The US Treasury Department has said it will issue guidance on additional tax incentives for clean energy, including measures to discourage companies from relying on Chinese supply chains. The guidelines are expected to be published before the end of 2023.
One of the key provisions is the Foreign Entities of Concern rules, which will come into force in 2024 for complete batteries and in 2025 for critical minerals used in their production. The guidance will determine whether certain deals, such as Ford Motor Co’s deal with Chinese battery maker CATL, meet standards for accessing tax credits.
The automotive industry in particular strictly follows these rules when making investment decisions in the production of batteries for electric vehicles. The guidance also includes information on the “45x” manufacturing tax on clean energy products such as solar, wind, battery and critical mineral components.
In addition to addressing supply chain concerns, Treasury will provide guidance on tax credits for energy efficient home improvements and sustainable aviation fuel. Other expected guidance includes the Section 48 Clean Energy Investment Tax Credit and the Clean Hydrogen Tax Credit.
The cost of these clean energy tax credits is estimated to be around $369 billion over 10 years, based on initial estimates when the Inflation Reduction Act (IRA) was passed in August 2022. However, strong demand for the credits has some This has led analysts to believe the tax cost could reach $1 trillion.
Treasury’s decision to provide guidance on these tax incentives demonstrates the government’s commitment to promoting investment in clean energy and ensuring the integrity of the nation’s supply chain. This will have significant implications for the future of the clean energy sector, particularly when it comes to the production of batteries for electric vehicles and the development of sustainable aviation fuels.