n-19-32.pdf

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Request for Comments on Credit for Carbon Oxide Sequestration

Notice 2019-32

SECTION 1. PURPOSE

The Department of the Treasury (Treasury Department) and the Internal
Revenue Service (IRS) anticipate issuing regulations and other guidance to implement
the provisions of § 45Q of the Internal Revenue Code, as amended by Section 41119 of
the Bipartisan Budget Act of 2018 (BBA), Pub. L. No. 115-123 (February 9, 2018). This
notice requests general comments on issues arising under § 45Q, as well as specific
comments concerning the secure geological storage and measurement of qualified
carbon oxide, the recapture of the benefit of the credit for carbon oxide sequestration,
and other issues described in section 3 of this notice. Comments received in response
to this notice will help to inform development of future regulations and other guidance
implementing § 45Q.
SECTION 2. BACKGROUND
Section 45Q was enacted by § 115 of the Energy Improvement and Extension
Act of 2008, Division B of Pub. L. No. 110-343, 122 Stat. 3765, 3829 (October 3, 2008),
to provide a credit for the sequestration of carbon dioxide. Section 45Q was amended
by § 1131 of the American Recovery and Reinvestment Tax Act of 2009, Division B of
Pub. L. 111-5, 123 Stat 115 (February 17, 2009) and more recently by section 41119 of
the Bipartisan Budget Act of 2018 (BBA), Pub. L. No. 115-123 (February 9, 2018). As a

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result of the modifications made by the BBA amendment, the credit under § 45Q now
applies to the sequestration of “qualified carbon oxide,” a broader term than qualified
carbon dioxide. The amount of the credit is also increased for carbon oxide captured
with equipment originally placed in service on or after the date of enactment of the BBA.
Section 45Q(a)(1) allows a credit of $20 per metric ton of qualified carbon oxide
(i) captured by the taxpayer using carbon capture equipment which is originally placed
in service at a qualified facility before the date of the enactment of BBA, (ii) disposed of
by the taxpayer in secure geological storage, and (iii) not used by the taxpayer as a
tertiary injectant in a qualified enhanced oil or natural gas recovery project.
Section 45Q(a)(2) allows a credit of $10 per metric ton of qualified carbon oxide
(i) captured by the taxpayer using carbon capture equipment which is originally placed
in service at a qualified facility before the date of the enactment of BBA and (ii) either (I)
used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas
recovery project and disposed of by the taxpayer in secure geological storage or (II)
utilized by the taxpayer in a manner described in § 45Q(f)(5).
Section 45Q(a)(3) allows a credit of the applicable dollar amount (as determined
under § 45Q(b)(1)) per metric ton of qualified carbon oxide (i) captured by the taxpayer
using carbon capture equipment which is originally placed in service at a qualified
facility on or after the date of the enactment of BBA during the 12-year period beginning
on the date the equipment was originally placed in service, (ii) disposed of by the
taxpayer in secure geological storage, and (iii) neither used as a tertiary injectant in a
qualified enhanced oil or natural gas recovery project nor utilized in a manner described
in § 45Q(f)(5).

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Section 45Q(a)(4) allows credit of the applicable dollar amount (as determined
under § 45Q(b)(1)) per metric ton of qualified carbon oxide (i) captured by the taxpayer
using carbon capture equipment which is originally placed in service at a qualified
facility on or after the date of the enactment of BBA, during the 12-year period beginning
on the date the equipment was originally placed in service, and (ii) either (I) used by the
taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project
and disposed of by the taxpayer in secure geological storage or (II) utilized by the
taxpayer in a manner described in § 45Q(f)(5).
Section 45Q(b)(1)(A)(i)(1) provides that, for any taxable year beginning in a
calendar year after 2016 and before 2027, the applicable dollar amount for purposes of
§ 45Q(a)(3) is an amount equal to the dollar amount established by linear interpolation
between $22.66 and $50 for each calendar year during such period.
Section 45Q(b)(1)(A)(i)(II) provides that, for any taxable year beginning in a
calendar year after 2016 and before 2027, the applicable dollar amount for purposes of
§ 45Q(a)(4) is an amount equal to the dollar amount established by linear interpolation
between $12.83 and $35 for each calendar year during such period.
Section 45Q(b)(1)(A)(ii)(I) provides that, for any taxable year beginning in a
calendar year after 2026, the applicable dollar amount for purposes of § 45Q(a)(3) shall
be an amount equal to the product of $50 and the inflation adjustment factor for such
calendar year determined under § 43(b)(3)(B) for such calendar year, determined by
substituting “2025” for “1990.” Section 45Q(b)(1)(A)(ii)(II) provides that, for any taxable
year beginning in a calendar year after 2026, the applicable dollar amount for purposes
of § 45Q(a)(4) shall be an amount equal to the product of $35 and the inflation

