August 16, 2022

By: John F. Pierce, Steven R. Schneider

On July 27, 2022, Senators Schumer and Manchin announced a compromise bill known as the Inflation Reduction Act of 2022 (the “Bill”)¹ that covers various climate and energy programs that Senator Manchin had previously disclaimed support for. The Bill was modified and passed by the Senate on August 7, 2022, and was approved by the House of Representatives on August 12, 2022. President Biden thereafter signed the Bill into law.

The Bill is a major extension of President Biden’s climate and energy policies (as well as an alleged reduction in the deficit and towards inflation control). This article discusses the climate and energy aspects of the Bill.

Targeted Summary

Important among the Bill’s climate and energy provisions are:

• Union labor favoring provisions that would provide for full credit amounts where certain prevailing wage and apprenticeship requirements must be satisfied.
• Credits that favor “domestic content” requirements.
• Credits that favor the location of facilities in “energy communities” or “low-income communities.”
• The extension of the Production Tax Credit (“PTC”) and the Investment Tax Credit (“ITC”) for renewable energy projects (such as wind, solar, geothermal, biomass, hydropower) that begin construction before January 1, 2025.
• The expansion of the definition of ITC-eligible energy property to include storage (but this does not include transmission-related property).
• A new PTC for solar property and extension of PTC for geothermal projects.
• The extension of the 45Q carbon oxide sequestration credit for projects beginning construction before January 1, 2033. This tax credit amount would also be increased and the minimum capture requirements would be significantly reduced.
• The creation of a PTC and an ITC that are neutral with respect to technology would be available beginning in 2025 through the later of (a) 2032 or (b) the year certain emissions thresholds are achieved after which the applicable credit will phase down (45D).
• The Bill also creates and expands certain credits including:
  • Clean Hydrogen Fuel Credit (45V);
  • Zero-Emission Nuclear Power Production Credit (45U);
  • Advanced Manufacturing Production Credit (45X);
  • Clean Fuel Production Credit (45Z);
  • Renewable Fuels Credits; and
  • EV and Charging Infrastructure Credits.
• The Bill provides for a direct pay option for most of these tax credits, but such option would be largely limited to certain tax exempt and governmental entities. However, there would be limited and time-based exceptions to this restriction for the (i) Clean Hydrogen Fuel Credit (45V), (ii) 45Q tax credit, and (iii) Advanced Manufacturing Production Credit (45X).
• Provides an option to transfer most credits to another taxpayer where (i) the consideration received by the credit transferor would not be taxable and (ii) no deduction would be permitted to be taken by the transferee with respect to amounts paid.
• The Bill would extend the carryback period of credits to three (3) years.

Union Labor, Domestic Content and Equity-Related Provisions

• Prevailing Wage and Apprenticeship Requirements

Pursuant to the Bill’s prevailing wage requirements, a taxpayer must ensure that a project’s labor force are paid prevailing wages during the construction of a project and, during the relevant credit period, for the alteration and repair of such project. With exceptions, the Bill’s apprenticeship provisions would require a taxpayer to ensure that no less than the applicable percentage of total labor hours for the construction of the project are performed by qualified apprentices (which can vary from project and credits applicable); the Bill provides certain cure options in the event of failure to satisfy either the prevailing wage and apprenticeship requirement).

• Domestic Content Requirements

The taxpayer must certify that any steel, iron, or manufactured product which is part of the PTC-qualifying facility was produced in the United States. Such manufactured products would be considered manufactured in the United States if the “adjusted percentage” of the total cost of the components of such product are mined, produced, or manufactured in the United States. Projects that meet the domestic content requirements are then eligible for an increased base rate of 2% and an increased bonus rate of 10%. The adjusted percentage is 40% and 20% for offshore wind facilities. An eligible taxpayer would be eligible for a bonus 10% PTC if the project is located in an “energy community” (see this discussed below). If eligible for both, taxpayers may stack bonus credits.

• Equity Provisions

• Energy Communities

The Bill defines “energy community” to include a brownfield site, a census tract or any adjoining tract in which a coal mine closed after December 31, 1999 or a coal-fired electric power plant was retired after December 31, 2009, as well as an area which has or, at any time during the period beginning after December 31, 1999, had significant employment related to the extraction, processing, transport, or storage of coal, oil, or natural gas.

• Low-Income Communities

A bonus credit of up to 10% is offered for projects of less than 5MW that are located in a low-income community or on Indian community land.

