The Inflation Reduction Act of 2022 (the “IRA”) features $260 billion in clean-energy tax credits. While the IRA extends many existing clean-energy tax credits, like the energy production tax credit and investment tax credit for wind and solar, it also establishes new credits, including credits for advanced manufacturing and hydrogen production. Additionally, beginning in 2025, taxpayers with zero emissions facilities would have added flexibility to choose between using a new technology neutral production tax credit or investment tax credit.
In addition to the extension of the solar investment tax credit, the IRA renews the previously expired production tax credit for solar energy and extends the credit to include qualifying facilities that begin construction before January 1, 2025. IRA § 13101. Taxpayers would also be eligible for a bonus 10% production tax credit if certain “domestic content requirements” are met or if the project is located in an “energy community.”  The production tax credit is calculated by multiplying the amount of kilowatt-hours product by 0.3 cents or, if certain wage and apprenticeship requirements are met, 1.5 cents. Id.
Another key provision is an extension of the energy investment tax credit to include qualifying facilities that begin construction before January 1, 2025, with tax credits for geothermal energy being extended to 2035. IRA § 13102. Similar to the production tax credits, taxpayers would be eligible for an additional 10% investment tax credit if certain “domestic content” requirements are met or if the project is located in an “energy community.” The investment tax credit is calculated by taking the cost of placing the facility into service multiplied by 6% or, if certain wage and apprenticeship requirements are met, 30%. Id.
The IRA includes an extension and modification of the 45Q credit for the carbon oxide sequestration. IRA § 13104. The 45Q credit for carbon capture would be set at $17 per metric ton of qualified carbon oxide or, if certain wage and apprenticeship requirements are met, at $85. Id. The 45Q credit is also expanded to include direct air capture, and is set at $36 per metric ton of qualified carbon oxide or, if certain wage and apprenticeship requirements are met, at $180. Id.
The IRA also includes an extension of the Advanced Energy Project Credit to $10 billion, $4 billion of which is set aside for “energy communities.” IRA § 13501. This credit has been expanded to include, among other things, hydropower facilities, energy storage systems, heavy-duty electric and fuel-cell vehicles and their associated charging infrastructure, critical mineral processing, refining, or recycling, and the retrofit of energy facilities with carbon capture and storage equipment. Id.
Additionally, the IRA includes an advanced manufacturing production tax credit, which would support the production and sale of solar and wind farm equipment and components, battery components, commercial and residential inverters, and critical mineral production. IRA § 13502. The amount of the credit is keyed to the different components being manufactured. Id.
It would also include a new clean hydrogen production tax credit, that can reach up to 60 cents a kilogram of qualified clean hydrogen or, if certain wage and apprenticeship requirements are met, $3.00. Id. § 13204. “Qualified clean hydrogen” is hydrogen which is produced through a process that results in a lifecycle greenhouse gas emissions rate of not greater than 4 kilograms of CO2e per kilogram of hydrogen. Id. The amount of the credit varies based on how clean the hydrogen fuel is, ranging from 20% of the credit amount for hydrogen emitting no greater than 4 kilograms of CO2e per kilogram of hydrogen to 100% for fuels emitting a lifecycle greenhouse gas emissions rate less than 0.45 kilograms of CO2e per kilogram of hydrogen. Id.
For three of these tax credits, the IRA makes a “direct pay” option available to any taxpayer claiming the clean hydrogen credit, the carbon capture credit, or the advance manufacturing production tax credit. IRA § 13801. Direct pay allows taxpayers to receive a refundable tax credit even if they don’t otherwise have any tax liability to absorb the credit (e.g., the taxpayer is operating at a loss). In this way, the credit is particularly beneficial for early-stage companies. With respect to clean hydrogen and carbon capture facilities, the “direct pay” option is only available in the taxable year in which the facility is placed into service, and the four years following that. Apart from these three tax credits, the “direct pay” option is also available for a longer list of other energy-related credits, but only if the organization claiming them is a tax-exempt organization, state or local government, tribal government, or the Tennessee Valley Authority. Id.
The IRA includes a provision that allows taxpayers to transfer certain enumerated clean-energy credits to unrelated taxpayers. IRA § 6418(a). Consideration paid for a transferrable credit must be paid in cash, and is not includable in the income of the transferor, nor deductible by the transferee. Id. § (b). Excessive transferability payments could result in an addition to tax of the transferee equal to the sum of the excessive payment amount plus a penalty of 20% of the excessive payment amount. Id. § (g)(2). This provision is particularly beneficial for taxpayers with low tax liability that cannot otherwise take advantage of the direct pay option for credits other than the three enumerated above, and instead have to turn to the tax equity markets to facilitate use of the credits. The IRA creates or extends many additional tax credits including: (1) the clean electricity production credit, § 13701; (2) clean electricity investment credit, § 13702; (3) the energy credit for solar and wind facilities connected to low-income communities, § 13103; and (4) a zero-emission nuclear power production credit, § 13105.
Allison Baker also contributed to this blog post.
 Energy community means brownfield sites as defined under CERCLA; areas with significant employment related to the extraction, processing, transport or storage of fossil fuels; a census tract where (or abutting where) a coal mine has closed since 2000; or a census tract where, or abutting where, a coal plant been retired since 2009. IRA at 250-251.
 The clean-energy credits eligible for transfer are listed in IRA § 6418(f)(1).