Considering the IRS 45Q Tax Credit?

Considering the IRS 45Q Tax Credit?

Author: Mariana Ortega Ramirez

In early 2024, EarthShift Global shared an overview of the 45Q tax credit requirements, including the central role life cycle assessment (LCA) plays in supporting the credit, in EarthShift Global’s January 2024 Brown Bag Webinar.

Since then, additional guidance from the IRS, the U.S. Department of Energy's (DOE) Office of Fossil Energy and Carbon Management, the National Energy Technology Laboratory (NETL) and practical experience have clarified how 45Q LCAs must be structured, documented, and reviewed. Through our work with clients pursuing the credit, several key considerations have emerged that can help project teams understand when to move forward – and what to expect.

First, the 45Q tax credit applies only to operational projects. Credits are based on the actual carbon captured and stored (or utilized), net of emissions associated with the capture or utilization process, and compared against emissions from incumbent market alternatives. Projects or companies still in planning, financing, or development phases are not eligible to receive credits until they are operational.

Second, 45Q does not allow “before-and-after” comparisons or project-specific baselines. Instead, proposed technologies or systems must be compared against the US market supply system. If the existing market is already relatively low impact, the resulting credit value may be lower than anticipated – making early market definition and result scoping a critical modeling step.

Credit values are determined using a comparative LCA, which evaluates both the proposed product system and a comparison system representing U.S. market supply. To support this process, a 45Q LCA guidance toolkit is available, including a report template, a U.S.-average life cycle inventory database for use in openLCA, general LCA guidance, and a 45Q-specific addendum. The addendum outlines requirements unique to 45Q, including expectations for independent critical review.

From a modeling perspective, the system expansion approach is required. While openLCA is commonly used, other LCA software and background databases may be applied where appropriate, particularly when data are not available in the 45Q database.

It is also important to note that a positively reviewed LCA report does not guarantee approval or receipt of credits. Regulatory authorities may request additional review or clarification, and at this time there are no clear expectations on how long the process takes to get from initial submission to a final decision.

A final important update: the Inflation Reduction Act has increased the potential value of the 45Q tax credit, raising both per-ton credit amounts and overall project revenue potential. As a result, LCA assumptions, system boundaries, and market definitions now have even greater financial implications.

In our February 2026 Brown Bag Webinar, we will explore what system expansion means in practice, what is included in the 45Q LCI database and how it is applied, why market system definition can materially affect results, and what reviewers look for in a 45Q-compliant study.

Beyond compliance, conducting an LCA for 45Q often delivers additional value. Clients frequently find that this framework supports scenario modeling, identifies improvement opportunities, and provides a stronger foundation for communicating environmental performance and strategic impact. EarthShift Global is prepared to support you at every stage of the 45Q process – from early scoping and modeling through independent review coordination and technical documentation. Learn more about our 45Q support and how we work with clients at every step on our 45Q Services page.

References

Cutshaw, A., Clarke, J., Chou, J., Matthews, S., Krynock, M. and G. Cooney. "45Q Addendum to the NETL CO2U LCA Guidance Document Version 2.0.," National Energy Technology Laboratory, Pittsburgh, PA. July 17, 2024.

T. J. Skone, M. Mutchek, M. Krynock, S. Moni, S. Rai, J. Chou, D. Carlson, M. Jamieson, E. Dale, G. Cooney, and A. Kumar, “Carbon Dioxide Utilization Life Cycle Analysis Guidance for the U.S. DOE Office of Fossil Energy and Carbon Management Version 2.0” National Energy Technology Laboratory, Pittsburgh, January 2022.

DOE/NETL 45Q Carbon Oxide Conversion LCA Training Workshop. July 2024. https://www.youtube.com/watch?v=XjvIin2FG6s

About the Author

Mariana Ortega Ramirez, Senior Sustainability Analyst

Mariana is a Senior Sustainability Analyst at EarthShift Global with extensive experience in life cycle assessment and sustainability analysis across agriculture, textiles, industrial processes, and energy systems. Prior to joining EarthShift Global, she led a sustainability consulting practice focused on agriculture, forestry, livestock, and fisheries, supporting consulting firms, government agencies, and non-profits. At EarthShift Global, Mariana works on LCAs and policy-driven analyses, including projects supporting the 45Q tax credit. Her work spans material flow accounting, handprint assessments, S-ROI, and LCA for climate and energy programs, with a strong emphasis on translating technical analysis into defensible, decision-ready insights.

Mariana holds a Bachelor’s degree in environmental engineering from the National Polytechnic Institute in Mexico and an Erasmus Mundus Master’s in Industrial Ecology, with specialization in LCA at Leiden University’s Institute of Environmental Sciences (CML).