IRS Expands and Extends 45Q Safe Harbor, Offering Long-Term Certainty to Carbon Capture Projects

The Internal Revenue Service and the U.S. Department of the Treasury issued Notice 2026-50 on August 14, expanding and extending the compliance safe harbor for the federal Section 45Q carbon capture, utilization, and sequestration tax credit. The move gives project developers significantly more runway than the original guidance, which had only covered sequestration activity in 2025.

The updated notice builds on Notice 2026-1, issued in December 2025, which was a direct response to a September 2025 Environmental Protection Agency proposal to eliminate Subpart RR, the greenhouse gas reporting framework that CCS projects have historically relied on to prove secure geologic storage and qualify for the 45Q credit. Without a functioning alternative, developers faced the real possibility of being unable to substantiate their credit claims at all.

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What Notice 2026-50 Changes

The new guidance makes three significant upgrades to the existing safe harbor. First, it now covers carbon oxide used as a tertiary injectant in enhanced oil and gas recovery projects, a category that was excluded from Notice 2026-1 because other reporting options were still technically available. Stakeholders flagged that shifting away from Subpart RR for those projects would impose serious cost and scheduling burdens, prompting Treasury and the IRS to act.

Second, the safe harbor now applies to recapture determinations under Treasury Regulation 1.45Q-5, meaning developers can use the same independent certification process to determine how much stored CO2 has leaked into the atmosphere in a given year. That clarity matters a lot to investors and tax credit buyers who need clean verification before closing deals.

Third, and arguably most important for long-term planning, the safe harbor no longer has a fixed expiration date. It now remains in effect from January 1, 2025, through the end of whatever calendar year Treasury and the IRS eventually publish further interim guidance or proposed regulations. That open-ended extension replaces the earlier year-by-year uncertainty that had been a source of concern across the industry.

How the Safe Harbor Works

Under the notice, if the EPA does not make its electronic Greenhouse Gas Reporting Tool available by March 31 of the following reporting year, taxpayers can still satisfy 45Q substantiation and certification requirements. They do so by preparing an annual report consistent with Subpart RR as it existed on December 31, 2025, obtaining an EPA-approved Monitoring, Reporting, and Verification plan, and having the report certified by an independent qualified engineer or geologist.

Treasury and the IRS are also soliciting public input on what longer-term alternatives to Subpart RR might look like, including ISO 27914:2026, the international standard covering geological carbon storage, as well as other measurement, reporting, and verification methodologies. Written comments are due by October 30, 2026.

Industry Response

Jessie Stolark, Executive Director of the Carbon Capture Coalition, which represents more than 70 companies, labor unions, and nonprofits working on carbon management policy, welcomed the notice in a statement.

"Today's issuance of Notice 2026-50 aligns with many of our earlier recommendations and provides critical continuity and long-term certainty to taxpayers conducting all types of permanent geologic storage," Stolark said.

The Carbon Capture Coalition had previously proposed pragmatic compliance alternatives to Treasury after the EPA's Subpart RR rollback proposal created an urgent need for new verification guidance. The coalition noted that the safe harbor maintains the integrity of the credit through independent engineering certification, even without EPA in the loop.

Crux, a firm focused on the clean energy tax credit market, noted in its analysis of the notice that the expansion to recapture determinations is especially meaningful for tax credit buyers. Having a clear, certified process for tracking stored versus leaked volumes "reduces diligence friction" and gives investors the verification layer they need before committing to a deal.

Context: A Credit Under Construction

The Section 45Q credit has gone through significant changes in recent years. The 2022 Inflation Reduction Act raised the credit value to $85 per metric ton for point-source capture with dedicated geologic storage and $180 per metric ton for direct air capture. The One Big Beautiful Bill Act, signed on July 4, 2025, preserved those values through 2026 and extended EOR parity, which has been a key driver of interest along the Gulf Coast where existing oil and gas infrastructure can be repurposed for carbon storage.

Notice 2026-50 doesn't change those credit values, but it does address one of the most pressing compliance gaps in the current policy environment. With the EPA's proposed elimination of Subpart RR still pending finalization, developers now have a clear path forward that doesn't depend on a regulatory outcome that's still in flux.

About the Carbon Capture Coalition

The Carbon Capture Coalition is a nonpartisan collaboration of more than 70 companies, labor unions, and environmental and conservation organizations working to build federal policy support for commercial-scale deployment of carbon management technologies. Its convening organization is the Great Plains Institute.

About the U.S. Department of the Treasury

The U.S. Department of the Treasury is the federal agency responsible for promoting economic prosperity and ensuring the financial security of the United States. It oversees the production of tax regulations, the management of federal finances, and the implementation of clean energy tax credits including Section 45Q.

Source:IRS Notice 2026-50, U.S. Department of the Treasury, August 14, 2026