The Inflation Production Act also makes various Production Tax Credits (commonly referred to as “PTC”) transferable, which award tax credits for different types of clean energy generated using qualified energy resources. The tax credit rate depends on various factors, and, generally, taxpayers choose between an Investment Tax Credit in Section 48(E), the different types of which are under the Investment Tax Credit Tab or a Production Tax Credit in Section 45, the various types of which are below. Two transferable tax credits – the Hydrogen Production Tax Credit and the Carbon Sequestration Tax Credit – are discussed under the Federal Direct Pay and Transferable Production Tax Credits Tab.

Renewable Electricity Production Tax Credit

This tax credit is governed by Section 45 and extends the tax credit for applicable renewable energy sources. It ends in 2024 and is replaced by the new tech-neutral Clean Electricity Production Tax Credit, discussed directly below.

Clean Electricity Production Tax Credit

This newly established tech-neutral production tax credit replaces the Renewable Electricity Production Tax Credit once it phases out at the end of 2024. The tax credit is an emissions-based incentive that is neutral and flexible between clean electricity technologies. Other tax credit features include a construction extension for geothermal, wind, closed-loop biomass, open-loop biomass, landfill gas, municipal solid waste, hydropower, and marine and hydrokinetic facilities to the land. The credit amount of 1.5 cents per kilowatt hour can receive a 10 percent bonus for meeting specific domestic manufacturing requirements for raw materials and facilities located in energy communities. The tax credit creates a credit of 1.5 cents per kilowatt hour of electricity produced, sold, or stored at facilities placed into service after 2024 with zero or harmful greenhouse gas emissions. The credit amount can be enhanced by 10 percent for projects located in energy communities, for meeting domestic manufacturing requirements, and for projects located in low-income areas (20 percent bonus for low-income economic benefit projects or on Tribal land).

Zero-Emission Nuclear Power Production Tax Credit

Section 45(U) provides a nuclear power production credit of 1.5 cents multiplied by kilowatt hours of electricity produced minus 16 percent of the facility’s gross recipients over 2.5 cents per kilowatt hour. This tax credit is unique in that it does not require new construction but also applies to facilities already in service thru 2032. Like many other tax credits, wage requirements and further details exist.

New Clean Fuel Production Tax Credit

Section 45(Z) creates a new technology-neutral two-year tax credit for low-carbon transportation fuel. The maximum tax credit award is $1 per gallon and an increase to $1.75 per gallon for sustainable aviation fuel. The emission factor is proportional to a maximum emission rate standard and calculated with the GREET Model (Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation). This widely cited full life-cycle model evaluates energy and emission impacts.

Alternative Fuel Vehicle Refueling Property Tax Credit

Section 30(C) provides a tax credit for refueling property cleanly and efficiently placed into service after 2022. The tax credit is measured at thirty percent of any qualified alternative fuel vehicle refueling property that inserts at least 85 percent of the following: ethanol, natural gas, compressed natural gas, liquified natural gas, liquefied petroleum gas, or hydrogen. Other renewable energy properties that produce biodiesel, kerosene, and electricity qualify for the tax credit.

Clean Hydrogen Production Tax Credit

Section 45(V) creates a new ten-year incentive for clean hydrogen production with a four-tiered applicable percentage structure which is gauged to the amount of greenhouse gas emission reduction. The ten-year tax credit stream begins when the facility is first placed in service, and qualified projects must begin construction by 2033. Eligibility goes beyond new construction and allows retrofit facilities to benefit as well. This incentive cannot be stacked with the Carbon Oxide Sequestration Tax Credit (discussed directly below) under Section 45(Q). In addition, under 6417(d)(1)(B) this tax credit receives a direct payment from the Internal Revenue Service in the year the property is placed in service and, thereafter, future tax credits relating to such facility can be transferred (for more information on this technical aspect please see our associated comments to the Internal Revenue Service, which can be found at our Hire the Experts Link).

Carbon Oxide Sequestration Tax Credit

The Inflation Reduction Act significantly extended Section 45(Q), which provides $85 per metric ton increased from $50 per metric ton and $180 per metric ton for carbon dioxide captured using direct air capture technology. Reductions in the tax credit amounts due to tax-exempt bond financing and a yearly threshold amount of carbon oxide must be captured for a facility to qualify for the tax credit apply; additional qualification threshold reductions also apply for direct air capture for certain electricity-generating facilities. This law also significantly delays the deadline for starting construction of facilities and carbon capture equipment from 2025 to 2032. Like the Clean Hydrogen Production Tax Credit, pursuant to 6417(d)(1)(C) this tax credit receives a direct payment from the Internal Revenue Service in the year the property is placed in service and, thereafter, future tax credits relating to such facility can be transferred (for more information on this technical aspect please see our associated comments to the Internal Revenue Service, which can be found at our Hire the Experts Link).