Summary
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Details
- The United States of America (USA)
Who can claim: Section 45Q Tax Credit is claimable by owners of qualified carbon capture equipment who ensure that the carbon is securely stored or reused.
Eligible facility types: Includes a range of industrial facilities (e.g., cement, steel, ethanol), electric generating units, and Direct Air Capture (DAC) facilities, provided they meet the minimum annual capture thresholds—currently:
- 1,000 metric tons/year for DAC facilities
- 12,500 metric tons/year for most industrial sources
- 18,750 metric tons/year for power-generating facilities
Deep dive
Background
The Section 45Q Tax Credit was first established in 2008 (and last amended in 2021) under the Internal Revenue Code. It is a federal incentive aimed at reducing greenhouse gas emissions by encouraging carbon capture and storage (CCS) technologies. Managed by the Internal Revenue Service (IRS) in collaboration with the Environmental Protection Agency (EPA), the scheme provides financial incentives to businesses that capture and store carbon dioxide (CO₂) or other qualified carbon oxides. Section 45Q originally provides that qualifying entities receive a tax credit of $10 or $20 dollars per metric ton of qualified carbon oxide depending on how the captured carbon is used. Adjusted for inflation by the IRS, the credit for the 2025 calendar year is approximately $28.43 per metric ton for direct sequestration and $14.21 per metric ton for certain utilization scenarios. Initially limited in scope, the credit was significantly expanded under the Bipartisan Budget Act of 2018—raising credit values, including direct air capture (DAC) eligibility, and eliminating capture caps. The Inflation Reduction Act of 2022 further enhanced rates, thresholds, and introduced wage‑based multipliers, while the One Big Beautiful Bill Act of 2025 preserved 45Q’s role in enabling viable CCS deployment.
Reporting requirements
To qualify for the Section 45Q Tax Credit, facilities must adhere to strict carbon emissions reporting requirements, including an IRS-approved lifecycle analysis (LCA) report. Captured carbon must be measured, monitored, and verified to ensure it is permanently stored or utilized following any of three approved ways: disposure in a secure geological storage, usage in an enhanced oil recovery (EOR) project, or conversion to material or chemical compounds. The IRS requires detailed documentation, including Form 8933 (Carbon Oxide Sequestration Credit), which must be filed annually with the company’s tax return. This form collects information on the volume of carbon oxide released and captured, storage or utilization methods, among other data. For geologic sequestration, compliance with EPA’s GHGRP Subpart RR and UIC well standards are mandatory.
Current status
Section 45Q is operational, as of August 2025. The IRS finalized core rules in 2021 and continues to update procedures, as with Notice 2024-60 detailing how utilization projects must submit ISO-based lifecycle analyses for joint IRS/DOE review. There are no major court challenges to the statute itself; scrutiny is unfolding through guidance and oversight rather than headline litigation.
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