Final regulations on clean electricity tax credits GHG emissions: PwC

In detail

Statutory background

Section 45Y provides a tax credit of an applicable amount times the kilowatt/hours of clean electricity a taxpayer produces at a qualified facility in the United States and sells to an unrelated person or uses, consumes, or stores during the tax year. The applicable amount is 0.3 cents generally or 1.5 cents if a taxpayer meets prevailing wage and apprenticeship requirements or exceptions, adjusted for inflation. A qualified facility must (1) be owned by the taxpayer, (2) generate electricity, (3) be placed in service after 2024, and (4) have a GHG emissions rate not greater than zero.

The Section 48E credit generally is 6% of qualified investment in a qualified facility or energy storage technology (defined in Section 48(c)(6)), increased to 30% if a taxpayer meets prevailing wage and apprenticeship requirements or exceptions. A qualified facility (1) is used to generate electricity, (2) is subject to depreciation or amortization, (3) has a GHG emissions rate of not more than zero, (4) is placed in service after 2024, and (5) has not been allowed a credit for any tax year under Section 45, 45J, 45Q, 45U, 45Y, 45Z, 48, or 48A.

For both Sections 45Y and 48E, a qualified facility must have a GHG emissions rate not greater than zero. The GHG emissions rate is the number of grams of CO2e emitted into the atmosphere in producing electricity per kilowatt/hour of electricity produced by the facility. The GHG emissions rate for a C&G facility is the net rate of grams of CO2e per kilowatt/hour emitted into the atmosphere by the facility, taking into account lifecycle GHG emissions as defined in the Clean Air Act (42 USC 7545(o)(1)(H)). A facility’s GHG emissions rate does not include qualified carbon dioxide that a taxpayer captures and utilizes or disposes of as required under Section 45Q.

As an investment tax credit, the Section 48E credit is claimed in the tax year a facility is placed in service, but must maintain GHG emissions standards during production years. Section 48E property fails to be investment credit property, and the credit is subject to recapture, if Treasury determines that a facility’s GHG emissions rate in any tax year exceeds 10 grams of CO2e per kilowatt/hour of electricity produced.

C&G and non-C&G facilities

The proposed and final regulations define a C&G facility as a facility that produces electricity through combustion or uses an input energy source produced through a fundamental transformation of one energy source (e.g., renewable natural gas, biogas, or methane) into another using combustion or gasification to produce electricity. Gasification is a thermochemical process that converts carbon-containing materials into syngas, a gaseous mixture of primarily CO, CO2, and hydrogen.

Non-C&G facilities include wind, hydropower, marine and hydrokinetic, solar, geothermal, nuclear fission, nuclear fusion, and waste energy recovery facilities, which inherently have a zero GHG emissions rate.