未来能源研究所-财政部：《通胀削减法案》的清洁电力税收抵免新方法

OnDeckforTreasury:TheInflationReductionAct’sNewApproachtoCleanElectricityTaxCredits

IssueBrief24-02byAaronBergmanandKevinRennert—May2024

Fordecadesnow,theheartofUSfederalpolicysupporttoreducegreenhousegas(GHG)emissionshasbeenasetoftaxincentivesforproducingcleanelectricityandputtingintoservicenewcleanelectricitygenerators.

Thesetaxcredits,alongwithstate-levelpoliciesto

requirerenewableandlow-carbonelectricity,are

widelycreditedasthefundamentaldriverofemissionreductionsintheUnitedStatesoverthepastdecades.

Butthey’vealwayshadsomeissues.Theywere

inconsistent,beingextendedforshortperiodsand

attimesexpiringcompletely,leadingtoconsiderable

investmentuncertaintyfordevelopers.Thecredits

themselvesvariedbytechnologyandcouldbehardtomonetize.Andtheruleswereprettyinflexible:inorderforanewtechnologytobeeligibleforthecredit,ithadtobenamedinthestatute,requiringanactofCongress.

TheInflationReductionAct(IRA)soughttoaddress

manyoftheseissuesbytransitioningin2025toanewsetoftechnology-inclusivecreditsforelectricity:the

“cleanenergyproductioncredit”(26USC45Y)andthe“cleanenergyinvestmentcredit”(26USC48E).Insteadoflistingvarioustechnologies,inthesenewprovisions,

theIRAallowedtechnologiestoqualifyiftheysatisfy

oneseeminglysimplecondition:thattheiremissionsareatmostzero.

MultiplemodelprojectionsoftheIRA(

seehere

and

here

)havesuggestedthatthesetaxcreditsare

thesinglemostimportantdriverofIRA-attributable

emissionsreductionsoverthenextdecade,somuchofthesuccessoftheIRAinreducingemissionshingesontheirsuccessfulimplementationbytheUSDepartmentoftheTreasury.Despitethissignificanceandthe

loomingdeadlineforthetransition,however,therehasbeenrelativelylittlepublicdiscussionaroundtheir

implementation,evenastherearesomepotentially

complicatedissuesforTreasurytoworkthrough.Thissituationstandsincontrastto

therobustconversation

that’sbeenhadoverdesignofthe45Vproductiontaxcreditforhydrogen,amongothers.Inthisissuebrief,wegiveanoverviewofthetaxcreditsandsomepotentialchallengesweseefortheirimplementationinthehopesofstimulatingtimelydiscussiononissuesTreasurywilllikelyneedtoaddressinitsforthcomingguidance.

1.HowDothe45Yand48ETax

CreditsWork?

Thenewtaxcreditssimplifythetaxcodeintwomajor

ways.First,the45Yand48Etaxcreditssetaprimary

conditionthatafacilitygenerateselectricitywithoutanyGHGemissionstobeeligibleforthecredits.Second,

insteadofhavingafixedenddate,thecreditsphaseoutoncetheemissionsfromelectricitygenerationinthe

UnitedStatesarebelow25percentof2022levels.In

thissection,wegiveanoverviewofwhatitmeanstobe

zero-emissionandthevalueofthetaxcredits.

1.1.WhatIsaZero-EmissionsFacility?

Theconditionofbeingazero-emissionselectricity

facilitydiffersaccordingtotwoprocesscategories.For

technologiesthatneithercombustfuelnorgasifyfuel,

suchaswind,solar,andnuclearpower,theemissions

fromthegenerationoftheelectricitymustbezero.For

thesetechnologies,thenewtaxcreditsaregenerally

expectedtoserveasastraightforward,long-term

extensionoftheformertaxcreditswithwhichthe

industryisfamiliar.

