Policy & Regulation

Treasury, IRS issue guidance on clean energy production credits

Treasury, IRS issue guidance on clean energy production credits

The U.S. Department of the Treasury and Internal Revenue Service (IRS) released proposed guidance on the Clean Electricity Production Credit and Clean Electricity Investment Credit established by the Inflation Reduction Act. 

The Inflation Reduction Act sunsets the existing Production Tax Credit (section 45 of the tax code) and Investment Tax Credit (section 48 of the tax code) by limiting their availability to projects beginning construction before 2025 and transitioning to the Clean Electricity Production Credit (section 45Y of the tax code) and the Clean Electricity Investment Credit (section 48E of the tax code) for projects placed in service after December 31, 2024.

These new Clean Electricity credits provide incentives for the first time to any clean energy facility that achieves net zero greenhouse gas emissions. The credits also allow for new zero greenhouse gas emissions technologies to be developed and are intended to provide long-term clarity and certainty to investors and developers of clean energy projects.

The Notice of Proposed Rulemaking (NPRM) identifies specific technologies that meet the environmental standards set out in the Inflation Reduction Act and would categorically qualify as zero greenhouse gas emissions for the purposes of the Clean Electricity Production Credit and Clean Electricity Investment Credit. The technologies recognized in the NPRM include wind, solar, hydropower, marine and hydrokinetic, nuclear fission and fusion, geothermal, and certain types of waste energy recovery property (WERP).

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The proposed guidance also clarifies how energy storage technologies would qualify for the Clean Electricity Investment Credit. 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 comment 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 continue to evaluate how additional clean energy technologies, including combustion and gasification technologies, will be able to qualify for the clean electricity credits. 

“President Biden’s Inflation Reduction Act has driven an investment boom that is adding historic levels of new clean power to the grid while keeping consumer energy costs in check, reducing greenhouse gas emissions, and bolstering energy security,” said U.S. Secretary of the Treasury Janet L. Yellen. “The Clean Electricity Tax Credits created under the Inflation Reduction Act provide certainty to the market and are poised to drive substantial further growth and lower utility bills over the long run.”

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 Labs, in consultation with agency technical experts and other experts. The 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 facility to grid. The proposed rules continue the approach taken in the proposed rules for the Section 48 Investment Tax Credit, which was modified by the IRA to cover qualified interconnection costs. 

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