Tax credits have played a big role in spurring clean energy investments in the United States, especially credits included in the Inflation Reduction Act (IRA). Passed in August 2022, the bill has already led to more than $140 billion in clean energy manufacturing announcements, according to the U.S. Department of the Treasury.
Photo Courtesy U.S. Department of Energy
According to a press release from the Treasury Department, much of the activity stems from tax credits of up to 30% “for qualifying investments in wind, solar, energy storage, and other renewable energy projects” that meet certain criteria.
The IRA also includes a bonus credit of up to 10 percentage points for qualifying clean energy investments in energy communities.
In addition, the legislation provides at least $4 billion from the Advanced Energy Project Credit “to projects in areas that have seen the closure of a coal mine or retirement of a coal-fired electric generating unit.”
Photo Courtesy Clean Energy Infrastructure
As Reuters reported, the IRA was passed with a focus “to create domestic jobs and reduce reliance on China.” While new clean energy projects continue to break ground thanks to tax incentives already in place with a focus, the White House aims to spur even more investment through new incentives. In December 2023, the current administration proposed guidance for a new tax incentive designed to onshore U.S. manufacturing of clean energy technology.
Photo Courtesy The White House
“No matter how much we spend, we know that China is likely to outspend us when it comes to their investment in clean energy,” Wally Adeyemo, deputy treasury secretary, told reporters on a call late last year. “What we’re doing is something different.”
According to the White House, the full current advanced manufacturing tax credits are available through 2023–2029 but will begin to “phase down” between 2030–2032. Meanwhile, a notice of proposed rulemaking issued in December addressed “lingering technical questions” over the tax credit.
As Reuters noted, the guidance to “clarify the definitions of eligible components like inverters, wind turbine parts, and photovoltaic solar equipment.” It also aims to confirm credit amounts and safeguards to prevent fraud.
Also in December, the current administration issued guidance on its clean hydrogen tax credit — something that CNN described as “one of the most generous subsidies contained in the Inflation Reduction Act.”
Photo Courtesy Office of Energy Efficiency and Renewable Energy
As with other tax credits, the hydrogen credit is intended to accelerate investment in clean energy sources as a way to help decarbonize heavy industry and large vehicles. Clean hydrogen, also called green hydrogen, is especially useful in planes, ships, and freight trucks that can’t be powered effectively by renewable energy sources such as wind and solar.
“It’s an important tool as we carve a path towards net-zero emissions by mid-century,” John Podesta, White House senior adviser for climate, told reporters in December.
The government released “stringent proposed rules” that give the most generous tax credits to companies that produce the cleanest hydrogen. The rules also account for planet-warming pollution throughout the entire lifecycle of hydrogen production.
“The lower the emissions, the larger the credit,” Adeyemo told reporters in December.
