§45Q outlook: Structural advantages and diligence for an emerging credit

§45Q is positioned to become a more meaningful production tax credit (PTC) option as U.S. carbon capture infrastructure grows. Major oil and gas companies, including Occidental Petroleum and Woodside Energy, have announced plans to bring sizable carbon capture projects online in 2026 that will generate §45Q credits. More broadly, industry analysts estimate that U.S. carbon capture capacity will grow eightfold from 2024 to 2030, from 22 to 176 million metric tons of carbon dioxide (MT CO2). Not all credits will reach the transfer market, but we expect transfer volumes to grow alongside credit generation.¹

There are several structural advantages that §45Q offers to tax credit buyers:

Creditworthy sellers. Many sponsors are publicly traded oil and gas or industrial companies that have strong balance sheets backing the tax credits.
Favorable pricing. §45Q currently trades in the low $0.90s, below §45 PTC pricing, even with sponsors providing guarantees from investment-grade entities.
Long credit period. §45Q projects generate credits for 12 years once the project is placed in service. Projects are eligible for credits as long as construction starts before January 1, 2033. As a result, §45Q projects can generate credits well into the 2040s, in contrast with credits like §45Z that phase out at the end of 2029.
Favorable Foreign Entity of Concern ("FEOC") treatment. The OBBBA applied lighter FEOC restrictions to §45Q than to §45Y, §48E, or §45X. In particular, §45Q is not subject to material assistance sourcing rules and is also exempt from effective control rules, which can carry complex diligence requirements.

The credit does carry some trade-offs. Unlike other PTCs, §45Q credits have a three-year recapture tail tied to storage performance, so geologic storage will require careful diligence.

Mechanics

Eligibility

§45Q (26 U.S. Code §45Q) supports investment in carbon capture, utilization, and sequestration (CCUS) infrastructure. It applies to projects that capture qualified carbon oxide from point-source industrial or bioenergy facilities, or from ambient air via direct air capture (DAC). Qualified end uses include:²

Geological sequestration: permanent underground storage
Enhanced oil recovery (EOR): injection into a well to extract crude oil
Utilization: fixation through photosynthesis/chemosynthesis, chemical conversion into a product that securely stores the carbon oxide, or any other commercial use (excluding EOR)

Credits are available for 12 years after equipment is placed in service, with an uncapped limit to the volume of credit generation.³

Credit values

§45Q is a per-metric-ton credit on qualified carbon oxide captured and properly disposed of or utilized. OBBBA set flat rates across end uses; previously, EOR and utilization received lower values than geologic storage. For projects placed in service after July 4, 2025, PWA-compliant rates are:⁴ ⁵

Industrial and power facilities: $85 per metric ton (MT)
Direct air capture (DAC): $180 per MT

Capture Method	End Use	Carbon Capture Equipment (CCE) Placed-in-Service Date
Capture Method	End Use	Feb. 9, 2018 – Dec. 31, 2022	Jan. 1, 2023 – July 4, 2025	After July 5, 2025
Industrial	Storage	$50 per MT	$85	$85*
Industrial	EOR / utilization	$35 per MT	$60	$85*
Direct air capture (DAC)	Storage	$50 per MT	$180	$180*
Direct air capture (DAC)	EOR / utilization	$35 per MT	$130	$180*

All incentive rates in $(2026) per MT of qualified carbon oxide, assuming compliance with PWA requirements

* For taxable years beginning after 2026, applicable dollar amounts are inflation-adjusted annually under §45Q(b)(1)(A), using the §43(b)(3)(B) inflation adjustment factor with 2025 as the base year.

The $17 base credit ($36 for DAC) is fixed for 2025–2026, then inflation-adjusted annually beginning 2027 under §43(b)(3)(B) (2025 base year).

§45Q projects that began construction before January 29, 2023 are exempt from Prevailing Wage and Apprenticeship (PWA) requirements. Projects that fail to meet PWA requirements receive a credit at one-fifth of the full rate described in the table above.⁶

Projects may also monetize through §6418 transfer or §6417 elective pay ("direct pay"). Direct pay yields the full $1.00 credit value as an IRS cash refund, though sponsors may be subject to long waiting times for refunds.⁷

Due diligence

Diligence on §45Q covers PWA compliance, FEOC restrictions, and recapture. §45Q is the only PTC subject to recapture.

