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] Continue Reading