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Future of Carbon Capture Looks Bright After Treasury Proposes Long-Awaited Regulations

Posted by [email protected] on Jun. 26, 2020     

Shared with permission from Latham & Watkins Client Alert

The Treasury Department and the IRS provided practical administrative rules for the carbon capture and sequestration tax credit. Key Points:

  • These rules are the third in a series of regulatory guidance issued by the IRS and are intended to propel the growth of the carbon capture and sequestration industry in the US.
  • The guidance, issued in proposed form, covers topics of great importance to the industry, including how to comply with the secure geological storage requirement, how to transfer the tax credits from the capturing party to the sequestering party, and the scope of potential tax credit recapture in the event of a leak of carbon oxide.
  • Industry participants have until August 3, 2020, to comment on certain key aspects of the proposed regulations, including the definition of “commercial markets.
  • For geological storage of carbon oxide through enhanced oil recovery, the IRS created the option to establish “secure geological storage” by following one of two permissible methods.


On May 28, 2020, the IRS released the long-awaited third piece of carbon capture, utilization, and sequestration (CCS) tax credit guidance in the form of proposed Treasury Regulations (Proposed Regulations) addressing many remaining issues applicable to the tax credit for CCS under Section 45Q (45Q Credit).The Proposed Regulations follow the February 19, 2020, release of Notice 2020-12, in which the IRS explained the requirements for beginning construction on a carbon capture facility, and Revenue Procedure 2020-12, which provides a safe harbor template for allocating the 45Q Credit in tax equity partnerships. The magnitude of 45Q Credits now available to the carbon capture industry is likely to leadmany projects to seek tax equity investors to monetize the 45Q Credit. For more information, see Latham & Watkins’ Client Alert Carbon Capture Industry Receives Long-Awaited 45Q Tax Credit Guidance.

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