In late July, Senators Joe Manchin and Chuck Schumer announced an agreement on a number of issues of contention, called the Inflation Reduction Act of 2022. At this writing, it has passed the Senate and House and awaiting President Biden’s signature.

Here is a summary: https://us.eversheds-sutherland.com/portalresource/inflation_reduction_act_of_2022.pdf.  It includes many diverse provisions, but for this newsletter, I will focus on those related to energy.

There are over 300 pages of energy tax provisions, including:

• Extension and expansion of the Section 45 production and Section 48 investment tax credits for energy development ranging from renewable power to refined coal;
• Extension and expansion of the Section 45Q carbon capture and sequestration (CCS) credit, the critical technology that would allow coal-fired power plants to operate with much lower emissions of greenhouse gases;
• Additional tax credits for zero-emission power production, clean energy production and clean hydrogen production.
• Extension of biodiesel/alternative fuels credits and inclusion of a sustainable aviation fuel credit.
• Direct pay for tax-exempt entities, state or local governments, the Tennessee Valley Authority, Indian tribal government, or any Alaska Native Corporation to otherwise benefit when it cannot take advantage of the tax credits above.

The proposed Act provides significant steps to encourage US transportation to move toward electric or zero-emissions technology, both promoting such vehicle manufacturing and providing for consumers to purchase and use electric vehicles. The Act provides clean vehicle tax credits of up to $7,500 for new vehicles and up to $4,000 for used vehicles (with some income limitations). It also eliminates a manufacturing cap that was discouraging all-electric car companies from producing more such vehicles, in part, causing the shortage of zero-emission vehicles vs. demand that we currently have.

One concern in the electric vehicle industry is the availability and security of the electric vehicle supply chain. The Act contains stringent eligibility limits based on where battery components are made, or the underlying critical minerals are processed or mined. A percentage of the value of the critical minerals must be extracted or processed in nations with which the U.S. has either a free trade agreement or recycled in North America. In 2023, this percentage starts at 40% and rises 10% each year until 2027 at which point the percentage will remain steady at 80%. This was done to reduce dependence on Chinese critical mineral supply and encourage domestic production.

The Act includes investment tax credits for projects that build or expand manufacturing facilities to include electric and hybrid vehicles production, ranging from 6 to 30%, if certain conditions are met. The Act also provides $2 billion in grants to retool existing auto manufacturing facilities to manufacture clean vehicles and expands DOE lending authority. The Act provides up to $3 billion to electrify Postal Service delivery trucks.

Many of these energy tax provisions are identical of the previous of the Build Back Better Act, with additions to prop up the coal industry, if coal combustion can be made cleaner. One should consult with tax professionals to determine the differences and the overall implications of the proposed bill. CCES provides this overview, but not with any legal or accounting basis. To explore how the Act will impact and benefit you, discuss with an experienced legal or accounting professional. CCES has the technical expertise to help you evaluate and analyze your energy usage, diversify your sources of energy, and use cleaner and less energy to save you costs and meet “green” goals. Contact us today at karell@CCESworld.com or 914-584-6720.