Power & Pipes

The transportation sector has been identified as the single largest US source of greenhouse gas (GHG) emissions, and continues to be an area of focus in the nation’s decarbonization efforts. Due to heavy-duty vehicles contributing the second largest amount of GHG emissions in the transportation sector, there has been a continued focus on increasing the use and integration of zero-emission heavy-duty vehicles. Three recent government agency actions seek to promote and accelerate the use of heavy-duty zero-emission vehicles, including those powered by hydrogen fuel cell technologies.

The US Department of Treasury issued its long-awaited proposed guidance on March 31, 2023 to implement the critical mineral and battery component watershed requirements of the Inflation Reduction Act (IRA), which significantly revised the tax credit incentive mechanism of the Internal Revenue Code (Code) that relates to electric vehicles (EVs). Since the IRA’s enactment, the critical mineral and battery component requirements have generated tremendous interest and comment from virtually all segments of the automotive, mining, and component manufacturing industries.

While no one has a crystal ball for what 2023 will hold for the energy industry, the seemingly widespread support for green technology and clean energy is expected to carry through this year. In our industry outlook, “The Trends—and Traps—That Will Shape 2023,” we highlight some of the major green energy tax credit trends.

On January 1, 2023, newly constructed standalone energy storage facilities became eligible for an investment tax credit (ITC) under Section 48 of the Internal Code of 1986, as amended (Code), pursuant to provisions of the recently enacted Inflation Reduction Act (IRA). Storage facilities placed in service before 2023 generally were only eligible for an ITC when constructed as part of a combined renewable generation (typically solar) plus storage facility and the storage system was charged by the paired renewable generation system at least for the 5-year initial operating period. Storage developers and owners will now be able to take advantage of new and significant tax credit opportunities, whether or not the storage system is paired with a renewable generation energy facility.

Many people spent the last week of 2022 celebrating holidays or seeking travel adventures both far and near. However, a select group of personnel at the US Internal Revenue Service (IRS) and Department of the Treasury opted for a different path. On December 29, the IRS and Treasury issued a number of documents providing information and clarification on issues concerning tax credit eligibility for purchases of clean vehicles beginning in January 2023.

Colleagues in our tax practice have prepared a LawFlash discussing the recently released Internal Revenue Service (IRS) guidance for meeting the prevailing wage and apprenticeship (W&A) standards applicable to the investment tax credit (ITC), production tax credit (PTC), and carbon capture credit (Section 45Q), as enacted or amended by the Inflation Reduction Act (IRA).