2021 ] CARBON CAPTURE , UTILIZATION , AND SEQUESTRATION 47
In response to feedback from several commentators , the Proposed Regulations permit taxpayers using captured qualified carbon oxide as a tertiary injectant for EOR to rely on the CSA / ANSI ISO 27916:19 standard ( the “ ISO Standard ”) as an alternative to Subpart RR . A taxpayer that reports volumes of carbon oxide to the EPA pursuant to Subpart RR may self-certify the volume of carbon oxide claimed for purposes of Section 45Q . Alternatively , if a taxpayer determines volumes pursuant to the ISO Standard , the taxpayer ’ s documentation must be certified by a qualified independent engineer or geologist as accurate and complete .
Section 45Q permits a taxpayer eligible to claim Section 45Q credits under the Eligibility Rule to elect to allow the party that disposes of , injects , or utilizes the qualified carbon oxide to claim the credit ( the “ Transfer Election ”). The Transfer Election , along with the allocation of credits to tax equity investors through partnerships , allows taxpayers without sufficient tax liability to benefit from the credits to monetize Section 45Q credits and reduce overall project costs .
B . Recapture of Section 45Q Credits
Section 45Q ( f )( 4 ) requires the Secretary of the Treasury to promulgate regulations addressing the recapture of Section 45Q credits if qualified carbon oxide ceases to be captured and disposed of or injected in a manner consistent with the requirements of Section 45Q . Prior to the Proposed Regulations , the absence of guidance regarding recapture of Section 45Q credits created uncertainty regarding the scope of the recapture risk which , in turn , deterred investment in CCUS projects . The Proposed Regulations , however , provide greater clarity by defining how the recapture is computed and borne and the length of the recapture period .
First , the Proposed Regulations provide that a taxpayer is subject to recapture only to the extent the amount of qualified carbon oxide leaked into the atmosphere in a taxable year exceeds the amount disposed of or injected in the same taxable year ( the “ Net CO Decrease ”). This determination is made separately for each project . The amount of the recapture is the product of the Net CO Decrease and the appropriate credit rate , using the last-in-first-out ( LIFO ) method . In other words , the leakage is deemed attributable to the first prior taxable year , then subsequent prior taxable years , in order , for up to five taxable years . If there is no Net CO Decrease , there is no recapture amount , although the amount of carbon oxide leaked into the atmosphere would offset the amount of qualified carbon oxide disposed of , or injected , in such year for purposes of computing the Section 45Q credit .
Second , the recapture period begins on the date on which qualified carbon oxide is first disposed into secure geological storage or used as a tertiary injectant . Such period ends upon the earlier of ( 1 ) five years after the last taxable year in which the taxpayer claimed a Section 45Q credit for the applicable pro-