Treasury Issues 45Q ‘Safe Harbor’ amid EPA Plan to Scrap GHG Reporting

(Inside EPA) The Treasury Department is issuing a promised “safe harbor” for companies looking to qualify for the section 45Q carbon storage tax credit after EPA proposed to scuttle its Greenhouse Gas Reporting Program (GHGRP) requirements related to the sector, though some observers say the measure doesn’t sufficiently address all types of carbon storage. Under a Treasury guidance published Dec. 19, companies can satisfy the reporting requirements for the 45Q credit by following the GHGRP subpart RR requirements that were in effect.. READ MORE

Excerpt from Vinson & Elkins: On December 19, 2025, the IRS delivered a little holiday cheer in the form of IRS notice 2026-01 (the “45Q Safe Harbor Notice”), which addressed uncertainty created by the Environmental Protection Agency’s (“EPA”) announcement to amend the Greenhouse Gas Reporting Program (“GHGRP”) and remove program obligations for most source categories, including reporting obligations under subpart RR of 40 CFR part 98 (“Subpart RR”).1 However, satisfying reporting obligations under Subpart RR is a critical eligibility requirement for certain taxpayers to qualify for the carbon oxide sequestration credit available under Internal Revenue Code Section 45Q (the “45Q Credit”), and many taxpayers were concerned that EPA’s proposed changes to Subpart RR could make qualifying for the 45Q Credit de facto impossible.

As background, taxpayers who capture and dispose of qualified carbon oxides (“COs”) in secure geological storage (and do not use such COs as a tertiary injectant in an enhanced oil recovery or natural gas recovery projects) must comply with the requirements of Subpart RR.2 Importantly, for such taxpayers, the amount of disposed COs reported under Subpart RR determines the amount of COs that can qualify for the 45Q Credit. However, as noted above, the EPA intends to remove the reporting obligations under Subpart RR, and the EPA may not launch the e-GGRT (i.e., the EPA’s greenhouse gas reporting tool for Subpart RR) for 2025 before the U.S. federal income tax return filing deadlines.

Pursuant to the 45Q Safe Harbor Notice, taxpayers will be deemed to satisfy the requirements related to Subpart RR for reporting year 2025 if (i) such storage is in compliance with the applicable requirements of subpart RR as in effect on December 31, 2025, and (ii) instead of submitting the annual report generally required by Subpart RR for reporting year 2025 through the e-GGRT, the taxpayer prepares and submits the annual report to an independent engineer or geologist, who certifies such annual report. This annual report must contain the information and documentation, including mass balance accounting calculations and monitoring and containment assurance, that would have been required under Subpart RR as in effect on December 31, 2025.3

The 45Q Safe Harbor Notice will be inapplicable if, on or before June 10, 2026, the EPA issues a new e-GGRT for filers to submit information required under Subpart RR for reporting year 2025.

For questions on the 45Q Safe Harbor Notice or other matters relating to the 45Q Credit, please reach out to the authors of this alert.

1 FN on EPA’s announcement: On September 16, 2025 (later corrected on September 22, 2025), the EPA issued a proposed rule 2025-17923 whereby the EPA proposed to amend the GHGRP and remove program obligations for most source categories, including Subpart RR.

2 See, Treas. Reg. 1.45Q-3(b)(1)(ii) or 1.45Q-2(h)(5)(iii), as applicable, and 1.45Q-3(d)

3 To rely on the 45Q Safe Harbor Notice, a taxpayer must complete all documentation and obtain independent engineer or geologist certification by the time it timely files its relevant U.S. federal income tax return. READ MORE

Excerpt from Carbon Capture Coalition: This statement may be attributed to Jessie Stolark, Executive Director of the Carbon Capture Coalition, a collaboration of companies, labor unions, and nonprofits working to build support for carbon management policies.

“Since the EPA announced the potential repeal of the US Greenhouse Gas Reporting Program (GHGRP) earlier this year, the Carbon Capture Coalition has been communicating to the administration and policymakers that the GHGRP serves as the regulatory backbone of the federal Section 45Q tax credit, underpinning the integrity, transparency, and accountability of the program.

“In November, the Coalition submitted comments to EPA on the proposed reconsideration of the GHGRP, opposing the elimination of subparts relevant to carbon management within the program. In parallel, the Coalition worked with stakeholders to propose near-term solutions to the administration, to allow the continued election of the tax credit in the absence of the GHGRP before a permanent mechanism is established.

“We are pleased to see Treasury and IRS act with urgency to issue a safe harbor to allow taxpayers who capture and store carbon in dedicated saline geologic formations to claim the tax credit for the taxable year 2025. That said, it remains crucial that this safe harbor guidance is available to current taxpayers conducting all types of permanent geologic storage, including in oil and gas fields, to avoid disruptions to accounting and monitoring requirements. Under the newly issued safe harbor, taxpayers storing CO2 in saline geologic formations for the purposes of secure geologic storage must continue to use the robust reporting elements contained in GHGRP’s Subpart RR, and have the information subsequently certified by an independent engineer or geologist, thereby maintaining the integrity of the tax credit.

“To be clear, the 45Q tax credit continues to be the single most important driver of carbon management technologies, which are, in turn, a vital contributor to American energy, environmental, and economic leadership. This safe harbor announcement is both welcome and necessary.

“Looking forward, we stand ready to work with Congress and the administration to craft long-term solutions to allow carbon management and geologic storage projects to continue to be responsible stewards of taxpayer dollars in the possible absence of the GHGRP.” READ MORE