Carbon capture at industrial facilities, where decarbonization is particularly challenging, and carbon removal from the air are both critical to meeting our global climate goals, alongside immediate and fast-paced mitigation efforts. Direct air capture (DAC) — a carbon removal technology with lower land demands than other carbon removal approaches that can remove carbon from the atmosphere and store it geologically — is a particularly needed and deployable option that should be scaled responsibly. Enhancing the existing tax incentive for carbon sequestration (45Q) can speed the deployment and innovation of carbon capture and removal technologies.

The Carbon Capture, Utilization and Storage (CCUS) Tax Credit Amendments Act of 2021 — introduced by Senator Tina Smith (MN) and Senator Shelley Moore Capito (WV) in the Senate — and the Negate Emissions to Zero (NET Zero) Act of 2021 — introduced by Representative Don Beyer (VA-08) and Representative Suzan DelBene (WA-01) in the House — would enhance and improve the 45Q tax credit in several ways:

  • Both the NET Zero Act and the CCUS Tax Credit Amendments Act aim to increase the quality and incentive level of 45Q, so the credit can more effectively incentivize the deployment of carbon capture.
  • The NET Zero Act would extend the 45Q tax credit permanently for DAC projects with geologic sequestration; it would extend the credit for 10 years only for DAC projects that use enhanced oil recovery. It also increases the credit for these projects to $180 per ton and $130 per ton, respectively.
  • The CCUS Tax Credit Amendments Act would extend the credit by five years, while increasing support for DAC projects with geologic sequestration to $120 per ton and DAC to enhanced oil recovery to $75 per ton. The bill also allows for direct payment of the credit to the taxpayer/tax credit holder when the holder does not have sufficient taxable income against which to hold the credit, and makes changes to ensure consistent tax obligations across carbon capture and utilization projects and other clean energy projects.

Why This Legislation Is Important

Deploying technologies to pull carbon from the atmosphere and capture it at emissions sources will be essential to meeting our carbon removal and decarbonization goals and mitigating the worst impacts of climate change. Tax credits are a proven means of incentivizing such deployment, which can provide the learning and experience to optimize and reduce the costs of these technologies, in turn supporting their wider deployment. This scale up can also drive employment and economic opportunity.

Two people look up at the Orca direct air capture plant
Tax credits help incentivize innovative technologies that capture polluting emissions at their industrial sources and remove excess CO2 from our atmosphere, like this direct air capture plant. Photo by Climeworks

45Q, a tax credit for carbon sequestration, already provides an incentive for capturing carbon and storing it underground in geologic or saline formations, underground through oil recovery and in products through CO2 utilization. However, while 45Q holds powerful potential to drive carbon capture, unlocking that potential requires enhancing the tax credit to make it more accessible and to ensure it provides an appropriate incentive that is significant enough to make target carbon capture technologies, which can be relatively expensive today, cost effective for developers. Extending the credit, and making it more directly available regardless of the size of the tax burden an organization would be claiming it against, is a core tenant of providing a reliable and accessible credit around which developers can plan these multi-year projects. This in turn can support growth and job creation in this new industry.

DAC is a flexible, scalable carbon removal solution with lower land demands than other carbon removal approaches. It is likely to be a key part of the carbon removal portfolio for a net-zero future, but to achieve that future we need to accelerate its development and deployment now.