Atlantic Structures and Places the First-Ever Tax Liability Insurance Policy Covering Recapture of Section 45Q Carbon Capture Tax Credits
In response to the enactment of the Inflation Reduction Act, our client, the owner of a large facility in the Midwest, recognized an opportunity to utilize the financial incentives set out in Section 45Q to achieve environmental objectives and superior economic performance. Over the 12-year lifespan of the 45Q credit period, the CCS project will sequester millions of tons of CO2 into a secure underground geological formation via a Class VI well.
To finance the substantial investment required to develop the CCS project, our client entered into a tax equity "partnership-flip" structure covering a portion of the 12-year life of the Section 45Q tax credits. Additional financing for the balance of the 12-year credit period is expected to be secured through further tax equity transactions and/or tax credit transfers, depending on which financing structures provide optimal outcomes in the future.
Since the 45Q tax credits underpin the key economics of the project, the client recognized that the potential loss of all, or even just a portion of, the credits posed a significant risk given its indemnification and guarantee obligations. Although the tax equity investor did not require tax insurance due to the strong credit rating of our client, our client recognized that a robust tax insurance policy backed by A-rated insurers provided substantial value by protecting against loss of the tax credits.
The policy, which was placed in February of this year, has a coverage period of 10 years and an aggregate limit of liability of
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