Iftheelectricityisgeneratedeitherthroughcombustionorgasification(aprocesswhereasolidfuellikecoal

orbiomassisconvertedtoagasthatcanbeburned),however,thestatuterequiresthatthetotallifecycleemissionsmustbezero.Thisrequirementmeans

thattheemissionscalculationmustalsoincludeany

upstreamemissions,positiveornegative,inadditiontoanyemissionsfromgeneration.Upstreamemissionscanincludeemissionsfrommethaneleakageornegative

emissionsfromcarbondioxidepulledoutoftheairtomakebiomass,aswellastheupstreamemissionsassociatedwithanyelectricityconsumedwhile

producingthefuel.Inadditiontobiomass-derivedfuels,thisprovisionalsoappliestoelectricitygenerationfromburninghydrogen.Energystoragetechnologies,bothelectricandthermal,arealsoeligiblefor48E.

Unlikethetaxcreditforhydrogenproduction,for

whichlifecycleemissionsaredeterminedonafacility-by-facilitybasis,forthe45Yand48Etaxcredits,the

USSecretaryoftheTreasurywillproducealistof

emissionsratesfor“typesorcategoriesoffacilities.”

Thosedeployinggenerationtechnologiesnotonthislistcanapplyforaprovisionalemissionsrateuntiltheirtechnologyisaddedtothelist.

1.2.WhatIstheValueoftheTaxCredit?

Under45Y,theproductiontaxcredit(PTC),aqualifyinggeneratorreceivesaround2.8centsperkilowatt-

hourofelectricitygenerated,risingwithinflation.For

48E,theinvestmenttaxcredit(ITC),thecreditis30

percentofthecapitalinvestment.Eachofthesevaluesisreducedbyafactoroffiveifthegeneratordoesnotsatisfycertainwageandapprenticeshiprequirements.However,additionalcreditvaluemayalsobeunlockedbyusingdomesticcontentinthegeneratoraswellas

forbuildinginenergycommunities.Eachofthesebonusprovisionsadds10percenttothevalueofthePTC

and10percentagepointstothevalueoftheITCandmaybestacked.TherearefurtherpotentialbonusesfortheITCifthefacilityisconstructedinlow-incomeareas,althoughthereisalimitedpoolofthesebonusesavailable.

Bothtaxcreditsareavailabletoanygenerator(orenergystoragefortheITC)thatstartsserviceinorafter2025

ortoanyadditionalcapacityaddedtoanexistingfacilityafterthatdate.TheIRAalsoextendedtheexisting

versionsofthePTCandITCtoanyplantthatstarts

constructionbefore2025,whichwillleadtocertain

plantsbeingeligibleforboththepre-IRAandpost-IRAversionsofthetaxcredit.However,thelawisclearthatgeneratorscan’t“doubledip”andgetbothversionsatthesametime.Similarly,generatorstaking45Yor48Ecan’tsimultaneouslyreceiveseveralothertaxcredits,includingtheadvancednucleartaxcredit(26USC45J),thecarbonoxidesequestrationcredit(26USC45Q)ortheexistingnucleartaxcredit(26USC45U).

ThePTCisavailablefortenyears,whiletheITCisissuedasasingletaxcredit.Ifafacilityhasanemissionsrate

ofover10gCO2e/kWhduringthefiveyearsafterthe

ITCisissued,however,afractionofthetaxcreditwillbe“recaptured”bytheInternalRevenueService.ThesetaxcreditsarealsoeligibleforthetransferabilityanddirectpayprovisionsfromtheIRA.

2.KeyIssuesforConsideration

Evenasthesetaxcreditsprovideasubstantial

simplificationfromtheexistingcode,therearestill

substantiveissuesTreasurywillneedtoaddressinitsforthcomingguidance.Wereviewsomeofthemhere.

2.1.WhatConstitutesaFacility?

Forthistaxcredit,Treasurywillissuealistofemissionsfactorsfordifferenttypesof“facilities”insteadof

makingacase-by-casedetermination.Suchgeneralizedcategorizationswillbecomplicatedbythefactthatthesametypeofgeneratorcanoftenburnmanytypesof

fuelswithdifferentupstreamemissions.Forexample,

hydrogenandbiomasscanhaveverydifferentupstreamemissionsdependingonhowtheyaremade.Toaccountforthis,Treasurymayneedtoconsidersubclassifyingdifferentcategoriesoffacilitiesbasedonthefuelused,evenpotentiallyforfuelsthatarechemicallyidentical.

