Comparing Section 48 and 48E IRA Investment Tax Credits for Biogas
TL/DR –
The Inflation Reduction Act of 2022 (the Act) included Section 48 investment tax credits (ITCs) for biogas projects, but projects starting construction after Dec 31, 2024 will need to apply under Section 48E. Unlike Section 48, which focuses on specific technologies used in converting biomass to methane, Section 48E targets “qualified facilities” that produce electricity with zero or less greenhouse gas (GHG) emissions. For qualified facilities constructed after 2024, the ITCs may go up to 30% or more if certain conditions are met, but the credits can be recaptured if the facility’s GHG emissions exceed 10 grams of CO2 per kWh within 5 years after it starts operating.
Understanding the Shift from Section 48 to Section 48E ITCs for Biogas Projects
Biogas developers are preparing for the shift from Section 48 investment tax credits (ITCs) under the Inflation Reduction Act of 2022 to Section 48E ITCs. Developers must start construction before December 31, 2024, to qualify for Section 48 ITCs. Projects commencing after January 1, 2025, will be subject to Section 48E’s technology-neutral clean electricity ITCs, possibly excluding some biogas properties.
Section 48 vs Section 48E: Key Differences for Biogas Projects
Section 48 focuses on the specific technologies for converting biomass into methane, whereas Section 48E targets “qualified facilities” producing electricity with a greenhouse gas (GHG) emissions rate of zero or less. Different rules apply to various types of power-generating facilities. This shift could exclude biogas properties that transform biomass into refined renewable natural gas for transportation or other non-electricity generation uses.
Funding Clean Energy: The Role of Section 48E ITCs
For facilities constructed after December 31, 2024, Section 48E mandates the clean electricity ITCs equal the “applicable percentage” of the “qualified investment”. The base rate stands at 6% and can increase to 30% or more under certain conditions, including domestic materials usage, prevailing wage, apprenticeship requirements, and construction in an energy community.
Understanding Recapture of Clean Electricity ITCs under Section 48E
Section 48E allows for recapture of previously issued credits if the qualified facility surpasses 10 grams of CO2 per kWh during the first five years of operation.
[For further reading, visit Climate Solutions Law.]
—
Read More US Economic News