Key Energy Tax Credit Guidance Finalized by Treasury

The Inflation Reduction Act’s Impact on Energy Tax Credits

Implemented in August 2022, the Inflation Reduction Act (IRA) advanced energy tax credits by boosting credit values and widening eligibility to encompass new technologies. This policy permits businesses to create and trade energy tax credits, as detailed here.

Recent Updates on Energy Investment Tax Credit

In a recent update (linked here), we examined final regulations on the energy investment tax credit (ITC). As of this year, the ITC and its equivalent, the production tax credit (PTC), are being supplanted by the IRA’s technology-neutral electricity tax credits.

Similar to previous versions, ITC-based credits provide a 30% credit for qualifying clean energy investments, while PTC-based credits depend on electricity produced at eligible clean energy facilities. Bonus credits are also available for projects in low-income communities, that use domestically produced components, or have developers meeting wage and apprenticeship standards.

Final Regulations for Technology-Neutral Credits

The Treasury and IRS unveiled final regulations for these technology-neutral credits on January 7. This move suggests that credit sales may proceed in early 2025, easing industry concerns about the future of energy tax credits under the new administration.

The regulations uphold the proposed rules (discussed here) and offer more detailed guidance on eligible technologies. The new credits apply more broadly across emerging technologies, with more inclusive parameters than previous versions. The guidance offers a route for innovative energy-generating processes to qualify for the credit, broadens eligibility for hydrogen energy storage, and paves a way for retrofitted energy property to be eligible for the new credits.

Additional Updates in 2025

• Final rules on the credit for producing clean hydrogen were released on January 3, clarifying how producers using natural gas can qualify (more here).
• On January 8, final rules were released on the bonus credit for clean energy projects benefitting low-income communities which can provide up to 20% boost for qualifying projects (details here). The domestic content bonus credit was updated on January 16.
• Proposed rules for the credit for purchasing qualifying clean vehicles for commercial use were issued on January 10 (read here).
• Guidance on the credit for producing sustainable aviation fuel was released on January 10 (notice here).