New Law Offers $36/Ton Tax Credit for Turning Wildfire Waste into Carbon Storage, Starting 2026

The Wildfire Reduction and Carbon Removal Act of 2025 is aiming to tackle two problems at once: massive wildfires and rising carbon emissions. Essentially, this legislation creates a brand-new tax credit, kicking off in 2026, designed to pay companies to clean up forest waste that fuels fires and lock the resulting carbon away permanently.

The Cleanup Crew Gets Paid

This bill inserts a new section into the tax code (Section 45BB) that offers a financial incentive for capturing and storing carbon dioxide from “qualified forest residue biomass.” Think of it as paying people to take the small, leftover wood—stuff no bigger than eight inches in diameter—that’s generated when the Forest Service or Bureau of Land Management thins forests to reduce fire risk. This isn’t about clear-cutting; it’s specifically targeting the debris from wildfire hazard reduction.

How much is the payout? If a company captures CO2 from this wood waste using new equipment and stores it securely underground (geological storage), they get $36 per metric ton. If they turn it into durable products like biochar or building materials (long-duration utilization), the credit is $12 per metric ton. These amounts are inflation-adjusted starting in 2027. For a company to qualify, it must capture at least 1,000 metric tons per year, though they can group multiple facilities together to hit that minimum.

The Fine Print: Where the Policy Gets Picky

While the goal is solid—less fire risk, more carbon removal—the implementation rules are complex. The bill is extremely specific about what counts as eligible wood: it must come from trees no bigger than eight inches in diameter and be tied to official wildfire reduction or ecological restoration plans. This narrow definition is good for targeting the specific problem of fire fuel, but it means that other types of forest waste or commercial logging residue won't qualify for this specific credit.

Furthermore, the bill demands serious compliance. To claim the credit, companies must conduct a detailed lifecycle analysis of greenhouse gas emissions and follow rigorous monitoring, reporting, and verification (MRV) rules. This is where the rubber meets the road: the government wants proof that the entire process—from collecting the wood to storing the carbon—actually results in a net carbon reduction. This level of required compliance means significant upfront administrative costs for any company wanting to participate, which could be a hurdle for smaller operations.

Who Pays and Who Benefits?

This is a tax expenditure, meaning the cost of the credits is borne by taxpayers generally. The direct beneficiaries are the companies that can afford to build and operate these specialized carbon capture facilities. If the program works as intended, we all benefit from reduced wildfire risk and less carbon in the atmosphere. For people living in high-risk areas, this bill provides a funding mechanism to accelerate forest thinning projects that have long been bottlenecked by cost.

However, the bill includes critical restrictions that limit flexibility. If a company’s carbon removal project also happens to generate electricity, hydrogen, or fuel, they are prohibited from claiming other major clean energy tax credits (like 45, 45V, or 45Z) on that output. For developers trying to build integrated facilities that maximize efficiency, this limitation means they have to choose which credit stream to pursue, potentially making integrated clean energy projects less economically attractive.

The Regulatory Catch-22

Perhaps the biggest unknown is the raft of new regulations the bill mandates. The Treasury Secretary has tight deadlines to issue rules on two critical areas: sustainability standards for the biomass sourcing and carbon accounting rules for measuring the net carbon removed. The sustainability rules must ensure that sourcing the wood doesn't mess up soil quality, biodiversity, or water resources. If these final rules are too weak, they risk allowing practices that cause ecological harm under the guise of climate action. If they are too strict, they could make the entire process too costly for companies to participate, rendering the tax credit useless. The real impact of this bill hinges entirely on how these complex regulatory standards are written over the next year.