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Home | BakerHostetler

Randal Shaheen Quoted in National Law Journal on FTC’s Regulatory Approach

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Investment in Section 45Q tax partnerships may soon increase rapidly as the Biden administration aims to increase the Section 45Q tax incentive for carbon capture, utilization and sequestration.<a href="#ftnref5">[1]</a> Specifically, President Biden’s American Jobs Plan includes proposals to extend the Section 45Q tax credit to make it “easier to use for hard-to-decarbonize industrial applications, direct air capture, and retrofits of existing power plants.”<a href="#ftnref5">[2]</a>



Moreover, in its General Explanations for 2022, the U.S. Treasury Department revealed three major proposals for enhancing the Section 45Q tax credit.<a href="#ftnref7">[3]</a> First, the proposals would extend the “commence construction” date for qualified facilities by five years, from Jan. 1, 2026, to Jan. 1, 2031. <a href="#ftnref3">[4]</a> This change would give developers and investors more time to plan, pool the necessary resources and wait for carbon capture to become more cost-efficient. Second, the Biden administration would provide an additional $35 credit for each ton of qualified carbon oxide captured from “hard-to-abate industrial carbon oxide capture sectors,” such as cement production, steelmaking, hydrogen production and petroleum refining, and disposed of in secure geological storage.<a href="#ftnref6">[5]</a> That would bring the total to $85 per ton for these projects in 2026 (adjusting, in part, for inflation afterward).<a href="#ftnref6">[6]</a> Third, the Biden administration would provide another additional $70 credit to DAC projects per ton of qualified carbon oxide disposed of in secure geological storage.<a href="#ftnref6">[7]</a> Thus, the total Section 45Q tax credit for DAC projects with geological storage would be $120 per ton in 2026 (adjusting, in part, for inflation afterward).<a href="#ftnref8">[8]</a>



President Biden’s proposals to augment the Section 45Q tax credit will, if enacted, further subsidize the development and implementation of industrial-scale carbon capture systems, especially DAC. Combined with falling costs, <a href="#ftnref9">[9]</a> there is likely to be a large surge in developer and investor interest in forming Section 45Q tax equity partnerships to capitalize on the emerging commercial viability of DAC technology.



Authorship Credit: John R. Lehrer II, Washington, D.C.. BakerHostetler thanks Michael Palmer, a second-year student attending the Northwestern University Pritzker School of Law, for research and drafting support.



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[1] General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, Department of the Treasury, PDF 60 of 114 (May 2021), available at <a href="https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf">https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf</a> (last visited July 2, 2021).



[2] Fact Sheet: The American Jobs Plan, White House (March 31, 2021), <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/">https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/</a>.



[3] General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, Department of the Treasury, PDFs 60-61 (May 2021), available at <a href="https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf">https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf</a> (last visited July 2, 2021).



[4] Id.



[5] Id.



[6] Id.



[7] Id.



[8] Id.



[9] Carbon Engineering, a developer of DAC technology, estimates that DAC could capture atmospheric carbon dioxide at a cost of $100 per metric ton. See <a href="https://carbonengineering.com/our-technology/">https://carbonengineering.com/our-technology/</a> (last visited July 2, 2021).

President Biden’s Plan for the Carbon Sequestration Tax Credit

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