US Treasury Boosts Clean Energy with New Tax Credit Guidance

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The U.S Treasury announces clean energy tax incentives guidance for 2023

The U.S Treasury building in Washington.

Image: U.S Treasury building in Washington. REUTERS/Kevin Lamarque/File Photo

The U.S. Treasury announced on September 8 that it will release guidance on additional clean energy tax incentives, including a provision to deter companies from relying on Chinese supply chains, before the end of 2023.

Treasury’s assistant secretary for tax policy, Lily Batchelder, declined to provide specific timing for the guidance on “foreign entity of concern” rules. However, she confirmed that the guidance would be released along with the “45X” manufacturing production tax for clean energy products such as solar, wind, batteries, and critical minerals components.

For auto industry stakeholders making investment decisions about battery production for electric vehicles, these new rules are of significant interest. The foreign entity of concern rules are set to take effect in 2024 for completed batteries and 2025 for the critical minerals used in their production.

A key decision in the forthcoming guidance is the assessment of (F.N) Ford Motor Co’s deal to license the technology of Chinese battery manufacturer CATL (300750.SZ). This licensing arrangement has raised concerns among U.S. lawmakers due to Ford’s intent to use this technology in U.S. battery plants, and whether this meets the Treasury’s standards for accessing the tax credits.

Batchelder also mentioned that the Treasury would soon release guidance on tax credits for investments in energy-efficient home improvements and sustainable aviation fuel. Other guidance expected by the end of 2023 includes Section 48 clean power investment tax credit and clean hydrogen tax credits.

When the Inflation Reduction Act (IRA) was passed in August 2022, initial cost estimates for its clean energy tax credits were around $369 billion over 10 years. Since then, strong demand for these credits from various investment projects has led some analysts to estimate that the IRA’s fiscal costs could reach up to $1 trillion.

Reporting by David Lawder; Editing by Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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