Budget discussions in Congress could potentially signify a manner to measure potential reductions in IRA, with 45Q serving as a key indicator.

The carbon sequestration incentive, Section 45Q, has been a subject of debate among policymakers since its inception during the George W. Bush administration in 2008. This performance-based credit for carbon management programs has seen expansion under the Bipartisan Budget Act of 2018 during the first Trump administration, including the addition of direct air capture projects.

The unique position of Section 45Q lies in its bipartisan support and opposition. On one hand, it has found favour with major utility and heavy industry players, fossil fuel companies, and proponents of direct air capture. On the other hand, environmental advocates argue that it props up fossil fuels while failing to deliver meaningful emissions reductions.

One of the most vocal champions of Section 45Q to date is Exxon, which has lobbied Congress for additional CCS benefits under the Inflation Reduction Act (IRA). Among the highest-profile projects leveraging Section 45Q for financing are the Biden administration's direct air capture Hubs, which include a major Occidental Petroleum project in South Texas.

However, the cost to taxpayers has been a concern for fiscal conservatives. The Internal Revenue Service estimates that 45Q could cost up to $36.2 billion over the next decade. This has led to a bipartisan repeal effort, with Scott Perry (R-Pa.) and Ro Khanna (D-Calif.) leading the charge.

A dueling bipartisan proposal to expand Section 45Q, the "Methane Reduction and Economic Growth Act," seeks to include methane captured from coal mines in addition to carbon dioxide. If Section 45Q were to be expanded more generally, it could indicate that the administration is open to leaving "room to maneuver."

The final form of Section 45Q may serve as a signal as to whether there's recognition in the Trump administration that some climate policies provide economic benefits worth keeping. The Inflation Reduction Act increased the value of credits, lowered capture thresholds, and extended the eligibility window for Section 45Q, allowing projects until January 2033 to begin construction and still qualify.

The continuation or expansion of Section 45Q may depend on its economic performance and the impact on national champion companies. Matthew Nordan, co-founder and general partner at Azolla Ventures, suggested that the fate of Section 45Q could serve as a "canary in the coalmine" for other clean energy tax credits. House Speaker Mike Johnson planned to take a "scalpel" to energy credits last fall, and 38 House Republicans signed a letter calling for the full repeal of all energy tax credits under the Inflation Reduction Act.

Section 45Q is also central to individual corporate purchasing agreements, like the one Google signed last year with Holocene. The credit's future remains uncertain, with its balancing act between environmental concerns, fiscal responsibility, and economic benefits creating a complex political landscape.