Companies Seek to Ensure Clarity in Sequestration Credit Regs

August 1, 2020

CC:PA:LPD:PR (REG-112339-19)
Room 5203
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

Re: Notice of Proposed Rulemaking on Section 45Q Credit for Carbon Oxide Sequestration (Docket IRS-2020-0013)

This letter is submitted in response to the notice of proposed rulemaking (NPRM) for the Credit for Carbon Oxide Sequestration, 85 Fed. Reg. 34050 (June 2, 2020).

We are an ad hoc collection of companies that approach implementation of section 45Q from an economic-based and commercially pragmatic perspective. Our group includes representatives from the following industries: direct air capture, distributed power generation, carbon capture project development, and carbon dioxide enhanced oil recovery (CO2-EOR) that capture CO2 from natural gas processing, ethanol and fertilizer facilities. We are geographically diverse and include participants from Michigan, Oklahoma, Rhode Island, Texas and Canada. Each company in the group is either currently engaged in carbon capture or secure geologic storage, or is developing projects (some of which have been announced) or licensing technology which will involve carbon capture and disposal, injection or utilization. The proposed and final regulations for the Section 45Q credit impact us daily.

The effort by our group has been a significant undertaking, including our submission in mid-2019 of a comprehensive set of draft regulations for consideration in response to Notice 2019-32. Each participating company, through individual employees and contractors, has made significant contributions to our work product.

We believe the final 45Q regulations should both provide clear requirements for qualifying for the credits and foster investment certainty for carbon capture projects. Section 45Q should be implemented in a manner that provides the utmost clarity for project developers, operators and tax equity investors. We encourage adoption of final regulations that will provide sufficient precision and completeness to avoid project delays.

Our detailed comments are organized by number, and the order of the comments generally follows the order of the proposed regulations. We believe all of our comments have merit, but we would draw special attention to the following:

• Definitions of terms and their consistent use throughout the regulations are critically important to eliminate confusion and reduce uncertainty. Important definition changes are needed to:

  • Carbon capture equipment (Comment 11)

  • CO2 Production Wells Exclusion (Comment 13)

  • 80/20 Rule is unfairly limited in scope and application (Comment 21-22)

  • Direct air capture facilities are unfairly excluded from one regulation requiring “emissions” to occur (Comment 19)

• We agree with the definition of electricity generating facility as proposed (Comment 15)

• The standard of certification by, and the required experience of, the third-party certifier should be expanded (Comment 32)

• We supply extensive comments regarding utilization verification (Comment 39), including examples of how we believe the LCA should apply while still ensuring that 45Q credits are only claimed for amounts of qualified carbon oxide and no other gas (Comments 37, 38 and 45). We also support developing criteria for utilization process approvals, and for approval in the final regulations of fuels as a commercial market and product for a utilization process (Comment 41).

• The recapture period should be 1 year instead of 5 years (Comment 49), the recapture period beginning date and the force majeure exception should be clarified (Comments 51-52), and a remedial action and cure period should be provided during the post-credit-claiming period (Comment 54)

• The start of the 12-year credit period needs to take into consideration both (a) the definition of “qualified carbon oxide” which requires the carbon oxide to be disposed of, injected or utilized pursuant to an approved plan or method, and (b) the timing of obtaining that approval (Comment 59)

• The Rev. Proc. 2020-12 should be modified to also allow partnerships for what the proposed regulations define as “credit claimants” (Comment 62)

In addition to providing Comments, we have included Exhibits that contain specific blackline edit suggestions to each of the proposed regulations. By recommending precise revisions to the proposed regulations, the Exhibits seek to provide sufficient details to explain our comments and our suggestions. For each edit to a proposed regulation, we reference the related Comment by number.

Our detailed comments and suggested revisions to the regulations provide the degree of certainty and clarity that is needed so that additional commercial capture projects can be deployed efficiently and effectively.

We appreciate the proposed regulations being issued in a manner that taxpayers can rely on them immediately.

In developing our comments, we have worked under the leadership of Keith Tracy of Cornerpost CO2 LLC. If you have any questions regarding this submission, please contact Keith at 405-308-7289 or keith@keithtracy.com.

Sincerely,

Steve Oldham
CEO
Carbon Engineering Ltd.

Paul Dunn
President
CarbonPoint Solutions

Robert Mannes
President
Core Energy, LLC

Keith Tracy
President
Cornerpost CO2 LLC

Ronald T. Evans
CEO
Perdure Petroleum LLC

45Q Full Reg Project

cc:
David Selig, Office of Associate Chief Counsel (Passthroughs & Special Industries)
Maggie Stehn, Office of Associate Chief Counsel (Passthroughs & Special Industries)