A bonus credit of up to 20% is offered for projects of less than 5MW that are incorporated into a qualified low‑income residential building project or qualified low-income economic benefit project.

Energy Production

• Production Tax Credit (PTC) Extension (45) and Phase-Out

The PTC which are currently not available for projects (e.g., wind, solar, geothermal, biomass, hydropower, etc.) beginning construction after December 31, 2021, would be extended to projects beginning construction before January 1, 2025. The present PTC phase-out for eligible projects commencing construction after December 31, 2016, would continue to apply for any eligible project that is placed in service before January 1, 2022. Projects placed in service after December 31, 2021, would not be subject to a PTC phase-out.

• Solar

The PTC for solar projects (which expired in 2006), would be reinstated for projects beginning construction before January 1, 2025.

• New Credit Structure

Pursuant to the Bill’s provisions, the PTC would be broken into a base credit level of 20% of the headline credit, with an increased credit available of 80% of the headline credit, if the labor-related provisions described above are satisfied. There are exceptions to the labor-related requirements for (x) small projects and (y) any project beginning construction within sixty (60) days of the date the Internal Revenue Service (IRS) publishes guidance on such labor-related provisions. The current PTC rate for wind energy (published for 2022) is 2.6 cents per kWh and is subject to inflation adjustment (not taking into account any phase-down). To be eligible for this full credit, taxpayers would need to be eligible for the base and increased credit described above.

Investment Tax Credit Extension

Investment Tax Credits ("ITCs") are intended to incentivize individuals and businesses to invest in renewable energy by allowing them to write-off a percentage of acquisition costs.

• ITC Extension

Presently the ITC begins phasing-out for eligible projects beginning construction after 2019, but the Bill’s provisions would extend the ITC to projects beginning construction before January 1, 2025 (with the extension for geothermal projects to January 1, 2035).

• ITC For Projects Placed in Service Before 2022

The ITC would be set at 26% with respect to any project beginning construction after 2019, provided that the project is placed in service before January 1, 2022. Projects placed in service after December 31, 2021 would not be subject to ITC phase-out.

• Credit Expiration

The ITC would not be available for certain projects which begin construction before January 1, 2027, but are not placed in service before January 1, 2029.

• New Credit Structure

Similar to the PTC, the Bill would break the ITC into a base credit - 20% of the headline credit; an increased credit - 80% of the headline credit, that would be available if the Bill’s prevailing wage and apprenticeship requirements are satisfied and pursuant to the same exceptions available with the PTC.

• Solar Projects

For solar projects, the base credit is 6%. If the project satisfies the labor requirements discussed above, the credit would increase by 24% for a total available ITC of 30%.

• Standalone Storage ITC

The definition of ITC eligible property would be expanded to include standalone storage with capacity of at least 5 kWh.

• Expanded Definition of ITC Eligible Property

The definition of ITC eligible property would be expanded to include qualified biogas, microgrid controllers, and (for certain small projects) interconnection property.

• Bonus ITC

Similar to the PTC (and subject to the same requirements), taxpayers would be eligible for an additional 10% ITC provided that (i) the domestic content requirements of the Bill are satisfied or (ii) if the project is located in an energy community (so long as the Bill’s labor-related requirements are also satisfied; if not, then a 2% reduction). Note that there is also a potential for 10% or 20% bonus credit for solar and wind facilities located in low-income communities.

New Technology-Neutral PTC and ITC

Pursuant to the Bill, beginning in 2025, taxpayers with zero emissions facilities will have the option to choose between a new Technology Neutral PTC or ITC (each described below).

• Clean Electricity Production Credit (45Y)

The Bill provides for a new tax credit, a ten (10) year technology-neutral PTC under section 45Y of the Internal Revenue Code (“Code”). This credit is available for the production of clean electricity produced at a qualified facility placed in service after December 31, 2024, for which the greenhouse gas emissions rate is not greater than zero (as measured pursuant to the most recent Greenhouse gases, Regulated Emissions, and Energy use in Technologies (“GREET”) model, based on a colloquy among Senators regarding the Bill), and which is sold to an unrelated person or sold, consumed, or stored by the taxpayer; provided that, such facility is equipped with a metering device owned and operated by a third-party. This credit’s base credit of $0.003/kWh of electricity produced with an increased credit rate of $0.015/kWh (adjusted for inflation) would be available if prevailing wage and apprenticeship requirements are satisfied. This credit would available for ten (10) years from the date an eligible facility is placed in service.

