Section 45Y Clean Electricity Production Credit and Section 48E Clean Electricity Investment Credit, 47792-47846 [2024-11719]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 89, Number 107 (Monday, June 3, 2024)]
[Proposed Rules]
[Pages 47792-47846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11719]



[[Page 47791]]

Vol. 89

Monday,

No. 107

June 3, 2024

Part III





 Department of the Treasury





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Internal Revenue Service





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26 CFR Part 1





Section 45Y Clean Electricity Production Credit and Section 48E Clean 
Electricity Investment Credit; Proposed Rule

Federal Register / Vol. 89, No. 107 / Monday, June 3, 2024 / Proposed 
Rules

[[Page 47792]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-119283-23]
RIN 1545-BR17


Section 45Y Clean Electricity Production Credit and Section 48E 
Clean Electricity Investment Credit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to the 
clean electricity production credit and the clean electricity 
investment credit established by the Inflation Reduction Act of 2022. 
The proposed regulations would provide rules for: determining 
greenhouse gas emissions rates resulting from the production of 
electricity; petitioning for provisional emissions rates; and 
determining eligibility for these credits in various circumstances. The 
proposed regulations would affect all taxpayers who produce clean 
electricity and claim the clean electricity production credit with 
respect to a facility or the clean electricity investment credit with 
respect to a facility or energy storage technology, as applicable, that 
is placed in service after 2024. This document also provides notice of 
a public hearing on the proposed regulations.

DATES: Written or electronic comments must be received by August 2, 
2024. The public hearing on these proposed regulations is scheduled to 
be held on August 12, 2024, at 10 a.m. (ET) and August 13, 2024, at 10 
a.m. (ET). On August 13, 2024, the public hearing will be held by 
telephone only. Requests to speak and outlines of topics to be 
discussed at the public hearing must be received by August 2, 2024. If 
no outlines are received by August 2, 2024, the public hearing will be 
cancelled.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-119283-23) by following the 
online instructions for submitting comments. Once submitted to the 
Federal eRulemaking Portal, comments cannot be edited or withdrawn. The 
Department of the Treasury (Treasury Department) and the IRS will 
publish for public availability any comments submitted to the IRS's 
public docket. Send paper submissions to: CC:PA:01:PR (REG-119283-23), 
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin 
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations, 
the Office of Chief Counsel (Passthroughs and Special Industries) at 
(202) 317-6853 (not a toll-free number); concerning submissions of 
comments or the public hearing, Vivian Hayes at (202) 317-6901 (not a 
toll-free number) or by email to [email protected] (preferred).

SUPPLEMENTARY INFORMATION:

Background

    This notice of proposed rulemaking contains proposed amendments to 
the Income Tax Regulations (26 CFR part 1) to implement sections 45Y 
and 48E of the Internal Revenue Code (Code), which generally replace 
sections 45 and 48 of the Code with respect to qualified facilities, 
and for section 48E, with respect to energy storage technology, that is 
placed in service after December 31, 2024.
    The renewable electricity production credit determined under 
section 45 of the Code (section 45 credit) is generally available for 
qualified facilities described in section 45(d), which provides that 
the construction of the qualified facilities must begin before January 
1, 2025. Similarly, other than for geothermal heat pump equipment 
(described in section 48(a)(3)(vii) \1\), the energy credit determined 
under section 48 of the Code (section 48 credit), which is an 
investment credit under section 46 of the Code, is generally available 
for energy property the construction of which begins before January 1, 
2025. Therefore, as long as construction begins on the relevant 
qualified facility or energy property before January 1, 2025, a 
taxpayer may be able to claim a section 45 credit or section 48 credit, 
respectively, even if the taxpayer places the qualified facility or 
energy property in service after December 31, 2024.
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    \1\ Section 48(a)(3)(vii) includes as energy property equipment 
that uses the ground or ground water as a thermal energy source to 
heat a structure or as a thermal energy sink to cool a structure 
(geothermal heat pump property), but only with respect to property 
the construction of which begins before January 1, 2035.
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    Sections 45Y and 48E were added to the Code, respectively, by 
sections 13701(a) and 13702(a) of Public Law 117-169, 136 Stat. 1818, 
1982 (August 16, 2022), commonly referred to as the Inflation Reduction 
Act of 2022 (IRA). Section 13701(c) of the IRA provides that the clean 
electricity production credit determined under section 45Y (section 45Y 
credit) applies to facilities placed in service after December 31, 
2024. Similarly, section 13702(c) of the IRA provides that the clean 
electricity investment credit determined under section 48E (section 48E 
credit) applies to property placed in service after December 31, 2024.
    Thus, in some cases, if a taxpayer places in service a qualified 
facility or energy property after 2024, the construction of which 
begins before 2025, the qualified facility or energy property may be 
eligible for more than one of the credits determined under section 45, 
45Y, 48, or 48E, although a taxpayer can only claim one of these 
credits with respect to such qualified facility or energy property. 
Accordingly, a taxpayer must choose which one of these credits to claim 
with respect to such qualified facility or energy property. Once the 
taxpayer has claimed one of these credits with respect to a qualified 
facility or an energy property, the taxpayer cannot claim any other of 
these credits with respect to the same qualified facility or energy 
property.

I. Overview of Section 45Y

    Section 45Y(a)(1) provides that for purposes of the general 
business credit under section 38 of the Code, the section 45Y credit 
for any taxable year is an amount equal to the product of the kilowatt 
hours (kWh) of eligible electricity produced by the taxpayer at a 
qualified facility, multiplied by the applicable amount with respect to 
such qualified facility. For this purpose, eligible electricity is 
electricity that is either (1) sold by the taxpayer to an unrelated 
person during the taxable year or (2) in the case of a qualified 
facility that is equipped with a metering device that is owned and 
operated by an unrelated person, sold, consumed, or stored by the 
taxpayer during the taxable year.

A. Amount of Credit

    For purposes of the applicable amount used in calculating the 
section 45Y credit, section 45Y(a)(2) provides a base amount and a 
higher alternative amount. Section 45Y(a)(2)(A) provides that the 
applicable amount will be the base amount of 0.3 cents in the case of a 
qualified facility that does not satisfy the requirements for the 
higher alternative amount. Section 45Y(a)(2)(B) provides that the 
alternative amount of 1.5 cents applies in the case of any qualified 
facility (1) with a maximum net output of less than 1 megawatt (as 
measured in alternating current), (2) the construction of which begins 
prior to the date that is 60 days after the Secretary of the Treasury 
or her delegate

[[Page 47793]]

(Secretary) publishes guidance on the requirements of section 45Y(g)(9) 
(wage requirements) and section 45Y(g)(10) (apprenticeship 
requirements),\2\ or (3) that satisfies section 45Y(g)(9) and, with 
respect to the construction of such facility, satisfies section 
45Y(g)(10).
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    \2\ To meet this requirement, the construction of the qualified 
facility must begin prior to January 29, 2023. See proposed Sec.  
1.45Y-3 as proposed in the notice of proposed rulemaking (REG-
100908-23) published in the Federal Register (88 FR 60018) on August 
30, 2023, and corrected at 88 FR 73807 on October 27, 2023.
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    Section 45Y(c)(1) provides for an inflation adjustment for both the 
base and alternative amounts. Section 45Y(c)(1) provides that in the 
case of a calendar year beginning after 2024, the 0.3 cent amount in 
section 45Y(a)(2)(A) and the 1.5 cent amount in section 45Y(a)(2)(B) 
will each be adjusted by multiplying such amount by the inflation 
adjustment factor for the calendar year in which the sale, consumption, 
or storage of the electricity occurs. Section 45Y(c)(1) also addresses 
the rounding rules to be applied to this computation. Section 45Y(c)(2) 
provides that the Secretary will, not later than April 1 of each 
calendar year, determine and publish in the Federal Register the 
inflation adjustment factor for such calendar year in accordance with 
section 45Y(c).
    Section 45Y(g)(7) provides for an increase in the section 45Y 
credit amount for any qualified facility located in an energy 
community, and section 45Y(g)(11) provides for an increase in the 
section 45Y credit amount if the domestic content bonus requirement is 
satisfied.
    Section 45Y(g)(7) provides that in the case of any qualified 
facility that is located in an energy community (as defined in section 
45(b)(11)(B)), for purposes of determining the amount of the credit 
under section 45Y(a) with respect to any electricity produced by the 
taxpayer at such facility during the taxable year, the applicable 
amount under section 45Y(a)(2) will be increased by an amount equal to 
10 percent of the amount otherwise in effect under such paragraph.
    Section 45Y(g)(11) provides that in the case of any qualified 
facility that satisfies the domestic content bonus requirement under 
section 45Y(g)(11)(B)(i), the amount of the credit determined under 
section 45Y(a) will be increased by an amount equal to 10 percent of 
the amount so determined (as determined without application of section 
45Y(g)(7)). Section 45Y(g)(11)(B)(i) generally provides that the 
domestic content bonus requirement is satisfied with respect to any 
qualified facility if the taxpayer certifies to the Secretary (at such 
time, and in such form and manner, as the Secretary may prescribe) that 
any steel, iron, or manufactured product that is a component of such 
facility (upon completion of construction) was produced in the United 
States (as determined under section 661 of title 49, Code of Federal 
Regulations). Section 45Y(g)(11)(B)(iii) provides that for purposes of 
the domestic content bonus requirement, the manufactured products that 
are components of a qualified facility upon completion of construction 
will be deemed to have been produced in the United States if not less 
than the adjusted percentage (as determined under section 
45Y(g)(11)(C)) of the total cost of all such manufactured products of 
such facility are attributable to manufactured products (including 
components) that are mined, produced, or manufactured in the United 
States.

