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Earlier this month, the US Department of the Treasury and the Internal Revenue Service hosted a public hearing on their recent proposed rules governing implementation of the Section 45Y Clean Electricity Production Credit and the Section 48E Clean Electricity Investment Credit.
My testimony is copied below. It covered a subset of issues from the full set of technical comments UCS submitted to the record earlier in August and focused on:
- Support for clear eligibility of solar- and wind-powered resources;
- Emphasis on critical need for rigorous carbon accounting in lifecycle analyses;
- Rejection of eligibility contingent on indirect use of fuels/feedstocks via book-and-claim accounting; and
- Recommendation for much stronger and more expansive substantiation requirements.
For more information about the tax credits and the key issues at play, see this accompanying blog post.
Presented telephonically during the August 13th, 2024, public hearing for Docket ID No. REG-119283-23.
My name is Julie McNamara, and I’m testifying on behalf of the Union of Concerned Scientists (UCS).
UCS puts rigorous, independent science to work to solve our planet’s most pressing problems. On behalf of our half a million supporters and network of over 22,000 scientists, UCS commends the diligent work of the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) to implement multiple tax credits passed as part of the Inflation Reduction Act (IRA), including the Section 45Y Clean Electricity Production Credit (45Y) and the Section 48E Clean Electricity Investment Credit (48E).
The IRA was passed into law to propel our nation’s clean energy transition forward. The 45Y and 48E credits are foundational to that effort, enabling the widespread deployment of clean electricity resources to drive down carbon emissions in the power sector—and in so doing, unlocking the ability of the power sector to decarbonize vast swaths of the rest of the economy.
But that promise and potential hinges on 45Y and 48E being rigorously implemented. With the shift to a tax credit premised on technology-neutral framing, the risk is high that heavily polluting power plants—the very polluters this tax credit is meant to drive the shift away from—instead co-opt it for their own.
This concern centers on the fact that by premising eligibility of combustion or gasification (C&G) facilities on net greenhouse gas emissions rates, the framework opens the door to complex issues requiring careful resolution to avoid heavily polluting generators exploiting carbon accounting loopholes.
Treasury and the IRS were granted statutory authority to determine the appropriate approach to resolving these issues, and they have a responsibility to do so rigorously, accurately, and, in the face of uncertainty, conservatively.
UCS submitted detailed comments in service of these aims, working to highlight key issues that threaten to undermine the ability of Treasury and the IRS to reward truly clean generation and block loophole-dependent polluters.
While careful resolution of these issues is vital to preserving the climate integrity of the 45Y and 48E credits, UCS also notes that closing polluter loopholes will defend against the perpetuation of environmental injustices that have long been linked to C&G facilities and their upstream fuels and feedstocks.
These resources are not clean.
For climate, for health, for justice: Treasury and the IRS must set necessarily rigorous rules from the outset.
Today, I draw attention to just a subset of issues raised in our submitted technical comments:
1. Treasury and the IRS are right to propose clear rules for solar- and wind-powered electricity generation. The power sector transition will overwhelmingly rely on the buildout of solar power and wind power. These have been the stalwarts of clean energy progress to date and will remain so moving forward. The proposed rules unambiguously assure their eligibility and thus establish necessary continuity for project development as the tax code transitions from one set of incentives to another. UCS appreciates and strongly supports this effort.
2. Lifecycle analyses must be based on rigorous carbon accounting. For C&G facilities, eligibility for the 45Y/48E tax credit hinges on calculation of a net greenhouse gas emissions rate, meaning the structure of, and implementation choices around, the underlying lifecycle analysis (LCA) are of central importance. These choices are also of critical importance to the health and well-being of communities across the country, the fiscally responsible allocation of taxpayer dollars, and the ultimate ability of the tax credits to meet their statutory purpose of incentivizing truly clean technologies. In fact, most—if not all—C&G facilities would not be eligible for either tax credit unless the LCA calculation was manipulated to such a degree as to enable substantial polluter greenwashing. Furthermore, while the 45Y and 48E tax credits only assess eligibility on the basis of greenhouse gas emissions, it cannot be ignored that C&G facilities currently fighting for inclusion, such as gas-fired power plants, waste incinerators, and biomass-fired power plants, are notoriously heavy emitters of health-harming pollutants. That means if Treasury and the IRS fail to adopt rigorous LCA protocols, they are at risk of greenlighting increases in greenhouse gas emissions as well as severe health-harming pollution, too. The stakes are incredibly high for getting these rules right.