• Bonus Credit – An additional 10% PTC would be available provided (i) the prescribed domestic content requirements are satisfied or (ii) if the qualified facility is located in an energy community.
• Phase-Out – The Bill provides that the Technology Neutral PTC (45D) would commence phase out for qualified facilities beginning construction in the first calendar year after the later of (i) the calendar year in which the Secretary determines that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25% of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022 and (ii) 2032.
• Exclusivity – The Bill provides that a qualified facility does not include any facility for which (i) a PTC, (ii) an ITC, (iii) a 45J credit (an Advanced Nuclear Production Tax Credit), (iv) a 45Q credit, (v) a 45U credit (a Rare Earth Magnet Production Tax Credit), (48A credit (a Qualifying Advanced Coal Project Credit)), or 48D credit (described below) is allowed.
• Depreciation – The Bill also states that a 45Y credit (Clean Electricity Production Credit) eligible property may be five (5) year MACRS property.

• Clean Electricity Investment Tax Credit (48D)

Another new tax credit found in the Bill is a technology-neutral ITC under section 48D of the Code. This tax credit would be available for a qualified investment in an (x) electric generating facility or (y) energy storage property that is placed in service after December 31, 2024, that has greenhouse gas (“GHG”) emission rates that are less than or no more than zero. However, potential recapture would apply where GHG emission rates exceed 10 grams of carbon dioxide equivalent (CO2e) per kWh.

• Credit Amount – This tax credit would have a base of 6% of the qualifying investment but could be increased to 30% if the investment satisfies the prevailing wage and apprenticeship requirements discussed above.
• Bonus ITC – In addition, a qualifying project may accrue a bonus 10% ITC when (x) certain “domestic content” requirements are satisfied or (y) the project is located in an “energy community”. Note that this bonus may be reduced to 2% if the labor-related requirements discussed above are not met. In addition, a potential 10% or 20% bonus ITC may accrue to solar and wind projects located in a “low-income community.”
• Phase-Out – This technology-neutral ITC would phase out after construction in the first calendar year after the latter of (i) the calendar year in which the Secretary determines that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25% of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022 or (ii) 2032.
• Exclusivity – A qualified facility does not include any facility for which a (i) PTC, (ii) ITC, (iii) 45J credit, (iv) 45Q credit, (v) 45U credit, (vi) 48A credit, or (vii) 45Y credit is allowed.
• Depreciation – This tax credit provides for a five (5) year MACRS for qualifying property.

New Zero (0) Emission Nuclear Power Production Credit (45U)

• A PTC For Nuclear Power – This new tax credit, a PTC, is for the production of electricity from a nuclear plant (as opposed to an Advanced Nuclear Production Tax Credit (45J). An eligible plant’s electricity would be generated and sold to a third party after December 31, 2023. This tax credit would have a base amount of 0.3 cents per kWh, but an increase in that rate (1.5 cents per KwH) would be available where prevailing wage requirements are satisfied. However, this tax credit could be reduced by 80% of the excess of gross receipts from the electricity generated and sold over $0.025 times the amount of such electricity sold. This tax credit would terminate after December 31, 2032.

45Q Carbon Capture Credit; Extension and Expansion (45Q)

• Direct Air Capture (DAR) 45Q Credit – The 45Q Credit would be broken into a base credit and an increased credit (which at its highest would equate to five (5) times the base credit), provided that the labor-related requirements are satisfied. DAR facilities that capture at least 1,000 metric tons of qualified carbon oxide in a given twelve (12) month period would qualify for an enhanced 45Q credit. This credit varies depending the disposition or use of the carbon oxide. Where qualified carbon oxide is disposed of using secure geological storage and not otherwise utilized, the base credit would be valued at $36/metric ton (as opposed to the present value of $50/metric ton) and may be increased to $180/metric ton. Where qualified carbon oxide is utilized for, among other things, qualified enhanced oil or natural gas recovery, the base credit value would be $26/metric ton and may be increased to $130/metric ton.
• 45Q Extension – The existing 45Q Credit would be extended to projects beginning construction before January 1, 2033. Presently, the 45Q Credit applies to projects commencing construction by December 31, 2025.
• Lower Capture Requirements – Among the most important and meaningful provisions in the Bill, this provision lowers the minimum carbon capture requirements for treatment as a qualified facility. (An electric generating facility would be a qualified facility provided that it captured at least 18,750 metric tons of qualified carbon oxide during the taxable year and at least 75% of the baseline carbon oxide production. Other facilities would be qualified facilities if the applicable facility captures at least 12,500 metric tons of qualified carbon oxide during the taxable year).
• Credit Structure – The 45Q Credit would be broken into a base credit and an increased credit (which at its highest would equate to five (5) times the base credit), provided that the labor-related requirements are satisfied.
  • Where qualified carbon oxide is disposed of using a secure geological storage and not otherwise utilized, the base credit’s value would be $17/metric ton and the increased credit would be valued at $85/metric ton.
  • Where qualified carbon oxide is disposed of using a tertiary injectant in a qualified enhanced oil or natural gas recovery project, the base credit would be valued at $12/metric ton and the increased credit would be valued at $60/metric ton.

