On September 15, 2021, the House and Ways Committee (the “Committee”) successfully reported out of committee the tax provisions of the Build Back Better Act (the “bill”). This bill advances many of the Democratic representatives’ priorities. It does not have bipartisan support; thus the Democratic representatives are using the budget reconciliation process in an effort to enact the legislation.
President Biden has committed the U.S. to reducing carbon emissions by 50% below 2005 levels by 2030. In advancing the priorities of President Biden and his party related to climate change (discussed here and here), Subtitle G – Green Energy – of the bill includes nearly 250 pages of proposals to incentivize investment in renewable energy.
If enacted, companies across all industries – including energy, manufacturing and consumer products – will be incentivized to invest in renewable technologies and green energy projects. Additionally, the proposals include increased incentives for individuals to invest in renewable energy property in homes and vehicles.
At a high level, Subtitle G of the bill contains the following categories:
The provisions in the bill can be broken into the following types of proposals: extension of existing credits, modifications and expansions to existing credits, and creation of new credits to promote investment in new technologies and resources. Most of the credits are proposed to be extended through 2031. Additionally, the bill proposes to essentially make some of the credits refundable through a direct pay election mechanism.
For a number of the provisions, the bill proposes additional qualifications:
Along with many other revenue raisers, the bill proposes to reinstate the superfund excise tax imposed on crude oil, petroleum products and chemicals as well as increase the tax rates on tobacco products.
Refundable qualified plug-in electric drive motor vehicle credit
New refundable income tax credit for qualified plug-in electric drive motor vehicles of up to $12,500 per vehicle. For maximum credit, vehicle must be assembled in U.S. union facility and meet domestic content component parts requirement with U.S. manufactured battery cells. No credit for vehicles with MSRP exceeding certain thresholds. Credit is phased out depending on taxpayer’s AGI.
Credit for previously owned electric vehicles
New credit of up to $2,500 for buyers of used qualified plug-in electric drive vehicles. Credit is phased out depending on taxpayer’s AGI.
Electric bicycle credit
New refundable income tax credit of up to $750 for qualified electric bicycles. Credit is phased out depending on taxpayer’s AGI.
Sustainable aviation fuel credit
New refundable income and excise tax credit of up to $1.75 per gallon for producers of sustainable aviation fuel mixtures.
Zero-emission nuclear power production credit
New tax credit for production of electricity from a qualified nuclear power facility at base and bonus rates. To qualify for bonus credit rate, taxpayers must satisfy prevailing wage and apprenticeship requirements. Direct pay election allowed. Proposed effective for electricity produced and sold from 2022-2026.
Clean hydrogen production credit
New general business credit for production of clean hydrogen at a qualified facility over 10-year period. Proposed effective beginning in 2022. Election to claim ITC in lieu of PTC.
Credit for qualified commercial electric vehicles
New general business credit for qualified commercial electric vehicles placed in service by the taxpayer. Credit amount proposed at 30% of cost of vehicle. Proposed effective for vehicles acquired before 2032.
Advanced energy project credit
Allocate new funding for construction, re-equipping or expanding manufacturing facility for production of renewable energy property. Project must meet prevailing wage and apprenticeship requirements. Allocated funding of $2.5B each year through 2031. Direct pay election allowed.
Electric transmission property credit
New investment tax credit of 6% or increased rate to 30% of basis of qualified electric transmission property if prevailing wage and apprenticeship requirements are met. Proposed effective for property placed in service in 2022-2031.
Zero emissions facilities credit
New investment tax credit of 30% for qualified investment with respect to zero emissions facilities. To qualify project must satisfy prevailing wage and apprenticeship requirements. Subject to annual credit limit and placed in service deadline. Proposed effective from 2022-2026.