Carbon Capture, Utilization, and Storage Tax Credit Amendments Act of 2021
Bill: S.986 | Sponsor: Sen. Smith, Tina (D-MN)
Policy area: Taxation

Summary:
Carbon Capture, Utilization, and Storage Tax Credit Amendments Act of 2021
This bill extends the carbon oxide sequestration tax credit through 2030. It also permits taxpayers to elect to receive a payment in lieu of the tax credits for carbon oxide sequestration and qualifying advanced coal projects.
The bill also makes other modifications to certain carbon sequestration credits, including (1) an allowance of carbon sequestration credits against the base erosion minimum tax, (2) modifications to sequestration requirements for certain qualifying advanced coal project credit equipment, and (3) increasing the sequestration credit value for direct air capture projects.

To amend the Internal Revenue Code of 1986 to provide for a 5-year 
   extension of the carbon oxide sequestration credit, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Carbon Capture, Utilization, and 
Storage Tax Credit Amendments Act of 2021''.

SEC. 2. EXTENSION OF CREDIT FOR CARBON OXIDE SEQUESTRATION.

    Section 45Q(d)(1) of the Internal Revenue Code of 1986 is amended 
by striking ``January 1, 2026'' and inserting ``January 1, 2031''.

SEC. 3. ELECTIVE PAYMENT FOR CARBON OXIDE SEQUESTRATION AND QUALIFYING 
              ADVANCED COAL PROJECTS.

    (a) In General.--Subchapter B of chapter 65 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new section:

``SEC. 6431. ELECTIVE PAYMENT FOR CARBON OXIDE SEQUESTRATION AND 
              QUALIFYING ADVANCED COAL PROJECTS.

    ``(a) Energy Property.--In the case of a taxpayer making an 
election (at such time and in such manner as the Secretary may provide) 
under this section with respect to any portion of--
            ``(1) a carbon oxide sequestration credit which would 
        (without regard to this section) be determined under section 
        45Q with respect to such taxpayer, or
            ``(2) a qualifying advanced coal project credit which would 
        (without regard to this section) be determined under section 
        48A with respect to such taxpayer,
such taxpayer shall be treated as making a payment against the tax 
imposed by subtitle A for the taxable year equal to the amount of such 
portion.
    ``(b) Timing.--The payment described in subsection (a) shall be 
treated as made on the later of the due date of the return of tax for 
such taxable year or the date on which such return is filed.
    ``(c) Exclusion From Gross Income.--Gross income of the taxpayer 
shall be determined without regard to this section.
    ``(d) Denial of Double Benefit.--Solely for purposes of section 38, 
in the case of a taxpayer making an election under this section, the 
carbon oxide sequestration credit determined under section 45Q or the 
qualifying advanced coal project credit determined under section 48A 
shall be reduced by the amount of the portion of such credit with 
respect to which the taxpayer makes such election.
    ``(e) Special Rules.--In the case of a taxpayer making an election 
under this section with respect to the qualifying advanced coal project 
credit determined under section 48A, the credit subject to such an 
election shall be determined notwithstanding--
            ``(1) section 50(b)(3), and
            ``(2) in the case of any entity described in section 
        50(b)(4)(A)(i), section 50(b)(4).''.
    (b) Special Rule for Proceeds of Transfers for Mutual or 
Cooperative Electric Companies.--Section 501(c)(12)(I) of the Internal 
Revenue Code of 1986 is amended by inserting ``or 6431(a)'' after 
``section 45J(e)(1)''.
    (c) Clerical Amendment.--The table of sections for subchapter B of 
chapter 65 of such Code is amended by adding at the end the following 
new item:

``Sec. 6431. Elective payment for carbon oxide sequestration and 
                            qualifying advanced coal projects.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of enactment of this 
Act.

SEC. 4. ALLOWANCE OF CERTAIN CARBON SEQUESTRATION CREDITS AGAINST THE 
              BASE EROSION MINIMUM TAX.

    (a) In General.--Section 59A(b)(1)(B)(ii) of the Internal Revenue 
Code of 1986 is amended by striking ``plus'' and the end of subclause 
(I), by redesignating subclause (II) as subclause (IV), and by 
inserting after subclause (I) the following new subclauses:
                                    ``(II) the credit allowed under 
                                section 38 for the taxable year which 
                                is properly allocable to the carbon 
                                dioxide sequestration credit determined 
                                under section 45Q(a),
                                    ``(III) the credit allowed under 
                                section 38 for the taxable year which 
                                is properly allocable to the investment 
                                credit determined under section 46, but 
                                only to the extent properly allocable 
                                to the qualifying advanced coal project 
                                credit determined under section 48A, 
                                plus''.
    (b) Application to Taxable Years Beginning After 2025.--
Subparagraph (B) of section 59A(b)(2) of the Internal Revenue Code of 
1986 is amended to read as follows:
                    ``(B) by applying subparagraph (B)(ii) thereof 
                without regard to subclauses (I) and (IV).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to base erosion payments (as defined in section 59A(d) of the 
Internal Revenue Code of 1986) paid or incurred in taxable years 
beginning after December 31, 2017.

SEC. 5. MODIFICATIONS OF QUALIFYING ADVANCED COAL PROJECT CREDIT.

