[Federal Register Volume 89, Number 107 (Monday, June 3, 2024)]
[Proposed Rules]
[Pages 47792-47846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11719]
[[Page 47791]]
Vol. 89
Monday,
No. 107
June 3, 2024
Part III
Department of the Treasury
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Internal Revenue Service
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26 CFR Part 1
Section 45Y Clean Electricity Production Credit and Section 48E Clean
Electricity Investment Credit; Proposed Rule
Federal Register / Vol. 89, No. 107 / Monday, June 3, 2024 / Proposed
Rules
[[Page 47792]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-119283-23]
RIN 1545-BR17
Section 45Y Clean Electricity Production Credit and Section 48E
Clean Electricity Investment Credit
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations relating to the
clean electricity production credit and the clean electricity
investment credit established by the Inflation Reduction Act of 2022.
The proposed regulations would provide rules for: determining
greenhouse gas emissions rates resulting from the production of
electricity; petitioning for provisional emissions rates; and
determining eligibility for these credits in various circumstances. The
proposed regulations would affect all taxpayers who produce clean
electricity and claim the clean electricity production credit with
respect to a facility or the clean electricity investment credit with
respect to a facility or energy storage technology, as applicable, that
is placed in service after 2024. This document also provides notice of
a public hearing on the proposed regulations.
DATES: Written or electronic comments must be received by August 2,
2024. The public hearing on these proposed regulations is scheduled to
be held on August 12, 2024, at 10 a.m. (ET) and August 13, 2024, at 10
a.m. (ET). On August 13, 2024, the public hearing will be held by
telephone only. Requests to speak and outlines of topics to be
discussed at the public hearing must be received by August 2, 2024. If
no outlines are received by August 2, 2024, the public hearing will be
cancelled.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-119283-23) by following the
online instructions for submitting comments. Once submitted to the
Federal eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:01:PR (REG-119283-23),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations,
the Office of Chief Counsel (Passthroughs and Special Industries) at
(202) 317-6853 (not a toll-free number); concerning submissions of
comments or the public hearing, Vivian Hayes at (202) 317-6901 (not a
toll-free number) or by email to [email protected] (preferred).
SUPPLEMENTARY INFORMATION:
Background
This notice of proposed rulemaking contains proposed amendments to
the Income Tax Regulations (26 CFR part 1) to implement sections 45Y
and 48E of the Internal Revenue Code (Code), which generally replace
sections 45 and 48 of the Code with respect to qualified facilities,
and for section 48E, with respect to energy storage technology, that is
placed in service after December 31, 2024.
The renewable electricity production credit determined under
section 45 of the Code (section 45 credit) is generally available for
qualified facilities described in section 45(d), which provides that
the construction of the qualified facilities must begin before January
1, 2025. Similarly, other than for geothermal heat pump equipment
(described in section 48(a)(3)(vii) \1\), the energy credit determined
under section 48 of the Code (section 48 credit), which is an
investment credit under section 46 of the Code, is generally available
for energy property the construction of which begins before January 1,
2025. Therefore, as long as construction begins on the relevant
qualified facility or energy property before January 1, 2025, a
taxpayer may be able to claim a section 45 credit or section 48 credit,
respectively, even if the taxpayer places the qualified facility or
energy property in service after December 31, 2024.
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\1\ Section 48(a)(3)(vii) includes as energy property equipment
that uses the ground or ground water as a thermal energy source to
heat a structure or as a thermal energy sink to cool a structure
(geothermal heat pump property), but only with respect to property
the construction of which begins before January 1, 2035.
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Sections 45Y and 48E were added to the Code, respectively, by
sections 13701(a) and 13702(a) of Public Law 117-169, 136 Stat. 1818,
1982 (August 16, 2022), commonly referred to as the Inflation Reduction
Act of 2022 (IRA). Section 13701(c) of the IRA provides that the clean
electricity production credit determined under section 45Y (section 45Y
credit) applies to facilities placed in service after December 31,
2024. Similarly, section 13702(c) of the IRA provides that the clean
electricity investment credit determined under section 48E (section 48E
credit) applies to property placed in service after December 31, 2024.
Thus, in some cases, if a taxpayer places in service a qualified
facility or energy property after 2024, the construction of which
begins before 2025, the qualified facility or energy property may be
eligible for more than one of the credits determined under section 45,
45Y, 48, or 48E, although a taxpayer can only claim one of these
credits with respect to such qualified facility or energy property.
Accordingly, a taxpayer must choose which one of these credits to claim
with respect to such qualified facility or energy property. Once the
taxpayer has claimed one of these credits with respect to a qualified
facility or an energy property, the taxpayer cannot claim any other of
these credits with respect to the same qualified facility or energy
property.
I. Overview of Section 45Y
Section 45Y(a)(1) provides that for purposes of the general
business credit under section 38 of the Code, the section 45Y credit
for any taxable year is an amount equal to the product of the kilowatt
hours (kWh) of eligible electricity produced by the taxpayer at a
qualified facility, multiplied by the applicable amount with respect to
such qualified facility. For this purpose, eligible electricity is
electricity that is either (1) sold by the taxpayer to an unrelated
person during the taxable year or (2) in the case of a qualified
facility that is equipped with a metering device that is owned and
operated by an unrelated person, sold, consumed, or stored by the
taxpayer during the taxable year.
A. Amount of Credit
For purposes of the applicable amount used in calculating the
section 45Y credit, section 45Y(a)(2) provides a base amount and a
higher alternative amount. Section 45Y(a)(2)(A) provides that the
applicable amount will be the base amount of 0.3 cents in the case of a
qualified facility that does not satisfy the requirements for the
higher alternative amount. Section 45Y(a)(2)(B) provides that the
alternative amount of 1.5 cents applies in the case of any qualified
facility (1) with a maximum net output of less than 1 megawatt (as
measured in alternating current), (2) the construction of which begins
prior to the date that is 60 days after the Secretary of the Treasury
or her delegate
[[Page 47793]]
(Secretary) publishes guidance on the requirements of section 45Y(g)(9)
(wage requirements) and section 45Y(g)(10) (apprenticeship
requirements),\2\ or (3) that satisfies section 45Y(g)(9) and, with
respect to the construction of such facility, satisfies section
45Y(g)(10).
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\2\ To meet this requirement, the construction of the qualified
facility must begin prior to January 29, 2023. See proposed Sec.
1.45Y-3 as proposed in the notice of proposed rulemaking (REG-
100908-23) published in the Federal Register (88 FR 60018) on August
30, 2023, and corrected at 88 FR 73807 on October 27, 2023.
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Section 45Y(c)(1) provides for an inflation adjustment for both the
base and alternative amounts. Section 45Y(c)(1) provides that in the
case of a calendar year beginning after 2024, the 0.3 cent amount in
section 45Y(a)(2)(A) and the 1.5 cent amount in section 45Y(a)(2)(B)
will each be adjusted by multiplying such amount by the inflation
adjustment factor for the calendar year in which the sale, consumption,
or storage of the electricity occurs. Section 45Y(c)(1) also addresses
the rounding rules to be applied to this computation. Section 45Y(c)(2)
provides that the Secretary will, not later than April 1 of each
calendar year, determine and publish in the Federal Register the
inflation adjustment factor for such calendar year in accordance with
section 45Y(c).
Section 45Y(g)(7) provides for an increase in the section 45Y
credit amount for any qualified facility located in an energy
community, and section 45Y(g)(11) provides for an increase in the
section 45Y credit amount if the domestic content bonus requirement is
satisfied.
Section 45Y(g)(7) provides that in the case of any qualified
facility that is located in an energy community (as defined in section
45(b)(11)(B)), for purposes of determining the amount of the credit
under section 45Y(a) with respect to any electricity produced by the
taxpayer at such facility during the taxable year, the applicable
amount under section 45Y(a)(2) will be increased by an amount equal to
10 percent of the amount otherwise in effect under such paragraph.
Section 45Y(g)(11) provides that in the case of any qualified
facility that satisfies the domestic content bonus requirement under
section 45Y(g)(11)(B)(i), the amount of the credit determined under
section 45Y(a) will be increased by an amount equal to 10 percent of
the amount so determined (as determined without application of section
45Y(g)(7)). Section 45Y(g)(11)(B)(i) generally provides that the
domestic content bonus requirement is satisfied with respect to any
qualified facility if the taxpayer certifies to the Secretary (at such
time, and in such form and manner, as the Secretary may prescribe) that
any steel, iron, or manufactured product that is a component of such
facility (upon completion of construction) was produced in the United
States (as determined under section 661 of title 49, Code of Federal
Regulations). Section 45Y(g)(11)(B)(iii) provides that for purposes of
the domestic content bonus requirement, the manufactured products that
are components of a qualified facility upon completion of construction
will be deemed to have been produced in the United States if not less
than the adjusted percentage (as determined under section
45Y(g)(11)(C)) of the total cost of all such manufactured products of
such facility are attributable to manufactured products (including
components) that are mined, produced, or manufactured in the United
States.
B. Qualified Facility
Section 45Y(b) provides guidance on the meaning of a qualified
facility for purposes of section 45Y. Subject to section 45Y(b)(1)(B)
through (D), section 45Y(b)(1)(A) defines a qualified facility to mean
a facility owned by the taxpayer that is used for the generation of
electricity, that is placed in service after December 31, 2024, and for
which the greenhouse gas emissions rate (as determined under section
45Y(b)(2)) is not greater than zero.
Section 45Y(b)(1)(B) provides that for purposes of section 45Y, a
facility will only be treated as a qualified facility during the 10-
year period beginning on the date the facility was originally placed in
service.
Section 45Y(b)(1)(C) provides that a qualified facility will
include a new unit or any additions of capacity that are placed in
service after December 31, 2024, if in connection with a facility
described in section 45Y(b)(1)(A) (without regard to section
45Y(b)(1)(A)(ii) describing the requirement that the facility be placed
in service after December 31, 2024) that was placed in service before
January 1, 2025, but only to the extent of the increased amount of
electricity produced at the facility due to the new unit or addition of
capacity.
Section 45Y(b)(1)(D) provides that a qualified facility will not
include any facility for which a credit determined under section 45,
45J, 45Q, 45U, 48, 48A, or 48E of the Code is allowed under section 38
for the taxable year or any prior taxable year.
Section 45Y(b)(2) describes the greenhouse gas emissions rate
referenced in section 45Y(b)(1)(A)(iii). Section 45Y(b)(2)(A) defines
greenhouse gas emissions rate for purposes of section 45Y to mean the
amount of greenhouse gases emitted into the atmosphere by a facility in
the production of electricity, expressed as grams of CO2e
per kWh. Section 45Y(e)(1) defines CO2e per kWh for purposes
of section 45Y to mean, with respect to any greenhouse gas, the
equivalent carbon dioxide (as determined based on global warming
potential) per kWh of electricity produced. Section 45Y(e)(2) defines
greenhouse gas for purposes of section 45Y to have the same meaning
given such term under section 211(o)(1)(G) of the Clean Air Act (CAA)
(42 U.S.C. 7545(o)(1)(G)) as in effect on August 16, 2022.
Section 45Y(b)(2)(B) provides that in the case of a facility that
produces electricity through combustion or gasification, the greenhouse
gas emissions rate (GHG emissions rate) for such facility is equal to
the net rate of greenhouse gases emitted into the atmosphere by such
facility (taking into account lifecycle greenhouse gas emissions, as
described in section 211(o)(1)(H) of the CAA (42 U.S.C. 7545(o)(1)(H)))
in the production of electricity, expressed as grams of CO2e
per kWh.
Section 45Y(b)(2)(C) provides for the establishment of GHG
emissions rates for facilities either through the publication of
emissions rates described in section 45Y(b)(2)(C)(i) or a provisional
emissions rate as described in section 45Y(b)(2)(C)(ii). Section
45Y(b)(2)(C)(i) states that the Secretary will annually publish a table
that sets forth the GHG emissions rates for types or categories of
facilities, that a taxpayer will use for purposes of section 45Y.
Section 45Y(b)(2)(C)(ii) provides that in the case of any facility for
which a GHG emissions rate has not been established by the Secretary, a
taxpayer that owns such facility may file a petition with the Secretary
for determination of the GHG emissions rate with respect to such
facility.
Section 45Y(b)(2)(D) provides that for purposes of section 45Y(b)
the amount of greenhouse gases emitted into the atmosphere by a
facility in the production of electricity cannot include any qualified
carbon dioxide that is captured by the taxpayer and either (1) disposed
of by the taxpayer in secure geological storage pursuant to any
regulations established under section 45Q(f)(2), or (2) utilized by the
taxpayer in a manner described in section 45Q(f)(5). Section 45Y(e)(3)
defines qualified carbon dioxide for purposes of
[[Page 47794]]
section 45Y to mean carbon dioxide captured from an industrial source
that would otherwise be released into the atmosphere as industrial
emission of greenhouse gas, is measured at the source of capture and
verified at the point of disposal or utilization, and is captured and
disposed or utilized within the United States (within the meaning of
section 638(1) of the Code) or a United States territory, which for
purposes of section 45Y and the section 45Y regulations has the meaning
of the term ``possession'' of the United States (within the meaning of
section 638(2)).
C. Credit Phase-Out
Section 45Y(d) describes the credit phase-out. Section 45Y(d)(1)
provides generally that the amount of the clean electricity production
credit under section 45Y(a) for any qualified facility the construction
of which begins during a calendar year described in section 45Y(d)(2)
is equal to the product of the amount of the credit determined under
section 45Y(a) without regard to section 45Y(d), multiplied by the
phase-out percentage under section 45Y(d)(2). Section 45Y(d)(2)
provides that the phase-out percentage is 100 percent for a facility
the construction of which begins during the first calendar year
following the applicable year; 75 percent for a facility the
construction of which begins during the second calendar year following
the applicable year; 50 percent for a facility the construction of
which begins during the third calendar year following the applicable
year; and 0 percent for a facility the construction of which begins
during any calendar year subsequent to the calendar year described in
section 45Y(d)(2)(C). Section 45Y(d)(3) defines the ``applicable year''
for purposes of section 45Y(d) to mean the later of the calendar year
in which the Secretary determines that the annual greenhouse gas
emissions from the production of electricity in the United States are
equal to or less than 25 percent of the annual greenhouse gas emissions
from the production of electricity in the United States for calendar
year 2022, or 2032.
D. Special Rules
Section 45Y(g) provides special rules for section 45Y. Section
45Y(g)(1) provides that consumption, sales, or storage is taken into
account under section 45Y only with respect to electricity the
production of which is within the United States (within the meaning of
section 638(1)), or a United States territory, which for purposes of
section 45Y and the section 45Y regulations has the meaning of the term
``possession'' of the United States (within the meaning of section
638(2)).
Section 45Y(g)(2) provides a rule for combined heat and power
system (CHP) property. For purposes of section 45Y(a), section
45Y(g)(2)(A) generally provides that the kWh of electricity produced by
a taxpayer at a qualified facility will include any production in the
form of useful thermal energy by any CHP property within such facility,
and the amount of greenhouse gases emitted into the atmosphere by such
facility in the production of such useful thermal energy will be
included for purposes of determining the GHG emissions rate for such
facility. Section 45Y(g)(2)(B) defines CHP property for purposes of
section 45Y(g)(2) to have the same meaning given such term by section
48(c)(3) (without regard to section 48(c)(3)(A)(iv), (B), and (D)
thereof). Section 45Y(g)(2)(C) provides the necessary conversion from
BTU to kWh for a taxpayer to calculate a section 45Y credit for useful
thermal energy produced by a CHP property.
Section 45Y(g)(3) provides that in the case of a qualified facility
in which more than one person has an ownership interest, except to the
extent provided in regulations prescribed by the Secretary, production
from the facility will be allocated among such persons in proportion to
their respective ownership interests in the gross sales from such
facility.
Section 45Y(g)(4) provides that persons will be treated as related
to each other if such persons would be treated as a single employer
under the regulations prescribed under section 52(b). In the case of a
corporation that is a member of an affiliated group of corporations
filing a consolidated return, such corporation will be treated as
selling electricity to an unrelated person if such electricity is sold
to such a person by another member of such group.
Section 45Y(g)(5) provides that under regulations prescribed by the
Secretary, rules similar to the rules of section 52(d) will apply to a
pass-thru in the case of estates and trusts.
Section 45Y(g)(6) provides for the allocation of the credit to
patrons of an agricultural cooperative.
Section 45Y(g)(8) provides that rules similar to the rules of
section 45(b)(3) will apply to a credit reduced for tax-exempt bonds.
Section 45Y(g)(9) provides that rules similar to the rules of
section 45(b)(7) apply with respect to wage requirements. Section
45Y(g)(10) provides rules similar to the rules of section 45(b)(8)
apply with respect to apprenticeship requirements.
II. Overview of Section 48E
For purposes of the general business credit under section 38, which
includes the investment credit under section 46, section 48E(a)(1)
provides a credit for any taxable year in which a qualified investment
is made with respect to any qualified facility and any energy storage
technology (EST).
A. Amount of Credit
The amount of the section 48E credit is equal to the applicable
percentage of the qualified investment in any qualified facility and
any EST. Section 48(E)(a)(2) provides a base rate and a higher
alternative rate for the applicable percentage. Section 48E(a)(2)(A)(i)
provides that in the case of a qualified facility that does not satisfy
the requirements for the higher alternative rate, the base rate will be
6 percent. Section 48E(a)(2)(A)(ii) provides that the alternative rate
of 30 percent applies in the case of any qualified facility (1) with a
maximum net output of less than 1 megawatt (as measured in alternating
current), (2) the construction of which begins prior to the date that
is 60 days after the Secretary publishes guidance on the prevailing
wage requirements of section 48E(d)(3) and the apprenticeship
requirements of section 48E(d)(4),\3\ or (3) that satisfies the
prevailing wage requirements of section 48E(d)(3) and, with respect to
the construction of such facility, satisfies the apprenticeship
requirements of section 48E(d)(4).
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\3\ To meet this requirement, the construction of the qualified
facility must begin prior to January 29, 2023. See proposed Sec.
1.48E-3 as proposed in the notice of proposed rulemaking (REG-
100908-23) published in the Federal Register (88 FR 60018) on August
30, 2023, and corrected at 88 FR 73807 on October 27, 2023.
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Similarly, section 48E(a)(2)(B)(ii) provides that the alternative
rate of 30 percent applies in the case of an EST (1) with a capacity of
less than 1 megawatt, (2) the construction of which begins prior to the
date that is 60 days after the Secretary publishes guidance on the
requirements of section 48E(d)(3) and (4) \4\ (prevailing wage and
apprenticeship requirements, respectively), or (3) that satisfies
section 48E(d)(3) and with respect to the construction of such EST,
satisfies section 48E(d)(4). Section 48E(a)(2)(B)(i) provides that in
the case of an EST that does not satisfy the requirements for the
[[Page 47795]]
alternative rate, the base rate will be 6 percent.
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\4\ To meet this requirement, the construction of the EST must
begin prior to January 29, 2023. See proposed Sec. 1.48E-3 as
proposed in the notice of proposed rulemaking (REG-100908-23)
published in the Federal Register at 88 FR 60018 on August 30, 2023,
and corrected at 88 FR 73807 on October 27, 2023.
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Section 48E(a)(3)(A) provides for an increase in credit rate for a
qualified facility or EST located in an energy community (as defined in
section 45(b)(11)(B)) and section 48E(a)(3)(B) similarly provides for
an increase in credit rate for a qualified facility or EST that meets
the domestic content bonus requirements.
B. Qualified Investment With Respect to a Qualified Facility
Section 48E(b) describes a qualified investment with respect to a
qualified facility. Generally, for purposes of section 48E(a), section
48E(b)(1)(A) and (B)(i) provide that the qualified investment with
respect to a qualified facility for any taxable year is the sum of the
basis of any qualified property placed in service by the taxpayer
during such taxable year that is part of a qualified facility, plus the
amount of expenditures that are paid or incurred by the taxpayer for
qualified interconnection property that is properly chargeable to
capital account of the taxpayer.
Section 48E(b)(2) provides that for purposes of section 48E,
qualified property means property that is tangible personal property,
or other tangible property (not including a building or its structural
components), but only if such property is used as an integral part of
the qualified facility; with respect to which depreciation (or
amortization in lieu of depreciation) is allowable; and the
construction, reconstruction, or erection of which is completed by the
taxpayer, or that is acquired by the taxpayer provided the original use
of such property commences with the taxpayer.
Section 48E(b)(1)(B)(i)(I) and (II) provide that qualified
interconnection property must be in connection with a qualified
facility that has a maximum net output of not greater than 5 megawatts
(as measured in alternating current) and be placed in service during
the taxable year of the taxpayer. Section 48E(b)(4) provides that the
term ``qualified interconnection property'' has the meaning given such
term in section 48(a)(8)(B).
Section 48E(b)(3)(A) provides that for purposes of section 48E, the
term ``qualified facility'' means a facility that is used for the
generation of electricity, which is placed in service after December
31, 2024, and for which the anticipated GHG emissions rate (as
determined under section 48E(b)(3)(B)(ii)) is not greater than zero.
Section 48E(b)(3)(B) provides additional rules for a qualified
facility. Section 48E(b)(3)(B)(i) provides rules on an expansion of
facility and incremental production stating that rules similar to the
rules of section 45Y(b)(1)(C) apply for purposes of section 48E(b)(3).
Section 48E(b)(3)(B)(ii) provides rules to determine the GHG emissions
rate of a qualified facility by stating that rules similar to the rules
of section 45Y(b)(2) apply for purposes of section 48E(b)(3).
Section 48E(b)(3)(C) provides that a qualified facility will not
include any facility for which a renewable electricity production
credit determined under section 45, an advanced nuclear power facility
production credit determined under section 45J, a carbon oxide
sequestration credit determined under section 45Q, a zero-emission
nuclear power production credit determined under section 45U, a clean
electricity production credit determined under section 45Y, an energy
credit determined under section 48, or a qualifying advanced coal
project credit under section 48A, is allowed under section 38 for the
taxable year or any prior taxable year. Section 48E(b)(5) provides a
rule for coordination with the rehabilitation credit stating that the
qualified investment with respect to any qualified facility for any
taxable year will not include that portion of the basis of any property
that is attributable to qualified rehabilitation expenditures (as
defined in section 47(c)(2) of the Code).
Section 48E(b)(6) provides that for purposes of section 48E(b), the
terms ``CO2e per kWh'' and ``greenhouse gas emissions rate''
have the same meaning given such terms under section 45Y. Section
48E(f) provides that, in section 48E, the term ``greenhouse gas'' has
the same meaning given such term under section 45Y(e)(2).
C. Qualified Investment With Respect to an Energy Storage Technology
Section 48E(c) describes a qualified investment with respect to
EST. For purposes of section 48E(a), section 48E(c)(1) provides that
the qualified investment with respect to EST for any taxable year is
the basis of any EST placed in service by the taxpayer during such
taxable year. Section 48E(c)(2) provides that for purposes of section
48E, the term ``energy storage technology'' has the meaning given such
term in section 48(c)(6) (except that section 48(c)(6)(D) will not
apply). Section 48(c)(6)(A)(i) defines ``energy storage technology'' to
mean property (other than property primarily used in the transportation
of goods or individuals and not for the production of electricity) that
receives, stores, and delivers energy for conversion to electricity
(or, in the case of hydrogen, which stores energy), and has a nameplate
capacity of not less than 5 kWh. Section 48(c)(6)(A)(ii) provides that
the term ``energy storage technology'' also includes thermal energy
storage property. Section 48(c)(6)(B) describes a rule for
modifications of certain property.
Section 48(c)(6)(C)(i) defines ``thermal energy storage property''
to mean for purposes of section 48(c)(6), subject to section
48(c)(6)(C)(ii), property comprising a system that is directly
connected to a heating, ventilation, or air conditioning system,
removes heat from, or adds heat to, a storage medium for subsequent
use, and provides energy for the heating or cooling of the interior of
a residential or commercial building. Section 48(c)(6)(C)(ii) describes
the exclusion that thermal energy storage property will not include a
swimming pool, combined heat and power system property, or a building
or its structural components.
Section 48E(d) provides special rules for section 48E, all of which
refer to other provisions. Section 48E(d)(1) provides a rule for
qualified progress expenditures, stating that rules similar to the
rules of former section 46(c)(4) and (d) (as in effect on the day
before the date of the enactment of the Revenue Reconciliation Act of
1990) apply for purposes of section 48E(a).\5\ Section 48E(d)(2)
provides a special rule for property financed by subsidized energy
financing or private activity bonds, stating that rules similar to the
rules of section 45(b)(3) apply. Section 48E(d)(3) provides a rule for
prevailing wage requirements, stating that rules similar to the rules
of section 48(a)(10) apply. Likewise, section 48E(d)(4) provides a rule
for apprenticeship requirements stating that rules similar to the rules
of section 45(b)(8) apply. Lastly, section 48E(d)(5) provides a rule
for the domestic content requirement for elective payment stating that
in the case of a taxpayer making an election under section 6417 with
respect to a credit under section 48E, rules similar to the rules of
section 45Y(g)(12) apply.
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\5\ The rules provided by Sec. 1.46-5 related to qualified
progress expenditures apply for purposes of section 48E(a).
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D. Credit Phase-Out
Section 48E(e) describes the credit phase-out. Section 48E(e)(1)
provides generally that the amount of the clean electricity investment
credit under section 48E(a) for any qualified investment with respect
to any qualified facility or EST the construction of which begins
during a calendar year described in section 48E(e)(2) is equal to
[[Page 47796]]
the product of the amount of the credit determined under section 48E(a)
without regard to section 48E(e), multiplied by the phase-out
percentage under section 48E(e)(2). Section 48E(e)(2) provides that the
phase-out percentage is 100 percent for any qualified investment with
respect to any qualified facility or EST the construction of which
begins during the first calendar year following the applicable year; 75
percent for any qualified investment with respect to any qualified
facility or EST the construction of which begins during the second
calendar year following the applicable year; 50 percent for any
qualified investment with respect to any qualified facility or EST the
construction of which begins during the third calendar year following
the applicable year; and 0 percent for any qualified investment with
respect to any qualified facility or EST the construction of which
begins during any calendar year subsequent to the calendar year
described in section 48E(e)(2)(C). Section 48E(e)(3) defines the
``applicable year'' for purposes of section 48E(e) to have the same
meaning given such term in section 45Y(d)(3).
E. Recapture Rules
For purposes of the recapture rules under section 50(a), section
48E(g) provides a special recapture rule applicable to qualified
facilities. Specifically, section 48E(g) provides that, for purposes of
section 50, if the Secretary determines that the GHG emissions rate for
a qualified facility is greater than 10 grams of CO2e per
kWh, any property for which a credit was allowed under section 48E with
respect to such facility ceases to be investment credit property in the
taxable year in which the determination is made.
III. Notice 2022-49
On October 24, 2022, the Treasury Department and the IRS published
Notice 2022-49, 2022-43 I.R.B. 321. The notice requested general
comments on issues arising under sections 45Y and 48E, as well as on
issues relating to three other credits. For section 45Y, the notice
specifically requested comments concerning (1) industry standards for
taxpayer eligibility for the credit, (2) what the Treasury Department
and the IRS should consider, including around the scope and factors,
for the annual GHG emissions rate table, (3) whether guidance is needed
to clarify cases in which a metering device is owned and operated by an
unrelated person or in which electricity produced at such a qualified
facility with such a device is sold, consumed or stored by the
taxpayer, and (4) what procedures the Treasury Department and the IRS
should provide for a taxpayer whose facility does not have an emissions
rate established by the annual rate table, and what should the
Secretary consider in making such a determination. For section 48E, the
notice specifically requested comments concerning what industry
mechanisms currently exist for a taxpayer to demonstrate eligibility
for the credit.
The Treasury Department and the IRS received over 100 comments
specifically addressing sections 45Y and 48E from industry participants
and other stakeholders. The Treasury Department and the IRS appreciate
the commentors' interest and engagement on these issues. These comments
have been carefully considered in the preparation of these proposed
regulations.
IV. Prior Guidance
On August 30, 2023, the Treasury Department and the IRS published a
notice of proposed rulemaking and a notice of public hearing (REG-
100908-23) in the Federal Register (88 FR 60018), providing guidance on
the prevailing wage and registered apprenticeship (PWA) requirements
under sections 45, 45Y, 48, 48E and several other sections of the Code
(August Proposed Regulations). The August Proposed Regulations also
proposed guidance on the one-megawatt exception under sections 45, 45Y,
48, and 48E (One-Megawatt Exception). Under this exception, with
respect to certain facilities with a maximum net output (or capacity
for energy storage technology under section 48E) of less than one
megawatt, increased credit amounts are available.
On November 22, 2023, the Treasury Department and the IRS published
a notice of proposed rulemaking and a notice of public hearing (REG-
132569-17) in the Federal Register (88 FR 82188), providing guidance
under section 48 of the Code. Among other matters, the proposed
regulations under section 48 (Section 48 Proposed Regulations) withdrew
and reproposed the regulations in Sec. 1.48-13 from the August
Proposed Regulations regarding the PWA requirements under section 48,
the One-Megawatt Exception under section 48(a)(9)(B)(i), and the
recapture rules under section 48(a)(10)(C).
Explanation of Provisions
I. Rules Applicable to the Clean Electricity Production Tax Credit
The proposed regulations under section 45Y are organized in five
sections, proposed Sec. Sec. 1.45Y-1 through 1.45Y-5 (section 45Y
regulations). Proposed Sec. 1.45Y-1 would provide an overview of the
section 45Y regulations, generally applicable definitions, and general
rules applicable to section 45Y, including a rule for calculating the
credit for a CHP property. Proposed Sec. 1.45Y-2 would provide rules
relating to qualified facilities for purposes of the section 45Y
credit. Section 1.45Y-3 is reserved for rules relating to the increased
credit amount for meeting the prevailing wage and apprenticeship
requirements. A cross reference will be added to Sec. 1.45Y-3 in the
final regulations after Sec. 1.45Y-3 is finalized. Proposed Sec.
1.45Y-4 would provide the rules of general application under section
45Y, including rules that attribute production to the taxpayer, rules
for the expansion of a facility and incremental production, and rules
for retrofits of an existing facility. Proposed Sec. 1.45Y-5 would
provide rules pertaining to the determination of a GHG emissions rate
for a facility under section 45Y.
A. Amount of Credit
Proposed Sec. 1.45Y-1 would provide an overview of the section 45Y
regulations and definitions of terms for purposes of the section 45Y
regulations, including the terms ``combined heat and power system (CHP)
property,'' ``metering device,'' ``related person,'' ``unrelated
person,'' and ``qualified facility.''
Proposed Sec. 1.45Y-1(a)(5)(i) would define, for purposes of
section 45Y(a)(1)(A)(ii)(II), the term ``metering device'' as equipment
that is owned and operated by an unrelated person (as defined in
paragraph (a)(11) of this section) for energy revenue metering to
measure and register the continuous summation of an electricity
quantity with respect to time. Further, proposed Sec. 1.45Y-
1(a)(5)(ii) would provide standards for maintaining and operating a
metering device for purposes of section 45Y(a)(1)(A)(ii)(II) and
proposed Sec. 1.45Y-1(a)(5) by requiring a metering device to be
maintained in proper working order according to the instructions of its
manufacturer. Proposed Sec. 1.45Y-1(a)(5)(ii) would also provide that
a metering device should meet the requirements of the American National
Standards Institute C12.1-2022 standard, or subsequent revisions, be
revenue grade with a +/-0.5% accuracy, and be properly calibrated.
Proposed Sec. 1.45Y-1(a)(5)(iii) would provide that for purposes of
monitoring the metering device, the unrelated person may share network
equipment, such as spare fiber optic cable owned by the taxpayer that
produces the electricity, and may co-locate network
[[Page 47797]]
equipment in the taxpayer's facilities. Proposed Sec. 1.45Y-
1(a)(5)(iv) would provide examples illustrating the proposed rules
provided by proposed Sec. 1.45Y-1(a)(5).
Proposed Sec. 1.45Y-1(a)(7)(i) would provide that for purposes of
section 45Y(a), the term ``related person'' means a person who is
related to another person if such person would be treated as a single
employer under the regulations in 26 CFR chapter 1 under section 52(b)
of the Code. Proposed Sec. 1.45Y-1(a)(7)(ii) would provide that in the
case of a corporation that is a member of a consolidated group (as
defined in Sec. 1.1502-1(h)), such corporation will be treated as
selling electricity to an unrelated person if such electricity is sold
to an unrelated person by another member of such group.
Proposed Sec. 1.45Y-1(a)(11) would provide that for purposes of
section 45Y(a), the term ``unrelated person'' means a person who is not
a related person as defined in section 45Y(g)(4) and proposed Sec.
1.45Y-1(a)(7). In the case of sales of electricity to an individual
consumer, such sales will be treated as sales to an unrelated party for
purposes of the section 45Y credit. Proposed Sec. 1.45Y-1(a)(11)
provides an example illustrating the application of these rules.
Proposed Sec. 1.45Y-1(b)(1) would describe the calculation of the
section 45Y credit, providing that the credit is an amount equal to the
product of the kWh of electricity that is produced by the taxpayer at a
qualified facility (as defined in proposed Sec. 1.45Y-2(a)) and sold
by the taxpayer to an unrelated person during the taxable year,
multiplied by the applicable amount (as described in proposed Sec.
1.45Y-1(b)) with respect to such qualified facility. Proposed Sec.
1.45Y-1(b)(1) would further provide that in the case of a qualified
facility that is equipped with a metering device that is owned and
operated by an unrelated person, the section 45Y credit for any taxable
year is an amount equal to the product of the kWh of electricity that
is both produced at the qualified facility (as defined in proposed
Sec. 1.45Y-2(a)) and sold, consumed, or stored by the taxpayer during
the taxable year, multiplied by the applicable amount with respect to
such qualified facility. Proposed Sec. 1.45Y-1(b)(1) would also
provide that only one section 45Y credit may be claimed for each kWh of
electricity produced by the taxpayer at a qualified facility.
Proposed Sec. 1.45Y-1(b)(2)(i) would define the applicable amount
as the base amount described in Sec. 1.45Y-1(b)(2)(ii) or the
alternative amount described in Sec. 1.45Y-1(b)(2)(iii). Proposed
Sec. 1.45Y-1(b)(2)(i) would further provide that the applicable amount
is subject to the inflation adjustment as provided in section 45Y(c)(1)
and proposed Sec. 1.45Y-1(b)(3), and that the applicable amount may
also be increased as provided in section 45Y(g)(7)) and proposed Sec.
1.45Y-1(b)(4), in the case of a qualified facility that is located in
an energy community. Proposed Sec. 1.45Y-1(b)(2)(ii) would describe
the base amount as 0.3 cents in the case of any qualified facility that
does not satisfy the requirements provided in section 45Y(a)(2)(B).
Proposed Sec. 1.45Y-1(b)(2)(iii) would describe the alternative amount
as 1.5 cents if prevailing wage and apprenticeship requirements are
satisfied as provided in section 45Y(a)(2)(B).
Proposed Sec. 1.45Y-1(b)(3) would provide the rules related to the
inflation adjustment factor applicable to the section 45Y credit.
Proposed Sec. 1.45Y-1(b)(4) would provide the rules applicable to the
energy communities increase in credit. Proposed Sec. 1.45Y-1(b)(5)
would provide the domestic content bonus credit amount.
Proposed Sec. 1.45Y-1(c) would provide the credit phase-out rules.
Generally, proposed Sec. 1.45Y-1(c)(1) would provide that the amount
of the clean electricity production credit under section 45Y(a) for any
qualified facility the construction of which begins during a calendar
year described in section 45Y(d)(2) is equal to the product of the
amount of the credit determined under section 45Y(a) without regard to
the credit phaseout rules of section 45Y(d) (credit phase-out),
multiplied by the phase-out percentage provided in section 45Y(d)(2).
Proposed Sec. 1.45Y-1(c)(2) would provide that the phase-out
percentage is 100 percent for a facility the construction of which
begins during the first calendar year following the applicable year; 75
percent for a facility the construction of which begins during the
second calendar year following the applicable year; 50 percent for a
facility the construction of which begins during the third calendar
year following the applicable year; and 0 percent for a facility the
construction of which begins during any calendar year subsequent to the
calendar year described in section 45Y(d)(2)(C).
Proposed Sec. 1.45Y-1(c)(3) would define the ``applicable year''
for purposes of proposed Sec. 1.45Y-1(c) to mean the later of the
calendar year in which the Secretary makes the determination that the
annual greenhouse gas emissions from the production of electricity in
the United States are equal to or less than 25 percent of the annual
greenhouse gas emissions from the production of electricity in the
United States for calendar year 2022, or 2032. Proposed Sec. 1.45Y-
1(c)(4) would provide that, for the purposes of determining the
applicable year, the annual greenhouse gas emissions from the
production of electricity in the United States for any year must be
assessed separately using both the Energy Information Administration's
(EIA) Electric Power Annual, using the sum of the annual carbon dioxide
emissions data from conventional power plants and combined heat and
power plants as currently listed in Table 9.1 and the Monthly Energy
Review annual carbon dioxide emissions from the combustion of biomass
to produce electricity in the electric power sector as currently listed
in Table 11.7, and the U.S. Environmental Protection Agency (EPA)
Inventory of U.S. Greenhouse Gas Emissions and Sinks (GHGI) annual
electric power-related carbon dioxide, methane, and nitrous oxide
emissions data including carbon dioxide emissions from the combustion
of biomass to produce electricity. In the most current version of the
GHGI, annual fossil and biogenic CO2 from electricity
production in the electric power sector is available in Table 2-11 and
Tables 3-120 and 3-122, respectively; and CH4 and
N2O from electricity production in the electric power sector
is available in Table 3-8 and Table 3-9, respectively. Based on current
and publicly available data in the 2024 GHGI, the estimate for 2022 GHG
emissions associated with the production of electricity is 1,613
million metric tons (MMT) CO2e. Currently, explicit data on
industrial and commercial sector GHG emissions from the production of
electricity is not disaggregated from overall sectoral totals. See
GHGI, https://www.epa.gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks.
For 2022, the EIA Electric Power Annual states that the annual
carbon dioxide emissions from conventional power plants and combined
heat and power plants are 1,650 MMT, and the Monthly Energy Review
annual carbon dioxide emissions from the combustion of biomass to
produce electricity in the electric power sector are 35 MMT. Thus, the
EIA's data reflects a total of 1,685 MMT in 2022. See EIA Electric
Power Annual (https://www.eia.gov/electricity/annual); MER (https://eia.gov/totalenergy/monthly/).
Proposed Sec. 1.45Y-1(c)(5) would provide that, for the purposes
of determining the applicable year, the Secretary will make such
determination only if the annual greenhouse gas emissions from the
production of
[[Page 47798]]
electricity in the United States, as determined separately under both
of the data sources described in proposed Sec. 1.45Y-1(c)(4), for the
year is equal to or less than 25 percent of the annual greenhouse gas
emissions from the production of electricity in the United States for
calendar year 2022. Proposed Sec. 1.45Y-1(c)(5) would provide that if
a data source described in proposed Sec. 1.45Y-1(c)(4) becomes
unavailable (for example, it is no longer published or it does not
provide the specified data), the Secretary must designate a similar
data source to replace the unavailable data source. Requiring the
applicable year to be determined using data from the EIA's Electric
Power Annual and Monthly Energy Review and the EPA's GHGI ensures that
this important determination is made transparently and based on
reliable information. Both well-established data sources are
representative of the annual greenhouse gas emissions from the
production of electricity in the United States, but there are slight
differences in the greenhouse gases and the emissions sources covered
by each data source.
There are other United States Government greenhouse gas datasets
that could serve as the basis for the Secretary's determination as to
whether the annual greenhouse gas emissions from the production of
electricity in the United States are equal to or less than 25 percent
compared to 2022. Two such datasets are the EPA Greenhouse Gas
Reporting Program (GHGRP) and Emissions & Generation Resource
Integrated Database (eGRID). The Treasury Department and the IRS
request comment on which datasets are most appropriate to determine the
applicable year and why.
Proposed Sec. 1.45Y-1(d) would provide requirements for CHP
property and special rules for calculating the section 45Y credit for
CHP property. Proposed Sec. 1.45Y-1(d)(1) would provide that CHP
property must produce at least 20 percent of its total useful energy in
the form of thermal energy that is not used to produce electrical or
mechanical power (or combination thereof), and at least 20 percent of
its total useful energy in the form of electrical or mechanical power
(or combination thereof). Proposed Sec. 1.45Y-1(d)(1) would further
provide that the energy efficiency percentage of CHP property must
exceed 60 percent, and that these percentages are determined on a
British thermal unit (Btu) basis. Section 45Y(g)(2)(B) incorporates
these requirements by providing that the term ``combined heat and power
system property'' has the same meaning given such term by section
48(c)(3) (without regard to section 48(c)(3)(A)(iv), (B), and (D)).
Proposed Sec. 1.45Y-1(d)(2) would describe the energy efficiency
percentage of a CHP property stating that it is the fraction the
numerator of which is the total useful electrical, thermal, and
mechanical power produced by the system at normal operating rates, and
expected to be consumed in its normal application, and the denominator
of which is the lower heating value of the fuel sources for the system,
which is a measure of heat content based on the net energy content of a
combustible fuel.
Proposed Sec. 1.45Y-1(d)(3) would provide a special rule for
calculating electricity produced by CHP property. For purposes of
section 45Y(a) and proposed Sec. 1.45Y-1(b), the kWh of electricity
produced by a taxpayer at a qualified facility will include any
production in the form of useful thermal energy by any CHP property
within such facility, and the amount of greenhouse gases emitted into
the atmosphere by such facility in the production of such useful
thermal energy will be included for purposes of determining the GHG
emissions rate for such facility.
Proposed Sec. 1.45Y-1(d)(3)(ii)(A) would provide a conversion from
Btu to kWh. Proposed Sec. 1.45Y-1(d)(3)(ii))(A) would provide that for
purposes of section 45Y(g)(2)(A)(i) and Sec. 1.45Y-1(d)(3), the amount
of kWh of electricity produced in the form of useful thermal energy is
equal to the quotient of the total useful thermal energy produced by
the CHP property within the qualified facility, divided by the heat
rate for such facility.
