The Inflation Reduction Act passed Congress in April of this year and contains a series of tax credits for clean energy manufacturing and production of clean energy with technology manufactured by many of our Member Companies.
The Department of the Treasury is seeking input from industry as part of the final rulemaking process. Industry input will help Treasury determine the parameters for how these credits are defined, the processes of how money can be claimed and who specifically can claim them.
This process of determination will be very impactful to our Member Companies as they are often part of the production of much of this technology. It is important to ensure that Treasury receives proper input from Energy Workforce Member Companies. The full link to the request from Treasury can be found here.
The Energy Workforce Government Affairs team has identified the questions we think will be most relevant to Member Companies, however we strongly encourage you to read through the entire posting, as it’s possible other sections could be relevant.
Treasury has given interested parties until November 4 to submit comments, and Energy Workforce will submit comments on behalf of the sector.
Time is relatively short, so if your company is interested in participating in the drafting of sector-wide comments, contact us by Monday, October 16 to submit the names of one (or more) individuals to participate in the working group.
Below is a summary of some of the major questions that we plan to comment on. This list is not meant to be exhaustive. Additional points may be identified by the working group:
Energy Security Tax Credits for Manufacturing Under Sections 48C and 45X
- 45X is a new section of the Code that creates an advanced manufacturing production credit for the manufacturing of eligible components. These components include any solar energy component, wind energy component, qualifying battery component and applicable critical minerals.
- Note that the “wind energy component” includes offshore wind vessels.
- Included “critical minerals” include aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium, cesium, chromium, cobalt, dysprosium, erbium, europium, fluorspar, gadolinium, gallium, germanium, graphite, hafnium, holmium, indium, iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium, nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc and zirconium.
Questions of note:
- Section 45X(a)(3)(B)(i) allows a taxpayer to make an election to treat a sale of components by such taxpayer to a related person as made to an unrelated person. Is guidance needed to clarify the meaning of the terms “unrelated person” and “related person”? If so, how should these terms be clarified?
- Section 45X(d)(4) provides that for purposes of § 45X, a person is treated as having sold an eligible component to an unrelated person if such component is integrated, incorporated, or assembled into another eligible component which is sold to an unrelated person. How should “integrated, incorporated, or assembled” be determined?
- Is additional clarification needed regarding the definitions of an “eligible component” in § 45X(c)?
- (a) How should the amount of the § 45X credit be calculated for components that could be used in systems of varying capacities?
- (b) In such cases, how should verification of the applicable credit amount be demonstrated?
- Section 45X(c)(4) identifies “related offshore wind vessels” as one of the qualifying “wind energy components.”
- (a) What should the requirements be for establishing that a vessel is for offshore wind development?
- (b) Where it is uncertain how much a vessel will be used for offshore wind, how should such situations be addressed?
- Section 45X(c)(6) identifies “applicable critical minerals,” and includes minimum purity percentages by mass.
- (a) How should purity percentages be determined?
- (b) Should an independent third party be required to verify the results?
- (c) If so, what qualifications should be required of an independent third-party providing such verification?
- Is guidance needed regarding the definitions of “converted” and “purified”?
- Is guidance needed regarding the apportionment and pass-thru of credit 12 amounts to beneficiaries of estates or trusts as provided in § 45X(d)(3)?
- 45C was created by the American Recovery and Reinvestment Act of 2009 and is an allocated tax credit for investments in advanced energy projects.
- Of particular note to our companies, 45C includes projects that produce energy from the sun, water, wind, geothermal deposits or other renewable resources, fuel cells, microturbines, properties designed to capture, remove, use or sequester carbon oxide emissions, property designed to produce energy conservation technologies, or any other advanced energy property that is designed to reduce greenhouse gas emissions.
Questions of note:
- Is guidance needed to define “energy efficiency”? If so, how should this be defined?
- Is guidance needed to define “reduction in waste from industrial processes”? If so, how should this be defined?
- Is guidance needed to define baseline criteria, boundary conditions and/or timeframe to determine achievement of the 20 percent threshold?
- What should the Treasury Department and the IRS consider in determining “any other industrial technology designed to reduce greenhouse gas emissions”?
Clean Energy Generation Tax Credits (45, 45U, 48 and 48E)
- 45, 45U, 48 and 48E tax credits are available for electricity production at qualified facilities and sold. Generally speaking, Energy Workforce Members are not engaged in this activity. However, as the credits are transferable to technology providers in some instances there may be some relevance to a few if the questions Treasury asks.
Questions of note:
- What existing industry standards, if any, should the Treasury Department and the IRS consider in establishing guidelines for how an unrelated third party will verify that electricity produced by a facility for which the taxpayer is claiming the § 45 credit has been used to produce qualified clean hydrogen?
- The term “unrelated person” is used in section 45 (as well as other provisions discussed in this notice that were added or amended by the IRA). Is guidance needed to clarify the meaning of the term “unrelated person”? If so, how should that term be 10 clarified?
Clean Hydrogen Production Qualifications – (Separate RFI with Due Date OCTOBER 20)
- Mitigating emissions downstream of the site of hydrogen production will require close monitoring of potential CO2 leakage. What are best practices and technological gap associated with long-term monitoring of CO2 emissions from pipelines and storage facilities? What are the economic impacts of closer monitoring?
- To qualify for a credit in the IRA, hydrogen must be produced “through a process that results in a lifecycle greenhouse gas emissions rate of not greater than kilograms of CO2e per kilogram of hydrogen.”
