At the end of 2025, the Department of the Treasury and the Internal Revenue Service (IRS) issued IRS Notice 2026-1, providing a temporary safe harbor for businesses seeking to claim the 45Q tax credit for carbon capture and storage (CCS) for the 2025 tax year. This interim guidance was issued in response to the Environmental Protection Agency’s (EPA) proposed rule, released in September 2025, to repeal the Greenhouse Gas Reporting Program (GHGRP). Treasury and the IRS have long relied on the GHGRP as the primary mechanism for verifying claims for 45Q, and the proposed repeal created an immediate compliance gap that needs to be addressed. The interim guidance was released just nine days after a letter from CCS industry coalitions urging Treasury and the IRS to provide safe harbor for 45Q claimants for tax year 2025 and beyond. The guidance largely follows the industry’s request, allowing CCS companies to claim 45Q as usual even without emissions reporting for tax year 2025. Unfortunately for taxpayers this is problematic news.

The new guidance (Notice 2026-1) fails to address deeper problems with the structure of the 45Q credit and, worse yet, pushes fast forward on a broken system. The federal government has dramatically expanded the size and scope of the credit while simultaneously backing away from the reporting and verification systems that, while limited, provided the only meaningful check on whether claimed sequestration was real. The safe harbor guidance eases regulatory uncertainty faced by CCS companies by further weakening oversight rather than strengthening it, at the expense of taxpayers who are shouldering the ever-growing costs of 45Q.

Currently, all CCS facilities in the United States are required to report under the Greenhouse Gas Reporting Program at the EPA. Facilities that capture CO₂ report under the GHGRP’s Subpart PP and facilities that inject CO₂ for long-term geological sequestration must report under Subpart RR. Facilities that inject CO₂ for geological sequestration via enhanced oil recovery (EOR) must comply with Subpart VV starting in 2025. Together, these subparts provide the only standardized and publicly accessible reporting on captured and stored carbon dioxide volumes.

EPA’s proposal to repeal this emissions reporting system significantly undermines the implementation and integrity of the 45Q tax credit. The IRS does not physically verify reported volumes of carbon dioxide that are captured and stored. Instead, it relies on data reported under EPA’s greenhouse gas reporting to substantiate 45Q claims. In practice, the GHGRP functions as the verification backbone for the tax credit.

Under existing IRS regulations, businesses seeking to claim 45Q for geological sequestration are required to comply with Subpart RR of the GHGRP, including having an EPA-approved monitoring, reporting, and verification (MRV) plan. Businesses seeking to claim 45Q for EOR may comply with Subpart RR or, alternatively, an International Organization for Standardization standard (CSA/ANSI ISO 27916:2019).

Under the ISO standard, companies must have their reported volumes certified by an “independent” engineer or geologist. Although third-party verification is not inherently a conflict of interest, the ISO standard provides substantially less transparency than Subpart RR. It does not require mandatory public disclosure of reported data, nor does it require any reporting of leaks or other containment issues.

Under the IRS safe harbor guidance, if EPA does not launch the GHGRP electronic reporting tool and facilities cannot report under Subpart RR for reporting year 2025, companies claiming 45Q for geological sequestration may instead submit an annual report containing all information and documentation required under Subpart RR to an independent engineer or geologist for certification. This approach mirrors the existing ISO-based pathway used for EOR projects but extends it to geological sequestration more broadly.

The EPA GHGRP, which was designed to report greenhouse gas volumes rather than administer tax credits, is far from a perfect oversight regime for 45Q. However, without it, the IRS’ ability to award 45Q credits accurately and consistently should be called into question. This safe harbor rule allows companies to claim the 45Q tax credit without any public disclosure or meaningful onsite verification. As a result, the public and other stakeholders have no reliable way to confirm whether total sequestered carbon volumes match up with—and should logically be less than—total captured volumes. This lack of transparency increases the risk of fraud and abuse.

The 45Q credit has faced compliance problems since its inception. In 2020, an IRS audit found that nearly 90% of more than $1 billion in claimed 45Q credits lacked EPA-approved MRV plans at the time the credits were issued. In other words, tax credits were awarded without required proof that the carbon would remain permanently stored underground. With EPA’s GHGRP at risk and the safe harbor rule in place, taxpayers now have even less assurance that claimed carbon dioxide sequestration is real or perm