Client Alert: Recent Guidance on Carbon Capture and Sequestration Federal Tax Credits

New federal tax credit rules and recent Treasury guidance offer potentially large-dollar tax credits for industrial facilities that capture and sequester the carbon oxide (including carbon dioxide (CO2)) they generate, including carbon oxide used in connection with enhanced oil recovery (EOR). For industrial facilities – such as petrochemical, power generation, and manufacturing plants – that generate large amounts of carbon oxide, capturing that carbon oxide and sequestering it underground or selling it to oil producers for EOR may result in a significant economic boost through the Section 45Q tax credit. For example, if a qualifying facility generates, captures, and sequesters one million metric tons of CO2 in 2026, which would be common for a methanol, ethanol, or coal-fired power plant, it could be eligible for a $50 million tax credit.