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Advancing energy security

Sustainability-related tax provisions in the Inflation Reduction Act

On August 16, 2022, President Biden signed into law the Inflation Reduction Act (the “Act”), which includes incentives to promote climate change mitigation and clean energy. The Act includes significant changes to credit eligibility requirements and new options for credit utilization that will meaningfully impact the project finance and development landscape of the energy transition. Our new report details the notable sustainability-related credits and incentives provisions under the Act and provides important and potentially time-sensitive considerations.

Sustainability-related C&I law changes in the Inflation Reduction Act

Of the 730 pages of legislative text, nearly 300 pages address clean energy credits and incentives under Title I – Committee on Finance, Subtitle D – Energy Security, which are estimated at $258 billion over a 10-year period according to the Congressional Research Service. Many of the clean energy credits and incentives provisions were modified from prior drafts of the Build Back Better Act under Subtitle F – Green Energy. Some of the highlights in our new report, Advancing energy security: Sustainability-related tax provisions in the Inflation Reduction Act, include:

Enhanced sustainability incentives, including increased credit amounts tied to new requirements

  • Renewable energy credits under sections 45 and 48, as well as new credits under sections 45Y and 48E for facilities or property placed in service after 2024
  • Carbon capture, hydrogen, and nuclear credits under sections 45Q, 45V, and 45U
  • Transportation and fuels credits under sections 6426, 6427, 40A, and 40(b), and new sections 40B and 45Z
  • Residential and energy efficiency credits or deductions under sections 25C, 25D, 45L, and 179D
  • Manufacturing credits under sections 48C and 45X

New options for utilizing certain tax credits, including provisions for direct pay elections, credit transferability, and a 3-year credit carryback provision