The newly released Inflation Reduction Act of 2022 includes provisions that would greatly expand and extend the credit for carbon oxide sequestration, referred to as the 45Q tax credit. The provisions are for the most part similar to those included in the House Rules Committee version of the Build Back Better Act, which was considered last year. The 45Q credit is often lauded as a way to combat climate change, but much of the carbon capture credit goes towards enhanced oil recovery.

A summary of what the draft legislative text does:

• Extends credit to qualified facilities that begin construction between Dec. 31, 2022, and Jan. 1, 2033 instead of before 2027
• Lowers minimum annual capture requirements for qualified facilities:
  • for direct air capture facilities, from 100,000 tons/year to 1,000/tons per year
  • for electricity generating facilities, from 500,000 tons/year to 18,750/tons per year provided that 75% of baseline carbon oxide production is captured
  • in a new catchall for other facilities (previously included for direct air capture facilities), from 100,000 tons/year to 12,500 tons/year
• Establishes new prevailing wage and apprenticeship requirements
  • if facilities are in compliance, they multiply credit by 5x
• Changes credit value for all years prior to 2027 (except for direct air capture facilities, see bullet point below):
  • to $17/ton instead of linear interpolation up to $50 in 2026 for capture and storage of carbon that is disposed of by the taxpayer in secure geological storage
  • to $12/ton instead of linear interpolation up to $35 in 2026 for capture and utilization of carbon, specifically used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project
  • with the 5x multiplier for satisfying prevailing wage and apprentice requirements, the credit amounts are increased to $85/ton and $60/ton for storage and utilization of carbon, respectively
• Increases credit value for direct air capture facilities:
  • to $36/ton instead of $17/ton for capture and storage of carbon
  • to $26/ton instead of $12/ton capture and utilization of carbon
  • with the 5x multiplier, the credit amounts are increased to $180/ton and $130/ton for storage and utilization of carbon, respectively

The Joint Committee on Taxation estimated that the 45Q credit extension proposed in the Inflation Reduction Act could cost taxpayers $3.2 billion over the next decade.