ResourcesfortheFuture—OnDeckforTreasury:TheInflationReductionAct’sNewApproachtoCleanElectricityTaxCredits2

2.2.WhatIsan“ExpansionofFacility”?

Inadditiontonewfacilities,sections45Yand48E

allowcreditforadditionstoexistingfacilities.These

provisionsallowataxcreditfortheextraelectricity

producedeitherbya“newunit”or“anyadditions

ofcapacity.”Treasuryhasalongstanding

“80/20”

guidance

thatitwilllikelyfollowtoallow20percentofthevalueofafacilitytobefromanexistingfacilitywhilestillcountingthefacilityasnew.Somehaveexpressedadesiretoallowavoidedretirementsorlicenserenewalsforexistingnuclearreactorstoqualifyforthetaxcredit,butthatseemschallengingtosquarewiththeexplicitlegislativelanguage.

2.3.WillGeothermalEnergyQualify?

Geothermalenergyisalow-carbon,renewablesource

ofbaseloadelectricity(i.e.,itisn’tintermittentlikewindandsolarenergy).Historically,geothermalenergyhasbeenconsideredinasimilarmannertosolarandwindunderthetaxcodeandhasbeeneligiblefortaxcredits.Geothermalelectricityisn’talwayszero-emissions,

however:certaintypesofgeothermalpowercanreleasecarbondioxidethatwasalreadyunderground.These

emissionscanbesmall,buttheyarenotzero,raisingthepotentialquestionofeligibilityunder45Yand48E.

Thoughthetextofthelawclearlyreferstozero

emissionsasthethresholdforeligibility,congressionalintentisalsoclearthatgeothermalshouldqualifyfor

thesetaxcredits.Thisintentwassetoutina

colloquy

intheUSSenatebetweenSenatorRonWyden,thecurrentchairoftheSenateFinanceCommittee,andSenator

CathyCortezMasto.InthecolloquySenatorWyden

referredtogeothermalemissionsas“deminimis”and

statedthat“allgeothermalenergyisincludedamongtheresourcesmeetingthedefinitionof‘qualifiedfacility.’”Inlightofthesestatements,Treasurycouldchooseade

minimislevelofemissionssuchthatmostgeothermalwouldqualify,thoughthatcouldhaveimplications

forotheraspectsofimplementation.Treasurycould

alsoviewtheseemissionsasnotbeing“emittedinto

theatmospherebyafacilityintheproductionof

electricity.”Oritmayendupthat,Senatecolloquies

notwithstanding,somegeothermalpowersimplywon’tqualifyforthecreditswithoutfurthereffortstoabateitsemissions.

2.4.WhatIstheEmissionsRateofBiomass?

Theassessmentofthecorrectemissionsintensityfor

burningbiogenicfuelshaslongbeen

controversial

.

TheIRAreferstothepartoftheCleanAirAct(42USC7545)thatgovernstherenewablefuelsstandard(RFS)forthedeterminationofthelifecycleemissions,so

TreasurycoulddelegatethisdeterminationtotheUS

EnvironmentalProtectionAgency(EPA).EPAdiscussesitsproceduresfor

lifecycleanalysishere

andgivesthe

emissionsintensityforvariousfuelshere

.However,

theremaybedifferencesbetweenthesolidandgaseousbiogenicfuelsusedinelectricitygenerationandthe

liquidfuelsEPAconsidersfortheRFS.

Sincethesetaxcreditsarebasedonathresholdofzeroemissions,anychoiceinthescopeofthelifecycleassessmentcouldeasilyrenderbiomass

ineligibleforthecredit.Forexample,including

emissionsfromtransportingbiomassoremissions

fromtheconsumptionofgridelectricityinthelifecycleassessmentwouldleadtoapositiveemissionsrate.Aswithgeothermal,ademinimisprovisionmayavoidsomeofthesedifficulties.Evenwithsuchaprovision,given

thedifferentconsiderationsbetweenthesetaxcreditsandtheRFS,Treasurycoulddecidetoblazeitsown

pathratherthanfollowinEPA’swell-troddenfootsteps.

