Wednesday, July 24, 2024

Remarks by Assistant Secretary for Tax Policy Lily Batchelder on Phase Two of Implementation of the Inflation Reduction Act’s Clean Energy Provisions

Remarks by Assistant Secretary for Tax Policy Lily Batchelder on Phase Two of Implementation of the Inflation Reduction Act’s Clean Energy Provisions

As Prepared for Delivery

As the Deputy Secretary mentioned, we are excited to have completed Phase One of our implementation of the IRA’s clean energy credits. Our focus in Phase Two will be on boosting American manufacturing to create good-paying jobs and strengthening energy security to remove the chokepoints that hurt our ability to lower costs and meet our economic and climate goals.

To this end, one of our top priorities in our next phase of implementation is facilitating investment in the U.S. manufacturing base through guidance related to the Advanced Manufacturing Production Tax Credit, also known as Section 45X.

The Section 45X tax credit incentivizes domestic production of crucial inputs to the clean energy economy, including blades for wind turbines, wafers for solar panels, electricity inverters, batteries, and critical minerals, just to name a few. Our guidance will provide additional clarity to continue the American manufacturing investment boom driven by the Inflation Reduction Act that Wally mentioned.

We look forward to providing taxpayers with guidance on this provision before the end of the year. This incentive will build on the progress in Phase One to bolster American clean energy manufacturing and supply chains, including our launch of applications for the first round of the 48C Advanced Energy Project Credit earlier this year.

There is already significant demand for the 48C credit, which will help unlock private capital and allow existing infrastructure to be retooled for the clean energy economy, especially in coal communities.

As we announced in the spring, in the first round of the 48C program, we expect to allocate approximately $4 billion to projects that expand clean energy manufacturing and recycling, projects that expand critical materials refining, processing and recycling, and projects that reduce greenhouse gas emissions at industrial facilities. We also set aside at least $1.6 billion for projects in designated 48C energy communities with closed coal plants or mines.

Applicants have submitted concept papers to our implementation partners at the Department of Energy seeking a total of nearly $42 billion in funding across all categories of 48C projects, including nearly $11 billion for projects in 48C-designated energy communities.

These two provisions – Sections 45X and 48C – are working in concert to fuel the growth of American manufacturing, and guidance on 45X will accelerate that impact.

Our next priority for Phase 2 of implementation is strengthening American energy security and building a secure clean energy economy here at home and with our allies and partners.

Strengthening our energy security advances two goals: it lowers costs for all Americans by ensuring a resilient and affordable supply of clean energy, and it fosters American innovation in difficult-to-decarbonize sectors.

On the first goal, the Inflation Reduction Act provides American consumers and businesses with a wide-ranging and versatile set of credits that will lower energy costs and increase access to clean energy. Last month, the Department of Energy found that with the Inflation Reduction Act, American families are projected to save up to $38 billion on their electricity bills between now and the end of the decade.

In the coming months, we will release guidance for a suite of credits that will help Americans reduce their energy costs and secure reliable and affordable access to clean energy.

For example, we will soon issue guidance on the new Energy Efficient Home Credit, which empowers homebuilders to build more energy efficient homes, lowering utility bills for working families. This guidance will ensure homebuilders are meeting the most up-to-date energy efficiency standards so that new homes are not only good for the climate, but also for family budgets.

In addition, we plan to issue further guidance on the suite of credits for clean vehicles, which will reduce the impact of gas price spikes on drivers. For example, starting in 2024, consumers can choose to transfer the new clean vehicle credit of up to $7,500 and the previously-owned clean vehicle credit of up to $4,000 to a car dealer. This will effectively lower the vehicle’s purchase price by providing consumers with an upfront downpayment on their vehicle at the point of sale equal to the full value of their credit, instead of having to wait to claim the credit on their tax return the next year. We will provide additional information on registration requirements and how the mechanics of this transfer will work for dealers and taxpayers.  In addition, in the next few months, dealers will be able to register via an online IRS portal.  In January, registered dealers will be able to submit clean vehicle sales information to the IRS and promptly receive payment for transferred credits.

Another important element of our efforts to strengthen energy security while lowering costs to consumers is providing guidance on the Foreign Entity of Concern requirements in the 30D Clean Vehicle Credit. This provision goes into effect in 2024 for battery components and 2025 for critical minerals and will help ensure clean vehicles sold in the US use critical minerals and battery components that are sourced here at home or from friendly nations abroad.

We also plan to release guidance on the underlying Section 48 Investment Tax Credit, which will facilitate additional investment in American clean energy projects by providing clarity on eligibility for this credit.

The IRS and the Department of Energy will also soon begin accepting applications for the Low-Income Communities Bonus Credit program, which provides a bonus for solar and wind energy projects located in low-income communities or serving low-income households. In August, Treasury and the IRS published final rules for this provision, which will provide new opportunities to access capital, enable more projects to get off the ground, and deliver energy to underserved communities at lower cost. We aim to begin making allocation decisions by the end of this year and expect to provide guidance for the 2024 iteration of the program early next year.

As I mentioned, the second goal that strengthening our energy security advances is fostering American innovation in order to bring our hardest-to-decarbonize industries into the fold of our clean energy economy.

The clean hydrogen and sustainable aviation fuel credits are prime examples. They support the development of innovative technologies that will help us clear some of the most difficult hurdles in our clean energy transition.

Clean hydrogen has the potential to serve as a critical low-carbon fuel with a range of potential uses.

Likewise, the sustainable aviation fuel credit has the potential to scale production of such fuel and ultimately cut emissions from the difficult-to-decarbonize aviation sector.

Effective implementation of these provisions is key to achieving the Biden-Harris administration’s climate goals and charting a sustainable path for American industry. We plan to provide initial guidance on both of these credits before the end of this year.

While we cannot provide exact timing, we expect to issue guidance on several these major incentives before the end of the year. Expected near-term guidance includes the Energy Efficient Home credit and the Sustainable Aviation Fuel credit. We also anticipate releasing guidance before the end of the year on the 48 Investment Tax Credit, the 45X Advanced Manufacturing Production Tax Credit and 30D Foreign Entity of Concern provision, and the Clean Hydrogen credit.

In all of these efforts, we are working to ensure families, nonprofits, and businesses have seamless access to these credits. The Inflation Reduction Act’s incentives will not achieve their goals unless they are accessible.

Accessibility requires clear legal guidance. But it also requires customer-friendly interfaces and broad outreach. As the IRS engages in this crucial operational work ahead of filing season 2024, the need for a strong and well-resourced IRS to realize the promise of these novel credits is clear. For example, before the end of this year, the IRS will be rolling out online portals on clean vehicles, credit monetization, and, in partnership with the Department of Energy, the low-income communities bonus credit to facilitate access to these incentives.

Effective implementation of IRS modernization efforts and continued long-term funding will be essential to fully achieving our vision of a secure clean energy economy.

Finally, I should emphasize that while the plans we’ve laid out today illustrate some of our key priorities in Phase Two, this list is not exhaustive. Treasury and IRS continue to push forward on the roughly 20 clean energy provisions created or modified by the Inflation Reduction Act. For example, we are committed to continuing work on the provisions that were the focus of the first phase of guidance, such as domestic content, and we will build on our initial guidance and provide additional clarity as needed as soon as we can.

This is a critical moment. The coming months will pave the way for the next decade of investment in a secure, clean energy economy – through a revitalized manufacturing base, resilient supply chains, lower energy costs, and support for American innovation. We are honored to work in collaboration with our Administration colleagues to achieve these goals.

Thank you.


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