On May 28, 2021, Treasury released the General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, more commonly referred to as the Green Book. The issuance of the Green Book provides further detail on the White House’s American Jobs Plan, one of the major proposals in the development of an infrastructure bill. The Green Book’s release comes as Congress works through its own proposals. While the various proposals have differences in approach, they indicate strong, continued and expanded support for green energy tax initiatives.
In this alert, we provide a summary of the business-related energy tax proposals in the Green Book. Bloomberg Tax provides additional background on the recent energy tax-related proposals.
The Green Book provides further detail regarding energy tax-related proposals previously announced by the Administration. In general, these proposals take the approach of extending and enhancing the currently available tax credits, similar to the House Growing Renewable Energy and Efficiency Now (GREEN) Act, rather than adoption of new technology-neutral green energy tax incentives as provided in the Senate Clean Energy for America Act (CEAA). Below is a summary of the Green Book business related energy tax proposals:
- Section 45 Production Tax Credit (PTC)
- Full amount of credit for qualified facilities for which construction begins after December 31, 2021 and before January 1, 2027; 20% per year phasing down to zero over five years starting in 2027
- Option to elect a cash payment in lieu of the PTC
- Section 48 Investment Tax Credit (ITC)
- Extension of the credits for investments in solar and geothermal electric energy property, qualified fuel cell power plants, geothermal heat pumps, small wind property, offshore wind property, waste energy recovery property, and combined heat and power property to full 30% rate for facilities for which construction begins after December 31, 2021 and before January 1, 2027; 20% per year phasing down to zero over five years starting in 2027
- ITC expanded to include stand-alone energy storage in 2022 (capacity minimum of 5 kilowatt hours)
- Option to elect a cash payment in lieu of the ITC
| Eversheds Sutherland Observation: Legislation passed in late 2019 created an anomaly for 2019 whereby wind projects for which construction began in 2018 and 2020 received a higher tax credit rate than projects for which construction began in 2019. The proposals in the Green Book appear to create similar situations for renewable energy projects by stepping up the credit rates only for projects for which construction begins after 2021. Congress should strongly consider adopting rules that provide parity to projects currently in development. |
- Transmission ITC
- 30% credit for investment in qualifying electric power transmission property placed in service after 2021 and before 2032
- Qualifying electric power transmission property includes overhead, submarine, and underground transmission facilities with a minimum voltage of 275 kilovolts and a minimum transmission capacity of 500 megawatts
- Option to elect a cash payment in lieu of the ITC
- Section 45Q Carbon Capture, Utilization and Sequestration (CCUS) Credit
- Extension of the beginning of construction deadline by 5 years to January 1, 2031
- Additional $35 per metric ton of qualified carbon oxide for qualified carbon oxide captured from cement production, steelmaking, hydrogen production, and petroleum refining and disposed of in secure geological storage
- Additional $70 per metric ton of qualified carbon oxide from direct air capture projects and disposed of in secure geological storage
- Option to elect a cash payment in lieu of the credit
| Eversheds Sutherland Observation: The extension of the CCUS credit and the changes in the credit amounts are welcome news given the potential of CCUS technology to reduce greenhouse gasses. Any final package needs to consider what is economically needed to incentivize CCUS investment, particularly for CCUS investments for which there is no independent revenue source, such as sequestration projects. |
- Section 45J nuclear PTC
- Expansion of Section 45J to account for electricity generation from existing nuclear power facilities: up to $1B for existing nuclear power facilities to bid for credits between January 1, 2022 and January 1, 2030
- Would require receipt of an allocation of credits; bid would be solicited every 2 years
- Option to elect a cash payment in lieu of credits
| Eversheds Sutherland Observation: Unlike current section 45J, which provides a tax credit for the first 8 years of operation, this would provide credits that are intended to target economically at risk facilities to prevent the premature retirement of nuclear power facilities. |
- Sustainable aviation fuel
