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Biden Administration Proposes Extended and Expanded Tax Incentives for Renewable Energy

Article
The Biden administration has proposed a number of renewable energy tax incentives in its recently released Green Book on tax proposals for its fiscal year 2022 budget.
8 minute read
August 9, 2021

The Biden administration has proposed a number of renewable energy tax incentives in its recently released Green Book on tax proposals for its fiscal year 2022 budget. The proposals would extend current expiring tax credits and provide several new tax credits and optional direct payments as part of the administration’s policy to “prioritize clean energy” and reduce carbon emissions.

The proposals cover renewable energy, electricity transmission, energy manufacturing, nuclear and low-carbon hydrogen, transportation, and energy efficiency incentives for residential and commercial buildings. The administration also proposes to extend the tax credits for carbon sequestration. Most would be effective for tax years beginning after December 31, 2021. Below is a brief summary of the proposals.

Production and Investment Tax Credits

The Biden administration proposes to extend existing production and investment tax credits as well as implement new credits to promote investment in electricity transmission and energy manufacturing. Each of these proposals would provide the taxpayer with the option of a direct payment in lieu of the credit.

Nuclear and Low-Carbon Hydrogen

The Biden administration also proposes to expand existing production credits for nuclear energy and implement a new production credit for low-carbon hydrogen. The proposals would also have a direct payment option.

Transportation

Several tax credit proposals aim to promote zero-emissions vehicles and charging infrastructure. The administration also proposed a PTC for reduced-emissions aviation fuel.

Other Energy Efficiency and Residential Incentives

The Biden administration also proposes to extend and implement a number of tax credits aimed at promoting energy efficiency in residential and commercial buildings.

Expand and Enhance Carbon Sequestration Credit

Although not related to renewable energy, carbon sequestration factors into the Biden administration’s plan to reduce carbon emissions. As part of this policy, the Biden administration would extend the IRC Section 45Q “commence construction” date by five years. This extension would require qualified facilities to begin construction by January 1, 2031. The proposal would also provide an enhanced credit for carbon oxide captured from hard-to-abate industrial carbon oxide capture sectors such as cement production, steelmaking, hydrogen production, and petroleum refining. The enhanced credit for industrial capture would not apply to ethanol, natural gas processing, or ammonia production facilities. The proposal would also provide an enhanced credit for direct air capture projects. The taxpayer would also have a direct payment option.

Outlook

The Biden administration’s renewable energy proposals are only one part of a series of proposed changes to both corporate and individual taxes. Actual legislation requires negotiations that would likely result in changes to the scale and scope of the tax credits. Nonetheless, tax policy is a central component of the administration’s efforts to promote renewable energy and reduce carbon emissions. The energy tax proposals in the Green Book also align with existing proposals in Congress, including those in the Clean Energy Act for America and the GREEN Act. This alignment makes the Green Book an important source of guidance on possible future legislation.

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