46 TEXAS JOURNAL OF OIL , GAS , AND ENERGY LAW [ Vol . 16:1
a material or chemical compound , or any other purpose for which a commercial market exists , as determined by the Secretary of the Treasury . This portion of the paper will review ( A ) the eligibility requirements for Section 45Q credits and ( B ) the recapture of Section 45Q credits .
A . Eligibility for Section 45Q Credits
The Section 45Q credit is available for carbon capture projects for which construction begins before January 1 , 2024 and continues for twelve years after a qualifying project is placed in service . For projects placed in service after February 8 , 2018 , the amount of the credit increases each year to a maximum of $ 50 per metric ton of qualified carbon oxide placed in secure geological storage and a maximum of $ 35 per metric ton if such carbon oxide is injected or utilized , in each case , with an inflation adjustment after 2026 .
Section 45Q ( f )( 3 ) provides that , in the case of a project placed in service after February 8 , 2018 , Section 45Q credits may be claimed by a taxpayer that owns carbon capture equipment and either ( 1 ) physically ensures the capture , disposal , injection , or utilization of the qualified carbon oxide , or ( 2 ) contractually ensures the performance of these activities ( the “ Eligibility Rule ”). The proposed regulations under Section 45Q ( the “ Proposed Regulations ”) provide that , to contractually ensure performance of the capture and disposal , injection , or utilization of qualified carbon oxide , a taxpayer must enter into a binding written contract with the party that physically performs such activities . The contract must include commercially reasonable terms , must be enforceable against both parties under state law , and may not limit damages to a specific amount . The regulations promulgated by the Department of the Treasury also require the contract to include enforcement mechanisms to ensure the counterparty ’ s obligation to perform . While no specific mechanism is required , the Proposed Regulations do provide that such contracts may include provisions relating to long-term liability , indemnification , penalties for breach of contract , and liquidated damages . Finally , a taxpayer is not considered to elect to transfer all or any portion of allowable Section 45Q credits to a contracting party solely because it contracted for services related to such carbon oxide . Such credits may be transferred only through the Transfer Election , described below .
Section 45Q ( f )( 4 ) requires the Secretary of the Treasury , in consultation with the Environmental Protection Agency ( EPA ), the Secretary of Energy , and the Secretary of the Interior to establish regulations for determining adequate security measures for geological storage to ensure that qualified carbon oxide does not escape into the atmosphere . The Proposed Regulations provide that a taxpayer will be deemed to store captured qualified carbon oxide in secure geological storage if such storage is in compliance with the EPA ’ s rules for monitoring , reporting , and verifying carbon capture and sequestration found in subpart RR of 40 C . F . R . pt . 98 ( Subpart RR ).