Energy credit guidance: Treasury and IRS expand and extend Section 45Q safe harbor for carbon capture and sequestration

Overview

On August 14, 2026, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued Notice 2026-50 (the Notice), providing additional interim guidance under Section 45Q, the credit for carbon oxide sequestration.[1] The Notice modifies and expands the safe harbor established by Notice 2026-1 in response to the U.S. Environmental Protection Agency’s (EPA) proposal to eliminate reporting obligations under Subpart RR of the Greenhouse Gas Reporting Program (GHGRP).

The Section 45Q regulations generally rely on EPA reporting requirements under Subpart RR to establish that qualified carbon oxide has been disposed of in secure geological storage. EPA proposed in September 2025 to eliminate Subpart RR reporting obligations for reporting years after 2024, potentially eliminating a reporting mechanism incorporated directly into the Section 45Q regulations. Notice 2026-1 provided an interim safe harbor for certain qualified carbon oxide stored during 2025. Notice 2026-50 materially expands that relief by extending the safe harbor to enhanced oil and natural gas recovery projects, addressing Section 45Q recapture, and extending the safe harbor beyond 2025 until Treasury and the IRS issue further guidance.

Key takeaways

• The safe harbor now applies to enhanced oil and natural gas recovery projects. Taxpayers using qualified carbon oxide as a tertiary injectant in such projects may continue to rely on the Subpart RR framework, subject to the requirements of the Notice, rather than transitioning to the alternative ISO standard currently permitted by the Section 45Q regulations.
• The safe harbor expressly applies for purposes of recapture. An independently certified annual report may be used to determine both the amount of qualified carbon oxide securely stored and the amount, if any, that leaked into the atmosphere for purposes of the Section 45Q recapture rules.
• The relief is no longer limited to storage occurring in 2025. The safe harbor applies to secure geological storage occurring on or after January 1, 2025, through the end of the calendar year in which Treasury and the IRS issue further interim guidance or proposed regulations addressing compliance with requirements under Section 45Q for secure geological storage.
• The Notice generally preserves the substantive Subpart RR framework. If EPA’s electronic Greenhouse Gas Reporting Tool (e-GGRT) is unavailable for a relevant reporting year, a taxpayer must continue to comply with Subpart RR as in effect on December 31, 2025; have an applicable EPA-approved monitoring, reporting, and verification (MRV) plan; and obtain certification of its annual report from an independent qualified engineer or geologist.
• A longer-term replacement for Subpart RR remains under development. Treasury and the IRS specifically requested comments on whether ISO 27914:2026 or another methodology should replace Subpart RR for Section 45Q purposes. Comments are requested by October 30, 2026.

Statutory and regulatory background

Section 45Q provides a credit for each metric ton of qualified carbon oxide captured using carbon capture equipment and (1) disposed of in secure geological storage, (2) disposed of in secure geological storage and used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, or (3) otherwise utilized in a qualifying manner. For carbon capture equipment originally placed in service on or after February 9, 2018, the credit generally is available during the 12-year period beginning on the date the equipment is originally placed in service.[2]

Section 45Q(f)(2) directs Treasury, in consultation with EPA, the U.S. Department of Energy, and the U.S. Department of the Interior, to establish standards for secure geological storage sufficient to ensure that qualified carbon oxide does not escape into the atmosphere. The Section 45Q regulations generally implement this requirement by incorporating EPA and other third-party measurement and reporting standards.[3]

For qualified carbon oxide that is disposed of in secure geological storage and not used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, Treasury Regulation Section 1.45Q-3 generally requires storage in compliance with applicable requirements under Subpart RR, which itself generally requires an EPA-approved site-specific MRV plan, annual mass-balance reporting, monitoring and containment assurance, and annual reporting through e-GGRT. For qualified carbon oxide disposed of in secure geological storage and used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, taxpayers may establish secure geological storage by complying with either Subpart RR or CSA/ANSI ISO 27916:2019.[4]

In September 2025, EPA proposed eliminating GHGRP reporting obligations for most source categories, including Subpart RR, for reporting years after 2024.[5] EPA has not yet finalized that portion of the proposal. In February 2026, EPA separately extended the reporting deadline for reporting year 2025 from March 31, 2026, until October 30, 2026, while it continues the rulemaking process.

