Energy tax credits: What’s at stake
The United States needs more energy options to secure a reliable, affordable, high-energy system and compete in global energy markets. Many technologies are available to meet America’s energy needs and position the United States as a global leader and exporter – but these technologies need federal investments to compete in today’s energy markets.
Energy tax credits are an essential investment tool to support domestic energy growth and American competitiveness:
- Energy tax credits help businesses to commercialize energy supply options. America needs more energy technologies and supply chains commercialized to meet future load growth for industry, the economy, and energy security. Gas plants will not be sufficient to meet projected load growth. More energy options will enable America to keep up with growing energy needs from data centers and AI.
- Energy tax credits keep energy costs lower for American households. Without the tax credits, consumer energy costs will rise for a variety of reasons, including competing demands on the energy grid and reliability concerns. Tax credits for generation bring more energy options to market, increasing the reliability of our energy grid and ultimately lowering energy costs for American households. Energy tax credits encourage investments in baseload energy, such as advanced nuclear and geothermal energy, and renewable energy and storage, which increases supply. Greater supply keeps prices lower. There are also tax credits that directly benefit households by incentivizing more efficient upgrades and purchases – these credits reduce energy costs over time by reducing usage.
- Energy tax credits strengthen local economies by creating jobs and driving business growth. Tax credits create jobs and spur the growth of small businesses with investments in manufacturing and energy production. Quality jobs are created with each new project announcement. These investments positively impact communities nationwide, with many jobs already created from existing energy tax credits.
- Energy tax credits allow U.S. businesses to compete and lead in global markets. Energy generation and efficiency is one of the largest technology–driven markets in the world today. The U.S. has an opportunity to be a world leader in energy technology and research. Global markets have increasingly stringent emissions limits, requiring American businesses to invest in newer technologies to sell energy and industrial products globally. Tax credits give American businesses options to invest in new technologies and energy solutions for long-term economic security and competitiveness.
Read on to learn about the importance of key energy tax credits and accessibility to taxpayers, and what’s at stake if the tax credits are repealed or improperly implemented.
Importance of key energy tax credits
Here are several key energy tax credits and how they increase our energy security:
ITC/PTC technology-neutral tax credits (45Y and 48E) unlock baseload power including through energy storage with renewables and by supporting advanced nuclear, fusion, and geothermal. We must increase baseload power supply to achieve energy security, including advanced nuclear and geothermal energy that are eligible for tax credits through 45Y and 48E. For example, 45Y is central to the business case for next-generation geothermal energy; without it, this emerging industry will be stifled and much less likely to develop in the United States. U.S. fusion energy companies have similarly structured deployment plans for the first fusion pilot plants around 48E; rolling back this support would undermine U.S. leadership in the race for commercial fusion energy. Preserving and enhancing these credits is essential for our overall energy security. Energy storage is another critically important component of energy security – 48E enables businesses to invest in energy storage that benefits American households and businesses, storing energy for power supply and American industrial manufacturing. Energy storage adds more baseload power to the grid, including by allowing renewable energy like solar to be stored and used at the time of day when people need energy. 48E credits apply both to converting fossil to stored electricity and to hydrogen as a storage carrier.
45Q tax credit for carbon sequestration drives U.S. global energy competitiveness. There is increasing demand for low-carbon products from global customers. Major fuel importers are also establishing policy regimes such as the European Carbon Border Adjustment Mechanism (CBAM) that indicate a clear preference for lower-carbon fuels. In the medium- to long-term, American businesses are poised to meet this demand by lowering the carbon-intensity of their processes with carbon capture and storage (CCS). Maintaining 45Q is essential for lowering CO2 emissions from LNG export terminals, bioenergy, refineries and chemicals facilities, while enhancing the competitiveness of U.S products.
The 45V hydrogen production tax credit supports American industry, aviation, and marine shipping. This credit, alongside other policy mechanisms, has provided momentum to grow the U.S. hydrogen industry, which contributes to domestic energy security, jobs, competitiveness, and innovation. American refineries and fertilizer producers already use hydrogen in their processes, so 45V allows these sectors to remain competitive domestically and abroad while decarbonizing. Facilities can choose between 45V or 45Q if the hydrogen is produced with CCS, which allows industry players to opt for the best tax credit for their unique processes and resources. For marine shipping and aviation, using hydrogen as a feedstock and/or a fuel is critical for decarbonization, as overreliance on biofuels for these sectors can run into feedstock constraints and harmful indirect impacts (such as on food prices). This is especially important since these sectors are inherently global and must comply with international standards and markets. Preserving 45V credits implemented under the sensible guidelines published earlier this year that ensure credits go to innovative projects sourcing clean energy inputs maintains the business and market certainty necessary for companies to make long-term investment and financing decisions.
45X advanced manufacturing supports America’s critical mineral supply and batteries. U.S. manufacturing is booming, including battery production in states like Georgia and Kentucky, and critical mineral extraction and refining in Wisconsin. 45X tax credits support the production of batteries and critical minerals and are necessary to compete with other countries like China, to advance our energy security. Each announced manufacturing project will be able to use the tax credit to create jobs and grow local economies.
The role of transferability and direct pay
Energy tax credits are useful tools to create incentives for investment in needed projects, but their impact is limited unless taxpayers can maximize their utility. For most businesses, this means being able to transfer the tax credits to taxpayers who value them more highly. For tax-exempt entities like schools, churches, and rural co-ops, this means getting the equivalent benefit from the government through direct pay.
Direct pay and transferability support rural co-ops, churches, and advanced nuclear deployment. Technologies to support baseload power, including advanced nuclear, need investors to be able to monetize credits quickly. Direct pay is crucial to allow entities like rural electric cooperatives and churches to receive tax credits for energy investments, while transferability enables investors to transfer investments through the market – a crucial need for advanced nuclear, which has high investment costs. Recent analysis has shown that the investments most enabled by transferability in 2024 included domestic manufacturing, critical minerals, and advanced nuclear.
What’s at stake
America’s energy supply is not sufficient to meet growing energy demand. The U.S. must rapidly expand energy production through investments in energy technologies, including baseload advanced nuclear and geothermal, hydrogen, and storage solutions. At the same time, American jobs and businesses are at risk if we do not keep existing tax credits that have spurred investment in U.S. manufacturing, critical minerals development, carbon capture and hydrogen technologies, and more.
Repealing energy tax credits would be costly. Not only would American businesses not be able to compete globally in increasingly competitive markets, but consumers and businesses alike could face higher energy prices, business and job uncertainty, and national and energy security risks. Businesses need policy certainty that tax credits will remain in place to avoid these outcomes. Removal of the tax credits, or shortening the period of eligibility, would add greater uncertainty and reduce the availability of tax credits for technologies that have longer time horizons to commercialize such as some geothermal, advanced nuclear, and fusion technologies.
The work doesn’t stop once the energy tax credits are in effect – they must also be properly implemented. If they don’t achieve their aims to reward technologies that lower emissions to the point they can compete globally, or if they fail to only reward those businesses that can accurately demonstrate and report they meet more stringent requirements with higher credits, it would be a lost opportunity to advance American technology innovation and could result in higher costs to American taxpayers. For example, as laid out in the guidance implementation of the 45V tax credit, any individual claims of upstream performance by a blue hydrogen producer must be accompanied by the strong federal policies that are currently in place.
We have not yet achieved the necessary buildout to secure a reliable, high-energy future. The stakes are high, and energy tax credits are an important component to ensuring our success.