Hydrogen Production

• New Clean Hydrogen Fuel PTC (45V) – The Bill provides for a new ten (10) year PTC as section 45V of the Code; this credit would be available for the production of clean hydrogen generated after December 31, 2022, by a qualified facility that began construction by January 1, 2033. Such facility’s lifecycle greenhouse gas emissions rate cannot exceed four (4) kilograms of CO2e per kilogram of hydrogen produced. Legislative history for this Bill indicates that the Senate desires that the Treasury recognize and permit indirect book accounting factors (book and claim swaps) that reduce the effective aggregate GHG emissions and these would apply to renewable energy credits, biogas and hydrogen-related credits, among other things. 

Clean Hydrogen Fuel Production: ITC-in-Lieu-of-PTC Election

• PTC Amount

Qualifying taxpayers would have an option to elect for the ITC in lieu of a PTC related to the generation of a clean hydrogen fuel production plant. In this event, the base credit would have a dollar value of $0.60/kilogram (adjusted for inflation) that would then be multiplied by the applicable percentage (100% if the lifecycle GHG emissions rate is less than 0.45 kilograms of CO2e of hydrogen; this percentage would be adjusted downward based on the lifecycle GHG rate). The increased credit rate of five (5) times the base rate (that is, up to $3/kilogram) would apply in the event that the labor-related requirements are satisfied. As described in the Bill, the applicable percentage of:

• 20% would apply if the lifecycle GHG emissions rate is not greater than four (4) kilograms of CO2e and not less than two point five (2.5) kilograms of CO2e; 
• 25% would apply if the lifecycle GHG emissions rate is less than two point five (2.5) kilograms of CO2e and not less than one point five (1.5) kilograms of CO2e; and
• 33.4% if the lifecycle GHG emissions rate is less than one point five (1.5) kilograms of CO2e and not less than point forty-five (0.45) kilograms of CO2e.

• ITC Amount

The base credit is 6% multiplied by an applicable percentage, which is 100% if the lifecycle GHG emissions rate is less than point forty-five (0.45) kilograms of CO2e per kilogram of hydrogen (such applicable percentage adjusted downward as shown below based on lifecycle greenhouse gas emissions rate). The increased credit rate is five (5) times the base rate (i.e., up to 30%) if the labor-related requirements are satisfied. 

The applicable percentage is:

• 1.2% (6% if the labor-related requirements are satisfied) if lifecycle GHG emissions rate is not greater than four (4) kilograms of CO2e and not less than two point five (2.5) kilograms of CO2e; 
• 1.5% (7.5% if the labor-related requirements are satisfied) if the lifecycle GHG emissions rate is less than two point five (2.5) kilograms of CO2e and not less than one point five (1.5) kilograms of CO2e; and
• 2% (10% if the labor-related requirements are satisfied) if the lifecycle GHG emissions rate is less than one point five (1.5) kilograms of CO2e and not less than point forty-five (0.45) kilograms of CO2e;
• A qualifying taxpayer cannot benefit from both the (x) Clean Hydrogen Fuel PTC (45V) and (y) 45Q Credit. However, such taxpayer can utilize both the PTC or ITC and the Clean Hydrogen PTC (45V) (even if not sold to a third party).

New Advanced Manufacturing Production Credit (45X)

A new Advanced Manufacturing PTC was created under the Bill, pursuant to section 45X of the Code. This PTC would be accrued in relation to the production of certain eligible materials, equipment and related components produced in the United States and sold to a third-party after December 31, 2022 (“Goods”). Eligible Goods would include PV cells, PV wafers, solar grade polysilicon, certain polymeric materials, solar modules, wind energy components, torque tubes, structural fasteners, electrode active materials, battery cells, battery modules, and certain related critical minerals. The PTC’s value would depend on the applicable Goods produced. This PTC would begin to phase-out during 2030 calendar year and would no longer be available after December 31, 2032.

