President Biden signed the climate law in 2022, which has sparked a thriving market for companies to trade clean-energy tax credits, according to new data from the Treasury Department. This has opened up opportunities for start-ups to raise funds for projects such as wind farms and solar panel installations.
The market also presents new avenues for large companies and financial institutions to generate revenue.
Treasury officials revealed that over 500 companies have registered a total of 45,500 new clean-energy projects with the IRS to take advantage of tax incentives in the 2022 law. The Inflation Reduction Act, which is the federal government’s most costly initiative to combat fossil fuel emissions and climate change, is behind this effort.
The registered projects range in size, from individual wind turbines to large advanced battery factories. Treasury officials note that the focus has primarily been on wind and solar energy projects, with registrations spanning all 50 states and the District of Columbia.
These numbers showcase the broad reach of the climate law and the innovative mechanisms it has established for companies to capitalize on its incentives.
The law aims to promote increased production and rapid deployment of emissions-reducing technologies by offering tax credits to companies involved in manufacturing or installing such technologies nationwide. These tax credits are substantial, with solar manufacturers citing significant cost reductions in American production, making American-made panels competitive with those from China.
Typically, American companies must have high revenue and profits to benefit from tax incentives, posing challenges for small businesses, start-ups, and others struggling to turn a profit. To address this, the Inflation Reduction Act introduced two methods to assist these companies, both requiring project registration with the IRS.
One method allows select groups like nonprofit hospitals and local governments to receive direct payments from the government for the value of tax credits, such as for installing solar panels.
The other method enables companies to trade the value of their tax credits on an open marketplace. For example, a large corporation with significant tax liability could pay a start-up for wind-turbine production tax credits. Financial intermediaries typically facilitate these transactions, which experts say are more cost-effective than borrowing money for production.
“Businesses in need of liquidity can sell their credits instead of taking out loans,” noted the Congressional Research Service last month, particularly beneficial when interest rates are high.
The registration of projects serves as an initial check to prevent potential fraud in claiming tax benefits. However, it does not guarantee that registered projects will qualify for credits. Officials anticipate data on the number of credits claimed in the first full year of the law’s incentives to be available in the fall.
The surge in project registrations since January, when Treasury reported just over 1,000 registrations, is significant. Of the 45,500 total registrations, more than 98 percent are earmarked for the marketplace, according to officials.
Deputy Treasury Secretary Wally Adeyemo stated that the Inflation Reduction Act has made it easier for companies to access tax incentives for financing projects and deploying clean energy. Adeyemo also highlighted the increase in funding for the IRS, aiding in technological upgrades to collect information like tax-credit registrations.