- Establishes a production tax credit for sustainable aviation fuel of $1.50 per gallon for sustainable aviation fuel that achieves at least a 50% reduction in emissions relative to conventional jet fuel, with a maximum $1.75 per gallon credit for fuel with 100% emissions reduction
- Available for fuel produced from 2022 through 2027
| Eversheds Sutherland Observation: Given concerns regarding aviation emissions, there have been a number of bills supporting sustainable aviation fuels and the Green Book continues that support. Congress and the Administration should think expansively about how to ensure that these provisions will create a market for clean energy fuels for aviation as it continues to develop the statutory provisions for entitlement to this credit. Notably absent from the Green Book are extensions of other fuels credits although proposals from Congress do provide continued support for existing fuels credits |
- Section 48C qualifying advanced energy project credit
- Authorizes an additional $10B for investments in eligible property used in a qualifying advanced energy manufacturing project, with $5B allocated to coal communities
- Revises definition of qualifying advanced energy project to include industrial facilities, recycling in addition to production and expanded eligible technologies including energy storage, electric grid modernization, carbon capture and sequestration and energy conservation
- 3-year period for applications for the credit, beginning December 31, 2021
- Electric vehicle credits
- Establishes electric vehicle credits for heavy- and medium-duty zero emissions vehicles, including battery and fuel cell electric vehicles
- Eligible vehicles must be acquired for use or lease by the taxpayer, not resale
- Original use must commence with taxpayer
- Credit ranges from $10,000 to $120,000 depending on the class of vehicle (class 3 to class 8 under Federal Highway Administration classification) and year of purchase (2022 through 2027)
- Option to elect a cash payment in lieu of credits
- Also expands the tax credit for electric vehicle charging stations to provide a per device credit of up to $200,000 and extension of the credit through 2026
- Low-carbon hydrogen PTC
- Establishes a PTC for qualified low-carbon hydrogen: (1) produced by the taxpayer; (2) for an end use application in the energy, industrial, chemicals, or transportation sector; and (3) from a qualified low-carbon hydrogen production facility
- Qualified low carbon hydrogen would include hydrogen produced using zero-carbon emissions electricity (renewables or nuclear) and water as a feedstock or hydrogen produced using natural gas as a feedstock with all carbon emitted in the production process captured and sequestered
- Available during the 6-year period beginning on the date the facility was originally placed in service
- Credit amount would be $3 per kilogram for 2022 to 2024 and $2 per kilogram from 2025 to 2027 (indexed for inflation)
- Credit effective for qualified hydrogen produced after December 31, 2021
- Option to elect a cash payment in lieu of credits
As a partial pay-for for the above changes, the Green Book includes a repeal of the following fossil fuel tax preferences for taxable years beginning after December 31, 2021 (December 31, 2026 with respect to the repeal of the publicly traded partnership provision):
- Enhanced oil recovery credit for eligible costs attributable to a qualified enhanced oil recovery project;
- Credit for oil and gas produced from marginal wells;
- Expensing of intangible drilling costs;
- Deduction for costs paid or incurred for any tertiary injectant used as part of a tertiary recovery method;
- Exception to passive loss limitations provided to working interests in oil and natural gas properties;
- Use of percentage depletion with respect to oil and gas wells;
- Two-year amortization of independent producers’ geological and geophysical expenditures (instead allowing amortization over the seven-year period used by integrated oil and gas producers);
- Expensing of exploration and development costs;
- Percentage depletion for hard mineral fossil fuels;
- Capital gains treatment for royalties;
- Exemption from the corporate income tax for publicly traded partnerships with qualifying income and gains from activities relating to fossil fuels;
- Oil spill liability trust fund excise tax exemption for crude oil derived from bitumen and kerogen-rich rock; and
- Accelerated amortization for air pollution control facilities.
| Eversheds Sutherland Observation: The Green Book is another step in the path toward the additional support for green energy through tax incentives. While there remains much work to do in reconciling the various proposals, the message from the Administration and Congress is consistent in this support. |
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