The power sector will play a central role in decarbonizing the U.S. economy. Other sectors such as buildings, industry, and transportation will mostly be replacing fossil fuels (e.g., natural gas, coal, and oil) with electricity (i.e., electrification) to reduce their emissions, which means the power sector in the coming years not only has to be far less carbon intensive, but also much larger.
To help realize that much larger and cleaner electric power sector, and to put the United States on track to reducing emissions 50–52 percent below 2005 levels by 2030, the Inflation Reduction Act (IRA) was passed and signed into law in August 2022. On Wednesday, the Treasury Department released proposed guidance for what are arguably the two most consequential tax credits within the IRA for clean electricity — Section 45Y Clean Electricity Production Credit (PTC) and Section 48E Clean Electricity Investment Credit (ITC).
These “tech-neutral credits” are projected to have an outsized impact on reducing emissions, particularly from the power sector. A recent study from the Rhodium Group found the tax credits could reduce greenhouse gas emissions in the power sector by about 210 to 380 million metric tons by 2030 and about 300 to 410 million metric tons by 2035. Moreover, they could add nearly 310 gigawatts of new clean electricity by 2030 and nearly 650 gigawatts by 2035, resulting in annual electricity cost savings for consumers up to $24 billion by 2030 and up to $35 billion by 2035.
The new tech-neutral tax credits represent a significant streamlining of a range of existing (e.g., wind and solar) technology-specific PTC and ITC credits in the tax code. It’s one rule replacing many rules. And, it doesn’t have a short-term expiration date as was often the case in the past. They’ll be available to any eligible facility until at least 2032, or until power sector emissions fall below 25 percent of 2022 levels. This provides greater certainty for clean project developers and technology innovators to develop and deploy clean energy at scale.
Additionally, the new tech-neutral tax credits equally reward new electricity generation with zero greenhouse gas emissions from a wider range of clean energy sources (e.g., wind, solar, nuclear, geothermal, energy storage). As long as the non-combustion electricity source produces no carbon pollution, it’s eligible for the credits. For combustion and gasification electricity technologies, emissions (and credit eligibility) will be determined based on a life-cycle analysis of the input fuel (e.g., biomass, hydrogen).
The Treasury Department is seeking public comment on a variety of issues for 60 days following publication in the Federal Register (which is scheduled for Monday, June 3, 2024). C2ES will be commenting and actively engaging on the proposed guidance. C2ES previously identified the tech-neutral tax credits as a key policy priority needed to help achieve our 2030 climate targets. To support the timely and effective implementation of these tax credits, C2ES has convened a group of companies that are leaders in their industries and working to accelerate the deployment of net-zero GHG emissions electrical generation facilities across the country. Together with C2ES, these companies have submitted proposed draft regulations for the tech-neutral tax credits. C2ES will continue to work with companies to ensure the rules will have the greatest impact on the ability to rapidly deploy zero-carbon technologies.
Clear and effective tech-neutral tax guidance will help drive large-scale clean electricity deployments. Along with recently finalized EPA power plant rules that will help pull technologies to market, these policies will put the United States on track to create a low-carbon intensity electric power sector, which will help us avoid millions of tons of carbon pollution over the coming decades and mitigate the impacts of climate change.
