SECTION 4. APPLICATION OF

SECTION 45Q CREDIT

.01 In General . Taxpayers who capture qualified CO from a qualified facility in 2

2009–44 I.R.B. 588 November 2, 2009

a taxable year beginning after October 3, 2008, and meet all of the other requirements of § 45Q are eligible to claim the credit.

.02 Section 45Q Credit Amount . (a) The amount of the § 45Q credit is equal to the sum of:

(i) $20 per metric ton of qualified CO 2 if the qualified CO 2 is not used as a tertiary injectant in an EOR project; and

(ii) $10 per metric ton of qualified CO 2 if the qualified CO is used as a tertiary 2 injectant in an EOR project.

Pursuant to § 45Q(d)(5), a taxpayer that captures and physically or contractually ensures the disposal of or the use as a tertiary injectant of qualified CO 2 is eligible to claim the § 45Q credit.

(b) Inflation Adjustment . The § 45Q credit amount will be adjusted for inflation for any taxable year beginning in a calendar year after 2009. The Service will announce in later guidance the applicable inflation adjustment for the amount of § 45Q credit for a given taxable year.

.03 Carbon Dioxide Measured by Weight . (a) In order to claim a § 45Q credit, the amount of CO must be mea2 sured at the source of capture and verified either at the point of disposal in secure geological storage or at the point of injection as a tertiary injectant in an EOR project. The amount of qualified CO 2 for purposes of the § 45Q credit is presumed to be the lesser of the amount measured at capture and the amount verified at disposal or injection, unless the taxpayer can establish to the satisfaction of the Secretary that the greater amount is the correct amount.

(b) For the purpose of calculating the § 45Q credit, a metric ton of CO 2 includes only the contained weight of the CO . The 2 weight of any other substances, such as water or impurities, is not included in the calculation. For example, if a metric ton of a substance that is bought and sold as “CO ” is 95 percent pure CO weight, 2 2 by for purposes of the § 45Q credit, 1.0526 tons (equivalent to 1 divided by 0.95) of the 95 percent pure substance is considered to be one metric ton of CO . 2

.04 Captured and Disposed of or Used within the United States . Section 45Q credit applies only to qualified CO 2 that is captured and disposed of or used as a tertiary injectant within the United States (as defined in § 638(1)) or a possession of the United States (as defined in § 638(2)).

.05 Taxpayers Eligible to Claim the § 45Q Credit . (a) To be eligible to claim the § 45Q credit, a person must (i) own an industrial facility at which carbon capture equipment is placed in service, (ii) capture not less than 500,000 metric tons of qualified CO during the taxable year at such 2 industrial facility, and (iii) physically or contractually ensure that the qualified CO 2 is securely stored in a geologic formation, including where such CO 2 is captured and transported for use in an EOR project. In the case of qualified CO that is used as 2 a tertiary injectant in an EOR project, requirement (iii) above applies only to CO 2 captured after February 17, 2009.

Each industrial facility for which the § 45Q credit is claimed must be equipped with carbon capture equipment and must capture not less than 500,000 metric tons of qualified CO during the taxable year. 2 Additionally, a person that buys the captured CO at the point of transit or dis2 posal but does not own the industrial facility at which the CO is captured does 2 not meet the qualified facility requirement of § 45Q(c) and is therefore ineligible to claim the § 45Q credit.

(b) Example . (i) X, a calendar year taxpayer, owns a manufacturing facility in the United States and releases CO into the 2 atmosphere as a by-product of the facility’s operations. On November 1, 2009, X leases carbon capture equipment and places it in service at the manufacturing facility. On February 1, 2010, Y, an oil company, enters into a contract with X to purchase the CO 2 for use as a tertiary injectant in an EOR project. Pursuant to the terms of the contract, X captures the CO and de2 livers it to Y at the manufacturing facility. Y transports the CO in a pipeline to 2 Y’s oil fields located in the United States. Pursuant to its contract with X, Y uses the CO as a tertiary injectant in an EOR 2 project and thereafter disposes of the CO 2 in secure geological storage in the United States in 2010 and later years. During the taxable year beginning on January 1, 2010, 700,000 metric tons of CO 2 is captured at X’s facility and injected as a tertiary injectant under the terms of the agreement. X measures the amount of CO 2 at the source of capture and Y verifies the amount of CO 2 at the point of injection during taxable year 2010.

