Senate Finance Committee Amends Clean Energy Tax Proposals In Better Reconciliation Bill | Vinson & Elkins LLP

In early December 11, 2021, the Senate Finance Committee released its version of the Build Back Better Act (the “Act”). Although the Senate Finance Committee version of the law largely reproduces the clean energy proposals included in the version of the law passed by the House on November 19, 2021, it does include some substantive revisions as well as legislative clean-up changes. If the Senate passes the law, as revised by the Senate Finance Committee, the revised legislation will need to be approved by the House.

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

The law would also expand and improve the carbon sequestration tax credit, create a new hydrogen production tax credit, and add a “direct payment” option for certain tax credits. In addition, the Act would expand the definition of “qualifying income” for the purposes of the listed partnership rules to include income from various activities related to renewable energy. The Act also includes a provision imposing a minimum corporate tax (generally equal to 15% of a company’s accounting income) – however, some revolving 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 law.

Article 45 Production tax credit (“PTC”)

  • Modifies the definition of “energy community” to:
    • Include brownfields (as defined in subparagraphs (A) and (B) of section 101 (39) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 USC 9601 (39));
    • Include sectors where, for the calendar year preceding the calendar year in which construction of the qualifying facility begins, at least 5% of employment in such sector was in the oil and gas sector; and
    • Exclude any area that is considered wooded land (that is to say, is either at least 10 percent seeded with trees of any size or is a designated forest heritage area (as established under section 7 of the Cooperative Forestry Assistance Act of 1978 (16 USC 2103c))).
  • Eliminates the 50% reduction in the rate of PTC for qualified hydroelectric generation and marine and hydrokinetic renewables 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 production of electricity.

Article 48 Investment tax credit (“CII”)

  • Adopts the revised definition of energy community in section 45 for the purposes of the bonus credit for energy communities.
  • Reduces ITC extension for waste energy recovery and combined heat and power system ownership from 10 years to 3 years.
  • Expands the definition of energy property to include “hydroelectric environment improvement property”. The hydropower environmental improvement property is generally a property that:
    • Adds or improves a safe and efficient fish passage compared to a qualified dam,
    • Maintains or improves the quality of water retained or discharged by a qualified dam, or
    • Promotes the downstream sediment transport process and habitat maintenance compared to a qualified dam.
  • Eliminate some criteria to be used in awarding ITC to low-income communities. The selection criteria previously took into consideration installations that would entail, among other things:
    • The greatest health and economic benefits;
    • The highest employment and wages for low-income households; Where
    • Greatest engagement with low income households, Indian tribal governments or any Alaska Native society.

Article 6417 Direct payment

  • Specifies that any payment made to a taxpayer under a direct payment election during fiscal year 2023 and beyond would be increased by 6.0455% to remedy the sequestration of government payments.
  • Specifies that direct payment applies to goods and installations commissioned after 2021.

Section 48D CII Transmission

  • Extends the termination date to construction that begins before 2032 instead of the property commissioned before 2032.

Section 40B PTC Sustainable Aviation Fuel

  • Amends certification and reporting requirements for producers to require unrelated party certification demonstrating compliance with requirements to establish lifecycle greenhouse gas emission reduction.

Section 45X Clean Hydrogen PTC

  • Renumber section 45X as section 45W.
  • Adds a rule that provides that an installation initially commissioned before 2022 that is modified to produce clean hydrogen is deemed to have been initially commissioned from the date of commissioning of the property required to make this modification .

Section 48C Advanced energy project credit

  • Adopts the revised definition of “energy community” in section 45 for the purposes of the bonus credit for eligible energy projects located in energy communities.
  • Specifies that the set-aside rules for the automotive and energy communities do not apply to unused tax credit amounts that are carried over to a subsequent year.
  • Eliminates some selection criteria related to the net impact on greenhouse gas emissions, national job creation and job creation in certain fields and gives highest priority (1) to manufacturers (as opposed to assemblers) and (2) the deployment of new applications.
  • In accordance with the provision of Section 48C of the Clean Energy for America Act, amends and expands the technologies eligible for credit to include:
    • equipment designed to refine, electrolyze or blend any fuel, chemical or renewable or low-carbon, low-emission product;
    • equipment for the production of –
      • property designed to produce energy conservation technologies;
      • light, medium or heavy electric or fuel cell vehicles, as well as the technologies, components or materials for these vehicles, and the associated recharging or refueling infrastructure; and
      • hybrid vehicles with a gross vehicle weight of at least 14,000 pounds, as well as the 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 Neutral PTC Technology

  • Renumber article 45BB to article 45AA.
  • Applies to a facility commissioned after 2026, instead of a facility that begins construction after 2026.
  • Advances the orientation deadline that the Treasury is required to publish to January 1, 2026 from January 1, 2027.
  • Adopts the revised definition of “energy community” in section 45 for the purposes of the bonus credit for eligible facilities located in energy communities.

Section 48F ITC Neutral Technology

  • Applies to the energy asset commissioned after 2026, instead of the energy asset that begins construction after 2026.
  • Advances the orientation deadline that the Treasury is required to publish to January 1, 2026 from January 1, 2027.
  • Adopts the revised definition of “energy community” in section 45 for the purposes of the bonus credit for energy goods located in energy communities.
  • Eliminate some criteria to be used in allocating ITC to low-income communities, such as section 48.
  • Clarifies that the tax credit would not apply to the credit for the production of zero-emission nuclear power under section 45V.

Section 45CC Neutral Clean Fuels PTC Technology

  • Renumber article 45CC to article 45BB.
  • Adds certification requirements for sustainable aviation fuel to establish reduction in life cycle greenhouse gas emissions.
  • Advances the orientation deadline that the Treasury is required to publish to January 1, 2026 from January 1, 2027.

Section 7704 Green Energy Listed Partnerships

  • Does not make substantial changes to previous versions of the Act that broaden the definition of “qualifying income” to include income from various renewable energy activities.

Sections 55 (b) and 56A Alternative minimum corporate tax and adjusted financial statement income

  • Specifies that a partner in a partnership is only required to take into account its distributive share of the adjusted income from the financial statements of this partnership when determining its own adjusted income from the financial statements.
  • Provides specific rules for determining the adjusted result of financial statements for defined benefit pension plans and tax-exempt entities.


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