Our previous coverage of the Act can be found here. As noted in that coverage, the Act would extend the current production and investment tax credits (albeit under a different framework) for projects beginning construction before January 1, 2027. For projects beginning construction in 2027 and beyond, the Act would create a new technology-neutral credit structure whereby taxpayers could elect a production-based or investment-based tax credit.

The Act would also extend and enhance the carbon sequestration tax credit, create a new tax credit for hydrogen production, and add a “direct pay” option for certain tax credits. In addition, the Act would expand the definition of “qualifying income” for purposes of the publicly traded partnership rules to include income derived from various renewable energy activities. The Act also includes a provision imposing a corporate minimum tax (generally equal to 15% of a corporation’s book income)—however, certain renewable credits would be available to offset this minimum tax.

The following are changes proposed by the Senate Finance Committee to the clean energy proposals included in the House version of the Act.

Section 45 Production Tax Credit (“PTC”)

• Modifies the definition of “energy community” to:
  • Include brownfield sites (as defined in subparagraphs (A) and (B) of section 101(39) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. 9601 (39));
  • Include tracts where, for the calendar year prior to the calendar year in which construction of the qualified facility begins, at least 5 percent of the employment in such tract was within the oil and gas sector; and
  • Exclude any area that is considered forested land (i.e., is either at least 10 percent stocked with trees of any size or is a designated Forest Legacy Area (as established under section 7 of the Cooperative Forestry Assistance Act of 1978 (16 U.S.C. 2103c))).
• Eliminates the 50 percent PTC rate reduction for qualified hydroelectric production and marine and hydrokinetic renewable energy and expands the definition of marine and hydrokinetic facilities to include pressurized water used in a pipeline that is operated for the distribution of water for agricultural, municipal or industrial consumption and not primarily for the generation of electricity.

Section 48 ­Investment Tax Credit (“ITC”)

• Adopts the revised energy community definition of section 45 for purposes of the bonus credit for energy communities.
• Reduces the ITC extension for waste energy recovery and combined heat and power system property from 10 years to 3 years.
• Expands the definition of energy property to include “hydropower environmental improvement property.” Hydropower environmental improvement property is generally property which:
  • Adds or improves safe and effective fish passage with respect to a qualified dam,
  • Maintains or improves the quality of water retained or released by a qualified dam, or
  • Promotes downstream sediment transport process and habitat maintenance with respect to a qualified dam.
• Eliminates certain criteria to be used in allocating low-income community bonus ITC. The selection criteria previously took into consideration which facilities would, among other things, result in:
  • The greatest health and economic benefits;
  • The greatest employment and wages for low-income households; or
  • The greatest engagement with low-income households, Indian tribal governments, or any Alaska Native Corporation.

Section 6417 Direct Pay

• Clarifies that any payment made to a taxpayer pursuant to a direct pay election in fiscal year 2023 and beyond would be grossed up by 6.0455% to address the sequestration of governmental payments.
• Clarifies that direct pay applies to property and facilities placed in service after 2021.

Section 48D Transmission ITC

• Extends the termination date to construction that begins before 2032 instead of property placed in service before 2032.

Section 40B Sustainable aviation fuel PTC

• Modifies the certification and reporting requirements for producers to require a certification from an unrelated party demonstrating compliance with the requirements to establish the lifecycle greenhouse gas emissions reduction.

Section 45X Clean Hydrogen PTC

• Renumbers Section 45X as Section 45W.
• Adds a rule that provides that a facility originally placed in service before 2022 that is modified to produce clean hydrogen is deemed to have been originally placed in service as of the date the property required to complete such modification is placed in service.

Section 48C Advanced Energy Project Credit

• Adopts the revised “energy community” definition of section 45 for purposes of the bonus credit for qualified energy projects located in energy communities.
• Clarifies that the set-aside rules for automotive and energy communities do not apply to unused tax credit amounts that are carried over to a subsequent year.
• Eliminates certain selection criteria related to the net impact on greenhouse gas emissions, domestic job creation, and job creation in certain areas and gives greatest priority to (1) manufacturers (as opposed to assemblers) and (2) new application deployment.
• Consistent with the section 48C provision in the Clean Energy for America Act, modifies and expands the technologies that qualify for the credit to include:
  • equipment designed to refine, electrolyze, or blend any fuel, chemical, or renewable or low-carbon and low-emission products;
  • equipment for the production of —
    • property designed to produce energy conservation technologies;
    • light, medium, or heavy duty electric or fuel cell vehicles, as well as technologies, components, or materials for such vehicles, and associated charging or refueling infrastructure; and
    • hybrid vehicles with a gross vehicle weight of at least 14,000 pounds, as well as technologies, components, or materials for such vehicles; and
  • projects that equip an industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20 percent.

Section 45BB Technology Neutral PTC

• Renumbers section 45BB as section 45AA.
• Applies to a facility placed in service after 2026, instead of a facility the construction of which begins after 2026.
• Moves forward the deadline for guidance the Treasury is required to issue to January 1, 2026 from January 1, 2027.
• Adopts the revised “energy community” definition of section 45 for purposes of the bonus credit for qualified facilities located in energy communities.

Section 48F Technology Neutral ITC

• Applies to energy property placed in service after 2026, instead of energy property the construction of which begins after 2026.
• Moves forward the deadline for guidance the Treasury is required to issue to January 1, 2026 from January 1, 2027.
• Adopts the revised “energy community” definition of section 45 for purposes of the bonus credit for energy property located in energy communities.
• Eliminates certain criteria to be used in allocating low-income community bonus ITC similar to section 48.
• Clarifies that the tax credit would not apply to the zero emission nuclear power production credit under section 45V.

Section 45CC Technology Neutral Clean Fuels PTC

• Renumbers section 45CC as section 45BB.
• Adds certification requirements for sustainable aviation fuel to establish the lifecycle greenhouse gas emissions reduction.
• Moves forward the deadline for guidance the Treasury is required to issue to January 1, 2026 from January 1, 2027.

Section 7704 Green Energy Publicly Traded Partnerships

• Does not make substantive changes to prior versions of the Act which expand the definition of “qualifying income” to include income derived from various renewable energy activities.

Sections 55(b) and 56A Corporate Alternative Minimum Tax and Adjusted Financial Statement Income

• Clarifies that a partner in a partnership is only required to take into account its distributive share of adjusted financial statement income of such partnership in determining its own adjusted financial statement income.
• Provides specific rules for determining adjusted financial statement income for defined benefit pensions and tax-exempt entities.