- What is the economic impact on current hydrogen production operations to meet the proposed standard (4.0 kgCO2e/kgH2)?
Questions of note:
- DOE-funded analyses routinely estimate regional fugitive emission rates from natural gas recovery and delivery. However, to utilize regional data, stakeholders would need to know the source of natural gas (i.e., region of the country) being used for each specific commercial-scale deployment. How can developers access information regarding the sources of natural gas being utilized in their deployments, to ascertain fugitive emission rates specific to their commercial-scale deployment?
- Mitigating emissions downstream of the site of hydrogen production will require close monitoring of potential CO2 leakage. What are best practices and technological gaps associated with long-term monitoring of CO2 emissions from pipelines and storage facilities? What are the economic impacts of closer monitoring?
- Atmospheric modeling simulations have estimated hydrogen’s indirect climate warming impact (for example, see Paulot 2021).19 The estimating methods used are still in development, and efforts to improve data collection and better characterize leaks, releases, and mitigation options are ongoing. What types of data, modeling or verification methods could be employed to improve effective management of this indirect impact?
- How should GHG emissions be allocated to co-products from the hydrogen production process? For example, if a hydrogen producer valorizes steam, electricity, elemental carbon, or oxygen co-produced alongside hydrogen, how should emissions be allocated to the co-products (e.g., system expansion, energy-based approach, mass-based approach), and what is the basis for your recommendation?
- How should GHG emissions be allocated to hydrogen that is a by-product, such as in chlor-alkali production, petrochemical cracking, or other industrial processes? How is byproduct hydrogen from these processes typically handled (e.g., venting, flaring, burning onsite for heat and power)?
- How should the GHG emissions of hydrogen commercial-scale deployments be verified in practice? What data and/or analysis tools should be used to assess whether a deployment demonstrably aids achievement of the CHPS?
Elective Payments and Transfer of Tax Credits
- The Inflation Reduction Act makes a variety of changes to existing tax law to expand the kinds of eligible entities to receive section 45 tax credits and also to make the transfer of these tax credits easier. We believe this may be relevant to many Energy Workforce Members, as they may be manufactures of components used in the production of lower carbon energy and not the actual facility owner.
Questions of note:
- The advanced manufacturing investment credit under 48D contains a elective payment provision. The Treasury Department is seeking input on whether 6417 should operate similarly or differently than the elective payment provision under 48D.
- Treasury is requesting additional guidance to clarify the meaning of terms in regards to transferring credits, limitations on these transfers and additional limitations on eligible recipients.
Prevailing Wage, Apprenticeship, Domestic Content and Energy Community Requirements under IRA
- Multiple tax credits under the Inflation Reduction Act (45, 45L, 45Q, 45U 45V, 45Y, 45Z, 48C 48E and 179D) require domestic content requirements, apprenticeship requirements and prevailing wage requirements in order for the claimer to get the full credit. This is very relevant to Energy Workforce Members, as it is also applicable to contractors and subcontractors so any manufacturing of equipment that is later used by a claimer of the credit could come into play here. The domestic content requirement is of particular note here:
Questions of note:
- Sections 45(b)(9)(B) and 45Y(g)(11)(B) provide that a taxpayer must certify that any steel, iron, or manufactured product that is a component of a qualified facility (upon completion of construction) was produced in the United States (as determined under 49 C.F.R. 661).
- (a) What regulations, if any, under 49 C.F.R. 661 (such as 49 C.F.R. 661.5 or 661.6) should apply in determining whether the requirements of section §§ 45(b)(9)(B) and 45Y(g)(11)(B) are satisfied? Why?
- (b) What should the Treasury Department and the IRS consider when determining “completion of construction” for purposes of the domestic content requirement? Should the “completion of construction date” be the same as the placed in service date? If not, why?
- Should the definitions of “steel” and “iron” under 49 C.F.R. 661.3, 661.5(b) and (c) be used for purposes of defining those terms under §§ 45(b)(9)(B) and 45Y(g)(11)(B)? If not, what alternative definitions should be used?
- (d) What records or documentation do taxpayers maintain or could they create to substantiate a taxpayer’s certification that they have satisfied the domestic content requirements?
- Sections 45(b)(9)(B)(iii) and 45Y(g)(11)(B)(iii) provide that manufactured products that are components of a qualified facility upon completion of construction will be deemed to have been produced in the United States if not less than the adjusted percentage of the total costs of all of such manufactured products of such facility are attributable to manufactured products (including components) that are mined, produced, or manufactured in the United States.
- (a) Does the term “component of a qualified facility” need further clarification? If so, what should be clarified and is any clarification needed for specific types of property, such as qualified interconnection property?
- (b) Does the determination of “total costs” with regard to all manufactured products of a qualified facility that are attributable to manufactured products (including components) that are mined, produced, or manufactured in the United States need further clarification? If so, what should be clarified? Is guidance needed to clarify the term “mined, produced, or manufactured”?
- Does the term “manufactured product” with regard to the various technologies eligible for the domestic content bonus credit need further clarification? If so, what should be clarified? Is guidance needed to clarify what constitutes an “end product” (as defined in 49 C.F.R. 661.3) for purposes of satisfying the domestic content requirements?
- Does the adjusted percentage threshold rule that applies to manufactured products need further clarification? If so, what should be clarified?
- (e) Does the treatment of subcomponents with regard to manufactured products need further clarification? If so, what should be clarified?
If you would like to get involved with this working group, contact SVP Government Affairs Tim Tarpley.
Tim Tarpley, SVP Government Affairs & Counsel, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.