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TAX CLINIC

business or organization. Broadly, they Renewable opportunities for the credit amount is multiplied by 5 if the
include employees, customers, investors, energy industry qualified clean hydrogen facility meets
and regulators, and today they expect For the energy industry, the Inflation Re- certain requirements. Limitations apply
transparency of tax strategies, tax risks, duction Act reinstates the 30% tax credit for taxpayers also claiming benefits under
total tax contributions, and country-by- for investing in a qualifying advanced en- Sec. 45Q.
country activities. All stakeholders are ergy project under Sec. 48C, with a new The Sec. 48 investment tax credit
increasingly expecting — and in some $10 billion allocation. Taxpayers must (ITC) provides a federal income tax
cases requiring — public disclosure of a apply for a portion of the credit alloca- credit for qualifying energy-related
company’s approach to ESG, including tion. The credits are potentially available investments. The credit is established
sustainable tax planning, amounts of tax to taxpayers who invest in clean energy as a percentage of the project owner’s
paid, and jurisdictions where the tax is property that: (taxpayer’s) basis in the eligible property.
paid. Additionally, global sustainability ■ Generates energy from renewable Under the act, certain renewable energy
rating agencies such as the Global sources; projects that begin construction prior to
Reporting Initiative include a tax com- ■ Reduces carbon oxide emissions and Jan. 1, 2025:
ponent in their ESG scoring criteria greenhouse gases; ■ Will be eligible for a 30% ITC,
that considers, among other inputs, the ■ Produces electric, fuel cell, and hybrid provided the projects meet certain
environmental impact of a business’s vehicles; or eligibility criteria; and
tax policies. ■ Conserves energy. ■ May qualify for additional ITC
The increased governmental focus New Sec. 45X for the first time pro- enhancements that could amount to
on climate change has generated recent vides a credit for manufacturers selling up to a 50% ITC for projects located
legislation that is paving the way for eligible components, rather than just the in communities impacted by the green
tax policy to significantly impact an taxpayer placing the property in service. energy transition.
entity’s ESG framework. As such, tax Eligible components generally include: Renewable energy projects that begin
departments are becoming increasingly ■ Solar energy components; construction on or after Jan. 1, 2025, will
relevant in environmental business deci- ■ Wind energy components; be eligible for similar “technology neutral”
sions and initiatives. ■ Certain inverters; ITC credits, provided the projects result
The Inflation Reduction Act of ■ Qualifying battery components; and in zero greenhouse gas emissions.
2022, P.L.117-169, was signed into ■ Applicable critical minerals. The Sec. 45 renewable electricity pro-
law on Aug. 16, 2022. The act features The credit amount varies depending duction tax credit (PTC) is per kilowatt
$370 billion in spending on energy and on the eligible component, and the tax- hour (kWh) for electricity generated by
climate change, including tax incentives payer eventually placing the property in qualified renewable energy resources.
and related provisions affecting trans- service may also be eligible for a credit. The act:
portation, manufacturing, and many Sec. 45V provides for a new credit re- ■ Extends the PTC for wind and solar
other industries. The Inflation Reduc- lated to the production of qualified clean projects that are placed in service after
tion Act’s tax incentives are designed hydrogen that is produced after 2022 Dec. 31, 2021, and begin construction
to encourage renewable energy use and at a qualified facility. Qualified clean before Jan. 1, 2025;
reductions in greenhouse gas emissions. hydrogen is produced through a process ■ Provides a base credit rate for the
Leveraging these opportunities can be that results in a lifecycle greenhouse PTC of 0.3 cents/kWh and a rate of
an important component of an ESG emissions rate of four kilograms or less 1.5 cents/kWh if the project meets
strategy for companies that want to in- of CO₂e (carbon dioxide equivalent) per prevailing wage and apprenticeship
corporate ESG principles in their proj- kilogram of hydrogen. The credit amount requirements; and
ects and initiatives while also generating is computed in an amount equal to (1) ■ Extends the carryback period for
significant tax benefits. the kilograms of qualified clean hydrogen excess applicable ITCs and PTCs
Below are examples of tax incentives produced by the taxpayer during the tax from one year to three years and the
created or extended by the Inflation Re- year at a qualified clean hydrogen produc- carryforward from 20 to 22 years for
duction Act that encourage companies tion facility during the 10-year period tax years beginning after 2022.
to develop an ESG-compliant tax strat- beginning on the date such facility was
egy. The discussion here focuses first on originally placed in service, multiplied Renewable opportunities
opportunities for the energy industry by (2) the applicable amount. The ap- for everyone
and then on those available to taxpayers plicable amount is $0.60 multiplied by Turning now from the energy industry
more generally. the applicable percentage. The resulting to opportunities available more generally,

8 February 2023 The Tax Adviser