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Treasury Finalizes Key Energy Tax Credit Guidance Amid a Dry January

Enacted in August 2022, the Inflation Reduction Act (the “IRA”) expanded energy tax credits by increasing credit amounts across the board and broadening eligibility criteria to include new technologies.

Notably, the IRA allows firms to develop and sell energy tax credits, as outlined here.

In our last update, available here, we discussed the release of final rules on the energy investment tax credit (“ITC”). Beginning this year, the ITC and its counterpart, the production tax credit (“PTC”), are being replaced by the IRA’s new technology-neutral electricity tax credits.

Like their predecessors, the ITC-based credit offers a credit equal to 30% of qualifying clean energy investments, and the PTC-based credits are based on the kilowatt hours of electricity produced at qualifying clean energy facilities. Additional bonus credits are available for projects that are located in low-income communities, use domestically manufactured components, or have developers who meet prevailing wage and apprenticeship requirements.

On January 7, Treasury and the IRS released final regulations for the technology-neutral credits. The rollout of final guidance signals that credit sales are likely to continue in early 2025, offering some reassurance to industry participants concerned about the future of energy tax credits under the new administration.

The final rules largely uphold the proposed rules, as we discussed here, and provide more detailed guidance on qualifying technologies. These new credits are designed to apply more broadly across emerging technologies, making them more inclusive than their predecessors. The final guidance outlines a path for innovative processes that convert fuel into energy to qualify for the credit if the fuel is used to generate electricity, while clarifying that this generally does not include nuclear fission. It also clarifies that thermal energy property must store energy, not only transfer heat. Additionally, the final rules broaden the eligibility for hydrogen energy storage, confirming that storage for non-energy purposes, like fertilizer production, may still qualify for the credit. The final guidance further outlines a path for retrofitted energy property that previously qualified for the ITC or PTC to be eligible for the new credits, provided other requirements are met.

Additional updates in 2025 include:

  • Clean Hydrogen Credit: On January 3, Treasury and the IRS released final rules on the credit for producing clean hydrogen, available here, which clarify how hydrogen producers that use natural gas can qualify for the credit (a recommended expansion to the rules).
  • Bonus Credits: On January 8, Treasury and the IRS released final rules (available here) on the bonus credit available to clean energy projects benefitting low-income communities, set to take effect this year. This bonus provides a boost of up to 20% for qualifying projects under a program that will allocate these bonus credits for clean energy delivered to low-income communities through 2032. Additionally, on January 16, Treasury released Notice 2025-08 on the separate domestic content bonus credit, updating the safe harbor allocation of production costs for each component of an applicable project. The safe harbor has proven to be especially valuable for developers who cannot obtain this sensitive information from their suppliers.
  • Clean Vehicle Tax Credits: On January 10, Treasury and the IRS issued proposed rules (available here) for the credit for purchasing qualifying clean vehicles for commercial use. The credit equals the lesser of 15% of the vehicle’s basis or the incremental cost, capped at $7,500 for vehicles under 14,000 pounds and $40,000 for heavier vehicles.
  • Aviation Fuel Credit: On January 10, Treasury and the IRS released Notice 2025-10 on the credit for producing sustainable aviation fuel. The guidance expands on the “anti-stacking rules” that prevent taxpayers from claiming the credit together with the credits for clean hydrogen production and carbon sequestration. The guidance also seemingly rejects proposals to expand eligibility to farmers who produce biofuels.

Key Contacts

Linda Z. Swartz
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T. +1 212 504 6062
linda.swartz@cwt.com

 

Adam Blakemore
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T. +44 (0) 20 7170 8697
adam.blakemore@cwt.com

Jon Brose
Partner
T. +1 212 504 6376
jon.brose@cwt.com

Andrew Carlon
Partner
T. +1 212 504 6378
andrew.carlon@cwt.com

Mark P. Howe
Partner
T. +1 202 862 2236
mark.howe@cwt.com

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