Proposed Sec. 1.45Y-1(d)(3)(ii)(B) would define the term ``heat
rate'' to mean the amount of energy used by the qualified facility to
generate 1 kWh of electricity, expressed as Btus per net kWh generated.
In calculating the heat rate of a qualified facility that includes CHP
property that uses combustion, a taxpayer must use the annual average
heat rate, defined as the total annual fuel consumption of the CHP
property (in Btus, using the lower heating value of the fuel) during
the taxable year for which the section 45Y credit is claimed, divided
by the annual net electricity generation (in kWh) of the CHP property
during such taxable year.
Section 45Y(g)(2), by cross reference to section 48(c)(3), requires
that the energy efficiency percentage of the CHP property must exceed
60 percent, calculated as (1) the total useful electrical, thermal, and
mechanical power produced by the system at normal operating rates, and
expected to be consumed in its normal application, divided by (2) the
lower heating value (LHV) of the fuel sources for the system. The LHV
is calculated based on combustion. Some CHP property may not involve
combustion, such as nuclear cogeneration. In these scenarios, because
there is no calculable LHV, the energy efficiency percentage of the CHP
property cannot be determined using the calculation provided in the
statute.
The Treasury Department and the IRS request comments regarding the
application of the energy efficiency percentage requirements to CHP
property for which there is no combustion. Relatedly, comment is
requested on whether the existing definition of heat rate provided in
section 45Y(g)(2)(C)(ii) for purposes of calculating the section 45Y
credit for CHP property that does not use combustion should be
clarified.
B. Qualified Facility
Proposed Sec. 1.45Y-2(a) would define a ``qualified facility'' to
mean a facility owned by the taxpayer and used for the generation of
electricity, that is placed in service after December 31, 2024, and has
a GHG emissions rate of not greater than zero (as determined under
rules provided in proposed Sec. 1.45Y-5).
1. Property Included in Qualified Facility
Proposed Sec. 1.45Y-2(b) would provide a description of the
property included in a qualified facility. Proposed Sec. 1.45Y-2(b)(1)
would provide that a qualified facility includes a unit of qualified
facility (as defined in proposed Sec. 1.45Y-2(b)(2)(i)) that meets the
requirements of proposed Sec. 1.45Y-2(b)(2)(ii). Proposed Sec. 1.45Y-
2(b)(1) would provide that a qualified facility also includes qualified
property owned by the taxpayer that is an integral part of a qualified
facility (as defined in proposed Sec. 1.45Y-2(b)(3)). Section 45Y is
silent regarding the credit eligibility of components that are part of
a qualified facility but located in different locations. Proposed Sec.
1.45Y-2(b)(1) would clarify that any property that meets the
requirements of a qualified facility described in proposed Sec. 1.45Y-
2(b) is part of a qualified facility, regardless of where such property
is located. Proposed Sec. 1.45Y-2(b)(1) would provide that a qualified
facility also generally does not include equipment that is an addition
or modification to an existing qualified facility, however, proposed
Sec. 1.45Y-2(b)(1) would reference proposed Sec. 1.45Y-4(c) for rules
regarding the expansion of a facility or incremental production and
proposed Sec. 1.45Y-4(d) for rules regarding a retrofitted qualified
facility (80/20 Rule).
[[Page 47799]]
2. Unit of Qualified Facility
Proposed Sec. 1.45Y-2(b)(2)(i) would provide that for purposes of
the section 45Y credit, the unit of qualified facility includes all
functionally interdependent components of property (as defined in
proposed Sec. 1.45Y-2(b)(2)(ii)) owned by the taxpayer that are
operated together and that can operate apart from other property to
produce electricity. Proposed Sec. 1.45Y-2(b)(2)(i) would clarify that
no provision of proposed Sec. 1.45Y-1, or proposed Sec. 1.45Y-4
through Sec. 1.45Y-5 uses the term ``unit'' in respect of a qualified
facility with any meaning other than that provided in proposed Sec.
1.45Y-2(b)(2)(i). A reference to Sec. 1.45Y-3 will also be added to
the previous sentence in proposed Sec. 1.45Y-2(b)(2)(i) when proposed
Sec. 1.45Y-2(b)(2)(i) is finalized, but it cannot be added until Sec.
1.45Y-3 is finalized.
Proposed Sec. 1.45Y-2(b)(2)(ii) would provide that components are
functionally interdependent if placing in service each component is
dependent upon placing in service other components to produce
electricity. See the discussion in section I.A. of the Explanation of
Provisions regarding the special rule for CHP property.
3. Integral Part
Proposed Sec. 1.45Y-2(b)(3)(i) would provide that for purposes of
thesection 45Ycredit, a component of property owned by a taxpayer is an
integral part of a facility if it is used directly in the intended
function of the qualified facility and is essential to the completeness
of such function.
Proposed Sec. 1.45Y-2(b)(3)(ii) would provide that components of
property that are an integral part of a qualified facility include
power conditioning equipment and transfer equipment. Proposed Sec.
1.45Y-2(b)(3)(ii) would provide that power conditioning equipment
includes equipment that modifies the characteristics of electricity
into a form suitable for use or transmission or distribution. Proposed
Sec. 1.45Y-2(b)(3)(ii) would provide that parts related to the
functioning or protection of power conditioning equipment are also
treated as power conditioning equipment and includes examples.
Proposed Sec. 1.45Y-2(b)(3)(ii) would provide that transfer
equipment includes components that permit the aggregation of
electricity generated by components of qualified facilities and
components that alter voltage in order to permit transfer to a
transmission or distribution line. Proposed Sec. 1.45Y-2(b)(3)(ii)
would also clarify that transfer equipment does not include
transmission or distribution lines. Proposed Sec. 1.45Y-2(b)(3)(ii)
would provide that examples of transfer equipment include, but are not
limited to, wires, cables, and combiner boxes that conduct electricity.
Proposed Sec. 1.45Y-2(b)(3)(ii) would provide that parts related to
the functioning or protection of transfer equipment are also treated as
transfer equipment and include examples.
Proposed Sec. 1.45Y-2(b)(3)(iii) would provide that roads that are
an integral part of a qualified facility are those roads integral to
the intended function of the qualified facility, such as onsite roads
that are used to operate and maintain the qualified facility. Proposed
Sec. 1.45Y-2(b)(3)(iii) would also clarify that roads used primarily
for access to the site, or roads used primarily for employee or visitor
vehicles, are not integral to the intended function of the qualified
facility and thus are not an integral part of a qualified facility.
Proposed Sec. 1.45Y-2(b)(3)(iv) and (v) would also provide that
fences and buildings (also referred to as structures) are generally not
integral parts of a qualified facility because they are not integral to
the intended function of the qualified facility. However, a building
(or structure) may be an integral part of a qualified facility if it is
essentially an item of machinery or equipment and a structure that
houses components of property that are integral to the intended
function of the qualified facility if the use of the structure is so
closely related to the use of the housed components of property therein
that the structure clearly can be expected to be replaced if the
components of property it initially houses are replaced.
Proposed Sec. 1.45Y-2(b)(3)(vi) would provide a rule for shared
integral property by stating that multiple qualified facilities
(whether owned directly by one or more taxpayers), including qualified
facilities with respect to which a taxpayer has claimed a credit under
section 45Y or section 48E, may include shared property that can be
considered an integral part of each qualified facility. Proposed Sec.
1.45Y-2(b)(3)(vi) would also provide that a component of property that
is shared by a qualified facility (as defined in section 45Y(b)) (45Y
Qualified Facility) and a qualified facility (as defined in section
48E(b)(3)) (48E Qualified Facility) that is an integral part of both
qualified facilities will not affect the eligibility of the section 45Y
Qualified Facility to claim the section 45Y credit or the section 48E
Qualified Facility to claim a section 48E credit. Proposed Sec. 1.45Y-
2(b)(3)(vii) would provide examples illustrating proposed Sec. 1.45Y-
2(b)(3).
4. Coordination With Other Credits
Proposed Sec. 1.45Y-2(c)(1) would provide that the term
``qualified facility'' (as defined in section 45Y(b)) will not include
any facility for which a credit determined under section 45, 45J, 45Q,
45U, 48, 48A, or 48E is allowed under section 38 of the Code for the
taxable year or any prior taxable year. Proposed Sec. 1.45Y-2(c)(1)
would further clarify that a taxpayer that directly owns a qualified
facility (as defined in section 45Y(b)) that is eligible for both a
section 45Y credit and another Federal income tax credit is eligible
for the section 45Y credit only if the other Federal income tax credit
was not allowed with respect to the qualified facility. Proposed Sec.
1.45Y-2(c)(1) would also add that nothing in Sec. 1.45Y-2(c) precludes
a taxpayer from claiming a section 45Y credit with respect to a
qualified facility (as defined in section 45Y(b)) that is co-located
with another facility for which a credit determined under section 45,
45J, 45Q, 45U, 48, 48A, or 48E is allowed under section 38 for the
taxable year or any prior taxable year. Proposed Sec. 1.45Y-2(c)(2)
would clarify that for purposes of proposed Sec. 1.45Y-2(c)(1), the
term ``allowed'' only includes credits that taxpayers have claimed on a
Federal income tax return or Federal return, as appropriate, and that
the IRS has not challenged in terms of the taxpayer's eligibility.
Proposed Sec. 1.45Y-2(c)(3) includes several examples illustrating the
rules of Sec. 1.45Y-2(c).
C. Rules of General Application to Section 45Y
1. Only Production in the United States Taken Into Account
Proposed Sec. 1.45Y-4(a) would provide that consumption, sales, or
storage of electricity are taken into account for purposes of the
section 45Y credit only with respect to electricity produced within the
United States (as defined in section 638(1)), or a United States
territory, which for purposes of section 45Y and the section 45Y
regulations has the meaning of the term ``possession'' of the United
States (as defined in section 638(2)).
2. Production Attributable to the Taxpayer and Section 761(a) Elections
Proposed Sec. 1.45Y-4(b)(1) would provide that in the case of a
qualified facility in which more than one person has an ownership share
(and such arrangement is not treated as a partnership for Federal tax
purposes), production from the qualified facility is
[[Page 47800]]
allocated among such persons in proportion to their respective
ownership share in the gross sales from such qualified facility during
the taxable year. The respective owners each determine their respective
section 45Y credit under section 45Y(a) based on their respective
ownership shares in the gross sales from such qualified facility.
Proposed Sec. 1.45Y-4(b)(2) would provide an example demonstrating the
application of this rule.
Proposed Sec. 1.45Y-4(b)(3) would provide that if a qualified
facility is owned through an unincorporated organization that has made
a valid election under section 761(a) of the Code, each member's
undivided ownership share in the qualified facility will be treated as
a separate qualified facility owned by such member.
3. Expansion of Facility; Incremental Production
Proposed Sec. 1.45Y-4(c)(1) would provide, solely for purposes of
proposed Sec. 1.45Y-4(c), that the term ``qualified facility''
includes either a new unit or an addition of capacity placed in service
after December 31, 2024, in connection with a facility described in
section 45Y(b)(1)(A) (without regard to clause (ii) of such paragraph),
which was placed in service before January 1, 2025, but only to the
extent of the increased amount of electricity produced at the facility
by reason of such new unit or addition of capacity. Proposed Sec.
1.45Y-4(c)(1) would also provide that a new unit or an addition of
capacity will be treated as a separate qualified facility. Proposed
Sec. 1.45Y-4(c)(1) would provide for purposes of proposed Sec. 1.45Y-
4(c), that a new unit or an addition of capacity require the addition
or replacement of components of property, including any new or
replacement integral property, added to a facility necessary to
increase capacity. If applicable for purposes of proposed Sec. 1.45Y-
4(c), taxpayers must use modified or amended facility operating
licenses or the International Standard Organization (ISO) conditions to
measure the maximum electrical generating output of a facility to
determine its nameplate capacity. Additionally, proposed Sec. 1.45Y-
4(c)(1) would provide that for purposes of section 45Y(a)(2)(B)(i)
(that is, the One-Megawatt Exception), the capacity for a new unit or
an addition of capacity is the sum of the nameplate capacity of the
added qualified facility and the nameplate capacity of the facility to
which the qualified facility was added.
Proposed Sec. 1.45Y-4(c)(2) would provide that solely for purposes
of Sec. 1.45Y-4(c), a facility that is decommissioned or in the
process of decommissioning and restarts can be considered to have
increased capacity if the following conditions are met: (1) the
existing facility must have ceased operations; (2) the existing
facility must have a shutdown period of at least one calendar year
during which it is without a valid operating license from its
respective Federal regulatory authority (that is, the Federal Energy
Regulatory Commission (FERC) or the Nuclear Regulatory Commission
(NRC)); and (3) the increased capacity of the restarted facility must
have a new, reinstated, or renewed operating license issued by either
FERC or NRC.
Proposed Sec. 1.45Y-4(c)(3) would describe how to compute the
increased amount of electricity produced as a result of a new unit or
an addition of capacity. Proposed Sec. 1.45Y-4(c)(3) would provide
that to determine the increased amount of electricity produced by a
facility by reason of a new unit or an addition of capacity, a taxpayer
must multiply the amount of electricity that the facility produces
during a taxable year after the new unit or addition of capacity is
placed in service by a fraction, the numerator of which is the added
nameplate capacity that results from the new unit or addition of
capacity, and the denominator of which is the total nameplate capacity
of the facility with the new unit or addition of capacity added.
Proposed Sec. 1.45Y-4(c)(4) would illustrate the application of
these rules to determine the increased amount of electricity
attributable to a new unit or an addition of capacity described in
Sec. 1.45Y-4(c).
4. Retrofit of an Existing Facility (80/20 Rule)
Proposed Sec. 1.45Y-4(d)(1) would provide that for purposes of
section 45Y(b)(1)(B), a facility may qualify as originally placed in
service even if it contains some used components of property within the
unit of qualified facility, provided the fair market value of the used
components of the unit of qualified facility is not more than 20
percent of the total value of the unit of qualified facility (that is,
the cost of the new components of property plus the fair market value
of the used components of property within the unit of qualified
facility) (80/20 Rule). Proposed Sec. 1.45Y-4(d)(1) would further
provide that if a facility satisfies the requirements of the 80/20
Rule, then the date on which such qualified facility is considered
originally placed in service for purposes of section 45Y(B)(1)(b) is
the date on which the new components of property of the unit of
qualified facility are placed in service. Proposed Sec. 1.45Y-4(d)(2)
would provide that, for purposes of this 80/20 Rule, the cost of new
components of the unit of qualified facility includes all costs
properly included in the depreciable basis of the new components of
property. Lastly, proposed Sec. 1.45Y-4(d)(3) would provide examples
demonstrating the 80/20 Rule.
D. Greenhouse Gas Emissions Rates
Section 45Y(b)(2) provides rules for determining GHG emissions
rates. Proposed Sec. 1.45Y-5(a) would provide an overview of the rules
pertaining to GHG emissions rates for facilities under section 45Y.
1. Definitions Related to Greenhouse Gas Emissions Rates
Proposed Sec. 1.45Y-5(b) would provide definitions of terms
relevant to determining GHG emissions rates. Section 45Y(e)(1) defines
the term ``CO2e per kWh'' as, with respect to any greenhouse
gas, the equivalent carbon dioxide (as determined based on global
warming potential) per kWh of electricity produced. Proposed Sec.
1.45Y-5(b)(1) would clarify that the term ``CO2e per kWh''
means with respect to any greenhouse gas, the equivalent carbon dioxide
(as determined based on the 100-year time horizon global warming
potential (GWP-100)) per kWh of electricity produced. Proposed Sec.
1.45Y-5(b)(1) would also provide global warming potentials for certain
greenhouse gases from the Intergovernmental Panel on Climate Change's
Fifth Assessment Report (AR5).
Proposed Sec. 1.45Y-5(b)(8) would provide that the term ``fuel''
means material directly used to produce electricity or energy inputs
that are used to produce electricity. Proposed Sec. 1.45Y-5(b)(9)
would provide that the term ``feedstock'' means any raw material used
in a process for electricity generation or to produce an intermediate
product or finished fuel used for electricity generation.
Section 45Y(b)(2)(B) provides rules for determining a GHG emissions
rate for a facility that produces electricity through combustion or
gasification. Proposed Sec. 1.45Y-5(b)(2) would provide that the term
``combustion'' means a rapid exothermic chemical reaction, specifically
the oxidation of a fuel, which liberates energy including heat and
light. This proposed definition of ``combustion'' would include, for
example, burning fossil fuels, but it would not include the reaction
that produces electricity inside a fuel cell.
[[Page 47801]]
Gasification produces fuel but not electricity. Proposed Sec.
1.45Y-5(b)(3) would provide that the term ``gasification'' means a
thermochemical process that converts carbon-containing materials into
syngas, a gaseous mixture that is composed primarily of carbon
monoxide, carbon dioxide, and hydrogen. Because gasification does not
produce electricity, the inclusion of the term ``gasification'' as a
category separate from ``combustion'' in section 45Y(b)(2)(B) would
have no independent significance unless it is interpreted as applying
to the production of an energy source that is ultimately used by the
facility to generate electricity (for example, syngas used to make
electricity). Thus, proposed Sec. 1.45Y-5(b)(4) would interpret the
phrase ``facility which produces electricity through combustion or
gasification'' in section 45Y(b)(2)(B) as applying to facilities that
produce electricity through combustion or use an input energy source to
produce electricity, which energy source was produced through a
fundamental transformation, or multiple transformations, of one energy
source into another using combustion or gasification. The Treasury
Department and the IRS request comment on this proposed interpretation,
including whether the application of this proposed interpretation
should be clarified with respect to any type of fundamental
transformation of an energy source and any related activities or
operations. Comment is also requested on supply chain tracing
requirements that the Treasury Department and the IRS may apply to
verify whether or not a feedstock or fuel (including energy inputs)
used by a facility to produce electricity was produced using combustion
or gasification.
Section 45Y(b)(2)(B) provides that in the case of electricity
produced through combustion or gasification, the GHG emissions rate for
such facility is equal to the net rate of greenhouse gases emitted into
the atmosphere by such facility (taking into account lifecycle
greenhouse gas emissions, as described in section 211(o)(1)(H) of the
CAA (42 U.S.C. 7545(o)(1)(H)) in the production of electricity.
Proposed Sec. 1.45Y-5(b)(4) would provide that a ``facility that
produces electricity through combustion or gasification'' (C&G
Facility) means a facility that produces electricity through combustion
or uses an input energy source to produce electricity, if the input
energy source was produced through a fundamental transformation, or
multiple transformations, of one energy source into another using
combustion or gasification. Under proposed Sec. 1.45Y-5(b)(4), a
facility that produces electricity using any fuel that was produced
using electricity that had been produced, in whole or in part, from the
combustion of fossil fuels would be considered a C&G Facility. For
example, a hydrogen fuel cell would be considered a C&G Facility if it
produced electricity using hydrogen that was produced by an
electrolyzer powered, in whole or in part, by electricity from the grid
because some of the electricity from the grid was produced through
combustion or gasification. A fuel cell facility such as a solid oxide
fuel cell, which uses methane as fuel, would be considered a C&G
Facility, because the methane reforming reaction that produces syngas
within the fuel cell prior to the production of electricity would be
considered a gasification reaction. In contrast, a hydrogen fuel cell
facility using hydrogen produced exclusively using electricity from a
new solar array or wind farm co-located with the hydrogen fuel cell
facility would not be considered a C&G Facility, because the input
energy source was not produced through a transformation of one energy
source into another using combustion or gasification.
The Treasury Department and the IRS request comment on whether the
proposed definitions of gasification, combustion, and C&G Facility
would result in certain types of fuel cells that use fossil or biogenic
fuel inputs (via combustion or gasification) to produce electricity
being unable to demonstrate a net rate of greenhouse gas emissions that
is not greater than zero with a lifecycle analysis because they are not
classified as a C&G Facility as defined in proposed Sec. 1.45Y-
5(b)(4). Because the energy transformation that produces electricity in
a fuel cell would not be considered combustion under the definition in
proposed Sec. 1.45Y-5(b)(2), a fuel cell facility would only qualify
as a C&G Facility if the fuel it used to produce electricity was
produced through combustion or gasification under these proposed
regulations.
Proposed Sec. 1.45Y-5(b)(7) would provide that a ``Non-C&G
Facility'' means a facility that produces electricity and is not
described in proposed Sec. 1.45Y-5(b)(4).
Proposed Sec. 1.45Y-5(b)(5) would provide that, consistent with
section 45Y(b)(2)(A), the term ``greenhouse gas emissions rate'' means
the amount of greenhouse gases emitted into the atmosphere by a
facility in the production of electricity, expressed as grams of
CO2e per kWh.
Proposed Sec. 1.45Y-5(b)(6) would provide that, for the purposes
of section 45Y(b)(2)(A), for both C&G Facilities and Non-C&G
Facilities, the term ``greenhouse gases emitted into the atmosphere by
a facility in the production of electricity'' means emissions from a
facility that directly occur from the process that transforms the input
energy source into electricity. Proposed Sec. 1.45Y-5(b)(6)(i) through
Sec. 1.45Y-5(b)(6)(vi) would exclude emissions that may relate to a
facility but do not occur ``in the production of electricity'' as
specified in section 45Y(b)(2)(A). Proposed Sec. 1.45Y-5(c)(1) would
provide, for Non-C&G Facilities only, additional types of excluded
emissions under section 45Y(b)(2)(A). Proposed Sec. 1.45Y-5(d)(2)
would provide, for C&G Facilities only, that additional rules on
included and excluded emissions apply in order to conduct a lifecycle
analysis as required by section 45Y(b)(2)(B).
Proposed Sec. 1.45Y-5(b)(6)(i) through Sec. 1.45Y-5(b)(6)(vi)
would clarify that for the purposes of both Non-C&G and C&G Facilities
this definition excludes: (1) emissions from back-up generators that
are primarily used in maintaining critical systems in case of a power
system outage or for supporting restart of a generator after an outage;
(2) emissions from routine operational and maintenance activities that
are integral to the production of electricity, including, but not
limited to, emissions from internal combustion vehicles used to access
and perform maintenance on remote electricity generating facilities or
emissions occurring from heating and cooling control rooms or dispatch
centers; (3) emissions from a step-up transformer that conditions the
electricity into a form suitable for productive use or sale; (4)
emissions that occur before commercial operations commence or after
commercial operations terminate, including, but not limited to, on-site
emissions occurring from construction or manufacturing of the facility
itself, emissions from the off-site manufacturing of facility
components, or emissions occurring due to siting or decommissioning;
(5) emissions from infrastructure associated with the facility,
including, but not limited to, emissions from road construction for
feedstock production; and (6) emissions from the distribution of
electricity to consumers.
2. Greenhouse Gas Emissions Rates for Non-C&G Facilities
Proposed Sec. 1.45Y-5(c) would provide the rules for determining a
GHG emissions rate for Non-C&G Facilities, including by the Secretary
when
[[Page 47802]]
publishing a table described in section 45Y(b)(2)(C)(i) or determining
an emissions rate as provided in section 45Y(b)(2)(C)(ii). Proposed
Sec. 1.45Y-5(c)(1) would provide that GHG emissions rates for Non-C&G
Facilities must be determined under proposed Sec. 1.45Y-5(c) and (e).
In addition, proposed Sec. 1.45Y-5(c)(1)(i) would provide that, with
respect to Non-C&G Facilities only, greenhouse gases emitted into the
atmosphere by a facility in the production of electricity excludes
emissions of greenhouse gases that are not directly produced by the
fundamental transformation of the input energy source into electricity,
including, but not limited to, the following: (1) emissions from
hydropower reservoirs due to anoxic conditions; (2) ebullitive,
diffuse, and degassing emissions from hydropower operations; (3)
emissions of non-condensable gases from underground reservoirs during
geothermal operations; (4) emissions from a step-up transformer that
conditions the electricity into a form suitable for productive use or
sale; and (5) emissions occurring due to activities and operations
occurring off-site, including but not limited to, the production and
transportation of fuels used by the facility, or land use change from
siting or changes in demand. Proposed Sec. 1.45Y-5(c)(1)(i) would thus
exclude emissions that may relate to a Non-C&G Facility but do not
occur ``in the production of electricity'' as specified in section
45Y(b)(2)(A) because such emissions do not arise directly from the
transformation of the input energy source into electricity. For
example, emissions from land use change from siting or changes in
demand would be excluded because such emissions do not occur ``in the
production of electricity'' for Non-C&G Facilities under section
45Y(b)(2)(A), but this exclusion does not apply to C&G Facilities
because section 45Y(b)(2)(B) requires a broader standard for assessing
GHG emissions than section 45Y(b)(2)(A).
Proposed Sec. 1.45Y-5(c)(1)(ii) would provide that, subject to
proposed Sec. 1.45Y-5(b)(6) and (c)(1), a GHG emissions rate for a
Non-C&G Facility must be determined through a technical and engineering
assessment of the fundamental energy transformation into electricity,
and that such assessment must consider all input and output energy
carriers and chemical reactions or mechanical processes taking place at
the facility in the production of electricity. Proposed Sec. 1.45Y-
5(c)(1)(iii) would provide an example of a GHG emissions rate
determination for a Non-C&G Facility.
Proposed Sec. 1.45Y-5(c)(2) would identify certain types or
categories of facilities that are categorically Non-C&G Facilities with
a GHG emissions rate that is not greater than zero. Proposed Sec.
1.45Y-5(c)(2)(i) through (viii) would provide that these include wind
facilities (including small wind properties), hydropower facilities
(including retrofits adding power production to non-powered dams,
conduit hydropower, hydropower using new impoundments, and hydropower
using diversions such as a penstock or channel), marine and
hydrokinetic facilities, solar facilities (including photovoltaic and
concentrating solar power), geothermal facilities (including flash and
binary plants), nuclear fission facilities, nuclear fusion facilities,
and waste energy recovery property (WERP) that derives energy from any
of the energy sources described in proposed Sec. 1.45Y-5(c)(2)(i)
through (vii) (including geothermal or solar waste heat recovery such
as from a district geothermal heating system, and waste heat recovery
such as from a nuclear reactor dedicated to heat production for an
industrial facility).
WERP is property that generates electricity solely from heat from
buildings or equipment if the primary purpose of such building or
equipment is not the generation of electricity. Examples of buildings
or equipment the primary purpose of which is not the generation of
electricity include, but are not limited to, manufacturing plants,
medical care facilities, facilities on school campuses, pipeline
compressor stations, and associated equipment. The Treasury Department
and the IRS request comment on whether this definition of WERP is
appropriate. Comment is further requested on whether and why it would
be appropriate to revise proposed Sec. 1.45Y-5(c)(2)(viii) to include
additional energy sources (such as energy from exothermic chemical
reactions or pressure drop technologies) that do not rely on combustion
or gasification but could include equipment related to the transport of
fossil fuels (for example, natural gas).
For purposes of proposed Sec. 1.45Y-5(c)(2)(ii), hydropower
includes retrofits that add electricity production to non-powered dams,
conduit hydropower, hydropower using new impoundments, and hydropower
using diversions such as a penstock or channel. Greenhouse gas
emissions are not created by the fundamental transformation of
electricity needed to produce electricity in a hydropower facility. A
hydropower facility converts the potential energy of flowing water into
electricity. The potential energy results from changes in gravitational
potential energy from the flowing water, which the hydropower facility
captures with a turbine which spins a rotor within a generator to
produce electricity. Hydropower facilities may release greenhouse gas
emissions from the hydropower reservoir due to diffusion at the water
surface or due to ebullition, and from degassing when water passes
through a pump house or turbine. Such emissions from hydropower
facilities would not be considered greenhouse gases emitted into the
atmosphere by a Non-C&G Facility in the production of electricity under
proposed Sec. 1.45Y-5(b)(6)(C), because emissions of greenhouse gasses
are not created by the fundamental transformation of potential energy
in flowing water into electricity, but rather from processes that are
not fundamental to the transformation of potential energy into
electricity.
Similarly, greenhouse gas emissions are not created by the
fundamental transformation of energy from high-pressure hot water into
electricity in a flash geothermal facility, which is included in
proposed Sec. 1.45Y-5(c)(2)(v). A flash geothermal facility uses high-
pressure hot water from deep inside the earth and converts it directly
to steam that drives a turbine and generator. After the steam passes
through the turbine, it is released into the atmosphere and any non-
condensable gases including greenhouse gases dissolved in the steam are
also released. Such emissions from flash geothermal facilities would
not be considered greenhouse gases emitted into the atmosphere by a
facility in the production of electricity under proposed Sec. 1.45Y-
5(c)(1)(i)(C), because the greenhouse gases are already present in the
underground water and are not created by the fundamental transformation
of the thermal energy in the water into electricity, but rather by
processes that are not fundamental to the transformation of the thermal
energy into electricity. This proposed treatment of flash geothermal
facilities is supported by surveys indicating that underground carbon
dioxide in certain geothermal reservoirs is emitted passively into the
atmosphere even in the absence of geothermal electricity generation.
The Treasury Department and the IRS request comment on whether the
identification of flash geothermal facilities as Non-C&G Facilities
with a GHG emissions rate that is not greater than zero in proposed
Sec. 1.45Y-5(c)(2)(v) is appropriate.
[[Page 47803]]
For purposes of proposed Sec. 1.45Y-5(c)(2)(iv), solar includes
concentrated solar power. Concentrated solar power facilities may have
auxiliary burners that in some cases use combustion exclusively for the
purposes of cold starts or freeze protection of thermal working fluids,
but in other cases, may also be used to generate electricity in hybrid
configurations. The Treasury Department and the IRS request comment on
whether the existing definitions of C&G Facilities and Non-C&G
Facilities is sufficient to distinguish between these two categories of
facilities, or whether additional clarification is needed.
3. Greenhouse Gas Emissions Rates for C&G Facilities
Section 45Y(b)(2)(B) provides that in the case of electricity
produced through combustion or gasification, the GHG emissions rate for
such facility is equal to the net rate of greenhouse gases emitted into
the atmosphere by such facility (taking into account lifecycle
greenhouse gas emissions, as described in section 211(o)(1)(H) of the
CAA) in the production of electricity.
Section 211(o)(1)(H) of the CAA provides that ``lifecycle
greenhouse gas emissions'' means the aggregate quantity of greenhouse
gas emissions (including direct emissions and significant indirect
emissions such as significant emissions from land use changes) related
to the full fuel lifecycle, including all stages of fuel and feedstock
production and distribution, from feedstock generation or extraction
through the distribution and delivery and use of the finished fuel to
the ultimate consumer, if the mass values for all greenhouse gases are
adjusted to account for their relative global warming potential.
The EPA promulgated its interpretation of section 211(o)(1)(H) of
the CAA in a 2010 notice-and-comment rulemaking establishing the
regulatory framework for the updated renewable fuel standard (RFS2)
program. The EPA interpreted section 211(o)(1)(H) of the CAA in the
context of the facts and policy framework of the RFS program and based
on information available at that time; however, the EPA's analysis and
implementation of the RFS2 rule offer relevant precedent for the
Treasury Department's and the IRS's interpretation of section
45Y(b)(2)(B). In the RFS2 rulemaking, the EPA interpreted 211(o)(1)(H)
of the CAA as requiring the agency to account for the real-world
emissions consequences of increased production of biofuels. Thus, the
EPA determined in the RFS2 context that the inclusion of direct
emissions and significant indirect emissions such as significant
emissions from land-use changes in section 211(o)(1)(H) of the CAA
requires a consequential approach to considering the real-world
emissions associated with biofuel production. A ``consequential''
approach considers the real-world greenhouse gas emissions associated
with biofuel production, including secondary or indirect emissions
resulting from market interactions induced by expanded biofuel
production and use. Such an approach includes consideration of market
interactions induced by expanded biofuel production and use that may
result in secondary or indirect greenhouse gas emissions, domestically
and globally.
Proposed Sec. 1.45Y-5(d) would provide the rules applicable to
determining a net rate of GHG emissions for C&G Facilities, including
by the Secretary when publishing a table described in section
45Y(b)(2)(C)(i) or determining an emissions rate as provided in section
45Y(b)(2)(C)(ii). Proposed Sec. 1.45Y-5(d)(1) would provide that GHG
emissions rates for C&G Facilities must be determined by a lifecycle
analysis (LCA) that complies with proposed Sec. 1.45Y-5(d) and (e),
and that such rate equals the net rate of greenhouse gases emitted into
the atmosphere by such facility (taking into account lifecycle
greenhouse gas emissions, as described in section 211(o)(1)(H) of the
CAA) in the production of electricity, expressed as grams of
CO2e per kWh.
Proposed Sec. 1.45Y-5(d)(2) would provide that an LCA used for
determining the net rate of greenhouse gases emitted into the
atmosphere by a facility must comply with the requirements provided in
proposed Sec. 1.45Y-5(d)(2)(i) through (vii). Proposed Sec. 1.45Y-
5(d)(2)(i) would provide that the starting boundary of the LCA for an
LCA involving generation-derived feedstocks (such as biogenic
feedstocks) is feedstock generation, and the starting boundary of the
LCA for an LCA involving extraction-derived feedstocks (such as fossil
fuel feedstocks) is feedstock extraction. Under proposed Sec. 1.45Y-
5(d)(2)(i), the starting boundaries would include the processes
necessary to produce and collect or extract the raw materials used to
produce electricity from combustion or gasification technologies,
including those used as energy inputs to electricity production. This
includes the emissions effects of relevant land management activities
or changes related to or associated with feedstock production. The
starting conditions are the material and energy flows, including
associated direct and indirect greenhouse gas emissions, of the
processes associated with the extraction or production of raw feedstock
materials or fuel.
Proposed Sec. 1.45Y-5(d)(2)(ii) would provide that the ending
boundary of an LCA for electricity that is transmitted to the grid or
electricity that is used on-site is the meter at the point of
production of the C&G Facility. The distribution, transmission, and use
of such electricity generated by a C&G Facility (and other types of
energy sources it may displace while in use) are outside of the LCA
boundary; therefore, such emissions would not be taken into account
because they do not occur in the ``production of electricity'' as
described in section 45Y(b)(2)(B). Given the particular context of
section 45Y(b)(2)(B) (that is, a tax credit for the production of clean
electricity), proposed Sec. 1.45Y-5(d)(2)(ii) is consistent with
section 45Y(b)(2)(B) of the Code (and the term ``ultimate consumer'' in
section 211(o)(1)(H) of the CAA referenced therein) because it would
treat the C&G Facility as the ultimate consumer of the fuel used to
produce electricity.
Proposed Sec. 1.45Y-5(d)(2)(iii) would provide that an LCA must be
based on a future anticipated baseline, which projects future status
quo in the absence of the availability of the sections 45Y and 48E
credits (taking into account anticipated changes in technology,
policies, practices, and environmental and other socioeconomic
conditions).
Proposed Sec. 1.45Y-5(d)(2)(iv) would provide that offsets and
offsetting activities that are unrelated to the production of
electricity by a C&G Facility, including the production and
distribution of any input fuel, may not be taken into account in an
LCA.
Proposed Sec. 1.45Y-5(d)(2)(v) would interpret the reference to
section 211(o)(1)(H) of the CAA as requiring that an LCA must take into
account direct emissions, significant indirect emissions in the United
States or other countries, emissions associated with market-mediated
changes in related commodity markets, emissions associated with
feedstock generation or extraction, emissions consequences of increased
production of feedstocks, emissions at all stages of fuel and feedstock
production and distribution, and emissions associated with
distribution, delivery, and use of feedstocks to and by a C&G Facility.
Proposed Sec. 1.45Y-5(d)(2)(v) would interpret section 45Y(b)(2)(B) of
the Code (and the term ``ultimate consumer'' in section 211(o)(1)(H) of
the CAA referenced therein) as applying to the C&G Facility because it
is the
[[Page 47804]]
ultimate consumer of the fuel used to produce electricity.
Proposed Sec. 1.45Y-5(d)(2)(v)(A) would provide that direct
emissions include, but are not limited to: (1) emissions from feedstock
generation, production, and extraction (including emissions from
feedstock and fuel harvesting and extraction and direct land use change
and management, including emissions from fertilizers, and changes in
carbon stocks); (2) emissions from feedstock and fuel transport
(including emissions from transporting the raw or processed feedstock
to the fuel processing facility); (3) emissions from transporting and
distributing fuels to the electricity production facility; (4)
emissions from handling, processing, upgrading, and/or storing
feedstocks, fuels and intermediate products (including emissions from
on/offsite storage and preparation/pre-treatment for use (for example,
torrefaction or pelletization) and emissions from process additives);
and (5) emissions from combustion and gasification at the electricity
generating facility (including emissions from the combustion and/or
gasification process and emissions from gasification or combustion
additives). Proposed Sec. 1.45Y-5(d)(2)(v)(B) would provide examples
of significant indirect emissions including, but not limited to,
emissions from indirect land use and land use change and other induced
emissions associated with the increased use of the feedstock for
electricity production. Significant indirect emissions may include
positive or negative emissions. For biogenic resources, significant
indirect emissions may include emissions from growth and regrowth.
Proposed Sec. 1.45Y-5(d)(2)(vi) would provide principles for
excluded emissions by listing types of emissions that the LCA must not
take into account.
Proposed Sec. 1.45Y-5(d)(2)(vii) would provide that an LCA may
consider alternative fates and may account for avoided emissions.
Alternative fate means a set of informed assumptions (for example,
production processes, material outcomes, market-mediated effects) used
to estimate the emissions from the use of each feedstock were it not
for the feedstock's new use due to the implementation of policy (that
is, to produce electricity). Avoided emissions means the estimated
emissions associated with the feedstock, including the feedstock's
production and use, that would have occurred in the alternative fate
(if such feedstock had not been diverted for electricity production)
but are instead avoided with the feedstock's use for electricity
production. It is important to note that, while, in some circumstances,
emissions may be avoided if compared to the alternative fate, in others
the new use of the material (for example, for electricity production)
may involve additional emissions that were not emitted in the
alternative fate estimation. Relatedly, in some circumstances,
emissions may be avoided in one part of the supply chain only to occur
elsewhere along the supply chain due to the new use.
4. Additional Issues Regarding Greenhouse Gas Emissions Rates for C&G
Facilities
The determination of net GHG emissions rates for C&G Facilities
raises a range of complex technical questions that are relevant to
determining eligibility for the section 45Y and section 48E credits.
The Treasury Department and the IRS request comment on the following
topics: (1) the treatment of renewable natural gas (RNG) and fugitive
sources of methane; (2) analytical LCA parameters, including spatial
scales and time horizons; (3) whether and how to distinguish between
co-products, byproducts, and waste products and how emissions should be
allocated to each in LCAs; (4) how to attribute emissions to the heat
produced by facilities using combined heat and power systems; (5) how
to create and maintain LCA baselines; and (6) certain issues related to
LCA modeling.
a. Treatment of Biogas, Renewable Natural Gas (RNG), or Fugitive
Sources of Methane
The Treasury Department and the IRS intend to provide rules
addressing facilities that produce electricity using biogas, renewable
natural gas (RNG), or fugitive sources of methane (for example, from
coal mine operations) for purposes of the section 45Y credit or the
section 48E credit, collectively referred to as the ``Clean Electricity
Tax Credits.'' In the context of this guidance, the term ``RNG'' refers
to biogas that has been upgraded to be equivalent in nature to fossil
natural gas. Fugitive methane refers to the release of methane through,
for example, equipment leaks during the extraction, processing,
transformation, and delivery of fossil fuels to the point of final use,
such as coal mine methane. Such rules would apply to all biogas, RNG,
or fugitive methane used for the purposes of the Clean Electricity Tax
Credits and would provide requirements that must be met to account for
any greenhouse gas emissions benefits from biogas, RNG, or fugitive
methane in determining GHG emissions rates for purposes of the Clean
Electricity Tax Credits. Such requirements would be designed to reflect
the ways in which additional demand for biogas, RNG or fugitive methane
can impact greenhouse gas emissions outcomes.
The Treasury Department and the IRS anticipate requiring that for
purposes of the Clean Electricity Tax Credits, in order for biogas,
biogas-based RNG, or fugitive methane to receive an emissions value
consistent with such gases (and not standard natural gas), the biogas
or RNG used to produce electricity or to produce a feedstock or fuel
that is used to produce electricity must originate from the first
productive use of the relevant methane. For any specific source of
biogas, RNG, or fugitive methane, productive use is generally defined
as any valuable application of the relevant methane (including to
provide heat or cooling, generate electricity, or upgraded to RNG in
the case of biogas or fugitive methane), and specifically excludes
venting to the atmosphere or capture and flaring. The Treasury
Department and the IRS further propose to define first productive use
of the relevant methane as the time when a producer of that gas first
begins using or selling it for productive use in the same taxable year
as (or after) the electricity production facility was placed in
service. The implication of this proposal is that biogas, for example,
from any source that had been productively used in a taxable year prior
to the taxable year in which the relevant electricity production
facility was placed in service would not include GHG emissions benefits
that might otherwise be attributable to biogas-based RNG, but would
instead receive a value consistent with natural gas. This proposal
would limit emissions associated with the diversion of biogas, RNG, or
fugitive methane from other pre-existing productive uses.
For existing biogas sources that typically productively use or sell
a portion of the biogas and flare or vent the remaining excess, the
flared or vented portion may be eligible for first productive use as
defined above if the flaring or venting volume can be adequately
demonstrated and verified. In such circumstances, the flared or vented
volume may be determined based on the previous taxable year's flared or
vented volume as demonstrated via reported data to programs such as the
Greenhouse Gas Reporting Program. Requirements would be established to
reduce the risk that entities will deliberately generate additional
biogas for purposes of the Clean Electricity Tax Credits, above
historic and expected future levels or an equivalent metric, for
example by
[[Page 47805]]
generating biogas through the intentional generation of waste, and to
ensure that other factors affecting the emissions rate of electricity
produced with biogas, biogas-based RNG or RNG procurement via RNG
certificates are taken into account. The Treasury Department and the
IRS request comment on these and other potential conditions. Any
fugitive sources of methane would be treated in the same fashion as
biogas or RNG with respect to these requirements, albeit with different
considerations in development of the counterfactual.
