September 23, 2024

Warren, Khanna, Lawmakers Urge Biden Administration to Develop Strong Guardrails for Carbon Sequestration Tax Credit

“The absence of robust requirements has severely hindered the effectiveness of 45Q.”

Text of Letter (PDF)

Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.) and Angus King (I-Maine), along with Representatives Ro Khanna (D-Calif.), Alma Adams (D-N.C.), Pramila Jayapal (D-Wash.), and Jan Schakowsky (D-Ill.), wrote to the U.S. Department of the Treasury (Treasury), the Internal Revenue Service (IRS), and the U.S. Environmental Protection Agency (EPA), urging the agencies to develop strong guardrails for the 45Q tax credit, which is designed to encourage carbon capture and sequestration (CCS) projects. 

The 45Q credit was initially designed to incentivize investment in CCS and emission reductions. However, the credit has been primarily used to “increase oil production from aging wells, canceling out most of the emissions reduction benefit.” In 2022, Congress expanded the tax credit through the Inflation Reduction Act (IRA), allowing more companies to claim the credit and receive more money per ton of carbon captured. The IRS is expected to release updated guidelines about the tax credit later this year, and the Department of Treasury has estimated that the 45Q tax credit could cost taxpayers up to $30.3 billion over the next ten years.

In 2020, the Treasury Inspector General for Tax Administration (TIGTA) found that between 2010 and 2019, 87% of tax credit claims, worth almost $900 million dollars, were awarded to taxpayers who did not meet the EPA’s verification requirements. Currently, IRS examiners are not required to coordinate with EPA personnel to confirm the amount of carbon sequestered by companies claiming the credit, even allowing self-certification in some instances.  

The lawmakers make three recommendations for the tax credit to be effective. First, the IRS should require independent, third-party verification of carbon sequestration. Second, the IRS and the EPA must coordinate effectively through a memorandum of understanding to more effectively share basic data about the credit’s implementation. Third, the IRS should require stricter record-keeping requirements and establish a 12-year recapture period, during which every company receiving the tax credit needs to maintain detailed records of their carbon sequestration amounts. 

The following organizations endorsed the letter: Taxpayers for Common Sense, Evergreen Action, the Vessel Project, Port Arthur Community Action Network, Better Bayou, Healthy Gulf, Eco-Justice Collaborative, Science Roundtable on Carbon Capture and Storage, Food and Water Watch, Ohio River Valley Institute, Better Path Coalition, No False Solutions PA, Save Our Illinois Land, Physicians for Social Responsibility Pennsylvania, Mid-Ohio Valley Climate Action, Center for Coalfield Justice, Watchdogs of Beaver County, Clean Air Council and Environmental Health Project. 

“We need an end to weak oversight and poor safeguards that could allow some of the richest companies in the world to take public money without delivering the real, measurable climate benefits the policy intended. The IRS must act decisively to ensure this tax credit is used only as a genuine tool for carbon reduction by implementing robust, enforceable guardrails. This is the administration’s chance to stop subsidizing climate pollution and ensure the credit has real oversight,” said Craig Segall, Senior Vice President, Evergreen Action.

 “Senator Warren, Representative Khanna, and their Congressional colleagues are asking for what every taxpayer deserves – guardrails and transparency measures that ensure the 45Q tax credit is being used appropriately and effectively to reduce greenhouse gas emissions,” said Autumn Hanna, Vice President of Taxpayers for Common Sense. “To date the vast majority of the carbon capture tax credit has gone to companies pumping carbon into wells to get more oil. But the country can’t afford to give more unchecked subsidies to the oil and gas industry. With an estimated cost of more than $30 billion by 2033, we must take strong steps to avoid any chance of fraud or abuse.”

The lawmakers requested a briefing from the three agencies by October 4, 2024. 

