Treasury and IRS Release New Safe Harbor Rules for Carbon Capture Tax Credit in 2025
Washington, D.C. — The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have issued new guidance that will significantly impact businesses claiming the carbon capture tax credit under Section 45Q of the Internal Revenue Code. The updated rules, released through Notice 2026-01, provide a temporary safe harbor for taxpayers capturing and storing carbon dioxide in secure geological formations during calendar year 2025.
This move follows recent changes made under the One, Big, Beautiful Bill, which expanded and modified the popular 45Q tax credit, a key federal incentive supporting carbon capture, utilization, and storage (CCUS) projects across the United States.
What Is the Carbon Capture Tax Credit (45Q)?
The 45Q tax credit is a federal incentive designed to encourage companies to capture qualified carbon oxide emissions and either store them permanently underground or use them for approved industrial purposes. The carbon capture tax credit has become increasingly important for U.S. energy companies, manufacturers, and clean technology investors seeking both emissions reductions and tax savings.
Under current law, businesses can earn substantial tax benefits by safely capturing and storing carbon dioxide, making carbon capture tax credit projects one of the highest RPM clean energy topics in the U.S. market.
Safe Harbor Explained for 2025 Carbon Storage Projects
Notice 2026-01 introduces a safe harbor that helps taxpayers determine eligibility and calculate the amount of the carbon capture tax credit for carbon oxide disposed of in secure geological storage during 2025.
The safe harbor applies specifically when carbon capture and storage activities follow existing EPA greenhouse gas reporting rules tied to Section 45Q. This guidance is critical for companies facing uncertainty around federal reporting systems.
EPA Reporting Delay Triggers Alternative Compliance Option
A key feature of the new guidance addresses potential delays from the Environmental Protection Agency (EPA). If the EPA does not launch its electronic Greenhouse Gas Reporting Tool for reporting year 2025 by June 10, 2026, taxpayers will be allowed to use an alternative reporting method.
Instead of EPA electronic submission, businesses may prepare an annual carbon storage report and submit it to a qualified independent engineer or geologist. This expert must certify that the carbon capture and geological storage activities comply with greenhouse gas reporting requirements in effect as of December 31, 2025.
This flexibility reduces compliance risk and ensures that eligible projects can still claim the carbon capture tax credit without penalty.
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Certification by Independent Experts Becomes Key
Under the safe harbor rules, the independent engineer or geologist plays a crucial role. Their certification must confirm that carbon capture, transportation, and secure geological storage meet all technical standards required under the 45Q tax credit program.
This certification-based approach is expected to benefit large-scale U.S. carbon capture projects, particularly those in energy-producing states such as Texas, Louisiana, North Dakota, and Wyoming.
Treasury Signals Future 45Q Regulations
The Treasury Department and IRS also confirmed that new regulations under Section 45Q are in development. These future rules will focus on measurement, monitoring, reporting, and verification standards for carbon capture projects.
Until those regulations are officially issued, taxpayers are permitted to rely on the guidance provided in Notice 2026-01, offering much-needed certainty for 2025 investments.
Who Is Most Affected by the New Guidance?
This guidance primarily affects U.S.-based businesses planning to claim the carbon capture tax credit for projects involving secure geological storage during calendar year 2025. Industries most impacted include power generation, ethanol production, hydrogen manufacturing, cement, steel, and carbon management startups.
For investors and operators, the updated 45Q tax credit safe harbor lowers administrative risk while maintaining strict environmental compliance.
Why the Carbon Capture Tax Credit Matters in 2025
As the U.S. accelerates its clean energy transition, the carbon capture tax credit remains one of the most valuable federal incentives available. With rising corporate interest in ESG compliance and emissions reduction, the 45Q tax credit is expected to drive billions in private investment.
The new safe harbor guidance ensures continuity, stability, and confidence for companies building long-term carbon capture infrastructure in the United States—making the carbon capture tax credit a central pillar of America’s climate and energy strategy.
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