We answer questions from our most recent webinar that covered the Inflation Reduction Act
The United States Inflation Reduction Act of 2022 (IRA) was signed into law August of last year, and industry is actively seeking ways to benefit from this landmark legislation. The U.S. Treasury is working feverishly on developing and releasing the nuts and bolts of the Act, while fielding questions from eager applicants. EcoEngineers has been monitoring the passing of the IRA, and we are engaged with the Treasury on the implementation. We gave a 10,000-foot view of this monumental law that some have said could place the U.S. in the lead of the race toward global clean energy in our webinar originally presented on March 15, 2023. Climate Risk Director Roxby Hartley, Ph.D., and Regulatory Engagement Director Lisa Hanke kicked off the event with background information and generalities surrounding the legislation. Then, they handed it off to our low-carbon fuels subject-matter experts to explain how the Act would affect their industry:
- McCord Pankonen, U.S. Ethanol and Biodiesel Services Director, firstname.lastname@example.org
- Kristine Klavers, Managing Director, Houston and Oil & Gas, email@example.com
- Daniel Ciarcia, EV Services Director, firstname.lastname@example.org
- Dave Lindenmuth, email@example.com
- Tanya Peacock, Managing Director, California & Hydrogen, firstname.lastname@example.org
EcoEngineers had a record number of registrations and attendees on this webinar, and our experts wanted to make sure a majority of the questions asked during the event were answered. Keep in mind without proper due diligence and knowledge gathering required to answer on specific projects, we are speaking mostly in industry generalities. There is also a lot to be learned about this groundbreaking legislation, and we plan to update you when more information becomes available. Watch the full webinar here.
Are 45Z and 45Q stackable?
- Guillermo Aguirre: No, the definition of a “Qualified Facility” under the 45Z excludes facilities that are allowed to claim carbon oxide sequestration credits under 45Q.
Has it been clarified if 45Q credits can be claimed if Producer Tax Credits are also claimed? For example, if renewables diesel is produced and CO2 from the process is sequestered, can the Producer Tax Credit and 45Q sequestration credits both be claimed?
- GA: No. Under § 45Z(d)(4), a qualified facility is that used for the production of transportation fuels and does not include any facility for which the credit for carbon oxide sequestration under Section 45Q was allowed.
Do you have any insight as to how the apprenticeship requirements are expected to be interpreted for “legacy” biofuel facilities under 45Z (i.e., for past construction activities)?
- McCord Pankonen: Under § 45(b)(8)(A)(ii), for purposes of § 45(b)(8)(A)(i), the applicable percentage is: (i) in the case of a qualified facility the construction of which begins before January 1, 2023, 10 percent, (ii) in the case of a qualified facility the construction of which begins after December 31, 2022, and before January 1, 2024, 12.5 percent, and (iii) in the case of a qualified facility the construction of which begins after December 31, 2023, 15 percent.
What do domestic production requirements mean for D4 RIN energy credit modeling un the U.S. Renewable Fuel Standard?
- MP: Participants in any RIN program are able to participate in the IRA tax incentives. This should not require any changes to D4 RIN modeling.
Regarding utilization: Would it be possible to capture CO2, optimize to CO then use the CO to make carbon neutral transportation fuels and qualify for the $60/tonne tax credit over 12 years?
- MP: The term “utilization” is a question that remains to be clarified in terms of the IRA. It is anticipated that the definition of “utilization” will determine if tax incentives are applicable to novel process technologies implemented by biofuel producers. More to come on this topic from the US IRS.
Do you think the IRA will make underground sequestration Class 6 application easier to be approved?
- MP: Nothing immediate. However, if Class 6 applications increase and to ensure tax incentives can be realized, this could drive change.
Can you please expand on the prevailing wage and apprenticeship requirement? For green hydrogen, do the electrolyzers cell stacks need to be manufactured in the U.S.?
- Tanya Peacock: For the prevailing wage and apprenticeship requirement, IRS issued its guidance on Nov. 30, 2022. Under 45V – Clean Hydrogen Production Tax Credit, there is no requirement for the electrolyzers to be manufactured in the U.S. Rulemaking by the IRS is ongoing.
Is it more profitable to convert to hydrogen from an existing RNG facility?
- GA: This would require a full scope of work. Feel free to reach out to email@example.com to be put in touch with someone to help.
What carbon intensity (CI) calculation methodology on hydrogen production will be used for 45V?
- TP: A well-to-gate life-cycle analysis using the Argonne GREET model. We are still waiting for additional guidance from the IRS on upstream boundaries and the use of renewable energy credits or RECs.