2.5.CanGeneratorsUseEnvironmentalAttributesforBiogenicFuels?

Fuelscanbechemicallyidentical(oratleast

interchangeable)buthavedifferentlifecycleemissions,leadingtootherchallenges.Forexample,lowcarbon–intensityhydrogenandrenewablenaturalgas(RNG)

canbemixedinapipelinewithhigheremittingvariants,anditwouldbeimpossibletoknowwhetherthehigh-orlow-emissionsfuelisbeingconsumed.Thissituation

isanalogoustowhathappenswithelectricity:thereisnowaytosaywhetheragivenkilowatt-hourconsumedcomesfromanyparticulargrid-connectedsource.

Treasurycouldrequireadirectconnectionwiththe

fuelproducertoqualifyaszero-emissionsforthetax

credit,butjustasinthecaseofelectricity,thiswouldbeverylimiting.Instead,Treasury

couldallow

electricity

ResourcesfortheFuture—OnDeckforTreasury:TheInflationReductionAct’sNewApproachtoCleanElectricityTaxCredits3

producerstopurchasethe“environmentalattributes”ofthefuel,similartothepurchaseofanenergyattributecreditforelectricity.But,aswe’veseenwiththe45V

taxcredit,theprecisedesigntoallowthetradinganduseoftheseenergyattributescanbe

challengingand

controversial

.

2.6.CanFacilitiesUseNegative

EmissionstoOffsetPositiveEmissions?

Anotherchallengefamiliarfromthe45Vtaxcredit

discussionisassigningnegativeemissionstorenewablenaturalgas.RNGgenerallyarisesfromthecaptureof

methanethatwouldhaveotherwisebeenventedto

theatmosphere.Inthatsense,itrepresentsanegativesourceofemissionsbecausethemethanethatwould

havebeenventedhasahigherglobalwarmingpotentialthanthecarbondioxidereleasedfromitscombustion.

AssigningnegativeemissionsvaluestoRNGcouldallowablendingofRNGandfossil-fuelnaturalgastostillhavezeronetemissions.Besidesthedifficultiesofgetting

agoodhandleontheextenttowhichRNGistruly

negative-emissions,suchanapproachcouldalsohavetheperverseeffectofincentivizingthecreationofmorebiogenicmethanesolelysothatitcanbecaptured.

2.7.WillStackingTaxCreditsLeadtoaPerverseOutcome?

Itseemslikelythatthefinalguidanceforthe45V

hydrogenproductiontaxcreditwilldeemcertainwaysofproducinghydrogentohavezerolifecyclegreenhousegasemissions.Ifthat,inturn,leadstoazeroemissionsrateforthepurposesofthePTCandtheITC,generating

hydrogenfromelectricitycouldreceivetwotax

credits,45Vandeither45Yor48E.Furthermore,iftheelectrolyzerisdirectlyconnectedwithacleangenerator,thefinalproductionofelectricitycouldreceivethree

taxcredits:the45Yor48Ecredittwiceandthe45V

hydrogenproductiontaxcreditonce.Butgenerating

hydrogenfromelectricityandusingthathydrogento

generateelectricityonlymakessenseifthehydrogenisusedtostoretheenergy,particularlyformedium-andlong-termstorage.Otherwise,itiseffectivelythrowingawayenergyfornobenefit.

Treasuryincludedan“anti-abuse”provisioninits45V

guidancethatwouldstopthemostegregiousabusesofthistaxcreditstacking,butinefficientuseofhydrogencanarisenaturallyinwaysthatcouldbechallengingtoregulate.Forexample,anelectrolytichydrogenproducercouldproducehydrogenthatreceivesthefullvalueofthe45Vtaxcredit.Thishydrogencouldbeinjectedin

apipelineandsoldontheopenmarket.Ifanelectric

generatorseesthatthepriceofhydrogenissufficientlylow(onakilowatt-hourbasis),itwillwanttopurchasethathydrogenratherthannaturalgastosavemoney

andtoreceivethePTCorITC.Allactorsinthisscenariowouldbefollowingtheincentivesresultingfromthe

policy,buttheoutcomewouldbewastedenergy.

