As Republicans haggle over how to fund President Trump’s “big beautiful bill,” it’s becoming increasingly clear that there isn’t consensus in the party as to what taking a “scalpel” to energy credits — as House Speaker Mike Johnson said he planned to do last fall — should look like.
Last week, 38 House Republicans signed a letter calling for the full repeal of all energy tax credits under the Inflation Reduction Act. That effort, however, faces growing pushback from others in the party who argue many of the credits are essential for enacting President Trump’s “energy dominance” agenda.
As the uncertainty continues, some in the cleantech world are looking to the fate of a carbon sequestration incentive as a bellwether for the wider state of tax credits. Section 45Q, the performance-based credit for carbon management programs, is in the somewhat unique position of having both support and opposition from either side of the aisle.
The final form of the credit — whether left intact, modified, or repealed entirely — may be a signal as to whether there’s recognition in the Trump administration that some climate policies provide economic benefits worth keeping.
It’s popular with major utility and heavy industry players as well as fossil fuel companies, and with proponents of direct air capture. But it has also come under fire: from environmental advocates who argue the credit props up fossil fuels while failing to deliver meaningful emissions reductions, and from fiscal conservatives who object to the cost to taxpayers. (The Internal Revenue Service has estimated that 45Q could cost up to $36.2 billion over the next decade.)
45Q is currently facing a bipartisan repeal effort led by both Scott Perry (R-Pa.), one of the House’s leading climate change skeptics, and fossil fuel critic Ro Khanna (D-Calif.) The unlikely pair introduced their “45Q Repeal Act” in March. Its introduction coincided with a dueling bipartisan proposal to expand the credit; the “Methane Reduction and Economic Growth Act” seeks to include methane captured from coal mines in addition to carbon dioxide.
The credit was first created during the George W. Bush administration as part of the Energy Improvement and Extension Act of 2008. During the first Trump administration, the Bipartisan Budget Act of 2018 expanded the credit in several ways, including the addition of direct air capture projects. The Inflation Reduction Act then increased the value of credits, lowered capture thresholds, and extended the eligibility window, giving projects until January 2033 to begin construction and still qualify. One of its most vocal champions to date is Exxon, which has lobbied Congress for additional CCS benefits under the IRA.
The credit’s history (and the current debate) makes it something of a “canary in the coalmine” for other clean energy tax credits, said Matthew Nordan, co-founder and general partner at Azolla Ventures, which invests in early-stage climate technologies.
“If 45Q endures, it would tell you that the drive to advance more oil and gas production and inhibit a generation of clean technologies has a limit where it runs into American economic performance,” Nordan explained. “If the economic performance of those national champion companies is imperiled, those mechanisms will be extended. If 45Q goes, the entire castle could come crashing down, and we just need to wait and see.”
If the credit were to be expanded, for example to include greenhouse gasses more generally, it would indicate that the administration is open to leaving “room to maneuver,” he added.
45Q currently designates between $60 and $180 per ton of carbon that is captured and stored, either by industrial and power facilities like steel and cement, coal, or natural gas, or else directly from the atmosphere. The credit covers secure geologic storage as well as utilization including for enhanced oil recovery.
Among the highest-profile projects leveraging 45Q for financing are the Biden administration’s direct air capture Hubs, which include a major Occidental Petroleum project in South Texas. But the credit is also central to individual corporate purchasing agreements, like the one Google signed last year with Holocene.