Extension of Advanced Energy Project Tax Credit (48C)

After January 1, 2023, section 48C (which permitted the accrual of ITCs for projects that equipped or expanded production facilities for certain renewable energy equipment such as wind, solar and geothermal property, fuel cells, microgrids, and carbon capture and sequestration property), would be expanded to include facilities that produce certain energy storage systems and components, electric grid modernization equipment or components, electric and hybrid vehicles, property used to produce energy conservation technologies, and equipment which re-equips a manufacturing facility with equipment designed to reduce greenhouse emissions by at least 20%. The base value of the ITC would be 6%, and would increase to 30% if the labor-related requirements are satisfied. The aggregate value of these ITCs may not exceed $10,000,000,000, and no more than $6,000,000,000 may be applied to investments which are not located in energy communities. The 48C ITC will not available for any investment if a tax credit is allowed under (i) sections 48, (ii) section 48A, (iii) section 48B, (iv) section 48D, (v) section 45Q or (vi) section 45V.

Tax Credits Options

The Bill also offers options to taxpayers not available before:

• Direct Pay Option

A direct payment option will be available for an “applicable entity” which (a) is usually limited to a tax exempt entity, a State or local government, certain quasi-government entities such as the Tennessee Valley Authority and Bonneville Power Administration, and tribal governments or corporations, and (b) has satisfied the Domestic Content requirement discussed above. However, this limitation would not apply to: (i) the first five (5) years of the Clean Hydrogen Fuel Credit (45V); (ii) the first five (5) years of the 45Q credit; or (iii) the section 45X Advanced Manufacturing Production Credit, but only in relation to any tax year before December 31, 2032. These direct payments would be subject to a 20% penalty in situations involving excess payments. The direct pay option applies to:

• for the ITC, the PTC (for facilities placed in service after 2022);
• the 45Q Credit (for facilities placed in service after 2022);
• the Technology Neutral ITC (48D);
• the Clean Electricity PTC (48Y);
• the credit for Alternative Fuel Vehicles (30C);
• the Zero-Emissions Nuclear Power Production Tax Credit (45U);
• the Clean Hydrogen Fuel Tax Credit for facilities placed in service after 2012 (45V);
• the commercial vehicles credit for qualified vehicles (45W);
• the Advanced Manufacturing credit (45X);
• the Clean Fuel Production Credit (45Z); and
• the qualifying advanced energy projects credit (48C).

• Transferability of Credits

Of particular importance is the totally new ability of a taxpayer to transfer tax credits pursuant to the Bill. After December 31, 2022, taxpayers would be permitted to transfer certain tax credits to an unrelated third-party taxpayer (which, while novel for federal credits, has been done with state credits earlier). This transfer election would be available for: (i) the ITC; (ii) the PTC; (iii) the 45Q tax credits; (iv) the Technology Neutral ITC (48D); (v) the Technology Neutral PTC (48Y); (vi) the Alternative Fuel Vehicles credit (30C); (vii) the Zero-Emissions Nuclear Power Production Credit (45U); (viii) the Clean Hydrogen Fuel credit (45V); (ix) the Advanced Manufacturing Production Credit (45X); (x) the Clean Fuel Production Credit (45Z); (xi) and the qualifying Advanced Energy Projects credit (48C). This option is not available to certain parties, including tax-exempt entities, state or local governments, certain quasi-government entities such as the Tennessee Valley Authority and Bonneville Power Administration, tribal governments and corporations. Cash must be paid for any transferred credit and such payment would not be counted toward income of the credit transferor (it would be treated as tax-exempt income for partnerships or S corporations), but is not deductible by the transferee. Once a credit has been transferred, the transferee cannot further transfer the relevant credit. Credits which have been carried back or carried forward may not be transferred. An additional 20% penalty may apply in situations involving excess payments.

Other Important Tax Credit Provisions

• Three (3) Year Carryback 

After December 31, 2022, the Bill provides for a three (3) year carryback (rather than the prior one (1) year carryback) with respect to certain credits, including (i) (the ITC; (ii) the PTC; (iii) the 45Q Credit; (iv) the Technology Neutral ITC (48D); (v) the Technology Neutral ITC and PTC (48Y); (vi) the alternative fuel vehicles (30C); (vii) the Zero-Emissions Nuclear Power Production Credit (45U); (viii) the Clean Hydrogen Fuel credit (45V); (ix) the Advanced Manufacturing Production Credit; the Clean Fuel Production Credit (45Z); and (x) the qualifying Advanced Energy Projects (48C).

