The US Treasury and IRS on 14 August published Notice 2026-50, expanding and extending the compliance safe harbor for the Section 45Q carbon capture tax credit. The move directly addresses a problem of the government’s own making: the Environmental Protection Agency is proposing to abolish the reporting regime, subpart RR of the Greenhouse Gas Reporting Program, on which 45Q eligibility currently depends. For carbon capture developers, EOR operators and the global buyers who contract US-based carbon removal supply, the notice removes a near-term risk that projects with stored CO2 could be unable to prove they qualify for the credit.

Why the IRS Had to Step In

Section 45Q pays a per-tonne credit for carbon oxide that is captured and disposed of in secure geological storage, or used as a tertiary injectant in enhanced oil or natural gas recovery. To count as securely stored, the regulations require compliance with subpart RR, which obliges operators to maintain an EPA-approved Monitoring, Reporting and Verification (MRV) plan and to file annual mass-balance reports through the agency’s e-GGRT electronic system.

On 16 September 2025, the EPA proposed removing subpart RR reporting obligations for reporting years after 2024. If finalized, the agency would stop accepting the very annual reports that 45Q claimants need. A final rule on 27 February 2026 already pushed the reporting year 2025 annual report deadline to 30 October 2026, a clear signal that the reporting infrastructure is being wound down.

Notice 2026-1, issued earlier this year, was the first patch: a safe harbor for 2025 storage only, and only for projects that do not use the CO2 for enhanced recovery. Stakeholders told Treasury and the IRS this left two gaps. EOR operators said they could not transition to alternative standards, such as CSA/ANSI ISO 27916:2019, in time to claim the credit for 2025. And a safe harbor limited to calendar 2025 created uncertainty for projects with long investment horizons.

What Notice 2026-50 Changes

The new notice modifies Notice 2026-1 in three ways, per the IRS text and KPMG’s analysis:

  • EOR and EGR projects are now covered. Qualified carbon oxide used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project can rely on the safe harbor, provided the taxpayer holds an EPA-approved MRV plan and complies with subpart RR as in effect on 31 December 2025.
  • Recapture accounting is covered. Taxpayers may use the safe harbor to determine the amount of qualified carbon oxide securely stored and the amount leaked to the atmosphere, the two quantities that drive the credit recapture rules under Treas. Reg. section 1.45Q-5(a) and (c). Leakage quantification was previously tied to subpart RR or ISO 27916 reporting that may no longer exist.
  • The safe harbor is open-ended. It now applies to secure geological storage occurring on or after 1 January 2025, up to 31 December of the calendar year in which Treasury and the IRS publish further interim guidance or proposed regulations on 45Q measurement, reporting and verification.

The trigger condition stays the same: the safe harbor only applies if the EPA does not launch e-GGRT for the relevant reporting year by 31 March of the following year. Where it applies, the taxpayer prepares the annual report to subpart RR standards as frozen on 31 December 2025, and has it certified by a qualified independent engineer or geologist, registered or certified in a US state, who signs an affidavit of independence under penalties of perjury.

The International Standard Waiting in the Wings

Buried in the notice is a signal with reach well beyond US tax administration. Treasury and the IRS are formally requesting comments on whether ISO 27914:2026, the international standard for geological storage of CO2 published in March 2026, could replace subpart RR as the compliance backbone for 45Q. Comments are due by 30 October 2026 through the Federal eRulemaking Portal, docket IRS-2026-0728.

If ISO 27914 becomes the reference standard, the MRV basis of the largest carbon capture subsidy in the world would align with a standard that project developers and verifiers already use internationally. That would simplify cross-border project documentation and make US storage accounting more legible to foreign investors and credit buyers.

Why This Matters for Buyers and Investors

The 45Q credit is the financial foundation under most US carbon capture, utilization and storage projects, and under a large share of the engineered carbon removal supply that corporate buyers have contracted forward. A breakdown in the substantiation pathway would not just be a tax problem: it would inject delivery risk into the US CDR pipeline at exactly the point where stored tonnes need to be verified.

Two details deserve attention. First, the inclusion of EOR projects follows the One Big Beautiful Bill Act of 4 July 2025, which established parity between the credit amount for utilization and EOR and the amount for pure geological storage for equipment placed in service after that date. With the price advantage of EOR gone, the compliance pathway becomes the deciding factor, and Notice 2026-50 secures it. Second, the same law disallows the credit for specified foreign entities and foreign-influenced entities, so ownership screening is now part of 45Q due diligence alongside MRV compliance.

What to Watch

Three markers will define the endgame. First, whether the EPA finalizes the subpart RR repeal, and on what timeline, since that determines whether the safe harbor becomes the permanent compliance route. Second, the comment file on ISO 27914:2026 due 30 October 2026: the positions of capture developers, verifiers and EOR operators will show whether the industry converges on the international standard or fragments across methodologies. Third, the follow-on guidance or proposed regulations that would close the safe harbor window, which will set the definitive MRV rules for the post-subpart RR era.

The direction of travel is notable in itself: while one agency dismantles carbon reporting obligations, another is rebuilding a parallel verification channel to keep the subsidy credible. For the carbon capture market, the safe harbor is now the load-bearing structure.