On August 16, 2022, President Biden signed into law the Inflation Reduction Act (IRA). This action represents a monumental step by the U.S. toward significant decarbonization. At CleanBay Renewables, we are encouraged by the inclusion of biogas and technology agnostic projects in the tax credit programs; a first after many years of education and advocacy by our partners.
Just as certain renewable energy sources were a focus area for market investment in President Obama’s Recovery Act in 2016, the IRA includes investment tax credits (ITC) for qualified biogas projects. The biogas industry now has the competitive market support it has long needed to reach its full potential. The bill’s comprehensive approach to expanding clean energy technology will position the U.S. to make historic strides toward decarbonization.
What’s in the Inflation Reduction Act?
The remarkable $740 billion piece of legislation addresses a wide range of issues, including climate, clean energy funding, prescription drug prices, and budget deficit reduction. The aspects most relevant to our industry, the climate and clean energy provisions, are intended to reduce greenhouse gas (GHG) emissions while increasing our energy security and lowering clean energy costs for Americans. These energy-related provisions include various tax credits, conservation programs, and infrastructure funding that will stimulate private investment in more types of renewable energy projects and bolster critical market expansion in the clean energy sector.
More specifically, the Inflation Reduction Act appropriates $250 billion to the Department of Energy to fund clean energy initiatives across the country. An additional $27 billion in funding will go to a Greenhouse Gas Reduction Fund that will support competitive grants to local and national green banks who invest in innovative projects that reduce or avoid GHG emissions. The bill also outlines incentives and initiatives to promote investments in disadvantaged communities where the residents have been disproportionately negatively affected by the fossil fuel industry. Further, the bill invests in farmers and forestland owners with the goal of supporting resilient rural communities and decarbonizing all sectors of the economy.
How will the IRA support the biogas industry?
The Recovery Act in 2016 worked to drive investment dollars to domestic wind and solar production and had a positive impact on those industries. Now, with the IRA, biogas will take a seat among these prioritized energy solutions. Section 48, which was previously only a wind and solar energy investment tax credit, is now expanded to include qualifying biogas operations that begin construction before the end of 2024. The bill establishes:
- A Qualified Biogas Property investment tax credit with a benefit of 30-50% of the eligible investment amount (if eligible for bonus credits) [48A],
- A Clean Fuel Production Credit of up to $1 per gallon (eqivalent) for facilities placed in service after December 31, 2024 [45Z],
- Technology agnostic (including biogas) Clean Electricity Investment Credit of 30-50% of the eligible investment amount for projects placed in service after December 31, 2024 [48E],
- Technology agnostic (including biogas) Clean Electricity Production Credit [45Y], and
- Bonus credits for these programs related to projects that use domestic building materials, are located in disadvantaged communities, or fulfill specific wage and apprenticeship requirements.
The updated tax credit provisions will remain in effect until at least 2034 with no additional congressional action. These new and extended credits offer unprecedented investment stability for the biogas industry.
The IRA also supports carbon capture and sequestration efforts, which many in our industry have incorporated to further reduce the carbon footprint of operating businesses. The 45Q tax credit is increasing from $50 to $85 per ton of CO2 sequestered while decreasing the minimum volume of CO2 that facilities must capture and apply to a qualifying use. While the previous 45Q benefits were only attainable by large-scale facilities, changes outlined in the IRA will help small- and medium-sized projects qualify.
Benefitting Biogas, Farmers and Rural Communities
In addition to the tax provisions that will stimulate private investment in the biogas industry, the IRA also contains significant funding for farmers and rural communities to ensure they can successfully incorporate climate solutions into their agriculture practices. The bill expands rural access to affordable clean energy and allocates $18 billion to the USDA to fund four critical conservation and technical assistance programs. These programs will support the transition to climate-smart agriculture practices and create easier routes for farmers, ranchers, and foresters to access the equipment needed to adopt cleaner land management strategies such as the use of controlled-release natural fertilizers. An additional $300 million will go to USDA to conduct research on the impact of agricultural practices on GHG emissions.
The IRA also provides bonus tax credits to projects that benefit rural communities. These include projects that site their facilities in communities where the economy has largely relied on the fossil fuel industry. This feature is intended to encourage developers to build their clean energy facilities in locations where power plants or coal mines have closed and will ensure competitive salaries, job security, and learning opportunities for rural and low-income communities, especially those who have relied on now retired fossil fuel plants for widespread employment.
CleanBay Renewables is a committed advocate of the agriculture and farming communities, and we applaud the new law’s focus on investment in rural communities. The IRA represents the largest investment in clean energy solutions in American history, and CleanBay Renewables is committed to seeing the IRA’s provisions come to fruition. The IRA stimulates investment in agriculture and rural communities that bolsters our battlefield position against climate change.