U.S. Treasury Outlines Next Phase of Clean Energy Tax Credit Implementation

The Treasury Department is teeing up guidance on several tax credits in Democrats’ climate legislation that are designed to boost American manufacturing and energy security, including measures for electric vehicles, sustainable aviation fuel and clean hydrogen production.

“This focus will lower energy costs for households and small businesses and encourage American innovation for a clean energy economy, including decarbonizing heavy industries and transportation,” Deputy Treasury Secretary Wally Adeyemo told a media briefing.

Assistant Secretary for Tax Policy Lily Batchelder told reporters the department expects to issue guidance in the near term for the energy efficient home credit and sustainable aviation fuel credit. And before the end of the year, it will also release guidance on the law’s investment tax credit, the advanced manufacturing production tax credit for clean energy components like solar and battery cells, the electric vehicle credit provision for “foreign entities of concern” and for clean hydrogen subsidies.

That foreign entities of concern provision will clarify what electric vehicles could be left out of the consumer tax credit under the IRA’s prohibition on sourcing any battery parts or critical minerals from China or other targeted nations.

The new tax credit for hydrogen will apply to hydrogen produced through a process that results in low lifecycle greenhouse gas emissions. The credit, worth up to $3 per kilogram, has been a focus of intense lobbying efforts from energy and chemical companies and environmental groups over how the administration will define “clean” hydrogen.

The department missed a deadline last month to offer that initial hydrogen guidance.

Agriculture and environmental groups are also watching for the guidance on sustainable aviation fuel subsidies that are designed to reduce greenhouse gas emissions from the aviation sector.

In order to qualify for the credit, the fuel must have a lifecycle greenhouse gas emissions reduction percentage of at least 50 percent. Lawmakers dictated that Treasury should rely on methodology adopted by the U.N. International Civil Aviation Organization or a “similar methodology.” Ethanol proponents, for example, want that to include modeling developed by the Energy Department that would allow corn ethanol to qualify.

Batchelder noted the department plans to issue its allocation decisions for the 2023 low-income community bonus tax credit by the end of this year and guidance for the 2024 iteration of program early next year.

Adeyemo told reporters the department will also continue to consider “updates and revisions” to already issued guidance.

Treasury’s first phase of IRA implementation included guidance on tax incentives for electric vehicles, energy communities, domestic content, direct pay, transferability and prevailing wages.

The department issued guidance last month on the prevailing wage and apprenticeship requirements under the law, which marked the close of the first phase of implementation.

Originally shared by PoliticoPro, September 8, 2023.

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