IRS Unlocks New Safe Harbor for Carbon Capture Credits

The U.S. Department of the Treasury and Internal Revenue Service just handed carbon capture developers a major win. On December 19, 2025, the agencies released Notice 2026-01, establishing a safe harbor that ensures companies can claim the Section 45Q tax credit for carbon stored in 2025. This guidance arrives when regulatory uncertainty threatened to derail project economics across the sector.

The move addresses a looming problem created by the Environmental Protection Agency's proposed elimination of its Greenhouse Gas Reporting Program. Since 45Q regulations have historically required compliance with EPA's Subpart RR reporting, that proposal created a compliance gap. Now, developers have a clear workaround that keeps their tax credit eligibility intact.

How the Safe Harbor Works

If EPA does not launch its electronic Greenhouse Gas Reporting Tool by June 10, 2026, companies can use an alternative compliance path. Instead of submitting reports through EPA's system, taxpayers will prepare annual reports and submit them to a qualified independent engineer or geologist. That professional must then certify compliance with Subpart RR requirements as they existed on December 31, 2025.

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Key Requirements Under the New Guidance

The certifying professional must sign an affidavit under penalties of perjury, confirming their independence from the taxpayer. This maintains accountability even without direct EPA oversight of the reporting process.

Why This Matters for the Industry

The U.S. carbon capture sector now represents more than 270 publicly announced projects and $77.5 billion in capital investment. Many projects made final investment decisions based on 45Q economics. Without this safe harbor, companies could have faced the prospect of meeting all technical requirements while being unable to claim credits.

The guidance also arrives after the One Big Beautiful Bill Act established credit parity between geological storage and enhanced oil recovery. Previously, EOR projects received only $60 per ton compared to $85 for permanent sequestration. That change, combined with this safe harbor, creates significantly improved economics for projects using captured CO2 in existing oil fields.

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What Companies Should Do Now

For project developers with carbon capture operations running in 2025, the path forward is clear:

1. Continue following Subpart RR monitoring and verification standards as they existed on December 31, 2025
2. Identify and engage qualified independent engineers or geologists for certification
3. Ensure all documentation is completed before filing tax returns
4. Watch for upcoming Treasury regulations that will establish longer-term compliance frameworks

The Carbon Capture Coalition noted that while this guidance covers saline storage, it remains crucial that the safe harbor extends to all types of permanent geologic storage, including oil and gas fields.

A Bridge to Future Regulations

Notice 2026-01 signals that Treasury and IRS intend to issue updated 45Q regulations, including new measurement and verification standards. Companies can rely on this guidance until those rules are finalized. For an industry facing years of policy uncertainty, this represents welcome regulatory stability.

The combination of stronger incentives under the One Big Beautiful Bill and clear compliance pathways positions the carbon capture industry for continued growth. With new technologies emerging and billions in investment flowing, this federal support ensures 2025 projects can move forward with confidence.