US unveils rules for new technology-neutral clean energy federal tax credits in 2025
Treasury Secretary Janet Yellen asserts the guidance, once final after a public comment period, will provide market certainty and drive sector growth
Created by the 2022 Inflation Reduction Act (IRA), the nation’s landmark climate law, lucrative clean electricity investment and production tax credits will replace those tied to specific technologies. Existing wind and solar tax credits, for example, have been in effect since 1992 and 2006, respectively.
While those incentives spurred growth of renewable energy, making it more available and cost-competitive, their qualification limits, one- or two-year timeframes, and sometimes expiration and reinstatement by Congress, hindered longer-term investment and development of promising new technologies.
Treasury Secretary Janet Yellen said the IRA technology-neutral tax credits “provide certainty to the market and are poised to drive substantial further growth and lower utility bills over the long run.” She claims the IRA has unleashed $850bn in private sector clean energy generation and manufacturing investment.
The 194-page Notice of Proposed Rulemaking released on Wednesday for sections 45Y and 48E of the US tax code identifies specific technologies that meet high environmental standards set out in IRA and would qualify as zero greenhouse gas emissions for the purposes of the credits.
They include wind, solar, geothermal, hydrokinetic, hydropower, marine, nuclear fission and fusion, and certain types of waste energy recovery property.
The proposed guidance also clarifies how energy storage technologies would qualify for the clean electricity investment credit.
The statute also requires that clean energy technologies that rely on combustion or gasification to produce electricity undergo a lifecycle greenhouse gas analysis to demonstrate net-zero emissions.
All technologies will have the option to choose either investment or production tax credits (ITCs and PTCs). To avoid market confusion, the technology-neutral incentives will continue the current ITC value of 30% of project capital investment and $27.50/MWh for the PTC, although this will be adjusted for 2024 inflation.
Both credits will have potential adders or penalties against each and be subject to identical wage and apprenticeship, domestic content, energy community, and other criteria. ITC value could be as low as 6% or as high as 50%, and perhaps 60% in limited cases, while PTC value range is an inflation-adjusted $3/MWh to $33.50/MWh.
The technology-neutral credits are scheduled to phase out either at the end of 2032 or when national electricity sector greenhouse gas emissions fall below 25% of the 2022 level, whichever occurs later.
Republican critics of IRA argue there is little chance the US will meet that emissions threshold, meaning the credits, which have no cap on their use, could be available into the 2040s.
They believe the credits’ ultimate cost will be three, four, or more times the entire $369bn price tag of the law estimated by President Joe Biden’s administration, which includes tens of billions of dollars in other climate-related spending.
If the 2032 target is met, the ITCs and PTCs will begin to sunset starting in 2034. Projects starting construction that year will be entitled to 75% of their value, then 50% in 2035, and zero in 2036.
If not, this proposed timeline would be extended.