On Friday, May 28, 2021, the Treasury Department released its explanation (the “Greenbook”) of the tax proposals President Biden introduced as part of the $2 trillion “American Jobs Plan.” The American Jobs Plan contained a sweeping set of proposals to increase investment in infrastructure while offsetting those outlays with a “Made in America Tax Plan,” as described in our prior clean energy tax alert available here. The Greenbook provides considerable detail regarding the Biden Administration’s clean energy tax proposals, which include a direct pay option in lieu of certain tax credits, as highlighted below:
An expanded and extended production tax credit (PTC) for wind projects and other qualified facilities. The PTC would revert to its full rate (i.e., 100%, no “haircut”) for qualified facilities commencing construction in 2022 through 2o26. Thereafter, the PTC rate would be reduced by 20% each year and phase down to zero for facilities commencing construction after 2030.
An expanded investment tax credit (ITC) for clean energy generation and storage. The ITC would revert to 30% for solar energy and certain other energy projects (geothermal energy, qualified fuel cell, geothermal heat pump, small wind, offshore wind, waste energy recovery, and combined heat and power property) that begin construction in 2022 through 2026, and would be expanded to include certain standalone storage technology beginning in 2022. The ITC rate would phase out over five years beginning in 2027 (reduced 20% each year), reaching zero for projects commencing construction after 2030, apparently eliminating the permanent residual 10% ITC for solar and geothermal energy projects under current law.
A new transmission ITC. A credit for 30% of the investment in qualifying electric power transmission property (at least 250kv and 500MW capacity), whether overhead, submarine or underground, placed in service in 2022 through 2031, without a phase-down. The Greenbook makes no reference to a cap on the new transmission ITC, as had been indicated in the Administration’s prior announcement of the proposal.
Section 48C advanced energy project ITC. The Administration would authorize an additional $10 billion in funding for this 30% credit for investment in qualifying advanced energy projects, the definition of which would be expanded to include projects for manufacturing facilities for solar and wind equipment, energy storage systems for vehicles, carbon capture and sequestration equipment and grid modernization equipment, among others.
A new hydrogen PTC. A new 6-year hydrogen PTC, starting at $3 per kilogram (adjusted for inflation) of production of low-carbon hydrogen, for qualified facilities that begin construction before 2027. Low-carbon hydrogen would be defined to include hydrogen produced using renewable energy or nuclear energy and hydrogen produced using natural gas with respect to which the carbon by-product is captured and sequestered.
Section 45Q carbon capture tax credit expanded and enhanced. The proposal would extend the deadline for construction of qualified facilities from January 1, 2026 to January 1, 2031. The credit amount would be increased to $85 per metric ton for “hard-to-abate industrial carbon oxide capture sectors such as cement production, steelmaking, hydrogen production and petroleum refining” but would not be increased for ethanol, natural gas processing or ammonia production facilities. Direct air capture projects would also be eligible for an extra $70 per metric ton credit. What is not included: an extension of the 12-year credit period or a reduction in the minimum annual capture amounts for qualified facilities.
Direct pay option. PTCs, ITCs (including the transmission and Section 45C credits) and Section 45Q credits would be available, at the taxpayer’s option, as a direct payment in lieu of the credit. Unlike the Green Act of 2021 introduced in the House (discussed in our alert available here), there is no “haircut” on the amount paid if the direct pay option is selected.
Labor Requirements. The Greenbook notes that the Administration will work with Congress on measures “to pair” the PTCs, ITCs (including the transmission and Section 45C credits) and Section 45Q credits “with strong labor standards, benefitting employers that provide good-paying and good-quality jobs.” It is unclear whether satisfaction of these standards would be a prerequisite to receipt of the credits, as is the case under Sen. Wyden’s proposed Clean Energy for America Act.
Residential Energy Efficiency Property (REEP) Credit. The REEP credit (a nonrefundable credit for the purchase of certain residential energy efficient property, including solar electric property) would revert to 30% for systems placed in service in 2022 through 2026 and be expanded to include certain battery storage technology, subject in each case to phase-down under a schedule similar to the ITC discussed above.We are continuing to monitor developments with respect to clean energy tax legislation and will provide further updates as appropriate. In the meantime, Baker Botts would be pleased to assist you in your analysis of these proposals.
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