• Safe Harbor 

The Bill extends the service contract safe harbor currently available for alternative energy facilities to contracts for the operation of a storage facility.

• Clean Vehicle Credit (30D)

This credit provides a $7,500 tax credit for new electric vehicles (“EVs”) placed in service before 2033. The previously applicable manufacturer’s limitation will be eliminated for vehicles sold after December 31, 2022. However, this credit will be reduced by 50% if the vehicle’s battery is not principally sourced from North America. In addition, the prices of certain vehicles are capped at $55,000 for sedans and at $80,000 for trucks, SUVs and vans. Further, this credit is not available to a taxpayer with an adjusted gross income (“AGI”) in excess of (x) $300,000 for taxpayers filing a joint return, (y) $225,000 for head of household filers, and (z) $150,000 for other filers. Subject to further regulation and guidance, the qualified taxpayer acquiring an EV may transfer this credit to the selling dealer.

• Previously Owned Clean Vehicles Credit (25E)

The Bill also provides a tax credit for used EVs which are at least two (2) years old and which are sold before December 31, 2032, equal to the lesser of (x) $4,000 or (y) 30% of the sales price for the used EV. However, this credit is unavailable if a taxpayer with an AGI in excess of (x) $150,000 for taxpayers filing a join return, (y) $112,500 for head of household files, and (z) $75,000 for other filers.

• Qualified Commercial Clean Vehicles Credit (45W)

The Bill provides a tax credit for qualified commercial clean vehicles sold before December 31, 2032 equal to the lesser of (x) 15% of the basis of such vehicle (30% in the case the vehicle is not powered by a gasoline or diesel engine) or (y) the incremental cost of such vehicle over the price of a comparable vehicle solely powered by a gasoline or diesel engine. However, this credit cannot exceed $40,000 ($7,500 for vehicles with a weight rating of less than 14,000 pounds).

• Alternative Fuel Refueling Property Credit (30C)

The Bill provides a tax credit for alternative fuel refueling property (i.e., electric vehicle chargers) to property placed in service before December 31, 2032, and removes the per location limitation. This revised credit provides a 30% tax credit on alternative fuel refueling property up to $100,000 and a 20% tax credit on amounts over $100,000. Further, if the alternative fuel vehicle refueling property is depreciable property, the credit is 6%, unless the labor-related provisions have been satisfied; in that event, then the credit will be 30%.

Renewable Fuels Credits

• Biodiesel and Renewable Diesel

The existing income and excise tax credits for biodiesel and biodiesel mixtures - including renewable diesel - would be extended at $1.00 per gallon through the end of 2024.

• Alternative Fuels and Alternative Fuel Mixtures

The existing excise tax credits for alternative fuels and alternative fuel mixtures would be extended at $0.50 per gallon through the end of 2024.

• Second Generation Biofuels

Existing incentives would be extended through the end of 2024.

Sustainable Aviation Fuel – 40B

The existing credit for aviation fuel produced from biodiesel would be replaced, effective from 2023, through the end of 2024, with a new credit for mixtures of sustainable aviation fuels and conventional aviation fuels. To claim the credit, the qualified taxpayer would have to certify a reduction of lifecycle GHG emissions of not less than 50%. The base credit is $1.25 per gallon, and would increase up to a maximum of $1.75 if GHG emissions are reduced below 50%.

• Clean Fuel Production Credit – 45Z

Another tax credit under section 45Z of the Code would be available for the production of low-emissions transmission fuels, other than hydrogen, produced at a qualified facility after December 31, 2024 but before December 31, 2027. The base credit is $0.20/gallon, or $0.35/gallon for aviation fuel, multiplied by an applicable emissions factor, which is 100% if the fuel emissions factor is less than 75 kilograms of CO2e per MMBtu. An increased credit rate is five (5) times the base rate if the labor-related requirements are satisfied.

• Extension of Residential Credits

The existing residential energy property credit permits homeowners to claim a federal tax credit for making certain improvements to their homes or installing appliances that are designed to enhance energy efficiency. The Bill would extend this credit through December 31, 2032, after which the credit will start to phase-out. The existing Residential Clean Energy Credit for solar, small wind, fuel cells, geothermal and biomass energy (and be expanded to include standalone energy storage, such as batteries, through December 31, 2034).

1. https://www.congress.gov/bill/117th-congress/house-bill/5376/text?q=%7B%22search%22%3A%5B%22inflation+reduction+act%22%2C%22inflation%22%2C%22reduction%22%2C%22act%22%5D%7D&r=1&s=2.

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