14 Sustainable Development Law & Policy
can the expanSion of 45Q effectively SpuR
inveStment in caRbon captuRe?
Carbon capture technologies play a critical role in the
global effort to mitigate carbon dioxide (CO2) emis-
sions.1 Even with signicant advancements in energy
efciency and an increase in renewable energy generation, the
international community will not be able to meet critical climate
goals without a strong carbon capture portfolio.2 Moreover, it
is one of the few technologies capable of reducing emissions
from the fossil fuel industry—which is expected to remain a
signicant player in the energy sector well into the middle of
the century.3 Despite this, there have been few federal incen-
tives for carbon capture, and those that exist have proven largely
insufcient for supporting commercial deployment.4 The 115th
Congress attempted to address these issues by reforming and
expanding incentives for investment in carbon capture through
the passage of the Bipartisan Budget Act of 2018 (Act).5 How-
ever, if this new framework is to have any real-world value, it
must provide nancial certainty to those willing to invest in car-
bon capture technologies. This article will argue that the success
of these incentives hinges on a federal interpretation that is both
in line with Congress’s intent to stimulate private sector invest-
ment, and closely mirrors that of the similar, previously enacted
solar tax credit.
Enacted on February 9, 2018, the Act includes a provi-
sion designed to extend and reform Section 45Q of the Internal
Revenue Code, which provides tax credits for power plants and
industrial facilities that utilize carbon capture technologies.6 The
original version of Section 45Q, which was enacted as part of
the Energy Improvement and Extension Act of 2008, was much
narrower in scope. As originally authorized, the credit was only
available for two types of capture projects: ten dollars per metric
ton of CO2 captured through enhanced oil recovery and twenty
dollars per metric ton of CO2 captured through geologic storage.
7 Qualifying projects were required to capture a minimum of
500,000 metric tons of CO2 before they were eligible to receive
the credits and the entire program was set to expire once it met
its seventy-ve million metric ton cap.8 Critics argued that this
framework was largely ineffective in spurring investment due to
the nancial uncertainty created by the value, minimum eligi-
bility requirements, and program cap.9 Developers feared little
return on their investment as the value of the credit was too low
to recoup project costs and the program could potentially run out
of funds long before the facility was up and running.10 The pro-
gram also excluded many other viable carbon capture projects
that might attract additional investment.11
As amended, the new Section 45Q represents a serious
attempt by Congress to broaden the credit’s applicability and
to make the credit more attractive for investors.12 The new lan-
guage of the Act speciﬁcally directs the Treasury Department
to increase the value of the tax credit over a ten-year period,
after which it will be adjusted to increase with inﬂation.13 In
addition, Congress authorizes Treasury to remove the cap on
the program so that credits are not applied on a ﬁrst-come
ﬁrst-served basis and to expand eligibility to include additional
industries that capture and utilize carbon.14 While this greater
ﬁnancial certainty is expected to usher in billions of dollars in
investment, successful implementation will be supported by
Treasury’s interpretation of a number of provisions that Con-
gress left open for clariﬁcation.
For example, the Act’s new language provides that facili-
ties that begin construction prior to January 1, 2024, are eligible
to claim the tax credit for up to twelve years after the carbon
capture equipment is placed in service.15 This change allows
investors to start earning credits as soon as construction begins.
Therefore, Treasury’s interpretation of what it means to “begin
construction” can have signiﬁcant implications for project
developers and investors.16 Knowing when a project has ofﬁ-
cially begun construction with respect to the program’s eligibil-
ity ultimately facilitates the development of project timelines
that maximize a ﬁrm’s eligible tax credit rate and helps reduce
ﬁnancial risk to companies who are interested in bidding on
construction projects in the near future. If this tax credit can-
not be utilized by commercial developers, it has no real-world
value. Therefore, this provision should be interpreted through
the lens of Congress’s intent to improve ﬁnancial certainty for
investment in carbon capture technologies.
A careful examination of the history of the similar solar
tax credit guaranteed through the 2016 Consolidated Appro-
priations Act (Bill) offers a useful precedent.17 Like the recent
expansion of 45Q, Congress had elected to move the eligibil-
ity requirement away from the “placed in service” standard
to “beginning construction” to increase ﬁnancial certainty for
investors.18 Following the passage of the Bill in December
2015, the Internal Revenue Service issued Notice 2018-59,
which clariﬁed the meaning of the term “beginning of construc-
tion” in Section 48 of the Internal Revenue Code.19 It outlined
two methods by which taxpayers could evaluate whether they
had begun construction with respect to tax credit eligibility:
(1) engagement in signiﬁcant physical work either directly
or contractually (i.e., Physical Work Test) or (2) ﬁve percent
of the ultimate tax basis of the project has already been paid
or incurred (i.e., Five Percent Safe Harbor standard).20 Both
*J.D. Candidate, American University Washington College of Law 2022.
