Reports of the next big tax debate of 2025 may be somewhat exaggerated. Political wrangling is expected, but will Congress actually hold in-depth hearings and attempt to build some sort of consensus on how to handle the expiration of certain provisions of the tax cuts law? taxes and employment? We can only hope.

Whatever happens between now and December 2025, the jockeying for new tax measures has already begun.

This week’s topic is a bipartisan measure that has its origins in the Inflation Reduction Act, rather than the TCJA. The Methane Reduction and Economic Growth Act now has sponsors in both the House and Senate, which could give it an advantage in legislative negotiations.

The bill proposes to add to section 45Q carbon sequestration credit a provision allowing a credit for the capture of qualified methane from mining activities. Senate Finance Committee Ranking Member Mark R. Warner, D-Va., and Sen. Shelley Moore Capito, R-W.Va., introduced the Senate version, and the companion bill in the House was sponsored by Carol D. Miller, member of the Ways and Means Committee. , R-W.Va., and Terri A. Sewell, D-Ala.

The bill would add a new section 45Q(f)(10), which would define qualified methane as methane captured during mining activities by capture equipment. Mining activities include those occurring in underground, abandoned or closed mines, as well as surface mines. Captured methane must meet the requirement that it “would otherwise be released to the atmosphere as or result in industrial greenhouse gas emissions” and be measured at the capture source and verified at the point injection into a pipeline or use. .

Taxpayers claiming the credit would have to inject the methane into a pipeline that complies with specific federal regulations and “instrumental leak monitoring and other preventative and mitigation measures,” or inject it into a collection system that supplies a pipeline. Alternatively, methane can be used to produce heat, either for industrial purposes or to heat a structure “in a manner that involves no more than a de minimis release of methane into the atmosphere.”

To qualify for the proposed credit, methane capture must occur at an eligible facility that was initially placed in service after February 8, 2018. Construction of the facility must begin before January 1, 2033. Construction of the facility must begin before January 1, 2033. Methane capture equipment must also begin before 2033.

The facility is only eligible if the taxpayer captures at least 2,500 metric tons of methane during the tax year at the facility. Methane is eligible if it is captured during the 12-year period beginning on the date the capture equipment was initially placed in service.

The bill builds on the rules that apply to existing gas pipelines, including requiring compliance with leak monitoring. But Treasury may need to draft guidance on provisions such as what constitutes a “de minimis methane release,” or at least make it clear that these terms refer to existing guidance outside of tax law.

Mining methane capture was not part of the discussions in the run-up to the IRA. But there is plenty of mine methane to capture, as most of it is not currently captured. The Biden administration’s month of November 2021 US Action Plan to Reduce Methane Emissions said that “abandoned coal mines are a significant source of methane emissions which are estimated to produce 237,000 metric tons of methane (5.9 MMT CO2e) on an annual basis.”

But the action plan does not mention the inclusion of methane capture equipment in section 45Qalthough it touts carbon capture and sequestration. Besides abandoned mines, active underground coal mines contribute the largest share of methane emissions from coal mines, a study shows. 2023 Report of the Environmental Protection Agency.

Mined methane has multiple potential uses, including the production of hydrogen. IRAs 45V section The hydrogen credit has sparked more interest in coal mine methane because one of the hydrogen production pathways is steam methane reforming, but the proposed hydrogen regulations ( REG-117631-23) addressed the question of when fugitive sources of methane can be used in hydrogen production. .

The preamble explained that future fugitive methane rules “would be logically consistent with, but not identical to, the incrementality, temporal matching, and deliverability requirements for electricity-derived energy attribute certificates,” and would be designed to reflect how the demand for fugitive methane can affect greenhouse gas emissions throughout the life cycle. In developing the rules, Treasury also promised to consider the differences between electricity and methane, including “different emissions sources, markets, available monitoring and verification methods, and the potential for perverse incentives.” Fugitive methane will need to be certified.

Treasury is also trying to figure out what to do with mine methane in proposed regulations for technology-neutral clean energy credits in sections 45 years old And 48E (REG-119283-23). “Fugitive methane presents a complex set of problems,” observes the preamble.

One problem is tracking and verification. The preamble recognizes that existing systems “have limited capabilities to track and verify” renewable natural gas pipelines, particularly in the production process before methane is transformed into renewable natural gas. The preamble’s application of the first productive use rule to fugitive methane and biogas emissions was unpopular with industry, as evidenced by comment letters.

Productive use will likely be defined as any useful application of methane, including the production of heat or its transformation into renewable natural gas. But the preamble suggests that Treasury might not want to move much. He noted that the proposal would limit emissions associated with the diversion of biogas, renewable natural gas or fugitive methane from other pre-existing productive uses.

The Tax Law Center at New York University recently submitted an additional comment letter regarding whether the first productive use rule is permitted following the Supreme Court’s decision in the case Loper Bright Enterprises Inc. v. Raimondo144 S.Ct. 2244 (2024). The definition of life cycle greenhouse gas emissions, which includes “direct emissions and significant indirect emissions”, requires that the emissions rate from a combustion and gasification facility take into account the cycle full life of the fuel, the center argued. He wrote:

“To the extent that administrative records or Treasury’s own investigations indicate that a first productive use rule is necessary to account for significant direct or indirect emissions, the final regulations would risk running counter to the rule. legal requirement to take into account significant direct or indirect emissions. broadcasts and the (Administrative Procedure Act) without adequate responses to such evidence.

The comment letter encouraged Treasury to continue studying whether diverting methane from existing uses results in significant indirect emissions, noting that other commenters have said it could have “significant emissions impacts.”

Others have argued that including the first productive use rule in the final regulations would violate Loper Luminous. Mined methane capture may have an advantage over other technologies, even if the first rule of productive use is included, because capture technology has not yet been widely adopted.

Looking towards 2025

Supporters of the Methane Reduction and Economic Growth Act hope that introducing a bill in the House and Senate will help move it forward in the 2025 tax debate.

“The economic impacts and job creation related to methane capture are well documented, and the scale of methane that could be captured is robust,” said Michael Moore of the Waste Gas Capture Initiative. Mine methane sources could be long-lived, as indicated by abandoned mines that have emitted methane for up to 100 years, Moore said.

Capturing this gas and using it productively in industrial processes or in heating buildings would help mitigate these emissions, as well as those from currently operating mines, where methane must be vented for safety reasons. Newer projects have capture equipment for safety reasons, but less than 2% capture and use methane, according to the Waste Gas Capture Initiative.

The employment potential in areas where the energy transition has had the greatest negative impact is a selling point for lawmakers. Write in The Hill Last November, Miller argued that using methane emissions from mines as an energy source would support jobs that support rural America, as well as “keep our mines open long into the future, and when they are Combined with hydrogen fueled by coal or natural gas, this would result in a tangible victory for energy security, air quality, and the U.S. economy.

A version of this article appeared in the October 28, 2024 edition of Tax Notes Federal.