Whethersuchascenariocomestopasswilldependontherelativepricesofhydrogenandnaturalgas,butif

agoalistheefficientuseoftaxpayerdollarstoreduce

emissions,itisdefinitelyanoutcometobeavoided.

Leakageofhydrogen—anindirectGHG—couldbeusedbyTreasuryasthebasisforassigningallhydrogen,

includinghydrogenthatqualifiesaszero-emissionsfor45V,apositiveemissionsrate.Thisapproachcouldavoidthepotentialforperverseoutcomesfromcreditstacking.

3.Conclusion

Withtheenactmentofsections45Yand48E,theIRA

hasbroughtawelcomestabilitytothetaxcodefor

cleanelectricityproductionandcanbeexpectedto

provideamuchmoreflexibleandpredictableeconomicenvironmentfordeployingcleangenerationforyears

tocome.ModelinghasshownthatthesetaxcreditsarefoundationaltorealizingprojectedemissionsreductionsfromtheIRA,underscoringtheirimportancetotheBidenadministration’seffortstodecarbonizethepowersector.

Giventhetighttimingforthetransitiontothesetax

creditsin2025andtheneedforadvanceplanningby

developers,Treasurywillneedtopublishguidanceintheveryneartermtomakegoodonthepromiseofastableinvestmentenvironment.Theneedforexpediency,

alongwiththecomplexityofsomeoftheissueswe

haveidentifiedinthisissuebrief,suggestthatissuing

guidanceon45Yand48Emaybenosmalltaskfor

Treasury,especiallyinlightofotherrequired

IRA-related

guidance

onitsplate.OneoptionforTreasurycouldbe

ResourcesfortheFuture—OnDeckforTreasury:TheInflationReductionAct’sNewApproachtoCleanElectricityTaxCredits4

tooffernear-terminitialguidanceonlesscomplicatedaspects,suchastheeligibilityofwindandsolar

technologies,whileseekingpubliccommentonsomeofthemorecomplicatedaspects.

References

Bergman,A.,B.Prest,andK.Palmer.2023.HowCanHydrogenProducersShowThatTheyAre‘Clean’?CommonResources.October27.

https://www.

/common-resources/how-can-hydrogen

-

producers-show-that-they-are-clean/

.

Bergman,A.45VHydrogenTaxCreditintheInflation

ReductionAct:EvaluatingEmissionsandCosts.

CommonResources.July14.

https://www.resources.

org/common-resources/45v-hydrogen-tax-credit-in

-

the-inflation-reduction-act-evaluating-emissions-and

-

costs/

.

Bistline,J.E.T.,G.Blanford,J.Grant,E.Knipping,D.L.

McCollum,U.Nopmongcol,H.Scarth,T.Shah,andG.

Yarwood.2022.Economy-wideEvaluationofCO2andAirQualityImpactsofElectrificationintheUnitedStates.

NatureCommunications13,6693.November5.

https://

/10.1038/s41467-022-33902-9

.

Bistline,J.E.T.,M.Brown,M.Domeshek,C.Marcy,N.

Roy,G.Blanford,D.Burtraw,J.Farbes,A.Fawcett,A.

Hamilton,J.Jenkins,R.Jones,B.King,H.Kolus,J.

Larsen,A.Levin,M.Mahajan,E.Mayfield,J.McFarland,H.McJeon,R.Orvis,N.Patankar,K.Rennert,S.Robson,C.Roney,E.Russell,G.Schivley,D.Shawhan,D.

Steinberg,N.Victor,S.Wenzel,J.Weyant,R.Wiser,M.

Yuan,andA.Zhao.PowerSectorImpactsoftheInflationReductionActof2022.EnvironmentalResearchLet