The Treasury Department and the IRS also recognize that different
sources of methane may have significantly different characteristics
(for example, counterfactuals, alternative fates, baseline
characteristics, upstream leakage rates, etc.) and therefore
significantly different lifecycle emissions. For this reason, the
Treasury Department and the IRS are considering requiring an LCA to be
conducted for electricity produced by each category of feedstock,
rather than across all feedstocks used for the production of
electricity by a facility. The Treasury Department and the IRS request
comment on whether LCAs should be conducted on a feedstock-by-feedstock
basis or averaged across feedstocks, and how to determine the
appropriate categories of feedstock.
For purposes of the Clean Electricity Tax Credits, producers using
biogas, RNG, or fugitive methane would be required to acquire and
retire corresponding energy attribute certificates (EACs) through a
book-and-claim system that can verify in an electronic tracking system
that all applicable requirements are met.
Electricity producers would also be required to have a pipeline
interconnection and measurement capability using a revenue grade meter.
These rules would apply to the use of EACs with both direct and non-
direct claims of biogas, RNG, or fugitive methane use. Direct use would
involve a direct exclusive pipeline connection to a facility that
generates biogas or RNG or from which fugitive methane is being
sourced, while non-direct use would involve production using biogas,
RNG, or fugitive methane sourced from a commercial or common-carrier
natural gas or other specified pipeline. In all cases, EACs would need
to document the biogas, RNG, or fugitive methane procurement use claims
and that the energy attributes of the RNG or fugitive methane being
used are not sold to other parties or used for compliance with other
policies or programs.
The Treasury Department and the IRS request comments on these and
other approaches related to biogas, RNG and fugitive methane. Regarding
these sources of methane, the Treasury Department and the IRS request
comment on the appropriate LCA considerations associated with them,
such as counterfactual scenarios (that is, appropriate baselines), to
account for direct and significant indirect emissions, and also the
manner in which to assess methane from these sources if the current
practice is flaring. In particular, the Treasury Department and the IRS
request comments on the following questions:
(1) What data sources and peer reviewed studies provide information
on fugitive methane, biogas, and RNG production systems (including
biogas production and reforming systems), markets, monitoring,
reporting, and verification processes, and greenhouse gas emissions
associated with these production systems and markets?
(2) What conditions for the use of biogas, RNG, and fugitive
methane would ensure that emissions accounting for purposes of the
Clean Electricity Tax Credits reflect and reduce the risk of indirect
emissions effects from electricity production using biogas and RNG? How
can taxpayers verify that they have met these requirements?
(3) How broadly available and reliable are existing electronic
tracking systems and verification protocols and practices for biogas,
RNG, or fugitive methane certificates in book and claim systems? What
developments may be required, if any, before such systems are
appropriate for use with biogas or RNG certificates used to claim the
Clean Electricity Tax Credits?
(4) How should biogas, RNG or fugitive methane resulting from the
first productive use of methane be defined, documented, and verified?
What industry best practices or alternative methods would enable such
verification to be reflected in a biogas, RNG or methane certificate or
other documentation? What additional information should be included in
such EACs to help certify compliance?
(5) What are the emissions associated with different methods of
transporting biogas, RNG or fugitive methane to electricity producers
(for example, vehicular transport, pipeline)?
(6) How can the final regulations reflect and mitigate indirect
emissions effects from the diversion of biogas, RNG, or fugitive
methane from potential future productive uses? What other new uses of
biogas, RNG, or fugitive methane could be affected in the future if
more gas from new capture and productive use of methane from these
sources is used in the electricity production process?
(7) How can the potential for the generation of additional
emissions from the production of additional waste, waste diversion from
lower-emitting disposal methods, and changes in waste management
practices be limited through emissions accounting or rules for biogas
and RNG use established for purposes of the Clean Electricity Tax
Credits?
(8) To limit the additional production of waste, should the final
regulations limit eligibility to methane sources that existed as of a
certain date or waste or waste streams that were produced before a
certain date, such as the date that the IRA was enacted? If so, how can
that be documented or verified? How should any changes in volumes of
waste and waste capacity at existing methane sources be documented and
treated for purposes of the Clean Electricity Tax Credits? How should
additional capture of existing waste or waste streams be documented and
treated?
(9) Are geographic or temporal deliverability requirements needed
to reflect and reduce the risk of indirect emissions effects from
biogas, RNG, or fugitive methane use in the electricity production
process? If so, what should these requirements be and are electronic
tracking systems able to capture these details?
(10) How should variation in methane leakage across the existing
natural gas pipeline system be taken into account in estimating the
emissions from the transportation of RNG or fugitive methane or
establishing rules for RNG or fugitive methane use? How should methane
leakage rates be estimated based on factors such as the location where
RNG or fugitive methane is injected and withdrawn, the distance between
the locations where RNG or fugitive methane is injected and withdrawn,
season of year, age of pipelines, or other factors? Are data or
analysis available to support this?
(11) What counterfactual assumptions and data should be used to
assess the net greenhouse gas emissions of facilities that rely on
biogas, RNG, or fugitive methane (for example, venting, flaring, or
other practice)? Is venting an appropriate counterfactual assumption in
some cases? If not, what other factors should be considered?
(12) What criteria should be used in assessing biogas, fugitive
methane, or RNG-based provisional emissions rates? What practices
should be put in place to reduce the risk of unintended consequences
(for example, gaming)? Should conservative default parameters
[[Page 47806]]
and counterfactuals be used unless proven otherwise by a third party?
(13) What are the effects on greenhouse gas emissions of capturing
methane emissions for use as biogas or RNG, such as on livestock farms?
The Treasury Department and the IRS recognize that sufficient
tracking and verification mechanisms for biogas, RNG, or fugitive
methane are not yet available, and existing systems have limited
capabilities for tracking and verifying RNG pathways, especially in the
part of the production process before the methane has been reformed to
RNG. Existing tracking and verification systems do not clearly
distinguish between inputs, verify or require verification of
underlying practices claimed by biogas or RNG production sources,
require proof of generator interconnection or revenue-quality metering,
provide validation of generation methodology, include exclusively
United States based-generation, verify generator registration, and
track the vintage of generator interconnection. The Treasury Department
and the IRS are considering providing rules to address whether or how
book-and-claim systems with sufficient tracking and verification
mechanisms may be used to attribute the environmental benefits of
biogas, RNG, or fugitive methane in the final regulations.
The treatment of biogas, RNG, and fugitive methane presents a range
of complex issues that the Treasury Department and the IRS will
consider in the development of the final regulations.
b. Analytical LCA Parameters, Including Spatial Scales and Time
Horizons
An LCA may require decisions on a wide range of analytical
parameters that may have a meaningful impact on the accuracy and
utility of its results. The Treasury Department and the IRS request
comment on the analytical LCA parameters that are most relevant to
particular types of categories of facilities that may be eligible for
the Clean Electricity Tax Credits.
The Treasury Department and the IRS specifically request comment
regarding spatial and temporal scales, including the factors that
should be considered in setting the spatial and temporal scales for
LCAs conducted for the Clean Electricity Tax Credits. Spatial scale
involves defining the area over which emissions impacts will be
evaluated. Temporal scale involves defining the time period over which
emissions impacts will be evaluated. The decision of setting the
spatial scale should be considered in conjunction with decisions on
temporal scale, as the two can interact in ways that affect greenhouse
gas assessment outcomes.
In conducting a greenhouse gas assessment for biomass feedstocks,
for example, carbon stocks or flows that have high variability at fine
spatial or temporal scales may have much less variability if averaged
over larger areas or longer temporal scales. Averaging over long
temporal scales may reduce the variability observed at small spatial
scales, and averaging over large areas may reduce the variability
observed over small temporal scales. However, it is not safe to assume
that integrating over large areas and long timeframes is always
preferable. Large spatial scales and long temporal scales are not
necessarily the most accurate way to conduct specific policy or program
assessments because the combination of the two may obscure important
information (for example, biophysical differences in species or
landscapes, or shorter time frames or subregional analysis needed for
policy analysis) or may mask important smaller-scale impacts. It is
important to note that utilizing a large spatial scale and a short
temporal scale could yield the same result as a small spatial scale
combined with a longer temporal scale.
The Treasury Department and the IRS acknowledge that it may be
appropriate to utilize different spatial and temporals scales for
different feedstocks given their heterogeneity. The Treasury Department
and the IRS request comment on the following questions regarding
spatial and temporal scale:
(1) What factors should be considered in establishing the timeframe
for the LCA analysis? What timeframe would provide confidence that
significant emissions have been accounted for?
(2) Should the LCA distinguish between an ``emissions horizon''
(the timeframe over which emissions effects from the feedstock use
persist into the future) and an ``assessment horizon'' (the timeframe
over which the emissions effects are included in the analysis), and how
would that be reflected in the choice of temporal scale? What
assessment horizon will provide reasonable confidence that significant
LCA emissions have been incorporated? Should the modeled future
anticipated baseline include estimated emissions from electricity
production to reflect the effects of the anticipated phase out of the
Clean Electricity Tax Credits?
(3) If the assessment horizon is shorter than the emissions
horizon, should an estimate of the emissions beyond the assessment
horizon be included in the LCA?
(4) What considerations should be reflected in the choice(s) of
spatial scale? For example, the increased use of some fuels/feedstocks
may have global effects (for example, changes in commodity production
and ensuing land use and greenhouse gas changes), though this may not
be the case for all feedstocks or fuels. What factors should be
considered to assess whether a global scale is necessary for certain
feedstocks to ensure that significant emissions are captured? Should
all feedstock/fuels assessments be conducted with the same spatial
scale to determine the extent to which increased use has estimated
global ramifications?
(5) The choice of spatial scale can be greatly influenced by the
availability and accuracy of data and the precision with which one can
measure and model feedstock production as well as market dynamics. What
sources of data would be most important to consider for modeling? What
strengths or weaknesses do these sources have?
c. Distinguish Between Co-Products, Byproducts, and Waste Products and
How Emissions Should Be Allocated to Each in LCAs
The categorization and assessment of products as co-products,
byproducts, or waste products in an LCA may affect the LCA's results.
Products, co-products, byproducts, and wastes may all be produced in
the full fuel cycle or used as inputs to the same. A co-product is a
product produced together with another product, both of which are
economic drivers of the process. A byproduct is a product that is
produced together with another product, and which has a productive use
but is not the primary economic driver of the process from which it is
produced. It is not solely or separately produced. A waste product is a
substance or object that the holder intends or is required to dispose
of. See ISO:14040, ``Environmental management--Life cycle assessment--
Principles and framework. For biogenic sources, scientific literature
often classifies byproducts, wastes, and residues together in one
category.
The categorization of products as co-products, byproducts, and
waste products may be relevant to an LCA's assessment of the greenhouse
gas emissions related to the production of inputs to electricity
generation or in the generation of electricity itself if the LCA
modeling approach or approaches used for purposes of the Clean
Electricity Tax Credits have the ability to distinguish between such
categories. For example, in certain circumstances, the use of a waste
product as a feedstock or fuel for
[[Page 47807]]
electricity production may generate more, less, or the same greenhouse
gas emissions than relevant disposal practices for that waste material.
The emissions released in the production process during which a waste
product is created could be fully allocated to the main product, co-
products, and byproducts of that process meaning that the emissions
associated with the production of the waste could be considered zero in
the LCA assessment pending further analysis, potentially reducing the
overall LCA GHG emissions rates for the electricity production.
Alternatively, if the waste product were considered to have a
productive use and therefore instead categorized as a co-product it
would be considered as a driver of the production process and could
have a positive emissions value. A material may initially have no
economic value or useful purpose, but if that material later gains an
economic value, its categorization may shift to a byproduct or co-
product.
The Treasury Department and the IRS intend to clarify the
principles for categorizing products as co-products, byproducts, or
waste input materials and products and assessing the emissions impacts
for such products in an LCA for C&G Facilities in the final regulations
for the Clean Electricity Tax Credits if such categorization is
relevant to the LCA model or models used. Under such principles, if
byproducts are produced concurrently with electricity production, then
a portion of the process emissions may be allocated to those
byproducts. If applying an analytical approach that considers the
consequences of the material being used for electricity production and
byproducts are produced concurrent with electricity production, the LCA
may consider the market impacts associated with the byproducts. In
addition, if wastes are produced concurrently with electricity
production, then no process emissions may be allocated to those wastes;
all emissions must be associated with the electricity produced. Whether
alternative productive uses of a byproduct-derived feedstock exist
would be determined by expert analysis of the likely alternative uses
of the byproduct, taking into account technological and economic
capabilities and common practice. The alternative fate of waste-derived
feedstocks would be determined by expert analysis, literature review,
and historical practice.
To inform the development of these categorization principles for
the final regulations, the Treasury Department and the IRS request
comment on the following:
(1) What principles should be used to distinguish between co-
products, byproducts, and waste products for the purposes of the Clean
Electricity Tax Credits? Are there common scientific or industry
definitions that can be relied upon to distinguish between co-products,
byproducts, and waste products?
(2) What principles should be used to determine whether a product
has sufficient value to be considered a co-product or byproduct?
(3) The Clean Electricity Tax Credits may provide additional
economic incentive for the consumption of a product categorized as
waste prior to the availability of the incentive provided by the Clean
Electricity Tax Credits. How should this additional economic incentive
be considered to determine if a product is a waste product, byproduct,
or co-product? Should this categorization be reevaluated and, if so,
how often?
(4) To limit the additional production of waste, should the final
regulations limit eligible waste sources that existed as of a certain
date, or waste or waste streams that were produced before a certain
date, such as the date that the IRA was enacted? If so, how could that
be documented or verified? How should any changes in volumes of waste
and waste capacity at existing sources be documented and treated for
purposes of the Clean Electricity Tax Credits? How should additional
capture of existing waste or waste streams be documented and treated?
(5) More generally, how could the potential for the intentional
generation of waste or co-products for the purposes of lowering the
allocated process emissions to electricity be addressed?
(6) Would the classification of feedstocks as products, co-
products, byproducts, or waste change depending on the technology? For
example, would products, co-products, byproducts, and waste be
described and accounted for differently if derived from biogenic
sources, such as biogenic biomass?
d. Attributing Emissions to the Heat Produced by Facilities Using CHP
Property
Section 45Y(g)(2)(A) provides that the kWh of electricity produced
by a taxpayer at a qualified facility includes any production in the
form of useful thermal energy by any CHP property within such facility,
and the amount of greenhouse gases emitted into the atmosphere by such
facility in the production of such useful thermal energy will be
included for purposes of determining the GHG emissions rate for such
facility. See Explanation of Provisions section I.A. for the definition
of CHP property. The inclusion of thermal energy production-related
emissions in an LCA for a CHP facility introduces additional
considerations, such as how to set an appropriate baseline for useful
energy production-related emissions and what rules should govern the
attribution of emissions for thermal energy production. The Treasury
Department and the IRS intend to clarify the principles for assessing
the emissions related to the generation of useful thermal energy by a
CHP facility in an LCA in the final regulations for the Clean
Electricity Tax Credits. Accordingly, the Treasury Department and the
IRS request comment on the following:
(1) To determine the amount of greenhouse gases emitted by a CHP
facility, the LCA must include the greenhouse gas emissions emitted by
that facility in the production of useful thermal energy. For purposes
of the LCA of a CHP facility, what principles should govern how
emissions from the production of useful thermal energy are calculated?
(2) What principles should be used to determine the baseline for
useful thermal energy production by a CHP facility? For example, should
the baseline for the heat production for a CHP facility be an
alternative form of thermal energy production such as natural gas
boilers, such that emissions from the production of thermal energy from
the boilers would be subtracted from the facility's emissions?
Alternatively, is it more appropriate if the baseline for a CHP
facility is no thermal energy production by the facility?
(3) There may be scenarios in which a facility generates
electricity that is used (a) by the electricity generation facility in
the production of electricity or (b) in the production of fuel
ultimately consumed by that facility to generate electricity. For
example, a wastewater treatment plant's post-processing materials are
digested to produce biogas; this biogas is then used in a CHP facility
that produces electricity; this electricity is consumed by the
wastewater treatment facility. In such scenarios, what principles
should be used to determine how emissions from the consumption of
electricity in the production of electricity or in the production of
the fuel consumed by the facility are calculated? Similarly, there may
be scenarios in which a facility self-consumes thermal energy that it
produces, for example, if a facility generates steam as a byproduct
that is
[[Page 47808]]
used (a) by the facility to turn a turbine that generates electricity
or (b) to clean or compress fuel ultimately consumed by that facility
to generate electricity. What principles should be used be used to
determine emissions from the self-consumption of thermal energy by the
CHP facility?
e. Certain Issues Related to LCA Baselines and Modeling
The Treasury Department and the IRS intend to provide additional
rules and principles addressing what factors must be considered to
assess the emissions associated with feedstocks used by C&G Facilities
to produce electricity for purposes of the Clean Electricity Tax
Credits.
Such rules would apply to all feedstocks used for the purposes of
the Clean Electricity Tax Credits and would provide conditions that
must be met in determining GHG emissions rates for purposes of the
Clean Electricity Tax Credits. The CAA explicitly defines the term
``lifecycle greenhouse gas emissions'' to include ``the aggregate
quantity of greenhouse gas emissions (including direct emissions and
significant indirect emissions such as significant emissions from land
use changes).'' Given the highly interconnected economic, energy, and
agricultural and other lands-based systems involved in electricity
production, the Treasury Department and the IRS recognize that
electricity production may have effects, including emissions effects,
beyond the direct supply chain. The Treasury Department and the IRS
think that the provision ``including direct emissions and significant
indirect emissions'' requires any LCA for the Clean Electricity Tax
Credits to adopt an approach that considers the consequential, or
market-mediated, impacts of increased demand for the input feedstocks
or fuels used in electricity production.
The EPA interpreted CAA 211(o)(1)(H) as requiring the agency in the
RFS context to account for the real-world emissions consequences of
increased production of biofuels. Thus, the EPA determined that CAA
section 211(o)(1)(H)'s inclusion of ``direct emissions and significant
indirect emissions such as significant emissions from land-use
changes'' requires a ``consequential'' approach to considering the
real-world emissions associated with biofuel production. Such an
approach includes consideration of market interactions induced by
expanded biofuel production and use that may result in secondary or
indirect greenhouse gas emissions.
The Treasury Department and the IRS propose to use a future
anticipated baseline approach for analyzing the greenhouse gas
emissions associated with the production of electricity by C&G
Facilities and feedstocks used by such facilities. This approach would
require generating a baseline projection of the future, which reflects
estimated future conditions under a business-as-usual (BAU) trajectory
that incorporates key drivers and trends informed by historical data
and other considerations. This baseline would then serve as the
``reference'' against which another scenario in which specific
conditions or changes, such as implementation of the policy embodied by
the Clean Electricity Tax Credits, can be projected. This construct
would allow for the evaluation of the projected estimated change or
difference of emissions outcomes between the two scenarios. These
scenarios would include (1) the baseline scenario (that is, without the
Clean Electricity Tax Credits) and (2) a policy scenario (that is, with
the Clean Electricity Tax Credits).
These scenarios would require, to the extent possible, data on: (1)
feedstock or fuel production systems (including fuel/feedstock
generation or extraction, etc.); (2) associated greenhouse gas
emissions and, if applicable, carbon pool fluxes; (3) the feedstock or
fuel's sector details; (4) feedstock or fuel demand and prices; (5)
energy market projections, including electricity demand and supply and
prices, if applicable; (6) future macroeconomic factors (for example,
EIA Annual Energy Outlook-derived population growth, gross domestic
product projections, demand functions tied to population or income);
(7) technological progress assumptions, especially if applicable to
stationary sources for which efficiency improvements are possible and
anticipated; and (8) other parameters (for example, representation of
current and anticipated, energy, environmental, or other policies
including expected outcomes from other parts of the IRA or other
policies, if relevant, that can inform or constrain BAU trajectories).
For example, the list that follows identifies proposed key modeling
approach elements and considerations for simulation of a future
anticipated baseline and policy scenarios specific to biomass-based
feedstocks: (1) model function types and model dynamics (for example,
economic optimization, intertemporal and/or recursive dynamic); (2)
anticipated future conditions (for example, macroeconomic, biophysical,
chemical); (3) greenhouse gas emissions representation, by including
the different greenhouse gases and the relevant greenhouse gas
emissions and sequestration sources (for example, how greenhouse gases
and their effects on the environment are incorporated and represented,
such as what emissions sources and factors are reflected in the model
or models); (4) forest sector representation (for example, how are
forestry and forest industries reflected in the model and how are they
tied to the rest of the economy); (5) agricultural sector
representation; (6) land use competition; (7) energy sector
representation; and (8) the appropriate spatial scale (for example,
international representation) for all of these considerations.
There may be different ways to model or estimate greenhouse gas
emissions associated with the production of electricity by a C&G
Facility. Consistent with the parameters in proposed Sec. 1.45Y-5(d),
the Treasury Department and the IRS seek comment on general principles
and factors to be considered to estimate net greenhouse gas emissions
associated with electricity production by C&G Facilities, including the
selection or creation of an assessment or modeling approach for the
purposes of Clean Electricity Tax Credits. Comment is specifically
requested on the following topics:
(1) What factors should be considered in deciding how to create and
maintain LCA baseline scenarios?
(2) What factors should be considered in deciding how to create and
maintain LCA scenarios other than the baseline?
(3) What existing model or suite of models are capable of
completing an LCA consistent with the section 45Y(b)(2)(B) and proposed
Sec. 1.45Y-5(d) and (e)? Please explain whether any such model or
models are open source or proprietary including what type of
documentation is publicly available detailing the model design, data,
inputs, and assumptions, as well as whether such models are able to
link with external data sources or models. Please also explain which
entities own, manage, or update such models. Furthermore, because some
LCA models may be used for only a certain aspect of the total required
analysis (for example, a model may solely assess the agriculture
sector) or only include certain feedstocks or technologies, please
specify what technologies, feedstocks, or type of impacts are included
or are not included in the recommended model or models. Please also
explain how widely and for what purposes the recommended model or
models are used, including whether the model has previously been used
by a Federal or State agency or national
[[Page 47809]]
laboratory. Please explain whether and how the model has been peer-
reviewed. Finally, please explain whether the recommended model or
models would need to be updated or combined with another model in order
to be fully consistent with section 45Y(b)(2)(B) and proposed Sec.
1.45Y-5(d) and (e).
(4) What data sources and peer-reviewed studies provide information
on different feedstock production systems that would be most important
to consider for gathering data for LCA modeling? These sources and
studies should provide information on the feedstock production process
(ideally, beginning with the extraction or generation of the feedstock
and ending at the electrical meter) and on markets related to the
feedstock production process. Appropriate sources and studies should
also describe the greenhouse gas emissions associated with these
production systems and markets, as well as any monitoring, reporting,
and verification processes used in the creation of the source or study.
If recommending data sources or peer-reviewed studies, please specify
whether they are open source or proprietary; their temporal and spatial
scale (for example, regional versus national studies); whether they are
regularly updated and with what frequency; whether they are collected
by a Federal or State agency or statistical agency or national
laboratory; and whether they employ direct measurements or modeling or
use remote sensing data. Finally, please assess overall the strengths
and weaknesses of the recommended sources or studies with respect to
their usefulness as modeling data inputs.
(5) The availability of the Clean Electricity Tax Credits may
create an incentive to use a given material differently than in the
past (for example, a material that was not typically used for
electricity production is initially used or used more broadly after the
credits are available). How could an LCA or LCAs establish and account
for whether the incentives created by the Clean Electricity Tax Credits
have resulted in a reduction, removal of, or increase in greenhouse gas
emissions beyond the emissions that would have occurred in the absence
of the Clean Electricity Tax Credits? For example, consider a scenario
in which, in the absence of the incentive provided by the Clean
Electricity Tax Credits, an amount of woody biomass would be either
left standing or laying in a forest, pile burned, or used to create
timber products, such as charcoal or mulch, each an ``alternative
fate.'' In the presence of the Clean Electricity Tax Credits, that
amount of woody biomass is now being used to generate electricity. How
should the possible fates of the feedstock in the absence of the Clean
Electricity Tax Credits (for example, left in standing or laying in a
forest, pile burned, or used to create a timber product, such as
charcoal or mulch) be represented in an LCA, including the different
potential direct and indirect greenhouse gas effects of those fates?
(6) How could an LCA account for alternative fates stemming from
events such as potential future greenhouse gas emissions from wildfires
that could be associated with woody biomass feedstocks that may be left
on the landscape in the absence of the incentive created by the Clean
Electricity Tax Credits? How would these considerations be affected if,
in the absence of the incentive provided by the Clean Electricity Tax
Credits, a feedstock is used productively but not in electricity
production?
(7) Which feedstock classification categories should be established
for purposes of LCA analyses, if any? To what extent should the LCA or
LCAs differentiate between the sources and subtypes of a given
feedstock for electricity production or not (for example, all forest-
derived materials as one category, or subcategories such as logging
residues)? If applied, should subcategories of feedstocks be aggregated
in modeling, or should they be should they be separately modeled? How
could the LCA or LCAs account for the emissions attributed to
feedstocks that include a mixture of sub-types of feedstocks, such as
products, coproducts, byproducts and residues? Should LCAs be
standardized or provide average estimates for feedstocks and how could
such standardization best be done?
(8) What factors should be considered to determine the appropriate
scale(s) of feedstock demand changes or other shocks to evaluate the
extent to which the production, processing, and use of the feedstocks
used for electricity production results in net greenhouse gas
emissions?
(9) Should the shock reflect a small incremental increase in use of
the feedstock to reflect the marginal impact, or a large increase to
reflect the average effect of all potential users?
(10) What could the general increment of the shock be? Should it be
specified as an absolute or relative increase?
(11) What factors should be considered to determine whether shocks
for different feedstocks should be implemented in isolation (separate
model runs), in aggregate (for example, as an across-the-board increase
in biomass usage endogenously allocated by the model across
feedstocks), or something in between (for example, separately model
agriculture-derived and forest-derived feedstocks, but endogenously
allocate within each category)?
(12) How should variation and uncertainty be considered in
evaluating model estimates of the GHG emissions associated with an
increase in the use of a feedstock for electricity generation?
Feedstock modeling will likely involve uncertainties and variabilities
associated with data, parameterization, scenario, and model choices.
For example, if the modeling reports a range of GHG emissions changes
that are greater and less than zero, how should such a range of
outcomes be evaluated under section 45Y(b)(2)(B)?
f. Book and Claim Accounting
The Treasury Department and the IRS are considering whether to
allow and provide rules governing the use of book and claim accounting
in the final regulations for the Clean Electricity Tax Credits. Under
these proposed regulations, the methods used, and emissions associated
with the production of fuels and feedstocks used in the generation of
electricity are essential to determining whether a facility is a C&G
Facility and assessing its GHG emissions rate. See Explanation of
Provisions sections I.D.1 and I.D.3 for discussion of tracking fuel or
feedstock production to determine whether a facility is a C&G Facility
or Non-C&G Facility. EACs are a form of book-and-claim accounting that
conveys information about the attributes associated with a unit of
energy, including the fuel or feedstock used to create the energy. EACs
may also include information about the location of the facility that
generated the unit of energy, when that facility began operations, and
when the unit of energy was produced. Because EACs can serve as a
system for tracking the attributes associated with the production of a
unit of energy and as a means to avoid double-counting, the Treasury
Department and the IRS are considering whether to provide rules that
address the use of book-and-claim systems as a means of verifying the
emissions profile of a facility's use of fuel and electricity
production. The Treasury Department and the IRS request comment on
whether and how it may be appropriate for such systems to be used in
determining GHG emissions rates in the final regulations for the Clean
Electricity Tax Credits. In particular, comment is requested regarding
what types of
[[Page 47810]]
energy inputs, including fuels and feedstocks, have or may develop
sufficiently robust book-and-claim systems that may be suitable for use
in substantiating and verifying claims of use of such energy inputs for
purposes of the Clean Electricity Tax Credits. The Treasury Department
and the IRS are considering providing rules that may permit the use of
book and claim accounting in the final regulations if there are
sufficient assurances that the energy attributes claimed under such
system are verifiable and not susceptible to double counting.
5. Carbon Capture and Sequestration
Proposed Sec. 1.45Y-5(e) would provide that, for purposes of
proposed Sec. 1.45Y-5(c) and (d), the GHG emissions rate for a Non-C&G
Facility or C&G Facility must exclude any qualified carbon dioxide in
such facility's production of electricity that is captured by the
taxpayer, and, pursuant to any regulations established under section
45Q(f)(2), disposed of by the taxpayer in secure geological storage, or
utilized by the taxpayer in a manner described in section 45Q(f)(5) and
any regulations established under such section. The Treasury Department
and the IRS request comment on the following:
(1) What requirements should apply to substantiate and verify that
carbon dioxide that is captured by the taxpayer is (a) disposed of by
the taxpayer in secure geological storage pursuant to any regulations
established under section 45Q(f)(2), disposed of by the taxpayer in
secure geological storage, or (b) utilized by the taxpayer in a manner
described in section 45Q(f)(5)? For example, would it be appropriate to
limit the carbon dioxide that may be considered to be qualified carbon
dioxide under section 45Y(e)(3), and thus excluded under section
45Y(b)(2)(D), to carbon dioxide that has been reported to the U.S.
Greenhouse Gas Reporting Program (GHGRP)? If so, which GHGRP subpart or
subparts should be used?
(2) In the event that carbon dioxide that was captured and
sequestered as required by section 45Y(e)(3) subsequently escapes into
the atmosphere after such carbon dioxide was taken into account by a
taxpayer that claimed a Clean Electricity Tax Credit, what enforcement
mechanisms or regulatory regimes should be used to identify when such
emissions leakages have occurred? How should such emissions leakages be
taken into account in determining compliance with the GHG emissions
rate requirements under sections 45Y and 48E? Are the existing
recapture provisions under section 45Q sufficient for this purpose?
(3) Should carbon capture and sequestration that occurs in the
production of fuel that is used by a facility to produce electricity be
taken into account under proposed Sec. 1.45Y-5(e) and section
45Y(e)(3)? If so, how should such use of carbon capture and
sequestration (for example, emissions from CO2 capture,
purification and compression, transportation, and CO2 site
injection) be assessed in an LCA? Should emissions that occur from
carbon capture and sequestration be taken into account in determining
the net rate of greenhouse gases emitted into the atmosphere by a C&G
Facility in the production of electricity? What verification and
substantiation requirements would be appropriate to establish that
carbon capture and sequestration that met the requirements of proposed
Sec. 1.45Y-5(e) and section 45Y(e)(3) were met in the production of a
fuel or feedstock? Are the existing recapture provisions under section
45Q sufficient for this purpose?
6. Annual Table
Proposed Sec. 1.45Y-5(f)(1) would provide that, as required by
section 45Y(b)(2)(C)(i), the Secretary will annually publish a table
that sets forth the GHG emissions rates for types or categories of
facilities (Annual Table), which a taxpayer must use for purposes of
section 45Y. Proposed Sec. 1.45Y-5(f)(1) would further provide that,
except as provided in proposed Sec. 1.45Y-5(h), a taxpayer that owns a
facility that is described in the Annual Table on the first day of the
taxpayer's taxable year in which the section 45Y or section 48E credit
is determined with respect to such facility must use the Annual Table
as of such date to determine an emissions rate for such facility for
such taxable year. Types or categories of facilities must be added or
removed from the Annual Table consistent with, for Non-C&G Facilities,
a technical assessment of the fundamental energy transformation into
electricity as provided in proposed Sec. 1.45Y-5(c)(1)(ii), and, for
C&G Facilities, an LCA that complies with proposed Sec. 1.45Y-5(d) and
(e). Proposed Sec. 1.45Y-5(f)(2) would also provide that in connection
with the publication of the Annual Table, the Secretary must publish an
accompanying expert analysis that addresses any types or categories of
facilities added or removed from the Annual Table since its last
publication. Such analysis must be prepared by one or more of the
National Laboratories, in consultation with other agency experts, such
as experts from DOE, the Treasury Department, the United States
Department of Agriculture (USDA), and the EPA, as appropriate, and must
address whether the addition or removal of types or categories of
facilities from the Annual Table complies with section 45Y(b)(2)(A) and
45Y(b)(2)(B) (which refers to the definition of lifecycle greenhouse
gas emissions in section 211(o)(1)(H) of the CAA) of the Code and
proposed Sec. 1.45Y-5. The Treasury Department and the IRS view the
requirement to publish an expert analysis prepared by the National
Laboratories of changes to the Annual Table as essential to ensuring
public accountability and adherence to sound scientific principles.
This requirement would also ensure that the Secretary has a robust
record to inform any changes to the Annual Table.
The Treasury Department and the IRS intend to include in the Annual
Table the types or categories of facilities that are described in the
final regulations as having a GHG emissions rate that is not greater
than zero. The Treasury Department and the IRS intend to publish the
first Annual Table after the publication of the final regulations.
Until the first publication of the Annual Table, taxpayers may treat
the types or categories of facilities that are listed in proposed Sec.
1.45Y-5(c)(2)(i) through (viii) as being described in an Annual Table
as having a GHG emissions rate that is not greater than zero. Further,
any types or categories of facilities that are added or removed from
this list in the first publication of the Annual Table must be
accompanied by the publication of an expert analysis of such change as
provided in proposed Sec. 1.45Y-5(f)(2).
7. Provisional Emissions Rates
Proposed Sec. 1.45Y-5(g) would provide the rules applicable to
provisional emissions rates. Proposed Sec. 1.45Y-5(g)(1) would provide
that, in the case of any facility that is of a type or category for
which an emissions rate has not been established by the Secretary under
proposed Sec. 1.45Y-5(g), a taxpayer that owns such facility may file
a petition with the Secretary for the determination of the emissions
rate with respect to such facility (Provisional Emissions Rate or PER).
Proposed Sec. 1.45Y-5(g)(2) would provide that an emissions rate
has not been established by the Secretary for a facility for purposes
of section 45Y(b)(2)(C)(ii) if such facility is not described in the
Annual Table. Proposed Sec. 1.45Y-5(g)(2) would further provide that
if a taxpayer's request for an emissions value pursuant to proposed
Sec. 1.45Y-5(g)(5) is pending at
[[Page 47811]]
the time such facility is or becomes described in the Annual Table, the
taxpayer's request for an emissions value will be automatically denied.
Proposed Sec. 1.45Y-5(g)(3) would provide the process for filing a
PER petition. Proposed Sec. 1.45Y-5(g)(3) would provide that to file a
PER petition with the Secretary, a taxpayer must submit a PER petition
by attaching it to the taxpayer's Federal income tax return or Federal
return, as appropriate, for the first taxable year in which the
taxpayer claims the section 45Y credit with respect to the facility to
which the PER petition applies. Proposed Sec. 1.45Y-5(g)(3) would
further provide that a PER petition must contain an emissions value
and, if applicable, the associated DOE letter. An emissions value may
be obtained from DOE or by using the LCA model designated in proposed
Sec. 1.45Y-5(g)(6). An emission value obtained from DOE will be based
on an analytical assessment of the emissions rate associated with the
facility, performed by one or more National Laboratories, in
consultation with other agency experts as appropriate, consistent with
proposed Sec. 1.45Y-5. A taxpayer would be required to retain in its
books and records the request to DOE for an emissions value, including
any information provided by the taxpayer to DOE pursuant to the
emissions value request process provided in proposed Sec. 1.45Y-
5(g)(5). Alternatively, an emissions value can be determined by the
taxpayer for a facility using the most recent version of an LCA model
or models, as of the time the PER petition is filed, that have been
designated by the Secretary for such use under proposed Sec. 1.45Y-
5(g)(6). If an emissions value is determined using the designated
model, a taxpayer is required to provide to the IRS information to
support its determination of the emissions value in the form and manner
prescribed in IRS forms or instructions or in publications or guidance
published in the Internal Revenue Bulletin. A taxpayer may not request
an emissions value from DOE for a facility for which an emissions value
can be determined by using the most recent version of an LCA model or
models that have been designated by the Secretary for such use under
proposed Sec. 1.45Y-5(g)(6).
Proposed Sec. 1.45Y-5(g)(4) would provide that, upon the IRS's
acceptance of the taxpayer's Federal income tax return or Federal
return, as appropriate, containing a PER petition, the emissions value
of the facility specified on such petition will be deemed accepted.
Proposed Sec. 1.45Y-5(g)(4) would further provide that a taxpayer
would be able to rely upon an emissions value provided by DOE for
purposes of calculating and claiming a section 45Y credit, provided
that any information, representations, or other data provided to DOE in
support of the request for an emissions value are accurate. If
applicable, a taxpayer may rely upon an emissions value determined for
a facility using the most recent version of the LCA model or models
that, as of the time the PER petition is filed, have been designated by
the Secretary for such use under proposed Sec. 1.45Y-5(g)(6), provided
that any information, representations, or other data used to obtain
such emissions value are accurate. The IRS's deemed acceptance of an
emissions value is the Secretary's determination of the PER. Finally,
proposed Sec. 1.45Y-5(g)(4) would provide that the taxpayer must still
comply with all applicable requirements for the section 45Y credit and
any information, representations, or other data supporting an emissions
value are subject to later examination by the IRS.
Proposed Sec. 1.45Y-5(g)(5) would provide the rules applicable to
the emissions value request process. Proposed Sec. 1.45Y-5(g)(5) would
provide that an applicant that submits a request for an emissions value
must follow the procedures specified by DOE to request and obtain such
emissions value, and that emissions values will be determined
consistent with the rules provided in proposed Sec. 1.45Y-5. Proposed
Sec. 1.45Y-5(g)(5) would further provide that an applicant may request
an emissions value from DOE only after a front-end engineering and
design (FEED) study or similar indication of project maturity, as
determined by DOE, such as the completion of a project specification
and cost estimation sufficient to inform a final investment decision
for the facility. Proposed Sec. 1.45Y-5(g)(5) would provide that DOE
may decline to review applications that are non-responsive and those
applications that relate to a facility that is described in the Annual
Table (consistent with proposed Sec. 1.45Y-5(g)(2)) or a facility that
can determine an emissions value using a designated LCA model under
proposed Sec. 1.45Y-5(g)(6) (consistent with proposed Sec. 1.45Y-
5(g)(3)), or applications that are incomplete. Proposed Sec. 1.45Y-
5(g)(5) would also provide that applicants must follow DOE's guidance
and procedures for requesting and obtaining an emissions value from
DOE. DOE will publish guidance and procedures that applicants must
follow to request and obtain an emissions value from DOE. DOE's
guidance and procedure will include a process, under limited
circumstances, for a taxpayer to request a revision to DOE's initial
assessment of an emissions value on the basis of revised technical
information or facility design and operation. The Treasury Department
and the IRS anticipate that the emissions value request process will
open after the publication of the final regulations.
Proposed Sec. 1.45Y-5(g)(6) would provide that the Secretary may
designate one or more LCA models for a taxpayer to determine an
emissions value for C&G Facilities that are not described in the Annual
Table. Proposed Sec. 1.45Y-5(g)(6) would further provide that a model
may only be designated if it complies with section 45Y(b)(2)(B) and
proposed Sec. 1.45Y-5(d) and (e). The Secretary may revoke the
designation of an LCA model or models. In connection with the
designation or revocation of a designation of an LCA model or models,
the Secretary would be required to publish an accompanying expert
analysis of the model prepared by one or more of the National
Laboratories, in consultation with other agency experts as appropriate,
and such analysis must address the model's compliance with section
45Y(b)(2)(B) of the Code and proposed Sec. 1.45Y-5(d) and (e). The
Treasury Department and the IRS view the requirement to publish an
expert analysis prepared by the National Laboratories of the
designation or revocation of designation of an LCA model or models as
essential to ensuring public accountability and adherence to sound
scientific principles. This requirement would also ensure that the
Secretary has a robust record to inform any designations or revocations
of an LCA model or models.
Proposed Sec. 1.45Y-5(g)(7) would provide the rules governing the
effect of a PER. Proposed Sec. 1.45Y-5(g)(7) would provide that a
taxpayer may use a PER determined by the Secretary to determine the
section 45Y credit for the facility to which the PER applies, provided
all other requirements of section 45Y are met. Proposed Sec. 1.45Y-
5(g)(7) would further provide that the Secretary's PER determination is
not an examination or inspection of books of account for purposes of
section 7605(b) of the Code and does not preclude or impede the IRS
(under section 7605(b) or any administrative provisions adopted by the
IRS) from later examining a return or inspecting books or records with
respect to any taxable year for which the section 45Y credit is
claimed. Finally, proposed Sec. 1.45Y-5(g)(7) would provide that a PER
determination does not signify that the IRS has determined that the
[[Page 47812]]
requirements of section 45Y have been satisfied for any taxable year.
8. Reliance on Annual Table or Provisional Emissions Rate
Proposed Sec. 1.45Y-5(h) would provide that taxpayers may rely on
the Annual Table in effect as of the date a facility began construction
or the provisional emissions rate that has been determined by the
Secretary for the taxpayer's facility under proposed Sec. 1.45Y-
5(g)(4) to determine the facility's GHG emissions rate for that
facility for any taxable year that is within the 10-year period
described in section 45Y(b)(1)(B), provided that the facility continues
to operate as a type of facility that is described in the Annual Table
or the facility's emissions value request, as applicable, for the
entire taxable year.
9. Substantiation
Taxpayers have a general obligation to substantiate and verify that
they have met the requirements of any tax credits claimed on their tax
returns. Section 6001 of the Code provides that every person liable for
any tax imposed by the Code, or for the collection thereof, must keep
such records as the Secretary may from time to time prescribe. Section
1.6001-1(a) provides that any person subject to income tax must keep
such permanent books of account or records as are sufficient to
establish the amount of gross income, deductions, credits, or other
matters required to be shown by such person in any return of such tax.
Section 1.6001-1(e) provides that the books and records required by
Sec. 1.6001-1 must be retained so long as the contents thereof may
become material in the administration of any internal revenue law.