B. Qualified Facility

    Section 45Y(b) provides guidance on the meaning of a qualified 
facility for purposes of section 45Y. Subject to section 45Y(b)(1)(B) 
through (D), section 45Y(b)(1)(A) defines a qualified facility to mean 
a facility owned by the taxpayer that is used for the generation of 
electricity, that is placed in service after December 31, 2024, and for 
which the greenhouse gas emissions rate (as determined under section 
45Y(b)(2)) is not greater than zero.
    Section 45Y(b)(1)(B) provides that for purposes of section 45Y, a 
facility will only be treated as a qualified facility during the 10-
year period beginning on the date the facility was originally placed in 
service.
    Section 45Y(b)(1)(C) provides that a qualified facility will 
include a new unit or any additions of capacity that are placed in 
service after December 31, 2024, if in connection with a facility 
described in section 45Y(b)(1)(A) (without regard to section 
45Y(b)(1)(A)(ii) describing the requirement that the facility be placed 
in service after December 31, 2024) that was placed in service before 
January 1, 2025, but only to the extent of the increased amount of 
electricity produced at the facility due to the new unit or addition of 
capacity.
    Section 45Y(b)(1)(D) provides that a qualified facility will not 
include any facility for which a credit determined under section 45, 
45J, 45Q, 45U, 48, 48A, or 48E of the Code is allowed under section 38 
for the taxable year or any prior taxable year.
    Section 45Y(b)(2) describes the greenhouse gas emissions rate 
referenced in section 45Y(b)(1)(A)(iii). Section 45Y(b)(2)(A) defines 
greenhouse gas emissions rate for purposes of section 45Y to mean the 
amount of greenhouse gases emitted into the atmosphere by a facility in 
the production of electricity, expressed as grams of CO2e 
per kWh. Section 45Y(e)(1) defines CO2e per kWh for purposes 
of section 45Y to mean, with respect to any greenhouse gas, the 
equivalent carbon dioxide (as determined based on global warming 
potential) per kWh of electricity produced. Section 45Y(e)(2) defines 
greenhouse gas for purposes of section 45Y to have the same meaning 
given such term under section 211(o)(1)(G) of the Clean Air Act (CAA) 
(42 U.S.C. 7545(o)(1)(G)) as in effect on August 16, 2022.
    Section 45Y(b)(2)(B) provides that in the case of a facility that 
produces electricity through combustion or gasification, the greenhouse 
gas emissions rate (GHG emissions rate) for such facility is equal to 
the net rate of greenhouse gases emitted into the atmosphere by such 
facility (taking into account lifecycle greenhouse gas emissions, as 
described in section 211(o)(1)(H) of the CAA (42 U.S.C. 7545(o)(1)(H))) 
in the production of electricity, expressed as grams of CO2e 
per kWh.
    Section 45Y(b)(2)(C) provides for the establishment of GHG 
emissions rates for facilities either through the publication of 
emissions rates described in section 45Y(b)(2)(C)(i) or a provisional 
emissions rate as described in section 45Y(b)(2)(C)(ii). Section 
45Y(b)(2)(C)(i) states that the Secretary will annually publish a table 
that sets forth the GHG emissions rates for types or categories of 
facilities, that a taxpayer will use for purposes of section 45Y. 
Section 45Y(b)(2)(C)(ii) provides that in the case of any facility for 
which a GHG emissions rate has not been established by the Secretary, a 
taxpayer that owns such facility may file a petition with the Secretary 
for determination of the GHG emissions rate with respect to such 
facility.
    Section 45Y(b)(2)(D) provides that for purposes of section 45Y(b) 
the amount of greenhouse gases emitted into the atmosphere by a 
facility in the production of electricity cannot include any qualified 
carbon dioxide that is captured by the taxpayer and either (1) disposed 
of by the taxpayer in secure geological storage pursuant to any 
regulations established under section 45Q(f)(2), or (2) utilized by the 
taxpayer in a manner described in section 45Q(f)(5). Section 45Y(e)(3) 
defines qualified carbon dioxide for purposes of

[[Page 47794]]

section 45Y to mean carbon dioxide captured from an industrial source 
that would otherwise be released into the atmosphere as industrial 
emission of greenhouse gas, is measured at the source of capture and 
verified at the point of disposal or utilization, and is captured and 
disposed or utilized within the United States (within the meaning of 
section 638(1) of the Code) or a United States territory, which for 
purposes of section 45Y and the section 45Y regulations has the meaning 
of the term ``possession'' of the United States (within the meaning of 
section 638(2)).

C. Credit Phase-Out

    Section 45Y(d) describes the credit phase-out. Section 45Y(d)(1) 
provides generally that the amount of the clean electricity production 
credit under section 45Y(a) for any qualified facility the construction 
of which begins during a calendar year described in section 45Y(d)(2) 
is equal to the product of the amount of the credit determined under 
section 45Y(a) without regard to section 45Y(d), multiplied by the 
phase-out percentage under section 45Y(d)(2). Section 45Y(d)(2) 
provides that the phase-out percentage is 100 percent for a facility 
the construction of which begins during the first calendar year 
following the applicable year; 75 percent for a facility the 
construction of which begins during the second calendar year following 
the applicable year; 50 percent for a facility the construction of 
which begins during the third calendar year following the applicable 
year; and 0 percent for a facility the construction of which begins 
during any calendar year subsequent to the calendar year described in 
section 45Y(d)(2)(C). Section 45Y(d)(3) defines the ``applicable year'' 
for purposes of section 45Y(d) to mean the later of the calendar year 
in which the Secretary determines that the annual greenhouse gas 
emissions from the production of electricity in the United States are 
equal to or less than 25 percent of the annual greenhouse gas emissions 
from the production of electricity in the United States for calendar 
year 2022, or 2032.

D. Special Rules

    Section 45Y(g) provides special rules for section 45Y. Section 
45Y(g)(1) provides that consumption, sales, or storage is taken into 
account under section 45Y only with respect to electricity the 
production of which is within the United States (within the meaning of 
section 638(1)), or a United States territory, which for purposes of 
section 45Y and the section 45Y regulations has the meaning of the term 
``possession'' of the United States (within the meaning of section 
638(2)).
    Section 45Y(g)(2) provides a rule for combined heat and power 
system (CHP) property. For purposes of section 45Y(a), section 
45Y(g)(2)(A) generally provides that the kWh of electricity produced by 
a taxpayer at a qualified facility will include any production in the 
form of useful thermal energy by any CHP property within such facility, 
and the amount of greenhouse gases emitted into the atmosphere by such 
facility in the production of such useful thermal energy will be 
included for purposes of determining the GHG emissions rate for such 
facility. Section 45Y(g)(2)(B) defines CHP property for purposes of 
section 45Y(g)(2) to have the same meaning given such term by section 
48(c)(3) (without regard to section 48(c)(3)(A)(iv), (B), and (D) 
thereof). Section 45Y(g)(2)(C) provides the necessary conversion from 
BTU to kWh for a taxpayer to calculate a section 45Y credit for useful 
thermal energy produced by a CHP property.
    Section 45Y(g)(3) provides that in the case of a qualified facility 
in which more than one person has an ownership interest, except to the 
extent provided in regulations prescribed by the Secretary, production 
from the facility will be allocated among such persons in proportion to 
their respective ownership interests in the gross sales from such 
facility.
    Section 45Y(g)(4) provides that persons will be treated as related 
to each other if such persons would be treated as a single employer 
under the regulations prescribed under section 52(b). In the case of a 
corporation that is a member of an affiliated group of corporations 
filing a consolidated return, such corporation will be treated as 
selling electricity to an unrelated person if such electricity is sold 
to such a person by another member of such group.
    Section 45Y(g)(5) provides that under regulations prescribed by the 
Secretary, rules similar to the rules of section 52(d) will apply to a 
pass-thru in the case of estates and trusts.
    Section 45Y(g)(6) provides for the allocation of the credit to 
patrons of an agricultural cooperative.
    Section 45Y(g)(8) provides that rules similar to the rules of 
section 45(b)(3) will apply to a credit reduced for tax-exempt bonds.
    Section 45Y(g)(9) provides that rules similar to the rules of 
section 45(b)(7) apply with respect to wage requirements. Section 
45Y(g)(10) provides rules similar to the rules of section 45(b)(8) 
apply with respect to apprenticeship requirements.

II. Overview of Section 48E

    For purposes of the general business credit under section 38, which 
includes the investment credit under section 46, section 48E(a)(1) 
provides a credit for any taxable year in which a qualified investment 
is made with respect to any qualified facility and any energy storage 
technology (EST).

A. Amount of Credit

    The amount of the section 48E credit is equal to the applicable 
percentage of the qualified investment in any qualified facility and 
any EST. Section 48(E)(a)(2) provides a base rate and a higher 
alternative rate for the applicable percentage. Section 48E(a)(2)(A)(i) 
provides that in the case of a qualified facility that does not satisfy 
the requirements for the higher alternative rate, the base rate will be 
6 percent. Section 48E(a)(2)(A)(ii) provides that the alternative rate 
of 30 percent applies in the case of any qualified facility (1) with a 
maximum net output of less than 1 megawatt (as measured in alternating 
current), (2) the construction of which begins prior to the date that 
is 60 days after the Secretary publishes guidance on the prevailing 
wage requirements of section 48E(d)(3) and the apprenticeship 
requirements of section 48E(d)(4),\3\ or (3) that satisfies the 
prevailing wage requirements of section 48E(d)(3) and, with respect to 
the construction of such facility, satisfies the apprenticeship 
requirements of section 48E(d)(4).
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    \3\ To meet this requirement, the construction of the qualified 
facility must begin prior to January 29, 2023. See proposed Sec.  
1.48E-3 as proposed in the notice of proposed rulemaking (REG-
100908-23) published in the Federal Register (88 FR 60018) on August 
30, 2023, and corrected at 88 FR 73807 on October 27, 2023.
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    Similarly, section 48E(a)(2)(B)(ii) provides that the alternative 
rate of 30 percent applies in the case of an EST (1) with a capacity of 
less than 1 megawatt, (2) the construction of which begins prior to the 
date that is 60 days after the Secretary publishes guidance on the 
requirements of section 48E(d)(3) and (4) \4\ (prevailing wage and 
apprenticeship requirements, respectively), or (3) that satisfies 
section 48E(d)(3) and with respect to the construction of such EST, 
satisfies section 48E(d)(4). Section 48E(a)(2)(B)(i) provides that in 
the case of an EST that does not satisfy the requirements for the

[[Page 47795]]

alternative rate, the base rate will be 6 percent.
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    \4\ To meet this requirement, the construction of the EST must 
begin prior to January 29, 2023. See proposed Sec.  1.48E-3 as 
proposed in the notice of proposed rulemaking (REG-100908-23) 
published in the Federal Register at 88 FR 60018 on August 30, 2023, 
and corrected at 88 FR 73807 on October 27, 2023.
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    Section 48E(a)(3)(A) provides for an increase in credit rate for a 
qualified facility or EST located in an energy community (as defined in 
section 45(b)(11)(B)) and section 48E(a)(3)(B) similarly provides for 
an increase in credit rate for a qualified facility or EST that meets 
the domestic content bonus requirements.

