U.S. Carbon capture Tax Credits are lucrative: The FUTURE Act (45Q)

Recently, Congress passed legislation and the President signed into law a significant tax credit for carbon capture and storage. Known as the FUTURE Act, the tax credit called 45Q had remarkably broad bipartisan support.

Why is 45Q significant?

Simply put, 45Q provides lucrative financial incentives for the capture and eventual storage of CO2. These incentives are available to EOR in addition to the conversion of the captured CO2 into fuels, chemicals, cement and other useful products. The tax credit is just that: a dollar for dollar credit, not a deduction, making it that much more attractive. The credit ramps up each year in 10 years to $35 to $50 per ton of CO2 stored, depending on the eventual use of the CO2 captured. Given that SeaVar technology can capture CO2 for a cost much lower than the $35 per ton credit, 45Q represents a real incentive. And post 2026, the credit will be increased with inflation.

What are other features of interest?

There are several. To begin with, remember that it takes time to develop a CO2 capture project, and then more time to design and build the capture system. But 45Q recognizes this, and allows projects to become eligible if construction begins before January 1, 2024. And credits can be claimed for 12 years after the capture system has been placed in service.

Importantly, there is no cap on the credits. This is significant in itself, as the CO2 captured from even a single boiler in a mid- sized power plant, for example, can add up to 3 million tons per year. Multiply this by 3 to 4 boilers in a typical plant, and we find that even larger power plants are eligible.

In addition, investors are provided with clear timelines, and can know with certainty that the credits will be available for qualifying projects before they invest.

What flexibility is inherent in 45Q?

Because large projects frequently involve more than one entity or ownership model, flexibility in the utilization of the credits is key. The 45Q credit allows different entities to avail of its benefits, not just the entity that owns the capture project. As a result, the owner of the capture project can now elect to allow another entity, such as the oil field using EOR, to claim some or all of the credits.