A new ruling from the US Treasury Department has expanded tax credits to include a broader range of zero-emission energy sources in a move that should boost investment and deployment of energy-generating technologies where the U.S. has the potential to lead the market.
Part of the Biden Administration’s Inflation Reduction Act (IRA), the changes to the tax code promise to provide much-needed clarity and certainty for investors and developers — and could be the starting gun for more development of climate solutions including nuclear fission and fusion, enhanced geothermal systems, hydropower (including ocean and tidal power), and waste energy recovery.
The global market for developing these next-generation technologies is still wide open and — in the case of enhanced geothermal and small modular reactors — are in areas where the U.S. can lean heavily on expertise in adjacent industries (oil and gas exploration and production for geothermal and conventional nuclear reactors, respectively).
Transitioning Tax Credits
The Inflation Reduction Act marks a pivotal shift by sunsetting the existing Production Tax Credit (PTC) and Investment Tax Credit (ITC) for projects beginning construction before 2025. These will transition to the new Clean Electricity Production Credit (CEPC) and Clean Electricity Investment Credit (CEIC) for projects placed in service after December 31, 2024. This transition is one of the most significant reforms under the IRA, introducing technology-neutral credits that incentivize any clean energy facility achieving net zero greenhouse gas emissions.
Expanding Eligible Technologies
The Notice of Proposed Rulemaking (NPRM) released today identifies specific technologies that qualify for these new credits. For the first time, nuclear fission and fusion, geothermal, hydropower, marine and hydrokinetic energy, and certain types of waste energy recovery property (WERP) are recognized alongside wind and solar. Additionally, the NPRM clarifies how energy storage technologies can qualify for the CEIC.
However, clean energy technologies relying on combustion or gasification must undergo a lifecycle greenhouse gas analysis to demonstrate net-zero emissions. This thorough analysis ensures that only the most environmentally friendly technologies benefit from the new credits.
Economic and Environmental Impact
The US is projected to build more new electric generation capacity this year than in the past two decades, with 96% of this capacity being clean energy. And the growth is expected to save American families up to $38 billion on their electricity bills and reduce business electricity costs by 15% by 2030.
Proposed Rules and Public Engagement
The proposed rules should maintain continuity with existing PTC and ITC rules, providing clarity to developers moving forward with clean energy projects. The Treasury Department is committed to grounding these rules in the best available science and ensuring transparency and public accountability. Future changes to the designated technologies or lifecycle analysis models will require an analysis by the US Department of Energy’s National Labs.
And the NPRM also addresses interconnection-related costs for lower-output clean energy facilities eligible for the new credits, which has been a major barrier to faster deployment. These costs include upgrades to local transmission and distribution networks necessary to connect facilities to the grid.
Over the next 60 days, the Treasury Department will be taking public comments on the proposed rules and a public hearing is scheduled for August 12 and 13, offering stakeholders the opportunity to provide further input.
Studies indicate that these Clean Electricity Production and Investment Credits are key to reducing US emissions and achieving President Biden’s climate goals. A recent Rhodium Group study found that by 2035, the credits could reduce power sector carbon emissions by 43-73% below 2022 levels, save consumers up to $34 billion annually, and add nearly 650 gigawatts of clean electricity to the grid.
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