Pillar and Post

Home | Pillar and Post

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.<a href="#ftnref5">[1]</a>&nbsp;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.”<a href="#ftnref5">[2]</a>

core/paragraph

Moreover, in its General Explanations for 2022, the U.S. Treasury Department revealed three major proposals for enhancing the Section 45Q tax credit.<a href="#ftnref7">[3]</a>&nbsp;First, the proposals would extend the “commence construction” date for qualified facilities by five years, from Jan. 1, 2026, to Jan. 1, 2031.&nbsp;<a href="#ftnref3">[4]</a>&nbsp;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&nbsp;additional&nbsp;$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.<a href="#ftnref6">[5]</a>&nbsp;That would bring the total to $85 per ton for these projects in 2026 (adjusting, in part, for inflation afterward).<a href="#ftnref6">[6]</a>&nbsp;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.<a href="#ftnref6">[7]</a>&nbsp;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).<a href="#ftnref8">[8]</a>

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,&nbsp;<a href="#ftnref9">[9]</a>&nbsp;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.

———————————————————————————

[1]&nbsp;General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, Department of the Treasury, PDF 60 of 114 (May 2021), available at&nbsp;<a href="https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf">https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf</a>&nbsp;(last visited July 2, 2021).

[2]&nbsp;Fact Sheet: The American Jobs Plan, White House (March 31, 2021),&nbsp;<a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/">https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/</a>.

[3]&nbsp;General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, Department of the Treasury, PDFs 60-61 (May 2021), available at&nbsp;<a href="https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf">https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf</a>&nbsp;(last visited July 2, 2021).

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

President Biden’s Plan for the Carbon Sequestration Tax Credit