Biden Administration Releases Green Book Detailing its Clean Energy Tax Proposals

When the Biden Administration announced its American Jobs Plan in April 2021, the plan referenced a number of substantial tax incentives for renewable energy and related infrastructure projects, but the plan was just an outline of the Biden Administration’s proposal and it did not provide detailed information. On May 28, 2021, Treasury released the General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals (often referred to as the “Green Book”). The Green Book contains detailed descriptions of the Administration’s tax proposals laid out in the American Jobs Plan (and the American Families Plan), providing welcome clarity to the various proposals previously announced by the Administration. The Administration’s proposals are merely at the starting line of a long legislative process that may involve competing proposals¹ from other law-makers, but the Green Book is helpful in trying to understand some of the details and general direction the White House plans to take in advancing its agenda.

The various proposals in the Green Book highlight the current Administration’s drive to incentivize and support the enhancement of clean energy production and related infrastructure. Existing tax credits for renewable energy are expanded and extended and a number of new tax credits have been added. Many of the proposals also would allow taxpayers the option to elect a cash payment in lieu of a tax credit (the so-called “Direct Pay” option). Below is a summary of the more significant provisions addressed in the Green Book:

1. Extensions for Existing Clean Energy Tax Credits

Current law provides for a 30% investment tax credit (the “ITC”) based on the cost basis in certain renewable energy properties (including certain wind, solar, qualified fuel cell power plants, geothermal energy, and waste energy recovery property) and a production tax credit (the “PTC”) that varies in amount depending on the type of facility producing and selling the energy. Generally, the PTC is available for qualifying facilities that began construction on or before the end of 2021 and the ITC is available for facilities that began construction before the end of 2023 that are “placed in service” within certain prescribed timeframes.

The Green Book extends the begun construction deadlines for both the PTC and the ITC qualifying facilities, allowing full credit for facilities that began construction after December 31, 2021 but before the end of 2026 and reduces the credit pro rata thereafter for facilities for which construction begins in 2027 through 2031. Additionally and very importantly, property eligible for the ITC will be expanded to include qualifying stand-alone energy storage technology. This would provide welcome clarity as to the eligibility of energy storage projects for the ITC. Credit amounts that have been phased down under current law would be restored to the full credit amount for facilities that began construction after December 31, 2021 and before January 1, 2027. Moreover, taxpayers would have the option to elect Direct Pay.

2. New Credit for Transmission Investments

The Administration has advocated for a significant overhaul of the US electricity transmission system, which is necessary to facilitate its initiatives to reduce carbon emissions and transition to green energy sources. In an effort to incentivize investment in improving the electric grid, the Green Book proposal provides that there would be a new ITC equal to 30% of a taxpayer’s investment in qualifying electric power transmission property (including certain qualifying overhead, submarine, and underground transmission facilities and any ancillary facilities or necessary equipment) placed in service in a given year. The proposal would be effective for qualifying property placed in service after December 31, 2021 and before January 1, 2032, and taxpayers would have the option to elect Direct Pay.

3. Section 48C Tax Credits For Qualifying Advanced Energy Projects

Enacted in 2009, Section 48C provided $2.3 billion in tax credits for eligible investments in qualifying advanced energy projects that expanded or established a manufacturing facility for the production of certain renewable energy resources, electric grids and storage for renewable energy, carbon dioxide capture and sequestration equipment, and other advanced energy properties, but the low cap meant that only a limited number of manufacturing facilities were able to take advantage of the incentive (less than 1/3 of the acceptable applications were able to receive funding).

The proposal would expand the scope of the eligible manufacturing facilities and provide an additional $10 billion in available tax credits, with $5 billion specifically earmarked for projects in coal communities. Similar to other proposals, taxpayers would have the option to elect Direct Pay instead.

4. New Low-Carbon Hydrogen PTC

The Administration had previously suggested that it would propose new tax credits for the production of hydrogen. Hydrogen, which can be used as a fuel source and can produce or store electricity, is often considered critical in creating jobs and achieving the Administration’s decarbonization goal. The Green Book clarified that the proposal would implement PTCs for the production of low-carbon hydrogen, which is either hydrogen produced using water as a feedstock for which no carbon is emitted during the production process (renewable or nuclear energy) or hydrogen produced using natural gas as a feedstock for which all carbon emitted during its production process is captured and sequestered. The credit would be available for six years from the date a low-carbon hydrogen facility is placed into service for each kilogram of qualified low-carbon hydrogen produced. Under the proposal, construction must have begun before the end of 2026 to qualify for the credit and similar to other proposals, taxpayers would have the option to elect Direct Pay instead.

5. Expansion of 45Q Carbon Capture Sequestration Credit

The 45Q credit for carbon capture sequestration was recently revised to boost incentives for investments in carbon oxide sequestration and the IRS and Treasury have published guidance and regulations to provide clarity on how to qualify for such credits. Under current law, qualified facilities must begin construction by January 1, 2026 in order to qualify for the credit, which is available for 12 years after the date the qualifying carbon capture equipment is placed in service.

The Green Book proposes to extend the begun construction requirement; qualified facilities must begin construction by January 1, 2031 in order to qualify for the credit. The proposal would also provide (a) an additional $35 per metric ton of credit for carbon oxide captured from certain hard-to-abate industrial carbon oxide capture sectors and disposed of in secure geological storage and (b) an additional $70 per metric ton of credit for carbon oxide captured through direct air capture facilities and disposed of in secure geological storage (both enhancements are available in addition to the current 45Q credit amount). Taxpayers would have the option to elect Direct Pay.

Wyden - Bill for Clean Energy for America Act

As referenced above, Senator Wyden’s bill proposes a substantial overhaul of clean energy tax incentives, but his bill takes a somewhat different approach than the White House proposal. Senator Wyden’s bill offers a significantly more expansive and flexible alternative to the Administration’s proposals. The bill would create an emissions-based incentive that is applicable to a broad variety of clean energy technologies, for which taxpayers can choose between the PTC or the ITC that will be provided based on the ratio of the carbon emissions generated over the amount of electricity generated. Unlike existing PTC/ITC requirements or the Green Book’s proposals, the bill’s PTC/ITC would be available to any qualifying power facility of any technology (e.g., wind, solar, power and heating systems, qualifying grid improvements, stand-alone storage facilities, etc.), as long as the facility is carbon neutral (i.e., carbon emissions are at or below zero). Taxpayers would have the option to elect Direct Pay as well. The bill would also extend current expiring clean energy provisions through December 31, 2022, and would extend the 45Q credit until the power and industrial sectors meet emissions goals. In addition, the bill includes incentives for clean transportation, energy efficient buildings, clean energy tax credit bonds, and the repeal of various tax incentives for fossil fuels.

While the Administration’s proposals and Senator Wyden’s bill may vary, it is clear that clean energy incentives and carbon emission reduction are significant political priorities. We will continue to monitor the various clean energy proposals as they progress through the legislative process.

¹ For example, Senator Wyden (D-Ore) has already introduced a green energy bill on April 22, 2021, which includes certain provisions consistent with the Administration’s proposals outlined below, but also differs from the Administration’s proposals insofar as it contemplates a broad restructuring of existing renewable energy tax incentives, rather than extensions and modifications of existing provisions.