Inflation Reduction Act: Energy And Climate

On Tuesday, President Joe Biden signed into law the Inflation Reduction Act, which previously passed the House and Senate along party line votes. The sweeping package to combat climate change, lower health care costs, raise taxes, reduce the deficit, and provide significant new funding for National Parks and public lands contains several provisions of specific interest to RV manufacturers and suppliers.

Earlier this week, we explained the tax changes in the bill. Today, we are taking a look at the energy and climate provisions in the new law.

The centerpiece of the Inflation Reduction Act’s climate provisions is a $270 billion package of tax credits to incentivize renewable energy production, electric vehicles, energy efficiency improvements for homes and buildings, and manufacturing to boost energy supply chains and more.

Clean Vehicles- Electric and Hydrogen 

The Inflation Reduction Act bill creates a new $7,500 tax credit for those who purchase “clean vehicles.” The tax credits apply to both new and used EVs. Also, the existing EV tax credit has a cap limiting the benefit to only 200,000 vehicles sold per manufacturer. Purchasers of EVs from some large auto companies like General Motors and Tesla who have hit this ceiling currently can’t use the credit. The legislation would pave the way for all car companies to enjoy incentives. And in a twist, the bill gives hydrogen fuel-cell vehicles access to the tax credits as well.

Automakers will continue to offer $7,500 in tax credits for the purchase of new “clean cars,” a category that includes electric and hydrogen vehicles. There are caveats:

• To qualify for the credit, the final assembly of a vehicle must occur in North America.
• Buyers must purchase the vehicle from a dealership and cannot claim the credit more than once every 3 years.
• Vehicles will need to be built with minerals extracted or processed in a country with whom the US has a free trade agreement.
• Vehicles will need to have a battery that includes a large percentage of components that were manufactured or assembled in North America. Specifically, the bill introduces two new battery content requirements. To meet the critical mineral requirement, the applicable percentage of critical minerals contained in the battery must be extracted or processed in a country with which the United States has a free trade agreement. To meet the battery content requirement, the applicable percentage of the components contained in the battery used in the vehicle must be manufactured or assembled in North America. Many have expressed concerns that no EV manufacturer today can meet these requirements.
• The deal also includes a cap on suggested retail prices of eligible vehicles: $55,000 for new cars and $80,000 for pickups and SUVs.
• For the first time, car buyers would be eligible to receive $4,000 for used clean cars.
• Taxpayers with income over the threshold amount of $300,000 for couples filing jointly, $225,000 for head of household, and $150,000 in any other case are not eligible for any credits.
• The current per-manufacturer tax credit limitation is repealed.
• The bill also creates a 30% tax credit for commercial electric vehicles.
• The bill appropriates $2 billion for the Domestic Manufacturing Conversion Grants program, supporting the domestic production of hybrid, plug-in electric, and hydrogen fuel cell electric vehicles.

The Inflation Reduction Act also provides an investment of $3 billion into the Department of Energy Advanced Technology Vehicle Loan Guarantee Program for the costs of providing loans supporting clean vehicle manufacturers and removes the $25 billion cap on loan authorization authority.

Investment in Clean Energy Manufacturing

• Extension of the advanced energy project credit. The bill revives the Section 48C qualified advanced energy property credit, allowing the Secretary to allocate an additional $10 billion in tax credits to qualifying projects, starting in 2023.
• Advanced manufacturing production credit. The bill includes a $60 billion production tax credit directly to companies involved in clean energy manufacturing. About half of the credits are for solar, wind, batteries, and critical minerals processing. There’s also around $10 billion to build clean technology manufacturing facilities.

Energy Efficiency Incentives

• Tax Incentives for Energy Efficiency in Commercial Buildings. The bill increases the 179D deduction for properties that achieve higher levels of efficiency. The bill also provides another boost for projects that meet prevailing wage requirements for any involved contractors and subcontractors.

Incentives for Clean Electricity

• Clean electricity production credit. The provision extends for five years the current production tax credit under IRC section 45 for facilities that begin construction before January 1, 2025. Qualifying resources include wind, biomass, municipal solid waste (including landfill gas and trash), geothermal, hydropower, and marine and hydrokinetic energy. The provision also revives the production tax credit for solar energy (previously sunset in 2006) for facilities that commence construction before January 1, 2025.
• Clean electricity investment credit. The provision extends the section 48 energy investment tax credit, which allows taxpayers to claim a credit for the cost of energy property. In most cases, the provision extends the credit for property for which construction begins before January 1, 2025.
• Clean fuel production credit. The provision creates a technology-neutral incentive for the domestic production of clean fuels. The level of the incentive depends on the lifecycle carbon emissions of a given fuel. Lifecycle emissions take into account the “well to wheel” emissions profile, from production of the feedstock for the fuel through to its use in a vehicle. Fuels may qualify for the credit if the fuel’s lifecycle emissions are at least 25 percent less than the current U.S. nationwide average. Zero-emission fuels qualify for a base incentive of $0.20 per gallon or gallon equivalent.
• Clean hydrogen. This provision creates a new tax credit for the production of clean hydrogen produced by a taxpayer at a qualified clean hydrogen facility during the 10-year period beginning on the date such facility is placed in service.

Be on the lookout as the RV Industry Association provides in-depth analysis on key components of the legislation, including healthcare and Medicare provisions and outdoor recreation-related provision.