Section 45Q Carbon Capture Credits Takeaways

On Thursday, June 11, McDermott companions Phil Tingle, Heather Cooper and Jacob Hollinger had been joined by Ken Ditzel, managing director at FTI Consulting, to debate their insights into the proposed Part 45Q carbon seize and sequestration credit score rules.

The Treasury Division and IRS not too long ago revealed proposed rules implementing the Part 45Q carbon seize and sequestration credit score. The rules make clear some questions concerning the credit score, although many questions stay. For additional dialogue, see our On the Topic.

On Thursday, June 11, McDermott Companions Phil Tingle, Heather Cooper and Jacob Hollinger had been joined by Ken Ditzel, Managing Director at FTI Consulting, to debate their insights into the proposed Part 45Q carbon seize and sequestration credit score rules.

IN DEPTH

Beneath are six key takeaways from this week’s webinar:

1. Carbon seize tasks are prone to be economically essential transferring ahead. Ken Ditzel estimated there are greater than 600 economically viable tasks, together with each safe geological storage at deep saline formations and enhanced oil restoration tasks.

2. The proposed rules present a compliance pathway for satisfying the reporting necessities. For long-term storage, taxpayers ought to adjust to Subpart RR of the
Clear Air Act’s greenhouse fuel reporting rule. For enhanced oil restoration tasks, taxpayers could select both Subpart RR or various requirements developed by the American Nationwide Requirements Institute (ANSI).

3. Taxpayers can declare the credit score in the event that they make the most of the captured carbon for a function for which a industrial market exists, as an alternative of storing it. Further steerage is required to
decide what industrial markets the IRS will acknowledge and the way they are going to go about making these determinations.

4. The proposed rules provide appreciable flexibility to contract with third events to dispose the captured carbon and to go the part 45Q credit score to the disposing get together.
Contracts should meet sure procedural necessities, together with commercially affordable phrases and never limiting damages to a specified quantity.

5. If the captured carbon dioxide leaks, the carbon seize tax credit score is topic to recapture by the IRS. The taxpayer who claimed the credit score bears the recapture legal responsibility, however IRSguidance permits indemnities and insurance coverage for credit score recapture.

6. The partnership allocation income process issued in February 2020 gives flexibility for the part 45Q credit score relative to different tax fairness constructions, by solely requiring 50%
non-contingent contributions by an investor member. This may increasingly make tasks simpler to finance, particularly in gentle of the opposite contracting flexibility within the proposed rules.