Qualification and quantification

Facilities must meet minimum annual capture thresholds under §45Q(d)(2):⁸

DAC: 1,000 MT CO2 per year ⁹
Electricity-generating (e.g., bioenergy): 18,750 MT CO2 per year at 75% capture of baseline emissions ¹⁰
All other facilities: 12,500 MT CO2 per year ¹¹

Existing equipment may qualify for enhanced post-2022 values if incorporated into a sufficiently upgraded process train. Construction must begin before January 1, 2033, or the equipment must have been included in the facility's original design.¹²

Project companies must comply with EPA underground injection rules and demonstrate secure geologic storage.

§45Q cannot be stacked with §45V, §45Y, §45Z, §48, §48C, or §48E on the same carbon oxide or facility.¹³

Structure

For equipment placed in service after February 9, 2018, the credit belongs to the taxpayer that owns the equipment and ensures capture/disposal, utilization, or tertiary-injectant use. Only one taxpayer may claim §45Q credits for each independently operating carbon capture system, and that taxpayer need not own every component. Revenue Ruling 2021-13 confirms this for situations where the carbon capture equipment owner is a different party than the host facility owner — a common structure at ethanol plants partnering with separate carbon capture & storage operators.¹⁴ ¹⁵ ¹⁶

Recapture

Under §45Q(f)(4), credits are recaptured if CO2 leaks during the recapture period, which runs from first injection to the earlier of (i) three years after the last claim/carryforward year, or (ii) the end of monitoring under §1.45Q-3(b)(1) or (2). For §6418 transfers, recapture flows to the tax credit buyer pro rata; the seller is liable for any retained share. Indemnities are typically structured so the seller compensates the buyer in the event of a recapture, including any interest, penalties, and gross-up for taxes.¹⁷

Foreign entity of concern restrictions

§45Q is subject to FEOC restrictions but not the material assistance/sourcing rules that apply to §45Y, §48E, and §45X. FEOC rules are designed to restrict tax credits to projects that have too many supply chain links to China, Iran, North Korea, or Russia. The core restriction on §45Q is that neither the seller nor the buyer of credits may be a prohibited foreign entity (PFE), with the buyer-side prohibition narrowed to specified foreign entities (SFEs).¹⁸ ¹⁹

Due diligence consideration by credit

Due diligence consideration	§45Q PTC	§45Z PTC	§45 PTC	§45X PTC	§45Y PTC	§45U PTC	§48 ITC	§48E ITC
Qualification & quantification	Y	Y	Y	Y	Y	Y	Y	Y
Structure	Y	Y	Y	Y	Y	Y	Y	Y
Recapture	Y	N	N	N	N	N	Y	Y
Prevailing wage & apprenticeship*	Y	Y	Y	N	Y	Y	Y	Y
Bonus credit adders*	N	N	Y	N	Y	N	Y	Y
Foreign entity of concern (FEOC)**	Y	Y	N	Y	Y	Y	N	Y
Typical technologies	Carbon capture	Clean fuels	Solar, wind and others	Advanced manufacturing	Technology neutral	Nuclear	Solar, wind and others	Technology neutral

* Select projects may be exempt from PWA and/or not claiming bonus credit adders.

** FEOC applicability varies by credit tax year for §48E, §45Y, §45Z, §45Q, §45U, and §45X.

Insights from a recent Reunion §45Q transaction

In Q1 2026, Reunion facilitated a $30M §45Q transfer between two Fortune 500 companies—an experienced buyer and a first-time seller—covering a portfolio of four CCUS facilities.

Beginning of construction (BOC) and placed in service (PIS) dates heavily inform the scope of due diligence The four facilities had different BOC and PIS dates, so PWA obligations (driven by BOC) and credit rates (driven by PIS) varied across the portfolio. Reunion performed a "vintage analysis" at scoping to map the requirements applicable to each facility.

"Single project" treatment is a key §45Q diligence item Two of the seller's facilities relied on a "single project" determination under the IRS eight-factor test (Notice 2020-12) to meet annual minimum capture thresholds. Reunion and buyer's counsel focused significant diligence attention to ensure that the two facilities would in fact be viewed as a single project and therefore meet minimum carbon capture thresholds to qualify for §45Q credits.²⁰

Seller access to direct pay has created a soft price "floor" Sellers of §45Q credits are eligible for direct pay, which gives sellers an alternative path to tax credit monetization; this is particularly true for investment-grade sellers that have the financial wherewithal to wait for better pricing. The ability to opt for direct pay gives sellers a credible negotiation lever, which has resulted in pricing in the low $0.90s despite typical buyer caution on new credits.