Aug 16, 2022
President Joe Biden on Aug. 16 signed the Inflation Reduction Act into law, calling the legislation the “biggest step forward in climate—ever” and stressing it will allow the U.S. to boldly take addition steps towards meeting its climate goals.
The expansive legislative package addresses a wide range of issues, including inflation reduction, domestic energy production and manufacturing, carbon emissions reductions, Medicare and health care costs, and tax loopholes.
Of interest to the biofuel and bioenergy industries, the newly signed law establishes new tax credits for sustainable aviation fuel (SAF), clean transportation fuels and clean hydrogen. It also extends several existing tax credits that benefit transportation biofuels, such as renewable diesel and biodiesel, and includes funding for biofuel infrastructure development. Other provisions of the bill support the production of biogas- and biomass-based electricity and offer tax incentives for homeowners to install biomass-fired residential heating appliances. The bill also extends and expands the Section 45Q tax credit for carbon capture and storage (CCS).
The new SAF tax credit starts at $1.25 per gallon for SAF that achieves a 50 percent greenhouse gas (GHG) reduction when compared to a baseline fossil fuel. An additional 1 cent per gallon is available for each percentage point by which the lifecycle GHG emission reduction of the fuel exceeds 50 percent. The tax credit is capped at $1.75 per gallon. The new also establishes a competitive grant program in support of alternative aviation fuels and low-emission aviation technologies. In part, the program would provide grants to eligible entities to carry out projects located in the U.S. that produce, transport, blend or store SAF. Nearly $250 million in funding would be available to support SAF projects under the program.
The newly established Clean Fuel Production Tax Credit is a technology-neutral tax credit that aims to support the production of low-emissions transportation fuel. It will apply to transportation fuel produced and sold in 2025, 2026 and 2027. To qualify, the fuel will have to achieve a GHG reduction of approximately 40 percent when compared to diesel and meet other requirements.
The new law also establishes a Section 45V production tax credit (PTC) for clean hydrogen produced at qualified facilities that begin construction before the end of 2032. The credit will apply to hydrogen produced after the end of 2022. Depending on the specific project, the credit could range from 12 cents per kilogram to $3 per kilogram, according to the bill text.
The Inflation Reduction Act also extends several existing bioenergy and biofuel tax credits. The $1 per gallon blends tax credit for biodiesel and renewable diesel is extended through the end of 2024. It also extends the 50-cent per gallon alternative fuels tax credit, the second-generation biofuel income tax credit, and the alternative fuel vehicle refueling property credit.
In addition, it appropriates $500 million to support the development of biofuel infrastructure, including infrastructure improvements for blending, storing, supplying or distributing biofuels; installing, retrofitting or upgrading fuel dispensers to supply higher blends of biofuels; and for building and retrofitting home heating oil distribution centers to supply biofuels. The new law also includes an estimated $18 billion in support of climate-smart agriculture, which will benefit biofuel producers through the production of lower-carbon feedstocks.
For renewable electricity, the Inflation Reduction At extends the Section 45 production tax credit (PTC), which benefits qualified biogas, open-loop biomass and closed-loop biomass facilities, to qualified facilities that begin construction before Jan. 1, 2025. For home heating, the it extends and modifies of the Section 25 tax credit, which, in part, supports the installation residential biomass-fired stove and boilers. The tax credit for these residential appliances is capped at $2,000.
The Inflation Reduction Act supports CCS projects through an extension and modification of the Section 45Q tax credit. It extends the Section 45Q tax credit to any carbon capture, direct air capture or carbon utilization project that begins construction before Jan. 1, 2033. It also increases the value of the credit for industrial facilities and power plants that capture their carbon emissions to $85 per metric ton of CO2 stored in secure geologic formations, $60 per ton for the beneficial utilization of captured carbon emissions, and $60 per ton for CO2 stored in oil and gas fields. For direct air capture technologies, the credit is increased to $180 per metric ton for projects that store captured CO2 in secure geologic formations, $130 per ton for carbon utilization, and $130 per ton for CO2 stored in oil and gas fields.
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