Tell Rep. Dusty Johnson – Oppose the 45Q Tax Credits!
Background & Talking points
The federal carbon capture and sequestration (CCS) tax credit – often referred to as 45Q – can be claimed by qualified taxpayers for every metric ton of carbon dioxide captured and sequestered that would have otherwise been released into the atmosphere.
Congress created the credit in 2008 to jump start adoption of technologies that would reduce emissions from existing sources. In practice, companies have primarily claimed 45Q tax credits for pumping captured carbon dioxide underground to increase oil production from aging wells, canceling out most of the emissions reduction benefit.
Despite the credit’s history of fraudulent claims, federal lawmakers recently expanded and extended the tax credit under the guise of combating climate change, with little assurance that it will do more than line the pockets of special interests like oil and gas companies and the ethanol industry. It’s time to reverse course on federal support for carbon capture and sequestration and, at a minimum, set up mechanisms to protect taxpayers from waste, fraud, and abuse.
Congress created the credit in 2008 to jump start adoption of technologies that would reduce emissions from existing sources. In practice, companies have primarily claimed 45Q tax credits for pumping captured carbon dioxide underground to increase oil production from aging wells, canceling out most of the emissions reduction benefit.
Despite the credit’s history of fraudulent claims, federal lawmakers recently expanded and extended the tax credit under the guise of combating climate change, with little assurance that it will do more than line the pockets of special interests like oil and gas companies and the ethanol industry. It’s time to reverse course on federal support for carbon capture and sequestration and, at a minimum, set up mechanisms to protect taxpayers from waste, fraud, and abuse.
Federal fraud and waste has been a hot topic over the last two months, the 45Q tax credit is a strong example of this fraud and waste. In the absence of strong compliance and anti-fraud safeguards, taxpayers will not be getting what they are paying for.
In April 2020, the Treasury Department’s Inspector General for Tax Administration (TIGTA) found that 10 taxpayers claimed over $1 billion in 45Q tax credits from 2010 to 2019, roughly 99 percent of total credits claimed. Of the total $1 billion claimed, credits worth $894 million did not comply with Environmental Protection Agency (EPA) requirements for reporting on sequestered carbon.
The Inflation Reduction Act (IRA), passed in 2022, also allows certain taxpayers to elect to receive 45Q credits as a direct payment rather than as a credit against their federal income tax liabilities – which means companies can benefit from the lucrative credit regardless of tax liability – and allows for the transfer of credits. This loophole will only perpetuate abuse of the tax credits.
In April 2020, the Treasury Department’s Inspector General for Tax Administration (TIGTA) found that 10 taxpayers claimed over $1 billion in 45Q tax credits from 2010 to 2019, roughly 99 percent of total credits claimed. Of the total $1 billion claimed, credits worth $894 million did not comply with Environmental Protection Agency (EPA) requirements for reporting on sequestered carbon.
The Inflation Reduction Act (IRA), passed in 2022, also allows certain taxpayers to elect to receive 45Q credits as a direct payment rather than as a credit against their federal income tax liabilities – which means companies can benefit from the lucrative credit regardless of tax liability – and allows for the transfer of credits. This loophole will only perpetuate abuse of the tax credits.
One of the biggest concerns surrounding the 45Q tax credit is that there’s absolutely zero public disclosure around who is claiming it or for how much. All tax returns are confidential, meaning we can’t even use the Freedom of Information Act (FOIA) to gain information. Unless the company discloses that info itself, we have no way of knowing how much money a company or project stands to get under the tax credit. This lack of transparency will only exacerbate the waste, fraud, and abuse we are already seeing from this tax credit.
Our tax dollars should be utilized in ways that ultimately benefit the American people and our public resources. Industry has made it clear that carbon capture and sequestration can not be fully built out without the backing and support of communities and taxpayers, not only do they want communities to welcome projects to their neighborhoods, they want us to financially support them too.
Cost estimates for 45Q have risen over the life of the tax credit. In 2021, the Treasury Department estimated that over the next ten years 45Q would cost $20.1 Billion. A year later, they updated their cost estimate, saying that $30.6 Billion would be needed for the tax credit over the next ten years. Research done by the Institute for Energy Economics and Financial Analysis (IEEFA) found that the current 45Q program could cost taxpayers over $800 Billion dollars.
Cost estimates for 45Q have risen over the life of the tax credit. In 2021, the Treasury Department estimated that over the next ten years 45Q would cost $20.1 Billion. A year later, they updated their cost estimate, saying that $30.6 Billion would be needed for the tax credit over the next ten years. Research done by the Institute for Energy Economics and Financial Analysis (IEEFA) found that the current 45Q program could cost taxpayers over $800 Billion dollars.