The Biden administration rolled out the pièce de résistance of its Inflation Reduction Act tax credits on Tuesday, publishing the final rules for its overhaul of the clean energy subsidies at the heart of both the bill and United States alternative energy policy going back decades.
The final rules, which largely match proposed ones published in May, define what sources of energy are eligible for production and investment tax credits, known as 45Y and 48E — not, as before, by writing a list of qualifying energy technologies specified by Congress, but rather by lumping together all zero-emissions energy sources into one big group of winners and then letting developers choose which credit they want to use.
The tax credits cover “wind, solar, hydropower, marine and hydrokinetic, geothermal, nuclear,” according to a Treasury Department release, as well as “certain waste energy recovery property” (heat from buildings), and sets out a process for determining how combustion-dependent sources such as biogas, biomass, and natural gas derived from sources like cow manure could qualify. And unlike the tax credits they replaced, which had fixed time periods they were in effect, the tech neutral credits either begin phasing out in 2032 or when electricity sector greenhouse gas emissions are a quarter of their 2022 level, whichever comes second.
It’s not lost on anyone at Treasury or in the Biden administration that with Trump set to take office again in less than two weeks, these rules will be cast into doubt almost as soon as they’re rolled out. The administration is thus making an effort to cast the tax credits as a money-saving proposition for energy consumers — especially households — and a spur for investment across the country.
On Monday, the power market forecasting firm Aurora Energy Research released an analysis finding that scrapping certain IRA provisions, including the technology neutral credits, would “result in $336 billion less investment, 237 gigawatts less clean energy generation capacity, and at least 97,000 net fewer American jobs by 2040.” But what will likely catch the attention of policymakers is its conclusion that “consumers could see monthly household energy bills rise by an average of 10%, with states like Texas facing an increase of up to 22% compared to a scenario with continued tax credit support.”
Deputy Secretary of the Treasury Wally Adeyemo emphasized America’s energy competitiveness on a call with reporters Monday about the final rules. “The tech neutral ITC and PTC” — that is, investment tax credit and production tax credit — “will drive innovation by creating conditions for new zero-emission technologies to develop over time,” Adeyemo said. These policies together constitute an “energy moon shot,” he added, “because they reward innovation and innovative technologies developed in America to drive down energy costs while creating good paying jobs.”
Whether these arguments will convince to the Trump administration we will soon find out. While some Republicans have lined up in support of Inflation Reduction Act tax credits that have led to jobs in their districts, the incoming economic braintrust has taken a dim view of the bill, and Congress will be on the hunt for any spare dollar they can find to offset the costs of extending the 2017 Tax Cuts and Jobs Act. Trump’s incoming chair of the Council of Economic Advisors, Stephen Miran, has described the IRA, along with other Biden industrial policy initiatives like the Bipartisan Infrastructure Law and the CHIPS Act, as “tilting at windmills to boost politically favored sectors that can survive only with permanent subsidization.” Trump’s designee for the Secretary of Treasury, Scott Bessent, has said the IRA “will severely distort the supply side of the economy by crowding out investment in more productive sectors.”
While specific technologies have long been popular with specific Republicans — see “wind” and “Chuck Grassley” — lumping together the technologies along with a variety of bonuses designed to achieve Democratic policy goals around serving specific communities or workers could put the entire edifice of clean energy support at risk.
A few weeks ago, the Treasury released final rules governing the old tax credits, which were also updated under the IRA. Projects would qualify for 48E and 45Y for projects placed into service this year or later, while those that began construction before the end of the year could still qualify for the old credits. Many analysts think that even if the IRA were adjusted or repealed, an administrative process could be put in place to protect credits for projects that have already started.
In any case, in just 13 days, we’ll start getting answers, or at least putting the theories to the test.