Notice 2026-1

In December 2025, Treasury and the IRS issued Notice 2026-1 to address the potential gap between the Section 45Q regulations and EPA’s proposed elimination of Subpart RR reporting.[6] Notice 2026-1 generally provided that if EPA did not launch e-GGRT for reporting year 2025 by June 10, 2026—the extended reporting deadline contemplated by EPA’s September 2025 proposal—taxpayers could satisfy certain Section 45Q Subpart RR requirements without submitting an annual report to EPA.

Under that safe harbor, a taxpayer was required to continue complying with the substantive requirements of Subpart RR as in effect on December 31, 2025; prepare the annual report that otherwise would have been submitted through e-GGRT; and submit the report to a qualified independent engineer or geologist for certification. The independent engineer or geologist was required to certify, under penalties of perjury, both compliance with Subpart RR and the accuracy and completeness of the annual report.

Notice 2026-1, however, was limited in two important respects. First, it generally applied only to secure geological storage occurring during calendar year 2025. Second, it did not apply to qualified carbon oxide used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project. Treasury and the IRS explained that the latter limitation reflected the availability of an alternative reporting standard for those projects. Stakeholders subsequently advised Treasury and the IRS that transitioning from Subpart RR to another standard in time to claim credits for 2025 could impose significant costs, timing constraints, and compliance difficulties.

Notice 2026-50

Expanded safe harbor

The Notice expands and extends the safe harbor to secure geological storage occurring on or after January 1, 2025. The safe harbor applies for a reporting year in which secure geological storage occurs, in the event that the EPA does not launch e-GGRT by March 31 of the calendar year immediately following the relevant reporting year. Thus, Notice 2026-50 replaces the June 10, 2026, cutoff applicable under Notice 2026-1 with a recurring March 31 cutoff and extends the safe harbor beyond reporting year 2025. If EPA launches e-GGRT for the relevant reporting year by March 31 of the calendar year immediately following the reporting year, the safe harbor does not apply for that reporting year.[7]

EPA does not appear to have launched e-GGRT for filers to prepare and submit Subpart RR information for reporting year 2025 by the applicable deadline. Accordingly, taxpayers satisfying the other requirements of Notice 2026-50 may rely on the safe harbor for secure geological storage occurring during 2025.

Further, the safe harbor now applies to the Subpart RR requirements applicable to both dedicated geological storage and qualified enhanced oil or natural gas recovery projects. Thus, an enhanced oil or natural gas recovery project that has been operating under Subpart RR is not required to transition to CSA/ANSI ISO 27916:2019 solely because EPA ceases accepting Subpart RR annual reports through e-GGRT.

Subpart RR compliance and independent certification

The Notice does not eliminate the substantive requirements incorporated from Subpart RR. To qualify for the safe harbor, the storage must comply with Subpart RR as in effect on December 31, 2025; the taxpayer must have received an EPA-approved MRV plan applicable to the dates on which the storage occurs; and the taxpayer must prepare and independently certify an annual report.[8]

Notice 2026-1 did not expressly state receipt of an EPA-approved MRV plan as a separate condition of the safe harbor. Section 3.02 of Notice 2026-1 conditioned satisfaction of the Section 45Q Subpart RR requirement on compliance with Subpart RR as in effect on December 31, 2025, and independent certification of the annual report. Notice 2026-50 amends that section to add an express MRV plan condition.[9] Although the requirement to comply with Subpart RR may already have incorporated the MRV plan requirement for the projects covered by Notice 2026-1, the express condition is particularly significant for the enhanced oil and natural gas recovery projects newly covered by Notice 2026-50. Such projects generally become subject to Subpart RR only after EPA approves an MRV plan.[10] As discussed below, the requirement for an existing EPA-approved MRV plan could create complexities if EPA were to finalize its proposal to eliminate Subpart RR and cease approving new or revised MRV plans. In that event, the safe harbor may preserve a reporting pathway for projects with approved plans but not provide one for new projects or projects requiring material plan revisions.

Turning to the annual report requirement, instead of submitting the report through e-GGRT, the taxpayer must prepare a report containing all information and documentation that would have been required under Subpart RR, including applicable mass-balance calculations and monitoring and containment assurance information. The taxpayer must submit the report to a qualified independent engineer or geologist who is registered or certified in any state.

