CCS Policy and 45Q

The US has the world's most generous incentive for carbon capture: Section 45Q of the tax code, which pays $85 per tonne of CO2 captured and stored geologically, or $60/tonne for CO2 used in enhanced oil recovery. The Inflation Reduction Act raised these values in 2022, and direct air capture qualifies for $180/tonne. Despite this, fewer than 30 CCS facilities operate in the US.

45Q is a per-tonne production tax credit: projects earn it only for CO2 actually captured and stored, not for building equipment. The credit lasts 12 years from the date a facility begins service. Like other tax credits, projects need tax equity partners or direct pay to monetize the full value. The IRA also added "direct pay" for the first five years, making 45Q accessible to entities without tax liability.

The economics at $85/tonne. A coal plant capturing 90% of its CO2 at a cost of $60-80/tonne would roughly break even with the 45Q credit. A gas plant at $40-60/tonne capture cost would generate a modest profit. A direct air capture facility at $400-600/tonne is nowhere close to breakeven, even at $180/tonne.

If 45Q covers capture costs, why are so few projects built?

Because the credit covers operating cost but not the capital risk. A capture facility costs $500 million to $1 billion upfront. Construction takes 3-5 years before any credits flow. Pipeline and storage infrastructure may not exist yet. Permitting for CO2 injection wells (EPA Class VI permits) takes 2+ years. The credit is generous enough on paper but does not address the timeline, infrastructure, and permitting barriers that delay projects for a decade.

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