IRC 45q Explained: How the Carbon Capture Statute Defines Who Can Claim and Sell the Credit

The vast majority of clean energy tax credits are simple, really: if you build it and you own it, you claim the credit. IRC 45Q is different, though. The carbon capture credit has its own set of rules as to who can claim it, who can transfer it, and what happens when you have multiple parties involved in the capture, transport, and storage of the same carbon oxide.

If you’re buying or selling carbon capture credits, you absolutely need to understand the eligibility chain under IRC 45Q. If you get it wrong, the credit won’t end up where you think it will.

The Credit Follows the Capture Equipment

This is the foundational rule. For carbon capture equipment placed in service on or after February 9, 2018, the IRC 45Q credit belongs to the person who owns the capture equipment. Not the facility operator. Not the entity that stores the carbon. The equipment owner.

The IRS has been very clear on the details. It’s on a per-train basis, so every single train of carbon capture equipment at a qualified facility is a separate unit. Only one taxpayer can claim the credit per train. You can’t split the credit between multiple claimants for the same equipment.

This may sound like a trivial technicality, but it’s actually quite significant in the way that carbon capture projects are structured. The operator of the plant, the company that actually installed the capture equipment and the company that is responsible for the geological storage could all be three different entities. The law is unequivocal in this respect: the equipment owner gets the credit unless they specifically choose to pass it on.

The Election to Transfer Under 45Q Itself

Even prior to the IRA introducing Section 6418 transferability, section 45Q had its own transfer option. Section 45Q(f)(3) allows the owner of the capture equipment to elect to transfer the credit to the party that disposes of or uses the captured carbon dioxide.

This election is made annually on Form 8933. The equipment owner can determine what percentage they wish to transfer each year and can split the credits among a number of disposal or utilization partners if the carbon is going to different places. The taxpayer making the election must provide a copy of their Form 8933 to the credit claimant, and the claimant will, of course, need to provide the requisite information in order to claim the credit.

This is a crucial bit for structuring the deals. The party that is receiving the credit via this election must in fact be the party that has the right permit for the geological storage or the EOR project. Subcontractors who merely do the injection work don’t qualify. If the recipient is a partnership, then only the partners with working interests can share in the credits.

Section 6418 Opened a Second Transfer Channel

The IRA has created another option. Under Section 6418, anyone holding IRC 45Q credits can now transfer them to an unrelated third-party buyer for cash. The seller is not liable to pay any tax on the cash received, and the buyer is not entitled to a deduction for the payment. This brings carbon capture credits into the wider transferable tax credit market.

Both of the transfer options can be used in combination. An equipment owner can assign credits to a storage partner under 45Q(f)(3) and that storage partner can then transfer those credits to an outside buyer under section 6418. That layering provides some additional flexibility but also means that the buyer will have to track a longer chain of eligibility docs through due diligence.

Credit Rates and Minimum Thresholds That Shape the Deal

The numbers under IRC 45Q are important as they directly determine the size of the transaction. For industrial and power facility capture, it’s $85 per metric ton with PWA compliance, $17 at the base rate. For direct air capture, it’s $180 per metric ton at the full rate, $36 at the base rate. The credits are for 12 years from the date the equipment is placed in service.

Facilities also have to meet minimum annual capture thresholds to qualify at all. The applicable minimum capture thresholds depend on the type of facility and the statutory requirements. A deeper look at the structural advantages and diligence considerations for 45Q credits can help buyers evaluate how these thresholds and rates translate into real deal economics.

Conclusion

You can’t assess IRC 45Q simply by looking at the dollar amount. Who owns the capture equipment, whether an election was actually made under 45Q(f)(3) and how Section 6418 transferability plays into it all will determine where the credit ultimately ends up. For buyers in the transfer market, tracing that chain is not just part of due diligence; it is due diligence.