Carbon sequestration credits

Author: Keith Martin Publication | June 5, 2018

Carbon sequestration credits increased slightly in amount.

The US government offers a tax credit for trapping carbon dioxide emissions from any industrial source, including a power plant, and then either burying it permanently underground or using it for enhanced oil recovery. Future sequestration projects will be allowed to put the CO2 to broader uses.

The credit is in section 45Q of the US tax code. It is adjusted each year for inflation.

The 2018 amounts are $22.87 per metric ton if the captured CO2 is buried permanently underground and $11.44 a metric ton if it is used for enhanced oil recovery. These are the amounts where the carbon capture equipment was put in service before February 9, 2018. The credits for using newer equipment are higher, but the IRS has not announced the figures.

One problem with the tax credit has been that it can only be claimed on the first 75 million metric tons of carbon dioxide sequestered nationwide. No more tax credits can be claimed after the year the IRS announces the 75-million cap is reached. The cap applies only to carbon captured with older equipment put in service before February 9 this year. There is no cap on credits for capturing carbon using newer equipment.

The IRS said in May that credits have been claimed on 59,767,924 metric tons of CO2 based on the “most recent annual reports filed with the Internal Revenue Service.”

The IRS made the announcement in Notice 2018-40 in May.

Credits had been claimed on 52,831,877 tons a year earlier. (For a full discussion about carbon sequestration credits, see “Tax Equity and Carbon Sequestration Credits” in the April 2018 NewsWire.)

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Keith Martin

Keith Martin

Washington, DC