Buchalter
  August 17, 2022 - Los Angeles, California

Inflation Reduction Act Incentives for Energy Sector
  by Christopher Parker

August 17, 2022

By: Gwenneth O’Hara, Nora Sheriff and Christopher Parker

President Biden signed the Inflation Reduction Act of 2022 (HR 5376) (the Act) into law on August 16, 2022. This update provides a high level overview of the Act’s incentives for the energy sector. We have published a separate update regarding the Act’s energy storage incentives.

The Act provides $750 billion for a range of issues, including $400 billion for energy and climate. The Act—a slimmed down version of the Build Back Better bill—also makes substantial policy changes. It should have an immediate effect on the wind and solar industries, as well as other energy projects. The Act contains numerous tax credits, rebates, and other incentives.

Renewable Energy

The following incentives are provided (note that the details are particularly important, because the Investment Tax Credit (ITC) and the Production Tax Credit (PTC) have additional strings attached, as well as bonuses, as further described below).

There are two significant strings attached. First, to receive the ITC or PTC, a project must pay prevailing wages during construction and the initial period of operation (first five years for the ITC, or ten years for the PTC). Second, 10-15% of the project’s labor hours must be performed by “qualified apprentices” participating in a registered program under the National Apprenticeship Act. (If either requirement is not satisfied, a project can still qualify for the full ITC or PTC by paying a penalty to the IRS.) Failure to meet these conditions will reduce the tax credit by 80%.

Bonuses are also available:

A project that qualifies for all bonuses could receive a 50% tax credit.

Energy Security and Domestic Manufacturing

The Act includes the Advanced Manufacturing Production Credit, which will be available to companies that manufacture clean energy equipment in the U.S., such as PV cells and wafers, polysilicon, solar modules, wind energy components, battery cells, battery modules, and critical minerals.

The Act provides $60 billion for domestic manufacturing of clean energy and transportation technologies, including:

Decarbonization

The Act is expected to reduce emissions in every sector of the U.S. economy. It mandates a Methane Emissions Reduction Program to reduce the leaks from the production and distribution of natural gas. It also provides tax credits and grants for clean fuels and clean commercial vehicles, including a Clean Fuel Production Credit.

Funding is projected to include:

Transportation Infrastructure and Community Investment

The Act is expected to provide over $60 billion for environmental justice initiatives relevant to companies in multiple industries, including energy and transportation. Funding under the Act includes:

Consumers

The Act will provide funding to mitigate the high cost of energy, including consumer incentives to buy electric appliances, clean vehicles, residential solar, and home energy efficiency:

Agriculture and Rural Lands

The Act also supports agriculture, forest management, and land conservation:

If you have questions regarding financial incentives under the Act, or concerns regarding regulatory changes, please contact Gwenn O'Hara, Nora Sheriff, or Christopher G. Parker, below.

Gwenneth O’Hara
Nora Sheriff
Christopher Parker


This communication is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader. For more information, visit www.buchalter.com.




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