IRS Offers Tax-Break Clarity to Accelerate Carbon-Capture Projects
February 19 2020 - 6:24PM
Dow Jones News
By Richard Rubin and Rebecca Elliott
The Internal Revenue Service provided some clarity Wednesday for
companies seeking to use a tax credit for capturing and storing
carbon dioxide, taking a first step toward accelerating slow-moving
projects, with more detailed rules to come.
Companies such as Occidental Petroleum Corp., a Houston-based
oil-and-gas company, have been urging the IRS to offer details on
implementing the tax credit, which Congress expanded in 2018.
Treasury Secretary Steven Mnuchin, acknowledging delays, told the
Senate Finance Committee last week that he was pressing his staff
to finish the regulations soon.
Energy companies and environmental groups see carbon capture as
part of the world's response to climate change. The technology is
designed to remove carbon dioxide, which traps heat, from exhaust,
ambient air or other gas streams, thus reducing net emissions. Many
oil-and-gas companies also inject carbon dioxide into the ground to
help release additional oil, a process known as enhanced oil
recovery.
Companies can get tax credits for every metric ton of carbon
dioxide they place into secure geological storage or use for
certain industrial purposes. The credit's value depends on the year
and what the company does with the carbon. The expanded break was
estimated to cost $689 million over a decade, according to the
nonpartisan Joint Committee on Taxation.
The interim guidance defines when a project counts as having
started, making it easier for companies to determine whether their
facilities will be eligible for the credit, available only for
projects that begin construction before 2024. But it doesn't
address key items such as what kind of carbon-dioxide storage
counts as secure. Future regulations will address those
questions.
Barbara de Marigny, a partner at the law firm Baker Botts LLP,
characterized the guidance as a necessary step, but one that is
insufficient by itself.
"If somebody was on the fence about whether or not they were
going to do a carbon capture project, this guidance alone I don't
think is going to be sufficient," she said.
Companies qualify for the break if they complete 5% of an
eligible project or begin significant physical work by the end of
2023. Under Wednesday's guidance, that work could include
excavation or foundation-building at the project site or making
support structures or components off-site.
Companies must make continuous progress on their projects once
they start construction to get the credit later when they start
capturing carbon. Recognizing the complexities of carbon-capture
facilities, the new guidance says any project that starts on time
and takes six years or fewer to begin operating will automatically
qualify. That is up from four years on other renewable-energy
projects.
"We were very concerned that for some of the larger projects
especially...four years just wasn't enough," said Brad Crabtree,
director of the Carbon Capture Coalition, an alliance of companies,
labor unions and environmental groups. "It will give confidence to
companies in industries that don't have much experience with carbon
capture at scale to pursue a project."
Write to Richard Rubin at richard.rubin@wsj.com and Rebecca
Elliott at rebecca.elliott@wsj.com
(END) Dow Jones Newswires
February 19, 2020 18:09 ET (23:09 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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