Senators Submit Comments on Carbon Oxide Sequestration Credit

July 24, 2019

The Honorable Steven Mnuchin
Secretary
Department of the Treasury
1500 Pennsylvania Ave, N.W.
Washington, DC 20220

The Honorable Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Ave, N.W.
Washington, DC 20224

Dear Secretary Mnuchin and Commissioner Rettig,

We write today in follow up to our April 30, 2018, letter regarding the implementation of the recently expanded 45Q Tax Credit for Carbon Oxide Sequestration, and to provide comment to Internal Revenue Service (IRS) Notice 2019-32, Request for Comments on Credit for Carbon Oxide Sequestration. Thank you for your attention to this matter.

The Bipartisan Budget Act of 2018 (Public Law 115-123) enacted on February 9, 2018, expanded and extended the existing Section 45Q tax credit to incentivize the capture and secure geologic storage of anthropogenic carbon dioxide (CO₂). Current IRS tax forms create confusion for taxpayers that may want to claim the 45Q credit for storing CO₂ that is used as a tertiary injectant in an enhanced oil or gas recovery project. This confusion stems from the IRS requiring compliance with an Environmental Protection Agency (EPA) program originally designed for dedicated geologic sequestration projects and Clean Air Act compliance. Numerous stakeholders have expressed concerns that the IRS' exclusive reliance on the EPA's program will inhibit maximum utilization of the 45Q tax credit, thereby constraining its domestic energy production and environmental stewardship benefits. As we stated in our April 30, 2018 letter:

At present, the agencies have defaulted to using only EPA's dedicated geological sequestration requirements to verify eligibility for the tax credit. Subjecting enhanced oil and gas recovery operators to a different set of regulatory requirements than EPA already promulgated has, in turn, prevented numerous operators from making long-term investments in energy and infrastructure projects that promote the beneficial use of CO₂ and domestic energy production, as well as improve environmental stewardship.

As such, we welcome the issuance of IRS Notice 2019-32, which seeks general comments on the current regulatory regime surrounding Section 45Q, and also specifically asks for comment on whether or not there are alternatives to demonstrating secure geological storage, specifically if,

Question (1):

We believe that the IRS should make clear that multiple pathways or standards, as determined by the IRS to demonstrate "adequate security measures for geologic storage”, be adopted. Additionally, we believe that those pathways or standards should be implemented by the IRS to meet the requirements of 45Q, including EPA GHGRP requirements Subparts UU, PP, W and C (where applicable), along with the recently published ISO 27916:2019 performance standard. All possible pathways, such as state programs or protocols, which meet these criteria should be considered to the maximum extent practicable for the demonstration of secure geological storage.

Question (2):

Additionally, the International Organization for Standardization (ISO), an international standards-making body located in Geneva, Switzerland, of which the American National Standards Institute (ANSI) is a member, convened Technical Committee 265 (TC 265) in 2011. TC 265 was tasked with the standardization of design, construction, operation, and environmental planning and management, risk management, quantification, monitoring and verification, and related activities in the field of carbon dioxide capture, transportation, and geological storage. TC 265 is composed of 20 participating members, including the United States, and since its establishment has published 8 ISO standards.

Most recently, on January 1, 2019, TC 265 published ISO Standard 27916:2019 establishing international standards for “carbon dioxide (CO₂) that is injected in enhanced oil recovery operations for oil and other hydrocarbons (CO₂-EOR) for which quantification of CO₂ that is safely stored long-term in association with the CO₂-EOR project is sought.” ISO 27916:2019 was the product of an international Working Group (WG6), between the standards bodies of the United States and Norway, and was unanimously approved by a U.S. Technical Advisory Group (TAG) consisting of 24 U.S. industry organizations, including representatives from the Department of Energy, the oil and gas industry, nonprofit environmental organizations, and numerous universities.

We believe that ISO 27916:2019 is a robust standard for demonstrating and documenting secure, long-term geological storage of CO₂ in association with enhanced oil recovery operations. ISO 27916 also provides for the identification and quantification of CO₂ losses and quantification of the amount of CO₂ stored in association with enhanced oil and gas recovery (EOR) projects. ISO 27916:2019 can be an important tool to document CO₂ containment assurance as regulated under existing UIC Class II and the applicable EOR GHGRP requirements.

We look forward to working with you to provide ongoing certainty and regulatory flexibility for meeting the requirements of the statute for those seeking to utilize the Section 45Q tax credit. Please do not hesitate to contact our staff should you have further questions or require additional information.

Sincerely,

John Hoeven
United States Senator

Steve Daines
United States Senator

Kevin Cramer
United States Senator

John Barrasso
United States Senator