Key Takeaways
- Notice 2026-50 extends the independent engineer/geologist certification safe harbor to enhanced oil and gas recovery projects using captured carbon as a tertiary injectant.
- The safe harbor now applies on an open-ended basis through Dec. 31 of each year until Treasury issues further guidance or proposed regulations.
- The recapture safe harbor framework clarifies that independent certification governs storage amounts and leaked quantities subject to recapture.
- EOR/EGR operators should ensure their reporting plans comply with the subpart RR requirements in effect on Dec. 31, 2025.
The IRS released Notice 2026-50 to expand the previously established safe harbor under Notice 2026-1 to allow taxpayers to engage independent engineers and geologists to certify secure geological storage of the carbon used as a tertiary injectant for enhanced oil and natural gas recovery (EOR/EGR) projects. The need to expand the previously established safe harbor to EOR/EGR projects is due to the EPA’s proposed removal of subpart RR from the Greenhouse Gas Reporting Program (subpart RR requirements). Subpart RR requires annual reporting for EOR/EGR projects that use carbon as a tertiary injectant into Underground Injection Control (UIC) Class II wells, and previously issued Notice 2026-1 relied on the annual reporting requirements under subpart RR, rather than allowing for separate certification by independent engineers and geologists. The EPA’s removal of subpart RR would have left a hole in each EOR/EGR project’s annual reporting requirements under 45Q without the expansion of the annual reporting safe harbor under Notice 2026-50.
45Q Background
Section 45Q provides a tax credit for the capture and secure geological storage of qualified carbon oxide. The 45Q tax credit is $20 per metric ton ($100 for prevailing wage and apprenticeship compliance) for permanent sequestration not used in an EOR/EGR project and $10 per metric ton ($50 for prevailing wage and apprenticeship compliance) for permanent sequestration used in an EOR/EGR project. The 45Q credit is inflation adjusted, and the 2026 rates for projects that comply with the prevailing wage and apprenticeship requirements are $146.40 per metric ton of carbon not used in an EOR/EGR project and $73.20 per metric ton of carbon used in an EOR/EGR project. To claim the 45Q credit, taxpayers must satisfy measurement, reporting and secure storage verification requirements.
Treasury and IRS issued Notice 2026-1 (2026-4 I.R.B. 365), which established a safe harbor allowing taxpayers to use an independent engineer or geologist, duly registered or certified in any state, to certify a 45Q project’s compliance with the annual secure geological storage requirements. Notice 2026-1, however, applied only to storage not used in an EOR/EGR project and allowed taxpayers using carbon as a tertiary injectant in an EOR/EGR project to rely on the existing subpart RR requirements.
Subpart RR of the Greenhouse Gas Reporting Program
EPA’s subpart RR of the Greenhouse Gas Reporting Program served as the primary reporting framework for EOR/EGR projects. Subpart RR required EOR/EGR projects using carbon as a tertiary injectant into a Class II well to submit annual reports through EPA’s electronic reporting system (e-GGRT).
In September 2025, the EPA proposed removing subpart RR from the GHGRP (90 F.R. 44591). This created immediate uncertainty for §45Q claimants who relied on subpart RR to demonstrate compliance. In response, Treasury and IRS issued Notice 2026-50 to expand the existing safe harbor under Notice 2026-1 (2026-4 I.R.B. 365) to also apply to EOR/EGR projects using carbon as a tertiary injectant.
What Changed
Notice 2026-50 makes three changes to the interim safe harbor framework:
1. Expansion to EOR/EGR Projects
The safe harbor now covers qualified carbon oxide used as a tertiary injectant in qualified enhanced oil or natural gas recovery projects. Stakeholders demonstrated that transitioning from subpart RR to alternative standards (such as CSA/ANSI ISO 27916:2019) by 2025 was not feasible without incurring significant costs and compliance disruptions. This expansion places EOR/EGR projects on equal footing with dedicated geological storage for safe harbor purposes. The independent engineer or geologist will need to certify the project’s compliance with subpart RR requirements in effect on Dec. 31, 2025, in lieu of the EPA’s e-GGRT submission.
2. Recapture Safe Harbor
Notice 2026-50 clarifies that the safe harbor also governs the determination of amounts subject to recapture under §1.45Q-5(a) and (c). This means the independent-certification framework applies to calculating the quantity of qualified carbon oxide securely stored and to measuring any quantity that has leaked into the atmosphere. Taxpayers relying on the safe harbor must include these recapture-related determinations in their annual report submitted to the certifying engineer or geologist.
3. Open-Ended Applicability Period
The original safe harbor applied only to storage occurring in calendar year 2025. Notice 2026-50 extends coverage to storage occurring on or after Jan. 1, 2025, and through Dec. 31 of each subsequent calendar year until the Treasury and IRS publish either further interim guidance in the Internal Revenue Bulletin or proposed regulations addressing annual reporting requirements under 45Q. This is effectively an open-ended extension, providing continuity until a permanent replacement standard is finalized.
Practical Implications
- Compliance continuity for EOR/EGR operators. Projects using captured carbon oxide for enhanced recovery no longer face a gap in annual reporting compliance pathways due to the EPA’s pending removal of the subpart RR requirements. Operators should confirm that their existing EPA-approved reporting plans remain in compliance with the 2025 subpart RR requirements.
- Recapture risk management. Tax equity investors can now rely on the same independent-certification framework when evaluating recapture exposure. Annual reports certified under the safe harbor must quantify both stored and leaked amounts.
- Indefinite timeline. The open-ended applicability removes year-to-year renewal uncertainty but does not resolve what will ultimately replace the subpart RR requirements. Treasury has requested comments on potential alternatives, including ISO 27914:2026 (Carbon dioxide capture, transportation and storage—Geological storage, Ed. 2, published March 2026).
- Engagement of qualified independent professionals. The safe harbor requires certification by a qualified independent engineer or geologist, including an affidavit of independence made under penalties of perjury. Taxpayers should confirm that they have retained appropriate independent engineers or geologists each year for document review and applicable report certification.
- Documentation timing. All annual certification and documentation must be completed by the time the taxpayer timely files its relevant tax return (including extensions). Records must be retained under §6001.
- Interaction with OBBBA. Separately, the One Big Beautiful Bill Act (P.L. 119-21, July 4, 2025) modified 45Q to disallow credits for specified foreign entities and foreign-influenced entities for taxable years beginning after July 4, 2025. The Notice does not address these restrictions, which apply independently.