In addition to this general obligation to substantiate eligibility
for a claimed tax credit, taxpayers may also be required to keep
specific records as prescribed by the Secretary. This may be
appropriate for purposes of the section 45Y credit because certain
types of facilities may depend on operational choices, such as the use
of certain types of feedstocks or fuels or engaging in carbon capture
and sequestration, to achieve a net GHG emissions rate that is not
greater than zero for a taxable year, and these operational choices may
vary by year. Proposed Sec. 1.45Y-5(i)(1) would provide that a
taxpayer must maintain in its books and records documentation regarding
the design, operation, and if applicable, feedstock or fuel source used
by the facility that establishes that such facility had a GHG emissions
rate, as determined under Sec. 1.45Y-5, that is not greater than zero
for the taxable year. The Treasury Department and the IRS intend to
require in the final regulations that taxpayers maintain specific types
of documentation to substantiate that a facility for which a section
45Y credit is claimed has a net GHG emissions rate that is not greater
than zero. The Treasury Department and the IRS request comment on the
types of documentation taxpayers should be required to maintain to
substantiate eligibility for the section 45Y credit.
Proposed Sec. 1.45Y-5(i)(2) would further provide that
documentation that is sufficient to substantiate that a facility had a
GHG emissions rate of not greater than zero includes documentation or a
report prepared by an unrelated party that verifies that a facility had
such an emissions rate. Proposed Sec. 1.45Y-5(i)(2) would also provide
that facilities described in Sec. 1.45Y-5(c)(2) can maintain
sufficient documentation to demonstrate a GHG emissions rate showing
that the facility is described in Sec. 1.45Y-5(c)(2). Finally,
proposed Sec. 1.45Y-5(i)(2) would provide that future guidance may
describe sufficient documentation to substantiate that certain
facilities have a GHG emissions rate of not greater than zero. Because
certain types or categories of facilities may have emissions rates that
are highly variable and dependent on complex interactions between
design choices, operational choices, and fuel and feedstock sourcing
choices, the Treasury Department and the IRS seek comment on the
relative risk of inadvertently crediting above-zero-emissions
electricity generation for types or categories of facilities that may
potentially be eligible for the section 45Y credit. In addition,
comment is also requested on supply chain tracing and substantiation
requirements that the Treasury Department and the IRS may require in
the final regulations to demonstrate whether a facility used a specific
fuel to produce electricity and that such fuel has the emissions
attributes claimed by the taxpayer. Specifically, to inform the
development of the substantiation rules for the Clean Electricity Tax
Credits, comment is requested on the following topics:
(1) What types of documentation or substantiation should a taxpayer
maintain to establish that an input in the supply chain of a fuel/
feedstock used for electricity production has the energy attributes or
other relevant characteristics (for example, source and production
process) that were taken into account in determining a GHG emissions
rate?
(2) What existing systems, industry standards, or practices may be
used to substantiate that a facility's operations and the supply chain
for the inputs it used to produce electricity resulted in a GHG
emissions rate that is not greater than zero for a taxable year? If
existing systems, standards, or practices are currently not
sufficiently developed to serve as a form of substantiation, how should
such tracking and verification systems be developed and how long might
such development take?
(3) What supply chain tracing systems or verification bodies
address fuels or feedstocks that may be commonly used by facilities
that may be eligible for the Clean Electricity Tax Credits? What fuels
or feedstocks could these systems or bodies address and for what
purpose?
E. One-Megawatt Exception for Section 45Y
The Treasury Department and the IRS intend to provide a more
detailed definition for the One-Megawatt Exception in section
45Y(a)(2)(B)(i) by expanding upon the definition provided in the August
Proposed Regulations. The final regulations would provide that, for
purposes of section 45Y(a)(2)(B)(i), the determination of whether a
qualified facility has a maximum net output of less than one megawatt
of electricity (as measured in alternating current) is determined based
on the nameplate capacity. If applicable, taxpayers must use the
International Standard Organization (ISO) conditions to measure the
maximum electrical generating output of a qualified facility. For
purposes of this measurement, the nameplate capacity is the maximum
electrical generating output in MW (as measured in alternating current)
that the qualified facility is capable of producing on a steady state
basis and during continuous operation under standard conditions, as
measured by the manufacturer and consistent with the definition of
nameplate capacity provided in 40 CFR 96.202. The Treasury Department
and the IRS request comment on this proposed definition. This rule is
proposed to apply to qualified facilities placed in service after
December 31, 2024, and during taxable years ending on or after the date
of publication of the final regulations in the Federal Register.
II. Rules Applicable to the Clean Electricity Investment Tax Credit
These proposed regulations are organized in five sections, proposed
Sec. Sec. 1.48E-1 through 1.48E-5 (section 48E regulations). Proposed
Sec. 1.48E-1 would provide an overview of the section 48E regulations,
generally applicable definitions, and the rules applicable to the
calculation of section 48E credit. Proposed Sec. 1.48E-2 would provide
rules
[[Page 47813]]
relating to a qualified facility, a qualified investment, a qualified
property, and an energy storage technology (EST). Section 1.48E-3 is
reserved for rules relating to the increased credit amount for meeting
the prevailing wage and apprenticeship requirements. A cross reference
will be added to Sec. 1.48E-3 in the final regulations when Sec.
1.48E-3 is finalized. Proposed Sec. 1.48E-4 would provide the rules of
general application under section 48E, including the rules regarding
the inclusion of qualified interconnection costs in the basis of a low-
output associated qualified facility, rules for expansion of a facility
and incremental production, rules for retrofitting an existing
facility, rules for the ownership of a qualified facility or an EST,
rules regarding the coordination of the section 48E credit with other
Federal income tax credits, and rules for credit recapture. Proposed
Sec. 1.48E-5 would provide rules pertaining to the determination of a
GHG emissions rate for a facility under section 48E.
A. Amount of Credit
Proposed Sec. 1.48E-1(a) would provide an overview of the section
48E regulations and provide definitions of terms for purposes of the
section 48E regulations. Proposed Sec. 1.48E-1(b) would explain how to
calculate the amount of the section 48E credit for any taxable year.
Proposed Sec. 1.48E-1(b)(1) would provide that the credit is an
amount equal to the applicable percentage of the qualified investment
for such taxable year with respect to any qualified facility (as
defined in proposed Sec. 1.48E-2(a)) and any EST (as defined in
proposed Sec. 1.48E-2(g)). Proposed Sec. 1.48E-1(b)(2) would define
the applicable percentage as the base rate in proposed Sec. 1.48E-
1(b)(3) or the alternative rate in proposed Sec. 1.48E-1(b)(4).
Proposed Sec. 1.48E-1(b)(2) would also propose that the applicable
percentage may be increased as provided in section 48E(a)(3)(A) and
proposed Sec. 1.48E-1(b)(5) in the case of a qualified facility that
is located in an energy community. Similarly, Sec. 1.48E-1(b)(2) would
propose that the applicable percentage may be increased as provided in
section 48E(a)(3)(B) and proposed Sec. 1.48E-1(b)(6) in the case of a
qualified facility that satisfies the domestic content requirements.
Proposed Sec. 1.48E-1(b)(3) would describe the base rate as 6
percent. Proposed Sec. 1.48E-1(b)(4) would describe the alternative
rate as 30 percent if certain prevailing wage and apprenticeship
requirements are satisfied.
Proposed Sec. 1.48E-1(b)(5) would provide rules applicable to the
energy communities increase in credit rate. Proposed Sec. 1.48E-
1(b)(6) would provide rules applicable to the domestic content increase
in credit rate.
Proposed Sec. 1.48E-1(c) would provide the credit phase-out rules.
Generally, proposed Sec. 1.48E-1(c)(1) would provide that the amount
of the clean electricity investment credit under section 48E for any
qualified facility or EST the construction of which begins during a
calendar year described in section 48E(e)(2) is equal to the product of
the amount of the credit determined under section 48E(a) and proposed
Sec. 1.48E-1(b) without regard to section 48E(e), multiplied by the
phase-out percentage under section 48E(e)(2) and proposed Sec. 1.48E-
1(c)(2). Proposed Sec. 1.48E-1(c)(2) would provide that the phase-out
percentage is 100 percent for any qualified investment with respect to
any qualified facility or EST the construction of which begins during
the first calendar year following the applicable year; 75 percent for
any qualified investment with respect to any qualified facility or EST
the construction of which begins during the second calendar year
following the applicable year; 50 percent for any qualified investment
with respect to any qualified facility or EST the construction of which
begins during the third calendar year following the applicable year;
and 0 percent for any qualified investment with respect to any
qualified facility or EST the construction of which begins during any
calendar year subsequent to the calendar year described in section
48E(e)(2)(C). Proposed Sec. 1.48E-1(c)(3) would define ``applicable
year'' for purposes of proposed Sec. 1.48E-1(c) as having the same
meaning as provided in proposed Sec. 1.45Y-1(c)(3).
B. Qualified Facility
Proposed Sec. 1.48E-2(a) would define a ``qualified facility'' to
mean a facility that is used for the generation of electricity; is
placed in service by the taxpayer after December 31, 2024; and has a
GHG emissions rate of not greater than zero (as determined under rules
provided in Sec. 1.45Y-5).
1. Property Included in Qualified Facility
Proposed Sec. 1.48E-2(b) would provide that a qualified facility
includes a unit of qualified facility (as defined in proposed Sec.
1.48E-2(b)(2)(i)) and property owned by the same taxpayer that is
integral to the unit of qualified facility (as described in proposed
Sec. 1.48E-2(b)(3)). Proposed Sec. 1.48E-2(b)(1) would provide that
any component of property that meets the requirements of proposed Sec.
1.48E-2(b) is part of a qualified facility regardless of where such
component of property is located. Proposed Sec. 1.48E-2(b)(1) would
provide that a qualified facility does not include any electrical
transmission equipment, such as transmission lines and towers, or any
equipment beyond the electrical transmission stage. Proposed Sec.
1.48E-2(b)(1) would also provide that a qualified facility generally
does not include equipment that is an addition or modification to an
existing qualified facility. However, proposed Sec. 1.48E-2(b)(1)
would reference proposed Sec. 1.48E-4(b) regarding the expansion of a
facility or incremental production and proposed Sec. 1.48E-4(c) for
rules regarding retrofitted facilities (80/20 Rule).
2. Functionally Interdependent
Proposed Sec. 1.48E-2(b)(2)(i) would provide that the unit of a
qualified functionally interdependent components of a property (as
defined in Sec. 1.48E-2(b)(2)(ii) owned by the taxpayer that are
operated together and that can operate apart from other property to
produce electricity. Proposed Sec. 1.48E-2(b)(2)(i) would further
provide that no provision of this section, Sec. 1.48E-1, or Sec.
1.48E-4 through 1.48E-5 uses the term ``unit'' in respect of a
qualified facility with any meaning other than that provided in Sec.
1.48E-2(b)(2)(ii). A reference to Sec. 1.48E-3 will also be added to
the previous sentence in proposed Sec. 1.48E-2(b)(2)(i) when that
regulation is finalized, but it cannot be added until Sec. 1.48E-3 is
finalized. Proposed Sec. 1.48E-2(b)(2)(ii) would define components as
``functionally interdependent'' if the placing in service of each of
the components is dependent upon the placing in service of each of the
other components to produce electricity.
3. Integral Part
Proposed Sec. 1.48E-2(b)(3)(i) would provide that property owned
by a taxpayer is an integral part of a qualified facility owned by the
same taxpayer if it is used directly in the intended function of the
qualified facility and is essential to the completeness of the intended
function. Proposed Sec. 1.48E-2(b)(3)(i) would also clarify that
property that is an integral part of a qualified facility is part of
the qualified facility. Lastly, proposed Sec. 1.48E-2(b)(3)(i) would
explain that a taxpayer may not claim the section 48E credit for any
property that is an integral part of a qualified facility that is not
owned by the taxpayer.
[[Page 47814]]
Proposed Sec. 1.48E-2(b)(3)(ii) would describe power conditioning
equipment and transfer equipment as integral parts of a qualified
facility. Proposed Sec. 1.48E-2(b)(3)(ii) would further provide that
power conditioning equipment includes equipment that modifies the
characteristics of electricity into a form suitable for use or
transmission or distribution. Proposed Sec. 1.48E-2(b)(3)(ii) would
also provide that parts related to the functioning or protection of
power conditioning equipment are also treated as power conditioning
equipment and include examples.
Proposed Sec. 1.48E-2(b)(3)(ii) would further provide that
transfer equipment includes components that permit the aggregation of
electricity generated by components of qualified facilities and
components that alter voltage to permit transfer to a transmission or
distribution line and would clarify that transfer equipment does not
include transmission or distribution lines. Proposed Sec. 1.45Y-
2(b)(3)(ii) would provide examples of transfer equipment that include,
but are not limited to, wires, cables, and combiner boxes that conduct
electricity. Proposed Sec. 1.45Y-2(b)(3)(ii) would provide that parts
related to the functioning or protection of transfer equipment are also
treated as transfer equipment and include examples.
Proposed Sec. 1.48E-2(b)(3)(iii) would provide that roads that are
an integral part of a qualified facility are those roads integral to
the intended function of the qualified facility such as onsite roads
that are used to operate and maintain the qualified facility. Proposed
Sec. 1.48E-2(b)(3)(iii) would also clarify that roads primarily for
access to the site, or roads used primarily for employee or visitor
vehicles, are not integral to the intended function of the qualified
facility, and thus are not an integral part of a qualified facility.
Proposed Sec. 1.48E-2(b)(3)(iv) and (v) would provide that fences
and buildings (also referred to as structures) are generally not
integral parts of a qualified facility because they are not integral to
the intended function of the qualified facility. However, a building
(or structure) may be an integral part of a qualified facility if it is
essentially an item of machinery or equipment and a structure that
houses property that is integral to the intended function of the
qualified facility, if the use of the structure is so closely related
to the use of the housed components of property therein that the
structure clearly can be expected to be replaced if the components of
property it initially houses are replaced.
Proposed Sec. 1.48E-2(b)(3)(vi) would provide a rule for shared
integral property stating that multiple qualified facilities (whether
owned by one or more taxpayers), including qualified facilities with
respect to which a taxpayer has claimed a credit under section 48E or
another Federal income tax credit, may include shared property that may
be considered an integral part of each qualified facility so long as
the cost basis for the shared property is properly allocated to each
qualified facility and the taxpayer only claims a section 48E credit
with respect to the portion of the cost basis properly allocable to a
facility for which the taxpayer is claiming a section 48E credit.
Proposed Sec. 1.48E-2(b)(3)(vi) would further clarify that the total
cost basis of such shared property divided among the qualified
facilities may not exceed 100 percent of the cost of such shared
property. Lastly, proposed Sec. 1.48E-2(b)(3)(vi) specifies that
property that is shared by a qualified facility (as defined in section
48E(b)(3)) (48E Qualified Facility) and a qualified facility (as
defined by section 45Y(b) (45Y Qualified Facility) that is an integral
part of both qualified facilities will not affect the eligibility of
the 48E Qualified Facility for the section 48E credit or the 45Y
Qualified Facility for the section 45Y credit.
4. Coordination With Other Credits
Proposed Sec. 1.48E-2(c)(1) would provide that the term
``qualified facility'' (as defined in section 48E(b)(3)) will not
include any facility for which a credit determined under section 45,
45J, 45Q, 45U, 45Y, 48, or 48A is allowed under section 38 for the
taxable year or any prior taxable year. Proposed Sec. 1.48E-2(c)(1)
would further clarify that a taxpayer that directly owns a qualified
facility (as defined in section 48E(b)(3)) that is eligible for both a
section 48E credit and another Federal income tax credit is eligible
for the section 48E credit only if the other Federal income tax credit
was not allowed with respect to the qualified facility. Proposed Sec.
1.48E-2(c)(1) would provide that nothing in proposed Sec. 1.48E-2(c)
precludes a taxpayer from claiming a section 48E credit with respect to
a qualified facility (as defined in section 48E(b)(3)) that is co-
located with another facility for which a credit determined under
section 45, 45J, 45Q, 45U, 45Y, 48, or 48A is allowed under section 38
for the taxable year or any prior taxable year.
Proposed Sec. 1.48E-2(c)(2) would clarify that for purposes of
proposed Sec. 1.48E-2(c)(1), the term ``allowed'' only includes
credits that taxpayers have claimed on a Federal income tax return or
Federal return, as appropriate, and that the IRS has not challenged in
terms of the taxpayer's eligibility.
Proposed Sec. 1.48E-2(c)(3) would include several examples that
illustrate the application of the rules provided in proposed Sec.
1.48E-2(c).
5. Qualified Investment With Respect to a Qualified Facility
Proposed Sec. 1.48E-2(d) would describe a qualified investment
with respect to any qualified facility for any taxable year as the sum
of the basis of any qualified property (as defined in proposed Sec.
1.48E-2(e)(1)) placed in service by the taxpayer during such taxable
year that is part of a qualified facility (as defined in proposed Sec.
1.48E-2(a)) and the amount of any expenditures paid or incurred by the
taxpayer for qualified interconnection property (as defined in proposed
Sec. 1.48E-4(a)(2)).
6. Qualified Property
a. Generally
Proposed Sec. 1.48E-2(e) would define ``qualified property'' for
purposes of proposed Sec. 1.48E-2(a) to mean property that meets three
requirements. First, proposed Sec. 1.48E-2(e)(1)(i) would require that
the property is tangible personal property (as defined in proposed
Sec. 1.48E-2(f)(1)) or other tangible property (not including a
building or its structural components) (as defined in proposed Sec.
1.48E-2(f)(2)), but only if such other tangible property is used as an
integral part (as defined proposed Sec. 1.48E-2(b)(3)) of the
qualified facility (as defined in proposed Sec. 1.48E-2(a)).
Second, proposed Sec. 1.48E-2(e)(1)(ii) would require that
depreciation (or amortization in lieu of depreciation) be allowable (as
defined in proposed Sec. 1.48E-2(f)(6)) with respect to the property.
Third, proposed Sec. 1.48E-2(e)(1)(iii) would require that the
taxpayer either constructs, reconstructs, or erects the property (as
defined in proposed Sec. 1.48E-2(f)(3)) or acquires the property (as
defined in proposed Sec. 1.48E-2(f)(4)) if the original use of the
property (as defined in proposed Sec. 1.48E-2(f)(5)) commences with
the taxpayer.
Proposed Sec. 1.48E-2(e)(2) would provide that any component of a
qualified property that meets the requirements of proposed Sec. 1.48E-
2(e) is part of a qualified facility regardless of where such component
of property is located.
[[Page 47815]]
b. Definitions Related to Qualified Property
Tangible Personal Property
Proposed Sec. 1.48E-2(f)(1) would define the term ``tangible
personal property'' for purposes of section 48E and proposed Sec.
1.48E-2(b) to mean any tangible property except land and improvements
thereto, such as buildings or other inherently permanent structures
(including items that are structural components of such buildings or
structures). Proposed Sec. 1.48E-2(f)(1) would further provide that
tangible personal property includes all property (other than structural
components) that is contained in or attached to a building and that all
property that is in the nature of machinery (other than structural
components of a building or other inherently permanent structure) is
considered tangible personal property even though located outside a
building. Finally, proposed Sec. 1.48E-2(f)(1) would clarify that
local law is not controlling for purposes of determining whether
property is or is not tangible property or tangible personal property.
Therefore, proposed Sec. 1.48E-2(f)(1) would explain that tangible
property may be personal property for purposes of the section 48E
credit even though under local law the property is considered a fixture
and therefore real property.
Other Tangible Property
Proposed Sec. 1.48E-2(f)(2) would define the term ``other tangible
property'' to mean tangible property other than tangible personal
property (not including a building and its structural components), that
is used as an integral part of furnishing electricity by a person
engaged in a trade or business of furnishing any such service.
Construction, Reconstruction, or Erection of Qualified Property
Proposed Sec. 1.48E-2(f)(3) would define the term ``construction,
reconstruction, or erection of qualified property'' to mean work
performed to construct, reconstruct, or erect qualified property either
by the taxpayer or for the taxpayer in accordance with the taxpayer's
specifications.
Acquisition of Qualified Property
Proposed Sec. 1.48E-2(f)(4) would define the term ``acquisition of
qualified property'' to mean a transaction by which a taxpayer obtains
rights and obligations with respect to qualified property including
title to the qualified property under the law of the jurisdiction in
which the qualified property is placed in service, unless the qualified
property is possessed or controlled by the taxpayer as a lessee, and
physical possession or control of the qualified property.
Original Use of Qualified Property
Proposed Sec. 1.48E-2(f)(5)(i) would provide that the term
``original use of qualified property'' means the first use to which
qualified property is put, whether or not such use is by the taxpayer.
Proposed Sec. 1.48E-2(f)(5)(ii) would clarify that a retrofitted
qualified facility acquired by the taxpayer will not be treated as
being put to original use by the taxpayer unless the rules in proposed
Sec. 1.48E-4(c) regarding retrofitted qualified facilities (80/20
Rule) apply. Proposed Sec. 1.48E-2(f)(5)(ii) explains that the
question of whether a qualified facility meets the 80/20 Rule is a
facts and circumstances determination.
Depreciation Allowable
Proposed Sec. 1.48E-2(f)(6)(i) would provide a general rule for
purposes of applying proposed Sec. 1.48E-2(b), that depreciation (or
amortization in lieu of depreciation) is allowable with respect to
qualified property if such property is of a character subject to the
allowance for depreciation under section 167 of the Code and the basis
or cost of such property is recovered using a method of depreciation
(for example, the straight line method), which includes any additional
first year depreciation deduction method of depreciation (for example,
under section 168(k) of the Code). Proposed Sec. 1.48E-2(f)(6)(i)
would further clarify that if an adjustment with respect to the Federal
income tax or Federal return for such taxable year requires the basis
or cost of such qualified property to be recovered using a method of
depreciation, depreciation is allowable to the taxpayer with respect to
the qualified property. Proposed Sec. 1.48E-2(f)(6)(ii) would describe
exclusions from allowable depreciation stating that for purposes of
proposed Sec. 1.48E-2(b), depreciation is not allowable with respect
to a qualified facility if the basis or cost of such qualified facility
is not recovered through a method of depreciation but, instead, such
basis or cost is recovered through a deduction of the full basis or
cost of the qualified facility in one taxable year (for example, under
section 179 of the Code).
Placed in Service
Proposed Sec. 1.48E-2(f)(7)(i) would provide the general rule for
determining when a qualified facility has been placed in service for
purposes of the section 48E credit. Proposed Sec. 1.48E-2(f)(7)(ii)
would provide that notwithstanding the general placed in service rules
provided in proposed Sec. 1.48E-2(b)(7)(i), a qualified facility with
respect to which an election is made under Sec. 1.48-4 to treat the
lessee as having purchased such qualified facility is considered placed
in service by the lessor in the taxable year in which possession is
transferred to such lessee.
Claim
Proposed Sec. 1.48E-2(f)(8) would provide that with respect to a
section 48E credit determined with respect to qualified facility of a
taxpayer, the term ``claim'' would be defined to mean filing a
completed Form 3468, Investment Credit, or any successor form(s), with
the taxpayer's timely filed (including extensions) Federal income tax
return or Federal return, as appropriate, for the taxable year in which
the qualified facility is placed in service, and includes making an
election under section 6417 or 6418 of the Code and corresponding
regulations with respect to such section 48E credit and made on the
taxpayer's filed return.
C. Energy Storage Technology
1. General Rule
Proposed Sec. 1.48E-2(g)(1) would provide that an EST includes a
unit of EST that meets the requirements of proposed Sec. 1.48E-
2(g)(2)(i). An EST also would include property owned by the taxpayer
that is an integral part (as defined in proposed Sec. 1.48E-2(g)(3))
of the unit of EST. Proposed Sec. 1.48E-2(g)(1) would provide that
equipment that is an addition or modification to an existing EST is not
eligible for the section 48E credit. Proposed Sec. 1.48E-2(g)(1) would
further provide that, an EST would include electrical energy storage
property described in proposed Sec. 1.48E-2(g)(6)(i), thermal energy
storage property described in proposed Sec. 1.48E-2(g)(6)(ii), and
hydrogen energy storage property described in proposed Sec. 1.48E-
2(g)(6)(iii).
Proposed Sec. 1.48E-2(g)(2) would provide that a unit of EST
includes all functionally interdependent components of property (as
defined in proposed Sec. 1.48E-2(g)(2)(ii)), owned by the taxpayer
that are operated together and that can operate apart from other
property to perform the intended function of the EST.
2. Functionally Interdependent
Proposed Sec. 1.48E-2(g)(2)(i) would provide that for purposes of
the section 48E credit, a unit of EST includes all functionally
interdependent components of property (as defined in paragraph proposed
Sec. 1.48E-2(g)(2)(ii))
[[Page 47816]]
owned by the taxpayer that are operated together and that can operate
apart from other property to perform the intended function of the EST.
Proposed Sec. 1.48E-2(g)(2)(i) would also provide that no provision of
this section, Sec. 1.48E-1, or Sec. 1.48E-3 through 1.48E-5 uses the
term unit in respect of an EST with any meaning other than that
provided in Sec. 1.48E-2(g)(2)(i). Proposed Sec. 1.48E-2(g)(2)(ii)
would provide that components are functionally interdependent if the
placing in service of each of the components is dependent upon the
placing in service of each of the other components to perform the
intended function of the EST.
3. Integral Part
Proposed Sec. 1.48E-2(g)(3) would provide that property owned by a
taxpayer is an integral part of EST owned by the same taxpayer if it is
used directly in the intended function of the EST and is essential to
the completeness of such function. Proposed Sec. 1.48E-2(g)(3) would
also provide that property that is an integral part of an EST is part
of an EST. Lastly, proposed Sec. 1.48E-2(g)(3) would provide that a
taxpayer may not claim the section 48E credit for any property that is
an integral part of an EST that is not owned by the taxpayer.
4. Qualified Investment With Respect to Energy Storage Technology
Proposed Sec. 1.48E-2(g)(4) would describe the qualified
investment with respect to any EST for any taxpayer year as the basis
of any EST placed in service by the taxpayer during such taxable year.
5. Placed in Service
Proposed Sec. 1.48E-2(g)(5)(i) would provide rules for determining
when an EST has been placed in service for purposes of the section 48E
credit. Proposed Sec. 1.48E-2(g)(5)(ii) also would provide that
notwithstanding the general placed in service rules provided in
proposed Sec. 1.48E-2(g)(5)(i), an EST with respect to which an
election is made under Sec. 1.48-4 to treat the lessee as having
purchased such EST is considered placed in service by the lessor in the
taxable year in which possession is transferred to such lessee.
6. Types of Energy Storage Technologies
Proposed Sec. 1.48E-2(g)(6)(i) would describe electrical energy
storage property as property (other than property primarily used in the
transportation of goods or individuals and not for the production of
electricity) that receives, stores, and delivers energy for conversion
to electricity and has a nameplate capacity of not less than 5 kWh. See
subsection C of Overview of Section 48E. Proposed Sec. 1.48E-
2(g)(6)(i) also would provide examples of such electrical energy
storage property, subject to the exclusion for property primarily used
in the transportation of goods or individuals.
The Treasury Department and the IRS understand that this exclusion
for property primarily used in the transportation of goods or
individuals, at a minimum, would apply to batteries and other EST that
are incorporated into or otherwise physically integrated within motor
vehicles and other modes of transportation of goods or individuals and
from which an electric motor of such vehicle or other mode of
transportation draws electricity for propulsion.
Proposed Sec. 1.48E-2(g)(6)(ii) would describe thermal energy
storage property as property comprising a system that is directly
connected to a heating, ventilation, or air conditioning (HVAC) system;
removes heat from, or adds heat to, a storage medium for subsequent
use; and provides energy for the heating or cooling of the interior of
a residential or commercial building. See section C of Overview of
Section 48E. Proposed Sec. 1.48E-2(g)(6)(ii) would also provide that
thermal energy storage property includes equipment and materials, and
parts related to the functioning of such equipment, to store thermal
energy for later use to heat or cool, or to provide hot water for use
in heating a residential or commercial building. In addition, proposed
Sec. 1.48E-2(g)(6)(ii) would provide that thermal energy storage
property does not include a swimming pool, CHP property, or a building
or its structural components. Lastly, proposed Sec. 1.48E-2(g)(6)(ii)
would provide examples of thermal energy storage property.
Proposed Sec. 1.48E-2(g)(6)(iii) would provide that hydrogen
energy storage property is property (other than property primarily used
in the transportation of goods or individuals and not for the
production of electricity) that stores hydrogen and has a nameplate
capacity of not less than 5 kWh, equivalent to 0.127 kg of hydrogen or
52.7 standard cubic feet (scf) of hydrogen. Proposed Sec. 1.48E-
2(g)(6)(iii) would also provide that hydrogen energy storage property
must store hydrogen that is solely used as energy and not for other
purposes such as for the production of end products such as fertilizer.
Proposed Sec. 1.48E-2(g)(6)(iii) would also provide examples of
hydrogen energy storage property.
Although the list of examples of energy storage technologies that
proposed Sec. 1.48E-2(g)(6) would provide is nonexclusive, and
therefore many other technologies that are not addressed would meet
these functional definitions, there are some examples that do not meet
the functional definition. For example, some technologies are marketed
as ``virtual batteries,'' which are aggregations of controllable
electricity demand providing similar electrical grid services to an
electrical grid battery. Such ``virtual batteries'' receive energy in
the form of electricity, but they do not store it for later discharge
as electricity. The function of ``virtual batteries'' is to shift
demand to different points in time. Because such demand shifting is not
a storage activity for purposes of section 48(c)(6) (and thus for
purposes of section 48E(c)(2)), this technology is not an EST. There
are other technologies for which the determination of whether they meet
the statutory requirements is less clear.
7. Modification of Energy Storage Technology
Proposed Sec. 1.48E-2(g)(7) would provide rules for modification
of EST. Based on the rules in section 48(c)(6)(B), proposed Sec.
1.48E-2(g)(7) would provide that with respect to electrical energy
storage property and hydrogen energy storage property, modified as set
forth in proposed Sec. 1.48E-2(g)(7), such property will be will be
treated as an electrical energy storage property (as described in
proposed Sec. 1.48E-2(g)(6)(i)) or a hydrogen energy storage property
(as described in proposed Sec. 1.48E-2(g)(6)(iii)), except that the
basis of any existing electrical energy storage property or hydrogen
energy storage property prior to such modification is not taken into
account for purposes of proposed Sec. 1.48E-2(g)(7) and section 48E.
8. Claim
Proposed Sec. 1.48E-2(g)(8) would provide that with respect to a
section 48E credit determined with respect to an EST of a taxpayer, the
term ``claim'' means filing a completed Form 3468, Investment Credit,
or any successor form(s), with the taxpayer's timely filed (including
extensions) Federal income tax return or Federal return, as
appropriate, for the taxable year in which the EST is placed in
service, and includes making an election under section 6417 or 6418 and
corresponding regulations with respect to such section 48E credit and
made on the taxpayer's filed return.
[[Page 47817]]
D. Rules of General Application to Section 48E
1. Rules for Certain Lower-Output Qualified Facilities
Proposed Sec. 1.48E-4(a)(1) would provide rules for qualified
facilities with a maximum net output of not greater than 5 megawatts to
include qualified interconnection costs in the basis of an associated
qualified facility. Proposed Sec. 1.48E-4(a)(1) would provide that the
qualified investment for a qualified facility includes amounts paid or
incurred by the taxpayer for qualified interconnection property in
connection with the installation of a qualified facility that has a
maximum net output of not greater than 5 MW (as measured in alternating
current) (Five-Megawatt Limitation). Proposed Sec. 1.48E-4(a)(1) would
provide that the qualified interconnection property must provide for
the transmission or distribution of the electricity produced by a
qualified facility and must be properly chargeable to the capital
account of the taxpayer as reduced by proposed Sec. 1.48E-4(a)(6).
Proposed Sec. 1.48E-4(a)(2) would define the term ``qualified
interconnection property.'' Proposed Sec. 1.48E-4(a)(2) would further
provide that qualified interconnection property is not taken into
account to determine if a qualified facility meets the requirements for
the increase in credit rate for energy communities or domestic content
because qualified interconnection property is not part of a qualified
facility.
Proposed Sec. 1.48E-4(a)(3) would describe the Five-Megawatt
Limitation as a measurement taken at the qualified facility level.
Proposed Sec. 1.48E-4(a)(3)(i) would provide that the maximum net
output of a qualified facility is measured only by the nameplate
generating capacity of the unit of qualified facility, which does not
include the nameplate capacity of any integral property, at the time
that the qualified facility is placed in service. Further, proposed
Sec. 1.48E-4(a)(3)(i) would also provide that the nameplate generating
capacity of the unit of qualified facility is measured independently
from any other qualified facilities that share the same integral
property.
Proposed Sec. 1.48E-4(a)(4) would define the term
``interconnection agreement.'' and proposed Sec. 1.48E-4(a)(5) would
define the term ``utility.''
Proposed Sec. 1.48E-4(a)(6) would provide that expenses paid or
incurred for qualified interconnection property and amounts otherwise
chargeable to capital account with respect to such expenses must be
reduced under rules similar to the rules contained in section 50(c).
The taxpayer must pay or incur the interconnection property costs, and
therefore, any reimbursement, including by a utility, must be accounted
for by reducing the taxpayers' expenditure to determine eligible costs.
A taxpayer that is reimbursed for these costs may not include such
reimbursed costs in the amount paid or incurred by the taxpayer for
qualified interconnection property. Proposed Sec. 1.48E-4(a)(6) would
adopt this rule. In the case of a utility reimbursing a taxpayer for
costs the taxpayer pays or incurs for qualified interconnection
property, the utility should provide the taxpayer with information
regarding such costs by the date on which the project is placed in
service.
The Treasury Department and the IRS are aware of common situations
in which a taxpayer could ultimately receive a payment, credit, or
service from another entity, including a utility, related to the costs
the taxpayer pays or incurs for qualified interconnection property. For
example, one taxpayer may place in service a qualified facility and
make payments to a utility with respect to qualified interconnection
property involving the addition, modification, or upgrade to the
utility's transmission system related to such qualified facility.
Subsequently, a different taxpayer may, at a later date, place in
service a qualified facility and make payments to the same utility
related to the same additions, modifications, or upgrades to the
utility's transmission system that were made in response to the first
taxpayer's interconnection. The utility may pay, credit, or provide
services to the first taxpayer in an amount related to the costs paid
by the second taxpayer. The likely amount or timing of any such
payment, credit, or service would not be known at the time the first
taxpayer interconnects to the utility's transmission system.
The Treasury Department and the IRS request comment on whether such
payment, credit, or service received by the first taxpayer, as the
result of subsequent payments made to a utility by other parties,
should be treated as a reimbursement to the first taxpayer and impact
the amount of the costs of qualified interconnection property that the
first taxpayer may include in its basis for purposes of the section 48E
credit. The Treasury Department and the IRS also request comment on
whether the costs paid by the second taxpayer should be treated as
amounts paid or incurred for qualified interconnection property in
connection with the installation of the second taxpayer's qualified
facility. The Treasury Department and the IRS request comment on
industry practices relevant to the determination of costs paid or
incurred for qualified interconnection property, including the
accounting treatment of costs paid or incurred for qualified
interconnection property. The Treasury Department and the IRS also
request comment on whether any clarifications are needed regarding the
tax treatment of amounts paid or incurred for qualified interconnection
property, including reimbursement of costs paid or incurred by a
taxpayer for qualified interconnection costs.
In section 3.02(1)(b)(ii) of Notice 2022-49, the Treasury
Department and the IRS requested comments concerning what type of
documentation, in addition to interconnection agreements and cost
certification reports, is readily available for a taxpayer to
demonstrate that they have paid or incurred interconnection costs in
the context of the section 48 credit. Taxpayers must retain
documentation in compliance with section 6001. The proposed regulations
do not provide any specific type of required documentation, and any
documentation that satisfies section 6001 will suffice to substantiate
that a taxpayer has paid or incurred qualified interconnection costs.
Commenters to Notice 2022-49 provided feedback on the documentation
that taxpayers may use to substantiate costs paid or incurred for
qualified interconnection property in the context of the section 48
credit. The Treasury Department and the IRS request comments on this
same question in the context of the section 48E credit.
Qualified interconnection property is either constructed,
reconstructed, or erected by the taxpayer, or the taxpayer pays or
incurs the cost with respect to the construction, reconstruction, or
erection of such property; and the original use of which, pursuant to
an interconnection agreement, commences with a utility. Therefore, in
some cases, taxpayers will have the necessary information and
documentation on these costs. In other cases, the taxpayers will need
to receive this information from the utility, which, the Treasury
Department and the IRS understand, will be a common scenario. For
situations in which property is constructed, reconstructed, or erected
by a party other than the taxpayer, final information with conclusive
details such as a true-up report with the actual costs, final invoices,
proof of payment or reimbursement, and permission to operate
documentation or any other final project accounting documentation
should be maintained. Other examples
[[Page 47818]]
of cost documentation records include, but are not limited to, the
interconnection agreement, interconnection study, signed customer
contracts, and cost certification reports.
2. Expansion of Facility; Incremental Production
Proposed Sec. 1.48E-4(b) would provide rules related to the
expansion of capacity of a qualified facility by the addition of a new
unit or an addition of capacity. Proposed Sec. 1.48E-4(b)(1) would
provide, that solely for purposes of Sec. 1.48E-4(b), the term
``qualified facility'' includes either a new unit or an addition of
capacity placed in service after December 31, 2024, in connection with
a facility described in section 48E(b)(3)(A) (without regard to clause
(ii) of such paragraph), which was placed in service before January 1,
2025, but only to the extent of the increased amount of electricity
produced at the facility by reason of such new unit or addition of
capacity. Proposed Sec. 1.48E-4(b)(1) further provides that a new unit
or an addition of capacity that meets the requirements of proposed
Sec. 1.48E-4(b) will be treated as a separate qualified facility.
Proposed Sec. 1.48E-4(b) provides that a new unit or addition of
capacity requires the addition or replacement of qualified property (as
defined in Sec. 1.48E-2(e)), including any new or replacement integral
property added to the facility necessary to increase capacity. If
applicable, taxpayers must use modified or amended facility operating
licenses or the International Standard Organization (ISO) conditions to
measure the maximum electrical generating output of a facility to
determine nameplate capacity. Additionally, Sec. 1.48E-4(b)(1) would
provide that for purposes of section 48E(a)(2)(B)(ii)(I) (that is, the
One-Megawatt Exception), the capacity for a new unit or an addition of
capacity is the sum of the nameplate capacity of the added qualified
facility and the nameplate capacity of the facility to which the
qualified facility was added.
Proposed Sec. 1.48E-4(b)(2) would provide that solely for purposes
of Sec. 1.48E-4(b), a facility that is decommissioned or in the
process of decommissioning and restarts can be considered to have
increased capacity if the following conditions are met: (1) the
existing facility must have ceased operations; (2) the existing
facility must have a period of at least one calendar year during which
it is without a valid operating license from its respective Federal
regulatory authority (that is, the Federal Energy Regulatory Commission
(FERC) or the Nuclear Regulatory Commission (NRC)); and (3) the
increased capacity of the restarted facility must have a new,
reinstated, or renewed operating license issued by either FERC or NRC.
Proposed Sec. 1.48E-4(b)(3) would describe two different methods
for a taxpayer to compute the qualified investment that increased the
amount of electricity produced by either a new unit or an addition of
capacity described in Sec. 1.48E-4(b)(1). Proposed Sec. 1.48E-
4(b)(3)(i) would provide that the term ``new unit'' means components of
property including any new or replacement integral property added to a
facility necessary to increase the capacity of the facility but do not
replace the existing capacity of the facility. Further, proposed Sec.
1.48E-4(b)(3)(i) would provide that the taxpayer's qualified investment
in the new unit during the taxable year that results in an increase in
capacity is eligible for the section 48E credit.
Proposed Sec. 1.48E-4(b)(3)(ii) would address the application of
the rule to an addition of capacity by providing that the term
``addition of capacity'' means components of property, including any
new or replacement integral property added to a facility necessary to
increase the capacity of the facility by replacing, in whole or in
part, the existing capacity of the facility. Proposed Sec. 1.48E-
4(b)(3)(ii) would provide that to determine a taxpayer's qualified
investment during the taxable year that resulted in an increased
capacity of a facility by reason of an addition of capacity not
described in proposed Sec. 1.48E-4(b)(3)(i), a taxpayer must multiply
its total qualified investment during the taxable year with respect to
the facility, by a fraction, the numerator of which is the increase in
nameplate capacity that results from the addition of capacity, and the
denominator of which is the total nameplate capacity associated with
the components of property that result in the addition of capacity.
Proposed Sec. 1.48E-4(b)(4) would provide examples to illustrate
the application of both methods to determine the increased amount of
electricity attributable to a new unit or an addition of capacity
described in Sec. 1.48E-4(b)(1).
3. Retrofit of an Existing Facility (80/20 Rule)
Proposed Sec. 1.48E-4(c) would provide rules related to the
retrofit of an existing qualified facility. Proposed Sec. 1.48E-
4(c)(1) would provide that for purposes of section 48E(b)(3)(A)(ii), a
facility may qualify as originally placed in service even if it
contains some used components of property within the unit of qualified
facility, provided that the fair market value of the used components of
the unit of qualified facility is not more than 20 percent of the unit
of qualified facility's total value (that is, the cost of the new
components of property plus the value of the used components of
property within the unit of qualified facility) (80/20 Rule).
Proposed Sec. 1.48E-4(c)(2) would provide that only expenditures
paid or incurred that related to the new components of the unit of
qualified facility are taken into account for computing the section 48E
credit with respect to the unit of qualified facility.
Proposed Sec. 1.48E-4(c)(3) would provide that the cost of new
components of the unit of qualified facility includes all costs
properly included in the depreciable basis of the new components.
Proposed Sec. 1.48E-4(c)(4) would provide that if the taxpayer
satisfies the 80/20 Rule with regard to a unit of qualified facility,
and the taxpayer incurs new costs for property that is an integral part
of the qualified facility, the taxpayer may include these new costs
paid or incurred for property that is an integral part of the qualified
facility in the basis of the qualified facility for purposes of
calculating the section 48E credit.
Proposed Sec. 1.48E-4(c)(5) would provide that costs incurred for
new components of property added to used components of a unit of
qualified facility may not be taken into account for purposes of the
section 48E credit unless the taxpayer satisfies the 80/20 Rule.
Proposed Sec. 1.48E-4(c)(6) would provide examples.
