26 CFR § 1.45Q-4 - Utilization of Qualified Carbon Oxide.

§ 1.45Q-4 Utilization of Qualified Carbon Oxide.

(a) In general. For purposes of this section, utilization of qualified carbon oxide means -

(1) The fixation of such qualified carbon oxide through photosynthesis or chemosynthesis, such as through the growing of algae or bacteria,

(2) The chemical conversion of such qualified carbon oxide to a material or chemical compound in which such qualified carbon oxide is securely stored, or

(3) The use of such qualified carbon oxide for any other purpose for which a commercial market exists (with the exception of use as a tertiary injectant in a qualified enhanced oil or natural gas recovery project), as described in paragraph (d) of this section.

(b) Amount utilized -

(1) In general. For purposes of § 1.45Q-1(b) (ii) and (c)(2)(ii), the amount of qualified carbon oxide utilized by the taxpayer is equal to the metric tons of qualified carbon oxide which the taxpayer demonstrates, based upon an analysis of lifecycle greenhouse gas emissions (LCA), were -

(i) Captured and permanently isolated from the atmosphere through use of a process described in paragraph (a) of this section, or

(ii) Displaced from being emitted into the atmosphere through use of a process described in paragraph (a) of this section.

(2) Limitation. The amount determined under paragraph (b)(1) of this section cannot exceed the amount of qualified carbon oxide measured at the source of capture.

(c) Lifecycle greenhouse gas emissions and lifecycle analysis (LCA) -

(1) In general. For purposes of paragraph (b) of this section, the term lifecycle greenhouse gas emissions means the aggregate quantity of greenhouse gas emissions (including direct emissions and significant indirect emissions such as significant emissions from land use changes) related to the full product lifecycle, including all stages of product and feedstock production and distribution, from feedstock generation or extraction through the distribution and delivery and use of the finished product to the ultimate consumer, where the mass values for all greenhouse gases are adjusted to account for their relative global warming potential according to Table A-1 of 40 CFR part 98 subpart A. Such emissions are expressed in carbon dioxide equivalent (CO2-e).

(2) LCA verification. The taxpayer verifies the amount of qualified carbon oxide utilized through an LCA. The LCA must demonstrate that the proposed process results in a net reduction of carbon dioxide equivalents when compared to a comparison system. The results of the LCA must be documented in a written LCA report.

(3) Standards of adequate lifecycle analysis. The LCA report must be prepared in conformity with and contain documentation that conforms with International Organization for Standardization (ISO) 14040:2006, Environmental management - Life cycle assessment - Principles and framework and ISO 14044:2006, Environmental management - Life cycle assessment - Requirements and guidelines. The LCA may consist of direct and indirect data in conformity with ISO 14040:2006 and 14044:2006.

(4) Third-party independent review of LCA. The LCA report must be performed or verified by an independent third party. The LCA report must provide a statement documenting the qualifications of the independent third party, including proof of appropriate U.S. or foreign professional license, an affidavit from the third party stating that it is independent from the taxpayer (if a section 45Q(f)(3)(B) election has been made, the affidavit must state that the third party is independent from both the electing taxpayer and the credit claimant), and the statement must be made under penalties of perjury. If an independent third-party review is conducted, then it must include an assessment of the model and supporting data.

(5) Submission of the LCA. The taxpayer must submit the LCA report and third-party independent statement required by paragraph (c) of this section to the IRS and the Department of Energy. The taxpayer must also submit the model if the LCA is not verified by an independent third-party review.

(6) LCA review. The LCA report will be subject to a technical review by the DOE. The IRS will determine whether to approve the LCA and will notify the taxpayer. The taxpayer must receive approval of its LCA prior to claiming the section 45Q credits for such taxable year on any federal income tax return. In addition to receiving approval of its LCA, the taxpayer must satisfy all other requirements of section 45Q and §§ 1.45Q-1, 1.45Q-2, and this section in order to be eligible to claim section 45Q credits.

(d) Commercial market. A commercial market means a market in which a product, process, or service that utilizes carbon oxide is sold or transacted on commercial terms. A taxpayer must submit a statement attached to its Form 8933 substantiating that a commercial market exists for its particular product, process, or service.

(e) Applicability date. This section applies to taxable years beginning on or after January 13, 2021. Taxpayers may choose to apply this section for taxable years beginning on or after January 1, 2018, provided the taxpayer applies this section and §§ 1.45Q-1, 1.45Q-2, 1.45Q-3, and 1.45Q-5 in their entirety and in a consistent manner.

[T.D. 9944, 86 FR 4760, Jan. 15, 2021]

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