The newly enacted Inflation Reduction Act (IRA), among other things, is designed to encourage the production and use of green and clean fuels to reduce greenhouse gases from the transport sector. There are tax credit programs for aviation fuel, biofuels, and hydrogen aimed at accelerating the development of clean transport.
There are tremendous opportunities in this sector, especially for Alabama businesses. Speak with a knowledgeable Alabama business attorney today to learn more about how Inflation Reduction Act incentives can help you.
Clean Hydrogen Incentives
There are several provisions in the Inflation Reduction Act aimed at increasing the use of clean hydrogen. There is a new tax credit for producing clean hydrogen, which is considered to be a promising low-carbon fuel. In particular, clean hydrogen is expected to power trucks and ships instead of diesel.
The credit is between 20 – 100% depending on the reductions achieved in lifecycle greenhouse gas from the clean hydrogen. New regulations are authorized by the IRA for determining lifecycle greenhouse gas emissions. They will also be verifying the production and sale of clean hydrogen, which will undoubtedly set in a ripple effect across multiple industries.
The applicable percentage is multiplied by $0.60 times the base rate. Taxpayers that meet the prevailing wage requirements while constructing the clean hydrogen project get a bonus rate of $3.00. This is applicable for each year of the 10-year credit program. They should also satisfy apprenticeship requirements during the construction period.
The IRA has also extended the alternative fuel refueling property tax credit for encouraging the greater deployment of hydrogen refueling facilities and clean fuel refueling infrastructure. The credit expands for alternative fuel refueling infrastructure, which is at least 85% hydrogen.
Base credit of 6% and bonus credit of 30% is applicable on expenses up to $100,000. This is for every refueling pump installed.
Biodiesel and Biofuel Incentives Get Extended
Several sections of the Internal Revenue Code have been amended by the Internal Revenue Code for incentivizing biodiesel and other alternative fuels used in the commercial trucking and transportation sector. The Inflation Reduction Act has specifically extended the deadline for existing alternative fuel, biodiesel, and second-generation biofuel tax credits to December 31, 2024.
Credits for Sustainable Aviation Fuel
New sustainable aviation fuel credit has been established by the IRA for reducing greenhouse gases. This fuel credit involves multiplying $1.25 plus an applicable supplementary amount with the number of sustainable aviation fuel gallons.
The supplementary amount applicable is $0.01 for each percentage point of reduction in lifecycle greenhouse gas emission with respect to the fuel exceeding 50%. The supplementary amount cannot be greater than $0.50.
The credits are only applicable to mixtures of kerosene and sustainable aviation fuel that are produced in the United States and are directly transferred to the aircraft’s fuel tank stationed in the US.
Aviation fuel is sustainable when it meets certain ASTM International Standard requirements. It should not be derived from coprocessing petroleum, palm fatty acid distillates, and feedstock.
Sustainable aviation fuel needs to be certified with a reduction percentage of at least 50% in lifecycle greenhouse gas emissions. This percentage means the lifecycle greenhouse gas emission percentage reduction is achieved by clean fuel instead of petroleum-based jet fuel.
The producer or importer needs to be registered with the Secretary of the Treasury. They are also required to provide certification with applicable requirements. The aviation fuel credit as per 26 U.S.C. § 38 is incorporated into the general business credit and as per 26 U.S.C. § 6426 into alcohol fuel, biodiesel, and alternative fuel mixtures credit.
Credit for Clean Fuel Production
New technology-neutral ‘clean fuel production credit’ is established by the IRA for clean fuels produced in the United States and sold between December 31, 2024, and January 1, 2028. Eligible clean fuels should have carbon dioxide equivalents of less than 50 kilograms per million British thermal units (BTU). Lifecycle carbon emissions of the clean fuel determine the credit levels for the production of each gallon or gallon equivalent.
The applicable amount is 20 cents for fuel produced at qualified facilities. A bonus rate of $1.00 is applicable for taxpayers satisfying apprenticeship requirements and meeting prevailing wage requirements. There is also a special rate for sustainable aviation fuel. Taxpaying entities have been given the opportunity to obtain credits by the IRA for various alternative and sustainable fuel types.
This is aimed at addressing the needs of multiple transportation modes while making alternative fuels readily available in the market. The limitations attached to the credits make it important that you carefully review the terms of individual credit programs. It is recommended that you consult with an experienced and knowledgeable business attorney to obtain a deeper insight into the available opportunities.
Get the Right Legal Advice from a Skilled Alabama Business Attorney Today
There is an increasing shift towards cleaner fuel and energy with the government making it easier for businesses to enter and play the markets. The qualified business attorneys at the BHM Law Group are here to explain the fine points of the Inflation Reduction Act and how it may apply to your business. To schedule your free initial consultation, give us a call at 205-994-0902 or write to us online.