B. Qualified Investment With Respect to a Qualified Facility

    Section 48E(b) describes a qualified investment with respect to a 
qualified facility. Generally, for purposes of section 48E(a), section 
48E(b)(1)(A) and (B)(i) provide that the qualified investment with 
respect to a qualified facility for any taxable year is the sum of the 
basis of any qualified property placed in service by the taxpayer 
during such taxable year that is part of a qualified facility, plus the 
amount of expenditures that are paid or incurred by the taxpayer for 
qualified interconnection property that is properly chargeable to 
capital account of the taxpayer.
    Section 48E(b)(2) provides that for purposes of section 48E, 
qualified property means property that is tangible personal property, 
or other tangible property (not including a building or its structural 
components), but only if such property is used as an integral part of 
the qualified facility; with respect to which depreciation (or 
amortization in lieu of depreciation) is allowable; and the 
construction, reconstruction, or erection of which is completed by the 
taxpayer, or that is acquired by the taxpayer provided the original use 
of such property commences with the taxpayer.
    Section 48E(b)(1)(B)(i)(I) and (II) provide that qualified 
interconnection property must be in connection with a qualified 
facility that has a maximum net output of not greater than 5 megawatts 
(as measured in alternating current) and be placed in service during 
the taxable year of the taxpayer. Section 48E(b)(4) provides that the 
term ``qualified interconnection property'' has the meaning given such 
term in section 48(a)(8)(B).
    Section 48E(b)(3)(A) provides that for purposes of section 48E, the 
term ``qualified facility'' means a facility that is used for the 
generation of electricity, which is placed in service after December 
31, 2024, and for which the anticipated GHG emissions rate (as 
determined under section 48E(b)(3)(B)(ii)) is not greater than zero.
    Section 48E(b)(3)(B) provides additional rules for a qualified 
facility. Section 48E(b)(3)(B)(i) provides rules on an expansion of 
facility and incremental production stating that rules similar to the 
rules of section 45Y(b)(1)(C) apply for purposes of section 48E(b)(3). 
Section 48E(b)(3)(B)(ii) provides rules to determine the GHG emissions 
rate of a qualified facility by stating that rules similar to the rules 
of section 45Y(b)(2) apply for purposes of section 48E(b)(3).
    Section 48E(b)(3)(C) provides that a qualified facility will not 
include any facility for which a renewable electricity production 
credit determined under section 45, an advanced nuclear power facility 
production credit determined under section 45J, a carbon oxide 
sequestration credit determined under section 45Q, a zero-emission 
nuclear power production credit determined under section 45U, a clean 
electricity production credit determined under section 45Y, an energy 
credit determined under section 48, or a qualifying advanced coal 
project credit under section 48A, is allowed under section 38 for the 
taxable year or any prior taxable year. Section 48E(b)(5) provides a 
rule for coordination with the rehabilitation credit stating that the 
qualified investment with respect to any qualified facility for any 
taxable year will not include that portion of the basis of any property 
that is attributable to qualified rehabilitation expenditures (as 
defined in section 47(c)(2) of the Code).
    Section 48E(b)(6) provides that for purposes of section 48E(b), the 
terms ``CO2e per kWh'' and ``greenhouse gas emissions rate'' 
have the same meaning given such terms under section 45Y. Section 
48E(f) provides that, in section 48E, the term ``greenhouse gas'' has 
the same meaning given such term under section 45Y(e)(2).

C. Qualified Investment With Respect to an Energy Storage Technology

    Section 48E(c) describes a qualified investment with respect to 
EST. For purposes of section 48E(a), section 48E(c)(1) provides that 
the qualified investment with respect to EST for any taxable year is 
the basis of any EST placed in service by the taxpayer during such 
taxable year. Section 48E(c)(2) provides that for purposes of section 
48E, the term ``energy storage technology'' has the meaning given such 
term in section 48(c)(6) (except that section 48(c)(6)(D) will not 
apply). Section 48(c)(6)(A)(i) defines ``energy storage technology'' to 
mean property (other than property primarily used in the transportation 
of goods or individuals and not for the production of electricity) that 
receives, stores, and delivers energy for conversion to electricity 
(or, in the case of hydrogen, which stores energy), and has a nameplate 
capacity of not less than 5 kWh. Section 48(c)(6)(A)(ii) provides that 
the term ``energy storage technology'' also includes thermal energy 
storage property. Section 48(c)(6)(B) describes a rule for 
modifications of certain property.
    Section 48(c)(6)(C)(i) defines ``thermal energy storage property'' 
to mean for purposes of section 48(c)(6), subject to section 
48(c)(6)(C)(ii), property comprising a system that is directly 
connected to a heating, ventilation, or air conditioning system, 
removes heat from, or adds heat to, a storage medium for subsequent 
use, and provides energy for the heating or cooling of the interior of 
a residential or commercial building. Section 48(c)(6)(C)(ii) describes 
the exclusion that thermal energy storage property will not include a 
swimming pool, combined heat and power system property, or a building 
or its structural components.
    Section 48E(d) provides special rules for section 48E, all of which 
refer to other provisions. Section 48E(d)(1) provides a rule for 
qualified progress expenditures, stating that rules similar to the 
rules of former section 46(c)(4) and (d) (as in effect on the day 
before the date of the enactment of the Revenue Reconciliation Act of 
1990) apply for purposes of section 48E(a).\5\ Section 48E(d)(2) 
provides a special rule for property financed by subsidized energy 
financing or private activity bonds, stating that rules similar to the 
rules of section 45(b)(3) apply. Section 48E(d)(3) provides a rule for 
prevailing wage requirements, stating that rules similar to the rules 
of section 48(a)(10) apply. Likewise, section 48E(d)(4) provides a rule 
for apprenticeship requirements stating that rules similar to the rules 
of section 45(b)(8) apply. Lastly, section 48E(d)(5) provides a rule 
for the domestic content requirement for elective payment stating that 
in the case of a taxpayer making an election under section 6417 with 
respect to a credit under section 48E, rules similar to the rules of 
section 45Y(g)(12) apply.
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    \5\ The rules provided by Sec.  1.46-5 related to qualified 
progress expenditures apply for purposes of section 48E(a).
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D. Credit Phase-Out

    Section 48E(e) describes the credit phase-out. Section 48E(e)(1) 
provides generally that the amount of the clean electricity investment 
credit under section 48E(a) for any qualified investment with respect 
to any qualified facility or EST the construction of which begins 
during a calendar year described in section 48E(e)(2) is equal to

[[Page 47796]]

the product of the amount of the credit determined under section 48E(a) 
without regard to section 48E(e), multiplied by the phase-out 
percentage under section 48E(e)(2). Section 48E(e)(2) provides that the 
phase-out percentage is 100 percent for any qualified investment with 
respect to any qualified facility or EST the construction of which 
begins during the first calendar year following the applicable year; 75 
percent for any qualified investment with respect to any qualified 
facility or EST the construction of which begins during the second 
calendar year following the applicable year; 50 percent for any 
qualified investment with respect to any qualified facility or EST the 
construction of which begins during the third calendar year following 
the applicable year; and 0 percent for any qualified investment with 
respect to any qualified facility or EST the construction of which 
begins during any calendar year subsequent to the calendar year 
described in section 48E(e)(2)(C). Section 48E(e)(3) defines the 
``applicable year'' for purposes of section 48E(e) to have the same 
meaning given such term in section 45Y(d)(3).

E. Recapture Rules

    For purposes of the recapture rules under section 50(a), section 
48E(g) provides a special recapture rule applicable to qualified 
facilities. Specifically, section 48E(g) provides that, for purposes of 
section 50, if the Secretary determines that the GHG emissions rate for 
a qualified facility is greater than 10 grams of CO2e per 
kWh, any property for which a credit was allowed under section 48E with 
respect to such facility ceases to be investment credit property in the 
taxable year in which the determination is made.

III. Notice 2022-49

    On October 24, 2022, the Treasury Department and the IRS published 
Notice 2022-49, 2022-43 I.R.B. 321. The notice requested general 
comments on issues arising under sections 45Y and 48E, as well as on 
issues relating to three other credits. For section 45Y, the notice 
specifically requested comments concerning (1) industry standards for 
taxpayer eligibility for the credit, (2) what the Treasury Department 
and the IRS should consider, including around the scope and factors, 
for the annual GHG emissions rate table, (3) whether guidance is needed 
to clarify cases in which a metering device is owned and operated by an 
unrelated person or in which electricity produced at such a qualified 
facility with such a device is sold, consumed or stored by the 
taxpayer, and (4) what procedures the Treasury Department and the IRS 
should provide for a taxpayer whose facility does not have an emissions 
rate established by the annual rate table, and what should the 
Secretary consider in making such a determination. For section 48E, the 
notice specifically requested comments concerning what industry 
mechanisms currently exist for a taxpayer to demonstrate eligibility 
for the credit.
    The Treasury Department and the IRS received over 100 comments 
specifically addressing sections 45Y and 48E from industry participants 
and other stakeholders. The Treasury Department and the IRS appreciate 
the commentors' interest and engagement on these issues. These comments 
have been carefully considered in the preparation of these proposed 
regulations.

IV. Prior Guidance

    On August 30, 2023, the Treasury Department and the IRS published a 
notice of proposed rulemaking and a notice of public hearing (REG-
100908-23) in the Federal Register (88 FR 60018), providing guidance on 
the prevailing wage and registered apprenticeship (PWA) requirements 
under sections 45, 45Y, 48, 48E and several other sections of the Code 
(August Proposed Regulations). The August Proposed Regulations also 
proposed guidance on the one-megawatt exception under sections 45, 45Y, 
48, and 48E (One-Megawatt Exception). Under this exception, with 
respect to certain facilities with a maximum net output (or capacity 
for energy storage technology under section 48E) of less than one 
megawatt, increased credit amounts are available.
    On November 22, 2023, the Treasury Department and the IRS published 
a notice of proposed rulemaking and a notice of public hearing (REG-
132569-17) in the Federal Register (88 FR 82188), providing guidance 
under section 48 of the Code. Among other matters, the proposed 
regulations under section 48 (Section 48 Proposed Regulations) withdrew 
and reproposed the regulations in Sec.  1.48-13 from the August 
Proposed Regulations regarding the PWA requirements under section 48, 
the One-Megawatt Exception under section 48(a)(9)(B)(i), and the 
recapture rules under section 48(a)(10)(C).

Explanation of Provisions

I. Rules Applicable to the Clean Electricity Production Tax Credit

    The proposed regulations under section 45Y are organized in five 
sections, proposed Sec. Sec.  1.45Y-1 through 1.45Y-5 (section 45Y 
regulations). Proposed Sec.  1.45Y-1 would provide an overview of the 
section 45Y regulations, generally applicable definitions, and general 
rules applicable to section 45Y, including a rule for calculating the 
credit for a CHP property. Proposed Sec.  1.45Y-2 would provide rules 
relating to qualified facilities for purposes of the section 45Y 
credit. Section 1.45Y-3 is reserved for rules relating to the increased 
credit amount for meeting the prevailing wage and apprenticeship 
requirements. A cross reference will be added to Sec.  1.45Y-3 in the 
final regulations after Sec.  1.45Y-3 is finalized. Proposed Sec.  
1.45Y-4 would provide the rules of general application under section 
45Y, including rules that attribute production to the taxpayer, rules 
for the expansion of a facility and incremental production, and rules 
for retrofits of an existing facility. Proposed Sec.  1.45Y-5 would 
provide rules pertaining to the determination of a GHG emissions rate 
for a facility under section 45Y.
A. Amount of Credit
    Proposed Sec.  1.45Y-1 would provide an overview of the section 45Y 
regulations and definitions of terms for purposes of the section 45Y 
regulations, including the terms ``combined heat and power system (CHP) 
property,'' ``metering device,'' ``related person,'' ``unrelated 
person,'' and ``qualified facility.''
    Proposed Sec.  1.45Y-1(a)(5)(i) would define, for purposes of 
section 45Y(a)(1)(A)(ii)(II), the term ``metering device'' as equipment 
that is owned and operated by an unrelated person (as defined in 
paragraph (a)(11) of this section) for energy revenue metering to 
measure and register the continuous summation of an electricity 
quantity with respect to time. Further, proposed Sec.  1.45Y-
1(a)(5)(ii) would provide standards for maintaining and operating a 
metering device for purposes of section 45Y(a)(1)(A)(ii)(II) and 
proposed Sec.  1.45Y-1(a)(5) by requiring a metering device to be 
maintained in proper working order according to the instructions of its 
manufacturer. Proposed Sec.  1.45Y-1(a)(5)(ii) would also provide that 
a metering device should meet the requirements of the American National 
Standards Institute C12.1-2022 standard, or subsequent revisions, be 
revenue grade with a +/-0.5% accuracy, and be properly calibrated. 
Proposed Sec.  1.45Y-1(a)(5)(iii) would provide that for purposes of 
monitoring the metering device, the unrelated person may share network 
equipment, such as spare fiber optic cable owned by the taxpayer that 
produces the electricity, and may co-locate network

