Article By DWGP Summer Associate Poojan Thakrar - University of Minnesota Law School 2024
The Inflation Reduction Act (“IRA”), representing the largest climate investment in U.S. history, has re-energized the renewable energy industry. The IRA authorizes and appropriates hundreds of billions of dollars in new grants, loans, tax benefits, and other incentive programs for clean energy. One such new incentive is an expanded section 48C tax credit, which provides a tax credit for investments in qualifying advanced energy projects.
Qualified projects eligible for the 48C credit must (1) expand clean energy manufacturing and recycling; (2) expand critical materials refining, processing and recycling; or (3) reduce greenhouse gas emissions at industrial facilities. The base credit amount is 6% of the qualified investment and increased to 30% if prevailing wage and apprenticeship requirements are met. Projects are ineligible for 48C funding if they already qualify for the section 48E (clean electricity investment), 48 (investment tax), 48A (qualified advanced coal project), 48B (qualifying gasification project), 45Q (carbon oxide sequestration), and 45 (production) tax credits.
The section 48C tax credit was originally created in the 2009 American Recovery and Reinvestment Act with a $2.3 billion allocation. It has now been expanded by a $10 billion allocation in the IRA for the 48C tax credits, with at least $4 billion reserved for projects within Energy Communities. Energy Communities are census tracts that had a coal mine close after 1999 or a coal-fired power plant close after 2009, plus any adjoining census tracts.
Because of the finite funding, investors must apply and be approved for the tax credits. The Department of Energy and Treasury Department will accept applications in rounds, with $4 billion reserved for the first round of applications. When the 48C tax credit was first enacted, the Treasury Department received over 500 applications totaling more than $8 billion in potential investments for $2.3 billion of tax credits. Approximately 200 applications were eventually selected. Competition for the new funding is expected to be similarly fierce.
The first round of funding is currently open. The first step to apply is to submit initial concept papers, which are due July 31, 2023. Application decisions will be finalized by March 31, 2024. At least one other round will be conducted, but the timeline has not been announced.
For more information on eligibility and the application process for the section 48C tax credit, please contact Jeffrey Genzer, Keith Gordon, or Gelane Diamond.
More details about the IRS guidance on the 48C credit can be found here.
The Department of Energy’s information page about the 48C tax credit is here.
