September 20, 2020

Volume X, Number 264

September 18, 2020

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September 17, 2020

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Six Takeaways: Utilization and Structuring For Section 45Q Carbon Capture Credits

On Thursday, June 11, McDermott partners Phil Tingle, Heather Cooper and Jacob Hollinger were joined by Ken Ditzel, managing director at FTI Consulting, to discuss their insights into the proposed Section 45Q carbon capture and sequestration credit regulations.

The Treasury Department and IRS recently published proposed regulations implementing the Section 45Q carbon capture and sequestration credit. The regulations clarify some questions about the credit, though many questions remain. For further discussion, see our On the Subject.

IN DEPTH


Below are six key takeaways from this week’s webinar:

1. Carbon capture projects are likely to be economically important moving forward. Ken Ditzel estimated there are more than 600 economically viable projects, including both secure geological storage at deep saline formations and enhanced oil recovery projects.

2. The proposed regulations provide a compliance pathway for satisfying the reporting requirements. For long-term storage, taxpayers should comply with Subpart RR of the
Clean Air Act’s greenhouse gas reporting rule. For enhanced oil recovery projects, taxpayers may choose either Subpart RR or alternative standards developed by the American National Standards Institute (ANSI).

3. Taxpayers can claim the credit if they utilize the captured carbon for a purpose for which a commercial market exists, instead of storing it. Additional guidance is needed to
determine what commercial markets the IRS will recognize and how they will go about making those determinations.

4. The proposed regulations offer considerable flexibility to contract with third parties to dispose the captured carbon and to pass the section 45Q credit to the disposing party.
Contracts must meet certain procedural requirements, including commercially reasonable terms and not limiting damages to a specified amount.

5. If the captured carbon dioxide leaks, the carbon capture tax credit is subject to recapture by the IRS. The taxpayer who claimed the credit bears the recapture liability, but IRSguidance permits indemnities and insurance for credit recapture.

6. The partnership allocation revenue procedure issued in February 2020 provides flexibility for the section 45Q credit relative to other tax equity structures, by only requiring 50%
non-contingent contributions by an investor member. This may make projects easier to finance, especially in light of the other contracting flexibility in the proposed regulations.

Take in the whole webinar, below.

 

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 164

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About this Author

Philip Tingle Tax Attorney McDermott Will & Emery
Partner

Philip (Phil) Tingle represents energy companies such as utilities, independent power producers and financial institutions on a wide range of energy tax-related matters. He is the global head of the Firm's Energy Advisory Practice Group.

Phil provides advice regarding all aspects of renewable-energy projects, including tax equity structures, refinancings, acquisitions and dispositions, restructurings and workouts. He has extensive experience with the production tax credit and with the application of renewable credits to new technologies....

305-347-6536
Heather Cooper, Energy Attorney, McDermott Will & Emery Law Firm
Counsel

Heather Cooper is counsel in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Miami office.  She works on federal income tax matters, with a focus on energy tax issues. She represents clients in restructurings, mergers and acquisitions, and other transactional energy related matters. Her national practice includes advising on renewable energy transactions, such as solar and wind projects.

305-329-4473
Jacob Hollinger , Environmental & Energy Attorney McDermott Will Emery Law Firm
Partner

Jacob Hollinger is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s New York office.  His practice focuses on the environmental, regulatory and litigation needs of energy and manufacturing sector entities.

Prior to joining McDermott, Jacob spent nearly ten years as a government enforcement attorney, first with the New York State Attorney General’s Office and later with the U.S. Environmental Protection Agency.  As an Assistant Attorney General for New York State, Jacob was New York’s lead litigation counsel in several complex environmental and...

212-547-5834