[[Page 47797]]

equipment in the taxpayer's facilities. Proposed Sec.  1.45Y-
1(a)(5)(iv) would provide examples illustrating the proposed rules 
provided by proposed Sec.  1.45Y-1(a)(5).
    Proposed Sec.  1.45Y-1(a)(7)(i) would provide that for purposes of 
section 45Y(a), the term ``related person'' means a person who is 
related to another person if such person would be treated as a single 
employer under the regulations in 26 CFR chapter 1 under section 52(b) 
of the Code. Proposed Sec.  1.45Y-1(a)(7)(ii) would provide that in the 
case of a corporation that is a member of a consolidated group (as 
defined in Sec.  1.1502-1(h)), such corporation will be treated as 
selling electricity to an unrelated person if such electricity is sold 
to an unrelated person by another member of such group.
    Proposed Sec.  1.45Y-1(a)(11) would provide that for purposes of 
section 45Y(a), the term ``unrelated person'' means a person who is not 
a related person as defined in section 45Y(g)(4) and proposed Sec.  
1.45Y-1(a)(7). In the case of sales of electricity to an individual 
consumer, such sales will be treated as sales to an unrelated party for 
purposes of the section 45Y credit. Proposed Sec.  1.45Y-1(a)(11) 
provides an example illustrating the application of these rules.
    Proposed Sec.  1.45Y-1(b)(1) would describe the calculation of the 
section 45Y credit, providing that the credit is an amount equal to the 
product of the kWh of electricity that is produced by the taxpayer at a 
qualified facility (as defined in proposed Sec.  1.45Y-2(a)) and sold 
by the taxpayer to an unrelated person during the taxable year, 
multiplied by the applicable amount (as described in proposed Sec.  
1.45Y-1(b)) with respect to such qualified facility. Proposed Sec.  
1.45Y-1(b)(1) would further provide that in the case of a qualified 
facility that is equipped with a metering device that is owned and 
operated by an unrelated person, the section 45Y credit for any taxable 
year is an amount equal to the product of the kWh of electricity that 
is both produced at the qualified facility (as defined in proposed 
Sec.  1.45Y-2(a)) and sold, consumed, or stored by the taxpayer during 
the taxable year, multiplied by the applicable amount with respect to 
such qualified facility. Proposed Sec.  1.45Y-1(b)(1) would also 
provide that only one section 45Y credit may be claimed for each kWh of 
electricity produced by the taxpayer at a qualified facility.
    Proposed Sec.  1.45Y-1(b)(2)(i) would define the applicable amount 
as the base amount described in Sec.  1.45Y-1(b)(2)(ii) or the 
alternative amount described in Sec.  1.45Y-1(b)(2)(iii). Proposed 
Sec.  1.45Y-1(b)(2)(i) would further provide that the applicable amount 
is subject to the inflation adjustment as provided in section 45Y(c)(1) 
and proposed Sec.  1.45Y-1(b)(3), and that the applicable amount may 
also be increased as provided in section 45Y(g)(7)) and proposed Sec.  
1.45Y-1(b)(4), in the case of a qualified facility that is located in 
an energy community. Proposed Sec.  1.45Y-1(b)(2)(ii) would describe 
the base amount as 0.3 cents in the case of any qualified facility that 
does not satisfy the requirements provided in section 45Y(a)(2)(B). 
Proposed Sec.  1.45Y-1(b)(2)(iii) would describe the alternative amount 
as 1.5 cents if prevailing wage and apprenticeship requirements are 
satisfied as provided in section 45Y(a)(2)(B).
    Proposed Sec.  1.45Y-1(b)(3) would provide the rules related to the 
inflation adjustment factor applicable to the section 45Y credit. 
Proposed Sec.  1.45Y-1(b)(4) would provide the rules applicable to the 
energy communities increase in credit. Proposed Sec.  1.45Y-1(b)(5) 
would provide the domestic content bonus credit amount.
    Proposed Sec.  1.45Y-1(c) would provide the credit phase-out rules. 
Generally, proposed Sec.  1.45Y-1(c)(1) would provide that the amount 
of the clean electricity production credit under section 45Y(a) for any 
qualified facility the construction of which begins during a calendar 
year described in section 45Y(d)(2) is equal to the product of the 
amount of the credit determined under section 45Y(a) without regard to 
the credit phaseout rules of section 45Y(d) (credit phase-out), 
multiplied by the phase-out percentage provided in section 45Y(d)(2). 
Proposed Sec.  1.45Y-1(c)(2) would provide that the phase-out 
percentage is 100 percent for a facility the construction of which 
begins during the first calendar year following the applicable year; 75 
percent for a facility the construction of which begins during the 
second calendar year following the applicable year; 50 percent for a 
facility the construction of which begins during the third calendar 
year following the applicable year; and 0 percent for a facility the 
construction of which begins during any calendar year subsequent to the 
calendar year described in section 45Y(d)(2)(C).
    Proposed Sec.  1.45Y-1(c)(3) would define the ``applicable year'' 
for purposes of proposed Sec.  1.45Y-1(c) to mean the later of the 
calendar year in which the Secretary makes the determination that the 
annual greenhouse gas emissions from the production of electricity in 
the United States are equal to or less than 25 percent of the annual 
greenhouse gas emissions from the production of electricity in the 
United States for calendar year 2022, or 2032. Proposed Sec.  1.45Y-
1(c)(4) would provide that, for the purposes of determining the 
applicable year, the annual greenhouse gas emissions from the 
production of electricity in the United States for any year must be 
assessed separately using both the Energy Information Administration's 
(EIA) Electric Power Annual, using the sum of the annual carbon dioxide 
emissions data from conventional power plants and combined heat and 
power plants as currently listed in Table 9.1 and the Monthly Energy 
Review annual carbon dioxide emissions from the combustion of biomass 
to produce electricity in the electric power sector as currently listed 
in Table 11.7, and the U.S. Environmental Protection Agency (EPA) 
Inventory of U.S. Greenhouse Gas Emissions and Sinks (GHGI) annual 
electric power-related carbon dioxide, methane, and nitrous oxide 
emissions data including carbon dioxide emissions from the combustion 
of biomass to produce electricity. In the most current version of the 
GHGI, annual fossil and biogenic CO2 from electricity 
production in the electric power sector is available in Table 2-11 and 
Tables 3-120 and 3-122, respectively; and CH4 and 
N2O from electricity production in the electric power sector 
is available in Table 3-8 and Table 3-9, respectively. Based on current 
and publicly available data in the 2024 GHGI, the estimate for 2022 GHG 
emissions associated with the production of electricity is 1,613 
million metric tons (MMT) CO2e. Currently, explicit data on 
industrial and commercial sector GHG emissions from the production of 
electricity is not disaggregated from overall sectoral totals. See 
GHGI, https://www.epa.gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks.
    For 2022, the EIA Electric Power Annual states that the annual 
carbon dioxide emissions from conventional power plants and combined 
heat and power plants are 1,650 MMT, and the Monthly Energy Review 
annual carbon dioxide emissions from the combustion of biomass to 
produce electricity in the electric power sector are 35 MMT. Thus, the 
EIA's data reflects a total of 1,685 MMT in 2022. See EIA Electric 
Power Annual (https://www.eia.gov/electricity/annual); MER (https://eia.gov/totalenergy/monthly/).
    Proposed Sec.  1.45Y-1(c)(5) would provide that, for the purposes 
of determining the applicable year, the Secretary will make such 
determination only if the annual greenhouse gas emissions from the 
production of

[[Page 47798]]