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adjustment factor for such calendar year determined under § 43(b)(3)(B) for such
calendar year, determined by substituting “2025” for “1990.”
Pursuant to § 45Q(b)(1)(B), the applicable dollar amount determined under
§ 45Q(b)(1)(A) is rounded to the nearest cent.
Notice 2018-93, I.R.B. 2018-51 1041, 1042, sets forth the applicable dollar
amounts under § 45Q(b)(1) of the Internal Revenue Code for purposes of determining
the credit for carbon oxide sequestration under § 45Q(a)(3) and (a)(4).
Section 45Q(f)(1) provides that the credit under § 45Q shall apply only with
respect to qualified carbon oxide the capture and disposal, use, or utilization of which is
within (A) the United States (within the meaning of § 638(1)), or (B) a possession of the
United States (within the meaning of § 638(2)).
Section 45Q(f)(2) provides that the Secretary, in consultation with the
Administrator of the Environmental Protection Agency (EPA), the Secretary of Energy,
and the Secretary of the Interior, shall establish regulations for determining adequate
security measures for the geological storage of qualified carbon oxide under § 45Q(a)
such that the qualified carbon oxide does not escape into the atmosphere. Such term
shall include storage at deep saline formations, oil and gas reservoirs, and unminable
coal seams under such conditions as the Secretary may determine under such
regulations.
Under § 45Q(f)(3)(A), except as provided in § 45Q(f)(3)(B) or in any regulations
prescribed by the Secretary, any credit under § 45Q shall be attributable to (i) in the
case of qualified carbon oxide captured using carbon capture equipment which is
originally placed in service at a qualified facility before the date of the enactment of

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BBA, the person that captures and physically or contractually ensures the disposal,
utilization, or use as a tertiary injectant of such qualified carbon oxide, and (ii) in the
case of qualified carbon oxide captured using carbon capture equipment which is
originally placed in service at a qualified facility on or after the date of the enactment of
BBA, the person that owns the carbon capture equipment and physically or
contractually ensures the capture and disposal, utilization, or use as a tertiary injectant
of such qualified carbon oxide.
Under § 45Q(f)(3)(B), if the person described in § 45Q(f)(3)(A) makes an election
in such time and manner as the Secretary may prescribe by regulations, the credit
under § 45Q shall be allowable to the person that disposes of the qualified carbon
oxide, utilizes the qualified carbon oxide, or uses the qualified carbon oxide as a tertiary
injectant, and shall not be allowable to the person described in § 45Q(f)(3)(A).
Section 45Q(f)(4) provides that the Secretary shall, by regulations, provide for
recapturing the benefit of any credit allowable under § 45Q(a) with respect to any
qualified carbon oxide which ceases to be captured, disposed of, or used as a tertiary
injectant in a manner consistent with the requirements of § 45Q.
Section 45Q(f)(5)(A) provides that for purposes of § 45Q, utilization of qualified
carbon oxide means (i) the fixation of such qualified carbon oxide through
photosynthesis or chemosynthesis, such as through the growing of algae or bacteria, (ii)
the chemical conversion of such qualified carbon oxide to a material or chemical
compound in which such qualified carbon oxide is securely stored, or (iii) the use of
such qualified carbon oxide for any other purpose for which a commercial market exists
(with the exception of use as a tertiary injectant in a qualified enhanced oil or natural

