total Section 45Q tax credit for DAC projects with geological storage would be $120 per ton in 2026 (adjusting, in part, for inflation afterward).[8]

President Biden’s proposals to augment the Section 45Q tax credit will, if enacted, further subsidize the development and implementation of industrial-scale carbon capture systems, especially DAC. Combined with falling costs, [9] there is likely to be a large surge in developer and investor interest in forming Section 45Q tax equity partnerships to capitalize on the emerging commercial viability of DAC technology.

Authorship Credit: John R. Lehrer II, Washington, D.C.. BakerHostetler thanks Michael Palmer, a second-year student attending the Northwestern University Pritzker School of Law, for research and drafting support.

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[1] General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, Department of the Treasury, PDF 60 of 114 (May 2021), available at https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf (last visited July 2, 2021).
[2] Fact Sheet: The American Jobs Plan, White House (March 31, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/.

[3] General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, Department of the Treasury, PDFs 60-61 (May 2021), available at https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf (last visited July 2, 2021).
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.

[9] Carbon Engineering, a developer of DAC technology, estimates that DAC could capture atmospheric carbon dioxide at a cost of $100 per metric ton. See https://carbonengineering.com/our-technology/ (last visited July 2, 2021).