electricity in the United States, as determined separately under both 
of the data sources described in proposed Sec.  1.45Y-1(c)(4), for the 
year is equal to or less than 25 percent of the annual greenhouse gas 
emissions from the production of electricity in the United States for 
calendar year 2022. Proposed Sec.  1.45Y-1(c)(5) would provide that if 
a data source described in proposed Sec.  1.45Y-1(c)(4) becomes 
unavailable (for example, it is no longer published or it does not 
provide the specified data), the Secretary must designate a similar 
data source to replace the unavailable data source. Requiring the 
applicable year to be determined using data from the EIA's Electric 
Power Annual and Monthly Energy Review and the EPA's GHGI ensures that 
this important determination is made transparently and based on 
reliable information. Both well-established data sources are 
representative of the annual greenhouse gas emissions from the 
production of electricity in the United States, but there are slight 
differences in the greenhouse gases and the emissions sources covered 
by each data source.
    There are other United States Government greenhouse gas datasets 
that could serve as the basis for the Secretary's determination as to 
whether the annual greenhouse gas emissions from the production of 
electricity in the United States are equal to or less than 25 percent 
compared to 2022. Two such datasets are the EPA Greenhouse Gas 
Reporting Program (GHGRP) and Emissions & Generation Resource 
Integrated Database (eGRID). The Treasury Department and the IRS 
request comment on which datasets are most appropriate to determine the 
applicable year and why.
    Proposed Sec.  1.45Y-1(d) would provide requirements for CHP 
property and special rules for calculating the section 45Y credit for 
CHP property. Proposed Sec.  1.45Y-1(d)(1) would provide that CHP 
property must produce at least 20 percent of its total useful energy in 
the form of thermal energy that is not used to produce electrical or 
mechanical power (or combination thereof), and at least 20 percent of 
its total useful energy in the form of electrical or mechanical power 
(or combination thereof). Proposed Sec.  1.45Y-1(d)(1) would further 
provide that the energy efficiency percentage of CHP property must 
exceed 60 percent, and that these percentages are determined on a 
British thermal unit (Btu) basis. Section 45Y(g)(2)(B) incorporates 
these requirements by providing that the term ``combined heat and power 
system property'' has the same meaning given such term by section 
48(c)(3) (without regard to section 48(c)(3)(A)(iv), (B), and (D)).
    Proposed Sec.  1.45Y-1(d)(2) would describe the energy efficiency 
percentage of a CHP property stating that it is the fraction the 
numerator of which is the total useful electrical, thermal, and 
mechanical power produced by the system at normal operating rates, and 
expected to be consumed in its normal application, and the denominator 
of which is the lower heating value of the fuel sources for the system, 
which is a measure of heat content based on the net energy content of a 
combustible fuel.
    Proposed Sec.  1.45Y-1(d)(3) would provide a special rule for 
calculating electricity produced by CHP property. For purposes of 
section 45Y(a) and proposed Sec.  1.45Y-1(b), the kWh of electricity 
produced by a taxpayer at a qualified facility will include any 
production in the form of useful thermal energy by any CHP property 
within such facility, and the amount of greenhouse gases emitted into 
the atmosphere by such facility in the production of such useful 
thermal energy will be included for purposes of determining the GHG 
emissions rate for such facility.
    Proposed Sec.  1.45Y-1(d)(3)(ii)(A) would provide a conversion from 
Btu to kWh. Proposed Sec.  1.45Y-1(d)(3)(ii))(A) would provide that for 
purposes of section 45Y(g)(2)(A)(i) and Sec.  1.45Y-1(d)(3), the amount 
of kWh of electricity produced in the form of useful thermal energy is 
equal to the quotient of the total useful thermal energy produced by 
the CHP property within the qualified facility, divided by the heat 
rate for such facility.
    Proposed Sec.  1.45Y-1(d)(3)(ii)(B) would define the term ``heat 
rate'' to mean the amount of energy used by the qualified facility to 
generate 1 kWh of electricity, expressed as Btus per net kWh generated. 
In calculating the heat rate of a qualified facility that includes CHP 
property that uses combustion, a taxpayer must use the annual average 
heat rate, defined as the total annual fuel consumption of the CHP 
property (in Btus, using the lower heating value of the fuel) during 
the taxable year for which the section 45Y credit is claimed, divided 
by the annual net electricity generation (in kWh) of the CHP property 
during such taxable year.
    Section 45Y(g)(2), by cross reference to section 48(c)(3), requires 
that the energy efficiency percentage of the CHP property must exceed 
60 percent, calculated as (1) the total useful electrical, thermal, and 
mechanical power produced by the system at normal operating rates, and 
expected to be consumed in its normal application, divided by (2) the 
lower heating value (LHV) of the fuel sources for the system. The LHV 
is calculated based on combustion. Some CHP property may not involve 
combustion, such as nuclear cogeneration. In these scenarios, because 
there is no calculable LHV, the energy efficiency percentage of the CHP 
property cannot be determined using the calculation provided in the 
statute.
    The Treasury Department and the IRS request comments regarding the 
application of the energy efficiency percentage requirements to CHP 
property for which there is no combustion. Relatedly, comment is 
requested on whether the existing definition of heat rate provided in 
section 45Y(g)(2)(C)(ii) for purposes of calculating the section 45Y 
credit for CHP property that does not use combustion should be 
clarified.
B. Qualified Facility
    Proposed Sec.  1.45Y-2(a) would define a ``qualified facility'' to 
mean a facility owned by the taxpayer and used for the generation of 
electricity, that is placed in service after December 31, 2024, and has 
a GHG emissions rate of not greater than zero (as determined under 
rules provided in proposed Sec.  1.45Y-5).
1. Property Included in Qualified Facility
    Proposed Sec.  1.45Y-2(b) would provide a description of the 
property included in a qualified facility. Proposed Sec.  1.45Y-2(b)(1) 
would provide that a qualified facility includes a unit of qualified 
facility (as defined in proposed Sec.  1.45Y-2(b)(2)(i)) that meets the 
requirements of proposed Sec.  1.45Y-2(b)(2)(ii). Proposed Sec.  1.45Y-
2(b)(1) would provide that a qualified facility also includes qualified 
property owned by the taxpayer that is an integral part of a qualified 
facility (as defined in proposed Sec.  1.45Y-2(b)(3)). Section 45Y is 
silent regarding the credit eligibility of components that are part of 
a qualified facility but located in different locations. Proposed Sec.  
1.45Y-2(b)(1) would clarify that any property that meets the 
requirements of a qualified facility described in proposed Sec.  1.45Y-
2(b) is part of a qualified facility, regardless of where such property 
is located. Proposed Sec.  1.45Y-2(b)(1) would provide that a qualified 
facility also generally does not include equipment that is an addition 
or modification to an existing qualified facility, however, proposed 
Sec.  1.45Y-2(b)(1) would reference proposed Sec.  1.45Y-4(c) for rules 
regarding the expansion of a facility or incremental production and 
proposed Sec.  1.45Y-4(d) for rules regarding a retrofitted qualified 
facility (80/20 Rule).

[[Page 47799]]

2. Unit of Qualified Facility
    Proposed Sec.  1.45Y-2(b)(2)(i) would provide that for purposes of 
the section 45Y credit, the unit of qualified facility includes all 
functionally interdependent components of property (as defined in 
proposed Sec.  1.45Y-2(b)(2)(ii)) owned by the taxpayer that are 
operated together and that can operate apart from other property to 
produce electricity. Proposed Sec.  1.45Y-2(b)(2)(i) would clarify that 
no provision of proposed Sec.  1.45Y-1, or proposed Sec.  1.45Y-4 
through Sec.  1.45Y-5 uses the term ``unit'' in respect of a qualified 
facility with any meaning other than that provided in proposed Sec.  
1.45Y-2(b)(2)(i). A reference to Sec.  1.45Y-3 will also be added to 
the previous sentence in proposed Sec.  1.45Y-2(b)(2)(i) when proposed 
Sec.  1.45Y-2(b)(2)(i) is finalized, but it cannot be added until Sec.  
1.45Y-3 is finalized.
    Proposed Sec.  1.45Y-2(b)(2)(ii) would provide that components are 
functionally interdependent if placing in service each component is 
dependent upon placing in service other components to produce 
electricity. See the discussion in section I.A. of the Explanation of 
Provisions regarding the special rule for CHP property.
3. Integral Part
    Proposed Sec.  1.45Y-2(b)(3)(i) would provide that for purposes of 
thesection 45Ycredit, a component of property owned by a taxpayer is an 
integral part of a facility if it is used directly in the intended 
function of the qualified facility and is essential to the completeness 
of such function.
    Proposed Sec.  1.45Y-2(b)(3)(ii) would provide that components of 
property that are an integral part of a qualified facility include 
power conditioning equipment and transfer equipment. Proposed Sec.  
1.45Y-2(b)(3)(ii) would provide that power conditioning equipment 
includes equipment that modifies the characteristics of electricity 
into a form suitable for use or transmission or distribution. Proposed 
Sec.  1.45Y-2(b)(3)(ii) would provide that parts related to the 
functioning or protection of power conditioning equipment are also 
treated as power conditioning equipment and includes examples.
    Proposed Sec.  1.45Y-2(b)(3)(ii) would provide that transfer 
equipment includes components that permit the aggregation of 
electricity generated by components of qualified facilities and 
components that alter voltage in order to permit transfer to a 
transmission or distribution line. Proposed Sec.  1.45Y-2(b)(3)(ii) 
would also clarify that transfer equipment does not include 
transmission or distribution lines. Proposed Sec.  1.45Y-2(b)(3)(ii) 
would provide that examples of transfer equipment include, but are not 
limited to, wires, cables, and combiner boxes that conduct electricity. 
Proposed Sec.  1.45Y-2(b)(3)(ii) would provide that parts related to 
the functioning or protection of transfer equipment are also treated as 
transfer equipment and include examples.
    Proposed Sec.  1.45Y-2(b)(3)(iii) would provide that roads that are 
an integral part of a qualified facility are those roads integral to 
the intended function of the qualified facility, such as onsite roads 
that are used to operate and maintain the qualified facility. Proposed 
Sec.  1.45Y-2(b)(3)(iii) would also clarify that roads used primarily 
for access to the site, or roads used primarily for employee or visitor 
vehicles, are not integral to the intended function of the qualified 
facility and thus are not an integral part of a qualified facility.
    Proposed Sec.  1.45Y-2(b)(3)(iv) and (v) would also provide that 
fences and buildings (also referred to as structures) are generally not 
integral parts of a qualified facility because they are not integral to 
the intended function of the qualified facility. However, a building 
(or structure) may be an integral part of a qualified facility if it is 
essentially an item of machinery or equipment and a structure that 
houses components of property that are integral to the intended 
function of the qualified facility if the use of the structure is so 
closely related to the use of the housed components of property therein 
that the structure clearly can be expected to be replaced if the 
components of property it initially houses are replaced.
    Proposed Sec.  1.45Y-2(b)(3)(vi) would provide a rule for shared 
integral property by stating that multiple qualified facilities 
(whether owned directly by one or more taxpayers), including qualified 
facilities with respect to which a taxpayer has claimed a credit under 
section 45Y or section 48E, may include shared property that can be 
considered an integral part of each qualified facility. Proposed Sec.  
1.45Y-2(b)(3)(vi) would also provide that a component of property that 
is shared by a qualified facility (as defined in section 45Y(b)) (45Y 
Qualified Facility) and a qualified facility (as defined in section 
48E(b)(3)) (48E Qualified Facility) that is an integral part of both 
qualified facilities will not affect the eligibility of the section 45Y 
Qualified Facility to claim the section 45Y credit or the section 48E 
Qualified Facility to claim a section 48E credit. Proposed Sec.  1.45Y-
2(b)(3)(vii) would provide examples illustrating proposed Sec.  1.45Y-
2(b)(3).
4. Coordination With Other Credits
    Proposed Sec.  1.45Y-2(c)(1) would provide that the term 
``qualified facility'' (as defined in section 45Y(b)) will not include 
any facility for which a credit determined under section 45, 45J, 45Q, 
45U, 48, 48A, or 48E is allowed under section 38 of the Code for the 
taxable year or any prior taxable year. Proposed Sec.  1.45Y-2(c)(1) 
would further clarify that a taxpayer that directly owns a qualified 
facility (as defined in section 45Y(b)) that is eligible for both a 
section 45Y credit and another Federal income tax credit is eligible 
for the section 45Y credit only if the other Federal income tax credit 
was not allowed with respect to the qualified facility. Proposed Sec.  
1.45Y-2(c)(1) would also add that nothing in Sec.  1.45Y-2(c) precludes 
a taxpayer from claiming a section 45Y credit with respect to a 
qualified facility (as defined in section 45Y(b)) that is co-located 
with another facility for which a credit determined under section 45, 
45J, 45Q, 45U, 48, 48A, or 48E is allowed under section 38 for the 
taxable year or any prior taxable year. Proposed Sec.  1.45Y-2(c)(2) 
would clarify that for purposes of proposed Sec.  1.45Y-2(c)(1), the 
term ``allowed'' only includes credits that taxpayers have claimed on a 
Federal income tax return or Federal return, as appropriate, and that 
the IRS has not challenged in terms of the taxpayer's eligibility. 
Proposed Sec.  1.45Y-2(c)(3) includes several examples illustrating the 
rules of Sec.  1.45Y-2(c).
C. Rules of General Application to Section 45Y
1. Only Production in the United States Taken Into Account
    Proposed Sec.  1.45Y-4(a) would provide that consumption, sales, or 
storage of electricity are taken into account for purposes of the 
section 45Y credit only with respect to electricity produced within the 
United States (as defined in section 638(1)), or a United States 
territory, which for purposes of section 45Y and the section 45Y 
regulations has the meaning of the term ``possession'' of the United 
States (as defined in section 638(2)).
2. Production Attributable to the Taxpayer and Section 761(a) Elections
    Proposed Sec.  1.45Y-4(b)(1) would provide that in the case of a 
qualified facility in which more than one person has an ownership share 
(and such arrangement is not treated as a partnership for Federal tax 
purposes), production from the qualified facility is

