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Section 45Q Credit for Carbon Oxide Sequestration

Last updated: 4 November 2022

First introduced in 2008, Section 45Q of the Unites States Internal Revenue Code provides a tax credit for CO2 storage. The policy is intended to incentivize deployment of carbon capture, utilisation and storage (CCUS), and a variety of project types are eligible.
 
In 2022, the US introduced a significant stimulus for CCUS investment with the passage of legislation (the Inflation Reduction Act) to expand and extend the 45Q tax credit.

The 2022 changes to 45Q provide up to USD 85 per tonne of CO2 permanently stored and USD 60 per tonne of CO2 used for enhanced oil recovery (EOR) or other industrial uses of CO2, provided emissions reductions can be clearly demonstrated. The credit amount significantly increases for direct air capture (DAC) projects to USD 180 per tonne of CO2 permanently stored and USD 130 per tonne for used CO2. 

In addition, the 2022 changes reduce the capacity requirements for eligible projects: 18,750 tonnes per year for power plants (provided at least 75% of the CO2 is captured), 12,000 tonnes per year for other facilities, and 1,000 tonnes per year for DAC facilities.
 
Finally, the 2022 changes include a seven-year extension to qualify for the tax credit, meaning that projects have until January 2033 to begin construction.

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