The Treasury Department and the Internal Revenue Service (IRS) have issued interim guidance aimed at preventing disruptions to the 45Q federal carbon capture tax credit as environmental reporting rules face potential changes.
In Notice 2026-1, the IRS outlines a one-year compliance pathway for companies seeking to claim the Section 45Q credit for carbon oxide captured and permanently stored in secure geological formations during calendar year 2025. The move follows uncertainty surrounding the Environmental Protection Agency’s greenhouse gas reporting framework, particularly Subpart RR of its Greenhouse Gas Reporting Program.
The EPA has proposed repealing key reporting provisions, raising concerns that projects injecting carbon dioxide into underground storage sites could lack a clear mechanism to satisfy documentation requirements tied to 45Q eligibility. At the same time, questions remain about whether the agency’s electronic greenhouse gas reporting tool will be operational in time for 2025 data submissions.
Under the new notice, if the EPA does not launch its electronic reporting system for 2025 data by June 10, 2026, taxpayers may rely on an alternative approach. Companies can prepare an annual report and obtain certification from a qualified independent engineer or geologist affirming that the project complies with Subpart RR as it stood on Dec. 31, 2025.
That certification may be used to substantiate 45Q claims for carbon oxide disposed of in secure geological storage. The safe harbor does not apply to enhanced oil recovery or certain utilization pathways.
The guidance builds on earlier Treasury and IRS efforts to stabilize the credit following its expansion under the One, Big, Beautiful Bill. As previously reported, lawmakers increased the value of the incentive, elevating its role in climate and industrial policy while intensifying scrutiny of oversight and verification standards.
Developers and investors have argued that predictable compliance rules are essential for financing projects that often require multibillion dollar commitments. Treasury and the IRS signaled that more comprehensive regulations, including updated measurement and verification standards, are forthcoming. Until then, the interim safe harbor is designed to keep projects on track while federal reporting rules remain in flux.
Read more: What’s Next For Carbon Capture, Utilization & Storage (CCUS) In 2026?