Senator Warren has long worked to protect taxpayer money and ensure strong implementation of climate policy: 

  • In June 2024, Senator Elizabeth Warren and Representative Sean Casten (D-Ill.) led a letter to the Federal Reserve Board (Fed), Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), urging regulators to stop their obstruction of global financial regulators’ work to tackle climate-related financial risks. The lawmakers also called out the weaknesses revealed by the Fed’s 2023 “pilot scenario analysis” exploring six major banks’ resilience to climate-related financial risks.
  • In May 2024, Senator Elizabeth Warren and Congressman Robert Garcia (D-Calif.) reintroduced the BUILD GREEN Infrastructure and Jobs Act, which would authorize the U.S. Department of Transportation to distribute $500 billion over ten years to electrify and modernize public vehicles and rail and build new electric transportation infrastructure across the country. The bill would also create 1 million new jobs, save $100 billion annually in health damages, and prevent 4,200 deaths per year from air pollution.
  • In April 2024, Senator Elizabeth Warren and Representatives Sean Casten (D-Ill.) and Veronica Escobar (D-Texas), urged the Federal Acquisition Regulation (FAR) Council, composed of the Department of Defense (DoD), General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA), to finalize the Federal Supplier Climate Risks and Resilience Rule as quickly as possible.
  • In March 2024, Senator Elizabeth Warren (D-Mass.), released a statement describing the Securities and Exchange Commission’s (SEC) finalized climate risk disclosure rule as “the bare minimum.”
  • In September 2023, Senators Elizabeth Warren, Bernie Sanders (I-Vt.), Martin Heinrich (D-N.M.), Ed Markey (D-Mass.), Sheldon Whitehouse (D-R.I.), and Jeff Merkley (D-Ore.) called on the Treasury Department to take key actions pertaining to climate and climate-related financial risk to avert the impending environmental and economic crises.
  • In September 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Elizabeth Warren urged Chair Gensler to quickly finalize a strong climate risk disclosure rule, reminding him that he has a mandate to protect investors and strong public support.
  • In March 2023, Senators Elizabeth Warren, Sheldon Whitehouse (D-R.I.), and Representatives Dan Goldman (D-N.Y.) and Jamie Raskin (D-M.D.) and 47 of their colleagues sent a letter to SEC Chair Gary Gensler, urging him to protect investors and finalize a strong climate disclosure rule without further delay.
  • In September 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Elizabeth Warren called on SEC Chair Gary Gensler to protect investors and stand up to fossil fuel lobbying by issuing a strong climate risk disclosure rule quickly.
  • In June 2022, Senator Elizabeth Warren led a comment letter with Senators Sheldon Whitehouse (D-R.I.) and Brian Schatz (D-Hawaii) on the SEC’s mandatory climate disclosure rule, highlighting several areas for improvement and key elements that the SEC should preserve in its final rule, including strong Scope 3 emissions disclosure requirements.
  • In March 2022, Senator Elizabeth Warren led a letter with Senators Sheldon Whitehouse (D-R.I.) and Brian Schatz (D-Hawaii) urging the SEC to require disclosure of anti-climate lobbying activities in the Commission’s rule.
  • In May 2021, Senator Elizabeth Warren and then-Congressman Andy Levin (D-Mich.) introduced the Buy Green Act to use the enormous breadth of U.S. federal procurement to help fight the climate crisis, spur innovation, and boost demand for American-made clean energy products at home and in the rapidly-growing markets for green products abroad.
  • In May 2021, Senator Elizabeth Warren and then-Congressman Andy Levin (D-Mich.) introduced the National Institutes of Clean Energy Act of 2021, legislation that would invest $400 billion over the next ten years to establish and operate a new system of institutes at the Department of Energy dedicated to research and development (R&D) of advanced clean energy technologies.
  • In April 2021, Senator Elizabeth Warren and Representative Sean Casten (D-Ill.) reintroduced the Climate Risk Disclosure Act of 2021 which would reduce the chances of environmental and financial catastrophe by requiring public companies to disclose more information about their exposure to climate-related risks.
  • In March 2021, Senator Elizabeth Warren unveiled the BUILD GREEN Infrastructure and Jobs Act which would invest $500 billion over ten years in state, local, and tribal projects to jumpstart the transition to all electric public vehicles and rail and help modernize the nation's crumbling infrastructure. 

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