The IRS Has Extended Its Carbon-Credit Safe Harbor to Enhanced Oil Recovery Projects

A tax credit for putting carbon dioxide underground needs somebody to confirm the carbon dioxide is underground. For section 45Q that somebody has been the Environmental Protection Agency, through a reporting program it has proposed to scrap. The IRS has now spent two notices building an alternative.

The verification problem

Subpart RR of the EPA's Greenhouse Gas Reporting Program requires facilities to develop an EPA-approved monitoring plan and report how much carbon dioxide they have stored geologically. The 45Q regulations lean on that machinery to establish that storage is secure. In September 2025 the EPA proposed eliminating most of the reporting program, subpart RR included. The credit would survive; the evidence for claiming it would not.

What the safe harbor allows

• Annual reporting to an independent engineer or geologist in place of submission through the EPA system, if that system becomes unavailable.
• Continued compliance with the subpart RR requirements as they stood before 2026.
• Maintenance of an EPA-approved monitoring plan.
• Injection into wells complying with Underground Injection Control or equivalent regulations; enhanced recovery projects may meet either subpart RR or ISO 27916:2019.

What Notice 2026-50 adds

Notice 2026-1 dealt with carbon dioxide captured and disposed of in secure geological storage, and addressed the 2025 storage year. Notice 2026-50 widens the safe harbor to cover qualified carbon oxide used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, and extends its applicability beyond that first year. It may be relied on both to determine the amount securely stored and the amount leaked into the atmosphere, which is what governs recapture.

The credit itself is not changed

Section 45Q(a) sets $20 a metric tonne for qualified carbon oxide captured before February 9, 2018 and disposed of in secure geological storage without recovery use, and $10 a metric tonne where it is used as a tertiary injectant or otherwise utilised. Equipment placed in service after February 9, 2018 earns the credit over a twelve-year period beginning on the date it was placed in service. Engineering News-Record reports that the Inflation Reduction Act raised the credit to as much as $85 a tonne for qualifying point-source projects. The notice changes none of these amounts.

Why it matters

Carbon capture projects are financed against a credit that runs for twelve years, which means a lender is underwriting a dozen years of paperwork as much as a dozen years of engineering. If the agency that verifies storage stops collecting the data, the entitlement does not vanish but the proof of it does. That is a financing problem before it is a tax problem, and it is why the IRS has been issuing notices about an EPA rule.