    (a) Sequestration Requirement for Certain Equipment.--Section 
48A(e)(1)(G) of the Internal Revenue Code of 1986 is amended by 
inserting ``and 60 percent in the case of an application for a 
reallocation of credits under subsection (d)(4) with respect to an 
electrical generating unit in existence on October 3, 2008'' after 
``under subsection (d)(4)''.
    (b) Nameplate Generating Capacity Requirement.--Section 
48A(e)(1)(C) of such Code is amended by striking ``400 megawatts'' and 
inserting ``200 megawatts''.
    (c) Advanced Coal-Based Generation Technology Requirements.--
            (1) In general.--Section 48A(f)(1) of such Code is amended 
        by striking ``generation technology if--'' and all that follows 
        through ``the unit is designed'' and inserting ``generation 
        technology if the unit is designed''.
            (2) Conforming amendments.--Section 48A(f) of such Code is 
        amended--
                    (A) by striking all that precedes ``the purpose of 
                this section'' and inserting the following:
    ``(f) Advanced Coal-Based Generation Technology.--For'',
                    (B) by striking ``in subparagraph (B)'' in the 
                second sentence and inserting ``in this subsection'', 
                and
                    (C) by striking paragraphs (2) and (3).
    (d) Performance Requirements in Case of Best Available Control 
Technology.--Section 48A(f) of such Code, as amended by this Act, is 
amended by adding at the end the following: ``In the case of a retrofit 
of a unit which has undergone a best available control technology 
analysis after August 8, 2005, with respect to the removal or emissions 
of any pollutant which is SO<INF>2</INF> or NO<INF>x</INF>, the removal 
or emissions design level with respect to such pollutant shall be the 
level determined in such analysis.''.
    (e) Clarification of Reallocation Authority.--Section 48A(d)(4) of 
the Internal Revenue Code of 1986 is amended--
            (1) in subparagraph (A)--
                    (A) by striking ``Not later than 6 years after the 
                date of enactment of this section, the'' and inserting 
                ``The'', and
                    (B) by inserting ``and every 6 months thereafter 
                until all credits available under this section have 
                been allowed'' after ``the date which is 6 years after 
                the date of enactment of this section'',
            (2) in subparagraph (B)--
                    (A) by striking ``may reallocate credits available 
                under clauses (i) and (ii) of paragraph (3)(B)'' and 
                inserting ``shall reallocate credits remaining 
                available under paragraph (3)'',
                    (B) by striking ``or'' at the end of clause (i), 
                and
                    (C) by striking clause (ii) and inserting the 
                following:
                            ``(ii) any applicant for certification 
                        which submitted an accepted application has 
                        subsequently failed to satisfy the requirements 
                        under paragraph (2)(D), or
                            ``(iii) any certification made pursuant to 
                        paragraph (2) has been revoked pursuant to 
                        paragraph (2)(E).'', and
            (3) in subparagraph (C)--
                    (A) by striking ``clause (i) or (ii) of paragraph 
                (3)(B)'' and inserting ``paragraph (3)'',
                    (B) by striking ``is authorized to'' and inserting 
                ``shall'', and
                    (C) by striking ``an additional program'' and 
                inserting ``additional programs''.
    (f) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to allocations and 
        reallocations after the date of the enactment of this Act.
            (2) Reallocation.--The amendments made by subsection (e) 
        shall apply to credits remaining available under section 
        48A(d)(3) of the Internal Revenue Code of 1986 on the date of 
        the enactment of this Act.

SEC. 6. ENHANCEMENT OF CARBON OXIDE SEQUESTRATION CREDIT FOR DIRECT AIR 
              CAPTURE FACILITIES.

    (a) In General.--Section 45Q of the Internal Revenue Code of 1986 
is amended--
            (1) in subsection (b)(1)--
                    (A) in subparagraph (A), by striking ``The 
                applicable dollar amount'' and inserting ``Subject to 
                subparagraph (B), the applicable dollar amount'', and
                    (B) by striking subparagraph (B) and inserting the 
                following:
                    ``(B) Special rule for direct air capture 
                facilities.--
                            ``(i) In general.--Subject to clause (ii), 
                        for any taxable year beginning in a calendar 
                        year after 2021, in the case of any qualified 
                        facility described in subsection (d)(2)(C), the 
                        applicable dollar amount shall be an amount 
                        equal to--
                                    ``(I) for purposes of paragraph (3) 
                                of subsection (a), an amount equal to 
                                the product of $120 and the inflation 
                                adjustment factor for such calendar 
                                year determined under section 
                                43(b)(3)(B) for such calendar year, 
                                determined by substituting `2020' for 
                                `1990', and
                                    ``(II) for purposes of paragraph 
                                (4) of such subsection, an amount equal 
                                to the product of $75 and the inflation 
                                adjustment factor for such calendar 
                                year determined under section 
                                43(b)(3)(B) for such calendar year, 
                                determined by substituting `2020' for 
                                `1990'.
                            ``(ii) Use in enhanced oil or natural gas 
                        recovery project.--For any taxable year 
                        beginning in a calendar year after 2030, this 
                        subparagraph shall not apply with respect to 
                        any qualified carbon oxide which is used by the 
                        taxpayer in a manner described in subsection 
                        (a)(4)(B)(i).
                    ``(C) Rounding.--The applicable dollar amount 
                determined under subparagraph (A) or (B) shall be 
                rounded to the nearest cent.'', and
            (2) in subsection (d)(2)--
                    (A) in subparagraph (B), by striking ``or'' at the 
                end, and
                    (B) by striking subparagraph (C) and inserting the 
                following:
                    ``(C) in the case of a direct air capture facility, 
                not less than 10,000 metric tons of qualified carbon 
                oxide during the taxable year, or
                    ``(D) in the case of any facility not described in 
                subparagraph (A), (B), or (C), not less than 100,000 
                metric tons of qualified carbon oxide during the 
                taxable year.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2021.
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