top of page

United States, 45Q: Up to US$ 180/ton in Tax Credits for Carbon Sequestration.

Today is Tuesday, 09 July 2024.


As promised in yesterday's “must-read” article, today we go over the Carbon Sequestration Tax Credit, commonly known as the 45Q Tax Credit and introduced in the United States IRS tax code in 2008.


IRS stands for Internal Revenue Service, the body responsible for administering tax laws, processing and auditing the income tax returns of taxpayers in that country.


Note that in this article when we refer to credit, rather than carbon credit, we are actually referring to the tax credit.


Carbon sequestration is the process of capturing and storing atmospheric carbon (CCS), among which:


(1) Geologic. Process of storing CO2 in underground rock structures, such as deep saline formations and - most common - oil and gas reservoirs. In this case it can be used in enhanced oil recovery (EOR). During this process, CO2 is pressurized into a liquid and injected into an oil-bearing formation in order to reduce the viscosity of oil, allowing it to flow more freely into the oil well. When sequestered CO2 is used this way, it is referred to as a tertiary injectant.


(2) Biologic. Process of storing atmospheric carbon in vegetation, soils, woody products, and aquatic environments.


In 2018, the 45Q began to accept carbon capture through fixation by photosynthesis or chemosynthesis - growing algae or bacteria - or chemically converted to a product in which such carbon oxide is securely stored and for which a commercial market exists.


As a reference, taxpayers in United States who were already capturing carbon and that meet all requirements of 45Q before 2023, including minimum quantity captured per year, were eligible to the following claim tax credits:


  • $40.89 per metric ton of CO2 geologically sequestered CO2;


  • $27.61 per metric ton of CO2 geologically sequestered CO2 with EOR or other qualified use of CO2.


The Inflation Reduction Act from 2022 increased these values and created additional conditions for newer projects, expanding and enhancing 45Q to 85$/ton for geological storage and 180$/ton for direct air capture (DAC). Owners of carbon capture equipment are also entitled to claim these credits. See this file by the US Congressional Research Service (CRS) for more details.




Considering the total costs of CCS per industry - chemicals, hydrogen, cement, refineries, steel and petrochemicals - there is a flier from the Clean Air Task Force (CATF) that gives an idea about how welcome these 45Q tax credits can be to stimulate innovation in these industries. Click here to open it.


Same CRS source indicates that in spite of uncertainty about future CCS deployment, there is an estimate by the United States Government that 45Q credits would amount $2.4 billion for the 2022-2026 period and $30.3 billion from 2022 to 2032.


Here you can download the December 2023, latest IRS guidance about 45Q.




Click at the image below to read the official text containing related law in effect for “45Q: Credit for carbon oxide sequestration”, by the Office of the Law Revision Counsel of the US House of Representatives (OLRC).



Carbon Capture and the Inflation Reduction Act. By Clean Air Task Force (CATF).
Carbon Capture and the Inflation Reduction Act. By Clean Air Task Force (CATF).

 CARBON CREDIT MARKETS

“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”

“I am among those who think that science has great beauty”

Madame Marie Curie (1867 - 1934) Chemist & physicist. French, born Polish.

 • Weekly newsletters •

bottom of page