Thanks to Senator Robert Menendez’s (D-NJ) persistent efforts, the IRS just provided him with details on how it is enforcing compliance with the 45Q tax credit for carbon capture, utilization and storage (CCUS). The IRS letter underscores the importance of transparency and appropriate oversight of geologic storage as a part of deploying this technology necessary to combat climate change.
The 45Q tax program requires secure geologic storage of CO2 in order for taxpayers to claim the credit. Since 2009, IRS guidance has required taxpayers to obtain an approved monitoring, reporting, and verification (MRV) plan and annually report the amount of securely stored emissions to EPA’s Greenhouse Gas Reporting Program.
Based on discrepancies in data reported by EPA and the IRS, it’s become clear that companies have been claiming tax credits, which were not reported to EPA. The first indication that the IRS was disallowing these credits came through a 2013 opinion memorandum that disallowed credits when a taxpayer didn’t have an approved MRV plan. Until now, however, the IRS hadn’t provided details on how many credits were disallowed relative to those claimed.
The IRS letter to Senator Menendez reveals the following details:
- Most (99.9%) of the $1 billion in credits claimed to date were claimed by 10 taxpayers, each of whom who claimed at least $1 million in credits;
- Three of those ten taxpayers were in compliance with the requirement to have MRV plans approved by the EPA;
- The IRS has taken action against 4 of those ten taxpayers for claiming credits without having EPA-approved MRV plans;
- Of the $1 billion in claimed credits, $893 million were claimed without being in compliance with EPA requirements. To date, the IRS has disallowed $531 million credits for noncompliance;
- Three of the ten taxpayers still have open audits, with claims under investigation.
This letter underscores the following important points:
First, the system is working. If taxpayers don’t demonstrate secure geologic storage, they won’t get the credit – nor should they.
Second, efforts to undercut the current reporting program, such as Senator Hoeven’s bill to gut the MRV requirement needs to be permanently rejected. The bill, first proposed in 2015, attempts to eliminate transparent oversight of geologic storage for enhanced oil recovery. This move to weaken standards was supported by some oil companies, including Exxon and Denbury Resources and rejected by others, such as Occidental, Shell, and Core Energy. Occidental, Shell and Core, have the right idea – supporting strong and transparent oversight is necessary to protect public health and the environment and maintain confidence in the system.
Fortunately, Congress has repeatedly declined Senator Hoeven’s bill. Most notably, Congress rejected this attempt to weaken standards when, in 2018, it took much needed action to improve the 45Q program and make it far more useful in terms of driving CCUS deployment. Any future efforts to move Senator Hoeven’s bill in Congress, or other attempts to weaken transparency and oversight, should be permanently abandoned. To do otherwise would imperil a critical tool in combating climate change.