4. Special Rules Regarding Ownership
Proposed Sec. 1.48E-4(d) would provide rules related to the
ownership of a qualified facility or EST. Proposed Sec. 1.48E-4(d)(1)
would provide that a taxpayer that owns a qualified investment with
respect to a qualified facility or EST is eligible for the section 48E
credit only to the extent of the taxpayer's eligible investment in the
qualified facility or EST. In the case of multiple taxpayers holding
direct ownership through their qualified investments in a single
qualified facility or EST, each taxpayer determines its eligible
investment based on the taxpayer's fractional ownership interest in the
qualified facility or EST.
Proposed Sec. 1.48E-4(d)(2) would provide that a taxpayer must
directly own at least a fractional interest in the entire unit of
qualified facility (as defined in Sec. 1.48E-2(b)(2) or unit of EST
(as defined in Sec. 1.48E-2(g)(2)) for a section 48E credit to be
determined with
[[Page 47819]]
respect to such taxpayer's interest. Proposed Sec. 1.48E-4(d)(2) also
provides that no section 48E credit may be determined with respect to a
taxpayer's ownership of one or more separate components of a qualified
facility or EST if the components do not constitute a unit of qualified
facility (as defined in proposed Sec. 1.48E-2(b)(2)) or unit of EST
(as defined in proposed Sec. 1.48E-2(g)(2)). However, proposed Sec.
1.48E-4(d)(2) provides that the use of the components of property owned
by one taxpayer that is an integral part of a qualified facility or EST
owned by another taxpayer will not prevent a section 48E credit from
being determined with respect to the second taxpayer's qualified
investment in a qualified facility or EST.
Proposed Sec. 1.48E-4(d)(3) would provide that if a qualified
facility or EST is owned through an unincorporated organization that
has made a valid election under section 761(a), each member's undivided
ownership share in the facility or EST will be treated as a separate
qualified facility or EST owned by such member.
Proposed Sec. 1.48E-4(d)(4)(i) would define the term ``related
taxpayers'' and proposed Sec. 1.48E-4(d)(4)(ii) would provide a
related taxpayer rule, that related taxpayers are treated as one
taxpayer in determining whether a taxpayer has made an investment in a
qualified facility or EST with respect to which a section 48E credit
may be determined. Proposed Sec. 1.48E-4(d)(5) would provide examples
illustrating these ownership rules.
5. Coordination Rule for Section 42 and 48E Credits
Proposed Sec. 1.48E-4(e) would provide that as provided under
section 50(c)(3)(C), in the case of a taxpayer determining eligible
basis for purposes of calculating a credit under section 42 of the Code
(section 42 credit), a taxpayer is not required to reduce its basis in
a qualified facility or EST by the amount of the section 48E credit
determined with respect to the qualified investment with respect to
such qualified facility or EST. Further, proposed Sec. 1.48E-4(e)
would provide that the qualified investment with respect to a qualified
facility or EST may be used to determine a section 48E credit and may
also be included in eligible basis to determine a section 42 credit.
6. Credit Recapture
Proposed Sec. 1.48E-4(f)(1) would provide recapture rules for the
section 48E credit that incorporate the recapture provisions of section
50(a). Proposed Sec. 1.48E-4(f)(1) would further provide that the
credit calculated under proposed Sec. 1.48E-1(b) is subject to
recapture for any qualified facility that has a GHG emissions rate (as
determined under proposed Sec. 1.48E-5) that exceeds 10 grams of
CO2e per kWh during the five-year period beginning on the
date such qualified facility is originally placed in service (five-year
recapture period).
Recapture Event
Proposed Sec. 1.48E-4(f)(2)(i) would provide that any failure of
the qualified facility to not exceed a GHG emissions rate of 10 grams
per CO2e per kWh during the five-year recapture period is a
recapture event. If a qualified facility's GHG emissions rate exceeds
10 grams of CO2e per kWh averaged over the taxable year, the
section 48E credit is subject to recapture. Proposed Sec. 1.48E-
4(f)(2)(ii) would provide that a change to the GHG emissions rate for a
type or category of facility that is published in the Annual Table (as
defined in proposed Sec. 1.45Y-5(f)) after the facility is placed in
service does not result in a recapture event.
Proposed Sec. 1.48E-4(f)(2)(iii) would provide that a
determination of whether a recapture event has occurred must be made
for each taxable year (or portion thereof) occurring within the five-
year recapture period, beginning with the taxable year ending after the
date the qualified facility is placed in service. For each taxable year
that begins or ends within the five-year recapture period, the taxpayer
must determine, for any qualified facility for which it has claimed the
section 48E credit, whether such facility has maintained a GHG
emissions rate of not greater than 10 grams of CO2e per kWh.
A taxpayer that has claimed the section 48E credit amount under
proposed Sec. 1.48E-1 or transferred a specified credit portion under
section 6418 of the Code is required to provide to the IRS information
on the GHG emissions rate of the qualified facility during the
recapture period at the time and in the form and manner prescribed in
IRS forms or instructions or in publications or guidance published in
the Internal Revenue Bulletin.
Proposed Sec. 1.48E-4(f)(2)(iv) would provide that in the case of
any recapture event, the carrybacks and carryforwards under section 39
must be adjusted by reason of such recapture event.
Proposed Sec. 1.48E-4(f)(3)(i) would provide that if a recapture
event has occurred, the tax under chapter 1 of the Code for the taxable
year in which the recapture event occurs is increased by an amount
equal to the applicable recapture percentage multiplied by the credit
amount that was claimed by the taxpayer under proposed Sec. 1.48E-1.
Proposed Sec. 1.48E-4(f)(3)(ii) provides the applicable recapture
percentage for each year during the five-year recapture period.
Proposed Sec. 1.48E-4(f)(4) would provide that the five-year
recapture period begins on the date the qualified facility is placed in
service and ends on the date that is five full years after the placed-
in-service date. Each 365-day period (366-day period in the case of a
leap year) within the five-year recapture period is a separate
recapture year for recapture purposes.
Proposed Sec. 1.48E-4(f)(5) would provide that the increased tax
under chapter 1 of the Code for the recapture of the credit amount
under proposed Sec. 1.48E-1 occurs in the year of the recapture event.
E. Greenhouse Gas Emissions Rates
Section 48E(b)(3)(B)(ii) provides that rules similar to the rules
of section 45Y(b)(2) regarding greenhouse emissions rates apply for
purposes of section 48E. Proposed Sec. 1.48E-5(a) would provide an
overview of the rules pertaining to GHG emissions rates for qualified
facilities under section 48E. Proposed Sec. 1.48E-5(b) through (f)
would clarify that the definitions of certain terms, rules for
determining GHG emissions rates for Non-C&G Facilities, the rules for
determining net GHG emissions rates for C&G Facilities, rules regarding
carbon capture and sequestration, and requirement to publish the Annual
Table provided in proposed Sec. 1.45Y-5(b) through (f) also apply for
purposes of section 48E and this section.
Proposed Sec. 1.48E-5(g) would provide the rules applicable to
provisional emissions rates. Proposed Sec. 1.48E-5(g)(1) would provide
that, in the case of any facility for which an emissions rate has not
been established by the Secretary, a taxpayer that owns such facility
may file a petition with the Secretary for determination of the
emissions rate with respect to such facility (Provisional Emissions
Rate or PER).
Proposed Sec. 1.48E-5(g)(2) would provide that an emissions rate
has not been established by the Secretary for a facility if such
facility is not described in the Annual Table. Proposed Sec. 1.48E-
5(g)(2) would further provide that if a taxpayer's request for an
emissions value pursuant to proposed Sec. 1.48E-5(g)(5) is pending at
the time such facility is or becomes described in the Annual Table, the
taxpayer's request for an emissions value would be automatically
denied.
[[Page 47820]]
Proposed Sec. 1.48E-5(g)(3) would provide the process for filing a
PER petition. Proposed Sec. 1.48E-5(g)(3) would provide that to file a
PER petition with the Secretary, a taxpayer must submit a PER petition
attached to the taxpayer's Federal income tax return or Federal return,
as appropriate, for the taxable year in which the taxpayer claims the
section 48E credit with respect to the facility. Proposed Sec. 1.48E-
5(g)(3) would further provide that a PER petition must contain an
emissions value and, if applicable, include as an attachment the DOE
letter. An emissions value obtained from DOE based on an analytical
assessment of the emissions rate associated with the facility performed
by one or more of the National Laboratories, in consultation with other
agency experts as appropriate, consistent with proposed Sec. 1.48E-5.
A taxpayer would be required to retain its books and records a copy of
the taxpayer's request to DOE for an emissions value, including any
information provided by the taxpayer to DOE pursuant to the emissions
value request process provided in proposed Sec. 1.48E-5(g)(5).
Alternatively, an emissions value can be determined for a facility by
using the most recent version of an LCA model, as of the time the PER
petition is filed, that has been designated by the Secretary for such
use under paragraph (g)(6) of this section. If an emissions value is
determined using a designated LCA model or models, the taxpayer would
be required to provide to the IRS information to support its use of the
model or models in the form and manner prescribed in IRS forms or
instructions or in publications or guidance published in the Internal
Revenue Bulletin. A taxpayer may not request an emissions value from
DOE for a facility for which an emissions value can be determined by
using the most recent version of an LCA model or models that have been
designated by the Secretary for such use under proposed Sec. 1.48E-
5(g)(6).
Proposed Sec. 1.48E-5(g)(4) would provide that, upon the IRS's
acceptance of the taxpayer's Federal income tax return or Federal
return, as appropriate, containing a PER petition, the emissions value
of the facility specified on such petition will be deemed accepted.
Proposed Sec. 1.48E-5(g)(4) would further provide that a taxpayer
would be able to rely upon an emissions value provided by DOE for
purposes of claiming a section 48E credit, provided that any
information, representations, or other data provided to DOE in support
of the request for an emissions value are accurate. If applicable, a
taxpayer may rely upon an emissions value determined for a facility
using an LCA model or models that have been designated by the Secretary
for such use under proposed Sec. 1.48E-5(g)(6), provided that any
information, representations, or other data used to obtain such
emissions value are accurate. The IRS's deemed acceptance of an
emissions value would be the Secretary's determination of the PER.
Finally, proposed Sec. 1.48E-5(g)(4) would provide that the taxpayer
must also comply with all applicable requirements for the section 48E
credit, and any information, representations, or other data provided to
DOE in support of the request for an emissions value would be subject
to later examination by the IRS.
Proposed Sec. 1.48E-5(g)(5) would provide the rules applicable to
the emissions value request process. Proposed Sec. 1.48E-5(g)(5) would
provide that an applicant that submits a request for an emissions value
must follow the procedures specified by DOE to request and obtain such
emissions value, and that emissions values will be determined
consistent with the rules provided in proposed Sec. 1.48E-5. Proposed
Sec. 1.48E-5(g)(5) would further provide that an applicant may request
an emissions value from DOE only after a front-end engineering and
design (FEED) study or similar indication of project maturity, as
determined by DOE, such as the completion of a project specification
and cost estimation sufficient to inform a final investment decision
for the facility. Proposed Sec. 1.48E-5(g)(5) would provide that DOE
may decline to review applications that are non-responsive, and those
applications that relate to a facility that is described in the Annual
Table (consistent with proposed Sec. 1.48E-5(g)(2)) or a facility that
can determine an emissions value using a designated LCA model under
proposed Sec. 1.48E-5(g)(6) (consistent with proposed Sec. 1.48E-
5(g)(3)), or applications that are incomplete. Proposed Sec. 1.45Y-
5(g)(5) would also provide that applicants must follow DOE's guidance
and procedures for requesting and obtaining an emissions value from
DOE. DOE will publish guidance and procedures that applicants must
follow to request and obtain an emissions value from DOE. DOE's
guidance and procedures will include a process that, under limited
circumstances, a taxpayer may request a revision to DOE's initial
assessment of an emissions value on the basis of revised technical
information or facility design and operation. The Treasury Department
and the IRS anticipate that the emissions value request process will
open after the publication of the final regulations.
Proposed Sec. 1.48E-5(g)(6) would provide that the rules provided
in proposed Sec. 1.45Y-5(g)(6) regarding the designation of an LCA
model or models for determining an emissions value for C&G Facilities
apply for purposes of section 48E and this section.
Proposed Sec. 1.48E-5(g)(7) would provide rules governing the
effect of a PER. Proposed Sec. 1.48E-5(g)(7) would provide that a
taxpayer may use a PER determined by the Secretary to determine the
eligibility for the section 48E credit for a taxable year for the
facility to which the PER relates, provided all other requirements of
section 48E are met, unless the emissions rate for such type or
category of facility is provided in the Annual Table for any portion of
the taxable year. Proposed Sec. 1.48E-5(g)(7) would further provide
that the Secretary's PER determination is not an examination or
inspection of books of account for purposes of section 7605(b) of the
Code and does not preclude or impede the IRS (under section 7605(b) or
any administrative provisions adopted by the IRS) from later examining
a return or inspecting books or records with respect to any taxable
year for which the section 48E credit is claimed. Finally, proposed
Sec. 1.48E-5(g)(7) would provide that a PER determination does not
signify that the IRS has determined that the requirements of section
48E have been satisfied for any taxable year.
Proposed Sec. 1.48E-5(h) would provide the rules applicable to
determining an anticipated GHG emissions rate. Proposed Sec. 1.48E-
5(h)(1) would provide that a facility's anticipated GHG emissions rate
must be objectively determined based on an examination of all the facts
and circumstances. Proposed Sec. 1.48E-5(h)(1) would further provide
that certain Non-C&G Facilities, such as the facilities described in
proposed Sec. 1.45Y-5(c)(2), may have an anticipated GHG emissions
rate that is not greater than zero based on the technology and
practices they rely upon to generate electricity. Finally, proposed
Sec. 1.48E-5(h)(1) would provide that for facilities that require the
use of certain feedstocks or carbon capture and sequestration, which
may vary, to generate electricity with a GHG emissions rate that is not
greater than zero, objective indicia that such facilities will operate
with a GHG emissions rate that is not greater than zero for at least 10
years beginning from the date the facility is placed in service are
required to establish that its anticipated GHG emissions rate is not
greater than zero.
[[Page 47821]]
Proposed Sec. 1.48E-5(h)(2) would provide a non-exhaustive list of
examples of objective indicia that may establish an anticipated GHG
emissions rate that is not greater than zero. Proposed Sec. 1.48E-
5(h)(2)(i) through (iv) would provide that these examples include co-
location of the facility with a fuel source for which the combination
of fuel, type of facility, and practice is reasonably expected to
result in a GHG emissions rate that is not greater than zero; a 10-year
contract to purchase fuels for which the combination of fuel, type of
facility, and practice is reasonably expected to result in a GHG
emissions rate that is not greater than zero; or a facility type that
only accommodates one type of fuel or a small range of fuels for which
the combination of fuel, type of facility, and practice is reasonably
expected to result in a GHG emissions rate that is not greater than
zero; or a 10-year contract for the capture, disposal, or utilization
of qualified carbon dioxide from the facility for which the combination
of fuel, type of facility, and practice is reasonably expected to
result in a GHG emissions rate that is not greater than zero.
The Treasury Department and the IRS interpret the reference in
section 48E(b)(3)(A)(iii) to an ``anticipated greenhouse gas emissions
rate'' that is not greater than zero to require a reasonable
expectation that a facility will operate with a rate or net rate of
greenhouse gas emissions that is not greater than zero over a specified
period of time (for example, the anticipated lifetime of the facility).
The Treasury Department and the IRS request comment on what evidence or
substantiation taxpayers should be required to maintain to establish an
anticipated GHG emissions rate for a facility. In addition, comment is
requested on the appropriate period of time for which taxpayers should
be required to demonstrate that there is a reasonable expectation that
a facility will operate with a GHG emissions rate that is not greater
than zero.
Proposed Sec. 1.48E-5(i) would provide that taxpayers may rely on
the Annual Table in effect as of the date a facility began construction
or the provisional emissions rate determined by the Secretary for the
taxpayer's facility to determine the facility's GHG emissions rate,
provided that the facility continues to operate as a type of facility
that is described in the Annual Table or the facility's emissions value
request, as applicable, for the entire taxable year.
Proposed Sec. 1.48E-5(j)(1) would provide that a taxpayer must
maintain in its books and records documentation regarding the design
and operation of a facility that establishes that such facility had an
anticipated GHG emissions rate that is not greater than zero in the
year in which the section 48E credit is determined and operated with a
GHG emissions rate that is not greater than 10 grams of CO2e
per kWh during each year of the recapture period that applies for
purposes of section 48E(g).
Proposed Sec. 1.48E-5(j)(2) would further provide that
documentation sufficient to substantiate that a facility had a GHG
emissions rate that is not greater than 10 grams of CO2e per
kWh during each year of the recapture period includes documentation or
a report prepared by an unrelated party that verifies the facility's
actual emissions rate. Proposed Sec. 1.48E-5(j)(2) would also provide
that facilities described in Sec. 1.45Y-5(c)(2) can maintain
sufficient documentation to demonstrate a GHG emissions rate that is
not greater than 10 grams of CO2e per kWh during each year
of the recapture period by showing that the facility is described in
Sec. 1.45Y-5(c)(2). Finally, proposed Sec. 1.48E-5(j)(2) would
provide that future guidance may describe sufficient documentation to
substantiate that certain other types of facilities have a GHG
emissions rate that is not greater than 10 grams of CO2e per
kWh during each year of the recapture period.
Proposed Applicability Dates
These regulations are proposed to apply to qualified facilities
(and for Sec. 1.48E-1 through 1.48E-4, energy storage technologies)
placed in service after December 31, 2024, and during taxable years
ending on or after the date of publication of the final regulations in
the Federal Register.
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires that a Federal agency obtain the approval of the
Office of Management and Budget (OMB) before collecting information
from the public, whether such collection of information is mandatory,
voluntary, or required to obtain or retain a benefit.
The collections of information in these proposed regulations
contain recordkeeping and reporting requirements that are required to
substantiate eligibility to claim a section 45Y or section 48E credit.
These collections of information would generally be used by the IRS for
tax compliance purposes and by taxpayers to facilitate proper reporting
and compliance. The general recordkeeping requirements mentioned within
these proposed regulations are considered general tax records under
Sec. 1.6001-1(e).
The recordkeeping requirements in these proposed regulations with
respect to section 45Y would include the requirement in proposed Sec.
1.45Y-5(i)(1) that taxpayers claiming the section 45Y credit must
maintain in its books and records documentation regarding the design
and operation of a facility that establishes that such facility had a
GHG emissions rate that is not greater than zero for the taxable year.
Included in proposed Sec. 1.45Y-5(i)(2) are examples of documentation
that sufficiently substantiates that a facility has a GHG emissions
rate that is not greater than zero for the taxable year, which includes
documentation, or a report prepared by an unrelated party that verifies
that a facility had such an emissions rate. A facility described in
proposed Sec. 1.45Y-5(c)(2) can maintain sufficient documentation to
demonstrate a GHG emissions rate that is not greater than zero for the
taxable year by showing that it is a type of facility described in
proposed Sec. 1.45Y-5(c)(2). Proposed Sec. 1.45Y-5(i)(2) would
provide that Secretary may determine that other types of facilities can
sufficiently substantiate a GHG emissions rate, as determined under
this section, that is not greater than zero with certain documentation
and will describe such facilities and documentation in IRS forms or
instructions or in publications or guidance published in the Internal
Revenue Bulletin. For PRA purposes, these general tax records are
already approved by OMB under 1545-0074 for individuals, 1545-0123 for
business entities, 1545-0092 for trust and estate filers, and 1545-0047
for tax-exempt organizations.
The recordkeeping requirements in these proposed regulations with
respect to section 48E would include the requirement in proposed Sec.
1.48E-5(i)(1) that a taxpayer must maintain in its books and records
documentation regarding the design and operation of a facility that
establishes that such facility had an anticipated GHG emissions rate
that is not greater than 10 grams of CO2e
[[Page 47822]]
per kWh during each year of the recapture period that applies for
purposes of section 48E(g). Included in proposed Sec. 1.48E-5(i)(2)
are examples of documentation that sufficiently substantiates that a
facility has a GHG emissions rate that is not greater 10 grams of
CO2e per kWh during each year of the recapture period, which
includes documentation, or a report prepared by an unrelated party that
verifies that a facility had such an emissions rate. A facility
described in proposed Sec. 1.45Y-5(c)(2) can maintain sufficient
documentation to demonstrate a GHG emissions rate that is not greater
than 10 grams of CO2e per kWh by showing that it is a type
of facility described in proposed Sec. 1.45Y-5(c)(2). The Secretary
may determine that other types of facilities can sufficiently
substantiate a GHG emissions rate that is not greater than 10 grams of
CO2e per kWh with certain documentation and will describe
such facilities and documentation in IRS forms or instructions or in
publications or guidance published in the Internal Revenue Bulletin.
For PRA purposes, these general tax records are already approved by OMB
under 1545-0074 for individuals, 1545-0123 for business entities, 1545-
0092 for trust and estate filers, and 1545-0047 for tax-exempt
organizations.
The reporting requirements in these proposed regulations are in
proposed Sec. Sec. 1.45Y-5 and 1.48E-5, which provide the process for
applicants to file a petition with the Secretary for a PER
determination. To file a PER petition with the Secretary, a taxpayer
must submit the PER petition attached to the taxpayer's Federal income
tax return or Federal return, as appropriate, for the taxable year in
which the taxpayer claims the section 45Y credit or the section 48E
credit with respect to the facility to which the PER petition relates.
A PER petition must contain an emissions value. If the applicant
obtained an emissions value from DOE, the PER petition made to the IRS
must include and emissions value letter from DOE. This emission value
letter process will be approved by OMB under the DOE Control Number
1910-####. A taxpayer must retain in its books and records a copy of
the taxpayer's request to DOE for an emissions value, including the
supporting documentation provided to DOE with the request.
Alternatively, if applicable, a PER petition may contain an emissions
value determined for a facility using the most recent version of an LCA
model, as of the time the PER petition is filed, that has been
designated by the Secretary for such use. If an emissions value is
determined using a designated model, a taxpayer is required to provide
to the IRS information to support its determination of the emissions
value in the form and manner prescribed in IRS forms or instructions or
in publications or guidance published in the Internal Revenue Bulletin.
The burden for these requirements will be included within the forms and
instructions applicable to sections 45Y and 48E. For section 45Y, the
burden for these requirements will be associated the form and
instructions applicable to claiming this credit and will be approved by
OMB, in accordance with 5 CFR 1320.10, under the following OMB control
numbers: 1545-0074 for individuals/sole proprietors, 1545-0123 for
business entities, 1545-0047 for tax-exempt organizations, and 1545-
0092 for trust and estate filers. For section 48E, the burden for these
requirements will be associated with Form 3468, Investment Credit, and
will be approved by OMB, in accordance with 5 CFR 1320.10, under the
following OMB control numbers: 1545-0074 for individuals/sole
proprietors, 1545-0123 for business entities, 1545-0047 for tax-exempt
organizations, and 1545-0092 for trust and estate filers.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency determines that a proposal is not likely to
have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires the agency to present an
initial regulatory flexibility analysis (IRFA) of the proposed rule.
The Treasury Department and the IRS have not determined whether the
proposed rule, when finalized, will likely have a significant economic
impact on a substantial number of small entities. This determination
requires further study. However, because there is a possibility of
significant economic impact on a substantial number of small entities,
an IRFA is provided in these proposed regulations. The Treasury
Department and the IRS invite comments on both the number of entities
affected and the economic impact on small entities.
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking has been submitted to the Chief Counsel of the Office of
Advocacy of the Small Business Administration for comment on its impact
on small business.
A. Need for and Objectives of the Rule
The proposed regulations would provide greater clarity to taxpayers
for purposes of claiming the section 45Y credit or the section 48E
credit. The proposed regulations would provide necessary definitions
rules regarding the determination of credit amounts and the procedure
for requesting a provisional emissions rate. The proposed regulations
will provide greater clarity to taxpayers for purposes of claiming the
section 45Y credit and the section 48E credit and encourage taxpayers
to produce clean energy or invest in clean energy projects and
facilities. Thus, the Treasury Department and the IRS intend and expect
that the proposed rules will deliver benefits across the economy that
will beneficially impact various industries.
B. Affected Small Entities
The RFA directs agencies to provide a description of, and if
feasible, an estimate of, the number of small entities that may be
affected by the proposed rules, if adopted. The Small Business
Administration's Office of Advocacy estimates in its 2023 Frequently
Asked Questions that 99.9 percent of American businesses meet its
definition of a small business. The applicability of these proposed
regulations does not depend on the size of the business, as defined by
the Small Business Administration.
As described more fully in the preamble to this proposed regulation
and in this IRFA, the section 45Y credit and the section 48E credit
incentivize the production of clean energy and the investment in clean
energy projects and facilities. Because the potential credit claimants
can vary widely, it is difficult to estimate at this time the impact of
these proposed regulations, if any, on small businesses.
The Treasury Department and the IRS expect to receive more
information on the impact on small businesses through comments on these
proposed rules and again once taxpayers start to claim the section 45Y
credit or the section 48E credit using the guidance and procedures
provided in these proposed regulations.
C. Impact of the Rules
The proposed regulations will allow taxpayers to plan investments
and transactions based on the ability to claim the section 45Y
production credit and/or the section 48E investment credit. The
increased use of these
[[Page 47823]]
credits will incentivize increased production and use of clean energy
as well as the development of new methods and technologies for
generating clean energy. The use of the credits will also incentivize
additional investment in the projects and facilities that produce and
develop clean energy.
Because recordkeeping and reporting requirements relating to the
section 45Y and 48E credits will not materially differ from the
requirements relating to existing energy production and investment tax
credits, the recordkeeping and reporting requirements should not
materially increase for taxpayers that already claim existing credits.
To claim the section 45Y credit or the 48E credit, taxpayers will
continue to need to execute the relevant form (or successor form, or
pursuant to instructions and other guidance) and file such form with
the taxpayer's timely filed return (including extensions) for the
taxable year in which the property is placed in service.
Although the Treasury Department and the IRS do not have sufficient
data to precisely determine the likely extent of the increased costs of
compliance, the estimated burden of complying with the recordkeeping
and reporting requirements are described in the Paperwork Reduction Act
section of this preamble.
D. Alternatives Considered
The Treasury Department and the IRS considered alternatives to the
proposed regulations. For example, the Treasury Department and the IRS
considered whether to impose different rules for determining if a
section 48E qualified facility had a recapture event, and how and when
a taxpayer was required to notify the Secretary that the emissions rate
at a qualified facility was greater than 10 grams of CO2e
per kWh. The proposed regulations were designed to minimize burdens on
taxpayers while ensuring that the IRS has sufficient information to
determine if a section 48E qualified facility's emissions rate exceeded
the recapture threshold. The proposed guidance requires that a taxpayer
that claimed the section 48E credit to annually report to the IRS its
GHG emissions rate in the form and manner prescribed in IRS forms or
instructions or in published guidance as published in the Internal
Revenue Bulletin.
An additional example is that the Treasury Department and the IRS
considered alternatives to how a taxpayer should compute any increase
in capacity at a qualified facility that for purposes of section 45Y
and 48E was a qualified facility due to an increase in capacity. The
proposed regulations were designed to provide a rule that was
administrable for the IRS and taxpayers. Thus, the proposed regulations
adopt a rule for taxpayers to compute the increase in capacity by
multiplying the amount of electricity that the facility produces during
a taxable year after the new unit or an addition of capacity is placed
in service by a fraction, the numerator of which is the nameplate
capacity that results from the new unit or an addition of capacity, and
the denominator of which is the total nameplate capacity of the
facility with the new unit or an addition of capacity
Comments are requested on the requirements in the proposed
regulations, including specifically, whether there are less burdensome
alternatives that ensure the IRS has sufficient information to
administer the Clean Electricity Tax Credits.
E. Duplicative, Overlapping, or Conflicting Federal Rules
The proposed rules would not duplicate, overlap, or conflict with
any relevant Federal rules. As discussed above, the proposed
regulations would provide guidance relating to the section 45Y tax
credit and the section 48E tax credit. The Treasury Department and the
IRS invite input from interested members of the public about
identifying and avoiding overlapping, duplicative, or conflicting
requirements.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Indian Tribal government, in the aggregate, or by the
private sector, of $100 million (updated annually for inflation). This
proposed rule does not include any Federal mandate that may result in
expenditures by State, local, or Indian Tribal governments, or by the
private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
VI. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
Executive Order 13175 (Consultation and Coordination With Indian
Tribal Governments) prohibits an agency from publishing any rule that
has Tribal implications if the rule either imposes substantial, direct
compliance costs on Indian Tribal governments, and is not required by
statute, or preempts Tribal law, unless the agency meets the
consultation and funding requirements of section 5 of the Executive
order. This proposed rule does not have substantial direct effects on
one or more federally recognized Indian tribes and does not impose
substantial direct compliance costs on Indian Tribal governments within
the meaning of the Executive order.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments regarding
the notice of proposed rulemaking that are submitted timely to the IRS
as prescribed in the preamble under the ADDRESSES section. The Treasury
Department and the IRS request comments on all aspects of the proposed
regulations. All comments will be made available at https://www.regulations.gov. Once submitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn.
A public hearing with respect to this notice of proposed rulemaking
has been scheduled for August 12, 2024, beginning at 10 a.m. (ET) and
August 13, 2024, at 10 a.m. (ET). The hearing scheduled for August 12,
2024, will be held in the Auditorium at the Internal Revenue Building,
1111 Constitution Avenue NW, Washington, DC Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. Participants may alternatively attend the public
hearing on August 12, 2024, by telephone. On August 13, 2024, the
public hearing will be by telephone only.
The rules of 26 CFR 601.601(a)(3) apply to the public hearing.
Persons who wish to present oral comments at the public hearing must
submit an
[[Page 47824]]
outline of the topics to be discussed and the time to be devoted to
each topic by August 2, 2024. A period of 10 minutes will be allotted
to each person for making comments. An agenda showing the scheduling of
the speakers will be prepared after the deadline for receiving outlines
has passed. Copies of the agenda will be available free of charge at
the public hearing. If no outline of the topics to be discussed at the
public hearing is received by August 2, 2024, the public hearing will
be cancelled. If the public hearing is cancelled, a notice of
cancellation of the public hearing will be published in the Federal
Register.
Individuals who want to testify in person at the public hearing
must send an email to [email protected] to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-119283-23 and the language TESTIFY In Person.
For example, the subject line may say: Request to TESTIFY In Person at
Hearing for REG-119283-23.
Individuals who want to testify by telephone at the public hearing
must send an email to [email protected] to receive the telephone
number and access code for the public hearing. The subject line of the
email must contain the regulation number REG-119283-23 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-119283-23.
Individuals who want to attend the public hearing in person without
testifying must also send an email to [email protected] to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-119283-23 and the language
ATTEND In Person. For example, the subject line may say: Request to
ATTEND Hearing In Person for REG-119283-23. Requests to attend the
public hearing must be received by 5 p.m. ET on August 8, 2024.
Individuals who want to attend the public hearing by telephone
without testifying must also send an email to [email protected] to
receive the telephone number and access code for the public hearing.
The subject line of the email must contain the regulation number REG-
119283-23 and the language ATTEND Hearing Telephonically. For example,
the subject line may say: Request to ATTEND Hearing Telephonically for
REG-119283-23. Requests to attend the public hearing must be received
by 5 p.m. ET on August 8, 2024.
Public hearings will be made accessible to people with
disabilities. To request special assistance during a public hearing
please contact the Publications and Regulations Branch of the Office of
Associate Chief Counsel (Procedure and Administration) by sending an
email to [email protected] (preferred) or by telephone at (202)
317-6901 (not a toll-free number) and must be received by 5 p.m. ET on
August 7, 2024.
Statement of Availability of IRS Documents
Guidance cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at https://www.irs.gov.
Drafting Information
The principal author of these proposed regulations is the Office of
the Associate Chief Counsel (Passthroughs and Special Industries).
However other personnel from the Treasury Department, the DOE, the EPA,
the USDA, and the IRS participated in the development of the proposed
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order for Sec. Sec. 1.45Y-1 through 1.45Y-5 and
1.48E-1 through 1.48E-5 to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.45Y-1 also issued under 26 U.S.C. 45Y(a), (c), (d),
and (g).
Section 1.45Y-2 also issued under 26 U.S.C. 45Y(b) and (e).
Section 1.45Y-3 also issued under 26 U.S.C. 45Y(a) and (g).
Section 1.45Y-4 also issued under 26 U.S.C. 45Y(b) and (g).
Section 1.45Y-5 also issued under 26 U.S.C. 45Y(b).
* * * * *
Section 1.48E-1 also issued under 26 U.S.C. 48E(a) and (c).
Section 1.48E-2 also issued under 26 U.S.C. 48E(b) and (c).
Section 1.48E-3 also issued under 26 U.S.C. 48E(a) and (b).
Section 1.48E-4 also issued under 26 U.S.C. 48E(b), (d), and
(g).
Section 1.48E-5 also issued under 26 U.S.C. 48E(b).
* * * * *
0
Par. 2. An undesignated center heading is added immediately following
Sec. 1.37-3 to read as follows:
General Business Credits
* * * * *
0
Par. 3. Sections 1.45Y-0 through 1.45Y-5 are added to read as follows:
Sec.
* * * * *
1.45Y-0 Table of contents.
1.45Y-1 Clean electricity production credit.
1.45Y-2 Qualified facility for purposes of section 45Y.
1.45Y-3 [Reserved]
1.45Y-4 Rules of general application.
1.45Y-5 Greenhouse gas emissions rates for qualified facilities
under section 45Y.
* * * * *
Sec. 1.45Y-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.45Y-1
through 1.45Y-5.
Sec. 1.45Y-1 Clean electricity production credit.
(a) Overview.
(1) In general.
(2) CHP property.
(i) In general.
(ii) Components excluded.
(iii) Unit of qualified facility.
(3) Code.
(4) kWh.
(5) Metering device.
(i) In general.
(ii) Standards for maintaining and operating a metering device.
(iii) Network equipment.
(iv) Examples.
(6) Qualified facility.
(7) Related person.
(i) In general.
(ii) Member of a consolidated group.
(8) Secretary.
(9) Section 45Y credit.
(10) Section 45Y regulations.
(11) Unrelated person.
(b) Credit amount.
(1) In general.
(2) Applicable amount.
(i) In general.
(ii) Base amount.
(iii) Alternative amount.
(3) Inflation adjustment.
(i) In general.
(ii) Annual computation.
(iii) Inflation adjustment factor.
(iv) GDP implicit price deflator.
(4) Energy communities increase in credit.
(5) Domestic content bonus credit amount.
(c) Credit phase-out.
(1) In general.
(2) Phase-out percentage.
(3) Applicable year.
(4) Phase-out data.
(5) Determination of phase-out.
[[Page 47825]]
(d) Requirements for CHP property.
(1) In general.
(2) Energy efficiency percentage.
(3) Special rule for calculating electricity produced by CHP
property.
(i) In general.
(ii) Conversion from Btu to kWh.
(e) Applicability date.
Sec. 1.45Y-2 Qualified facility for purposes of section 45Y.
(a) Qualified facility.
(b) Property included in qualified facility.
(1) In general.
(2) Unit of qualified facility.
(i) In general.
(ii) Functionally interdependent.
(3) Integral part.
(i) In general.
(ii) Power conditioning and transfer equipment.
(iii) Roads.
(iv) Fences.
(v) Buildings.
(vi) Shared integral property.
(vii) Examples.
(c) Coordination with other credits.
(1) In general.
(2) Allowed.
(3) Examples.
(d) Applicability date.
Sec. 1.45Y-3 [Reserved]
Sec. 1.45Y-4 Rules of general application.
(a) Only production in the United States taken into account.
(b) Production attributable to the taxpayer.
(1) In general.
(2) Example of gross sales.
(3) Section 761(a) election.
(c) Expansion of facility; Incremental production.
(1) In general.
(2) Special rule for restarted facilities.
(3) Computation of increased amount of electricity produced.
(4) Examples.
(d) Retrofit of an existing facility (80/20 Rule).
(1) In general.
(2) Cost of new components of property.
(3) Examples.
(e) Applicability date.
Sec. 1.45Y-5 Greenhouse gas emissions rates for qualified
facilities under section 45Y.
(a) In general.
(b) Definitions.
(1) CO2e per kWh.
(2) Combustion.
(3) Gasification.
(4) Facility that produces electricity through combustion or
gasification.
(5) Greenhouse gas emissions rate.
(6) Greenhouse gases emitted into the atmosphere by a facility
in the production of electricity.
(7) Non-C&G Facility.
(8) Fuel.
(9) Feedstock.
(c) Non-C&G Facilities.
(1) Determining a greenhouse gas emissions rate for Non-C&G
Facilities.
(i) Excluded emissions.
(ii) Emissions assessment process.
(iii) Example of greenhouse gas emissions rate determination for
a Non-C&G Facility.
(2) Non-C&G Facilities with a greenhouse gas emissions rate that
is not greater than zero.
(d) C&G Facilities.
(1) Determining a greenhouse gas emissions rate for C&G
Facilities.
(2) LCA requirements.
(i) Starting boundary.
(ii) Ending boundary.
(iii) Baseline.
(iv) Offsets and offsetting activities.
(v) Principles for included emissions.
(vi) Principles for excluded emissions.
(vii) Alternative fates and avoided emissions.
(e) Carbon capture and sequestration.
(f) Annual publication of emissions rates.
(1) In general.
(2) Publication of analysis required for changes to the Annual
Table.
(g) Provisional emissions rates.
(1) In general.
(2) Rate not established.
(3) Process for filing a PER petition.
(4) PER determination.
(5) Emissions value request process.
(6) LCA model for determining an emissions value for C&G
Facilities.
(7) Effect of PER.
(h) Reliance on Annual Table or Provisional Emissions Rate.
(i) Substantiation.
(1) In general.
(2) Sufficient substantiation.
(j) Applicability date.
Sec. 1.45Y-1 Clean electricity production credit.
(a) Overview--(1) In general. For purposes of section 38 of the
Code, the section 45Y credit is determined under section 45Y of the
Code and the section 45Y regulations (as defined in paragraph (a)(10)
of this section). This paragraph (a) provides definitions of terms
that, unless otherwise specified, apply for purposes of section 45Y,
the section 45Y regulations, and any provision of the Code or this
chapter that expressly refers to any provision of section 45Y or the
section 45Y regulations. Paragraph (b) of this section provides rules
for determining the amount of the section 45Y credit for any taxable
year. Paragraph (c) of this section provides rules regarding the phase-
out of the section 45Y credit. Paragraph (d) of this section provides
rules regarding combined heat and power system (CHP) property. See
Sec. 1.45Y-2 for rules relating to qualified facilities for purposes
of the section 45Y credit. See Sec. 1.45Y-4 for rules of general
application for the section 45Y credit. See Sec. 1.45Y-5 for rules to
determine greenhouse gas emissions rates for qualified facilities.
(2) CHP property--(i) In general. For purposes of section
45Y(g)(2)(B) and paragraph (d) of this section, the term CHP property
means property comprising a system that uses the same energy source for
the simultaneous or sequential generation of electrical power,
mechanical shaft power, or both, in combination with the generation of
steam or other forms of useful thermal energy (including for heating
and cooling applications).
(ii) Components excluded. CHP property does not include property
used to transport the energy source to the generating facility or to
distribute energy produced by the facility.
(iii) Unit of qualified facility. For purposes of Sec. 1.45Y-2(a),
a unit of qualified facility includes all functionally interdependent
components of property owned by the taxpayer that are operated together
and that can operate apart from other property to produce useful
thermal energy and electricity.
(3) Code. The term Code means the Internal Revenue Code.
(4) kWh. The term kWh means kilowatt hours.
(5) Metering device--(i) In general. For purposes of section
45Y(a)(1)(A)(ii)(II), the term metering device, means equipment that is
owned and operated by an unrelated person (as defined in paragraph
(a)(11) of this section) for energy revenue metering to measure and
register the continuous summation of an electricity quantity with
respect to time.
(ii) Standards for maintaining and operating a metering device. For
purposes of section 45Y(a)(1)(A)(ii)(II) and this section, a metering
device must be maintained in proper working order in accordance with
the instructions of its manufacturer, meet the requirements of the
American National Standards Institute C12.1-2022 standard, or
subsequent revisions, be revenue grade with a +/- 0.5% accuracy and be
properly calibrated.
(iii) Network equipment. For purposes of operating the metering
device, the unrelated person may share network equipment, such as spare
fiber optic cable owned by the taxpayer that produces the electricity
and co-locate network equipment in the taxpayer's facilities.
(iv) Examples. This paragraph (a)(5)(iv) provides examples
illustrating the application of this paragraph (a)(5).
(A) Example 1. Qualified facility equipped with a metering device
owned and operated by an unrelated person. X owns a qualified facility
equipped with a metering device that is owned and operated by Y, an
unrelated person. The metering device meets the requirements of
paragraphs (a)(5)(i) through (iii). X sells electricity produced at the
qualified facility to Z, a related person during the taxable year.
Because the
[[Page 47826]]
qualified facility is equipped with a metering device that is owned and
operated by an unrelated person and meets the requirements of
paragraphs (a)(5)(i) through (iii), X may claim a section 45Y credit
based on the electricity produced by X and sold to Z during the taxable
year.
(B) Example 2. Electricity produced by the taxpayer at a qualified
facility sold, consumed, or stored by the taxpayer during the taxable
year. X owns a qualified facility equipped with a metering device that
is owned and operated by an unrelated person, Y. The metering device
meets the requirements of paragraphs (a)(5)(i) through (iii). Because
the qualified facility is equipped with a metering device that is owned
and operated by an unrelated person and that meets the requirements of
paragraphs (a)(5)(i) through (iii), X may sell electricity produced at
the qualified facility during the taxable year to a related or
unrelated person. X may also consume the electricity produced at the
qualified facility during the taxable year onsite. Additionally, X may
store the electricity produced at the qualified facility during the
taxable year in EST owned by X. In any of these three situations, X may
claim a section 45Y credit for the taxable year for the kWh of
electricity produced at the qualified facility and sold, consumed, or
stored by X during the taxable year.
