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A better Build Back Better Plan? Updated House bill continues to include substantial clean energy tax proposals

November 02, 2021

Following the White House’s release of an updated Build Back Better Plan framework on October 28, 2021, the House released a revised budget reconciliation bill totaling $1.75 trillion. Both the framework and the updated House bill include substantial tax provisions for the energy sector.

The full text of the bill and a section-by-section summary can be found here. The negotiations over a final package remain in flux and Senator Manchin has indicated that he’s not yet ready to support this House bill. Notwithstanding the uncertainty regarding what will be included in a final package, a few items in the October 28 House bill are of note:

  • Technology neutral vs. technology specific compromise: The bill includes both extensions of existing renewable power and alternative fuel energy tax credits (as previously supported by the House) and technology agnostic tax credits (as previously supported by the Senate). This appears to represent a compromise to bridge the gap between the policy difference of the two chambers regarding technology specific versus technology neutral energy tax credits.
     
  • Direct pay: The bill includes provisions allowing a cash payment option for a number of credits including those for renewable energy credits (sections 45 and 48, as well as the proposed technology neutral provisions) and the section 45Q carbon capture, utilization and storage (CCUS) credit. The bill makes explicit what had been implicit -- the fact that any such cash payment may be subject to IRS review before payment, which may delay the timeline for receipt of such cash and potentially increase controversies between taxpayers and the IRS. 
     
  • Domestic content support: The bill requires that certain domestic content requirements are satisfied to be entitled to the cash payment in lieu of tax credits. The domestic content requirement includes a phase in period during which the amount of the cash payment is first available in full, then is reduced, and finally is eliminated if the domestic content requirements are not satisfied. The bill includes exceptions to this requirement, although further guidance would be needed to comfortably rely on the exceptions. The bill further supports domestic manufacturing of renewable energy equipment through increased tax credits for certain facilities that meet domestic content thresholds, and new and renewed tax credits for facilities that manufacture renewable and alternative energy equipment. In short, the bill seeks to increase domestic manufacturing of energy equipment, but the question remains of whether the incentives are sufficient to drive large scale manufacturing of energy equipment to allow developers to satisfy Congress’ domestic manufacturing goals.
     
  • Prevailing wage and apprenticeship requirements: The bill includes a two-tier structure for certain tax credits, including renewable energy credits (sections 45 and 48, as well as the proposed technology neutral provisions) and the section 45Q CCUS credit. The full amount of the credit is available only if certain prevailing wage and apprenticeship requirements are satisfied (subject to exceptions). Notably, Congress appears to acknowledge the challenge in meeting those requirements without further guidance and this bill provides that those requirements will be treated as satisfied for any project the construction of which begins prior to or within 60 days after the IRS issues guidance regarding those requirements. In addition, the bill includes the ability to cure certain deficiencies in meeting these requirements. Similar provisions are also included elsewhere in the bill.
     
  • Continued support for CCUS: The bill extends the section 45Q CCUS credit, substantially reduces the minimum capture thresholds required for the credit, and increases certain dollar amounts of the credit.
     
  • Continued support for alternative fuel vehicles: The bill provides further support for alternative fuel vehicles, including bicycles, and related infrastructure.
     
  • Additional credits: The bill includes credits for standalone energy storage, transmission, clean hydrogen, sustainable aviation fuels, existing nuclear generation facilities, and certain other technologies. The bill also allows a section 45 PTC for solar facilities and a section 48 ITC for interconnection costs. The expansion of the credits for other technologies has been sought in prior bills and appears likely to be included in a final bill.
     
  • Support for low income communities: The bill includes the potential for increased tax credits for solar and wind facilities placed in service in low income communities and includes certain other environmental justice provisions.

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