Internal Revenue Bulletin: 2014-27
June 30, 2014
Table of Contents
This notice publishes the inflation adjustment factor for the credit for carbon dioxide (CO2) sequestration under § 45Q of the Internal Revenue Code (§ 45Q credit) for calendar year 2014. The inflation adjustment factor is used to determine the amount of the credit allowable under § 45Q. This notice also publishes the aggregate amount of qualified CO2 taken into account for purposes of § 45Q.
Section 45Q(a)(1) allows a credit of $20 per metric ton of qualified CO2 that is captured by the taxpayer at a qualified facility, disposed of by the taxpayer in secure geological storage, and not used by the taxpayer as a tertiary injectant. Section 45Q(a)(2) allows a credit of $10 per metric ton of qualified CO2 that is captured by the taxpayer at a qualified facility, used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, and disposed of by the taxpayer in secure geological storage.
Section 45Q(b)(1) defines the term “qualified carbon dioxide” as CO2 captured from an industrial source that would otherwise be released into the atmosphere as industrial emission of greenhouse gas, and that is measured at the source of capture and verified at the point of disposal or injection. Qualified CO2 includes the initial deposit of captured CO2 used as a tertiary injectant but does not include CO2that is re-captured, recycled, or otherwise re-injected as part of the enhanced oil and natural gas recovery process.
Section 45Q(c) defines the term “qualified facility” as an industrial facility that is owned by the taxpayer, where carbon capture equipment is placed in service, and where at least 500,000 metric tons of CO2 is captured during the taxable year.
Section 45Q(d)(2) provides that the Secretary, in consultation with the Administrator of the Environmental Protection Agency (EPA), the Secretary of Energy, and the Secretary of the Interior, shall establish regulations for determining adequate security measures for the geological storage of CO2 under § 45Q(a)(1)(B) or (a)(2)(C) such that the CO2 does not escape into the atmosphere.See section 5 of Notice 2009–83, 2009–2 C.B. 588, for procedures regarding secure geological storage.
Section 45Q(d)(5) allows the § 45Q credit to the person that captures and physically or contractually ensures the disposal of or the use as a tertiary injectant of the qualified CO2.
Under § 45Q(d)(7), for taxable years beginning in a calendar year after 2009, the dollar amount contained in § 45Q(a) must be adjusted for inflation by multiplying such dollar amount by the inflation adjustment factor for such calendar year determined under § 43(b)(3)(B), determined by substituting “2008” for “1990.”
Section 43(b)(3)(B) defines the term “inflation adjustment factor” as, with respect to any calendar year, a fraction the numerator of which is the GNP implicit price deflator for the preceding calendar year and the denominator of which is the GNP implicit price deflator for 1990. For purposes of § 45Q(d)(7), with respect to 2014 calendar year, the inflation adjustment factor is a fraction the numerator of which is the GNP implicit price deflator for 2013 (106.710) and the denominator of which is the GNP implicit price deflator for 2008 (99.229).
Section 45Q(e) provides that the § 45Q credit will apply with respect to qualified CO2 before the end of the calendar year in which the Secretary, in consultation with the EPA, certifies that 75,000,000 metric tons of qualified CO2 have been taken into account in accordance with § 45Q(a).
The inflation adjustment factor for calendar year 2014 is 1.0754.The § 45Q credit for calendar year 2014 is $21.51 per metric ton of qualified CO2 under§ 45Q(a)(1) and $10.75 per metric ton of qualified CO2 under § 45Q(a)(2).
Section 6 of Notice 2009–83 requires taxpayers to file annual reports that provide (among other information) the amounts (in metric tons) of qualified CO2 for the taxable year that has been taken into account for purposes of claiming the § 45Q credit. The annual reports must be filed with the Service not later than the last day of the second calendar month following the month during which the tax return on which the § 45Q credit is claimed was due (including extensions).
Based on the annual reports filed with the Service as of June 1, 2014, the aggregate amount of qualified CO2 taken into account for purposes of § 45Q is 27,114,815 metric tons.
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