Treasury Department Expands And Extends Section 45Q Carbon Capture Safe Harbor

Highlights

• The U.S. Department of the Treasury and IRS released Notice 2026-1 on December 19, 2025, to provide interim guidance issued in response to the U.S. Environmental Protection Agency's (EPA) proposed regulations removing certain reporting obligations under Subpart RR of 40 C.F.R. Part 98.
• On August 14, 2026, the Treasury Department and IRS released Notice 2026-50, which significantly broadens the relief available to taxpayers claiming the Section 45Q credit by 1) extending the safe harbor to qualified carbon oxide used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, 2) confirming that taxpayers may rely on the safe harbor to determine amounts subject to recapture under Treas. Reg. Section 1.45Q-5(a) and (c), and 3) extending the safe harbor's applicability beyond calendar year 2025.
• Taxpayers may rely on the expanded safe harbor for each reporting year in which the EPA fails to launch its electronic Greenhouse Gas Reporting Tool by March 31 of the following calendar year, and this relief remains available through December 31 of the calendar year in which the Treasury Department and IRS publish further interim guidance or forthcoming proposed regulations addressing Section 45Q measurement, reporting and verification requirements.

The U.S. Department of the Treasury and IRS released Notice 2026-1 on December 19, 2025, to provide interim guidance issued in response to the U.S. Environmental Protection Agency's (EPA) proposed regulations removing certain reporting obligations under Subpart RR of 40 C.F.R. Part 98 (Subpart RR).

On August 14, 2026, the Treasury Department and IRS released Notice 2026-50, which significantly broadens the relief available to taxpayers claiming the Section 45Q credit by 1) extending the safe harbor to qualified carbon oxide used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, 2) confirming that taxpayers may rely on the safe harbor to determine amounts subject to recapture under Treas. Reg. Section 1.45Q-5(a) and (c), and 3) extending the safe harbor's applicability beyond calendar year 2025.

Taxpayers may rely on the expanded safe harbor for each reporting year in which the EPA fails to launch its electronic Greenhouse Gas Reporting Tool (e-GGRT) by March 31 of the following calendar year, and this relief remains available through December 31 of the calendar year in which the Treasury Department and IRS publish further interim guidance or forthcoming proposed regulations addressing Section 45Q measurement, reporting and verification requirements.

Background

On January 15, 2021, the Treasury Department and IRS issued final regulations under Section 45Q. Treas. Reg. Section 1.45Q-3(b) provides, in part, that the requirements for secure geologic storage include compliance with Subpart RR:

(b) Requirements for secure geological storage. For purposes of the section 45Q credit, qualified carbon oxide is considered disposed of by the taxpayer in secure geological storage such that the qualified carbon oxide does not escape into the atmosphere if the qualified carbon oxide is – (1) Injected into a well that (i) Complies with applicable Underground Injection Control or other regulations, located onshore or offshore under submerged lands within the territorial jurisdiction of States or federal waters, and (ii) Is not used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, in compliance with applicable requirements under 40 CFR part 98 subpart RR; …

Section 1.45Q-2(h)(5) provides that, in general, carbon oxide that is injected into an oil reservoir that is not a qualified enhanced oil recovery project under Section 43(c)(2) of the Code due to circumstances such as 1) the first injection of a tertiary injectant occurring before 1991 or 2) a petroleum engineer's certification not being timely filed, cannot be treated as qualified carbon oxide, disposed of in secure geologic storage or utilized in a manner described in Section 45Q(f)(5).

Section 1.45Q-2(h)(5) does not apply to an oil reservoir if:

(i) the reservoir has permanently ceased oil production; (ii) the operator has obtained an Underground Injection Control Class VI permit; and (iii) the operator complies with subpart RR.

Section 1.45Q-3(d) allows a taxpayer to self-certify the volume of qualified carbon oxide claimed for the Section 45Q credit for an enhanced oil or natural gas recovery project if that volume was reported to the EPA under Subpart RR. Notice 2026-50 confirms that a taxpayer using an alternative industry measurement standard for such projects may instead prepare its own supporting documentation internally, as long as a qualified independent engineer or geologist certifies that the documentation is accurate and complete.

Facilities that are subject to Subpart RR are required to 1) report basic information on carbon oxide received for injection, 2) develop and implement an EPA-approved site-specific monitoring, reporting and verification (MRV) plan, and 3) report the amount of carbon oxide geologically sequestered using a mass balance approach and annual monitoring activities. Those reports under Subpart RR must be prepared on a calendar year basis (Annual Reports). The EPA generally requires Annual Reports to be submitted through the e-GGRT system. Historically, the EPA launches the e-GGRT system in mid-February for a given reporting year.

On September 16, 2025, the EPA proposed regulations proposing to remove certain program obligations from the greenhouse gas reporting program, including the obligations in Subpart RR, for reporting years after 2024. The EPA has proposed that the amendments, if finalized, would become effective within 60 days of publication in the Federal Register.

On February 27, 2026, the EPA issued a final rule extending the deadline for Annual Reports for reporting year 2025 to October 30, 2026, underscoring the continuing uncertainty that prompted the Treasury Department's decision to extend and expand its interim relief.

Safe Harbor

Notice 2026-50 extends and expands the safe harbor described in Notice 2026-1. The safe harbor now covers secure geological storage occurring on or after January 1, 2025, and remains available through December 31 of the calendar year in which the Treasury Department and IRS publish further interim guidance or forthcoming proposed regulations rather than being limited to calendar year 2025 as under Notice 2026-1. For each relevant reporting year, the safe harbor applies only if the EPA fails to launch the e-GGRT system by March 31 of the following calendar year.

A taxpayer satisfies the Section 45Q Subpart RR, certification and recapture-determination requirements for a given reporting year if 1) its secure geological storage complies with Subpart RR as in effect on December 31, 2025, 2) the taxpayer has an EPA-approved MRV plan for the project, and 3) the taxpayer submits its Annual Report to an independent engineer or geologist for certification in lieu of filing through the e-GGRT system.

This is a significant expansion from Notice 2026-1, which did not cover carbon oxide used as a tertiary injectant in an enhanced oil or natural gas recovery project and did not address recapture determinations.

Reliance Considerations

Taxpayers may rely on Notice 2026-50 to satisfy the Section 45Q Subpart RR, certification and recapture-determination requirements for secure geological storage occurring on or after January 1, 2025, provided 1) the EPA does not launch the e-GGRT system for the relevant reporting year by the following March 31 and 2) the taxpayer completes the required documentation and obtains certification by the time it timely files its return. That said, similar to Notice 2026-1, this interim guidance is pending forthcoming proposed regulations, and the Treasury Department and IRS may modify or narrow the safe harbor once such guidance is issued.