By Nathan T. Smithson, Amy L. Baird, & Anna R. Irion
The One Big Beautiful Bill Act (the “OBBBA”) modifies the federal income tax credit for carbon oxide sequestration. Such tax credit, in place since 2008, was previously increased by the Inflation Reduction Act of 2022.
Credit Parity
The OBBBA provided a surprising benefit in choosing a method of carbon oxide sequestration by including long sought after parity within the 45Q credit. As a result of the OBBBA, the $85 per metric ton credit ($180 for direct air capture), previously only available for carbon oxides permanently sequestered and not used in enhanced oil or natural gas recovery projects, will also apply to projects placed in service after July 4, 2025, that (i) use the permanently sequestered carbon oxides in EOR projects or (ii) utilize carbon oxides in other permitted forms.
Prior to the OBBBA, the maximum tax credit available for carbon oxides that were permanently sequestered through EOR projects or other utilization methods was $60 per ton. All permitted forms of carbon oxide sequestration under the credit may now see the maximum available credit.
Limitation of Covered Nation Influence
The OBBBA takes a strong stance against the ownership, control, or influence over U.S. clean energy projects by North Korea, China, Russia, and Iran. As a result, no credit under 45Q shall be permitted for any tax year after the date of enactment if the taxpayer is a “specified foreign entity” or “foreign-influenced entity.”
The term “specified foreign entity” includes a foreign entity of concern, a terroristic organization, and entities controlled by governments, agencies, or citizens of North Korea, China, Russia, or Iran. A “foreign-influenced entity” is an entity owned or controlled by a specified foreign entity.
In addition to not being eligible to receive tax credits from clean energy projects, including carbon oxide sequestration, specified foreign entities will not be eligible to receive tax credits as a transferee under Code Section 6418.
Enhanced Sequestration Opportunities in Texas – Class VI Primacy
On June 9, 2025, the Environmental Protection Agency (the “EPA”) proposed approving the grant to Texas of primacy with respect to Class VI underground injection wells in the state. Class VI wells permit the injection and permanent sequestration of anthropogenic carbon oxides from multiple sources, not just oil and gas activities. The EPA stated that “Texas is best positioned to protect its underground sources of drinking water while advancing economic growth and energy dominance.” The approval is still subject to public comment, with a hearing set for July 24, 2025.
To discuss opportunities in your carbon capture and sequestration projects following the enactment of the OBBBA, please contact Nathan Smithson, Amy Baird, and Anna Irion.
The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For questions, please contact a member of the Energy practice.
Meet Nate
Nate Smithson is a transactional tax attorney who advises corporations, partnerships, and LLCs on federal income tax planning and clean energy tax credits. Known for making complex tax issues understandable, Nate counsels major businesses—including real estate developers and private equity-backed companies—on tax-efficient strategies for growth, compensation, and structuring. His experience covers entity formations, mergers and acquisitions, reorganizations, clean energy tax credits, QSBS, and S corporation sales, including F reorganizations. Nate also helps clients adapt their tax structures to recent legislation, including implementing carbon capture projects eligible for federal tax credits.
Meet Amy
Amy Baird represents energy industry clients in complex commercial litigation, project development, commercial contracts, and regulatory matters. Her experience includes advising natural gas gatherers, oil and gas producers, interstate and intrastate natural gas pipelines, natural gas liquids and crude oil pipelines, natural gas processors, gas marketers, storage and terminalling operators, merchant power plants, local distribution companies, municipally-owned gas and power distributors, industrial gas and power end users, cogeneration facilities, and utility regulators.
Meet Anna
Anna Irion is a energy attorney with a focus on transactional matters in the energy industry. She represents a wide range of clients, including natural gas and crude oil companies, produced water and carbon capture providers, pipeline operators, storage and terminaling companies, service providers, investors, and data centers. Anna has extensive experience negotiating, drafting, and restructuring agreements related to gathering, processing, transportation, storage, terminaling, asset sales, and pipeline projects across the oil, gas, water, and carbon sectors.
