Proposed Treasury Regulations Provide Guidance on

Proposed Treasury Regulations Provide Guidance on New Clean Electricity Production and Investment Tax Credits

The Department of Treasury and the Internal Revenue Service released newly proposed regulations regarding the clean electricity production and investment tax credits.

The Inflation Reduction Act of 2022 introduced a clean electricity production tax credit (Section 45Y of the Internal Revenue Code) and a clean electricity investment tax credit (Section 48E of the Internal Revenue Code). These credits begin to replace the existing Section 45 production tax credit and Section 48 investment tax credit for projects placed in service after 2024. Unlike the existing credits, the new clean electricity tax credits are technology neutral, generally applying to any type of electricity generation that achieves zero greenhouse gas emissions. 

While many in the clean energy space worried that Treasury and the IRS would require taxpayers to demonstrate a zero greenhouse gas emissions rate for each and every project, the proposed regulations provide that certain technology types are deemed to have a zero emissions rate. These include wind, hydropower, marine and hydrokinetic, solar, geothermal, nuclear fission, nuclear fusion, and certain waste energy recovery property. 

Additionally, the proposed regulations offer detailed technical guidance on a variety of topics, including the following: 

  • Providing clarity on the meaning of a "qualified facility" (i.e., a facility eligible for the credits), and addressing the treatment of retrofitted and expanded facilities.
  • Providing rules for conducting lifecycle analyses for facilities producing electricity through combustion or gasification. 
  • Announcing that the IRS will prepare an annual table for determining emissions rates by technology type and explaining a procedure for seeking a "Provisional Emissions Rate" for technologies not listed in the table.  

Treasury and the IRS have requested comments on the proposed regulations, with an expected deadline of August 2, 2024. Further guidance in this space will provide clarity for what clean energy credits will be available as the Section 45 and Section 48 credits begin to phase out.

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