Carbon Capture Tax Credit: Actions Needed to Improve Federal Administration and Evaluation of Tax Expenditure

TL;DR

GAO found that the Carbon Oxide Sequestration Credit (45Q) administration presents compliance burdens, delays, and uncertainty for taxpayers—particularly those who use captured carbon to produce products—and that federal oversight and evaluation of the credit’s effectiveness are fragmented. The credit has been amended several times, including by the 2022 Inflation Reduction Act, and recent legislation (One Big Beautiful Bill Act) created parity in credit values across uses of captured carbon. As of March 2026 there were 33 carbon capture facilities in the U.S., and IRS data show 45Q claims more than tripled from 2019 to 2023. GAO recommends agencies consider streamlining approval processes and clarifying acceptable datasets to calculate displaced carbon; GAO also flagged that no single agency is designated to evaluate the credit’s performance and identified key evaluation questions for Congress. Immediate implications: increased administrative scrutiny and potential procedural changes from IRS and DOE, continuing uncertainty for contractors and developers claiming 45Q, and likely congressional interest in directing evaluation work. Contractors should assume heightened monitoring and plan capture, compliance, and data strategies accordingly.

Key Points

• What happened: GAO reviewed IRS and DOE administration of the Carbon Oxide Sequestration Credit (45Q), found taxpayer burdens and approval-process delays for carbon utilization claims, and identified challenges to congressional evaluation of the credit’s effectiveness.
• Who is affected: Taxpayers and entities participating in carbon capture and utilization, and federal agencies named in the report: IRS, Department of Energy (DOE), Environmental Protection Agency (EPA), Congress, and GAO.
• What the timeline is: As of March 2026 there were 33 carbon capture facilities in the U.S.; IRS data show 45Q claims more than tripled from 2019 to 2023. No specific agency deadlines for administrative changes were identified in the summary; timeline for any rulemaking or procedural changes is TBD pending source review.
• What contractors should do NOW: Inventory current and planned projects that rely on 45Q, document datasets and methodologies used to calculate displaced carbon, prepare to respond quickly to IRS/DOE process clarifications, and prioritize outreach to capture/compliance teams and legal counsel to reduce risk of claim delays or denial.

Who Is Affected

Affected segments at a general level: carbon capture facility operators, companies that use captured carbon to produce products, tax and compliance advisors supporting those projects, and contractors providing construction, engineering, monitoring, and measurement services to carbon capture projects. Agencies explicitly named in the Summary: IRS, Department of Energy (DOE), Environmental Protection Agency (EPA), Congress, and GAO. Specific NAICS codes, agencies, and contract vehicles pending source review.

Frequently Asked Questions

Q: What are the main administrative problems GAO identified with 45Q?

A: GAO identified compliance burdens, approval-process delays, and uncertainty for taxpayers—especially for those using carbon to make products—and suggested IRS and DOE could reduce burden by streamlining processes and clarifying acceptable datasets for calculating displaced carbon.

Q: Will this change the value or eligibility of 45Q claims?

A: The Summary does not state any change to credit value or eligibility. It reports administrative and oversight issues and notes that the One Big Beautiful Bill Act created parity in credit values across uses, but any future changes to value or eligibility are TBD pending source review.

Q: What oversight or evaluation actions did GAO recommend?

A: GAO highlighted the lack of a designated agency to evaluate 45Q and posed key questions for Congressional-directed analyses: how well the credit achieves its goals, how efficiently it performs, and how it compares to other policy tools. GAO suggested agencies and Congress identify who should perform such analyses and what should be evaluated.

Definitions

• Carbon Oxide Sequestration Credit (45Q): A tax credit for certain carbon oxides captured at emission sources or directly from the air and either stored underground or used to produce products.
• Inflation Reduction Act (IRA): Legislation that amended the 45Q credit and included a provision for GAO to review distribution and use of IRA funds.
• One Big Beautiful Bill Act: Recent legislation referenced in the report that created parity in credit values across uses of captured carbon.
• GAO: Government Accountability Office — conducted the review and issued findings and recommended evaluation questions for Congress.

Intelligence Response

• Cabrillo products to leverage: Cabrillo Signals War Room, Cabrillo Signals Match Engine, Cabrillo Signals Intelligence Hub, Proposal Studio (Proposal OS), and Proposal Studio Workflow Tracker.
• Who to notify: Capture Manager, Compliance Officer (tax/compliance), Proposal Lead, Government Affairs/Policy lead, and Data/Carbon Accounting lead.

First 48-hour response playbook (high level)

• Hour 0–4: Use Cabrillo Signals War Room to ingest the GAO briefing and flag the event. Push alert to Capture Manager, Compliance Officer, Proposal Lead, and Government Affairs lead. Open a tracked action in Proposal Studio Workflow Tracker.
• Hour 4–12: Run Cabrillo Signals Match Engine to rescore active opportunities and update pipelines where 45Q exposure or carbon capture scope exists. Use Cabrillo Signals Intelligence Hub to run saved searches on IRS/DOE notices and related GAO follow-ups; collect relevant solicitations and notices.
• Hour 12–24: Convene a cross-functional blackout call (capture, compliance, tax, data) to triage projects that rely on 45Q; assign owners to inventory datasets and supporting documentation for existing and planned claims. Begin drafting rapid guidance checklists in Proposal Studio (use compliance matrices and bid/no-bid engine).
• Hour 24–48: Finalize prioritized action items and begin outreach plans for IRS/DOE engagement or stakeholder comments if guidance is proposed. Lock documentation and routing in Proposal Studio Workflow Tracker for audit readiness.

Cabrillo product operationalization summary

• Cabrillo Signals War Room already detected this event and delivered this briefing. It continuously monitors regulatory changes, policy shifts, and GAO/agency reports relevant to carbon capture tax rules.
• Cabrillo Signals Match Engine will automatically rescore opportunity pipelines when GAO findings or agency clarifications shift the competitive or compliance landscape, focusing capture priorities on projects with 45Q risk/exposure.
• Cabrillo Signals Intelligence Hub tracks affected agencies and saves searches for potential follow-on solicitations and guidance updates on SAM.gov (System for Award Management) and agency portals; configure alerts for IRS and DOE postings related to 45Q.
• Use Proposal Studio to produce compliance matrices and pre-built win themes tied to tax-credit-dependent programs, and manage routing and documentation in Proposal Studio Workflow Tracker’s 9-gate capture process.

Related reading and compliance resources

• Primary hub: Winning Federal Contracts Guide (/insights/winning-federal-contracts)
• Related guides: CMMC (Cybersecurity Maturity Model Certification) Compliance Guide (/insights/cmmc-compliance-guide), CUI (Controlled Unclassified Information)-Safe CRM Guide (/insights/cui-safe-crm-guide)