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gas recovery project), as determined by the Secretary.
Section 45Q(f)(5)(B)(i) provides that for purposes of determining the amount of
qualified carbon oxide utilized by the taxpayer under § 45Q(a)(2)(B)(ii) or
45Q(a)(4)(B)(ii), such amount shall be equal to the metric tons of qualified carbon oxide
which the taxpayer demonstrates, based upon an analysis of lifecycle greenhouse gas
emissions and subject to such requirements as the Secretary, in consultation with the
Secretary of Energy and the Administrator of the EPA, determines appropriate, were (I)
captured and permanently isolated from the atmosphere, or (II) displaced from being
emitted into the atmosphere, through use of a process described in § 45Q(f)(5)(A).
Under § 45Q(f)(5)(B)(ii), for purposes of § 45Q(f)(5)(B)(i), the term “lifecycle
greenhouse gas emissions” has the same meaning given such term under
subparagraph (H) of section 211(o)(1) of the Clean Air Act (42 U.S.C. 7545(o)(1)), as in
effect on the date of the enactment of BBA, except that “product” shall be substituted for
“fuel” each place it appears in such subparagraph.
Under § 45Q(f)(6)(A), for purposes of § 45Q, in the case of an applicable facility,
for any taxable year in which such facility captures not less than 500,000 metric tons of
qualified carbon oxide during the taxable year, the person described in § 45Q(f)(3)(A)(ii)
may elect to have such facility, and any carbon capture equipment placed in service at
such facility, deemed as having been placed in service on the date of the enactment of
BBA. Section 45Q(f)(6)(B) defines the term “applicable facility” as a qualified facility (i)
which was placed in service before the date of the enactment of BBA, and (ii) for which
no taxpayer claimed a credit under § 45Q in regards to such facility for any taxable year
ending before the date of the enactment of BBA.

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Under § 45Q(f)(7), in the case of any taxable year beginning in a calendar year
after 2009, there shall be substituted for each dollar amount contained in § 45Q(a)(1)
and (2) an amount equal to the product of (A) such dollar amount, multiplied by (B) the
inflation adjustment factor for such calendar year determined under § 43(b)(3)(B) for
such calendar year, determined by substituting “2008” for “1990.”
Section 45Q(g) provides that in the case of any carbon capture equipment placed
in service before the date of the enactment of BBA, the credit under § 45Q shall apply
with respect to qualified carbon oxide captured using such equipment before the end of
the calendar year in which the Secretary, in consultation with the Administrator of the
Environmental Protection Agency, certifies that, during the period beginning after
October 3, 2008, a total of 75,000,000 metric tons of qualified carbon oxide have been
taken into account in accordance with (1) § 45Q(a), as in effect on the day before the
date of the enactment of BBA, and (2) § 45Q(a)(1) and (2).
Pursuant to § 45Q(h) the Secretary may prescribe such regulations and other
guidance as may be necessary or appropriate to carry out this section, including
regulations or other guidance to (1) ensure proper allocation under § 45Q(a) for
qualified carbon oxide captured by a taxpayer during the taxable year ending after the
date of the enactment of BBA, and (2) determine whether a facility satisfies the
requirements under § 45Q(d)(1) during such taxable year.
SECTION 3. REQUEST FOR COMMENTS
The Treasury Department and the IRS request comments on issues arising from
the BBA amendments to § 45Q that should be addressed in regulations and other
guidance. In addition to general comments, the Treasury Department and the IRS

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request comments that address the following specific issues:
.01 IRS Form 8933, Carbon Oxide Sequestration Credit, defines “Secure
Geological Storage” as requiring approval by the EPA of a Monitoring, Reporting and
Verification Plan (MRV Plan) submitted by the operator of the storage facility or tertiary
injection project. Thus, meeting the Form 8933 conditions would be achieved by either
receiving a Class II UIC permit plus an approved MRV Plan, or receiving a Class VI UIC
permit plus an approved MRV Plan.
UIC permits are required for all injection well operators. Class VI UIC operators
must also get an EPA-approved MRV plan as required under the Greenhouse Gas
Reporting Program (GHGRP), set forth in 40 CFR Part 98. However, IRS Form 8933
adds regulatory requirements for Class II UIC permit holders (enhanced oil recovery
operations) who are not currently required to get an EPA-approved MRV plan. As noted
below, IRS is seeking comment on whether there are alternatives to this approach.
IRS Form 8933 also clarifies that the annual amount of carbon oxide claimed for
the credit must be reconciled with amounts reported to the EPA under its GHGRP,
subpart RR. See the EPA website at www.epa.gov
and Notice 2009-83, 2009-44 I.R.B.
588, for more information on secure geological storage.
• Are there technical criteria different from or in addition to those provided
in the EPA’s GHGRP that should be used to demonstrate secure
geological storage? Are there existing guidelines, standards, or
regulations that could be used to demonstrate secure geological storage
such as those developed by the International Organization for
Standardization (ISO)?