[[Page 47800]]

allocated among such persons in proportion to their respective 
ownership share in the gross sales from such qualified facility during 
the taxable year. The respective owners each determine their respective 
section 45Y credit under section 45Y(a) based on their respective 
ownership shares in the gross sales from such qualified facility. 
Proposed Sec.  1.45Y-4(b)(2) would provide an example demonstrating the 
application of this rule.
    Proposed Sec.  1.45Y-4(b)(3) would provide that if a qualified 
facility is owned through an unincorporated organization that has made 
a valid election under section 761(a) of the Code, each member's 
undivided ownership share in the qualified facility will be treated as 
a separate qualified facility owned by such member.
3. Expansion of Facility; Incremental Production
    Proposed Sec.  1.45Y-4(c)(1) would provide, solely for purposes of 
proposed Sec.  1.45Y-4(c), that the term ``qualified facility'' 
includes either a new unit or an addition of capacity placed in service 
after December 31, 2024, in connection with a facility described in 
section 45Y(b)(1)(A) (without regard to clause (ii) of such paragraph), 
which was placed in service before January 1, 2025, but only to the 
extent of the increased amount of electricity produced at the facility 
by reason of such new unit or addition of capacity. Proposed Sec.  
1.45Y-4(c)(1) would also provide that a new unit or an addition of 
capacity will be treated as a separate qualified facility. Proposed 
Sec.  1.45Y-4(c)(1) would provide for purposes of proposed Sec.  1.45Y-
4(c), that a new unit or an addition of capacity require the addition 
or replacement of components of property, including any new or 
replacement integral property, added to a facility necessary to 
increase capacity. If applicable for purposes of proposed Sec.  1.45Y-
4(c), taxpayers must use modified or amended facility operating 
licenses or the International Standard Organization (ISO) conditions to 
measure the maximum electrical generating output of a facility to 
determine its nameplate capacity. Additionally, proposed Sec.  1.45Y-
4(c)(1) would provide that for purposes of section 45Y(a)(2)(B)(i) 
(that is, the One-Megawatt Exception), the capacity for a new unit or 
an addition of capacity is the sum of the nameplate capacity of the 
added qualified facility and the nameplate capacity of the facility to 
which the qualified facility was added.
    Proposed Sec.  1.45Y-4(c)(2) would provide that solely for purposes 
of Sec.  1.45Y-4(c), a facility that is decommissioned or in the 
process of decommissioning and restarts can be considered to have 
increased capacity if the following conditions are met: (1) the 
existing facility must have ceased operations; (2) the existing 
facility must have a shutdown period of at least one calendar year 
during which it is without a valid operating license from its 
respective Federal regulatory authority (that is, the Federal Energy 
Regulatory Commission (FERC) or the Nuclear Regulatory Commission 
(NRC)); and (3) the increased capacity of the restarted facility must 
have a new, reinstated, or renewed operating license issued by either 
FERC or NRC.
    Proposed Sec.  1.45Y-4(c)(3) would describe how to compute the 
increased amount of electricity produced as a result of a new unit or 
an addition of capacity. Proposed Sec.  1.45Y-4(c)(3) would provide 
that to determine the increased amount of electricity produced by a 
facility by reason of a new unit or an addition of capacity, a taxpayer 
must multiply the amount of electricity that the facility produces 
during a taxable year after the new unit or addition of capacity is 
placed in service by a fraction, the numerator of which is the added 
nameplate capacity that results from the new unit or addition of 
capacity, and the denominator of which is the total nameplate capacity 
of the facility with the new unit or addition of capacity added.
    Proposed Sec.  1.45Y-4(c)(4) would illustrate the application of 
these rules to determine the increased amount of electricity 
attributable to a new unit or an addition of capacity described in 
Sec.  1.45Y-4(c).
4. Retrofit of an Existing Facility (80/20 Rule)
    Proposed Sec.  1.45Y-4(d)(1) would provide that for purposes of 
section 45Y(b)(1)(B), a facility may qualify as originally placed in 
service even if it contains some used components of property within the 
unit of qualified facility, provided the fair market value of the used 
components of the unit of qualified facility is not more than 20 
percent of the total value of the unit of qualified facility (that is, 
the cost of the new components of property plus the fair market value 
of the used components of property within the unit of qualified 
facility) (80/20 Rule). Proposed Sec.  1.45Y-4(d)(1) would further 
provide that if a facility satisfies the requirements of the 80/20 
Rule, then the date on which such qualified facility is considered 
originally placed in service for purposes of section 45Y(B)(1)(b) is 
the date on which the new components of property of the unit of 
qualified facility are placed in service. Proposed Sec.  1.45Y-4(d)(2) 
would provide that, for purposes of this 80/20 Rule, the cost of new 
components of the unit of qualified facility includes all costs 
properly included in the depreciable basis of the new components of 
property. Lastly, proposed Sec.  1.45Y-4(d)(3) would provide examples 
demonstrating the 80/20 Rule.
D. Greenhouse Gas Emissions Rates
    Section 45Y(b)(2) provides rules for determining GHG emissions 
rates. Proposed Sec.  1.45Y-5(a) would provide an overview of the rules 
pertaining to GHG emissions rates for facilities under section 45Y.
1. Definitions Related to Greenhouse Gas Emissions Rates
    Proposed Sec.  1.45Y-5(b) would provide definitions of terms 
relevant to determining GHG emissions rates. Section 45Y(e)(1) defines 
the term ``CO2e per kWh'' as, with respect to any greenhouse 
gas, the equivalent carbon dioxide (as determined based on global 
warming potential) per kWh of electricity produced. Proposed Sec.  
1.45Y-5(b)(1) would clarify that the term ``CO2e per kWh'' 
means with respect to any greenhouse gas, the equivalent carbon dioxide 
(as determined based on the 100-year time horizon global warming 
potential (GWP-100)) per kWh of electricity produced. Proposed Sec.  
1.45Y-5(b)(1) would also provide global warming potentials for certain 
greenhouse gases from the Intergovernmental Panel on Climate Change's 
Fifth Assessment Report (AR5).
    Proposed Sec.  1.45Y-5(b)(8) would provide that the term ``fuel'' 
means material directly used to produce electricity or energy inputs 
that are used to produce electricity. Proposed Sec.  1.45Y-5(b)(9) 
would provide that the term ``feedstock'' means any raw material used 
in a process for electricity generation or to produce an intermediate 
product or finished fuel used for electricity generation.
    Section 45Y(b)(2)(B) provides rules for determining a GHG emissions 
rate for a facility that produces electricity through combustion or 
gasification. Proposed Sec.  1.45Y-5(b)(2) would provide that the term 
``combustion'' means a rapid exothermic chemical reaction, specifically 
the oxidation of a fuel, which liberates energy including heat and 
light. This proposed definition of ``combustion'' would include, for 
example, burning fossil fuels, but it would not include the reaction 
that produces electricity inside a fuel cell.

[[Page 47801]]

    Gasification produces fuel but not electricity. Proposed Sec.  
1.45Y-5(b)(3) would provide that the term ``gasification'' means a 
thermochemical process that converts carbon-containing materials into 
syngas, a gaseous mixture that is composed primarily of carbon 
monoxide, carbon dioxide, and hydrogen. Because gasification does not 
produce electricity, the inclusion of the term ``gasification'' as a 
category separate from ``combustion'' in section 45Y(b)(2)(B) would 
have no independent significance unless it is interpreted as applying 
to the production of an energy source that is ultimately used by the 
facility to generate electricity (for example, syngas used to make 
electricity). Thus, proposed Sec.  1.45Y-5(b)(4) would interpret the 
phrase ``facility which produces electricity through combustion or 
gasification'' in section 45Y(b)(2)(B) as applying to facilities that 
produce electricity through combustion or use an input energy source to 
produce electricity, which energy source was produced through a 
fundamental transformation, or multiple transformations, of one energy 
source into another using combustion or gasification. The Treasury 
Department and the IRS request comment on this proposed interpretation, 
including whether the application of this proposed interpretation 
should be clarified with respect to any type of fundamental 
transformation of an energy source and any related activities or 
operations. Comment is also requested on supply chain tracing 
requirements that the Treasury Department and the IRS may apply to 
verify whether or not a feedstock or fuel (including energy inputs) 
used by a facility to produce electricity was produced using combustion 
or gasification.
    Section 45Y(b)(2)(B) provides that in the case of electricity 
produced through combustion or gasification, the GHG emissions rate for 
such facility is equal to the net rate of greenhouse gases emitted into 
the atmosphere by such facility (taking into account lifecycle 
greenhouse gas emissions, as described in section 211(o)(1)(H) of the 
CAA (42 U.S.C. 7545(o)(1)(H)) in the production of electricity. 
Proposed Sec.  1.45Y-5(b)(4) would provide that a ``facility that 
produces electricity through combustion or gasification'' (C&G 
Facility) means a facility that produces electricity through combustion 
or uses an input energy source to produce electricity, if the input 
energy source was produced through a fundamental transformation, or 
multiple transformations, of one energy source into another using 
combustion or gasification. Under proposed Sec.  1.45Y-5(b)(4), a 
facility that produces electricity using any fuel that was produced 
using electricity that had been produced, in whole or in part, from the 
combustion of fossil fuels would be considered a C&G Facility. For 
example, a hydrogen fuel cell would be considered a C&G Facility if it 
produced electricity using hydrogen that was produced by an 
electrolyzer powered, in whole or in part, by electricity from the grid 
because some of the electricity from the grid was produced through 
combustion or gasification. A fuel cell facility such as a solid oxide 
fuel cell, which uses methane as fuel, would be considered a C&G 
Facility, because the methane reforming reaction that produces syngas 
within the fuel cell prior to the production of electricity would be 
considered a gasification reaction. In contrast, a hydrogen fuel cell 
facility using hydrogen produced exclusively using electricity from a 
new solar array or wind farm co-located with the hydrogen fuel cell 
facility would not be considered a C&G Facility, because the input 
energy source was not produced through a transformation of one energy 
source into another using combustion or gasification.
    The Treasury Department and the IRS request comment on whether the 
proposed definitions of gasification, combustion, and C&G Facility 
would result in certain types of fuel cells that use fossil or biogenic 
fuel inputs (via combustion or gasification) to produce electricity 
being unable to demonstrate a net rate of greenhouse gas emissions that 
is not greater than zero with a lifecycle analysis because they are not 
classified as a C&G Facility as defined in proposed Sec.  1.45Y-
5(b)(4). Because the energy transformation that produces electricity in 
a fuel cell would not be considered combustion under the definition in 
proposed Sec.  1.45Y-5(b)(2), a fuel cell facility would only qualify 
as a C&G Facility if the fuel it used to produce electricity was 
produced through combustion or gasification under these proposed 
regulations.
    Proposed Sec.  1.45Y-5(b)(7) would provide that a ``Non-C&G 
Facility'' means a facility that produces electricity and is not 
described in proposed Sec.  1.45Y-5(b)(4).
    Proposed Sec.  1.45Y-5(b)(5) would provide that, consistent with 
section 45Y(b)(2)(A), the term ``greenhouse gas emissions rate'' means 
the amount of greenhouse gases emitted into the atmosphere by a 
facility in the production of electricity, expressed as grams of 
CO2e per kWh.
    Proposed Sec.  1.45Y-5(b)(6) would provide that, for the purposes 
of section 45Y(b)(2)(A), for both C&G Facilities and Non-C&G 
Facilities, the term ``greenhouse gases emitted into the atmosphere by 
a facility in the production of electricity'' means emissions from a 
facility that directly occur from the process that transforms the input 
energy source into electricity. Proposed Sec.  1.45Y-5(b)(6)(i) through 
Sec.  1.45Y-5(b)(6)(vi) would exclude emissions that may relate to a 
facility but do not occur ``in the production of electricity'' as 
specified in section 45Y(b)(2)(A). Proposed Sec.  1.45Y-5(c)(1) would 
provide, for Non-C&G Facilities only, additional types of excluded 
emissions under section 45Y(b)(2)(A). Proposed Sec.  1.45Y-5(d)(2) 
would provide, for C&G Facilities only, that additional rules on 
included and excluded emissions apply in order to conduct a lifecycle 
analysis as required by section 45Y(b)(2)(B).
    Proposed Sec.  1.45Y-5(b)(6)(i) through Sec.  1.45Y-5(b)(6)(vi) 
would clarify that for the purposes of both Non-C&G and C&G Facilities 
this definition excludes: (1) emissions from back-up generators that 
are primarily used in maintaining critical systems in case of a power 
system outage or for supporting restart of a generator after an outage; 
(2) emissions from routine operational and maintenance activities that 
are integral to the production of electricity, including, but not 
limited to, emissions from internal combustion vehicles used to access 
and perform maintenance on remote electricity generating facilities or 
emissions occurring from heating and cooling control rooms or dispatch 
centers; (3) emissions from a step-up transformer that conditions the 
electricity into a form suitable for productive use or sale; (4) 
emissions that occur before commercial operations commence or after 
commercial operations terminate, including, but not limited to, on-site 
emissions occurring from construction or manufacturing of the facility 
itself, emissions from the off-site manufacturing of facility 
components, or emissions occurring due to siting or decommissioning; 
(5) emissions from infrastructure associated with the facility, 
including, but not limited to, emissions from road construction for 
feedstock production; and (6) emissions from the distribution of 
electricity to consumers.
2. Greenhouse Gas Emissions Rates for Non-C&G Facilities
    Proposed Sec.  1.45Y-5(c) would provide the rules for determining a 
GHG emissions rate for Non-C&G Facilities, including by the Secretary 
when

