The Treasury Department announced its guidance for Clean Electricity Production Credits and Clean Electricity Investment Credits, created under the 2022 Inflation Reduction Act, that will be available in 2025 as the current wind and solar production and investment tax credits sunset. While tax credits are generally used to get new technologies off the ground in their early stages when costs are high due to lack of economies of scale, tax credits have been applied to wind and solar power for decades. The first major wind facilities were installed in California in the early 1980s. Neither the Biden administration nor the owners and developers of wind and solar technology are willing to stop these tax credits. Now, nuclear fission and fusion and geothermal are among the technologies that may qualify for production and investment tax credits under the Biden administration proposal released May 29.
The Treasury Department proposal identified a half-dozen technologies that qualify for the lucrative tax credits, including marine and hydrokinetic energy, nuclear fission and fusion, hydropower, geothermal and some forms of waste energy recovery. Qualified facilities or energy property may be eligible for multiple credits under Sections 45, 45Y, 48, or 48E, but a taxpayer may only claim one of these credits with respect to the same qualified facility or energy property. Section 48E and 45Y credits are available to any eligible project that commences construction before 2033 or the year that U.S. electric power carbon dioxide emissions fall below 25 percent of 2022 levels, whichever is later. This provision could give companies decades of taxpayer funds for technologies that are no longer in their infancy, producing 14 percent of the nation’s electricity last year.
The Section 45Y credit (Clean Electricity Production Credit) is calculated based on the amount of kilowatt hours of “clean” electricity produced at a qualified facility. There is a base amount of 0.3 cents and an alternative higher rate of 1.5 cents for facilities that meet further requirements. The Section 48E credit (Clean Electricity Investment Credit) has a base rate of 6 percent and a higher alternative rate of 30 percent for tax years in which a qualified investment is made with respect to a qualified facility and energy storage technology. So, the credits can be as high as 30 percent for wind and solar projects if all conditions are met. In such cases, taxpayers absorb 30 percent of the cost of wind and solar installations.
The Treasury Department is seeking comment on combustion and gasification projects, like bioenergy with carbon capture and storage. The Department is referring to the new credits as “tech-neutral” because electric power projects can be eligible if they eliminate greenhouse gas emissions, including those that use fossil fuels, under the rules described below.
The statute requires clean energy technologies that rely on combustion or gasification to produce electricity undergo a lifecycle greenhouse gas analysis to demonstrate net-zero emissions. The proposed rules seek comments on a range of questions related to this required lifecycle analysis for combustion and gasification technologies. Treasury, in consultation with interagency experts, will review comments received and evaluate how additional energy technologies, including combustion and gasification technologies, will be able to qualify for the clean electricity credits.
The guidance also proposes that any future changes to the set of technologies that are designated as zero greenhouse gas emissions or the designation of lifecycle analysis models that may be used to determine greenhouse gas emissions rates must be accompanied by an analysis prepared by the U.S. Department of Energy (DOE)’s National Laboratories, in consultation with agency technical experts and other experts. The Notice for Proposed Rulemaking (NPRM) also proposes a process by which taxpayers can request a Provisional Emissions Rate, which DOE would administer in consultation with the National Labs and other experts as appropriate.
Additionally, the NPRM includes proposed rules meant to clarify the inclusion of costs of interconnection-related property for lower-output clean energy facilities that take the Clean Electricity Investment Tax Credit. Eligible costs include the costs of upgrades to local transmission and distribution networks that are necessary to connect a facility to the grid. The proposed guidance clarifies how energy storage technologies would qualify for the Clean Electricity Investment Credit.
The proposed rules, contained in a document that has not yet been officially published, will be considered during a public hearing scheduled for August 12 and August 13 at 10 a.m. ET. The Department of the Treasury and the IRS invite comments from the public on the new proposed regulations via the Federal eRulemaking Portal at https://regulations.gov.
Conclusion
Clearly, the Biden administration is making it easy for its politically correct technologies to be eligible for lucrative tax credits under the Inflation Reduction Act, and much harder for other technologies, even if they would also reduce greenhouse gas emissions. The initial guidance provided on May 29 will be followed by a published document and public hearings in August, and comments are welcome before the rule is finalized.
