The US Department of Treasury says it will prioritize issuing final guidance around qualifying for a handful of Inflation Reduction Act clean energy tax credits before the end of President Joe Biden's administration, though guidance around a new credit for low-carbon fuels will likely take longer.
The agency's new timeline suggests that granular rules around how to qualify for the 2022 climate law's clean fuels incentive will ultimately be decided by the winner of this year's presidential election. Kicking off in January and lasting through 2027, the 45Z tax credit will replace a suite of expiring fuel-specific credits and offer up to $1/USG for low-carbon road fuels and up to $1.75/USG for low-carbon aviation fuels.
Treasury is still "actively" working on guidance around the 45Z incentive, Treasury acting assistant secretary for tax policy Aviva Aron-Dine told reporters today. But unlike for other credits, officials have not provided any timeline for proposing or finalizing that guidance or any signal of whether they could issue any safe harbor assurances before final guidance is available.
The Biden administration has not yet clarified how it will calculate greenhouse gas emissions or account for the benefits of "climate-smart" agricultural practices for fuels derived from crop feedstocks, potentially deterring investments until final guidance is available. The 45Z credit requires fuel to meet an initial carbon intensity threshold and then increases the subsidy as a fuel's greenhouse gas emissions fall.
Policy clarity is essential, biofuel groups say, since fuel and feedstock offtake contracts are hashed out months in advance and the credit is relatively short-lived compared to other Inflation Reduction Act incentives. Some farm state lawmakers have also pushed for final guidance to bar refiners using foreign feedstocks — such as used cooking oil from China — from being able to claim the credit.
The Biden administration still expects to finalize guidance for the 45V clean hydrogen tax credit by year-end out of recognition that the industry "needs certainty" to invest, Aron-Dine said. The final guidance will provide "appropriate adjustments and additional flexibilities" to help projects move forward, she said, while adhering to requirements to consider indirect greenhouse gas emissions caused by the production of clean hydrogen.
Treasury also expects to issue final guidance by the end of the administration on the 45Y clean electricity production credit and clean electricity investment credit, a technology-neutral tax credit it proposed earlier this year. The final guidance will continue the "explosive growth" of wind and solar and also provide tax credits to emerging technologies that produce no net greenhouse gas emissions, Aron-Dine said.
Other tax credits set to be finalized by the end of the administration include the section 48 investment tax credit and the 45X advanced manufacturing production credit that is supporting the buildout of domestic supply chains, Aron-Dine said.