standards clarify what preliminary activities qualify as work of
a signiﬁcant nature to aid developers in creating project time-
lines that will increase their likelihood of qualifying for the tax
With the expansion of 45Q, Congress has made clear its
intent to minimize any uncertainty and undue ﬁnancial risk for
carbon capture. Similar to the expansion of the solar tax credit,
they have done so by shifting the credit’s eligibility determina-
tion to earlier in the development process so that investors can
maximize their return.21 Thus, similar guidance that is widely
understood and accepted by industry and investors should
apply here, and Treasury should include speciﬁc examples that
illustrate work of a signiﬁcant nature in the context of carbon
capture. Once guidance is in place, the Act would then provide
a meaningful incentive to increase the development of carbon
While additional federal incentives could help complement
the recent expansion of 45Q, it still remains the most signiﬁcant
program for encouraging private investment in carbon capture
deployment to date. However, Treasury must provide clear guid-
ance if the tax credit is to offer any meaningful beneﬁt to the
carbon capture industry. Until Treasury does so, the interpreta-
tion of Congress’ intent with regards to the similar solar credit
should be used as a model for continued progress with the car-
bon capture industry.
1 Peter Folger, conG. ReSeaRch SeRv., R44902, caRbon capt uRe anD
SeQueStRation (ccS) in th e uniteD StateS 2 (2018) (referring to the proces s
of capturi ng waste CO2 from a variet y of power and industrial so urces and
either reusing o r safely storing it so that it wil l not enter the atmosphere).
2 int’l eneRGy aGency, five keyS to unlock c cS inveStment 4 (2017),
https://www.iea.org /media/topics/ccs/5KeysUnlock CCS.PDF (noting that lim-
iting futu re temperatur e increases to two degr ees Celsius will requi re around
760 gigatonnes of CO2 em ission reductions acros s the energy sector bet ween
now and 2060).
3 inteRGoveRnm ental panel on climate cha nGe, Special Rep oRt on caR-
bon DioxiDe captuR e anD StoRaGe 3, 9-10, 111 (2005), https://www.ipcc.ch/
site/assets/ upload s/2018/03/srccs_wholere port-1.pdf.
4 caRbon utilization R eSeaRch council, iRc § 45Q caRbon SeQue StRa-
tion tax cReDit RefoR m (2018) http://www.curc.net/webles/45Q%20
5 Bipartisa n Budget Act of 2018, H.R. 1892, 115th Cong. (2018). Sen.
Heidi Heitkamp or iginally introduc ed the Act to the Senate on July 12, 2017
as Senate S. 1535, The Furthe ring carbon captu re, Utilization, Technology,
Underground st orage, and Reduced Emissio ns Act (FUTURE Act). The
Act was included in Se nate Finance Commit tee Chairpers on Orrin Hatch’s
(R-UT) larger t ax extenders bill, S. 2256, before nally gaining inclu sion in
H.R. 1892, the Bipart isan Budget Act of 2018.
6 Id. § 41119.
7 Emergency Econom ic Stabilization Act of 2008, H .R. 1424, 110th § 115
(2008) (adding the Energ y Improvement and Extension Act , which provided
tax credit s for carbon capture).
8 Id. § 1(c).
9 eneRGy futuReS i nitiative, aDvancinG laRGe Scale caR bon mGmt.:
expanSion of the 45Q tax cReDit 8 (May 2 018), https://static1.squares pace.
1150675/45Q_ EFI_ 5.23.18.pd f.
12 FUTUR E Act, S. 1535, 115th Cong. § 45Q (explaining that t he FUTURE
Act would expand the sco pe of the 45Q tax credit provision and w as eventu-
ally incorp orated into the Bipar tisan Budget Act of 2018).
13 Bipartisa n Budget Act of 2018, H.R. 1892, 115th Cong. § 2 (2018).
14 Id. § 2(a)-(c).
15 Id. § 2(d).
16 Id. § 2(d)(1).
17 Consolidat ed Appropriations Act of 2016, H. R. 2029, 114th Cong. §
18 Letter f rom Senators Cantwell & Hel ler to The Hon. David J. Kautter,
Assistant Sec retary for Tax Policy, U.S. Dep’t of the Treasury (June 7, 2018)
(on le with Novogradac & C o.).
19 inteRnal R evenue SeRv., notice 2018-59, beGinn inG of conStR. foR the
inv. tax cReDit unDeR Section 48 (Jun e 22, 2018), https://ww w.irs.gov/pub/
20 Id. at 2.
21 Bipartis an Budget Act of 2018, H.R. 1892, 115th Cong. § 2 (2018).