(6) Qualified facility. The term qualified facility for purposes of
the section 45Y credit has the meaning provided in Sec. 1.45Y-2(a).
(7) Related person--(i) In general. For purposes of the section 45Y
credit, the term related person means a person that is related to
another person if such persons would be treated as a single employer
under the regulations in this chapter under section 52(b) of the Code.
(ii) Member of a consolidated group. In the case of a corporation
that is a member of a consolidated group (as defined in Sec. 1.1502-
1(h)), such member will be treated as selling electricity to an
unrelated person if such electricity is sold to an unrelated person by
another member of such group.
(8) Secretary. The term Secretary means the Secretary of the
Treasury or her delegate.
(9) Section 45Y credit. The term section 45Y credit means the clean
electricity production credit determined under section 45Y of the Code
and the section 45Y regulations.
(10) Section 45Y regulations. The term section 45Y regulations
means this section and Sec. Sec. 1.45Y-2 through 1.45Y-5.
(11) Unrelated person. For purposes of section 45Y(a), the term
unrelated person means a person who is not a related person as defined
in section 45Y(g)(4) and paragraph (a)(7) of this section. In the case
of sales of electricity to an individual consumer, such sales will be
treated as sales to an unrelated party for purposes of the section 45Y
credit. For example, assume Taxpayer X produces electricity at a
qualified facility and sells it to Consumer Y. Consumer Y is an
individual consumer and is not subject to aggregation under the
regulations prescribed under section 52(b). Therefore, Consumer Y is
not treated as a single employer with Taxpayer X under section 52(b),
and a sale to Consumer Y is treated as a sale to an unrelated person.
The result is the same if Consumer Y is an individual consumer who is a
member of a cooperative or Indian tribe that owns or controls, directly
or indirectly, Taxpayer X. The result is also the same if Consumer Y is
an individual consumer who is a resident of a State or municipality
that owns or controls, directly or indirectly, Taxpayer X.
(b) Credit amount--(1) In general. For purposes of section 38 of
the Code, the section 45Y credit for any taxable year is an amount
equal to the product of the kWh of electricity that is produced at a
qualified facility and sold by the taxpayer to an unrelated person
during the taxable year, multiplied by the applicable amount with
respect to such qualified facility. In the case of a qualified facility
equipped with a metering device that is owned and operated by an
unrelated person, the section 45Y credit for any taxable year is an
amount equal to the product of the kWh of electricity that is produced
at a qualified facility and sold, consumed, or stored by the taxpayer
during the taxable year, multiplied by the applicable amount with
respect to such qualified facility. Only one section 45Y credit can be
claimed for each kWh of electricity produced by the taxpayer at a
qualified facility.
(2) Applicable amount--(i) In general. The term applicable amount
means the base amount described in paragraph (b)(2)(ii) of this section
or the alternative amount described in paragraph (b)(2)(iii) of this
section. The applicable amount is subject to the inflation adjustment
as provided in section 45Y(c)(1) and paragraph (b)(3) of this section.
The applicable amount may also be increased as provided in section
45Y(g)(7) and paragraph (b)(4) of this section in the case of a
qualified facility that is located in an energy community.
(ii) Base amount. In the case of any qualified facility that does
not satisfy the requirements provided in section 45Y(a)(2)(B), the term
base amount means 0.3 cents.
(iii) Alternative amount. In the case of any qualified facility
that satisfies the prevailing wage and apprenticeship requirements
provided in section 45Y(a)(2)(B), the term alternative amount means 1.5
cents.
(3) Inflation adjustment--(i) In general. In the case of a calendar
year beginning after 2024, the base amount and the alternative amount
will each be adjusted by multiplying such amount by the inflation
adjustment factor for the calendar year in which the sale, consumption,
or storage of the electricity occurs. If the base amount as adjusted
under this paragraph (b)(3)(i) is not a multiple of 0.05 cent, such
amount will be rounded to the nearest multiple of 0.05 cent. If the
alternative amount as adjusted under this paragraph (b)(3)(i) is not a
multiple of 0.1 cent, such amount will be rounded to the nearest
multiple of 0.1 cent.
(ii) Annual computation. The inflation adjustment factor for each
calendar year will be published in the Federal Register not later than
April 1 of that calendar year. The base amount and the alternative
amount, as adjusted under paragraph (b)(3)(i) of this section, will
also be published in the Federal Register not later than April 1 of
each calendar year.
(iii) Inflation adjustment factor. The term inflation adjustment
factor means, with respect to a calendar year, a fraction--
(A) The numerator of which is the GDP implicit price deflator for
the preceding calendar year, and
(B) The denominator of which is the GDP implicit price deflator for
the calendar year 1992.
(iv) GDP implicit price deflator. The term GDP implicit price
deflator means the most recent revision of the implicit price deflator
for the gross domestic product as computed and published by the
Department of Commerce before March 15 of the calendar year.
(4) Energy communities increase in credit. In the case of any
qualified facility that is located in an energy community (as defined
in section 45(b)(11)(B)), for purposes of determining the amount of the
section 45Y credit with respect to any electricity produced by the
taxpayer at such facility during the taxable year, the applicable
amount will be increased by an amount equal to 10 percent of the
applicable amount. The 10 percent increase under this paragraph (b)(4)
applies after the inflation adjustment under paragraph (b)(3) of this
section.
(5) Domestic content bonus credit amount. In the case of any
qualified
[[Page 47827]]
facility that satisfies the requirements of section 45Y(g)(11)(B)(i)
(domestic content requirement), for purposes of determining the amount
of the section 45Y credit with respect to any electricity produced by
the taxpayer at such facility during the taxable year, the amount of
the credit otherwise determined under this paragraph (b), without
application of paragraph (b)(4) of this section (related to energy
communities), is increased by 10 percent.
(c) Credit phase-out--(1) In general. The amount of the section 45Y
credit for any qualified facility, the construction of which begins
during a calendar year provided in section 45Y(d)(2) and described in
paragraph (c)(2) of this section, is equal to the product of--
(i) The amount of the credit determined under section 45Y(a) and
described in paragraph (b) of this section, without regard to section
45Y(d) and this paragraph (c), multiplied by
(ii) The phase-out percentage provided under section 45Y(d)(2) and
described in paragraph (c)(2) of this section.
(2) Phase-out percentage. The phase-out percentage described in
this paragraph (c)(2) is equal to--
(i) For a facility the construction of which begins during the
first calendar year following the applicable year, 100 percent,
(ii) For a facility the construction of which begins during the
second calendar year following the applicable year, 75 percent,
(iii) For a facility the construction of which begins during the
third calendar year following the applicable year, 50 percent, and
(iv) For a facility the construction of which begins during any
calendar year subsequent to the calendar year described in paragraph
(c)(2)(iii) of this section, 0 percent.
(3) Applicable year. For purposes of this paragraph (c), the term
applicable year means the later of--
(i) The calendar year in which the Secretary makes the
determination that the annual greenhouse gas emissions from the
production of electricity in the United States are equal to or less
than 25 percent of the annual greenhouse gas emissions from the
production of electricity in the United States for calendar year 2022,
or
(ii) 2032.
(4) Phase-out data. For purposes of paragraph (c)(3)(i) of this
section, the annual greenhouse gas emissions from the production of
electricity in the United States for any calendar year must be assessed
separately using both of the following data sources:
(i) The U.S. Energy Information Administration's Electric Power
Annual, summing the annual carbon dioxide emissions data from
conventional power plants and combined heat and power plants and the
Monthly Energy Review annual carbon dioxide emissions from the
combustion of biomass to produce electricity in the Electric Power
Sector; and
(ii) The U.S. Environmental Protection Agency (EPA) Inventory of
U.S. Greenhouse Gas Emissions and Sinks (GHGI) annual electric power-
related carbon dioxide, methane, and nitrous oxide emissions data
including carbon dioxide emissions from the combustion of biomass to
produce electricity.
(5) Determination of phase-out. For purposes paragraph (c)(3)(i) of
this section, the Secretary will determine that the annual greenhouse
gas emissions from the production of electricity in the United States
are equal to or less than 25 percent of the annual greenhouse gas
emissions from the production of electricity in the United States for
calendar year 2022 only if, the annual greenhouse gas emissions from
the production of electricity in the United States, as determined
separately under both of the data sources described in paragraph (c)(4)
of this section, are each equal to or less than 25 percent of the
annual greenhouse gas emissions from the production of electricity in
the United States for calendar year 2022. If a data source described in
paragraph (c)(4) of this section becomes unavailable (for example, it
is no longer published or does not provide the specified data), the
Secretary must designate a similar data source to replace the
unavailable data source.
(d) Requirements for CHP property--(1) In general. To be eligible
for the section 45Y credit, a CHP property must produce at least 20
percent of its total useful energy in the form of useful thermal energy
that is not used to produce electrical or mechanical power (or
combination thereof), and at least 20 percent of its total useful
energy in the form of electrical or mechanical power (or combination
thereof). The energy efficiency percentage of CHP property must exceed
60 percent. These percentages are determined on a British thermal unit
(Btu) basis.
(2) Energy efficiency percentage. The energy efficiency percentage
of a CHP property is the fraction the numerator of which is the total
useful electrical, thermal, and mechanical power produced by the system
at normal operating rates, and expected to be consumed in its normal
application, and the denominator of which is the lower heating value of
the fuel sources for the system.
(3) Special rule for calculating electricity produced by CHP
property--(i) In general. For purposes of section 45Y(a) and paragraph
(b) of this section, the kWh of electricity produced by a taxpayer at a
qualified facility includes any production in the form of useful
thermal energy by any CHP property within such facility, and the amount
of greenhouse gases emitted into the atmosphere by such facility in the
production of such useful thermal energy is included for purposes of
determining the greenhouse gas emissions rate for such facility.
(ii) Conversion from Btu to kWh--(A) In general. For purposes of
section 45Y(g)(2)(A)(i) and this paragraph (d)(3), the amount of kWh of
electricity produced in the form of useful thermal energy is equal to
the quotient of the total useful thermal energy produced by the CHP
property within the qualified facility, divided by the heat rate for
such facility.
(B) Heat rate. For purposes of this paragraph (d)(3), the term heat
rate means the amount of energy used by the qualified facility to
generate 1 kWh of electricity, expressed as Btus per net kWh generated.
In calculating the heat rate of a qualified facility that includes CHP
property that uses combustion, a taxpayer must use the annual average
heat rate, defined as the total annual fuel consumption of the CHP
property (in Btus, using the lower heating value of the fuel) during
the taxable year for which the section 45Y credit is claimed, divided
by the annual net electricity generation (in kWh) of the CHP property
during such taxable year.
(e) Applicability date. This section applies to qualified
facilities placed in service after December 31, 2024, and during a
taxable year ending on or after [DATE OF PUBLICATION OF THE FINAL
REGULATIONS IN THE FEDERAL REGISTER].
Sec. 1.45Y-2 Qualified facility for purposes of section 45Y.
(a) Qualified facility. For purposes of the section 45Y credit, the
term qualified facility means a facility owned by the taxpayer that
meets the following requirements:
(1) The facility is used for the generation of electricity,
(2) The facility is placed in service after December 31, 2024, and
(3) The facility has a greenhouse gas emissions rate of not greater
than zero
[[Page 47828]]
(as determined under rules provided in Sec. 1.45Y-5).
(b) Property included in qualified facility--(1) In general. A
qualified facility includes a unit of qualified facility (as defined in
paragraph (b)(2) of this section) that meets the requirements of
paragraph (b)(2) of this section. A qualified facility also includes
qualified property owned by the taxpayer that is an integral part (as
defined in paragraph (b)(3) of this section) of the qualified facility.
Any component of property that meets the requirements of this paragraph
(b) is part of a qualified facility regardless of where such component
of property is located. A qualified facility generally does not include
equipment that is an addition or modification to an existing qualified
facility. However, see Sec. 1.45Y-4(c) for rules regarding the
expansion of a facility or incremental production and Sec. 1.45Y-4(d)
for rules regarding a retrofitted qualified facility (80/20 Rule).
(2) Unit of qualified facility--(i) In general. For purposes of the
section 45Y credit, the unit of qualified facility includes all
functionally interdependent components of property (as defined in
paragraph (b)(2)(ii)) of this section) owned by the taxpayer that are
operated together and that can operate apart from other property to
produce electricity. No provision of this section, Sec. 1.45Y-1, or
Sec. 1.45Y-4 through 1.45Y-5 uses the term unit in respect of a
qualified facility with any meaning other than that provided in this
paragraph (b)(2)(i).
(ii) Functionally interdependent. Components of property are
functionally interdependent if placing in service each component is
dependent upon placing in service other components to produce
electricity.
(3) Integral part--(i)In general. For purposes of thesection
45Ycredit, a component of property owned by a taxpayer is an integral
part of a qualified facility if it is used directly in the intended
function of the qualified facility and is essential to the completeness
of such function. Property that is an integral part of a qualified
facility is part of the qualified facility.
(ii) Power conditioning and transfer equipment. Power conditioning
equipment and transfer equipment are integral parts of a qualified
facility. Power conditioning equipment includes equipment that modifies
the characteristics of electricity into a form suitable for use,
transmission, or distribution. Parts related to the functioning or
protection of power conditioning equipment are also treated as power
conditioning equipment and include, but are not limited to, switches,
circuit breakers, arrestors, and hardware and software used to monitor,
operate, and protect power conditioning equipment. Transfer equipment
includes components of property that allow for the aggregation of
electricity generated by a qualified facility and components of
property that alter voltage to permit electricity to be transferred to
a transmission or distribution line. Transfer equipment does not
include transmission or distribution lines. Examples of transfer
equipment include, but are not limited to, wires, cables, and combiner
boxes that conduct electricity. Parts related to the functioning or
protection of transfer equipment are also treated as transfer equipment
and may include items such as current transformers used for metering,
electrical interrupters (such as circuit breakers, fuses, and other
switches), and hardware and software used to monitor, operate, and
protect transfer equipment.
(iii) Roads. Roads that are an integral part of a qualified
facility are those roads integral to the intended function of the
qualified facility such as onsite roads that are used to operate and
maintain the qualified facility. Roads used primarily for access to the
site, or roads used primarily for employee or visitor vehicles, are not
integral to the intended function of the qualified facility and thus
are not an integral part of a qualified facility.
(iv) Fences. Fencing is not an integral part of a qualified
facility because it is not integral to the intended function of the
qualified facility.
(v) Buildings. Generally, buildings are not integral parts of a
qualified facility because they are not integral to the intended
function of the qualified facility. However, the following structures
are not treated as buildings for this purpose:
(A) A structure that is essentially an item of machinery or
equipment; and
(B) A structure that houses components of property that are
integral to the intended function of a qualified facility if the use of
the structure is so closely related to the use of the housed components
of property therein that the structure clearly can be expected to be
replaced if the components of property it initially houses are
replaced.
(vi) Shared integral property. Multiple qualified facilities
(whether owned by one or more taxpayers), including qualified
facilities with respect to which a taxpayer has claimed a credit under
section 48E or another Federal income tax credit, may include shared
property that may be considered an integral part of each qualified
facility. In addition, a component of property that is shared by a
qualified facility (as defined in section 45Y(b)) (45Y Qualified
Facility) and a qualified facility (as defined by section 48E(b)(3))
(48E Qualified Facility) that is an integral part of both qualified
facilities will not affect the eligibility of the 45Y Qualified
Facility for the section 45Y credit or the 48E Qualified Facility for
the section 48E credit.
(vii) Examples. This paragraph (b)(3)(vii) provides examples
illustrating the rules of paragraphs (b)(3)(i) through (vi) of this
section.
(A) Example 1. Co-located qualified facilities owned by the same
taxpayer that share integral property. X constructs a solar farm (Solar
Qualified Facility) and nearby also constructs a wind facility (Wind
Qualified Facility) that are each a qualified facility (as defined in
Sec. 1.45Y-2(a)). The Solar Qualified Facility and Wind Qualified
Facility each connect to a transformer that steps up the electricity
produced by each qualified facility to electrical grid voltage before
it is transmitted to the electrical grid through an intertie. The fact
that the Solar Qualified Facility and Wind Qualified Facility share
property that is integral to both does not impact the ability of X to
claim a section 45Y credit for both qualified facilities.
(B) Example 2. Co-located qualified facilities owned by different
taxpayers that share integral property. X constructs a solar farm
(Solar Qualified Facility), and nearby Y constructs a wind facility
(Wind Qualified Facility) that are each a qualified facility (as
defined in Sec. 1.45Y-2(a)). X's Solar Qualified Facility and Y's Wind
Qualified Facility each connect to a transformer that steps up the
electricity produced by both qualified facilities to electrical grid
voltage before it is transmitted to the electrical grid through an
intertie. The fact that the Solar Qualified Facility and Wind Qualified
Facility share property that is integral to both does not impact the
ability of X or Y to claim a section 45Y credit for the electricity
produced by their respective qualified facilities.
(C) Example 3. Co-located qualified facility and Energy Storage
Technology owned by the same taxpayer that share integral property. X
constructs a wind facility that is a qualified facility (as defined in
Sec. 1.45Y-2(a)) (Wind Qualified Facility) that is co-located with an
EST (as defined in Sec. 1.48E-2(g)) (Energy Storage). The Wind
Qualified Facility and Energy Storage share transfer equipment that is
integral to both. The fact that the Wind Qualified Facility and Energy
Storage share property that is integral to both does not impact the
ability of X to claim a section 45Y credit for the electricity produced
[[Page 47829]]
by the Wind Qualified Facility or to claim a section 48E credit for the
Energy Storage.
(D) Example 4. Co-located wind qualified facility and Energy
Storage Technology owned by different taxpayers that share integral
property. X constructs a solar farm that is a qualified facility (as
defined in Sec. 1.45Y-2(a)) (Solar Qualified Facility) that is co-
located with an EST (as defined in Sec. 1.48E-2(g)) (Energy Storage)
owned by Y. The Wind Qualified Facility and Energy Storage share
transfer equipment that is integral to both. The fact that the Wind
Qualified Facility and Energy Storage share property that is integral
to both does not impact the ability of X to claim a section 45Y credit
for the electricity produced by the Wind Qualified Facility or the
ability of Y to claim a section 48E credit for the Energy Storage.
(c) Coordination with other credits--(1) In general. The term
qualified facility (as defined in section 45Y(b)) does not include any
facility for which a credit determined under section 45, 45J, 45Q, 45U,
48, 48A, or 48E is allowed under section 38 of the Code for the taxable
year or any prior taxable year. A taxpayer that directly owns a
qualified facility (as defined in section 45Y(b)) that is eligible for
both a section 45Y credit and another Federal income tax credit is
eligible for the section 45Y credit only if the other Federal income
tax credit was not allowed with respect to the qualified facility.
Nothing in this paragraph (c) precludes a taxpayer from claiming a
section 45Y credit with respect to a qualified facility (as defined in
section 45Y(b)) that is co-located with another facility for which a
credit determined under section 45, 45J, 45Q, 45U, 48, 48A, or 48E is
allowed under section 38 for the taxable year or any prior taxable
year.
(2) Allowed. For purposes of paragraph (c)(1) of this section, the
term allowed only includes credits that taxpayers have claimed on a
Federal income tax return or Federal return, as appropriate, and that
the Internal Revenue Service (IRS) has not challenged in terms of the
taxpayer's eligibility.
(3) Examples. This paragraph (c)(3) provides examples illustrating
the rules of paragraph (c) of this section.
(i) Example 1. Taxpayer claims a section 45Y credit on a solar farm
and section 48E credit on co-located EST. X owns a solar farm that is a
qualifying facility (as defined in Sec. 1.45Y-2(a)) (Solar Qualified
Facility), and X owns a co-located EST (as defined in Sec. 1.48E-2(g))
(Energy Storage). The Energy Storage is not part of the Solar Qualified
Facility, and, therefore, X may claim the section 45Y credit based on
the kWh of electricity produced by the Solar Qualified Facility, and X
may also claim the section 48E credit based on its qualified investment
in the Energy Storage.
(ii) Example 2. Different taxpayers claim section 45Y credit for a
solar farm and a section 48E credit for co-located Energy Storage
Technology. X owns a solar farm that is a qualifying facility (as
defined in Sec. 1.45Y-2(a)) (Solar Qualified Facility), and Y owns a
co-located EST (as defined in Sec. 1.48E-2(g)) (Energy Storage). The
Energy Storage is not part of the Solar Qualified Facility, and
therefore, X may claim the section 45Y credit based on the kWh of
electricity produced by the Solar Qualified Facility, and Y may claim
the section 48E credit based on its qualified investment in the Energy
Storage.
(iii) Example 3. Taxpayer claiming a section 45Y credit; another
credit is not allowed to the Taxpayer. X owns a wind facility that
satisfies the requirements of a qualified facility (as defined in Sec.
1.45Y-2(a)) as well as the requirements of a qualified facility (as
defined in Sec. 1.48E-2(a)). X claims a section 45Y credit with
respect to the wind facility. While a credit may be available with
regard to the wind facility under section 48E, because X has claimed a
section 45Y credit with respect to the wind facility, a section 48E
credit is not allowed.
(iv) Example 4. Interaction of section 45Y and section 45Q credits.
X owns a qualified facility (as defined in Sec. 1.45Y-2(a)) (45Y
Facility) that includes carbon capture equipment, which is functionally
interdependent to the production of electricity by the 45Y Facility. X
used the carbon capture equipment to capture and utilize (as described
in section 45Q(f)(5)) qualified carbon dioxide and claimed a section
45Q credit in a prior taxable year. As a result, X cannot claim a
credit for its 45Y Facility because a qualified facility does not
include a facility for which a credit determined under section 45Q is
allowed.
(d) Applicability date. This section applies to qualified
facilities placed in service after December 31, 2024, and during a
taxable year ending on or after [DATE OF PUBLICATION OF THE FINAL
REGULATIONS IN THE FEDERAL REGISTER].
Sec. 1.45Y-3 [Reserved]
Sec. 1.45Y-4 Rules of general application.
(a) Only production in the United States taken into account.
Consumption, sales, or storage are taken into account for purposes of
the section 45Y credit only with respect to electricity the production
of which is within the United States (within the meaning of section
638(1) of the Code), or a United States territory, which for purposes
of section 45Y and the section 45Y regulations has the meaning of the
term a possession of the United States (within the meaning of section
638(2)).
(b) Production attributable to the taxpayer--(1) In general. In the
case of a qualified facility in which more than one person has an
ownership share (and the arrangement is not treated as a partnership
for Federal tax purposes) production from the qualified facility is
allocated among such persons in proportion to their respective
ownership shares in the gross sales from such qualified facility. The
respective owners each determine their respective section 45Y credit
under section 45Y(a) and based on their respective ownership shares in
the gross sales from such qualified facility during the taxable year.
(2) Example of gross sales. A, B and C, all calendar year
taxpayers, each own an interest in Facility, which is a qualified
facility (as defined in Sec. 1.45Y-2(a)). A owns 45 percent, B owns 35
percent, and C owns 20 percent, and each are allocated gross sales from
Facility in proportion to their ownership interest. Facility produced
1000 kWh of electricity during the taxable year. A, B, and C will each
determine their respective section 45Y credit under section 45Y(a) and
Sec. 1.45Y-1(b) based on their allocable share of the gross sales from
the 1000 kWh of electricity produced at Facility during the taxable
year.
(3) Section 761(a) election. If a qualified facility is owned
through an unincorporated organization that has made a valid election
under section 761(a) of the Code, each member's undivided ownership
share in the qualified facility will be treated as a separate qualified
facility owned by such member.
(c) Expansion of facility; Incremental production--(1) In general.
Solely for purposes of this paragraph (c), the term qualified facility
includes either a new unit or an addition of capacity placed in service
after December 31, 2024, in connection with a facility described in
section 45Y(b)(1)(A) (without regard to clause (ii) of such paragraph),
which was placed in service before January 1, 2025, but only to the
extent of the increased amount of electricity produced at the facility
by reason of such new unit or addition of capacity. A new unit or an
addition of capacity that meets the requirements of this
[[Page 47830]]
paragraph (c) will be treated as a separate qualified facility. For
purposes of this paragraph (c), a new addition or an addition of
capacity requires the addition or replacement of components of
property, including any new or replacement integral property added to a
facility necessary to increase capacity. If applicable for purposes of
this paragraph (c), taxpayers must use modified or amended facility
operating licenses or the International Standard Organization (ISO)
conditions to measure the maximum electrical generating output of a
facility to determine its nameplate capacity. For purposes of assessing
the One-Megawatt Exception provided in section 45Y(a)(2)(B)(i), the
capacity for a new unit or an addition of capacity is the sum of the
nameplate capacity of the added qualified facility and the nameplate
capacity of the facility to which the qualified facility was added.
(2) Special rule for restarted facilities. Solely for purposes of
this paragraph (c), a facility that is decommissioned or in the process
of decommissioning and restarts can be considered to have increased
capacity if the following conditions are met:
(i) The existing facility must have ceased operations;
(ii) The existing facility must have a shutdown period of at least
one calendar year during which it is without a valid operating license
from its respective Federal regulatory authority (that is, the Federal
Energy Regulatory Commission (FERC) or the Nuclear Regulatory
Commission (NRC); and
(iii) The increased capacity of the restarted facility must have a
new, reinstated, or renewed operating license issued by either FERC or
NRC.
(3) Computation of increased amount of electricity produced. To
determine the increased amount of electricity produced by a facility by
reason of a new unit or an addition of capacity, a taxpayer must
multiply the amount of electricity that the facility produces during a
taxable year after the new unit or addition of capacity is placed in
service by a fraction, the numerator of which is the added nameplate
capacity that results from the new unit or addition of capacity, and
the denominator of which is the total nameplate capacity of the
facility with the new unit or addition of capacity added.
(4) Examples. This paragraph (c)(4) provides examples illustrating
the rules of paragraph (c) of this section.
(i) Example 1. New Unit. X owns a hydropower facility (Facility H)
that was originally placed in service in 2020, with a nameplate
capacity of 600 megawatts. During taxable years 2020 through 2024, X
claimed a section 45 credit for the electricity produced by Facility H.
On July 1, 2025, X places in service components of property comprising
a new unit that results in Facility H having an increased nameplate
capacity of 900 megawatts in 2025. For purposes of paragraph (c) of
this section, this new unit will be treated as a separate facility
(Facility J). X may claim a section 45Y credit during the 10-year
credit period starting on July 1, 2025, based on the increased amount
of electricity generated as a result of the new unit, which is
determined by multiplying the electricity that Facility H produces by
one-third (equal to the 300-megawatt increase in nameplate capacity
that results from the addition of Facility J divided by the 900
megawatt nameplate capacity of Facility H with Facility J). Even though
X claimed a section 45 credit for the existing capacity of Facility H
in taxable years 2020 through 2024, X can claim a section 45Y credit
for the production of electricity associated with Facility J. X may
also continue to claim the section 45 credit through taxable year 2030
for electricity generated by Facility H (excluding the incremental
electricity generation related to Facility J).
(ii) Example 2. Addition of Capacity. Y owns a nuclear facility
(Facility N) that was originally placed in service on January 1, 2000,
with a nameplate capacity of 800 megawatts. Y claimed a section 45U
credit in taxable years 2024 and 2025 for the electricity generated by
Facility N. On January 15, 2026, Y removed components of property with
a nameplate capacity of 200 megawatts and placed in service components
of property with a nameplate capacity of 400 megawatts. For purposes of
this paragraph (c), Facility N's addition of capacity is treated as a
new separate qualified facility placed in service on January 15, 2026
(Facility P). Y may claim a section 45Y credit during the 10-year
credit period starting on January 15, 2026, based on the increased
amount of electricity produced at Facility N that is attributable to
the addition of capacity (Facility P), which is determined by
multiplying the electricity that Facility N produces by \1/5\ (equal to
the 200-megawatt increase in nameplate capacity divided by Facility N's
new total nameplate capacity of 1,000 megawatts). Even though Y claimed
a section 45U credit in taxable years 2024 and 2025 for the existing
capacity of Facility N, Y can claim a section 45Y credit for the
production of electricity associated with Facility P. Y may also
continue to claim the section 45U credit through taxable year 2032 for
electricity generated by Facility N (excluding the incremental
electricity generation related to Facility P).
(d) Retrofit of an existing facility (80/20 Rule)--(1) In general.
For purposes of section 45Y(b)(1)(B), a facility may qualify as
originally placed in service even if it contains some used components
of property within the unit of qualified facility, provided the fair
market value of the used components of the unit of qualified facility
is not more than 20 percent of the total value of the unit of qualified
facility (that is, the cost of the new components of property plus the
fair market value of the used components of property within the unit of
qualified facility) (80/20 Rule). If a facility satisfies the
requirements of the 80/20 Rule, then the date on which such qualified
facility is considered originally placed in service for purposes of
section 45Y(b)(1)(B) is the date on which the new components of
property of the unit of qualified facility are placed in service.
(2) Cost of new components of property. For purposes of this 80/20
Rule, the cost of new components of the unit of qualified facility
includes all costs properly included in the depreciable basis of the
new components of property of the unit of qualified facility.
(3) Examples. The following examples illustrate the rules of this
paragraph (d).
(i) Example 1. Retrofitted facility that that meets the 80/20 Rule.
A owns an existing wind facility. On February 1, 2026, A replaces used
components of the wind facility with new components at a cost of $2
million. The fair market value of the remaining original components of
the wind facility is $400,000, which is not more than 20 percent of the
retrofitted wind facility's total fair market value of $2.4 million
(the cost of the new components ($2 million) + the fair market value of
the remaining original components ($400,000)). Thus, the retrofitted
wind facility will be considered newly placed in service for purposes
of section 45Y, and the section 45Y credit is allowable for electricity
produced by A at the wind qualified facility and sold, consumed, or
stored, during the 10-year period beginning on February 1, 2026,
assuming all the other requirements of section 45Y are met.
(ii) Example 2. Retrofit of an existing facility that meets the 80/
20 Rule. Facility Z, a facility that was originally placed in service
on January 1, 2026, was not a qualified facility (as described in Sec.
1.45Y-2(a)) when it was placed in service because it did not meet the
greenhouse gas emissions rate
[[Page 47831]]
requirements (as determined under rules provided in Sec. 1.45Y-5). On
January 1, 2027, Facility Z was retrofitted and now meets the
requirements to be a qualified facility under Sec. 1.45Y-2(a). After
the retrofit, the cost of the new property included in Facility Z is
greater than 80 percent of Facility Z's total fair market value.
Because Facility Z meets the 80/20 Rule, Facility Z is deemed to be
originally placed in service on January 1, 2027. Therefore, a section
45Y credit is allowable for electricity produced by Facility Z and
sold, consumed, or stored during the 10-year period beginning on
January 1, 2027, assuming all the other requirements of section 45Y are
met.
(iii) Example 3. Retrofitted nuclear facility that satisfied the
80/20 Rule. T owns a nuclear facility (Facility N) that was originally
placed in service on March 1, 1982, and was decommissioned on September
20, 2010. T replaces used components of property at Facility N with new
components at a cost of $200 million, and then places Facility N in
service on July 15, 2026. The fair market value of the remaining
original components of the Facility N, after being decommissioned and
prior to restart, is $30 million, which is not more than 20 percent of
Facility N's total fair market value of $230 million (the cost of the
new components ($200 million) + the fair market value of the remaining
original components ($30 million)). Thus, Facility N will be considered
newly placed in service on July 15, 2026, for purposes of section 45Y,
and T will be able to claim a section 45Y credit based on the
electricity generated at Facility N, assuming all the other
requirements of section 45Y are met.
(iv) Example 4. Capital improvements to an existing qualified
facility that do not satisfy the 80/20 Rule. X owns an existing
facility, Facility C, that was originally placed in service on January
1, 2023. X makes capital improvements to Facility C that are placed in
service on June 1, 2026. The cost of the capital improvements is
$500,000 and the fair market value of Facility C after the improvements
is $2 million. The value of the old components of property is
$1,500,000 out of $2.0 million, or 75 percent of the total fair market
value of Facility C after the improvements. Because the fair market
value of the new property included in Facility C is less than 80
percent of Facility C's total fair market value, Facility C does not
meet the 80/20 Rule. Facility C will not be considered a qualified
facility (as defined in Sec. 1.45Y-2(a)) eligible for the section 45Y
credit.
(e) Applicability date. This section applies to qualified
facilities placed in service after December 31, 2024, and during a
taxable year ending on or after [DATE OF PUBLICATION OF THE FINAL
REGULATIONS IN THE FEDERAL REGISTER].
Sec. 1.45Y-5 Greenhouse gas emissions rates for qualified facilities
under section 45Y.
(a) In general. This section provides rules and definitions for
determining emissions rates for purposes of section 45Y. Section 1.45Y-
5(b)(4) provides a definition for a facility that produces electricity
through combustion or gasification and Sec. 1.45Y-5(b)(7) defines a
facility that does not produce electricity through combustion or
gasification. Section 1.45Y-5(c) through (e) provide rules for
determining the greenhouse gas emissions rates for facilities for
purposes of section 45Y. Section 1.45Y-5(f) provides rules for the
annual publication of emissions rates. Section 1.45Y-5(g) provides
rules related to provisional emissions rates. Section Sec. 1.45Y-5(h)
provides rules regarding reliance on the annual publication of
emissions rates and provisional emissions rates. Finally, Sec. 1.45Y-
5(i) provides rules regarding substantiation requirements.
(b) Definitions. The following definitions apply for purposes of
this section.
(1) CO2e per kWh. The term CO2e per kWh means with respect to any
greenhouse gas, the equivalent carbon dioxide (as determined based on
global warming potential) per kWh of electricity produced. The 100-year
time horizon global warming potentials (GWP-100) from the
Intergovernmental Panel on Climate Change's Fifth Assessment Report
(AR5) must be used to convert emissions to equivalent carbon dioxide
emissions. For purposes of this definition, the GWP-100 from AR5 (as
shown in Table 1) excludes climate-carbon feedbacks. Table 1 provides
GWP-100 amounts for certain greenhouse gases applicable to this
section.
Table 1 to Paragraph (b)(1)--100 Year Global Warming Potentials for
Greenhouse Gases
------------------------------------------------------------------------
Greenhouse gas GWP
------------------------------------------------------------------------
CO2..................................... 1.
CH4..................................... 28.
N2O..................................... 265.
SF6..................................... 23,500.
Hydrofluorocarbons...................... Varies by gas.
Perfluorocarbons........................ Varies by gas.
------------------------------------------------------------------------
(2) Combustion. The term combustion means a rapid exothermic
chemical reaction, specifically the oxidation of a fuel, which
liberates energy including heat and light.
(3) Gasification. The term gasification means a thermochemical
process that converts carbon-containing materials into syngas, a
gaseous mixture that is composed primarily of carbon monoxide, carbon
dioxide, and hydrogen.
(4) Facility that produces electricity through combustion or
gasification. The term facility that produces electricity through
combustion or gasification (C&G Facility) means a facility that
produces electricity through combustion or uses an input energy source
to produce electricity, if the input energy source was produced through
a fundamental transformation, or multiple transformations, of one
energy source into another using combustion or gasification.
(5) Greenhouse gas emissions rate. Consistent with section
45Y(b)(2)(A), the term greenhouse gas emissions rate means the amount
of greenhouse gases emitted into the atmosphere by a facility in the
production of electricity, expressed as grams of CO2e per
kWh.
(6) Greenhouse gases emitted into the atmosphere by a facility in
the production of electricity. For purposes of section 45Y(b)(2)(A),
for both C&G and Non-C&G Facilities, the term greenhouse gases emitted
into the atmosphere by a facility in the production of electricity
means emissions from a facility that directly occur from the process
that transforms the input energy source into electricity. This
definition excludes the following:
(i) Emissions from electricity production by back-up generators
that are primarily used in maintaining critical systems in case of a
power system outage or for supporting restart of a generator after an
outage.
(ii) Emissions from routine operational and maintenance activities
that are integral to the production of electricity, including, but not
limited to, emissions from internal combustion vehicles used to access
and perform maintenance on remote electricity generating facilities or
emissions occurring from heating and cooling control rooms or dispatch
centers.
(iii) Emissions from a step-up transformer that conditions the
electricity into a form suitable for productive use or sale.
(iv) Emissions that occur before commercial operations commence or
after commercial operations terminate, including, but not limited to,
on-site emissions occurring from construction
[[Page 47832]]
or manufacturing of the facility itself, emissions from the off-site
manufacturing of facility components, or emissions occurring due to
siting or decommissioning.
(v) Emissions from infrastructure associated with the facility,
including, but not limited to, emissions from road construction for
feedstock production.
(vi) Emissions from the distribution of electricity to consumers.
(7) Non-C&G Facility. The term Non-C&G Facility means a facility
that produces electricity and is not described in Sec. 1.45Y-5(b)(4).
(8) Fuel. The term fuel means material directly used to produce
electricity or energy inputs that are used to produce electricity.
(9) Feedstock. The term feedstock means any raw material used in a
process for electricity generation or to produce an intermediate
product or finished fuel used for electricity generation.
(c) Non-C&G Facilities--(1) Determining a greenhouse gas emissions
rate for Non-C&G Facilities. Greenhouse gas emissions rates for Non-C&G
Facilities must be determined under this paragraph (c) and paragraph
(e) of this section.
(i) Excluded emissions. With respect to Non-C&G Facilities only,
greenhouse gases emitted into the atmosphere by a facility in the
production of electricity excludes emissions of greenhouse gases that
are not directly produced by the fundamental transformation of the
input energy source into electricity, including, but not limited to,
the following:
(A) Emissions from hydropower reservoirs due to anoxic conditions;
(B) Ebullitive, diffuse, and degassing emissions from hydropower
operations;
(C) Emissions of non-condensable gases from underground reservoirs
during geothermal operations; and
(D) Emissions occurring due to activities and operations occurring
off-site, including but not limited to, the production and
transportation of fuels used by the facility, or land use change from
siting or changes in demand.
(ii) Emissions assessment process. Subject to Sec. 1.45Y-5(b)(6)
and (c)(1), a greenhouse gas emissions rate for a Non-C&G Facility must
be determined through a technical and engineering assessment of the
fundamental energy transformation into electricity. This assessment
must consider all input and output energy carriers and chemical
reactions or mechanical processes taking place at the facility in the
production of electricity.
(iii) Example of greenhouse gas emissions rate determination for a
Non-C&G Facility.
(A) Facts. A facility uses solar photovoltaic technologies to
convert light directly into electricity through use of the photovoltaic
effect. This is a physical phenomenon in which certain semiconducting
materials upon exposure to light, absorb the light and transform the
energy contained in the light directly into an electric current. There
are many materials that may be used to generate electricity through
this method, including crystalline silicon, amorphous silicon, cadmium
telluride, copper indium gallium diselenide, perovskites, quantum dots,
and carbon-based materials known as organic photovoltaics. The smallest
unit of photovoltaic materials is a cell. Multiple cells are typically
assembled into a panel or module and electrically connected. Multiple
modules or panels are generally connected to comprise a solar system or
installation. Solar photovoltaic technologies produce direct current
electricity that can be used as is or, more typically, can be fed into
inverters to transform it into alternating current. Solar panels can be
ground mounted at a fixed angle or can be mounted with tracking systems
that move the panels to track the location of the sun over the course
of the day and season in order to maximize electricity production.
Solar panels may also be mounted on buildings (for example, on roofs),
or solar photovoltaic materials can be integrated into other building
components such as roofing tiles.
(B) Analysis. For solar photovoltaic technologies, the fundamental
transformation of input energy (solar electromagnetic radiation) into
electricity using the photovoltaic effect involves no mechanical energy
or chemical reactions. Academic studies on the lifecycle greenhouse gas
emissions from solar photovoltaic power indicate that there is a small
but non-zero amount of emissions associated with the operational phase
of these technologies. However, these emissions exclusively occur due
to ongoing maintenance (for example, the washing of solar panels),
preventative maintenance (for example, the periodic replacement of
electrical equipment such as inverters), and a minimal amount of
project management (for example, inverter standby mode at night). These
emissions do not occur directly due to the production of electricity.
Therefore, consistent with Sec. 1.45Y-5(c)(1)(ii), the greenhouse gas
emissions rate for facilities that produce electricity by solar
photovoltaic properties is not greater than zero.
(2) Non-C&G Facilities with a greenhouse gas emissions rate that is
not greater than zero. The following types or categories of facilities
are Non-C&G Facilities with a greenhouse gas emissions rate that is not
greater than zero:
(i) Wind (including small wind properties);
(ii) Hydropower (including retrofits that add electricity
production to non-powered dams, conduit hydropower, hydropower using
new impoundments, and hydropower using diversions such as a penstock or
channel);
(iii) Marine and hydrokinetic;
(iv) Solar (including photovoltaic and concentrated solar power);
(v) Geothermal (including flash and binary plants);
(vi) Nuclear fission;
(vii) Nuclear fusion; and
(viii) Waste energy recovery property that derives energy from a
source described in paragraphs (c)(2)(i) through (vii) of this section.
(d) C&G Facilities--(1) Determining a greenhouse gas emissions rate
for C&G Facilities. Greenhouse gas emissions rates for C&G Facilities
must be determined by a lifecycle analysis (LCA) that complies with
this paragraph (d) and paragraph (e) of this section. The greenhouse
gas emissions rate for a C&G Facility equals the net rate of greenhouse
gases emitted into the atmosphere by such facility (taking into account
lifecycle greenhouse gas emissions, as described in section
211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H))) in the
production of electricity, expressed as grams of CO2e per
kWh.
(2) LCA requirements. For purposes of this paragraph (d), an LCA
must comply with the following requirements:
(i) Starting boundary. The starting boundary of the LCA for an LCA
involving generation-derived feedstocks (such as biogenic feedstocks)
is feedstock generation. The starting boundary of the LCA for an LCA
involving extraction-derived feedstocks (such as fossil fuel
feedstocks) is feedstock extraction. The starting boundaries include
the processes necessary to produce and collect or extract the raw
materials used to produce electricity from combustion or gasification
technologies, including those used as energy inputs to electricity
production. This includes the emissions effects of relevant land
management activities or changes related to or associated with
feedstock production. The starting conditions are the material and
energy flows, including associated direct and indirect greenhouse gas
emissions, of the processes associated with the extraction or
production of raw feedstock materials or fuel.