[[Page 47802]]

publishing a table described in section 45Y(b)(2)(C)(i) or determining 
an emissions rate as provided in section 45Y(b)(2)(C)(ii). Proposed 
Sec.  1.45Y-5(c)(1) would provide that GHG emissions rates for Non-C&G 
Facilities must be determined under proposed Sec.  1.45Y-5(c) and (e). 
In addition, proposed Sec.  1.45Y-5(c)(1)(i) would provide that, with 
respect to Non-C&G Facilities only, greenhouse gases emitted into the 
atmosphere by a facility in the production of electricity excludes 
emissions of greenhouse gases that are not directly produced by the 
fundamental transformation of the input energy source into electricity, 
including, but not limited to, the following: (1) emissions from 
hydropower reservoirs due to anoxic conditions; (2) ebullitive, 
diffuse, and degassing emissions from hydropower operations; (3) 
emissions of non-condensable gases from underground reservoirs during 
geothermal operations; (4) emissions from a step-up transformer that 
conditions the electricity into a form suitable for productive use or 
sale; and (5) emissions occurring due to activities and operations 
occurring off-site, including but not limited to, the production and 
transportation of fuels used by the facility, or land use change from 
siting or changes in demand. Proposed Sec.  1.45Y-5(c)(1)(i) would thus 
exclude emissions that may relate to a Non-C&G Facility but do not 
occur ``in the production of electricity'' as specified in section 
45Y(b)(2)(A) because such emissions do not arise directly from the 
transformation of the input energy source into electricity. For 
example, emissions from land use change from siting or changes in 
demand would be excluded because such emissions do not occur ``in the 
production of electricity'' for Non-C&G Facilities under section 
45Y(b)(2)(A), but this exclusion does not apply to C&G Facilities 
because section 45Y(b)(2)(B) requires a broader standard for assessing 
GHG emissions than section 45Y(b)(2)(A).
    Proposed Sec.  1.45Y-5(c)(1)(ii) would provide that, subject to 
proposed Sec.  1.45Y-5(b)(6) and (c)(1), a GHG emissions rate for a 
Non-C&G Facility must be determined through a technical and engineering 
assessment of the fundamental energy transformation into electricity, 
and that such assessment must consider all input and output energy 
carriers and chemical reactions or mechanical processes taking place at 
the facility in the production of electricity. Proposed Sec.  1.45Y-
5(c)(1)(iii) would provide an example of a GHG emissions rate 
determination for a Non-C&G Facility.
    Proposed Sec.  1.45Y-5(c)(2) would identify certain types or 
categories of facilities that are categorically Non-C&G Facilities with 
a GHG emissions rate that is not greater than zero. Proposed Sec.  
1.45Y-5(c)(2)(i) through (viii) would provide that these include wind 
facilities (including small wind properties), hydropower facilities 
(including retrofits adding power production to non-powered dams, 
conduit hydropower, hydropower using new impoundments, and hydropower 
using diversions such as a penstock or channel), marine and 
hydrokinetic facilities, solar facilities (including photovoltaic and 
concentrating solar power), geothermal facilities (including flash and 
binary plants), nuclear fission facilities, nuclear fusion facilities, 
and waste energy recovery property (WERP) that derives energy from any 
of the energy sources described in proposed Sec.  1.45Y-5(c)(2)(i) 
through (vii) (including geothermal or solar waste heat recovery such 
as from a district geothermal heating system, and waste heat recovery 
such as from a nuclear reactor dedicated to heat production for an 
industrial facility).
    WERP is property that generates electricity solely from heat from 
buildings or equipment if the primary purpose of such building or 
equipment is not the generation of electricity. Examples of buildings 
or equipment the primary purpose of which is not the generation of 
electricity include, but are not limited to, manufacturing plants, 
medical care facilities, facilities on school campuses, pipeline 
compressor stations, and associated equipment. The Treasury Department 
and the IRS request comment on whether this definition of WERP is 
appropriate. Comment is further requested on whether and why it would 
be appropriate to revise proposed Sec.  1.45Y-5(c)(2)(viii) to include 
additional energy sources (such as energy from exothermic chemical 
reactions or pressure drop technologies) that do not rely on combustion 
or gasification but could include equipment related to the transport of 
fossil fuels (for example, natural gas).
    For purposes of proposed Sec.  1.45Y-5(c)(2)(ii), hydropower 
includes retrofits that add electricity production to non-powered dams, 
conduit hydropower, hydropower using new impoundments, and hydropower 
using diversions such as a penstock or channel. Greenhouse gas 
emissions are not created by the fundamental transformation of 
electricity needed to produce electricity in a hydropower facility. A 
hydropower facility converts the potential energy of flowing water into 
electricity. The potential energy results from changes in gravitational 
potential energy from the flowing water, which the hydropower facility 
captures with a turbine which spins a rotor within a generator to 
produce electricity. Hydropower facilities may release greenhouse gas 
emissions from the hydropower reservoir due to diffusion at the water 
surface or due to ebullition, and from degassing when water passes 
through a pump house or turbine. Such emissions from hydropower 
facilities would not be considered greenhouse gases emitted into the 
atmosphere by a Non-C&G Facility in the production of electricity under 
proposed Sec.  1.45Y-5(b)(6)(C), because emissions of greenhouse gasses 
are not created by the fundamental transformation of potential energy 
in flowing water into electricity, but rather from processes that are 
not fundamental to the transformation of potential energy into 
electricity.
    Similarly, greenhouse gas emissions are not created by the 
fundamental transformation of energy from high-pressure hot water into 
electricity in a flash geothermal facility, which is included in 
proposed Sec.  1.45Y-5(c)(2)(v). A flash geothermal facility uses high-
pressure hot water from deep inside the earth and converts it directly 
to steam that drives a turbine and generator. After the steam passes 
through the turbine, it is released into the atmosphere and any non-
condensable gases including greenhouse gases dissolved in the steam are 
also released. Such emissions from flash geothermal facilities would 
not be considered greenhouse gases emitted into the atmosphere by a 
facility in the production of electricity under proposed Sec.  1.45Y-
5(c)(1)(i)(C), because the greenhouse gases are already present in the 
underground water and are not created by the fundamental transformation 
of the thermal energy in the water into electricity, but rather by 
processes that are not fundamental to the transformation of the thermal 
energy into electricity. This proposed treatment of flash geothermal 
facilities is supported by surveys indicating that underground carbon 
dioxide in certain geothermal reservoirs is emitted passively into the 
atmosphere even in the absence of geothermal electricity generation. 
The Treasury Department and the IRS request comment on whether the 
identification of flash geothermal facilities as Non-C&G Facilities 
with a GHG emissions rate that is not greater than zero in proposed 
Sec.  1.45Y-5(c)(2)(v) is appropriate.

[[Page 47803]]

