Olivia Diedrich contributed to this Insight
The 45Q tax credit was created in 2008 as part of the Energy Improvement and Extension Act to incentivize carbon capture and storage in the United States. Since its inception, the tax credit has been revised multiple times to try and make it more accessible to projects in the emerging carbon capture market. Most recently, the tax credit was amended in the One Big Beautiful Bill Act (OBBBA) passed on July 4th, 2025. In this Insight, we will explore how the tax credit has evolved over time to increase credit accessibility and how recent changes brought via the OBBBA could help spur renewed interest in carbon capture projects.
The original version of the 45Q tax credit was fairly restrictive, limiting qualifying facilities to those that captured at least 500 ktpa CO2 and ending the credit entirely once 75 Mt CO2 had been captured. Additionally, the credit could only be claimed if the CO2 end use was geologic storage or enhanced oil recovery (EOR). The Bipartisan Budget Act (BBA) of 2018 improved the attractiveness and accessibility of the credit by removing the CO2 capture cap, allowing for projects that employed direct air capture (DAC) technology, and adding utilization as a CO2 end use. The Inflation Reduction Act (IRA) of 2022 increased the appeal of the credit further by significantly increasing the value of the credit, making the credit transferable, and lowering the minimum CO2 capture capacities for qualifying facilities. Overall, these changes to the tax credit broadly focused on expanding the eligibility of capture facilities with an eye on startups, smaller-scale projects, and nascent capture technology.
The 45Q tax credit was again amended in the OBBBA this July, raising the credit value for EOR and utilization to match that of geologic storage. FactSet believes this change benefits carbon capture companies by providing greater flexibility in accessing the maximum credit value. Companies no longer need to depend solely on geologic storage for project viability, which may be especially helpful for those with short timelines, as it could eliminate the need for lengthy Class VI well permitting. Additionally, carbon capture companies can develop new revenue streams by selling CO2 to firms using it for EOR or other downstream products, like e-fuels.
FactSet’s global Carbon Capture Database tracks various project characteristics, such as development status and anticipated CO2 end use. Of the 261 proposed projects that FactSet is currently tracking in the U.S., 34 have announced intentions to use some portion of captured CO2 for EOR or utilization. However, the number of projects opting to employ these CO2 end uses could increase with the passing of the revised credit.
Companies incorporating captured CO₂ into EOR operations or downstream products also stand to benefit from the updated tax credit rules, as future CO₂ supply may increase with expanded offtake partnerships. Vertically integrated firms that both capture and utilize CO₂ may gain the most, since they can claim the credit, source their own CO₂, and sell the product. Occidental exemplifies this approach; it is commissioning the first two trains of a four-train, 500 ktpa CO₂ DAC facility in Texas, with 250 ktpa CO₂ set to begin operating this year. Occidental plans to use some of the captured CO₂ for its own EOR operations and potentially market the resulting oil as low-carbon or net-zero.
Looking forward, FactSet anticipates that more carbon capture projects that capitalize on the restructured 45Q tax credit structure will emerge. However, the scale of the response will likely hinge on future CO2 demand from EOR and utilization projects and the rate of decarbonization in the U.S. and abroad.
To dive deeper into carbon capture projects, see our global Carbon Capture Database available in the Premium Energy Workstation.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.