IRS Issues Clean Energy Tax Credit Guidance

June 5th, 2024

On May 29, the Internal Revenue Service (IRS) issued a notice of proposed rulemaking (NOPR) for technology-neutral clean energy tax credits. The Inflation Reduction Act created two new tax credits, Section 45Y Clean Electricity Production Credit and Section 48E Clean Electricity Investment Credit, to replace the existing production and investment tax credits.

The NOPR defines clean energy technologies as wind, solar, hydropower, marine and hydrokinetic, nuclear fission and fusion, geothermal, and certain types of waste energy recovery property (WERP). In addition, energy storage technologies would qualify for the Clean Electricity Investment Credit and technologies that rely on combustion or gasification to produce electricity must undergo a lifecycle greenhouse gas analysis to demonstrate net-zero emissions to qualify.

The proposed regulations provide rules for:

• determining greenhouse gas emissions rates resulting from the production of electricity;

• petitioning for provisional emissions rates; and

• determining eligibility and phase out for these credits in various circumstances

The proposed regulations apply to all taxpayers who produce clean electricity and claim the clean electricity production credit or the clean electricity investment credit with respect to a facility or energy storage technology that is placed in service after 2024 and through 2032. A three-year phase out period would then take effect.

Takeaways

The new production and investment tax credits will remain in effect for over a decade, unlike their predecessors which required multiple re-authorizations by Congress. This provides companies developing clean energy facilities with greater certainty in project planning and execution. As a result, consumers will benefit from relatively less costly clean electricity.

Comments on the questions posed in the NOPR and additional input should be filed within 60 days of publication in the Federal Register on Monday, June 3rd.