On the night of September 10, 2021, the House Ways and Means Committee (the "Committee") released legislative text covering a range of green energy tax incentives (the "Bill") that it hopes will be enacted through the budget reconciliation process.1 The Committee has been releasing portions of legislative text that will be taken up in budget reconciliation piecemeal, and the Committee expects to begin markup of the Bill on Tuesday, September 14.2 The chairman of the Committee, Richard Neal, stated that the proposals in the Bill would "allow us to both address our perilously changing climate and create new, good jobs, all while strengthening the economy and invigorating local communities."
The Bill incorporates elements of various legislative proposals made by Congress and the White House over the past year.3 The Bill would extend and expand the production tax credit ("PTC") of Section 454 and the investment tax credit ("ITC") of Section 48 for renewable power generation, expand the ITC to cover nuclear generation, energy storage and electric transmission property, and enhance incentives for a variety of other green initiatives and activities, such as energy efficient construction and electric vehicles. The Bill also contains a direct pay option for the PTC and ITC, such that developers would no longer need to have positive taxable income or tax equity investors in order to obtain the benefits of these credits, although after a few years, this option will be limited to projects that meet minimum standards for domestic content. The Bill also seeks to incentivize domestic job creation by sharply limiting the PTC and ITC for projects that do not satisfy prevailing wage and apprenticeship requirements and by enhancing credits for certain projects constructed in low-income areas or that meet minimum standards for domestic content. Furthermore, the Bill would reinstate the Hazardous Substance Superfund financing rate, an excise tax on crude oil and imported petroleum products that expired in 1995, at an increased rate of 16.4 cents per gallon, indexed to inflation, as well as a tax on the sale of certain chemicals, which also expired in 1995.
The Bill, if enacted, would significantly boost investment in green energy and other emissions reductions, and its decade-long extension of many of the credits would provide substantial certainty for the renewable energy industry.
Executive Summary
The Bill would provide for:
- Full PTC extension through 2031, with phasedowns for projects beginning construction in 2032 and 2033 and expansion of PTC for solar projects;
- Full ITC extension for projects beginning construction after 2021 and before 2032, with phasedowns for projects beginning construction in 2032 and 2033; projects that began construction in 2020 and 2021 would remain eligible for a 26% ITC;
- Expanded Section 45Q carbon capture tax credit;
- New tax credits for a variety of renewable energy projects, including energy storage technology, electric transmission property and zero emissions facilities;
- Extension and modification of the Section 30D credit for electric vehicles, including elimination of the manufacturer limitations;
- Imposition of prevailing wage and apprenticeship requirements that would subject both the PTC and ITC to an 80% reduction if they are not satisfied; such requirements would also apply to the enhanced Section 45Q carbon capture tax credit and the new tax credit for electric transmission property;
- Increased PTC and ITC for projects meeting minimum standards for domestic content;
- Bonus credits for solar projects in low-income communities; and
- Direct pay option for various credits, including PTC, ITC and
Section 45Q, which would be:
- available to tax-exempt entities and state and local governments;
- subject to phasedowns for projects that do not meet minimum standards for domestic content; and
- generally effective for property placed in service after December 31, 2021.
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Footnotes
1. Text of the Bill is available here: https://taxequitytimes.mayerbrownblogs.com/wp-content/uploads/sites/15/2021/09/WM-ReconSub-Title-F-SUBFGHJ_xml.pdf. Text of the House Ways and Means Committee Section-by-Section Summary is available here: https://taxequitytimes.mayerbrownblogs.com/wp-content/uploads/sites/15/2021/09/Section-by-Section-Subtitle-F-G-H-J.pdf.
3. For our prior coverage of some of these proposals, see, e.g., https://www.mayerbrown.com/en/perspectivesevents/publications/2021/08/energy-storage-tax-credits-in-the-biden-administration-fy-2022-budget-green-act-and-clean-energyfor-america-act (energy storage credit proposals); https://www.mayerbrown.com/en/perspectivesevents/publications/2021/06/energy-tax-implications-of-the-administrations-fy2022-budget-tax-proposals (Biden administration proposals); https://www.mayerbrown.com/en/perspectives-events/publications/2021/04/recent-legislative-proposals-coulddrastically-change-us-energy-taxation (Congressional green energy proposals).
4. Unless otherwise specified, all "Section" references are to the Internal Revenue Code of 1986, as amended (the "Code")
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