Senate Finance Committee Advances Emissions-Based Overhaul of US Energy Tax Code | Davis Wright Tremaine LLP


On May 26, 2021, the Senate Finance Committee Advanced the Clean Energy for America Act (S1298, 117th Congress) to the full Senate on a party line vote. The legislation, which is a component of President Biden’s decision Rebuild better plan, would revise the federal energy tax code by consolidating more than 40 different energy tax incentives into one set of emissions-based provisions that encourage clean electricity, clean transportation and energy efficiency.

Incentives would be available for all energy technologies as long as they meet emission reduction targets. The bill was introduced by Senate Finance Committee Chairman Ron Wyden (D-Ore.) And 24 of his fellow Democrats.

According to Finance Committee, the bill would do the following:

Incentives for clean electricity

  • Provides an emissions-based and technologically neutral tax credit for clean electricity generation, open to all resources (renewables, fossil fuels, or any intermediate), but only for installations with emissions of carbon are zero or net negative.
  • Any new zero-emission facility can opt for either a production tax credit (CPI) of up to 2.5 cents per kilowatt hour of electricity produced and sold, or an investment tax credit. (CTI) up to 30% of the amount invested in the installation.
  • Investments in critical grid improvements, such as self-contained energy storage and high-capacity transmission lines, are eligible for full value ITC.
  • To make the incentives more accessible, power projects and grid improvement projects have the option of receiving tax credits as “direct payments”.

Incentives for clean transport

  • Encourages transportation electrification through long-term incentives for battery and fuel cell electric vehicles and electric vehicle charging. In order to make the incentives more accessible, the electric vehicle tax credit has been made refundable for consumers.
  • The bill extends the electric vehicle credit to provide 30 percent credit for the purchase price of medium and heavy-duty electric vehicles.
  • Provides a technologically neutral PTC for domestic production of clean transportation fuel up to $ 1 per gallon, depending on the life cycle carbon emissions of a given fuel. Open to all resources (including hydrogen), but only for fuels that are at least 25% cleaner than average, with clean fuels having to reach net zero by 2030 to be eligible.

Incentives for energy conservation

  • Offers tax credits for new energy-efficient homes and for energy-efficient upgrades to existing homes, as well as tax deductions for energy-efficient building components added to commercial buildings. The value of tax incentives would increase as more energy is saved.
  • Promotes conservation in new and existing buildings.

Ensures that green jobs are good jobs

  • Projects benefiting from tax incentives must comply with federal labor requirements, including the payment of wages in force.

End of fiscal incentives for fossil fuels

  • Repeals tax incentives for fossil fuels, ensuring the tax code only rewards clean energy.

Before moving the bill forward, the Senate Finance Committee did a variety of modifications, including among others:

  • Increase the ITC and PTC of clean electricity by 10% for (a) emerging clean energy technologies, (b) facilities located in an “energy community”, which refers to communities historically employed by the sector oil and gas, and (c) facilities that use steel and iron produced in the United States.
  • Clarify that utilities, rural power co-ops, tribal utilities, and real estate investment trusts (REITs) can choose to receive direct payments from ITC and PTC.
  • Creation of new clean hydrogen PTCs and new clean hydrogen, biogas and manure resource recovery ITCs.
  • Create a new general (but short-lived) sustainable aviation fuel commercial tax credit, which will expire after December 31, 2022.
  • Create additional tax credits for electric vehicles assembled in the United States or by workers represented by a labor organization.
  • Impose a price limit of $ 80,000 on electric vehicles eligible for tax credits.
  • Added a new category of exempt facility obligations for carbon capture and storage and direct air capture projects.

The Clean Energy for America Act is designed to streamline the energy provisions of the tax code and make clean energy tax credits more efficient and accessible. The expansion and extension of these tax credits and the possibility for project developers to receive direct cash payments instead of credits are all important changes that could greatly simplify the financing of clean energy projects and storage.

The Senate Finance Committee will report the updated bill to the entire Senate this week. Democrats plan to consider the bill as part of the much larger infrastructure reconciliation agenda next month, but the legislation is extremely controversial, which could cause Senate action to drag on until September.

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