How to Gain Clean Energy Tax Incentives under Inflation Reduction Act

The Inflation Reduction Act (IRA) in the United States has set aside nearly $370 billion in climate and clean energy provisions. This includes a $10 billion tax incentive program known as the Advanced Energy Project Credit for companies that invest in decarbonization and other green energy projects to tackle climate change.

The clock is already ticking for companies to leverage these tax credits and funding from the U.S. government: concept papers are to be submitted between May 31 and July 31, 2023.

This blog looks at the application and approval processes needed to obtain the Advanced Energy Project Credit and how companies can find the right partner to do operations assessments and create the concept paper to maximize tax credits.

What’s This Tax Credit?

The Advanced Energy Project Credit is jointly funded by the U.S. Department of the Treasury and U.S. Department of Energy and is part of Section 48C(e) of the IRA passed in August 2022. This provides a tax credit to companies to expand manufacturing capacity in the U.S., cut greenhouse gas emissions and secure domestic supply chains for critical materials – all linked to clean energy technology production.

What Type of Projects Qualify?

It all depends on the dollars companies plan to invest in clean energy, with the potential of gaining up to 70% investment tax credit. The criteria include investing in underserved and economically distressed communities or communities facing legacy pollution.

The tax credit-eligible projects include:

1. Clean Energy Manufacturing and Recycling Projects: This requires companies to set up, expand or re-equip a facility for the production or recycling of renewable resource and energy production, energy storage, carbon capture and electric grid modernization equipment, among other efforts.
2. Greenhouse Gas Emission Reduction Projects: This requires re-equipping manufacturing facilities with equipment that cuts emissions by at least 20%. This translates into installing low-carbon process heating systems, carbon capture, transport, utilization and storage systems, and energy efficient and waste reduction industrial processes, among other technology.
3. Critical Material Projects: This would require re-equipping, expanding or setting up of a facility for the processing, refining or recycling of critical materials that will be used as input for clean energy technology projects.

How to Apply

There are four steps involved in this process.

• Identify eligible projects through data collection and assessments across the value chain.
• Submit the concept papers for each project by July 31, 2023, for the Department of Energy to evaluate and send a letter to the Internal Revenue Service (IRS) either encouraging or discouraging application for tax credit.
• IRS will then approve the 48C(e) application and allocate tax credits.
• The selected project must then be certified within two years and placed into service within two years to receive the credit.

How should you create the concept paper?

Companies need to do the following with the help of a partner to maximize credit potential:

• Align on baseline and targets to determine the current level of emissions and set a target to reduce them on a specific timeline.
• Analyze and evaluate decarbonization strategies in energy and emerging technologies as well as assess regulations and prioritize investment opportunities by evaluating feasibility.
• Develop a road map for project implementation by working with cross-functional working groups and incorporate the plan into a concept paper and submit it between May 31 and July 31.
• Concept papers should outline how the company plans to operationalize job creation, reduce air pollution through technological innovation and viability, cut energy cost across supply chain, enhance production of clean energy products and deploy in energy communities.

Download GEP’s bulletin for a detailed understanding of Advanced Energy Project Credit and how to apply for the tax incentives.