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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