The engineer or geologist must certify that the capture and disposal comply with Subpart RR as in effect on December 31, 2025, and that the information and documentation in the annual report is accurate and complete. The certification must include an affidavit establishing the engineer or geologist’s independence from the taxpayer. If an election under Section 45Q(f)(3)(B) has been made to allow another person to claim the credit, the engineer or geologist must be independent of both the electing taxpayer and the credit claimant. The certification must be made under penalties of perjury.

Recapture

The Notice also expressly extends the safe harbor to the recapture requirements under Treasury Regulation Section 1.45Q-5. Under those rules, a recapture event generally may occur if qualified carbon oxide for which a Section 45Q credit was previously claimed leaks from secure geological storage and the amount leaked exceeds the amount securely stored during the same taxable year.[11] These rules apply both to qualified carbon oxide stored without use as a tertiary injectant and to qualified carbon oxide stored following its use as a tertiary injectant in a qualified enhanced oil or natural gas recovery project.[12]

For a taxpayer relying on the safe harbor, the independently certified annual report must determine, using the applicable requirements of Subpart RR as in effect on December 31, 2025, both the quantity of qualified carbon oxide securely stored during the calendar year and the quantity, if any, that leaked into the atmosphere during the reporting year. Thus, the Notice provides a common measurement and verification methodology for both the current-year credit and potential recapture exposure.

Timing

The taxpayer must complete the required documentation and obtain the independent certification by the time the taxpayer timely files, including extensions, its relevant federal income tax return or federal return of partnership income. If an election under Section 45Q(f)(3)(B) has been made, the certification must be obtained by the time any credit claimant timely files its relevant return. The Notice also permits reliance in connection with amended returns and administrative adjustment requests, as applicable, and requires taxpayers to retain the supporting documentation and certification in their books and records.[13]

Extended applicability period

Perhaps most importantly for projects with long development and credit periods, the Notice replaces the prior calendar-year 2025 limitation with a transition period tied to future Treasury guidance. The safe harbor now applies to secure geological storage occurring on or after January 1, 2025, and on or before December 31 of the calendar year in which Treasury and the IRS publish further interim guidance or proposed regulations addressing compliance with Section 45Q requirements for secure geological storage. Accordingly, issuance of successor guidance during a calendar year will not immediately terminate the safe harbor; taxpayers may continue relying on it through the end of that calendar year, though guidance published late in a calendar year would leave only a short transition window.

MRV plans

The Notice provides significant continuity for projects that are already operating under the Subpart RR framework, but it does not establish an alternative process for obtaining EPA approval of a new or revised MRV plan. The safe harbor expressly requires the taxpayer to have received an EPA-approved MRV plan applicable to the dates of storage. Accordingly, if EPA ultimately eliminates Subpart RR and ceases administering the MRV-plan approval process, additional guidance may be necessary for new projects, or existing projects requiring an amended plan, to rely on this framework.

Request for comments

Treasury and the IRS requested comments on the appropriate standard to replace Subpart RR for purposes of demonstrating secure geological storage under Section 45Q if EPA finalizes its proposal. In particular, Treasury and the IRS requested comments on whether ISO 27914:2026—Carbon dioxide capture, transportation and storage—Geological storage—could serve as an alternative, including the verification methodologies contained in that standard. Treasury and the IRS also requested comments regarding other processes or methodologies that could replace Subpart RR. Written comments are requested by October 30, 2026.[14]

Conclusion

Notice 2026-50 provides greater certainty for taxpayers relying on Subpart RR to establish secure geological storage for purposes of Section 45Q. In particular, the expansion of the safe harbor to enhanced oil and natural gas recovery projects and to recapture determinations avoids the need for existing projects to change measurement and verification methodologies solely because of potential changes to EPA reporting requirements. The extension of the safe harbor beyond 2025 also provides greater certainty for projects with longer investment and credit horizons.

The Notice remains interim guidance, however. Treasury and the IRS are considering a permanent measurement, reporting, and verification framework to replace reliance on

Subpart RR if EPA eliminates the current reporting regime. The treatment of new or revised MRV plans also remains an important issue for future guidance.

Endnotes

[1] Notice 2026-50, Safe Harbor for the Credit for Carbon Oxide Sequestration under Section 45Q for Qualified Carbon Oxide Reported under Subpart RR (Aug. 14, 2026). Unless indicated otherwise, all section references are references to the Internal Revenue Code of 1986, as amended (the “Code”), and references to “regulations” are references to the Treasury regulations promulgated under the Code.