For years, the ethanol industry has been capturing carbon dioxide and selling it to manufacturers of carbonated beverages and other customers.
As part of a government-spending bill, Congress just approved a large expansion of the 45Q tax credit for CO2 capture.
The expansion of the 45Q credit could very well lead to innovations in what the ethanol industry does with its CO2 and changes in the dynamic of how it interacts with the oil industry. In fact, oil companies often purchase large volumes of CO2 for a practice known as “Enhanced Oil Recovery” (or “EoR”).
As their thirst for CO2 continues to grow in proportion with its domestic production activities that utilize EoR methods, some people believe ethanol producers are now well poised to potentially become the reliable and sustainable source of CO2 needed for its growth.
The 45Q tax credit, originally $20 per CO2 ton sequestered and $10 per ton used for EoR, is now scheduled to increase to $50 and $35 per ton respectively, over 10 years:
1. If the equipment was placed in service before the bill passed, the credit amount is $20 per ton sequestered, plus an annual inflation adjustment.
2. If the equipment is placed in service after the bill passed, the credit amount per ton sequestered grows from $22.66 to $50.00 over 10 years, and then it continues to grow beyond 50 with an annual inflation adjustment.
However, there are a number of variables that affect this credit. These include the date that equipment is placed in service and the type and size of the facility producing/emitting the CO2. For example, “in the case of a facility which emits not more than 500,000 metric tons of carbon oxide into the atmosphere during the taxable year, not less than 25,000 metric tons of qualified carbon oxide during the taxable year” must be captured and utilized for a qualified purpose.
Consequently, if you want to make a complete determination of 45Q’s applicability and value to your business operations, you should contact us for a 45Q assessment.