Senate Democrats Propose Overhaul of Clean Energy Incentives

US Senate Finance Committee Chairman Ron Wyden (D-OR) introduced the Clean Energy for America Act (the Act), along with two dozen Democratic co-sponsors, on April 21, 2021. The Act will likely be a starting point for the Biden administration tax proposals intended to limit carbon emissions. The Act would change the current system for incentives for the renewable energy industry to a technology-neutral approach for generation that is carbon free or has net negative carbon emissions. The Act would also provide tax incentives for qualifying improvements in transmission assets and stand-alone energy storage with the aim of improving reliability of the transmission grid. Instead of requiring that taxpayers who qualify for the clean energy incentives have current or prior tax liabilities, the Act would create a new direct pay option allowing for refunds of the tax credits.

The Act would replace the current renewable energy incentives with a new clean electricity production and investment credit, which would allow taxpayers to choose between a 30% investment tax credit (ITC) or a production tax credit (PTC) equal to 2.5 cents per kilowatt hour. The credit would apply to new construction of and certain improvements to existing facilities with zero or net negative carbon emissions placed in service after December 31, 2022. The Act would phase out the current system of credits for specific technologies. To provide time for transition relief and for coordination between the US Department of the Treasury (Treasury) and Environmental Protection Agency (EPA), the Act extends current expiring clean energy provisions through December 31, 2022.

The Secretary of Treasury, in consultation with the Administrator of the EPA shall establish greenhouse gas emissions rates for types or categories of facilities which qualify for the credits. To incentivize additional emissions reductions from existing fossil fuel power plants and industrial sources, the Section 45Q tax credit would be extended until the power and industrial sectors meet emissions goals. The Act would modify the qualifying capture thresholds to require that a minimum percentage of emissions are captured. Once certain emissions targets are met—namely, a reduction in emissions for the electric power sector to 75% below 2021 levels—the incentives will phase out over five years.

Qualifying transmission grid improvements are also eligible for the 30% ITC including standalone energy storage property. Storage technologies are not required to be co-located with power plants and include any technologies that can receive, store and provide electricity or energy for conversion to electricity. Transmission property includes transmission lines of 275 kilovolts (kv) or higher, plus any necessary ancillary equipment. Regulated utilities have the option to opt-out of tax normalization requirements for purposes of the grid improvement credit. However, the Act does not include a similar option to opt-out of the tax normalization provisions for other types of qualifying facilities, such as solar or wind projects.

Under the Act, investments qualifying for the clean emission investment credit, grid credit or energy storage property in qualifying low-income areas qualify for higher credit rates. The Act also includes new provisions requiring taxpayers to pay wages at not less than prevailing local rates and utilize registered apprenticeship programs in order to qualify for the credits.

In addition, the Act would provide for incentives for energy efficient homes and commercial buildings and for clean transportation technologies. Further, the Act proposes repeal of certain incentives for fossil fuels, including immediate expensing for intangible drilling costs, percentage depletion, deductions for tertiary injectants and credits for enhanced oil recovery, coal gasification and advanced coal projects.

Philip Tingle
Philip (Phil) Tingle represents energy companies such as utilities, independent power producers and financial institutions on a wide range of energy tax-related matters. He is the global head of the Firm's Energy Advisory Practice Group. Phil provides advice regarding all aspects of renewable-energy projects, including tax equity structures, refinancings, acquisitions and dispositions, restructurings and workouts. He has extensive experience with the production tax credit and with the application of renewable credits to new technologies. Moreover, he works with the investment tax credit for numerous kinds of solar projects. Read Philip Tingle's full bio.


Heather Cooper
Heather Cooper works on federal income tax matters, with a focus on energy tax issues. She represents clients in restructurings, mergers and acquisitions, and other transactional energy related matters. Heather's national practice includes advising on all aspects of renewable energy transactions such as solar and wind projects. She provides advice on tax equity structures, refinancings, acquisitions and dispositions, restructurings and workouts. Read Heather Cooper's full bio.


Carl J. Fleming
Carl J. Fleming is a transactional lawyer whose principle areas of practice are renewable energy and private equity. He leads transactions throughout the US and worldwide for a number of the renewable industry’s leading developers, global private equity funds and Fortune 500 companies. He provides legal, commercial and strategic advice on the development, purchase and sale and financing of renewable energy projects in wind, solar, energy storage, electric vehicles and other low carbon solutions. A partner in our Washington, DC office, he also advises on a number of energy and climate change policy issues. Read Carl Fleming's full bio.


Elle Hayes
Elle Hayes focuses her practice on renewable energy transactions and general corporate matters. She represents clients on tax equity and project finance transactions. She also represents private equity sponsors and private companies in general corporate matters, particularly mergers and acquisitions. Elle represents clients and investors across a variety of industries, including renewable energy, healthcare and technology. Read Elle Hayes's full bio.


Brian Moore
Brian Moore focuses his practice on US and international tax matters. Read Brian Moore's full bio.


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