What is Section 45Q? How Carbon Sequestration Tax Credits Work

Section 45Q is a federal incentive behind U.S. carbon capture projects. Here’s how it works, who can claim it, and what has changed recently.

Section 45Q is a federal tax credit for capturing carbon oxides, mainly carbon dioxide (CO₂), and either storing them permanently underground or putting them to qualifying use.

It is paid per metric ton of CO₂ captured and stored or used. The more CO₂ a project can capture and then store or use, the more credit it earns. That simple link between tons sequestered and value is why 45Q sits at the center of the economics of many carbon management projects.

A few basics shape every 45Q project:

There are two broad ways to qualify:

Until recently, storage earned a higher rate than utilization. That changed in July 2025. Under the One Big Beautiful Bill Act, projects placed in service after July 4, 2025, earn the same rate whether the CO₂ is stored or used, including in CO₂-EOR.

The credit generally goes to the owner of the carbon capture equipment that ensures the CO₂ is stored or used. In some cases, it can be passed to the party that does the storing or using.

The Inflation Reduction Act of 2022 also made 45Q easier to turn into cash. Credit holders can elect a direct payment from the government for the first five years of the credit period, or sell credits to a third party. The 2025 law kept those options, but barred certain foreign-controlled entities from claiming or buying credits.

A tax credit paid per ton depends on knowing how many tons are actually stored.

For secure geological storage, Treasury regulations tie 45Q to the EPA’s Subpart RR reporting rules. That means monitoring the site and reporting under an EPA-approved Monitoring, Reporting and Verification (MRV) plan. For CO₂-EOR, projects can use Subpart RR or an industry standard known as ISO 27916, with an independent engineer or geologist certifying the figures.

If stored CO₂ later leaks, credits can be clawed back over a three-year lookback period. That “recapture” rule is one reason long-term monitoring matters.

The rules on proving storage are in flux. In September 2025, the EPA proposed removing Subpart RR reporting requirements. Because 45Q relies on those rules, Treasury and the IRS issued a temporary safe harbor in December 2025 (Notice 2026-1), then expanded and extended it in August 2026 (Notice 2026-50).

In short, if the EPA’s reporting system isn’t available, projects can document storage by following Subpart RR as it stood at the end of 2025. That requires an EPA-approved MRV plan and an annual report certified by a qualified independent engineer or geologist. The August 2026 notice extended this approach to CO₂ used in enhanced oil recovery and to later years until Treasury issues further guidance. Treasury has also asked for comment on alternative standards, so more guidance is likely.

When a company points to 45Q as part of its business model, a few questions help separate potential from progress:

At Big Sky Industrial Inc. (Nasdaq: BSIN), carbon sequestration and CO₂-EOR are two of the three connected activities planned at the Big Sky Carbon Hub in Northwest Montana, alongside helium production. The hub is designed to take a single naturally occurring gas stream containing both helium and CO₂, and create multiple revenue streams from one asset base.

Because the hub’s wells and infrastructure produce helium and CO₂ together, the hub is designed to share costs across those activities rather than build separate facilities for each.

For background on how storage is measured, read What Is an EPA MRV Plan? Learn more about our business and the Big Sky Carbon Hub, or visit Investor Relations for the latest company disclosures.

This article is provided for general informational purposes only and does not constitute investment, financial, legal, accounting or tax advice. Section 45Q eligibility depends on each project’s facts and current law and guidance, which are subject to change. Readers should consult qualified professionals about their own circumstances.

This article may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other applicable securities laws, including statements regarding plans for the Big Sky Carbon Hub. Forward-looking statements are based on current assumptions and estimates and are subject to significant risks and uncertainties that could cause actual results to differ materially, including those described under “Risk Factors” in Big Sky Industrial’s filings with the SEC. Big Sky Industrial undertakes no obligation to update any forward-looking statements except as required by law.

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