Section 45Q Life Cycle Analysis: Carbon Tax Credit LCA

JANUARY 2021 UPDATE: US Treasury Department, IRS issue final regulations for the Section 45Q carbon capture tax credit program

The IRS announcement sets the credits at up to $50 per metric ton of qualified carbon oxide for permanent sequestration and $35 per metric ton for Enhanced Oil or Natural Gas Recovery. It also notes that there is no longer a cap on how much captured carbon will be eligible for the credits, and points to several other adjustments to earlier versions of the rules, including security requirements for geologic storage.

An analysis by National Law Review said the IRS “appears to be signaling an intent to make compliance with the requirements of Code Section 45Q as straightforward and practicable as possible,” but reiterated that “before a taxpayer may claim credits, the facility’s Environmental Protection Agency Monitoring, Reporting, and Verification Plan and analysis of lifecycle greenhouse gas emissions must be approved.”

EarthShift Global has helped others obtain their 45Q tax credit and can smooth the way for you, too — there’s still time to apply for the 2020 tax year. Contact us today by email or by calling (207) 608-6228.

Carbon capture technology in the US is getting a big boost with new Internal Revenue Service (IRS) proposed regulations for tax credits. The so-called Section 45Q credits fundamentally change the economics of carbon emission capture and sequestration or utilization, both in the energy sector and for a greatly expanded range of other industrial activities and facilities.

The crux of the expanded tax credit program is the inclusion of reutilization of carbon emissions, as defined in Section 45Q-4.a. It covers fixation of qualified carbon oxide through photosynthesis or chemosynthesis, as through growing of algae or bacteria; chemical conversion of qualified carbon oxide to a material or compound where the oxide is securely stored; and use of qualified carbon oxide for any other purpose for which a commercial market exists. This means big opportunity for enterprises beyond the energy sector, in fields like bioproducts, bioplastics, specialty and commodity chemicals, agri-food, and many others.

But any organization seeking the tax credits for utilization of qualified carbon emissions must complete an application process that includes submission of a life cycle analysis or LCA, a systematic assessment (also known as a life cycle assessment) of the greenhouse gas emissions associated with the project under consideration. That LCA must meet specific requirements:

The Treasury Department and the IRS, in consultation with the EPA and the DOE, have determined that the LCA must be in writing and either performed or verified by a professionally-licensed third party that uses generally-accepted standard practices of quantifying the greenhouse gas emissions of a product or process and comparing that impact to a baseline. In particular, the analysis must contain documentation consistent with the International Organization for Standardization (ISO) 14044:2006, “Environmental management — Life cycle assessment — Requirements and Guidelines,” as well as a statement documenting the qualifications of the third party.

The proposed regulations require a taxpayer submit an LCA report to the IRS and the DOE prior to the taxpayer claiming the section 45Q credit. The LCA will be subject to a technical review by the DOE, and the IRS, in consultation with the DOE and the EPA, will determine whether to approve the LCA.


While some details are still being worked out, it’s clear that obtaining a Section 45Q tax credit will require a robust LCA that can stand up to close scrutiny — which is exactly the kind of LCA that EarthShift Global has always provided to energy systems suppliers, bioproduct developers and innovative food and agriculture companies, and a host of others.

Our LCA practice is built on a foundation of scientific rigor. We make sure that your assessment and any related documentation will not only withstand the scrutiny of consumers, stakeholders and regulatory agencies but also complies with all ISO requirements related to data collection, modeling, interpretation and reporting.

Even if your organization has never conducted life cycle analyses, our experienced team can help you prepare for a smooth Section 45Q application process – contact us today by email or by calling (207) 608-6228.