Week in Insights: Rethink Carbon Capture’s Role in Tax Policy

Curated by Daniel Xu

From electric vehicle tax credits for consumers to clean energy credits for manufacturers, tax dollars are being injected into the economy to reduce our reliance on non-renewable resources.

But not every dollar may be pulling in the same direction. Tax credits for carbon capture projects, often owned by oil and gas companies, may inadvertently prolong the extraction and use of fossil fuels. Carbon capture is a useful weapon in the arsenal against climate change—but not if emissions continue to outstrip capture.

Think of atmospheric carbon as household debt. We have accrued debt and are spending (or emitting) more than we are earning (or capturing), and our debt is increasing. Carbon capture projects are a bit like picking up a part-time job—we may be slowing our descent into indebtedness, but we aren’t reversing course. The situation is exacerbated if our additional income from the part-time job causes some members of the household to spend more.

The net result is that we aren’t removing carbon from the atmosphere quickly enough. Worse, misguided carbon capture tax credit policies may encourage the proliferation of a fossil fuel industry that leads to an overall increase in atmospheric carbon.

While carbon capture technologies may help the transition to a low-carbon economy, prioritizing them over renewable energy investments risks extending the viability of the fossil fuel industry.

Instead of just believing tax policies do what they say, we must critically examine where tax dollars are going and what they incentivize when they get there.

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The NRG Energy Inc. WA Parish generating station stands in Thompsons, Texas, and is home to the Petra Nova Carbon Capture Project.

Photographer: Luke Sharrett/Bloomberg via Getty Images

Federal Insights

KPMG’s Kathya Capote Peimbert reviews digital reporting rules, noting that global multinationals in the C-suite should assess the risks.

Vinson & Elkins’ Jon Solorzano and Corinne Snow examine the SEC’s disclosure pause, saying companies should proceed with preparing compliance measures as a precaution.

Robert Half’s Steve Saah details ways tax pros can advance, noting that recruiters value certifications and public firm experience.

Morgan Bazilian, Greg Clough, and Simon Lomax of the Payne Institute warn of a ‘disconnect’ in US hydrogen policy and urge climate consistency across federal departments and agencies.

Vinson & Elkins’ Stephen Josey examines the IRS’s ADR program, saying that its success hinges on providing litigation training for appeals officers and granting them wide discretion.

FedArb’s Joe Kelliher and David Hill argue that ending or severely limiting Chevron deference would empower nonexpert judges and create regulatory uncertainty.

Sovos’ Kevin Cunningham says CFOs can help modernize tax tech, and take steps to integrate team responsibilities and build trust.

Global Insights

Trilegal’s Meyyappan Nagappan, Joseph Jimmy, and Shweta Mallya assess the impact of Indian GST changes on cross-border group financing for corporate groups.

DLA Piper’s Augusto Mancinelli and Marcelo Etchebarne examine Argentina’s revised anti-money laundering law, which expands the definition of “obliged persons.”

Shearn Delamore’s Irene Yong explains why taxpayers’ questions remain on the new Malaysian capital gains tax despite recent Inland Revenue guidance.

Columnist Corner

The state and local tax deduction cap, when combined with loopholes for pass-through entities, places too much of the SALT burden on individual taxpayers in high-tax states, Andrew Leahey writes in his Technically Speaking column. Congress should either eliminate the cap or amend it to apply uniformly, Leahey argues, noting that “the current dynamic should be found untenable across party lines.”

Career Moves

Rob Owen has joined SAX as its first chief information officer and practice leader of SAX Technology Advisors.

Erin A. O’Brien has joined Cullen and Dykman as a partner in the corporate department.

Christiana Lazo has joined Proskauer as a partner in its private client services department.

Jeff S. Luechtefeld, John Nail, and Sean R. Gannon have joined Bradley Arant Boult Cummings as partners in the Atlanta tax practice.

Evan S. Cowit has joined Moses Singer as a partner and chair of the private clients group, the firm said Thursday.

Anson Loi has joined PKF O’Connor Davies as a partner in the New York office.

If you’re changing jobs or being promoted, email your submission to TaxMoves@bloombergindustry.com for consideration.

News Roundup

It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team (login required).

• The Treasury Department has proposed regulations on how the new stock-buyback tax will be imposed and administered.
• Some companies doing business between Taiwan and the US are growing concerned that if the stagnating $78 billion tax package withers, Taiwan-specific provisions that would provide double taxation relief might get left behind too.
• Efforts to make Maryland the first state to require multinational corporations to calculate income taxes based on worldwide combined income fell short after lawmakers advanced a budget excluding the provision.
• The Ultimate Fighting Championship and two New York arenas are pushing New York lawmakers to cut the tax on mixed martial arts tickets, with hope that the measure gets wrapped into a final state budget plan under negotiation.

Taipei 101 and the skyline as seen from Jiantanshan in Taipei, on Jan. 9, 2024.

Photographer: Alastair Pike/AFP via Getty Images

Tax Journals

(Bloomberg Tax login required)

Tax Management International Journal

Non-US individuals and corporations should carefully evaluate how Section 280G of the tax code applies to them when engaging in cross-border transactions, as there are a number of pitfalls that may not be apparent, Joe Urwitz of Crowell & Moring says.

Taxpayers looking to avoid lengthy (and costly) exams and gain certainty for prospective years (and potentially all open years via an APA rollback) should strongly consider applying for an APA, Grant Thornton’s Steven C. Wrappe and KPMG’s Cameron Taheri, Peter Hartman, and Addisen Reboulet say.

Tax Management Memorandum

With the final outcome of a federal case now known, Direct Pay Build America Bond issuers have the answer to the question of whether a budget-driven sequestration of part of their tax credit constitutes a “material change” to applicable law, allowing them to employ the extraordinary call provision in their bond documents, Solomon Cadle and Martye Kendrick of Greenberg Traurig say.

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