US Proposes Expanding New Clean Electricity Production Tax Credits

The U.S. has proposed new incentives under the Inflation Reduction Act (IRA) by offering tax credits for electricity produced with low or zero greenhouse gas emissions, aligning financial assistance with environmental objectives.

The U.S. Department of the Treasury and Internal Revenue Service (IRS) detailed the regulations in sections 45Y and 48E of the Internal Revenue Code.

The current Production Tax Credit and Investment Tax Credit for projects starting before 2025 will be phased out and replaced by the Clean Electricity Production Credit and Clean Electricity Investment Credit for projects operational after December 31, 2024.

“The Clean Electricity Tax Credits provide certainty to the market and are poised to drive substantial further growth and lower utility bills over the long run,” said Treasury Secretary Janet Yellen.

Government estimates show the credits could reduce power sector emissions by up to 73% below 2022 levels by 2035 and save consumers on electricity costs.

The proposed rules identify technologies qualifying for the credits, including wind, solar, hydropower, marine and hydrokinetic, nuclear fission and fusion, geothermal, energy storage, and certain waste energy recovery projects.

Meanwhile, technologies that rely on combustion or gasification must undergo a lifecycle analysis to demonstrate net-zero emissions.

The regulations outline how to calculate credits, define qualified facilities, and specify increased credit amounts for facilities meeting prevailing wage and apprenticeship requirements. They specify that taxpayers must maintain thorough records, including third-party reports, verifying emissions.

The Treasury sought public comments on the proposal over 60 days before issuing final rules.

China recently took the U.S. to the World Trade Organization for consultations regarding certain tax credits under IRA to promote the production of electric vehicles and renewable energy projects.

Last December, the Treasury and IRS introduced a new Section 45X that provides a credit for the production (within the U.S.) and sale of certain eligible components, including solar and wind energy components, inverters, qualifying battery components, and applicable critical minerals.

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