Planned Treasury rule change could hide billions in CO2 tax credit claims from oversight

The U.S. Department of Treasury released a rule change  in August for the 45Q subsidy for carbon capture and storage or use that would further reduce the ability to track and verify corporate tax credit claims, potentially costing taxpayers billions of dollars. 

The “Safe Harbor” rule was initially released in December 2025 to address a reporting gap that would be created by the administration’s proposed elimination of the Environmental Protection Agency’s (EPA) greenhouse gas reporting program (GHGRP). The rule change involves more substantive changes to 45Q that will make the credit even more difficult to monitor, assess, and administer effectively.

Under 45Q, companies can claim $85 in tax credits for every metric ton of carbon dioxide (CO2) captured at a facility, or $180 for direct air capture of CO2 that is subsequently stored or used. Internal Revenue Service (IRS) rules require documentation of the amounts claimed by a storage project. The IRS’ 45Q rule currently requires companies to submit annual reports to EPA calculations of CO2 stored, as well as monitoring and containment assurance details and updates. EPA reviews these reports and publishes non-confidential data, as well as information about the volumes of stored CO2. No other information related to a 45Q claim to the IRS is public. 

If the GHGRP is eliminated, it will significantly reduce the transparency of the 45Q program. Instead of requiring public disclosure, companies will be allowed to decide what information they want to make public. They may opt to continue reporting captured amounts or tax credits received via public filings or announcements -- or they may choose to report nothing at all. Without the program, the public could be left without any information about whether companies are meeting their emissions reduction claims. On Oct. 14, EPA released a notice that it will extend the deadline for reporting to the program for another six months (extending a previous extension) because it is proving difficult to shift reporting entities to new systems.

Beyond being unable to assess the real-world performance against company claims, the public won’t have any idea how much money companies will take in with federal tax subsidies such as 45Q. A grant program or capped credit would normally include regular reports to Congress that could be viewed by the public. But as a tax credit with no annual or lifetime cap, 45Q operates behind the scenes. Companies file their taxes and claim the credits, but the claims are not reported to Congress or the public. 

An August 2026 Government Accountability Office (GAO) report assessing 45Q highlighted ongoing concerns around its effectiveness, as well as administrative problems. Critically, the report repeated previous findings that tax expenditures (tax credits that result in reduced government revenue) can be more difficult to administer and assess compared to other types of programs:

“Our previous work has shown that, once enacted, tax expenditures and their relative contributions toward achieving federal missions and goals are often less visible than spending programs, which are often subject to more systematic review. Since 1994, we have recommended greater scrutiny of tax expenditures to help determine how well specific tax expenditures work to achieve their goals and how their benefits and costs compare to those of programs with similar goals.”

The GAO reported that no single agency is responsible for evaluating the 45Q credit performance and noted that Congress could develop requirements around reporting on the program so that evaluation would be possible. Without congressional action, 45Q will continue to operate without oversight, clear management, or even clear goals. 

Rule eliminates 45Q transparency

The following points highlight how the Treasury rule will eliminate the only existing window the public and other agencies have into the effectiveness of 45Q.

1. The public data released through the EPA’s greenhouse gas reporting program has been essential to the IRS’ verification of 45Q claims.

   There is no memorandum of understanding between IRS and EPA that allows data to be shared. To review 45Q claims, the GAO report said IRS staff uses publicly available data on the EPA website to verify compliance with the requirements. In a further degradation of the flawed system, the elimination of the program will leave the IRS without important information about claims and projects that could have a direct impact on whether a credit claim should be approved and its value. The lack of information has already led to improper 45Q claims, a problem that was highlighted in a 2020 inspector general’s report. 

   Companies operating Class VI CO2 injection wells under the Underground Injection Control program (UIC), administered either by the EPA or agencies in states with primacy, are still required to provide semiannual reports that include information that would normally be compiled into an annual report to the program, such as CO2 stored or lost due to leaks. However, the companies filing for 45Q claims are those that own the capture equipment, not those operating the storage component of the project. Reports will be filed with data pertinent to 45Q claims, but it will be very difficult for IRS agents to track down and verify applicable information. 

2. The safe harbor rule requires claimants to hire their own third-party engineer or geologist to certify the reports and calculations of CO2 stored, a review and approval that would otherwise be done by the EPA. 

   Under the extended safe harbor rule, Treasury proposes using an alternative pathway of certification and approval, rather than the existing system administered by the EPA. The new system would be based on a new International Organization for Standardization (ISO) measure covering CO2 capture transportation and storage (ISO 27914:2026). 

   The problem is that the ISO standard is not a substitute for a binding regulatory document, unless a law references it and its applicability. If its use is specified in the release of a final safe harbor rule, it creates an alternative set of steps that a company can follow to qualify for 45Q credits. The drawbacks to using an alternative standard, rather than the processes and procedures that have been created and used by EPA to date, are significant:

• The engineer or geologist hired by a company with the task of reviewing and approving CO2 amounts stored has no access to the resources, institutional memory, and key data that EPA possesses.
• The individual’s reports and calculations would not be reviewed by any agency prior to submission to the IRS.
• A hired entity might not push back against a company’s claim, while a regulatory agency likely would do so as a matter of course. Without strong regulatory review and approval of CO2 storage claims, there would be nothing to stop a company from making a fraudulent 45Q claimed.

3. Shifting review and approval of credit claims to the ISO system eliminates the public’s capability to review, comment on, and participate in the update and revision of standards related to permanent geologic storage of CO2 or use of CO2 for enhanced oil recovery. 

   The ISO creates standards on a range of topics that are intended to serve as guidelines. The U.S. government uses ISO standards in various ways, including at the EPA for environmental management systems. In that case, the standards are guidelines for program or project development and do not represent regulations. The regulations involved in the administration of the projects are based on EPA rules and those established by local authorities. 

   The use of the ISO standard to manage the process for the 45Q credit would be different than the EPA’s use of the ISO standard. In the case of 45Q, the ISO guidelines would create a parallel system of documentation and review that would eliminate the public’s ability to have any input into the rules that govern how the credit is used. 

   Rule changes to 45Q, including the requirements related to claiming credit, are made through an administrative rulemaking process. Typically, the Treasury Department releases a proposed rule or rule change and provides time for public comment. Submitted comments are reviewed and the department determines if any changes are made to the proposed rule. This process gives the public time to participate in an important rulemaking or modification process. 

On the face of it, the safe harbor rule is a simple change that allows corporations involved in carbon capture to meet the requirements for claiming the 45Q credit on their taxes. But the impact of this small change will be far-reaching. It will effectively prevent the public from evaluating the magnitude of 45Q claims, knowing the volume of CO2 captured and stored or used, and tracking the performance of this tax expenditure that could cost U.S. taxpayers billions of dollars in lost revenue.