(ii) CO captured from X’s facility is 2 qualified CO under § 45Q(b) because 2

the CO was captured from an industrial 2 source from which it would otherwise have been released into the atmosphere and is measured at the source of capture and verified at the point of injection in the United States. The CO was captured at 2 a qualified facility within the meaning of section 3.05 of this notice because it is an industrial facility, within the meaning of section 3.02 of this notice, that is owned by X, at which carbon capture equipment is placed in service, and the facility captures not less than 500,000 metric tons of CO during the taxable year. Therefore, 2 X is eligible to claim the § 45Q credit in 2010 for the qualified CO captured 2 and used as a tertiary injectant in an EOR project in 2010. The amount of qualified CO for purposes of the § 45Q credit is 2 presumed to be the lesser of the amount measured at capture and the amount verified at injection, unless X can establish to the satisfaction of the Secretary that the greater amount is the correct amount.

.06 Allocation of § 45Q Credit Among Qualified Facility Owners . Eligibility for the § 45Q credit is based on the total amount of CO captured and disposed of 2 in secure geological storage during a taxable year subject to the following:

(a) If the qualified facility is owned by a partnership that has not made a valid election under § 761(a), the partnership will be considered the taxpayer for purposes of this notice. In such cases, the § 45Q credit must be allocated in accordance with § 1.704–1(b)(4)(ii).

(b) If the qualified facility is owned by a partnership that has made a valid § 761(a) election, then each partner in the partnership will be considered the taxpayer for purposes of this notice. In such case, the taxpayer may claim the § 45Q credit in accordance with its portion of the total amount of qualified CO that is commen2 surate with its undivided ownership of the qualified facility.

.07 Applicability of Credit for Projects under §§ 48A and 48B of the Code . Qualified CO 2 for purposes of the § 45Q credit does not include CO 2 that is captured and sequestered in a project to the extent required under an agreement executed with the Service under the qualifying advanced coal project program of § 48A or the qualifying gasification project program of § 48B.

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flux of emissions. Additional numerical modeling techniques may need to be used to analyze aspects of the geology, such as multi-phase reaction transport models and geomechanical models.

(C) Monitor potential leakage pathways, measure leakage at those pathways as necessary, monitor the current and future behavior of the CO 2 and of the storage system, and use the results of the monitoring plan to validate and/or update models as appropriate. Monitoring should be conducted according to a suitable plan. This should take into account the expectations from the modeling on where leakage might occur, as well as measurements made over the entire zone in which CO is likely to 2 be present.

(ii) UIC Program: Proposed Rules for Geologic Storage . The Underground Injection Control (UIC) program was established under the authority of Part C of the Safe Drinking Water Act (42 U.S.C. 300h et seq. ) (SDWA), which regulates underground injection wells. The SDWA is designed to protect the quality of drinking water sources in the United States. The SDWA gives the EPA authority to issue regulations for state programs that contain “minimum requirements for effective programs to prevent underground injection which endangers drinking water sources.” Under the UIC program, the EPA promulgated a series of regulations (40 C.F.R. parts 144 through 148) to employ a multiple barrier approach that includes requirements for the proper geologic siting, construction, operation, testing, and closure of injection wells to ensure that injected fluids remain isolated from underground sources of drinking water (USDWs) and the environment.

On July 25, 2008, the EPA proposed rules relating to federal requirements under the UIC Program for CO 2 Geologic Sequestration Wells (73 Fed. Register No. 144, 40 C.F.R. parts 144–146). The EPA proposes to create a new category of injection well (Class VI) under its existing UIC Program with new federal requirements to permit the injection of CO 2 for the purpose of geologic sequestration ( i.e., the long-term containment of a gaseous, liquid, or supercritical CO 2 stream in subsurface geologic formations). The EPA proposes to tailor existing UIC program components to create standards appropriate for injecting large amounts of CO into a va2

.08 Credit Recapture . Taxpayers must physically or contractually ensure that all qualified CO disposed of in secure geo2 logical storage remains stored and is not released into the atmosphere. Taxpayers must recapture the benefit of any credit allowable under § 45Q(a) with respect to any qualified CO that ceases to be cap2 tured, disposed of, or used as a tertiary injectant in a manner consistent with the requirements of § 45Q. Procedures regarding § 45Q credit recapture will be provided in future guidance.

.09 Credit Termination . Pursuant to § 45Q(e), at such time as the Service certifies, in consultation with the EPA, that 75,000,000 metric tons of qualified CO 2 have been taken into account for purposes of § 45Q credit, the Service will publicly announce that the § 45Q credit will cease to be available for the calendar year following such announcement.