Treasury Rule Changes Weaken Carbon Capture Tax Credit Oversight
A U.S. Department of Treasury rule change for the 45Q carbon capture tax credit reduces the government’s ability to track and verify corporate claims, potentially costing taxpayers billions of dollars in lost revenue. Under the 45Q program, companies can claim $85 in tax credits for every metric ton of carbon dioxide captured at a facility, or $180 for direct air capture stored or used subsequently.
The revised regulatory framework stems from a “Safe Harbor” rule initially released in December 2025. That initial release sought to address a reporting gap created by the administration’s proposed elimination of the Environmental Protection Agency’s greenhouse gas reporting program. However, the subsequent rule adjustments involve more substantive shifts that make the credit increasingly difficult to monitor and administer effectively.
The Mechanics and Oversight Gaps of the 45Q Subsidy
Internal Revenue Service rules require documentation of the amounts claimed by a storage project. Current rules require companies to submit annual reports to EPA calculations of stored carbon dioxide, alongside monitoring and containment assurance details. The EPA reviews these reports and publishes non-confidential data on stored volumes. If the greenhouse gas reporting program shuts down entirely, transparency will drop significantly.
Instead of required public disclosures, companies will decide what information to make public. They may report captured amounts or tax credits received via public filings, or they may choose to report nothing at all. As a tax credit carrying no annual or lifetime cap, 45Q operates largely behind the scenes. Companies file taxes and claim credits, but those claims are not reported directly to Congress or the public.
A Government Accountability Office report published in August 2026 highlighted ongoing concerns regarding the effectiveness and administration of 45Q. The report reiterated that tax expenditures result in reduced government revenue and remain less visible than direct spending programs, which face more systematic review.
Data Sharing Deficits and Reliance on Alternative Standards
The public data released through the EPA reporting program has served as an essential tool for IRS verification of 45Q claims. No formal memorandum of understanding exists between the IRS and the EPA to facilitate data sharing. Consequently, IRS staff rely on publicly available data on the EPA website to verify compliance.
The elimination of the reporting program leaves the IRS without vital project details that impact whether a credit claim warrants approval. A 2020 inspector general report previously highlighted that information gaps led to improper 45Q claims. While companies operating Class VI carbon dioxide injection wells under the Underground Injection Control program must still provide semiannual reports, the entities filing for 45Q credits are typically equipment owners rather than storage operators.
To bridge the verification gap, the safe harbor rule requires claimants to hire a third-party engineer or geologist to certify storage calculations, replacing EPA review. Treasury proposes using an alternative pathway based on an International Organization for Standardization measure covering carbon capture and storage or use.
Frequently Asked Questions About the 45Q Tax Credit
What is the current reporting deadline for the EPA greenhouse gas reporting program?
On Oct. 14, the EPA released a notice extending the reporting deadline for the program by another six months because reporting entities faced difficulties transitioning to new systems.
Who evaluates the performance of the 45Q tax credit?
According to the August 2026 GAO report, no single agency is responsible for evaluating 45Q credit performance, and Congress would need to establish new reporting requirements to make systematic evaluation possible.
How do companies verify carbon storage under the revised Treasury safe harbor rule?
The safe harbor rule permits claimants to hire independent third-party engineers or geologists to certify storage calculations using ISO 27914:2026 standards, rather than undergoing traditional reviews by the EPA.
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