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Following Passage of "Rescue" Legislation, Focus Shifts to Energy Tax Provisions

Client Updates

With the expected enactment of the “rescue” portion of President Biden’s COVID-19 relief agenda, attention now turns sharply to the “recovery” portion of the plan, in particular the potential energy provisions previewed in his “Build Back Better” plan.

On February 5, 2021, House lawmakers introduced the Growing Renewable Energy and Efficiency Now Act (the GREEN Act of 2021), a version of which passed the House in July 2020 under the prior Congress. (See our prior write-up of the 2020 GREEN Act here.) The GREEN Act of 2021 would significantly extend and expand certain federal tax incentives for clean energy technology, specifically:

  • Extending the production tax credit (PTC) for wind projects (subject to current 40% haircut), and certain other technologies beginning construction through 2026.

  • Reverting to a 30% investment tax credit (ITC) for:

    • Solar and geothermal projects beginning construction through 2025, with step-downs to 26% (2026), 22% (2027) and 10% thereafter;1 and

    • Qualified fuel cell projects2 and other technologies beginning construction through 2026, with step-downs thereafter to 26% (2027) and 22% (2028).

  • Expanding the 30% ITC available to energy storage technologies beginning construction through 2026, with step-downs thereafter to 26% (2027) and 22% (2028).

  • Extending the carbon capture and sequestration (45Q) credit for facilities that begin construction through 2026.

  • Making the ITC, PTC, and 45Q credits direct pay (at 85% amount).

  • Expanding the definition of qualifying income of publicly traded partnerships, or MLPs, to include income from certain green fuel and renewable energy sources.

If enacted as proposed, the legislation (in particular the 85% direct pay option and MLP amendments) could have a significant impact on the financing and structuring of clean energy investments, especially tax equity financing.

If you have questions about any of these provisions or would like to discuss how they might affect your future tax or business planning, feel free to reach out to any of the authors of this letter.

1A “Section by Section” summary released with the draft GREEN Act of 2021 indicates the phaseout of the 30% solar and geothermal ITC begins in 2026 but the draft legislative text would begin the phaseout in 2027.

2ITCs for qualified fuel cell projects would remain subject to caps under existing law.

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