The Proposed New Inflation Reduction Act Could Become the Biggest Climate Investment in US History

In addition to investments in clean energy, the bill called the Inflation Reduction Act of 2022 (H.R. 5376) includes tax and health care provisions designed to reduce the federal budget deficit and limit inflation. However, much of the media’s attention has been on the climate provisions. The current compromised bill reduces investments from the original $2 billion “Build Back Better” Act proposed by the Biden administration.

The proposed bill is designed to accelerate the buildout of renewable energy and electric vehicles as well as boost the deployment of nuclear energy and increase domestic clean energy related to manufacturing and advanced energy technologies (such as storage, carbon capture, and green hydrogen).

Below is a summary of just a few of the tax incentives in the proposed legislation as currently drafted:

    • The proposed legislation both extends the existing Internal Revenue Code §45 PTC (production tax credit) and existing Internal Revenue Code §48 ITC (investment tax credit) for projects that commence construction by December 31, 2024, then transitions both §45 and §48 into new replacement tax code sections (one to be designated as “The Clean Electricity Production Credit” under new Internal Revenue Code §45Y and the other to be designated as “The Clean Electricity Investment Credit” under new Internal Revenue Code §48D).
    • Tax-exempt payers will have the option to elect direct pay for the clean electricity PTC and ITC as they would under the proposed amendments to §45 and §48.
    • The proposed bill would increase the ITC to 30% for solar, fuel cells, and small wind facilities in service after 2021.
    • The new proposed bill also creates a new “stand-alone” storage ITC for certain biogas, linear generators, thermal storage, microgrid, and dynamic glass technology.
    • Taxpayers electing the § 48D ITC will receive a credit worth up to 30% of the investment in the year the facility is placed in service. The tax credit value is increased by an additional 10% if the facilities also meet domestic-content requirements.
    • The credit value is further increased by 10% for projects in energy communities, including certain brownfield sites under CERCLA ( or example, where a coal mine has closed, or where a coal-fired electric generating unit has been retired.)

On August 11, 2022, with a tiebreaking vote from Vice President Harris, the 50-50 Senate passed the Inflation Reduction Act and sent the bill to the House of Representatives for a vote. The House is expected to approve this bill and send it to the White House for President Biden’s signature later this week. Solar industry advocacy group SEIA has already suggested that the tax credits under this Act could spur upwards of 30 GW of new solar panel manufacturing capacity in the United States and over 500,000 jobs.

For more information about the Inflation Reduction Act, please contact Alan P. Fox, Esq.

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