Two tax credits that take effect in January 2025 incentivize the generation of electricity from any technology with zero emissions. Simplifications to the federal interpretation of these tax credits could facilitate a smoother rollout.
by Aaron Bergman
Resources.org
The technology-neutral tax credits for electricity generation and energy storage (sections 45Y and 48E of the US tax code) have the potential to be the most impactful elements of the Inflation Reduction Act for reducing greenhouse gas emissions. These tax credits replace a menagerie of tax credits for specific technologies (e.g., wind turbines and solar panels) with one seemingly simple qualification: whether the technology has zero emissions. Moreover, instead of having ever-changing expiration dates, these tax credits will remain available to investors until the emissions from the power sector are reduced by a set amount. Assuming the credits are durable against changes in the makeup of Congress, this condition provides invaluable certainty for investors and project developers and avoids the boom-and-bust cycle that sometimes was seen with the prior regime of tax credits.
However, things are never as simple as one might like. In a series of earlier issue briefs, I discussed some of the challenges facing the US Department of the Treasury in the implementation of these tax credits.