A new report from the US Government Accountability Office (GAO) highlights significant administrative hurdles and oversight gaps in the Section 45Q Carbon Oxide Sequestration Credit, even as taxpayer claims more than tripled between 2019 and 2023.
Originally enacted in 2008 and updated under the 2022 Inflation Reduction Act, the 45Q credit incentivizes industrial operators and direct air capture facilities to store carbon underground or convert it into products like concrete and jet fuel.
Despite expanded eligibility and policy tweaks intended to create credit parity, taxpayers seeking credits for carbon utilization face high rejection rates, lengthy approval delays, and compliance uncertainty.
The GAO identified critical friction points in the review process jointly managed by the Internal Revenue Service (IRS) and the Department of Energy (DOE).
To resolve these issues, the watchdog recommended clarifying acceptable baseline datasets for calculating displaced carbon and establishing clear operational timeframes required before taxpayers can begin claiming the credit.
Missing Performance Metrics Complicate Congressional Oversight
Beyond taxpayer compliance burdens, the GAO cautioned that Congress lacks the structured data needed to assess whether the 45Q credit is effectively meeting its intended environmental and economic goals.
Because the underlying statute failed to define explicit benchmarks or assign a single lead agency to measure performance, evaluating the credit’s cost-efficiency compared to other policy mechanisms remains difficult.
Relevant: 45Q Tax Credit Faces Growing Backlash Over Oil-Linked Carbon Capture
To improve oversight, the GAO recommended that Congress direct relevant federal agencies to systematically analyze how efficiently the credit performs and how well it reduces net carbon emissions.
While the GAO issued four recommendations to the IRS and two to the DOE to streamline the utilization review process, both agencies disagreed with five of the six proposals.
However, the GAO maintained that its recommendations remain necessary to reduce taxpayer friction while preventing potential noncompliance across the expanding carbon capture sector.
Read more: IRS Creates Temporary Safe Harbor To Shield 45Q Carbon Capture Credits