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• Should EPA’s GHGRP rules continue to be the reporting requirements
for purposes of § 45Q, and should an approved MRV Plan from the EPA
be received before any § 45Q credit can be claimed? Are there any
viable alternatives to the subpart RR reporting requirements, such as
third party, Department of Energy, or State certification?
.02 Pursuant to § 45Q(f)(4), taxpayers must recapture the benefit of any credit
allowable under § 45Q(a) with respect to any qualified carbon oxide that ceases to be
captured, disposed of, or used as a tertiary injectant in a manner consistent with the
requirements of § 45Q. What should the standard be for triggering and measuring
recapture? How should the recapture of the benefit of the credits relate to the
requirements of § 45Q and the issues contemplated in this request for comments, in
particular the rules for secure geological storage involving the disposal or use of carbon
oxide as a tertiary injectant?
.03 Is guidance needed to further clarify terms and definitions appearing in
§ 45Q, such as carbon capture equipment, qualified carbon oxide, direct air capture
facility, qualified facility, tertiary injectant utilization, or lifecycle greenhouse gas
emissions?
.04 Is guidance required in defining what types of utilization qualify as “fixation of
qualified carbon oxide through photosynthesis or chemosysnthesis, such as through the
growing of algae or bacteria” as described in § 45Q(f)(5)(A)?
.05 Is guidance required to establish the boundaries for lifecycle emissions for
carbon oxide utilization to determine the amount of qualified carbon oxide that is
“displaced from being emitted into the atmosphere” as described in in § 45Q(f)(5)(B)?

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.06 Under § 45Q(f)(3)(A), the credit is attributable to the person that captures and
physically or contractually ensures the disposal, utilization, or use of the qualified
carbon oxide as a tertiary injectant. The Treasury Department and the IRS seek
comments on the types of contractual arrangements that investors anticipate with
parties who capture or dispose or utilize qualified CO. What are common terms of
contracts ensuring the disposal, utilization, or use of qualified CO as a tertiary injectant?
What should result if such terms are determined to be insufficient?
.07 What factors should be considered in determining the time and manner of the
election under § 45Q(f)(3)(B) to transfer the § 45Q credit to a person that disposes of
the qualified carbon oxide, utilizes the qualified carbon oxide, or uses the qualified
carbon oxide as a tertiary injectant? If such an election is made, what issues should be
considered regarding the transfer of the § 45Q credit?
.08 What constitutes the beginning of construction for purposes of § 45Q(d)?
.09 Is guidance needed concerning structures in which project developers and
participating investors would be respected as partners in a partnership generating a
§ 45Q credit? Further, is guidance needed on allocating the credit and recapture of the
credit among the partners in a partnership?
.10 What issues may arise when determining the amount of metric tons of
qualified carbon oxide utilized by the taxpayer under § 45Q(a)(2)(B)(ii) or
§ 45Q(a)(4)(B)(ii), based upon an analysis of lifecycle greenhouse emissions and
subject to such requirements as the Secretary, in consultation with the Secretary of
Energy and Administrator of the EPA, determines appropriate, were (i) captured and
permanently isolated from the atmosphere, or (ii) displaced from being emitted into the

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atmosphere, through use of a process described in § 45Q(f)(5)(A)?
SECTION 4. ADDRESS TO SEND COMMENTS
.01 Comments may be submitted in writing on or before [Insert date that is 45
days after the date this notice will be published in the Internal Revenue Bulletin].
Taxpayers may submit comments electronically via the Federal eRulemaking Portal at
www.regulations.gov
(indicate IRS and NOT-[XXXXX]. Alternatively, taxpayers may
submit comments to:
CC:PA:LPD:PR (Notice XXXX-XX), Room 5203, Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, D.C., 20044

.02 Submissions may be hand-delivered Monday through Friday between the
hours of 8 a.m. and 4 p.m. to:
CC:PA:LPD:PR (Notice XXXX-XX), Courier’s Desk, Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Attn: CC:PA:LPD:PR

All comments received will be available for public inspection on www.regulations.gov.

SECTION 5. RELIANCE ON NOTICE 2009-83
Notice 2009-83, 2009-44 I.R.B. 588, which was modified by Notice 2011-25,
I.R.B. 2011-14 604, by removing section 4.07 of Notice 2009-83, provides guidance on
determining eligibility for the former credit for carbon dioxide sequestration, the amount
of the credit, and rules regarding adequate security measures for secure geological
storage of carbon dioxide. Taxpayers may rely on Notice 2009-83, as modified by
Notice 2011-25, until additional guidance is issued.
SECTION 6. DRAFTING INFORMATION

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The principal author of this notice is David Selig of the Office of Associate Chief

Counsel (Passthroughs & Special Industries). For further information regarding this

notice, contact Mr. Selig at (202) 317-6853 (not a toll-free call).