New/Expanded Incentives for Sustainability-Related Investments
June 1, 2023
The Inflation Reduction Act of 2022 (IRA), signed by President Biden on August 16, 2022, changed a wide range of tax laws, and includes some $369 billion in new and expanded incentives for energy efficiency, renewable and clean energy investments, fleet decarbonization, infrastructure improvements, and other sustainability-related investments. While many of the changes have gone into effect, the regulations and guidance are still unfolding.
Among the most substantial changes are the increased rates for the production and investment tax credits. The IRA utilizes a tiered credit structure with base rates and increased rates. The increased rate (up to 5x the base rate) requires the taxpayer to meet prevailing wage and apprenticeship requirements. There are also bonus credit opportunities for Internal Revenue Code (IRC) § 45 and § 45Y and IRC § 48 and § 48E credits based on the project location (in an energy community) and domestic content for the project. In addition, there are bonus credits available for smaller solar and wind facilities in low-income communities under IRC § 48(e) and § 48(h).
