U.S. Treasury officials have introduced guidelines outlining how non-profit organizations, tribes, and governments can benefit from subsidies in President Joe Biden’s new climate change law. These rules expand the incentives beyond large corporations and aim to accelerate the decarbonization of the U.S. economy.
The Inflation Reduction Act (IRA) provides billions of dollars in tax credits to promote the transition to a low-carbon economy. In order to facilitate project development, the law permits tax-exempt entities to receive a direct payment instead of tax credits and enables project owners to sell credits to third parties.
The recent guidance from the Treasury Department allows non-profits, tribes, local governments, and other tax-exempt entities to receive cash payments for 12 of the IRA’s tax credits. This provision, known as elective or direct pay, has been hailed as a game changer by John Podesta, the White House senior adviser for clean energy. Podesta emphasized that direct pay will facilitate the adoption of electric vehicle fleets, the installation of rooftop solar systems in schools and city buildings, and other sustainability initiatives at the local level.
The IRA includes a 30 percent credit for renewable energy facilities such as solar and wind farms, as well as credits for clean vehicles, clean fuels, hydrogen, carbon capture and storage, and clean energy equipment manufacturing.
Moreover, the law enables businesses to sell all or a portion of any of the 11 clean energy tax credits to third parties. This transferability provision, designed to assist project developers who may not have significant tax obligations, will improve their access to capital in a more convenient and affordable manner. Senior administration officials believe that this ability to transfer credits will attract more private sector investment.
While businesses can also opt for direct pay, it is limited to the advanced manufacturing, carbon capture and storage, and clean hydrogen credits, as specified by the Treasury.
The announcement on Wednesday is the latest in a series of guidelines issued by the Treasury, providing clarity on how companies can capitalize on the groundbreaking climate law.