[[Page 47833]]
(ii) Ending boundary. The ending boundary of the LCA for
electricity that is transmitted to the grid or electricity that is used
on-site is the meter at the point of production of the C&G Facility.
The use of such electricity generated by the C&G Facility (and what
other types of energy sources it displaces), including emissions from
transmission and distribution, are outside of the LCA boundary.
(iii) Baseline. The LCA must be based on a future anticipated
baseline, which projects future status quo in the absence of the
availability of the sections 45Y and 48E credits (taking into account
anticipated changes in technology, policies, practices, and
environmental and other socioeconomic conditions).
(iv) Offsets and offsetting activities. Offsets and offsetting
activities that are unrelated to the production of electricity by the
C&G Facility, including the production and distribution of any input
fuel, may not be taken into account in the LCA.
(v) Principles for included emissions. The LCA must take into
account direct emissions, significant indirect emissions in the United
States or other countries, emissions associated with market-mediated
changes in related commodity markets, emissions associated with
feedstock generation or extraction, emissions consequences of increased
production of feedstocks, emissions at all stages of fuel and feedstock
production and distribution, and emissions associated with
distribution, delivery, and use of feedstocks to and by a C&G Facility.
(A) Direct emissions. For purposes of paragraph this paragraph
(d)(2)(v), direct emissions include, but are not limited to:
(1) Emissions from feedstock generation, production, and extraction
(including emissions from feedstock and fuel harvesting and extraction
and direct land use change and management, including emissions from
fertilizers, and changes in carbon stocks);
(2) Emissions from feedstock and fuel transport (including
emissions from transporting the raw or processed feedstock to the fuel
processing facility);
(3) Emissions from transporting and distributing fuels to
electricity production facility;
(4) Emissions from handling, processing, upgrading, and/or storing
feedstocks, fuels and intermediate products (including emissions from
on/offsite storage and preparation/pre-treatment for use (for example,
torrefaction or pelletization) and emissions from process additives);
and
(5) Emissions from combustion and gasification at the electricity
generating facility (including emissions from the combustion and/or
gasification process and emission from gasification or combustion
additives).
(B) Significant indirect emissions. For purposes of this paragraph
(d)(2)(v), examples of significant indirect emissions include, but are
not limited to, emissions from indirect land use and land use change
and induced emissions associated with the increased use of the
feedstock for energy production.
(vi) Principles for excluded emissions. The LCA must not take into
account the following types of emissions:
(A) Emissions from facility construction, siting or decommissioning
(including on-site emissions occurring from construction or
manufacturing of the facility itself);
(B) Emissions from facility maintenance (including emissions from
the on and offsite construction or maintenance of the facility;
emissions from vehicles used to access and perform maintenance on
electricity generating facilities; emissions from back-up generators
that do not provide additional firm power and are used in maintaining
critical systems in case of a power system outage or for supporting
restart of a generator after an outage; and emissions occurring from
heating and cooling control rooms or dispatch centers);
(C) Emissions from infrastructure associated with the facility
(including emissions from road construction for feedstock production
and emissions from onsite backup or emergency generators used in an
emergency or unplanned outage); and
(D) Emissions from the distribution of electricity to consumers.
(vii) Alternative fates and avoided emissions. The LCA may consider
alternative fates and account for avoided emissions.
(e) Carbon capture and sequestration. For purposes of paragraphs
(c) and (d) of this section, a greenhouse gas emissions rate for a Non-
C&G Facility or C&G Facility must exclude any qualified carbon dioxide
(as defined in section 45Y(c)(3)) that is produced in such facility's
production of electricity, captured by the taxpayer, and pursuant to
any regulations established under section 45Q(f)(2), disposed of by the
taxpayer in secure geological storage, or utilized by the taxpayer in a
manner described in section 45Q(f)(5) and any regulations established
under such section.
(f) Annual publication of emissions rates--(1) In general. As
required by section 45Y(b)(2)(C)(i), the Secretary will annually
publish a table that sets forth the greenhouse gas emissions rates for
types or categories of facilities (Annual Table), which a taxpayer must
use for purposes of section 45Y. Except as provided in paragraph (h) of
this section, a taxpayer that owns a facility that is described in the
Annual Table on the first day of the taxpayer's taxable year in which
the section 45Y credit or section 48E credit is determined with respect
to such facility must use the Annual Table as of such date to determine
an emissions rate for such facility for such taxable year.
(2) Publication of analysis required for changes to the Annual
Table. In connection with the publication of the Annual Table, the
Secretary must publish an accompanying expert analysis that addresses
any types or categories of facilities added or removed from the Annual
Table since its last publication. Types or categories of facilities
will be added or removed from the Annual Table consistent with, for
Non-C&G Facilities, a technical assessment of the fundamental energy
transformation into electricity as provided in paragraph (c)(1)(ii) of
this section, and, for C&G Facilities, an LCA that complies with
paragraphs (d) and (e) of this section. Such expert analysis must be
prepared by one or more of the National Laboratories, in consultation
with other agency experts as appropriate, and must address whether the
addition or removal of types or categories of facilities from the
Annual Table complies with section 45Y(b)(2)(A) and (B) of the Internal
Revenue Code and this section.
(g) Provisional emissions rates--(1) In general. In the case of any
facility that is of a type or category for which an emissions rate has
not been established by the Secretary under this paragraph (g), a
taxpayer that owns such facility may file a petition with the Secretary
for the determination of the emissions rate with respect to such
facility (Provisional Emissions Rate or PER). A PER must be determined
and obtained under the rules of this section.
(2) Rate not established. An emissions rate has not been
established by the Secretary for a facility for purposes of section
45Y(b)(2)(C)(ii) if such facility is not described in the Annual Table.
If a taxpayer's request for an emissions value pursuant to paragraph
(g)(5) of this section is pending at the time such facility is or
becomes described in the Annual Table, the taxpayer's request for an
emissions value will be automatically denied.
(3) Process for filing a PER petition. To file a PER petition with
the Secretary, a taxpayer must submit a PER petition by attaching it to
the taxpayer's Federal income tax return or Federal
[[Page 47834]]
return, as appropriate, for the first taxable year in which the
taxpayer claims the section 45Y credit with respect to the facility to
which the PER petition applies. The PER petition must contain an
emissions value, and, if applicable, the associated letter from DOE. An
emissions value may be obtained from the Department of Energy (DOE) or
by using an LCA model in accordance with paragraph (g)(6) of this
section. An emission value obtained from DOE will be based on an
analytical assessment of the emissions rate associated with the
facility, performed by one or more National Laboratories, in
consultation with other agency experts as appropriate, consistent with
this section. A taxpayer must retain in its books and records a copy of
the application and correspondence to and from DOE including a copy of
the taxpayer's request to DOE for an emissions value, including any
information provided by the taxpayer to DOE pursuant to the emissions
value request process provided in paragraph (g)(5) of this section.
Alternatively, an emissions value can be determined by the taxpayer for
a facility using the most recent version of an LCA model, as of the
time the PER petition is filed, that has been designated by the
Secretary for such use under paragraph (g)(6) of this section. If an
emissions value is determined using the most recent version of the
model or models, the taxpayer is required to provide to the IRS
information to support its determination in the form and manner
prescribed in IRS forms or instructions or in publications or guidance
published in the Internal Revenue Bulletin. See Sec. 601.601 of this
chapter. A taxpayer may not request an emissions value from DOE for a
facility for which an emissions value can be determined by using the
most recent version of an LCA model or models that have been designated
by the Secretary for such use under paragraph (g)(6) of this section.
(4) PER determination. Upon the IRS's acceptance of the taxpayer's
Federal income tax return or Federal return, as appropriate, containing
a PER petition, the emissions value of the facility specified on such
petition will be deemed accepted. A taxpayer may rely upon an emissions
value provided by DOE for purposes of claiming a section 45Y credit,
provided that any information, representations, or other data provided
to DOE in support of the request for an emissions value are accurate.
If applicable, a taxpayer may rely upon an emissions value determined
for a facility using the most recent version of the specific LCA model
or models that, as of the time the PER petition is filed, have been
designated by the Secretary for such use under paragraph (g)(6) of this
section, provided that any information, representations, or other data
used to obtain such emissions value are accurate. The IRS's deemed
acceptance of an emissions value is the Secretary's determination of
the PER. However, the taxpayer must still comply with all applicable
requirements for the section 45Y credit and any information,
representations, or other data supporting an emissions value are
subject to later examination by the IRS.
(5) Emissions value request process. An applicant that submits a
request for an emissions value must follow the procedures specified by
DOE to request and obtain such emissions value. Emissions values will
be determined consistent with the rules provided in this section. An
applicant may request an emissions value from DOE only after a front-
end engineering and design (FEED) study or similar indication of
project maturity, as determined by DOE, such as completion of a project
specification and cost estimation sufficient to inform a final
investment decision for the facility. DOE may decline to review
applications that are not responsive, including those applications that
relate to a facility described in the Annual Table (consistent with
paragraph (g)(2) of this section) or a facility for which an emissions
value can be determined by an LCA model designated under paragraph
(g)(6) of this section (consistent with paragraph (g)(3) of this
section), or applications that are incomplete. DOE will publish
guidance and procedures that applicants must follow to request and
obtain an emissions value from DOE. DOE's guidance and procedures will
include a process for, under limited circumstances, requesting a
revision to DOE's initial assessment of an emissions value based on
revised technical information or facility design and operation.
(6) LCA model for determining an emissions value for C&G
Facilities. The Secretary may designate one or more LCA models for
determining an emissions value for C&G Facilities that are not
described in the Annual Table. The Secretary may only designate a model
under this paragraph (g)(6) if the model complies with section
45Y(b)(2)(B) and paragraphs (d) and (e) of this section. The Secretary
may revoke the designation of an LCA model or models. In connection
with the designation or revocation of a designation of an LCA model or
models, the Secretary is required to publish an accompanying expert
analysis of the model that is prepared by one or more of the National
Laboratories, in consultation with other agency experts as appropriate,
and such analysis must address the model's compliance with section
45Y(b)(2)(B) of the Internal Revenue Code and paragraphs (d) and (e) of
this section.
(7) Effect of PER. A taxpayer may use a PER determined by the
Secretary to determine eligibility for the section 45Y credit for the
facility to which the PER applies, provided all other requirements of
section 45Y are met. The Secretary's PER determination is not an
examination or inspection of books of account for purposes of section
7605(b) of the Code and does not preclude or impede the IRS (under
section 7605(b) or any administrative provisions adopted by the IRS)
from later examining a return or inspecting books or records with
respect to any taxable year for which the section 45Y credit is
claimed. Further, a PER determination does not signify that the IRS has
determined that the requirements of section 45Y have been satisfied for
any taxable year.
(h) Reliance on Annual Table or Provisional Emissions Rate.
Taxpayers may rely on the Annual Table in effect as of the date a
facility began construction or the provisional emissions rate
determined by the Secretary for the taxpayer's facility under paragraph
(g)(4) of this section to determine the facility's greenhouse gas
emissions rate for any taxable year that is within the 10-year period
described in section 45Y(b)(1)(B), provided that the facility continues
to operate as a type of facility that is described in the Annual Table
or the facility's emissions value request, as applicable, for the
entire taxable year.
(i) Substantiation--(1) In general. A taxpayer must maintain in its
books and records documentation regarding the design, operation, and,
if applicable, feedstock or fuel source used by the facility that
establishes that such facility had a greenhouse gas emissions rate, as
determined under this section, that is not greater than zero for the
taxable year.
(2) Sufficient substantiation. Documentation sufficient to
substantiate that a facility had a greenhouse gas emissions rate, as
determined under this section, that is not greater than zero for the
taxable year includes documentation or a report prepared by an
unrelated party that verifies that a facility had such an emissions
rate. A facility described in paragraph (c)(2) of this
[[Page 47835]]
section can maintain sufficient documentation to demonstrate a
greenhouse gas emissions rate that is not greater than zero for the
taxable year by showing that it is the type of facility described in
paragraph (c)(2) of this section. The Secretary may determine that
other types of facilities can sufficiently substantiate a greenhouse
gas emissions rate, as determined under this section, that is not
greater than zero with certain documentation and will describe such
facilities and documentation in IRS forms or instructions or in
publications or guidance published in the Internal Revenue Bulletin.
See Sec. 601.601 of this chapter.
(j) Applicability date. This section applies to qualified
facilities placed in service after December 31, 2024, and during a
taxable year ending on or after [the date of publication of the final
regulations in the Federal Register].
0
Par. 4. Sections 1.48E-0 through 1.48E-5 are added to read as follows:
Sec.
* * * * *
Sec. 1.48E-0 Table of contents.
Sec. 1.48E-1 Clean electricity investment credit.
Sec. 1.48E-2 Qualified investments in qualified facilities and EST
for purposes of section 48E.
Sec. 1.48E-3 [Reserved]
Sec. 1.48E-4 Rules of general application.
Sec. 1.48E-5 Greenhouse gas emissions rates for qualified
facilities under section 48E.
* * * * *
Sec. 1.48E-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.48E-1
through 1.48E-5.
Sec. 1.48E-1 Clean electricity investment credit.
(a) Overview.
(1) In general.
(2) Code.
(3) EST.
(4) kWh.
(5) Qualified facility.
(6) Qualified investment with respect to a qualified facility.
(7) Qualified investment with respect to EST.
(8) Secretary.
(9) Section 48E credit.
(10) Section 48E regulations.
(b) Credit amount.
(1) In general.
(2) Applicable percentage.
(3) Base rate.
(4) Alternative rate.
(5) Energy communities increase in credit rate.
(i) In general.
(ii) Applicable credit rate increase.
(6) Domestic content increase in credit rate.
(i) In general.
(ii) Applicable credit rate increase.
(c) Credit phase-out.
(1) In general.
(2) Phase-out percentage.
(3) Applicable year.
(d) Applicability date.
Sec. 1.48E-2 Qualified investments in qualified facilities and EST
for purposes of section 48E.
(a) Qualified facility.
(b) Property included in qualified facility.
(1) In general.
(2) Unit of qualified facility.
(i) In general.
(ii) Functionally interdependent.
(3) Integral part.
(i) In general.
(ii) Power conditioning and transfer equipment.
(iii) Roads.
(iv) Fences.
(v) Buildings.
(vi) Shared integral property.
(vii) Examples.
(c) Coordination with other credits.
(1) In general.
(2) Allowed.
(3) Examples.
(d) Qualified investment with respect to a qualified facility.
(e) Qualified property.
(1) In general.
(2) Location of qualified property.
(f) Definitions related to requirements for qualified property.
(1) Tangible personal property.
(2) Other tangible property.
(3) Construction, reconstruction, or erection of qualified
property.
(4) Acquisition of qualified property.
(5) Original use of qualified property.
(i) In general.
(ii) Retrofitted qualified facility.
(6) Depreciation allowable.
(i) In general.
(ii) Exclusions from allowable.
(7) Placed in service.
(i) In general.
(ii) Qualified facility subject to Sec. 1.48-4 election to
treat lessee as purchaser.
(8) Claim.
(g) EST.
(1) Property included in EST.
(2) Unit of EST.
(i) In general.
(ii) Functionally interdependent.
(3) Integral part.
(4) Qualified investment with respect to EST.
(5) Placed in service.
(i) In general.
(ii) EST subject to Sec. 1.48-4 election to treat lessee as
purchaser.
(6) Types of EST.
(i) Electrical energy storage property.
(ii) Thermal energy storage property.
(iii) Hydrogen energy storage property.
(7) Modification of EST.
(8) Claim.
(h) Applicability date.
Sec. 1.48E-3 [Reserved]
Sec. 1.48E-4 Rules of general application.
(a) Rules for certain lower-output qualified facilities to
include qualified interconnection costs in the basis of associated
qualified facility.
(1) In general.
(2) Qualified interconnection property.
(3) Five-Megawatt Limitation.
(i) In general.
(ii) Nameplate capacity for purposes of the Five-Megawatt
Limitation.
(4) Interconnection agreement.
(5) Utility.
(6) Reduction to amounts chargeable to capital account.
(7) Examples.
(b) Expansion of facility; Incremental production.
(1) In general.
(2) Special rule for restarted facilities.
(3) Computation of qualified investment for a new unit or an
addition of capacity.
(i) New unit.
(ii) Addition of capacity.
(4) Examples.
(c) Retrofit of an existing facility (80/20 Rule).
(1) In general.
(2) Expenditures taken into account.
(3) Cost of new components.
(4) New costs.
(5) Excluded costs.
(6) Examples.
(d) Special rules regarding ownership.
(1) Qualified investment with respect to a qualified facility or
EST.
(2) Multiple owners.
(3) Section 761(a) election.
(4) Related taxpayers.
(i) Definition.
(ii) Related taxpayer rule.
(5) Examples.
(e) Coordination rule for section 42 credits and section 48E
credits.
(f) Recapture.
(1) In general.
(2) Recapture event.
(i) In general.
(ii) Changes to the Annual Table.
(iii) Yearly determination.
(iv) Carryback and carryforward adjustments.
(3) Recapture amount.
(i) In general.
(ii) Applicable recapture percentage.
(4) Recapture period.
(5) Increase in tax for recapture.
(g) Cross references.
(h) Applicability date.
Sec. 1.48E-5 Greenhouse gas emissions rates for qualified
facilities under section 48E.
(a) In general.
(b) Definitions.
(c) Non-C&G Facilities.
(d) C&G Facilities.
(e) Carbon capture and sequestration.
(f) Annual publication of emissions rates.
(g) Provisional emissions rates.
(1) In general.
(2) Rate not established.
(3) Process for filing a PER petition.
(4) PER determination.
(5) Emissions value request process.
(6) LCA model for determining an emissions value for C&G
Facilities.
(7) Effect of PER.
(h) Determining anticipated greenhouse gas emissions rate.
(1) In general.
(2) Examples of objective indicia.
(i) Reliance on Annual Table or Provisional Emissions Rate.
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(j) Substantiation.
(1) In general.
(2) Sufficient substantiation.
(k) Applicability date.
Sec. 1.48E-1 Clean electricity investment credit.
(a) Overview--(1) In general. For purposes of section 46 of the
Code, the section 48E credit is determined under section 48E of the
Code and the section 48E regulations (as defined in paragraph (a)(10)
of this section). This paragraph (a) provides definitions of terms
that, unless otherwise specified, apply for purposes of section 48E,
the section 48E regulations, and any provision of the Code or this
chapter that expressly refers to any provision of section 48E or the
section 48E regulations. Paragraph (b) of this section provides rules
for determining the amount of the section 48E credit for any taxable
year. Paragraph (c) of this section provides rules regarding the phase-
out of the section 48E credit. See Sec. 1.48E-2 for rules relating to
qualified investments in qualified facilities and energy storage
technology (EST) for purposes of the section 48E credit. See Sec.
1.48E-4 for rules of general application for the section 48E credit.
See Sec. 1.48E-5 for rules to determine greenhouse gas emissions rates
for qualified facilities under section 48E.
(2) Code. The term Code means the Internal Revenue Code.
(3) EST. The term EST for purposes of the section 48E credit means
energy storage technology as defined in Sec. 1.48E-2(g).
(4) kWh. The term kWh means kilowatt hours.
(5) Qualified facility. The term qualified facility for purposes of
the section 48E credit has the meaning provided in Sec. 1.48E-2(a).
(6) Qualified investment with respect to a qualified facility. The
term qualified investment with respect to a qualified facility for
purposes of the section 48E credit has the meaning provided in Sec.
1.48E-2(d).
(7) Qualified investment with respect to EST. The term qualified
investment with respect to EST for purposes of the section 48E credit
has the meaning provided in Sec. 1.48E-2(g)(4).
(8) Secretary. The term Secretary means the Secretary of the
Treasury or her delegate.
(9) Section 48E credit. The term section 48E credit means the clean
electricity investment credit determined under section 48E of the Code
and the section 48E regulations.
(10) Section 48E regulations. The term section 48E regulations
means this section and Sec. Sec. 1.48E-2 through 1.48E-5.
(b) Credit amount--(1) In general. For purposes of section 46 of
the Code, the section 48E credit for any taxable year is an amount
equal to the applicable percentage of the qualified investment for such
taxable year with respect to any qualified facility and any EST.
(2) Applicable percentage. The term applicable percentage means the
base rate described in paragraph (b)(3) of this section or the
alternative rate described in paragraph (b)(4) of this section. The
applicable percentage may be increased as provided in section
48E(a)(3)(A) and paragraph (b)(5) of this section in the case of a
qualified facility that is located in an energy community. Similarly,
the applicable percentage may be increased as provided in section
48E(a)(3)(B) and paragraph (b)(6) of this section in the case of a
qualified facility that satisfies the domestic content requirements.
(3) Base rate. In the case of any qualified facility or EST that
does not satisfy the requirements provided in section 48E(a)(2)(A)(ii)
or (B)(ii), the term base rate means 6 percent.
(4) Alternative rate. In the case of any qualified facility or EST
that satisfies the prevailing wage and apprenticeship requirements
provided in section 48E(a)(2)(A)(ii) or (B)(ii), the term alternative
rate means 30 percent.
(5) Energy communities increase in credit rate--(i) In general. In
the case of any qualified facility or EST that is placed in service
within an energy community (as defined in section 45(b)(11)(B)), the
applicable percentage under section 48E(a)(2) and paragraph (b)(2) of
this section will be increased by the applicable credit rate increase
described in section 48E(a)(3)(A)(ii) and paragraph (b)(5)(ii) of this
section.
(ii) Applicable credit rate increase. In the case of any qualified
investment with respect to a qualified facility or EST to which the
base rate is applicable, the applicable credit rate increase is 2
percentage points, and with respect to any qualified investment with
respect to a qualified facility or EST to which the alternative rate is
applicable, the applicable credit rate increase is 10 percentage
points.
(6) Domestic content increase in credit rate--(i) In general. In
the case of any qualified facility or EST that satisfies the
requirements of section 45(b)(9)(B) (domestic content requirement), the
applicable percentage under section 48E(a)(2) and paragraph (b)(2) of
this section will be increased by the applicable credit rate increase
described in paragraph (b)(6)(ii) of this section.
(ii) Applicable credit rate increase. In the case of any qualified
investment with respect to a qualified facility or EST to which the
base rate is applicable, 2 percentage points, and with respect to any
qualified investment with respect to a qualified facility or EST to
which the alternative rate is applicable, 10 percentage points.
(c) Credit phase-out--(1) In general. The amount of the credit as
determined under section 48E(a) and paragraph (b) of this section for
any qualified facility or EST, the construction of which begins during
a calendar year described in section 48E(e)(2) and paragraph (c)(2) of
this section is equal to the product of--
(i) The amount of the credit determined under section 48E(a) and
paragraph (b) of this section without regard to section 48E(e) and
paragraph (c) of this section, multiplied by
(ii) The phase-out percentage under section 48E(e)(2) and paragraph
(c)(2) of this section.
(2) Phase-out percentage. The phase-out percentage under this
paragraph (c)(2) is equal to--
(i) For any qualified investment with respect to any qualified
facility or EST the construction of which begins during the first
calendar year following the applicable year, 100 percent,
(ii) For any qualified investment with respect to any qualified
facility or EST the construction of which begins during the second
calendar year following the applicable year, 75 percent,
(iii) For any qualified investment with respect to any qualified
facility or EST the construction of which begins during the third
calendar year following the applicable year, 50 percent, and
(iv) For any qualified investment with respect to any qualified
facility or EST the construction of which begins during any calendar
year subsequent to the calendar year described in paragraph (c)(2)(iii)
of this section, 0 percent.
(3) Applicable year. For purposes of this paragraph (c), the term
applicable year has the same meaning provided under Sec. 1.45Y-
1(c)(3).
(d) Applicability date. This section applies to qualified
facilities and ESTs placed in service after December 31, 2024, and
during a taxable year ending on or after [DATE OF PUBLICATION OF THE
FINAL REGULATIONS IN THE Federal Register].
Sec. 1.48E-2 Qualified investments in qualified facilities and EST
for purposes of section 48E.
(a) Qualified facility. For purposes of the section 48E credit, the
term qualified facility means a facility that meets all the following
requirements:
(1) The facility is used for the generation of electricity;
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(2) The facility is placed in service by the taxpayer after
December 31, 2024; and
(3) The facility has a greenhouse gas emissions rate of not greater
than zero (as determined under rules provided in Sec. 1.45Y-5).
(b) Property included in qualified facility--(1) In general. A
qualified facility includes a unit of qualified facility (as defined in
paragraph (b)(2) of this section). A qualified facility also includes
components of property owned by the taxpayer that are an integral part
(as defined in paragraph (b)(3) of this section) of the qualified
facility. Any component of property that meets the requirements of this
paragraph (b) is part of a qualified facility regardless of where such
component of property is located. A qualified facility does not include
any electrical transmission equipment, such as transmission lines and
towers, or any equipment beyond the electrical transmission stage. A
qualified facility also generally does not include equipment that is an
addition or modification to an existing qualified facility. However,
see Sec. 1.48E-4(b) regarding the expansion of a facility or
incremental production and Sec. 1.48E-4(c) for rules regarding a
retrofitted qualified facility (80/20 Rule).
(2) Unit of qualified facility--(i) In general. For purposes of the
section 48E credit, the unit of qualified facility includes all
functionally interdependent components of property (as defined in
paragraph (b)(2)(ii) of this section) owned by the taxpayer that are
operated together and that can operate apart from other property to
produce electricity. No provision of this section, Sec. 1.48E-1, or
Sec. 1.48E-4 through 1.48E-5 uses the term unit in respect of a
qualified facility with any meaning other than that provided in this
paragraph (b)(2)(i).
(ii) Functionally interdependent. Components of property are
functionally interdependent if the placing in service of each of the
components is dependent upon the placing in service of each of the
other components to produce electricity.
(3) Integral part--(i) In general. For purposes of the section 48E
credit, a component of property owned by a taxpayer is an integral part
of a qualified facility if it is used directly in the intended function
of the qualified facility and is essential to the completeness of such
function. Property that is an integral part of a qualified facility is
part of the qualified facility. A taxpayer may not claim the section
48E credit for any property that is an integral part of the taxpayer's
qualified facility that is not owned by the taxpayer.
(ii) Power conditioning and transfer equipment. Power conditioning
equipment and transfer equipment are integral parts of a qualified
facility. Power conditioning equipment includes equipment that modifies
the characteristics of electricity into a form suitable for use,
transmission, or distribution. Parts related to the functioning or
protection of power conditioning equipment are also treated as power
conditioning equipment and include, but are not limited to, switches,
circuit breakers, arrestors, and hardware and software used to monitor,
operate, and protect power conditioning equipment. Transfer equipment
includes components of property that allow for the aggregation of
electricity generated a qualified facility and components of property
that alter voltage to permit electricity to be transferred to a
transmission or distribution line. Transfer equipment does not include
transmission or distribution lines. Examples of transfer equipment
include, but are not limited to, wires, cables, and combiner boxes that
conduct electricity. Parts related to the functioning or protection of
transfer equipment are also treated as transfer equipment and may
include items such as current transformers used for metering,
electrical interrupters (such as circuit breakers, fuses, and other
switches), and hardware and software used to monitor, operate, and
protect transfer equipment.
(iii) Roads. Roads that are an integral part of a qualified
facility are those roads integral to the intended function of the
qualified facility such as onsite roads that are used to operate and
maintain the qualified facility. Roads used primarily for access to the
site, or roads used primarily for employee or visitor vehicles, are not
integral to the intended function of the qualified facility, and thus
are not an integral part of a qualified facility.
(iv) Fences. Fencing is not an integral part of a qualified
facility because it is not integral to intended function of the
qualified facility.
(v) Buildings. Generally, buildings are not integral parts of a
qualified facility because they are not integral to the intended
function of the qualified facility. However, the following structures
are not treated as buildings for this purpose:
(A) A structure that is essentially an item of machinery or
equipment; and
(B) A structure that houses components of property that is integral
to the intended function of the qualified facility if the use of the
structure is so closely related to the use of the housed components of
property therein that the structure clearly can be expected to be
replaced if the components of property it initially houses are
replaced.
(vi) Shared integral property. Multiple qualified facilities
(whether owned by one or more taxpayers), including qualified
facilities with respect to which a taxpayer has claimed a credit under
section 48E or another Federal income tax credit, may include shared
property that may be considered an integral part of each qualified
facility so long as the cost basis for the shared property is properly
allocated to each qualified facility and the taxpayer only claims a
section 48E credit with respect to the portion of the cost basis
properly allocable to a qualified facility for which the taxpayer is
claiming a section 48E credit. The total cost basis of such shared
property divided among the qualified facilities may not exceed 100
percent of the cost of such shared property. In addition, a component
of property that is shared by a qualified facility (as defined by
section 48E(b)(3)) (48E Qualified Facility) and a qualified facility
(as defined in section 45Y(b)) (45Y Qualified Facility) that is an
integral part of both qualified facilities will not affect the
eligibility of the 48E Qualified Facility to claim a section 48E credit
or the 45Y Qualified Facility to claim the section 45Y credit.
(vii) Examples. This paragraph (b)(3)(vii) provides examples
illustrating the rules of this paragraph (b)(3).
(A) Example 1. Co-located qualified facilities owned by the same
taxpayer that share integral property. X constructs a solar farm (Solar
Qualified Facility) and nearby also constructs a wind facility (Wind
Qualified Facility) that are each a qualified facility (as defined in
Sec. 1.48E-2(a)). The Solar Qualified Facility and Wind Qualified
Facility each connect to a transformer that steps up the electricity
produced by each qualified facilities to electrical grid voltage before
it is transmitted to the electrical grid through an intertie. X assigns
50% of the cost of the shared transformer to the Solar Qualified
Facility and the Wind Qualified Facility, respectively. The fact that
the Solar Qualified Facility and Wind Qualified Facility share property
that is integral to both does not impact the ability of X to claim a
section 48E credit for both qualified facilities. When X places the
qualified facilities in service, 50% of the cost of the transformer is
included in X's basis in each of the qualified facilities for purposes
of computing the section 48E credit.
(B) Example 2. Co-located qualified facilities owned by different
taxpayers that share integral property. X constructs a solar farm
(Solar Qualified
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Facility), and nearby Y constructs a wind facility (Wind Qualified
Facility) that are each a qualified facility (as defined in Sec.
1.48E-2(a)). The Solar Qualified Facility and the Wind Qualified
Facility both connect to a transformer that steps up the electricity
produced by both qualified facilities to electrical grid voltage before
it is transmitted to the electrical grid through an intertie. X and Y
each pay 50% of the cost of the transformer. The fact that the Solar
Qualified Facility and Wind Qualified Facility share property that is
integral to both does not impact the ability of X or Y to claim a
section 48E credit for their respective qualified facilities. When X
and Y place their respective qualified facilities in service, 50% of
the cost of the transformer is included in X's and Y's basis in their
respective qualified facilities for purposes of computing the section
48E credit.
(C) Example 3. Co-located qualified facility and Energy Storage
Technology owned by the same taxpayer. X constructs a wind qualified
facility (as defined in Sec. 1.48E-2(a)) (Wind Qualified Facility)
that is co-located with an EST (as defined in Sec. 1.48E-2(g)) (Energy
Storage). The Wind Qualified Facility and Energy Storage share transfer
equipment that is integral to both. X assigns 50% of the cost of the
shared transfer equipment to the Wind Qualified Facility and 50% of the
cost to the Energy Storage. The fact that the Wind Qualified Facility
and Energy Storage share property that is integral to both does not
impact the ability of X to claim a section 48E credit for the Wind
Qualified Facility and the Energy Storage. X may include 50% of the
cost of the transfer equipment in its basis to determine a section 48E
credit for the Wind Qualified Facility and the Energy Storage.
(D) Example 4. Co-located qualified facility and Energy Storage
Technology owned by different taxpayers. X constructs a solar farm that
is a qualified facility (as defined in Sec. 1.48E-2(a)) (Solar
Qualified Facility) and is co-located with an EST (as defined in Sec.
1.48E-2(g)) (Energy Storage) owned by Y. The Solar Qualified Facility
and Energy Storage share transfer equipment that is integral to both. X
and Y each incur 50% of the cost of the transfer equipment. The fact
that the Solar Qualified Facility and Energy Storage share property
that is integral to both does not impact the ability of X to claim a
section 48E credit for the Solar Qualified Facility or Y to claim a
section 48E credit for the Energy Storage. When X and Y place in
service the Solar Qualified Facility and Energy Storage, for purposes
of computing the section 48E credit, 50% of the cost of the transfer
equipment is included in X's basis in the Solar Qualified Facility and
50% of the cost is included in Y's basis in the Energy Storage.
(c) Coordination with other credits--(1) In general. The term
qualified facility (as defined in section 48E(b)(3)) and paragraph (a)
of this section does not include any facility for which a credit
determined under section 45, 45J, 45Q, 45U, 45Y, 48, or 48A is allowed
under section 38 of the Code for the taxable year or any prior taxable
year. A taxpayer that directly owns a qualified facility (as defined in
section 48E(b)(3)) that is eligible for both a section 48E credit and
another Federal income tax credit is eligible for the section 48E
credit only if the other Federal income tax credit was not allowed with
respect to the qualified facility. Nothing in this paragraph (c)
precludes a taxpayer from claiming a section 48E credit with respect to
a qualified facility (as defined in section 48E(b)(3)) that is co-
located with another facility for which a credit determined under
section 45, 45J, 45Q, 45U, 45Y, 48, or 48A is allowed under section 38
of the Code for the taxable year or any prior taxable year.
(2) Allowed. For purposes of paragraph (c)(1) of this section, the
term allowed only includes credits that taxpayers have claimed on a
Federal income tax return or Federal return, as appropriate, and that
the Internal Revenue Service (IRS) has not challenged in terms of the
taxpayer's eligibility.
(3) Examples. This paragraph (c)(3) provides examples illustrating
the rules provided in this paragraph (c).
(i) Example 1. Taxpayer claims a section 45Y credit on a solar farm
and section 48E credit on co-located Energy Storage Technology. X owns
a solar farm that is a qualifying facility (as defined in Sec. 1.45Y-
2(a)) (45Y Solar Qualified Facility), and a co-located EST (as defined
in Sec. 1.48E-2(g)) (Energy Storage). The Energy Storage is not part
of the 45Y Solar Qualified Facility, and therefore X may claim the
section 45Y credit based on the kWh of electricity produced by the 45Y
Solar Qualified Facility, and X may also claim the section 48E credit
based on its qualified investment in the Energy Storage.
(ii) Example 2. Different taxpayers claim section 45Y credit for a
solar farm and a co-located Energy Storage Technology. X owns a solar
farm that is a qualifying facility (as defined in Sec. 1.45Y-2(a))
(45Y Solar Qualified Facility), and Y owns a co-located EST (as defined
in Sec. 1.48E-2(g)) (Energy Storage). The Energy Storage is not part
of the 45Y Solar Qualified Facility, and therefore, X may claim the
section 45Y credit based on the kWh of electricity produced by the 45Y
Solar Qualified Facility, and Y may claim the section 48E credit based
on its qualified investment in the Energy Storage.
(iii) Example 3. Taxpayer claiming a section 48E credit; another
credit is not allowed. X owns a wind facility that satisfies the
requirements of a qualified facility (as defined in Sec. 1.48E-2(a))
under section 48E as well as the requirements of a qualified facility
(as defined in Sec. 1.45Y-2(a)) under section 45Y. X claims a section
48E credit with respect to the wind facility. While a credit may be
available with regard to the wind facility under section 45Y, because X
claimed a section 48E credit with respect to the wind facility, a
section 45Y credit is not allowed.
(d) Qualified investment with respect to a qualified facility. For
purposes of the section 48E credit, the qualified investment with
respect to any qualified facility for any taxable year is the sum of
the following--
(1) The basis of any qualified property (as defined in paragraph
(e)(1) of this section) placed in service by the taxpayer during such
taxable year that is part of a qualified facility (as defined in
paragraph (a) of this section); and
(2) The amount of any expenditures paid or incurred by the taxpayer
for qualified interconnection property (as defined in Sec. 1.48E-
4(a)(2)).
(e) Qualified property--(1) In general. For purposes of this
paragraph (e), the term qualified property means property that meets
all the following requirements:
(i) The property is tangible personal property (as defined in
paragraph (f)(1) of this section) or other tangible property (not
including a building or its structural components) (as defined in
paragraph (f)(2) of this section), but only if such other tangible
property is used as an integral part of the qualified facility;
(ii) Depreciation (or amortization in lieu of depreciation) is
allowable (as defined paragraph (f)(6) of this section) with respect to
the property; and
(iii) Either--
(A) The construction, reconstruction, or erection of the property
is completed by the taxpayer (as defined in paragraph (f)(3) of this
section); or
(B) The taxpayer acquires the property (as defined in paragraph
(f)(4) of this section) if the original use of the property (as defined
paragraph (f)(5) of this section) commences with the taxpayer.
(2) Location of qualified property. Any component of a qualified
property
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that meets the requirements of paragraph (e) of this section is part of
a qualified facility regardless of where such component of property is
located.
(f) Definitions related to requirements for qualified property. For
purposes of section 48E and paragraph (b) of this section, the
definitions of this paragraph (f) apply:
(1) Tangible personal property. The term tangible personal property
means any tangible property except land and improvements thereto, such
as buildings or other inherently permanent structures (including items
that are structural components of such buildings or structures).
Tangible personal property includes all property (other than structural
components) that is contained in or attached to a building. Further,
all property that is in the nature of machinery (other than structural
components of a building or other inherently permanent structure) is
considered tangible personal property even though located outside a
building. Local law is not controlling for purposes of determining
whether property is or is not tangible property or tangible personal
property. Thus, tangible property may be personal property for purposes
of the energy credit even though under local law the property is
considered a fixture and therefore real property.
(2) Other tangible property. The term other tangible property means
tangible property other than tangible personal property (not including
a building and its structural components), that is used as an integral
part of furnishing electricity by a person engaged in a trade or
business of furnishing any such service.
(3) Construction, reconstruction, or erection of qualified
property. The term construction, reconstruction, or erection of
qualified property means work performed to construct, reconstruct, or
erect qualified property either by the taxpayer or for the taxpayer in
accordance with the taxpayer's specifications.
(4) Acquisition of qualified property. The term acquisition of
qualified property means a transaction by which a taxpayer obtains
rights and obligations with respect to qualified property including--
(i) Title to the qualified property under the law of the
jurisdiction in which the qualified property is placed in service,
unless the qualified property is possessed or controlled by the
taxpayer as a lessee, and
(ii) Physical possession or control of the qualified property.
(5) Original use of qualified property--(i) In general. The term
original use of qualified property means the first use to which the
unit of qualified property is put, whether or not such use is by the
taxpayer.
(ii) Retrofitted qualified facility. A retrofitted qualified
facility acquired by the taxpayer will not be treated as being put to
original use by the taxpayer unless the rules in Sec. 1.48E-4(c)
regarding retrofitted qualified facilities (80/20 Rule) apply. The
question of whether a qualified facility meets the 80/20 Rule is a
facts and circumstances determination.
(6) Depreciation allowable--(i) In general. For purposes of
applying paragraph (b) of this section, depreciation (or amortization
in lieu of depreciation) is allowable with respect to qualified
property (as defined in paragraph (e) of this section) if such property
is of a character subject to the allowance for depreciation under
section 167 of the Code and the basis or cost of such property is
recovered using a method of depreciation (for example, the straight
line method), which includes any additional first year depreciation
deduction method of depreciation (for example, under section 168(k) of
the Code). Further, if an adjustment with respect to the Federal income
tax or Federal return, as appropriate, for such taxable year requires
the basis or cost of such qualified property to be recovered using a
method of depreciation, depreciation is allowable to the taxpayer with
respect to the qualified property.
(ii) Exclusions from allowable. For purposes of paragraph (b) of
this section, depreciation is not allowable with respect to a qualified
facility if the basis or cost of such qualified facility is not
recovered through a method of depreciation but, instead, such basis or
cost is recovered through a deduction of the full basis or cost of the
qualified facility in one taxable year (for example, under section 179
of the Code).
(7) Placed in service--(i) In general. A qualified facility is
considered placed in service in the earlier of:
(A) The taxable year in which, under the taxpayer's depreciation
practice, the period for depreciation with respect to such qualified
facility begins; or
(B) The taxable year in which the qualified facility is placed in a
condition or state of readiness and availability to produce
electricity, whether in a trade or business or in the production of
income. A qualified facility in a condition or state of readiness and
availability to produce electricity includes, but is not limited to,
components of property that are acquired and set aside during the
taxable year for use as replacements for a particular qualified
facility (or facilities) in order to avoid operational time loss and
equipment that is acquired for a specifically assigned function and is
operational but is undergoing testing to eliminate any defects.
However, components of property acquired to be used in the construction
of a qualified facility are not considered in a condition or state of
readiness and availability for a specifically assigned function.
(ii) Qualified facility subject to Sec. 1.48-4 election to treat
lessee as purchaser. Notwithstanding paragraph (f)(7)(i) of this
section, a qualified facility with respect to which an election is made
under section 50(d)(5) of the Code and Sec. 1.48-4 to treat the lessee
as having purchased such qualified facility is considered placed in
service by the lessor in the taxable year in which possession is
transferred to such lessee.
(8) Claim. With respect to a section 48E credit determined with
respect to a qualified facility of a taxpayer, the term claim means
filing a completed Form 3468, Investment Credit, or any successor
form(s), with the taxpayer's timely filed (including extensions)
Federal income tax return or Federal return, as appropriate, for the
taxable year in which the qualified facility is placed in service, and
includes making an election under section 6417 or 6418 of the Code and
corresponding regulations with respect to such section 48E credit and
made on the taxpayer's filed return.
(g) EST--(1) Property included in EST. An EST includes a unit of
energy storage technology (unit of EST) (as defined in paragraph (g)(2)
of this section) that meets the requirements of paragraph (g)(2)(ii) of
this section. An EST also includes property owned by the taxpayer that
is an integral part (as defined in paragraph (g)(3) of this section) of
the EST. An EST does not include equipment that is an addition or
modification to an existing EST. For purposes of the section 48E
credit, EST includes electrical energy storage property (as described
in paragraph (g)(6)(i) of this section), thermal energy storage
property (as described in paragraph (g)(6)(ii) of this section), and
hydrogen energy storage property (as described in paragraph (g)(6)(iii)
of this section).
