On April 21, 2021, U.S. Senate Finance Committee Chairman Ron Wyden (D-Ore.) and 24 Democratic senators introduced the Clean Energy for America Act, which proposes to consolidate the current energy tax incentives available under the Internal Revenue Code.
Currently, the Internal Revenue Code provides a patchwork of energy tax incentives that feature several temporary provisions with differing rules and expirations, provides different incentive levels for technologies with similar emission profiles, and omits several new and emerging technologies. If enacted, the bill would create a more streamlined set of long-term, performance-based energy tax incentives that are technology-neutral and would promote clean energy in the United States.
Notable highlights from the bill include the following:
- Technology-Neutral Tax Credit. The bill provides for an emission-based, technology-neutral tax credit for the production of clean energy for projects that are “placed in service” after 2022. This credit would be open to all resources (including renewables, fossil fuels and anything in between), but only for facilities with zero or net-negative carbon emissions. The Treasury Department and the Environmental Protection Agency (EPA) would work together to establish rules for determining which technologies satisfy the zero or net-negative greenhouse gas emission rates.
- Choice of PTC or ITC. Any new zero-emission facility would be eligible to elect either a 10-year production tax credit (PTC) of 2.5 cents per kilowatt hour (adjusted for inflation), or a one-time investment tax credit (ITC) of 30 percent of the tax basis to construct such facility.
- Stand-Alone Storage and Other Grid-Improvement Property. Investments in critical grid improvements, such as stand-alone energy storage and high-capacity transmission lines (at least 275kv), would qualify for the full-value ITC — i.e., 30 percent of the eligible tax basis of such energy storage or transmission property.
- Cash in Lieu of PTC or ITC. Taxpayers are provided the option to receive the PTC or ITC as direct cash refunds; however, the election to take a direct payment must be made with the IRS before construction of the facility begins.
- Increased ITC for Investments in Low-Income Areas. Investments in zero-emission renewable electricity or energy storage property in qualifying low-income areas would qualify for a 40 percent ITC rather than the base 30 percent ITC.
- Prevailing Wage Requirement. To qualify for the tax credits, these projects would need to pay prevailing wages at the local rate and utilize registered apprenticeship programs.
- Normalization Opt-Out for Regulated Utilities. Regulated utilities can opt out of normalization for purposes of the ITC for energy storage or transmission property.
- Carbon Capture Credit Would Remain, but With New Limitation. Section 45Q (carbon capture tax credits) would remain in place until the power and industrial sectors meet emission goals; however, section 45Q would be amended to eliminate the carbon-capture tax credit when the captured carbon oxide is used in enhanced oil recovery.
- Phaseout of PTC and ITC. The PTC and the ITC would phase out over a five-year period when the EPA and the Department of Energy (DOE) certify that the electric power sector emits 75 percent less carbon than 2021 levels. Facilities that “begin construction” in the first year following the EPA and DOE determination would be eligible for 100 percent of the PTC and ITC. Projects that begin construction in the second year would be eligible for 75 percent of the PTC or ITC, and projects that begin construction in the third year following the EPA and DOE determination would be eligible for 50 percent of the PTC and ITC. The PTC and ITC would not be available for any project that begins construction following the fourth year after the EPA and DOE determination that the electric power sector emits 75 percent less carbon than 2021 levels.
- ITC for Homeowners. Homeowners who install on-site renewable energy generation, including rooftop solar or small wind turbines, would be eligible for an ITC at the 30 percent rate.