Guardrails on 45Q Reduce Costs and Improve Targeting

Chapter 45Q provides large tax credits for carbon capture, utilization and storage (CCUS). Unlike budgetary spending, these credits are uncapped and the costs to taxpayers in terms of lost federal tax revenues appears to have been greatly underestimated. Not only is the government’s financial exposure uncapped, but compliance with statutory rules is self-reported, and because tax returns are confidential under federal law (26 USC §6103), only the IRS is legally entitled to know the identities of claimants and the amounts of their claims. For 45Q, gaps in the data on physical flows of CO2, and a lack of coordination between the US EPA and the US Treasury, make strong auditing impossible. The actual cost to the Treasury can be orders of magnitude higher than was predicted.

This brief provides an overview of the cost estimates for 45Q and presents simple, but important, ways the statute could be modified to better target the subsidies to the most technically challenging aspects of CCUS and reduce taxpayer costs of the subsidy. In all of the areas, examples of existing government programs that apply these guardrails are presented.