Proposed changes to the California Low Carbon Fuel Standard (LCFS) imply that hydrogen produced from fossil natural gas with 96+% capture/sequestration will not qualify for LCFS credits. Isn’t that counterproductive, as California also seems to favor CO2 sequestration?
- TP: It will depend on the CI score and meeting the requirements for CCS.
Sustainable Aviation Fuel (SAF)
Do we expect some HVO production to be displaced by HEFA/SAF before 2025?
- Kristine Klavers: It depends on the economics of each facility, reflecting both feedstock availability and local, federal and for SAF even global financial incentives.
Regarding the Sustainable Aviation Fuel tax credit, it appears it has to be domestically produced to get the credit. Do imports qualify for SAF tax credit?
- Lisa Hanke: Under § 40B(c), a qualified mixture means a mixture of sustainable aviation fuel and kerosene, but only if— (1) such mixture is produced by the 7 taxpayer in the United States (defined in § 7701(a)(9) of the Code to mean the states and the District of Columbia).
Will neat SAF imported into the US and blended in the US facility benefit from the 45Z?
- KK: Unlikely, as the qualified production facility has to be in the U.S.
Are there any comments or information on the credits that are going to be available for SAF production and what will be the accepted GHG calculation methodologies. Argonne GREET, Corsia approved (RSB and ISCC)?
- RH: Up to $1.75, depending on CI score and meeting labor conditions. No guidance from the IRS as yet, but we think it will be the Argonne GREET model as it has to apply to all fuels – we do not know what the audit trail will be.
Renewable Natural Gas (RNG)
When will the production tax credit come accessible for existing RNG projects?
- GA: The implementation guidelines are still under development however companies can work with Eco to ensure their clean fuel will meet the LCA requirements through a preliminary CI calculation.
For Dairy Manure to RNG Projects, can the Project receive both the 30% ITC and the 45Z PTC (3 years)?
- GA: Under USC § 48(a)(5)(B) “No credit shall be allowed under section 45 for any taxable year with respect to any qualified investment credit facility.”
Can you confirm landfill gas to RNG projects are eligible to either Production Tax Credit or Investment Tax Credit (PTC or ITC)? IRA mentions a methane concentration of 52% that brings confusion, as landfill gas contains usually less than 52% methane.
- GA: At this point we are waiting for the implementation guidelines. The 52% minimum requirement applies for the ITC, under USC § 48(c)(7)(B) Inclusion of cleaning and conditioning property The term “qualified biogas property” includes any property which is part of such system which cleans or conditions such gas.” which may be interpreted as the upgrading system to obtain RNG. We expect the boundaries and clear definition of the “system” to be provided in the guidelines. For the PTC, the eligibility factor is the emissions rate that need to not greater than 50kg of CO2e per MMBtu under the Argonne GREET.
How does 45Z apply to RNG?
- GA: Implementation guidelines still under development. What IRA includes is a base credit of $0.20/gallon equivalent with an alternative amount of $1/gallon equivalent if the facility satisfies the prevailing wage and apprenticeship requirements. Emissions rate can’t be higher than 50kg of CO2e per MMBtu under the Argonne GREET. It applies to fuel produced after December 31, 2024 and before December 31, 2027.
What are the teams’ views on 45Z and manure-based RNG? Do you think the version of the GREET model will include avoided methane giving access to greater than $1 per GGE assuming the project meets the prevailing wage and apprenticeship requirements?
- GA: We need to wait for the guidelines; it’s unknown at this time.
Canada is close to releasing their own set of incentives in response to the IRA. Any expectations for what this could look like?
- MP: Canada recognizes that the IRA is extremely appealing and Canada must continue to create an equal appealing policy. Canada stated it has to do more over and above what they currently have in place to continue to build a clean energy economy. But nothing concrete on what it will look like. EcoEngineers anticipates it will be on par with the IRA but aligned with Canada’s goals for a clean economy. Here’s a video from Finance Minister Freeland addressing the IRA.
These credits are based on tax liability. How do you see a potential new credit market(s) forming for every type of entity to be able to capitalize on these credits.
- RH: If it follows the BTC model, these credits will be paid directly in dollars to the facility. They are not carbon credits.
You said these new statutes are only in place for 3 years. Can you please expand on that? I was under the impression these were good through 2030-something.
- Daniel Ciarcia: This varies by the specific benefit. 45Q (CCS) applies to products that are commenced up to 2033. But, 45Z (Clean Fuel Production Credit) and 45V, 48PTC, 48ITC (Production and Investment Tax Credits) are eligible for projects built between 2024-2027.
We hope you enjoyed both the webinar and the extra information provided in this follow up. For more information about EcoEngineers’ role in helping interested parties participate in the IRA, contact us at firstname.lastname@example.org.