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Senate, House Introduce Crucial Legislation to Optimize 45Q Tax Credit for Carbon Capture Projects

December 8, 2020 Work Area: Carbon Capture

WASHINGTON, Dec. 8, 2020 – Yesterday, seven US senators introduced the 45Q Carbon Capture Utilization and Storage Tax Credit Amendments Act of 2020 to optimize the 45Q tax credit that supports carbon capture and storage deployment as a critical means for achieving a net-zero emissions US economy by mid-century. The Senate introduction comes on the heels of the Accelerating Carbon Capture and Extending Secure Storage through 45Q (ACCESS 45Q) Act introduced this past Thursday in the House of Representatives. The bipartisan pieces of legislation aim to optimize the 45Q tax credit, including by extending the date for projects to begin construction to claim the 45Q tax credit and providing a direct pay elective for the full value of the tax credit, which makes it more useful for project developers.

The bill is sponsored in the Senate by Senators Shelley Moore Capito (R-WV), Sheldon Whitehouse (D-RI), John Barrasso (R-WY), John Hoeven (R-ND), Kevin Cramer (R-ND), Tina Smith (D-Minn), and Joe Manchin (D-WV). In the House the ACCESS 45Q Act was sponsored by Representatives Marc Veasey (D-TX), David McKinley (R-WV), Kelly Armstrong (R-ND), Jack Bergman (R-MI), Cheri Bustos (D-IL), Mike Doyle (D-PA), Lizzie Fletcher(D-TX), and Alex Mooney (R-WV).

“The passage of 45Q has led to the announcement of more than 30 carbon capture projects in industry, power, and carbon removal. This new 45Q optimization will not only help these planned projects to be built but would also allow 45Q to spur further deployment – which is particularly important for hard-to-abate sectors like steel and cement,” said Lee Beck, CCUS Policy Innovation Director for Clean Air Task Force, a long-time NGO advocate for the development and deployment of carbon capture and storage technology as an essential weapon in the fight against global climate change. In addition to its advocacy work, for the last two years, CATF has tracked carbon capture plans and projects through an interactive map.

“These legislative provisions would make it easier to claim 45Q. It will also help to future-proof hard-to-abate domestic industries, create regional economic opportunities and high-quality jobs, all while incentivizing the permanent storage of CO2 emissions,” Beck continued. Research from the Rhodium Group has shown that a five-year extension of 45Q could result in the deployment of as much as 144 million metric tons of capture capacity through 2035 – a 6-fold increase from today – and tens of thousands of jobs in industrial decarbonization alone.

The key components of the bills are:

  • A direct pay option:Both the House and Senate pieces of legislation allow for a full direct payment of the 45Q tax credit. This is essential to ensure the maximum effect of the credit against the backdrop of the recent economic downturn resulting from COVID-19.  Similar options were extended to other clean energy production tax credits during the past Great Recession with positive results.
  • Extension of the date by which projects have to commence construction:Currently, projects have to have steel in the ground by the end of 2023. The Senate bill extends this date by 5 years, while the House version extends the deadline by 10 years. This would not only compensate for the delay in the issuance of guidance on how to claim the tax credit by the U.S. Treasury – which has still not been issued – but can also enable further projects to be developed.
  • Allows the 45Q credit to offset tax obligations arising from the Base Erosion Avoidance Tax (BEAT) (Senate legislation only).  The BEAT is a form of alternative minimum tax for corporations to ensure multinationals cannot use deductions based off taxes paid abroad to reduce their US tax liabilities below a certain threshold.  Exceptions were made for some tax incentives, including credits for wind and solar energy production, and this provision aims to also include the 45Q tax credit.

“To advance carbon capture and carbon removal on the path to net-zero emissions by mid-century, improving the deployment policy framework for carbon capture and storage, such as through this 45Q legislation and putting in place further commercial demonstration and saline geologic storage provisions and grants, is crucial. A further important piece not receiving enough attention is the need to put in place policy to dramatically scale up the necessary infrastructure to expand CO2 transport and saline storage hubs,” said Beck.

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