The Trump administration is finally offering carbon capture developers clarity on how it intends to implement critical federal tax credits for the technology.
The Internal Revenue Service unveiled late Thursday proposed rules outlining how it will oversee the carbon capture tax credit program, which was extended and expanded more than two years ago in a bipartisan budget deal. To date, the lack of definitive guidance has kept project developers waiting in the wings and investors on the sidelines, hesitant to commit capital without all the rules of the road spelled out.
Earlier this year, a top Energy Department official said there were “billions of dollars” of projects waiting for the IRS to issue its guidance. And Republican and Democratic lawmakers in recent weeks have ramped up pressure on the Treasury Department to get the guidance out, especially as carbon capture developers experience delays and other challenges amid the pandemic.
Two Republicans — Wyoming Sen. John Barrasso, who chairs the Senate Environment Committee, and North Dakota Sen. John Hoeven — raised the issue directly with President Trump during a meeting last week. In response, Trump directed White House staff to push the Treasury Department to complete the rules, according to Barrasso.
North Dakota’s other Republican senator, Kevin Cramer, praised the IRS for issuing the “long-awaited” rules. “Carbon capture tax credits are meant to incentivize investment in carbon sequestration technology, but North Dakota’s coal, ethanol, and energy producers have been waiting to receive these rules to ensure they invest properly,” Cramer said in a statement.
The IRS’s new proposal offers answers to tough questions the tax agency skipped over when it outlined initial guidelines in February. Those questions include how companies must demonstrate they are securely storing carbon underground, in what situations the government can reclaim the tax incentive if projects fall short of requirements, and how to account for emissions reductions from carbon stored in products.
For example, the IRS is proposing to allow companies to use an international standard developed last year as an alternative to demonstrating they are securely storing carbon dioxide underground. To date, companies have been required to use a specific section under the Environmental Protection Agency’s greenhouse gas reporting program.
The Treasury Department’s watchdog recently issued a report finding nearly $900 million in carbon capture tax credits had been inappropriately claimed by a handful of companies that weren’t meeting the requirements of that EPA program. The IRS has disallowed more than $531 million of those tax credits, according to the April report.
The Carbon Capture Coalition, which includes fossil fuel companies, environmental groups, and labor unions, is still reviewing the IRS proposal, according to a spokesperson.
