Yesterday the Senate Finance Committee released the highly anticipated reconcilitation text for the overhaul of clean energy tax credits, including the 45Q tax credit which has provided the foundation for carbon management’s growth in the U.S. since 2022.
Led by Senator Mike Crapo (R-Idaho), the committee’s text provides a mixed bag of measures when it comes to carbon capture and removal. While providing a safety net for many projects it doesn’t address several risk factors going forward, especially when it comes to the impact of inflation.
EOR/storage parity
One of the most important changes is the alignment of the credit amount for utilization of CO2—largely dominated by enhanced oil recovery (EOR)—with that for geologic sequestration after being captured.
For point source capture both would be eligible for $85 per ton, with the previous level standing at $60. For direct air capture (DAC) the amount jumps from $130 to $180. The change comes after critics of the sprawling initial version of the 45Q, pointed out there was a risk of double counting.
These new levels are set to benefit a number of companies in the sector. Occidental—through its subsidiary 1PointFive—is working on projects for both storage and EOR, while recent announcements from companies like AirCapture and Again showed their intention to focus on CO2 utilization.
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Opponents of enhanced oil recovery say the practice proliferates the use of fossil fuels by enabling the extraction of hard to reach deposits. Proponents have said that this reduces the need for developing new and costlier fields, while also providing incentives and funding for project developers to adopt carbon capture.
Inflation adjustment pushed back
The committee’s text also focuses on the inflation component of the credit. It shifts the indexing year for credit adjustments forward, setting it to 2028 instead of 2027. It also updates the base year for calculating the amount of the 45Q credit, delaying it from 2025 to 2026.
With projects for adopting carbon capture and developing carbon removal requiring significant amounts of capital upfront, this could make investors think twice when calculating the potential costs and risks.
A statement issued by Jessie Stolark, executive director of the Carbon Capture Coalition, expresses concerns about the changes: “Inflation rates, reaching historic levels since the enactment of enhancements to the 45Q credit in 2022, have already had an outsized impact on the deployment of carbon management technologies across the American economy. The text released today will only cause further erosion of the tax credit, making it harder for these projects to bounce back from years of significant inflationary pressures and rising costs of project deployment.
Analysis shows that 45Q has already lost more than half of the 2022 increase in inflation and other cost pressures, essentially reducing the $85 per ton credit value to $55 per ton, while the cost of building and deploying projects only continues to increase. While the Senate text increases credit values for certain end uses of captured CO2, without intervention, inflation will immediately offset this value increase and never truly recover.”
According to the Coalition’s analysis the value of the credit is already below the cost of deploying the technology and climate nonprofit Clean Air Task Force has recently argued that the level should be raised to $120 in order to achieve widespread deployment.
Transferability reversal and tax incentives
One of the positives celebrated by the industry is the restoration of the transferability of the tax credit to its full lifetime. This is expected to broaden the number, type and size of companies that can claim it and also providing them with flexibility on how it’s monetized.
The version passed by the House looked to remove transferability after 2027, limiting the potential for investments and reducing the field of players that could afford to make the investments on their own.
About 20 projects recently suffered a setback with the Department of Energy revoking ~$3.7 billion in previously announced funding for carbon capture and clean energy demonstration projects, impacting several major companies including Calpine, Ørsted, Exxon Mobil, and PPL Corp.
Though not directly linked to transferability, the funds were directed at largely the same type of projects and this can be interpreted as providing partial support.
Relevant: DOE Withdraws $3.7B Carbon Capture, Decarbonization Funding
Foreign companies and Publicly Traded Partnerships
The Senate’s changes don’t seem to concern the limitations for foreign players when it comes to 45Q.
Part of a broader push by the Trump administration to reshore and increase the tax base, foreign companies are not eligible for the credit with the the restriction to be extended to “foreign-influenced entities” two years after the enactment of the bill.
This could provide a boost for U.S.-owned DAC companies (like CarbonCapture Inc. or Climeworks USA), especially if structured as Publicly traded partnerships (PTPs), which are generally taxed like corporations.
The Senate Committee’s proposal would allow PTPs to treat carbon capture and storage activities as “qualifying income” in a boost for their bottom line.
By explicitly including the generation of electricity or capture of CO2 at a direct air capture or carbon capture facility, more companies conducting CCS will be able benefit from favorable tax treatment.
Carbon in context
Under the Inflation Reduction Act (IRA), power plants equipped with carbon capture systems could layer the 45Q credit with additional clean electricity production or investment credits, significantly enhancing project economics.
However, the Senate plan proposes a phased elimination of these clean power incentives, beginning as early as 2026 for wind and solar, and later for other technologies like nuclear and geothermal. This dismantling of complementary credit structures will likely erode the compounded value proposition that has driven private capital toward integrating CCS into natural gas and coal-fired generation assets.
The expanded eligibility for PTPs to include income from carbon capture operations does offer new financing options for utilities and infrastructure developers but is unlikely to offset the loss of the lucrative clean electricity stack.
For CCS-equipped power projects, especially those in early development stages, this shift may force recalculations of expected returns and put downward pressure on new project pipelines.
Read more: Atlantic Unveils First Insurance For 45Q Carbon Capture Tax Credits
