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May 29 [press release] -- U.S. Department of the Treasury, IRS Release Proposed Guidance to Continue Investment Boom in Clean Energy Production

Today, 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 President Biden’s Inflation Reduction Act. By providing clarity to developers of clean electricity projects, today’s guidance will further President Biden’s Investing in America Agenda, support American jobs, and bolster energy production and energy security while reducing energy costs for American consumers.  

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 are one of the law’s most significant reforms, providing incentives for the first time to any clean energy facility that achieves net zero greenhouse gas emissions. These credits provide the ability for new zero greenhouse gas emissions technologies to develop over time, while also providing long-term clarity and certainty to investors and developers of clean energy projects.

After extensive consultation with interagency experts, today’s Notice of Proposed Rulemaking (NPRM) identifies specific technologies that meet the high environmental standards set out in President Biden’s 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 today’s NPRM include wind, solar, hydropower, marine and hydrokinetic, nuclear fission and fusion, geothermal, and certain types of waste energy recovery property (WERP). The proposed guidance also clarifies how energy storage technologies would qualify for the Clean Electricity Investment Credit. The statute requires that 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 released today seek comment on a range of important questions related to this required lifecycle analysis for combustion and gasification technologies. Treasury, in consultation with interagency experts, will carefully 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 Inflation Reduction Act’s new technology-neutral Clean Electricity credits, which will come into effect in 2025, are one of the law’s most significant contributions to tackling the climate crisis,” said John Podesta, Senior Advisor to the President for International Climate Policy. “Today’s initial guidance from Treasury will help provide long-term certainty to investors and developers, support new zero-emission innovations, and accelerate our progress toward a 100 percent clean power sector.”

“With today’s guidance, energy companies have yet another tool to cut electricity costs for families and businesses and power President Biden’s American manufacturing renaissance,” said Assistant to the President and National Climate Advisor Ali Zaidi. “Under the President’s leadership, the U.S. is projected to build more new electric generation capacity this year than we have in two decades – and 96 percent of that will be clean. Thanks to the Biden-Harris Administration’s efforts, American families are expected to save up to $38 billion on their electricity bills and American businesses are projected to spend 15% less on electricity by 2030. This is how we win the future, by harnessing American innovation and the best workers in the world to grow our economy, reduce energy costs, and save the planet for future generations.”

These proposed rules generally follow rules from the existing Production and Investment Tax Credits, which should provide clarity and certainty to developers as they move forward with clean energy production projects. Treasury is committed to grounding these rules in the best available science and ensuring continued transparency and public accountability. That is why today’s guidance 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 that provide clarity on the inclusion of costs of interconnection-related property for lower-output clean energy facilities that take the Clean Electricity Investment Tax Credit. Eligible costs, which are a major barrier to faster clean energy deployment, 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.

Treasury encourages the public to submit written comments in response to the proposed rules. Comments will be accepted for 60 days following publication in the Federal Register [scheduled for June 3] and a public hearing is scheduled on August 12 and 13. The NPRM seeks comment on a variety of issues, and Treasury and the IRS look forward to receiving further input and benefitting from additional stakeholder perspectives on those issues.  Treasury will carefully consider public comments before issuing final rules.

Outside studies have shown that the Clean Electricity Production and Investment Credits are key to accelerating U.S. emissions reductions and achieving President Biden’s climate and clean energy goals. A recent Rhodium Group study found that by 2035, the credits will reduce power sector carbon emissions by 43-73% below 2022 levels, save American consumers up to $34 billion in annual electricity costs, and add nearly 650 gigawatts of clean electricity to the grid.  

FRN: https://www.federalregister.gov/d/2024-11719
Press release: https://home.treasury.gov/news/press-releases/jy2376

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