U.S. IRA Influence Boosts Tax Credit Trading Market

TL/DR –

The market for trading tax credit rights is growing due to the US Inflation Reduction Act (IRA), with the sale of tax credits to third parties being termed a “game changer”. Global investment advisor Evercore ISI estimates tax credits on the market will reach $47 billion this year, potentially exceeding $100 billion by 2030. The IRA has increased the scope for tax credits and allows them to be sold to third parties, easing the tax burden on eco-friendly sectors like wind, solar, and batteries.

‘Evercore ISI’ Analysis Report: Surge in Tax Credit Rights Market

The U.S. Inflation Reduction Act (IRA) has stimulated the tax credit rights trading market. Global investment advisor Evercore ISI, in a report released on the 28th, indicated that the market has rapidly expanded following the Biden administration’s approval of AMPC (high-tech manufacturing production tax credit) transfer to a third party.

Enlarge Image

Evercore ISI estimates that tax credit rights on the market will reach $47 billion this year and exceed $100 billion by 2030, even if not all rights are transferred.

Many international investment banks (IB), private equity funds (PEF), and large firms are entering the tax credit rights transactions market.

The IRA, introduced to promote the U.S. eco-friendly high-tech manufacturing industry, eased the tax burden on environmentally friendly parts such as wind, solar, and batteries produced and sold in the U.S. It expanded tax credits and allowed the sale of tax credit rights to third parties unrelated to eco-friendly projects.

Enlarge Image

The third-party sale clause of tax credit rights is a game changer, according to a U.S. IB Houli Hanloki official. It allows companies seeking tax savings to purchase tax credit rights at a low price.

In the IRA system, tax credits are divided into production and investment tax credits (PTC and ITC respectively). PTC deducts a certain amount of tax per hydrogen production amount for 10 years, and ITC deducts a certain percentage of hydrogen production facilities and technology investment costs. The subject must choose one of the two.

Anticipating the market, Evercore ISI suggests that the PTC supply might surpass the ITC supply, occupying 80% of the market credit supply. This trend is likely to continue as large-scale hydrogen and carbon capture projects are built and the related advanced manufacturing industry grows.

—
Read More US Economic News