Expert Advice in 5 Minutes or Less: Understanding Tech-Neutral Tax Credits Under the Inflation Reduction Act

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Unlock the future of clean energy incentives with insights from the experts at EY. EcoVoice is joined by Aruna Kalyanam, EY's global tax policy leader, and Aparna Koneru, a principal at EY, to dissect the game-changing shift to tech-neutral tax credits under the Inflation Reduction Act. Discover how Sections 45Y, 48E, and 45Z are setting a new legal and innovative landscape for the energy sector by emphasizing net-zero emissions over specific technologies. This episode promises to equip you with a thorough understanding of the impending transformations that are set to reconfigure the clean energy landscape.

Navigate the complexities and uncertainties that this transition holds for projects planned for 2024-2025, especially as political shifts could alter energy policies. Gain actionable strategies to safeguard your business interests, like conducting exhaustive modeling, engaging with policymakers, and seeking expert guidance. The tech-neutral credits represent not just an incentive for innovation but a crucial pivot in U.S. energy policy—future-proofing incentives while demanding agility from businesses. Tune in to arm yourself with the knowledge needed to remain competitive in this rapidly evolving energy arena.

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Episode Transcript

Speaker 0 (00:09):
Welcome to Sustainability Unveiled, the
podcast where we break down themost pressing sustainability
topics in five minutes or less.
I'm EcoVoice, here to guide youthrough the latest insights
shaping our planet's future.
Today's episode tackles a majortopic for businesses in the
energy sector the outlook fortech-neutral tax credits under
the Inflation Reduction Act, orIRA.

(00:31):
This discussion is inspired byan article written by Aruna
Kalyanam, ey's global tax policyleader, and Aparna Koneru, a
principal at EY.
Together, they outline whatcompanies need to know as we
approach a critical transitionin US energy policy.
So what's changing and how cancompanies prepare?
Let's dive in.

(00:52):
The clean energy incentiveslandscape is undergoing its
biggest transformation indecades.
Historically, tax credits likeSection 45's production tax
credit and Section 48'sinvestment tax credit were
tailored to specifictechnologies such as wind and
solar.
However, beginning in 2025,these will be replaced by
tech-neutral incentives.

(01:13):
One, the Clean ElectricityProduction Credit Section 45Y.
Two, the Clean ElectricityInvestment Credit Section 48E.
Three, and the Clean FuelsProduction Credit Section 45Z.
What makes them tech neutral?
These credits don't focus onparticular energy technologies,
but instead incentivizefacilities that achieve net zero

(01:34):
greenhouse gas GHG emissions,no matter what technology is
used.
This shift paves the way foremerging innovations, from
advanced nuclear reactors toenergy storage solutions.
But here's the catch thetransition comes with
significant uncertainty,especially for projects
straddling the 2024 and 2025timeline.

(01:54):
For some businesses, thequestion isn't just whether
their technology will qualify.
It's whether they can afford towait for clarity or need to act
now.
Here's why this matters so much.
Clean energy projects are notonly complex but also expensive.
Tax credits often fund 30% to50% of the capital costs for
these projects, meaning millions, if not billions, of dollars

(02:17):
are on the line.
Right now, companies face apivotal decision One should they
accelerate project constructionto qualify for expiring credits
under the current rules?
As if the policy shift wasn'tenough, the political landscape
adds another layer ofuncertainty.
Historically, incomingadministrations have approached
energy policy in radicallydifferent ways.

(02:38):
If Republicans take control, astronger focus on fossil fuels
is likely, with potentialrollbacks or modifications to
Biden-era credits.
While wholesale repeal of theIRA is unlikely due to the
economic chaos it could cause,targeted changes or phase-outs
are very much on the table.
At the same time, congress willface competing priorities in

(03:00):
2025.
The looming expiration ofprovisions from the 2017 Tax
Cuts and Jobs Act, known as thetax cliff, will demand attention
.
Lawmakers may seek to offsetcosts by adjusting or even
sunsetting IRA tax creditsearlier than planned.
For businesses, this meanspreparing for multiple scenarios
.
How will shifting policiesimpact your project's

(03:23):
eligibility?
Can you model potentialoutcomes to minimize risk?
These are critical questionscompanies need to address now.
So how can companies navigatethis evolving landscape?
Here are a few actionable stepsConduct thorough modeling.
Run scenarios to determine whichtax credit regime current or
tech-neutral offers the mostvalue for your projects.

(03:44):
This is especially important ifyour technology isn't
explicitly listed as zero GHGcompliant.
Evaluate timing listed as zeroGHG compliant.
Evaluate timing.
Assess whether to accelerateconstruction timelines in 2024
or wait for 2025.
For projects moving forward now, ensure you meet the IRS's
begun construction rules to lockin eligibility.

(04:04):
Stay engaged with policymakers.
Collaboration is key.
Companies that proactivelyengage with regulators can help
shape guidance and ensure theirvoices are heard.
Prepare for legislative change.
Keep an eye on the 2024elections and be ready to adjust
your strategy based on shiftsin political control.
Seek expertise.
Complex rules require expertnavigation.

(04:26):
Consult tax and legalprofessionals to ensure your
projects remain compliant andeligible for incentives.
Let's take a step back and lookat the bigger picture.
The IRA's tech-neutral creditsaren't just about driving
innovation.
They represent a major pivot inhow we incentivize clean energy
by focusing on emissions ratherthan specific technologies.

(04:47):
These policies aim tofuture-proof US energy
incentives.
However, this also meansbusinesses need to adapt quickly
to stay competitive.
The clean energy race is nolonger just about adopting
proven technologies.
It's about being agile enoughto navigate a constantly
shifting regulatory landscape.
To sum it all up, thetransition to tech-neutral tax

(05:09):
credits under the IRA marks apivotal moment for the clean
energy sector.
For businesses, the stakescouldn't be higher.
As the rules evolve,preparation and adaptability
will be your greatest allies.
If you'd like to learn more,check out the original article
by Aruna Kalyanam and AparnaKonaru published on Environment
Plus Energy Leader, and don'tforget to follow Sustainability

(05:32):
Unveiled for more expertinsights delivered straight to
your ears.
Thank you for listening.
Until next time, I'm EcoVoice,encouraging you to innovate,
adapt and lead the way to asustainable future.