UCS recognizes and appreciates that the list of questions Treasury and the IRS put forward in the proposal reflects their deepening understanding of the complexities and outsized implications of various LCA decisions. Our written comments respond to many of these questions; throughout, our recommendations reflect the following core positions and priorities:
- Counterfactuals and fugitive greenhouse gas emissions. LCAs must be based on rigorous carbon accounting, including credible counterfactuals and comprehensive reporting of fugitive greenhouse gas emissions from feedstock generation through point of use. Methane venting is not a credible counterfactual.
- Offsets. Facility eligibility cannot be achieved via offsets. The statute clearly requires eligibility of the facility itself, not by subsidizing—often dubious—greenhouse gas emissions reductions in other parts of the economy.
- Fuel blending. Facility eligibility cannot be premised on blending of positive and negative carbon intensity fuels. Using a blend of negative carbon intensity fuels to analytically “balance out” emissions from positive carbon intensity fuels is a form of offsetting and thus must be disallowed.
- Feedstock eligibility. Feedstock eligibility requirements, such as first productive use, are vital safeguards to defend against perverse incentives driving an increase in harmful waste generation, as well as to ensure the tax credits do not simply subsidize pollution shifting as opposed to true emissions reductions.
- Precautionary approach. In the face of uncertainty over input assumptions, analytical boundaries, and/or counterfactuals that have the potential to fundamentally shape the analytical outcome, a conservative approach is appropriate to ensure the tax credits do not inadvertently subsidize a net-harmful outcome for the climate.
3. Eligibility cannot be contingent on indirect use of fuels or feedstocks via book-and-claim accounting. Book-and-claim accounting as a means of enabling “non-direct” (i.e., indirect) use of a resource to grant facility eligibility clearly does not fit within the 45Y/48E statutory framework and must be disallowed. The tax credit is intentionally based on facility emissions; it would be unreasonable and unjustifiable to allow an otherwise-ineligible facility to claim the credit on the basis of actions by a different entity. If that were the intent, the statute could have been readily and easily shaped to support use of decoupled attributes. It was not.
4. Substantiation requirements must be rigorous and cover the lifetime of the facility. Treasury and the IRS are right to recognize that “certain types or categories of facilities may have emissions rates that are highly variable and dependent on complex interactions between design choices, operational choices, and fuel and feedstock sourcing choices,” and, critically, to probe the relative risk of “inadvertently crediting above-zero-emissions” facilities.
In light of these very real concerns—and challenges—Treasury and the IRS must address questions of uncertainty with an eye toward defending against wrongly allocating funds to ultimately ineligible facilities; if Treasury and the IRS cannot sufficiently resolve whether a facility is or will continue to be eligible, they must deem that facility ineligible.
In approaching how to evaluate an “anticipated” greenhouse gas emissions rate to determine facility eligibility, Treasury and the IRS have incorrectly narrowed the window over which that anticipated eligibility is assessed. The statute does not apply a time limit in its use of “anticipated”; Treasury and the IRS are incorrect to now substantially curtail the period over which those “anticipated” rates are evaluated.
We also note that concerns about durability of facility eligibility further underscores the criticality of Treasury and IRS assigning rigorous, credible, and—as needed—conservative assumptions in C&G facility LCAs. If Treasury and the IRS finalize loose rules that enable a gas-fired power plant, for example, to cheaply procure a small number of biomethane credits premised on avoided methane emissions for a few short years, then pivot back to gas for the ensuing decades, it would be an inexcusable—and entirely avoidable—failure.
Conclusion
UCS appreciates the opportunity to comment on this proposed rule. Thank you to Treasury and the IRS for your hard work resolving complex and highly impactful issues. We look forward to continued engagement as the rulemaking progresses.
