IRS Issues Final Carbon Capture Regulations

On January 6, 2021, the US Internal Revenue Service (the “IRS”) issued final regulations (T.D. 9944) (the “Final Regulations”) on the Section 45Q carbon capture tax credit (the “Carbon Credit”). The Final Regulations implement numerous provisions of the proposed regulations (REG-112339-19) (the “Proposed Regulations”) that were issued last year but contain certain investor-friendly changes and additions. Key changes that ought to be well received by investors include (i) reducing the recapture period for the tax credit to three years (from the Proposed Regulations’ five years), (ii) permitting aggregation for purposes of meeting minimum capture requirements (which would benefit smaller carbon capture facilities), (iii) providing clarification with respect to the definition of carbon capture equipment and (iv) detailing standards and other information regarding “secure geological storage.”

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