IRS, Treasury Extend 45Q Safe Harbor; EPA Considers Reporting Cutback

On August 14, the U.S. Treasury Department and Internal Revenue Service (IRS) took steps to address uncertainties around carbon capture projects, both planned and operating, by expanding and extending a safe harbor for the Section 45Q carbon capture tax credit.

Simultaneously, the U.S. Environmental Protection Agency (EPA) is considering bringing an end to greenhouse gas reporting requirements, which currently serve to document the volume of captured carbon dioxide securely stored and thereby qualifying for the tax credit.

An alternative compliance pathway, specified in Notice 2026-50, has been issued by the Treasury and IRS in case the EPA’s electronic reporting system becomes unavailable. This extends a pre-existing safe harbor beyond 2025 for stored carbon dioxide and opens it up to include carbon oxide used in enhanced gas or oil recovery projects.

The revised guidelines also facilitate the use of the safe harbor in determining if credits claimed in the past should be recaptured—essentially refunded—if the stored carbon leaks back into the atmosphere.

Stakeholders informed Treasury and IRS that the potential for enhanced oil and gas recovery projects to experience substantial costs, schedule constraints, and compliance challenges exists if they were required to transition from the EPA’s Subpart RR reporting standard to other standards available.

Implications of Removing Reporting Requirements

The EPA proposed in September 2025 to remove most requirements of its Greenhouse Gas Reporting Program. Included in these is the Subpart RR requirements for the geologic sequestration of carbon dioxide. Under Subpart RR, facilities required to report have to establish EPA-approved site-specific plans for monitoring, reporting, and verification, and report the volume of carbon dioxide geologically stored.

Adapting to Changes

The new safe harbor comes into play when the EPA’s electronic greenhouse gas reporting system is not available by March 31 after the respective reporting year. Projects that wish to make use of it must continue to adhere to the requirements of Subpart RR as they were at the end of 2025 and must have an applicable EPA-approved plan for monitoring, reporting, and verification. Instead of submitting the required annual report via EPA’s system, taxpayers will submit it to a state-registered or certified independent engineer or geologist for certification.

Jessie Stolark, the executive director of the Carbon Capture Coalition, expressed the organization’s gratitude toward the Treasury and IRS in a statement, saying, “We are grateful to Treasury and IRS for providing greater certainty to taxpayers electing the 45Q tax credit with today’s notice and extension of the safe harbor.”

Fluor Corp. reported an increase in funding inquiries and project studies after the Inflation Reduction Act enhanced the 45Q credit for qualifying point-source projects from $50 to a potential $85 per metric ton, according to ENR’s report in 2023. At that point, Fluor Vice President Curt Graham stated that the 45Q tax credit had “fundamentally changed the revenue situation and return on investment” for carbon capture projects.

The safe harbor will benefit qualifying storage from January 1, 2025, until the end of the calendar year in which the Treasury and IRS release further interim guidance or proposed regulations that address the requirements for measurement, reporting, and verification.

Furthermore, the Treasury and IRS sought feedback on August 14 about whether the recently issued ISO 27914:2026 standard for geological carbon storage, or another methodology, could be a suitable replacement for Subpart RR if the EPA decides to eliminate the reporting requirements. The deadline for comments is October 30.