The Inflation Reduction Act: A Game Changer for clean energy tax credits

The Mechanisms Driving clean energy Tax Credit Transfers

The Inflation Reduction Act has revolutionized the world of clean energy tax credits. By introducing two new credit delivery mechanisms – elective pay and transferability – this 2022 law has opened up exciting opportunities for state, local, and tribal governments, nonprofit organizations, U.S. territories, and other entities to benefit from clean energy tax credits.

Crux Climate: Pioneering the Market for clean energy Tax Credit Transfers

One startup leading the charge in leveraging these new mechanisms is Crux Climate. Their innovative platform connects buyers, developers, and investors looking to finance clean energy projects, facilitating seamless transfers of tax credits between them. According to Crux Climate CEO Alfred Johnson, “The tax credits are made transferable for the first time ever. It is the principal mechanism by which Congress and the government are incentivizing the transition to renewable energy and decarbonization.”

Rapid Growth and Competition in the clean energy Tax Credit Market

The clean energy tax credit market is expected to experience rapid growth in the coming years. Johnson predicts that the annual volume could reach up to $85 billion by 2031. To put this into perspective, this would represent approximately 15% of all corporate taxes paid by U.S. corporations. With such significant potential, it’s no wonder that Crux Climate has attracted competition from companies like Basis Climate and Evergrow.

Categories of Federal clean energy tax credits

There are a variety of federal tax credits associated with clean electricity, solar, wind, battery storage, charging infrastructure, hydrogen, advanced manufacturing, carbon capture, and direct air capture. The IRS has identified 12 specific tax credits that can use elective pay, including the Energy Credit, Clean Electricity Investment Credit, Renewable Electricity Production Credit, Commercial Clean Vehicle Credit, and more.

The Importance of Selling tax credits for Renewable Energy Projects

Once a renewable energy facility is operational, developers can qualify for tax credits that can be sold to investors. These tax credits serve as a crucial source of capital for project developers, allowing them to maximize the value of their projects and finance new energy infrastructure. However, the scale of tax credits often exceeds developers’ tax liabilities, necessitating the sale of these credits.

The Role of Intermediaries and Tax Advisors

Intermediaries like Crux Climate play a vital role in facilitating the transfer of clean energy tax credits. As the market expands, there will be a growing demand for tax advisors to guide corporations seeking to invest in sustainability while managing their effective tax rates. Tax advisors will need reliable tools to process these transactions and source supply. Due diligence on projects will also become essential to ensure investors make informed decisions.

A Bright Future for clean energy tax credits

Despite attempts to repeal renewable energy tax breaks, Johnson believes that clean energy tax credits are here to stay. He emphasizes that these credits have long-term implications and will continue to drive investment in renewable energy and decarbonization. As the market evolves, tax advisors and platforms like Crux Climate will play an increasingly crucial role.

Read More of this Story at www.accountingtoday.com – 2023-10-04 20:05:00

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