(2) Unit of EST--(i) In general. For purposes of the section 48E
credit, a unit of EST includes all functionally interdependent
components of property (as defined in paragraph (g)(2)(ii) of this
section) owned by the taxpayer that are operated together and that can
operate apart from other property to perform the intended function of
the EST. No
[[Page 47840]]
provision of this section, Sec. 1.48E-1, or Sec. 1.48E-4 through
1.48E-5 uses the term unit in respect of an EST with any meaning other
than that provided in this paragraph (g)(2)(i).
(ii) Functionally interdependent. Components of property are
functionally interdependent if the placing in service of each of the
components is dependent upon the placing in service of each of the
other components to perform the intended function of the EST.
(3) Integral part. For purposes of the section 48E credit, property
owned by a taxpayer is an integral part of an EST owned by the same
taxpayer if it is used directly in the intended function of the EST and
is essential to the completeness of such function. Property that is an
integral part of an EST is part of an EST. A taxpayer may not claim the
section 48E credit for any property that is an integral part of the
taxpayer's EST that is not owned by the taxpayer.
(4) Qualified investment with respect to EST. The qualified
investment with respect to any EST for any taxable year is the basis of
any EST placed in service by the taxpayer during such taxable year.
(5) Placed in service--(i) In general. An EST is considered placed
in service in the earlier of:
(A) The taxable year in which, under the taxpayer's depreciation
practice, the period for depreciation with respect to such EST begins;
or
(B) The taxable year in which the EST is placed in a condition or
state of readiness and availability for the intended function of the
EST, whether in a trade or business or in the production of income. An
EST in a condition or state of readiness and availability for its
intended function includes, but is not limited to, components of
property that are acquired and set aside during the taxable year for
use as replacements for a particular EST (or ESTs) in order to avoid
operational time loss and equipment that is acquired for a specifically
assigned function and is operational but is undergoing testing to
eliminate any defects. However, components of property acquired to be
used in the construction of an EST are not considered in a condition or
state of readiness and availability for a specifically assigned
function.
(ii) EST subject to Sec. 1.48-4 election to treat lessee as
purchaser. Notwithstanding paragraph (g)(5)(i) of this section, EST
with respect to which an election is made under section 50(d)(5) of the
Code and Sec. 1.48-4 to treat the lessee as having purchased such EST
is considered placed in service by the lessor in the taxable year in
which possession is transferred to such lessee.
(6) Types of EST--(i) Electrical energy storage property.
Electrical energy storage property is property (other than property
primarily used in the transportation of goods or individuals and not
for the production of electricity) that receives, stores, and delivers
energy for conversion to electricity, and has a nameplate capacity of
not less than 5 kWh. For example, subject to the exclusion for property
primarily used in the transportation of goods or individuals,
electrical energy storage property includes but is not limited to
rechargeable electrochemical batteries of all types (such as lithium-
ion, vanadium redox flow, sodium sulfur, and lead-acid);
ultracapacitors; physical storage such as pumped storage hydropower,
compressed air storage, flywheels; and reversible fuel cells.
(ii) Thermal energy storage property. Thermal energy storage
property is property comprising a system that is directly connected to
a heating, ventilation, or air conditioning (HVAC) system; removes heat
from, or adds heat to, a storage medium for subsequent use; and
provides energy for the heating or cooling of the interior of a
residential or commercial building. Thermal energy storage property
includes equipment and materials, and parts related to the functioning
of such equipment, to store thermal energy for later use to heat or
cool, or to provide hot water for use in heating a residential or
commercial building. It does not include a swimming pool, combined heat
and power system property (as defined in section 45Y(g)(2)), or a
building or its structural components. For example, thermal energy
storage includes, but is not limited to, thermal ice storage systems
that use electricity to run a refrigeration cycle to produce ice that
is later connected to the HVAC system as an exchange medium for air
conditioning a building, heat pump systems that store thermal energy in
an underground tank or borehole field to be extracted for later use for
heating and/or cooling, and electric furnaces that use electricity to
heat bricks to high temperatures and later use this stored energy to
heat a building through the HVAC system.
(iii) Hydrogen energy storage property. Hydrogen energy storage
property is property (other than property primarily used in the
transportation of goods or individuals and not for the production of
electricity) that stores hydrogen and has a nameplate capacity of not
less than 5 kWh, equivalent to 0.127 kg of hydrogen or 52.7 standard
cubic feet (scf) of hydrogen. Hydrogen energy storage property must
store hydrogen that is solely used as energy and not for other purposes
such as for the production of end products such as fertilizer. For
example, hydrogen energy storage property includes, but is not limited
to, a hydrogen compressor and associated storage tank and an
underground storage facility and associated compressors.
(7) Modification of EST. With respect to an electrical energy
storage property or a hydrogen energy storage property, modified as set
forth in this paragraph (g)(7), such property will be treated as an
electrical energy storage property (as described in paragraph (g)(6)(i)
of this section) or a hydrogen energy storage property (as described in
paragraph (g)(6)(iii) of this section), except that the basis of any
existing electrical energy storage property or hydrogen energy storage
property prior to such modification is not taken into account for
purposes of this paragraph (g)(7) and section 48E. This paragraph
(g)(7) applies to any electrical energy storage property and hydrogen
energy storage property that either:
(i) Was placed in service before August 16, 2022, and would be
described in section 48(c)(6)(A)(i), except that such property had a
capacity of less than 5 kWh and is modified in a manner that such
property (after such modification) has a nameplate capacity of not less
than 5 kWh; or
(ii) Is described in section 48(c)(6)(A)(i) and is modified in a
manner that such property (after such modification) has an increase in
nameplate capacity of not less than 5 kWh.
(8) Claim. With respect to a section 48E credit determined with
respect to an EST of a taxpayer, the term claim means filing a
completed Form 3468, Investment Credit, or any successor form(s), with
the taxpayer's timely filed (including extensions) Federal income tax
return or Federal return, as appropriate, for the taxable year in which
the EST is placed in service, and includes making an election under
section 6417 or 6418 of the Code and corresponding regulations with
respect to such section 48E credit and made on the taxpayer's filed
return.
(h) Applicability date. This section applies to qualified
facilities and EST placed in service after December 31, 2024, and
during a taxable year ending on or after [DATE OF PUBLICATION OF THE
FINAL REGULATIONS IN THE FEDERAL REGISTER].
[[Page 47841]]
Sec. 1.48E-3 [Reserved]
Sec. 1.48E-4 Rules of general application.
(a) Rules for certain lower-output qualified facilities to include
qualified interconnection costs in the basis of associated qualified
facility--(1) In general. For purposes of determining the section 48E
credit, the qualified investment with respect to a qualified facility
(as defined in Sec. 1.48E-2(a)) includes amounts paid or incurred by
the taxpayer for qualified interconnection property (as defined in
paragraph (a)(2) of this section), in connection with a qualified
facility (as defined in Sec. 1.48E-2(a)) that has a maximum net output
of not greater than 5 MW (as measured in alternating current) as
described in paragraph (a)(3) of this section (Five-Megawatt
Limitation). The qualified interconnection property must provide for
the transmission or distribution of the electricity produced by a
qualified facility and must be properly chargeable to the capital
account of the taxpayer as reduced by paragraph (a)(6) of this section.
(2) Qualified interconnection property. For purposes of this
paragraph (a), the term qualified interconnection property means, with
respect to a qualified facility, any tangible property that is part of
an addition, modification, or upgrade to a transmission or distribution
system that is required at or beyond the point at which the qualified
facility interconnects to such transmission or distribution system in
order to accommodate such interconnection; is either constructed,
reconstructed, or erected by the taxpayer (as defined in Sec. 1.48E-
2(f)(3)), or for which the cost with respect to the construction,
reconstruction, or erection of such property is paid or incurred by
such taxpayer; and the original use (as defined in Sec. 1.48E-2(f)(5))
of which, pursuant to an interconnection agreement (as defined in
paragraph (a)(4) of this section), commences with a utility (as defined
in paragraph (a)(5) of this section). Qualified interconnection
property is not part of a qualified facility. As a result, qualified
interconnection property is not taken into account in determining
whether a qualified facility satisfies the requirements for the
increase in credit rate for energy communities provided in section
48E(a)(3)(A) or for the increase in credit rate for domestic content
referenced in section 48E(a)(3)(B) (by reference to rules similar to
the rules of section 48(a)(12)).
(3) Five-Megawatt Limitation--(i) In general. For purposes of this
paragraph (a), the Five-Megawatt Limitation is measured at the level of
the qualified facility in accordance with section 48E(b)(1)(B). The
maximum net output of a qualified facility is measured only by
nameplate generating capacity of the unit of qualified facility, which
does not include the nameplate capacity of any integral property, at
the time the qualified facility is placed in service. The nameplate
generating capacity of the unit of qualified facility is measured
independently from any other qualified facilities that share the same
integral property.
(ii) Nameplate capacity for purposes of the Five-Megawatt
Limitation. The determination of whether a qualified facility has a
maximum net output of not greater than 5 MW (as measured in alternating
current) is based on the nameplate capacity of the unit of qualified
facility. The nameplate capacity for purposes of the Five-Megawatt
Limitation is the maximum electrical generating output in megawatts
that the unit of qualified facility is capable of producing on a steady
state basis and during continuous operation under standard conditions,
as measured by the manufacturer and consistent with the definition of
nameplate capacity provided in 40 CFR 96.202. If applicable, taxpayers
should use the International Standard Organization (ISO) conditions to
measure the maximum electrical generating output of a unit of qualified
facility.
(4) Interconnection agreement. For purposes of this paragraph (a),
the term interconnection agreement means an agreement with a utility
for the purposes of interconnecting the qualified facility owned by
such taxpayer to the transmission or distribution system of the
utility.
(5) Utility. For purposes of this paragraph (a), the term utility
means the owner or operator of an electrical transmission or
distribution system that is subject to the regulatory authority of a
State or political subdivision thereof, any agency or instrumentality
of the United States, a public service or public utility commission or
other similar body of any State or political subdivision thereof, or
the governing or ratemaking body of an electric cooperative.
(6) Reduction to amounts chargeable to capital account. For
purposes of this paragraph (a), in the case of expenses paid or
incurred for qualified interconnection property (as defined in
paragraph (a)(2) of this section), amounts otherwise chargeable to
capital account with respect to such expenses must be reduced under
rules similar to the rules of section 50(c) of the Code, specifically
the rules under section 50(c)(3). In addition, the taxpayer must pay or
incur the interconnection property costs; therefore, any reimbursement,
including by a utility, must be accounted for by reducing the
taxpayer's expenditure to determine eligible costs.
(7) Examples. This paragraph (a)(7) provides examples illustrating
the rules of this paragraph (a).
(i) Example 1. Application of Five-Megawatt Limitation to an
interconnection agreement for qualified facilities owned by taxpayer. X
places in service two solar qualified facilities (48E Facilities) each
with a maximum net output of 5 MW (as measured in alternating current).
The two 48E Facilities each have their own inverter, which is integral
property to each facility, and share a step-up transformer, which is
integral property to both facilities. As part of the development of the
48E Facilities, interconnection costs are required by the utility to
modify and upgrade the transmission system at or beyond the common
intertie to the utility's transmission system to accommodate the
interconnection. X has an interconnection agreement with the utility
that allows for a maximum output of 10 MW (as measured in alternating
current). The interconnection agreement provides the total cost of the
qualified interconnection property. X may include the costs paid or
incurred by X, respectively, for qualified interconnection property
subject to the terms of the interconnection agreement, to calculate X's
section 48E credit for each of the 48E Facilities because each
qualified facility has a maximum net output of not greater than 5 MW.
(ii) Example 2. Application of Five-Megawatt Limitation to an
interconnection agreement for qualified facilities owned by separate
taxpayers. X places in service a solar farm that is a qualified
facility (as defined in Sec. 1.48E-2(a)) (Solar Qualified Facility)
with a maximum net output of 5 MW (as measured in alternating current).
The Solar Qualified Facility includes an inverter, which is integral
property. Y places in service a wind facility (as defined in Sec.
1.48E-2(a)) (Wind Qualified Facility), with a maximum net output of 5
MW (as measured in alternating current). The Solar Qualified Facility
and the Wind Qualified Facility share a step-up transformer, which is
integral to both facilities. As part of the development of the Solar
Qualified Facility and Wind Qualified Facility, interconnection costs
are required by the utility to modify and upgrade the transmission
system at or beyond the common intertie to the utility's
[[Page 47842]]
transmission system to accommodate the interconnection. X and Y are
party to the same interconnection agreement with the utility that
allows for a maximum output of 10 MW (as measured in alternating
current). The interconnection agreement provides the total cost of the
qualified interconnection property. X and Y may include the costs paid
or incurred by X and Y, respectively, for qualified interconnection
property subject to the terms of the interconnection agreement, to
calculate their respective section 48E credits for the Solar Qualified
Facility and the Wind Qualified Facility because each has a maximum net
output of not greater than 5 MW.
(b) Expansion of facility; Incremental production--(1) In general.
Solely for purposes of this paragraph (b), the term qualified facility
includes either a new unit or an addition of capacity placed in service
after December 31, 2024, in connection with a facility described in
section 48E(b)(3)(A) (without regard to clause (ii) of such paragraph),
which was placed in service before January 1, 2025, but only to the
extent of the increased amount of electricity produced at the facility
by reason of such new unit or addition of capacity. A new unit or an
addition of capacity that meets the requirements of this paragraph (b)
will be treated as a separate qualified facility. For purposes of this
paragraph (b), a new unit or an addition of capacity requires the
addition or replacement of qualified property (as defined in Sec.
1.48E-2(e)), including any new or replacement integral property added
to a facility necessary to increase capacity. If applicable for
purposes of this paragraph (b), taxpayers must use modified or amended
facility operating licenses or the International Standard Organization
(ISO) conditions to measure the maximum electrical generating output of
a facility to determine nameplate capacity. For purposes of assessing
the One-Megawatt Exception in section 48E(a)(2)(A)(ii)(I), the capacity
for a new unit or an addition of capacity is the sum of the nameplate
capacity of the added qualified facility and the nameplate capacity of
the facility to which the qualified facility was added.
(2) Special rule for restarted facilities. Solely for purposes of
this paragraph (b), a facility that is decommissioned or in the process
of decommissioning and restarts can be considered to have increased
capacity if the following conditions are met:
(i) The existing facility must have ceased operations;
(ii) The existing facility must have a shutdown period of at least
one calendar year during which it is without a valid operating license
from its respective Federal regulatory authority (that is, the Federal
Energy Regulatory Commission (FERC) or the Nuclear Regulatory
Commission (NRC)); and
(iii) The increased capacity of the restarted facility must have a
new, reinstated, or renewed operating license issued by either FERC or
NRC.
(3) Computation of qualified investment for a new unit or an
addition of capacity--(i) New unit. For purposes of this paragraph (b),
the term new unit means components of property including any new or
replacement integral property added to a facility necessary to increase
the capacity of the facility but do not replace the existing capacity
of the facility. The taxpayer's qualified investment in the new unit
during the taxable year that results in an increase in capacity is
eligible for the section 48E credit.
(ii) Addition of capacity. For purposes of this paragraph (b), the
term addition of capacity means components of property, including any
new or replacement integral property added to a facility necessary to
increase the capacity of the facility by replacing, in whole or in
part, the existing capacity of the facility. To determine a taxpayer's
qualified investment during the taxable year that resulted in an
increased capacity of a facility by reason of an addition of capacity
(not described in paragraph (b)(3)(i) of this section), a taxpayer must
multiply its total qualified investment during the taxable year with
respect to the facility, by a fraction, the numerator of which is the
increase in nameplate capacity that results from the addition of
capacity, and the denominator of which is the total nameplate capacity
associated with the components of property that result in the addition
of capacity.
(4) Examples. This paragraph (b)(4) provides examples illustrating
the rules of this paragraph (b).
(i) Example 1. New Unit. X owns a hydropower facility (Facility H)
that was originally placed in service in 2020, with a nameplate
capacity of 600 megawatts. During taxable years 2020 through 2024, X
claimed a section 45 credit for the electricity produced by Facility H.
On July 1, 2025, X places in service components of property comprising
a new unit that results in Facility H having an increased nameplate
capacity of 900 megawatts in 2025. For purposes of this paragraph (b),
this new unit will be treated as a separate facility (Facility J). X
determines the amount of its section 48E credit based on the amount of
its qualified investment in Facility J. Even though X claimed a section
45 credit for the existing electricity capacity of Facility H in
taxable years 2020 through 2024, X can claim a section 48E credit for
its qualified investment in Facility J. X may also continue to claim
the section 45 credit through taxable year 2030 for electricity
generated by Facility H (excluding the incremental electricity
generation related to Facility J).
(ii) Example 2. Addition of Capacity. Y owns a nuclear facility
(Facility N) that was originally placed in service on January 1, 2000,
with a nameplate capacity of 800 megawatts. Y claimed a section 45U
credit in taxable years 2024 and 2025 for the electricity generated by
Facility N. On January 15, 2026, Y removed components of property with
a nameplate capacity of 200 megawatts and placed in service components
of property with a nameplate capacity of 300 megawatts at Facility N.
For purposes of this paragraph (b), Facility N's addition of capacity
is treated as a new separate qualified facility placed in service on
January 15, 2026 (Facility P). Y determines the amount of its section
48E credit based on the amount of its qualified investment in Facility
P, which is determined by multiplying Y's qualified investment with
respect to the addition of capacity by one-third (equal to the 100-
megawatt increase in nameplate capacity divided by the 300 megawatt
nameplate capacity associated with the new components of property that
result in the addition of capacity). Even though Y claimed a section
45U credit in taxable years 2024 and 2025 for the existing capacity of
Facility N, Y can claim a section 48E credit for its investment in the
addition of capacity associated with Facility P. Y may also continue to
claim the section 45U credit through taxable year 2032 for electricity
generated by Facility N (excluding the incremental electricity
generation related to Facility P).
(c) Retrofit of an existing facility (80/20 Rule)--(1) In general.
For purposes of section 48E(b)(3)(A)(ii), a retrofitted qualified
facility may qualify as originally placed in service even if it
contains some used components of property within the unit of qualified
facility, provided that the fair market value of the used components of
the unit of qualified facility is not more than 20 percent of the total
value of the unit of qualified facility (that is, the cost of the new
components of property plus the value of the used components of
property within the unit of qualified facility) (80/20 Rule).
(2) Expenditures taken into account. Notwithstanding the rule
provided in
[[Page 47843]]
paragraph (c)(1) of this section, only expenditures paid or incurred
that relate to the new components of the unit of qualified facility are
taken into account for purposes of computing the credit determined
under section 48E with respect to the qualified facility.
(3) Cost of new components. For purposes of this 80/20 Rule, the
cost of new components of the unit of qualified facility includes all
costs properly included in the depreciable basis of the new components
of the unit of qualified facility.
(4) New costs. If the taxpayer satisfies the 80/20 Rule with regard
to the unit of qualified facility and the taxpayer pays or incurs new
costs for property that is an integral part of the qualified facility
(as defined in Sec. 1.48E-2(a)), the taxpayer may include these new
costs paid or incurred for property that is an integral part of the
qualified facility in the basis of the qualified facility for purposes
of the section 48E credit.
(5) Excluded costs. Costs incurred for new components of property
added to used components of a unit of qualified facility may not be
taken into account for purposes of the section 48E credit unless the
taxpayer satisfies the 80/20 Rule by placing in service a unit of
qualified facility for which the fair market value of the used
components of property is not more than 20 percent of the total value
of the unit of qualified facility taking into account the cost of the
new components of property plus the value of the used components of
property.
(6) Examples. The following examples illustrate the rules of this
paragraph (c).
(i) Example 1. Retrofitted facility that satisfies the 80/20 Rule.
A owns an existing wind facility. On February 1, 2026, A replaces used
components of the wind facility with new components at a cost of $2
million. The fair market value of the remaining original components of
the wind facility is $400,000, which is not more than 20 percent of the
retrofitted facility's total fair market value of $2.4 million (the
cost of the new components ($2 million) + the fair market value of the
remaining original components ($400,000)). Thus, the retrofitted wind
facility will be considered newly placed in service for purposes of
section 48E, assuming all the other requirements of section 48E are
met, and A will be able to claim a section 48E credit based on its
investment in 2026 ($2 million).
(ii) Example 2. Retrofit of an existing facility that meets the 80/
20 Rule. Facility Z, a facility that was originally placed in service
on January 1, 2026, was not a qualified facility (as defined in Sec.
1.48E-2(a)) when it was placed in service because it did not meet the
greenhouse gas emission rate requirements (as determined under rules
provided in Sec. 1.48E-5). On January 1, 2027, Facility Z was
retrofitted and now meets the requirements to be a qualified facility
(as defined in Sec. 1.48E-2(a)). After the retrofit, the cost of the
new property included in Facility Z is greater than 80 percent of
Facility Z's total fair market value. Because Facility Z meets the 80/
20 Rule, Facility Z is deemed to be originally placed in service on
January 1, 2027. Assuming all the other requirements of section 48E are
met, Z may claim a section 48E credit based on its investment in the
new components used to retrofit the existing facility in 2027.
(iii) Example 3. Retrofitted nuclear facility that satisfied the
80/20 Rule. T owns a nuclear facility (Facility N) that was originally
placed in service on March 1, 1982, and was decommissioned on September
20, 2010. T replaces used components of property at Facility N with new
components at a cost of $200 million, and then places in Facility N in
service on July 15, 2026. The fair market value of the remaining
original components of Facility N, after being decommissioned and prior
to restart, is $30 million, which is not more than 20 percent of
Facility N's total fair market value of $230 million (the cost of the
new components ($200 million) + the fair market value of the remaining
original components ($30 million)). Thus, assuming all the other
requirements of section 48E are met, Facility N will be considered
newly placed in service on July 15, 2026, for purposes of section 48E,
and T will be able to claim a section 48E credit based on its
investment in the new components ($200 million).
(iv) Example 4. Capital improvements to an existing qualified
facility that do not satisfy the 80/20 Rule. X owns an existing
facility, Facility C, that was originally placed in service on January
1, 2023. X makes capital improvements to Facility C that are placed in
service on June 6, 2026. The cost of the capital improvements total
$500,000 and the fair market value of Facility C after the improvements
is $2 million. The fair market value of the old components of Facility
C is $1,500,000 or 75 percent of the total fair market value of the
Facility C after the improvements. Because the fair market value of the
new property included in Facility C is less than 80 percent of Facility
C's total fair market value, Facility C does not meet the 80/20 Rule.
Facility C will not be considered a qualified facility (as defined in
Sec. 1.48E-2(a)) eligible for the section 48E credit.
(d) Special rules regarding ownership--(1) Qualified investment
with respect to a qualified facility or EST. For purposes of this
paragraph (d), a taxpayer that owns a qualified investment with respect
to a qualified facility or EST is eligible for the section 48E credit
only to the extent of the taxpayer's eligible investment in the
qualified facility or EST. In the case of multiple taxpayers holding
direct ownership through their qualified investments in a single
qualified facility or EST (and such arrangement is not treated as a
partnership for Federal income tax purposes), each taxpayer determines
its eligible investment based on its fractional ownership interest in
the qualified facility or EST.
(2) Multiple owners. A taxpayer must directly own at least a
fractional interest in the entire unit of qualified facility (as
defined in Sec. 1.48E-2(b)(2)) or unit of EST (as defined in Sec.
1.48E-2(g)(2)) for a section 48E credit to be determined with respect
to such taxpayer's interest. No section 48E credit may be determined
with respect to a taxpayer's ownership of one or more separate
components of a qualified facility or an EST if the components do not
constitute a unit of qualified facility (as defined in Sec. 1.48E-
2(b)(2)) or unit of EST (as defined in Sec. 1.48E-2(g)(2)). However,
the use of property owned by one taxpayer that is an integral part of a
qualified facility or EST owned by another taxpayer will not prevent a
section 48E credit from being determined with respect to the second
taxpayer's qualified investment in a qualified facility or EST. See
Sec. 1.48E-2(b)(3)(vi) for rules regarding shared integral property.
(3) Section 761(a) election. If a qualified facility or EST is
owned through an unincorporated organization that has made a valid
election under section 761(a) of the Code, each member's undivided
ownership share in the qualified facility or EST will be treated as a
separate qualified facility or EST owned by such member.
(4) Related taxpayers--(i) Definition. For purposes of the section
48E credit, the term related taxpayers means members of a group of
trades or businesses that are under common control (as defined in Sec.
1.52-1(b)).
(ii) Related taxpayer rule. For purposes of the section 48E credit,
related taxpayers are treated as one taxpayer in determining whether a
taxpayer has made an investment in a qualified facility or EST with
respect to which a section 48E credit may be determined.
[[Page 47844]]
(5) Examples. The following examples illustrate the rules in this
paragraph (d). In each example, X and Y are unrelated taxpayers.
(i) Example 1. Fractional ownership required to satisfy section
48E. X and Y each own a direct fractional ownership interest in an
entire qualified facility (as defined in Sec. 1.48E-2(a)) and as a
result, a section 48E credit may be determined with respect to X's and
Y's qualified investment in their fractional ownership interests in the
qualified facility.
(ii) Example 2. Ownership of separate components of property that
are part of a qualified facility. X and Y each own separate components
of a qualified facility, which taken together would constitute a unit
of qualified facility but taken separately would not constitute a unit
of qualified facility. X owns component A and Y owns component B. No
section 48E credit may be determined with respect to either component A
or component B because X and Y each owns a separate component of a
qualified facility that does not constitute a unit of qualified
facility (as defined in Sec. 1.48E-2(b)(2)).
(iii) Example 3. Separate ownership of property that is an integral
part of separate qualified facilities. X owns a solar farm that is a
qualified facility (as defined in Sec. 1.48E-2(a)) (Solar Qualified
Facility), which includes property that is an integral part of the
Solar Qualified Facility, specifically a transformer in which the
electricity is stepped up to electrical grid voltage before being
transmitted to the electrical grid through an intertie. Y owns a wind
facility that is a qualified facility (as defined in Sec. 1.48E-2(a))
(Wind Qualified Facility) that connects to X's transformer. Because Y
does not hold an ownership interest in the transformer, Y may compute
its section 48E credit for the Wind Qualified Facility, but it may not
include any costs relating to the transformer in its section 48E credit
base.
(e) Coordination rule for section 42 credits and section 48E
credits. As provided under section 50(c)(3)(C) of the Code, in the case
of a taxpayer determining eligible basis for purposes of calculating a
credit under section 42 of the Code (section 42 credit), a taxpayer is
not required to reduce its basis in a qualified facility or EST by the
amount of the section 48E credit determined with respect to the
taxpayer's qualified investment with respect to such qualified facility
or EST. The qualified investment with respect to a qualified facility
or EST property may be used to determine a section 48E credit and may
also be included in eligible basis to determine a section 42 credit.
See paragraph (d) of this section for special rules regarding
ownership.
(f) Recapture--(1) In general. The credit calculated under section
48E(a) and Sec. 1.48E-1(b) is subject to general recapture rules under
section 50(a). Additionally, section 48E(g) provides for recapture for
any qualified facility for which a taxpayer claimed a section 48E
credit that has a greenhouse gas emissions rate (as determined under
rules provided in Sec. 1.45Y-5) of greater than 10 grams of
CO2e per kWh during the five-year period beginning on the
date such qualified facility is originally placed in service (five-year
recapture period).
(2) Recapture event--(i) In general. Any event that results in a
qualified facility having a greenhouse gas emissions rate (as
determined under rules provided in Sec. 1.45Y-5) of greater than 10
grams of CO2e per kWh during the five-year period is a
recapture event. If a qualified facility's greenhouse gas emissions
rate exceeds 10 grams of CO2e per kWh, the section 48E
credit is subject to recapture.
(ii) Changes to the Annual Table. A change to the greenhouse gas
emissions rate for a type or category of facility that is published in
the Annual Table (as defined in 1.45Y-5(f)) after a facility is placed
in service does not result in a recapture event.
(iii) Yearly Determination. (A) In general. A determination of
whether a recapture event occurred under paragraph (f)(2) of this
section must be made for each taxable year (or portion thereof)
occurring within the five-year recapture period, beginning with the
taxable year ending after the date the qualified facility is placed in
service. Thus, for each taxable year that begins or ends within the
five-year recapture period, the taxpayer must determine, for any
qualified facility for which it has claimed the section 48E credit,
whether such facility has maintained a greenhouse gas emissions rate of
not greater than 10 grams of CO2e per kWh.
(B) Annual Reporting Requirement. A taxpayer that has claimed the
section 48E credit amount under Sec. 1.48E-1(b) or transferred a
specified credit portion under section 6418 of the Code is required to
provide to the IRS information on the greenhouse gas emissions rate of
the qualified facility during the recapture period at the time and in
the form and manner prescribed in IRS forms or instructions or in
publications or guidance published in the Internal Revenue Bulletin.
See Sec. 601.601 of this chapter.
(iv) Carryback and carryforward adjustments. In the case of any
recapture event described in paragraph (f)(2) of this section, the
carrybacks and carryforwards under section 39 of the Code must be
adjusted by reason of such recapture event.
(3) Recapture Amount--(i) In general. If a recapture event occurred
as described in paragraph (f)(2) of this section, the tax under chapter
1 of the Code for the taxable year in which the recapture event occurs
is increased by an amount equal to the applicable recapture percentage
multiplied by the credit amount that was claimed by the taxpayer under
Sec. 1.48E-1(b).
(ii) Applicable recapture percentage. If the recapture event
occurs:
(A) Within one full year after the property is placed in service,
the recapture percentage is 100;
(B) Within one full year after the close of the period described in
paragraph (f)(3)(ii)(A) of this section, the recapture percentage is
80;
(C) Within one full year after the close of the period described in
paragraph (f)(3)(ii)(B) of this section, the recapture percentage is
60;
(D) Within one full year after the close of the period described in
paragraph (f)(3)(ii)(C) of this section, the recapture percentage is
40;
(E) Within one full year after the close of the period described in
paragraph (f)(3)(ii)(D) of this section, the recapture percentage is
20.
(4) Recapture period. The five-year recapture period begins on the
date the qualified facility is placed in service and ends on the date
that is five full years after the placed in service date. Each 365-day
period (366-day period in case of a leap year) within the five-year
recapture period is a separate recapture year for recapture purposes.
(5) Increase in tax for recapture. The increase in tax under
chapter 1 of the Code for the recapture of the credit amount claimed
under section 48E(a) and Sec. 1.48E-1(b) occurs in the year of the
recapture event.
(g) Cross references. (1) To determine applicable recapture rules,
see section 50(a) of the Code.
(2) For rules regarding the credit eligibility of property used
outside the United States, see section 50(b)(1) of the Code.
(3) For rules regarding the credit eligibility of property used by
certain tax-exempt organizations, see section 50(b)(3) of the Code. See
section 6417(d)(2) of the Code for an exception to this rule in the
case of an applicable entity making an elective payment election.
(4) For application of the normalization rules to the section 48E
credit in the case of certain regulated companies, including rules
regarding
[[Page 47845]]
the election not to apply the normalization rules to energy storage
technology (as defined in section 48(c)(6) of the Code), see section
50(d)(2) of the Code.
(5) For rules relating to certain leased property, see section
50(d)(5) of the Code.
(h) Applicability date. This section applies to qualified
facilities and energy storage technologies placed in service after
December 31, 2024, and during a taxable year ending on or after [DATE
OF PUBLICATION OF THE FINAL REGULATIONS IN THE FEDERAL REGISTER].
Sec. 1.48E-5 Greenhouse gas emissions rates for qualified facilities
under section 48E.
(a) In general. Section 48E(b)(3)(B)(ii) provides that rules
similar to the rules of section 45Y(b)(2) regarding greenhouse
emissions rates apply for purposes of section 48E. Paragraphs (b)
through (f) of this section thus provide that the definitions and rules
regarding greenhouse gas emission rate requirements (as determined
under rules provided in Sec. 1.45Y-5) apply for purposes of section
48E and this section. Paragraph (g) of this section provides rules
related to provisional emissions rates for purposes of section 48E and
this section. Paragraph (h) of this section provides rules for
determining an anticipated greenhouse gas emissions rate. Paragraph (i)
of this section provides rules regarding reliance on the annual
publication of emissions rates and provisional emissions rates.
Finally, paragraph (j) of this section provides rules for
substantiation.
(b) Definitions. The definitions provided in Sec. 1.45Y-5(b) apply
for purposes of section 48E and this section.
(c) Non-C&G Facilities. The rules provided in Sec. 1.45Y-5(c)
apply for purposes of determining greenhouse gas emissions rates for
Non-C&G Facilities for purposes of section 48E and this section.
(d) C&G Facilities. The rules provided in Sec. 1.45Y-5(d) apply
for purposes of determining greenhouse gas emissions rates for C&G
Facilities for purposes of section 48E and this section.
(e) Carbon capture and sequestration. The rules provided in Sec.
1.45Y-5(e) regarding carbon capture and sequestration apply for
purposes of section 48E and this section.
(f) Annual publication of emissions rates. The rules provided in
Sec. 1.45Y-5(f) regarding the annual publication of a table (Annual
Table) that sets forth the greenhouse gas emissions rates for types or
categories of facilities apply for purposes of section 48E and this
section.
(g) Provisional emissions rates--(1) In general. In the case of any
facility for which an emissions rate has not been established by the
Secretary, a taxpayer that owns such facility may file a petition with
the Secretary for determination of the emissions rate with respect to
such facility (Provisional Emissions Rate or PER). A PER must be
determined and obtained under the rules of this section.
(2) Rate not established. An emissions rate has not been
established by the Secretary for a facility for purposes of sections
45Y(b)(2)(C)(ii) and 48E(b)(3)(B)(ii) if such facility is not described
in the Annual Table. If a taxpayer's request for an emissions value
pursuant to paragraph (g)(5) of this section is pending at the time
such facility is or becomes described in the Annual Table, the
taxpayer's request for an emissions value will be automatically denied.
(3) Process for filing a PER petition. To file a PER petition with
the Secretary, a taxpayer must submit a PER petition by attaching it to
the taxpayer's Federal income tax return or Federal return, as
appropriate, for the taxable year in which the taxpayer claims the
section 48E credit with respect to the facility to which the PER
petition relates. The PER petition must contain an emissions value and,
if applicable, the associated letter from DOE. An emissions value may
be obtained from DOE or by using the designated LCA model in accordance
with paragraph (g)(6) of this section. An emission value obtained from
DOE will be based on an analytical assessment of the emissions rate
associated with the facility performed by one or more of the National
Laboratories, in consultation with other agency experts as appropriate,
consistent with this section. A taxpayer must retain in its books and
records the application and correspondence to and from DOE including a
copy of the taxpayer's request to DOE for an emissions value, including
any information provided by the taxpayer to DOE pursuant to the
emissions value request process provided in paragraph (g)(5) of this
section. Alternatively, an emissions value can be determined by the
taxpayer for a facility using the most the recent version of an LCA
model, as of the time the PER petition is filed, that has been
designated by the Secretary for such use under paragraph (g)(6) of this
section. If an emissions value is determined using the designated LCA
model under paragraph (g)(6) of this section, a taxpayer is required to
provide to the IRS information to support its determination in the form
and manner prescribed in IRS forms or instructions or in publications
or guidance published in the Internal Revenue Bulletin. See Sec.
601.601 of this chapter. A taxpayer may not request an emissions value
from DOE for a facility for which an emissions value can be determined
using the most recent version of an LCA model or models designated for
such use under paragraph (g)(6) of this section.
(4) PER determination. Upon the IRS's acceptance of the taxpayer's
return to which a PER petition is attached, the emissions value of the
facility specified on such petition is deemed accepted. A taxpayer can
rely upon an emissions value provided by DOE for purposes of claiming a
section 48E credit, provided that any information, representations, or
other data provided to DOE in support of the request for an emissions
value are accurate. If applicable, a taxpayer may rely upon an
emissions value determined for a facility using the LCA model
designated under paragraph (g)(6) of this section, provided that any
information, representations, or other data used to obtain such
emissions value are accurate. The IRS's deemed acceptance of an
emissions value is the Secretary's determination of the PER. However,
the taxpayer must also comply with all applicable requirements for the
section 48E credit and any information, representations, or other data
supporting an emissions value are subject to later examination by the
IRS.
(5) Emissions value request process. An applicant that submits a
request for an emissions value must follow the procedures specified by
DOE to request and obtain such emissions value. Emissions values will
be determined consistent with the rules provided in this section. An
applicant can request an emissions value from DOE only after a front-
end engineering and design (FEED) study or similar indication of
project maturity, as determined by DOE, such as the completion of a
project specification and cost estimation sufficient to inform a final
investment decision for the facility. DOE may decline to review
applications that are not responsive, including those applications that
relate to a facility described in the Annual Table (consistent with
paragraph (g)(2) of this section) or a facility for which an emissions
value can be determined by an LCA model under paragraph (g)(6) of this
section (consistent with paragraph (g)(3) of this section), or
applications that are incomplete. Applicants must follow DOE's guidance
and procedures for requesting and obtaining an
[[Page 47846]]
emissions value from DOE. DOE will publish this guidance and
procedures, including a process for, under limited circumstances, a
revision to DOE's initial assessment of an emissions value on the basis
of revised technical information or facility design and operation.
(6) LCA model for determining an emissions value for C&G
Facilities. The rules provided in Sec. 1.45Y-5(g)(6) regarding the
designation of an LCA model or models for determining an emissions
value for C&G Facilities apply for purposes of section 48E and this
section.
(7) Effect of PER. A taxpayer who files for a PER must use a PER
determined by the Secretary to determine eligibility for the section
48E credit, provided all other requirements of section 48E are met. The
Secretary's PER determination is not an examination or inspection of
books of account for purposes of section 7605(b) of the Code and does
not preclude or impede the IRS (under section 7605(b) or any
administrative provisions adopted by the IRS) from later examining a
return or inspecting books or records with respect to any taxable year
for which the section 48E credit is claimed. Further, a PER
determination does not signify that the IRS has determined that the
requirements of section 48E have been satisfied for any taxable year.
(h) Determining anticipated greenhouse gas emissions rate--(1) In
general. A facility's anticipated greenhouse gas emissions rate must be
objectively determined based on an examination of all the facts and
circumstances. Certain Non-C&G Facilities, such as the facilities
described in Sec. 1.45Y-5(c)(2), may have an anticipated greenhouse
gas emissions rate that is not greater than zero based on the
technology and practices they rely upon to generate electricity. For
facilities that require the use of certain feedstocks or carbon capture
and sequestration, which may vary, to generate electricity with a
greenhouse gas emissions rate that is not greater than zero, objective
indicia that such facilities will operate with a greenhouse gas
emissions rate that is not greater than zero for at least 10 years
beginning from the date the facility is placed in service are required
to establish that its anticipated greenhouse gas emissions rate is not
greater than zero.
(2) Examples of objective indicia. Examples of objective indicia
that may establish an anticipated greenhouse gas emissions rate that is
not greater than zero include, but are not limited to, the following:
(i) Co-location of the facility with a fuel source (for example, an
anaerobic digester) for which the combination of fuel, type of
facility, and practice is reasonably expected to result in a greenhouse
gas emissions rate that is not greater than zero;
(ii) A 10-year contract to purchase fuels for which the combination
of fuel, type of facility, and practice is reasonably expected to
result in a greenhouse gas emissions rate that is not greater than
zero;
(iii) A facility type that only accommodates one type of fuel or a
small range of fuels for which the combination of fuel, type of
facility, and practice is reasonably expected to result in a greenhouse
gas emissions rate that is not greater than zero; or
(iv) A 10-year contract for the capture, disposal, or utilization
of qualified carbon dioxide from the facility for which the combination
of fuel, type of facility, and practice is reasonably expected to
result in a greenhouse gas emissions rate that is not greater than
zero.
(i) Reliance on Annual Table or Provisional Emissions Rate.
Taxpayers may rely on the Annual Table in effect as of the date a
facility began construction or the provisional emissions rate
determined by the Secretary for the taxpayer's facility under paragraph
(g)(4) of this section to determine the facility's greenhouse gas
emissions rate, provided that the facility continues to operate as a
type of facility that is described in the Annual Table or the
facility's emissions value request, as applicable, for the entire
taxable year.
(j) Substantiation--(1) In general. A taxpayer must maintain in its
books and records documentation regarding the design and operation of a
facility that establishes that such facility had an anticipated
greenhouse gas emissions rate that is not greater than zero in the year
in which the section 48E credit is determined and operated with a
greenhouse gas emissions rate that is not greater than 10 grams of
CO2e per kWh during each year of the recapture period that
applies for purposes of section 48E(g).
(2) Sufficient substantiation. Documentation sufficient to
substantiate that a facility had a greenhouse gas emissions rate, as
determined under this section, not greater than 10 grams of
CO2e per kWh during each year of the recapture period that
applies for purposes of section 48E(g) includes documentation or a
report prepared by an unrelated party that verifies the facility's
actual emissions rate. A facility described in Sec. 1.45Y-5(c)(2) can
maintain sufficient documentation to demonstrate a greenhouse gas
emissions rate that is not greater than 10 grams of CO2e per
kWh during each year of the recapture period that applies for purposes
of section 48E(g) by showing that it is the type of facility described
in Sec. 1.45Y-5(c)(2). The Secretary may determine that other types of
facilities can sufficiently substantiate a greenhouse gas emissions
rate, as determined under this section, that is not greater than 10
grams of CO2e per kWh during each year of the recapture
period that applies for purposes of section 48E(g) with certain
documentation and will describe such facilities and documentation in
IRS forms or instructions or in publications or guidance published in
the Internal Revenue Bulletin. See Sec. 601.601 of this chapter.
(k) Applicability date. This section applies to qualified
facilities placed in service after December 31, 2024, and during a
taxable year ending on or after [DATE OF PUBLICATION OF THE FINAL
REGULATIONS IN THE FEDERAL REGISTER].
Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2024-11719 Filed 5-29-24; 8:45 am]
BILLING CODE 4830-01-P