    For purposes of proposed Sec.  1.45Y-5(c)(2)(iv), solar includes 
concentrated solar power. Concentrated solar power facilities may have 
auxiliary burners that in some cases use combustion exclusively for the 
purposes of cold starts or freeze protection of thermal working fluids, 
but in other cases, may also be used to generate electricity in hybrid 
configurations. The Treasury Department and the IRS request comment on 
whether the existing definitions of C&G Facilities and Non-C&G 
Facilities is sufficient to distinguish between these two categories of 
facilities, or whether additional clarification is needed.
3. Greenhouse Gas Emissions Rates for C&G Facilities
    Section 45Y(b)(2)(B) provides that in the case of electricity 
produced through combustion or gasification, the GHG emissions rate for 
such facility is equal to the net rate of greenhouse gases emitted into 
the atmosphere by such facility (taking into account lifecycle 
greenhouse gas emissions, as described in section 211(o)(1)(H) of the 
CAA) in the production of electricity.
    Section 211(o)(1)(H) of the CAA provides that ``lifecycle 
greenhouse gas emissions'' means the aggregate quantity of greenhouse 
gas emissions (including direct emissions and significant indirect 
emissions such as significant emissions from land use changes) related 
to the full fuel lifecycle, including all stages of fuel and feedstock 
production and distribution, from feedstock generation or extraction 
through the distribution and delivery and use of the finished fuel to 
the ultimate consumer, if the mass values for all greenhouse gases are 
adjusted to account for their relative global warming potential.
    The EPA promulgated its interpretation of section 211(o)(1)(H) of 
the CAA in a 2010 notice-and-comment rulemaking establishing the 
regulatory framework for the updated renewable fuel standard (RFS2) 
program. The EPA interpreted section 211(o)(1)(H) of the CAA in the 
context of the facts and policy framework of the RFS program and based 
on information available at that time; however, the EPA's analysis and 
implementation of the RFS2 rule offer relevant precedent for the 
Treasury Department's and the IRS's interpretation of section 
45Y(b)(2)(B). In the RFS2 rulemaking, the EPA interpreted 211(o)(1)(H) 
of the CAA as requiring the agency to account for the real-world 
emissions consequences of increased production of biofuels. Thus, the 
EPA determined in the RFS2 context that the inclusion of direct 
emissions and significant indirect emissions such as significant 
emissions from land-use changes in section 211(o)(1)(H) of the CAA 
requires a consequential approach to considering the real-world 
emissions associated with biofuel production. A ``consequential'' 
approach considers the real-world greenhouse gas emissions associated 
with biofuel production, including secondary or indirect emissions 
resulting from market interactions induced by expanded biofuel 
production and use. Such an approach includes consideration of market 
interactions induced by expanded biofuel production and use that may 
result in secondary or indirect greenhouse gas emissions, domestically 
and globally.
    Proposed Sec.  1.45Y-5(d) would provide the rules applicable to 
determining a net rate of GHG emissions for C&G Facilities, including 
by the Secretary when publishing a table described in section 
45Y(b)(2)(C)(i) or determining an emissions rate as provided in section 
45Y(b)(2)(C)(ii). Proposed Sec.  1.45Y-5(d)(1) would provide that GHG 
emissions rates for C&G Facilities must be determined by a lifecycle 
analysis (LCA) that complies with proposed Sec.  1.45Y-5(d) and (e), 
and that such rate equals the net rate of greenhouse gases emitted into 
the atmosphere by such facility (taking into account lifecycle 
greenhouse gas emissions, as described in section 211(o)(1)(H) of the 
CAA) in the production of electricity, expressed as grams of 
CO2e per kWh.
    Proposed Sec.  1.45Y-5(d)(2) would provide that an LCA used for 
determining the net rate of greenhouse gases emitted into the 
atmosphere by a facility must comply with the requirements provided in 
proposed Sec.  1.45Y-5(d)(2)(i) through (vii). Proposed Sec.  1.45Y-
5(d)(2)(i) would provide that the starting boundary of the LCA for an 
LCA involving generation-derived feedstocks (such as biogenic 
feedstocks) is feedstock generation, and the starting boundary of the 
LCA for an LCA involving extraction-derived feedstocks (such as fossil 
fuel feedstocks) is feedstock extraction. Under proposed Sec.  1.45Y-
5(d)(2)(i), the starting boundaries would include the processes 
necessary to produce and collect or extract the raw materials used to 
produce electricity from combustion or gasification technologies, 
including those used as energy inputs to electricity production. This 
includes the emissions effects of relevant land management activities 
or changes related to or associated with feedstock production. The 
starting conditions are the material and energy flows, including 
associated direct and indirect greenhouse gas emissions, of the 
processes associated with the extraction or production of raw feedstock 
materials or fuel.
    Proposed Sec.  1.45Y-5(d)(2)(ii) would provide that the ending 
boundary of an LCA for electricity that is transmitted to the grid or 
electricity that is used on-site is the meter at the point of 
production of the C&G Facility. The distribution, transmission, and use 
of such electricity generated by a C&G Facility (and other types of 
energy sources it may displace while in use) are outside of the LCA 
boundary; therefore, such emissions would not be taken into account 
because they do not occur in the ``production of electricity'' as 
described in section 45Y(b)(2)(B). Given the particular context of 
section 45Y(b)(2)(B) (that is, a tax credit for the production of clean 
electricity), proposed Sec.  1.45Y-5(d)(2)(ii) is consistent with 
section 45Y(b)(2)(B) of the Code (and the term ``ultimate consumer'' in 
section 211(o)(1)(H) of the CAA referenced therein) because it would 
treat the C&G Facility as the ultimate consumer of the fuel used to 
produce electricity.
    Proposed Sec.  1.45Y-5(d)(2)(iii) would provide that an LCA must be 
based on a future anticipated baseline, which projects future status 
quo in the absence of the availability of the sections 45Y and 48E 
credits (taking into account anticipated changes in technology, 
policies, practices, and environmental and other socioeconomic 
conditions).
    Proposed Sec.  1.45Y-5(d)(2)(iv) would provide that offsets and 
offsetting activities that are unrelated to the production of 
electricity by a C&G Facility, including the production and 
distribution of any input fuel, may not be taken into account in an 
LCA.
    Proposed Sec.  1.45Y-5(d)(2)(v) would interpret the reference to 
section 211(o)(1)(H) of the CAA as requiring that an LCA must take into 
account direct emissions, significant indirect emissions in the United 
States or other countries, emissions associated with market-mediated 
changes in related commodity markets, emissions associated with 
feedstock generation or extraction, emissions consequences of increased 
production of feedstocks, emissions at all stages of fuel and feedstock 
production and distribution, and emissions associated with 
distribution, delivery, and use of feedstocks to and by a C&G Facility. 
Proposed Sec.  1.45Y-5(d)(2)(v) would interpret section 45Y(b)(2)(B) of 
the Code (and the term ``ultimate consumer'' in section 211(o)(1)(H) of 
the CAA referenced therein) as applying to the C&G Facility because it 
is the

[[Page 47804]]

ultimate consumer of the fuel used to produce electricity.
    Proposed Sec.  1.45Y-5(d)(2)(v)(A) would provide that direct 
emissions include, but are not limited to: (1) emissions from feedstock 
generation, production, and extraction (including emissions from 
feedstock and fuel harvesting and extraction and direct land use change 
and management, including emissions from fertilizers, and changes in 
carbon stocks); (2) emissions from feedstock and fuel transport 
(including emissions from transporting the raw or processed feedstock 
to the fuel processing facility); (3) emissions from transporting and 
distributing fuels to the electricity production facility; (4) 
emissions from handling, processing, upgrading, and/or storing 
feedstocks, fuels and intermediate products (including emissions from 
on/offsite storage and preparation/pre-treatment for use (for example, 
torrefaction or pelletization) and emissions from process additives); 
and (5) emissions from combustion and gasification at the electricity 
generating facility (including emissions from the combustion and/or 
gasification process and emissions from gasification or combustion 
additives). Proposed Sec.  1.45Y-5(d)(2)(v)(B) would provide examples 
of significant indirect emissions including, but not limited to, 
emissions from indirect land use and land use change and other induced 
emissions associated with the increased use of the feedstock for 
electricity production. Significant indirect emissions may include 
positive or negative emissions. For biogenic resources, significant 
indirect emissions may include emissions from growth and regrowth.
    Proposed Sec.  1.45Y-5(d)(2)(vi) would provide principles for 
excluded emissions by listing types of emissions that the LCA must not 
take into account.
    Proposed Sec.  1.45Y-5(d)(2)(vii) would provide that an LCA may 
consider alternative fates and may account for avoided emissions. 
Alternative fate means a set of informed assumptions (for example, 
production processes, material outcomes, market-mediated effects) used 
to estimate the emissions from the use of each feedstock were it not 
for the feedstock's new use due to the implementation of policy (that 
is, to produce electricity). Avoided emissions means the estimated 
emissions associated with the feedstock, including the feedstock's 
production and use, that would have occurred in the alternative fate 
(if such feedstock had not been diverted for electricity production) 
but are instead avoided with the feedstock's use for electricity 
production. It is important to note that, while, in some circumstances, 
emissions may be avoided if compared to the alternative fate, in others 
the new use of the material (for example, for electricity production) 
may involve additional emissions that were not emitted in the 
alternative fate estimation. Relatedly, in some circumstances, 
emissions may be avoided in one part of the supply chain only to occur 
elsewhere along the supply chain due to the new use.
4. Additional Issues Regarding Greenhouse Gas Emissions Rates for C&G 
Facilities
    The determination of net GHG emissions rates for C&G Facilities 
raises a range of complex technical questions that are relevant to 
determining eligibility for the section 45Y and section 48E credits. 
The Treasury Department and the IRS request comment on the following 
topics: (1) the treatment of renewable natural gas (RNG) and fugitive 
sources of methane; (2) analytical LCA parameters, including spatial 
scales and time horizons; (3) whether and how to distinguish between 
co-products, byproducts, and waste products and how emissions should be 
allocated to each in LCAs; (4) how to attribute emissions to the heat 
produced by facilities using combined heat and power systems; (5) how 
to create and maintain LCA baselines; and (6) certain issues related to 
LCA modeling.
a. Treatment of Biogas, Renewable Natural Gas (RNG), or Fugitive 
Sources of Methane
    The Treasury Department and the IRS intend to provide rules 
addressing facilities that produce electricity using biogas, renewable 
natural gas (RNG), or fugitive sources of methane (for example, from 
coal mine operations) for purposes of the section 45Y credit or the 
section 48E credit, collectively referred to as the ``Clean Electricity 
Tax Credits.'' In the context of this guidance, the term ``RNG'' refers 
to biogas that has been upgraded to be equivalent in nature to fossil 
natural gas. Fugitive methane refers to the release of methane through, 
for example, equipment leaks during the extraction, processing, 
transformation, and delivery of fossil fuels to the point of final use, 
such as coal mine methane. Such rules would apply to all biogas, RNG, 
or fugitive methane used for the purposes of the Clean Electricity Tax 
Credits and would provide requirements that must be met to account for 
any greenhouse gas emissions benefits from biogas, RNG, or fugitive 
methane in determining GHG emissions rates for purposes of the Clean 
Electricity Tax Credits. Such requirements would be designed to reflect 
the ways in which additional demand for biogas, RNG or fugitive methane 
can impact greenhouse gas emissions outcomes.
    The Treasury Department and the IRS anticipate requiring that for 
purposes of the Clean Electricity Tax Credits, in order for biogas, 
biogas-based RNG, or fugitive methane to receive an emissions value 
consistent with such gases (and not standard natural gas), the biogas 
or RNG used to produce electricity or to produce a feedstock or fuel 
that is used to produce electricity must originate from the first 
productive use of the relevant methane. For any specific source of 
biogas, RNG, or fugitive methane, productive use is generally defined 
as any valuable application of the relevant methane (including to 
provide heat or cooling, generate electricity, or upgraded to RNG in 
the case of biogas or fugitive methane), and specifically excludes 
venting to the atmosphere or capture and flaring. The Treasury 
Department and the IRS further propose to define first productive use 
of the relevant methane as the time when a producer of that gas first 
begins using or selling it for productive use in the same taxable year 
as (or after) the electricity production facility was placed in 
service. The implication of this proposal is that biogas, for example, 
from any source that had been productively used in a taxable year prior 
to the taxable year in which the relevant electricity production 
facility was placed in service would not include GHG emissions benefits 
that might otherwise be attributable to biogas-based RNG, but would 
instead receive a value consistent with natural gas. This proposal 
would limit emissions associated with the diversion of biogas, RNG, or 
fugitive methane from other pre-existing productive uses.
    For existing biogas sources that typically productively use or sell 
a portion of the biogas and flare or vent the remaining excess, the 
flared or vented portion may be eligible for first productive use as 
defined above if the flaring or venting volume can be adequately 
demonstrated and verified. In such circumstances, the flared or vented 
volume may be determined based on the previous taxable year's flared or 
vented volume as demonstrated via reported data to programs such as the 
Greenhouse Gas Reporting Program. Requirements would be established to 
reduce the risk that entities will deliberately generate additional 
biogas for purposes of the Clean Electricity Tax Credits, above 
historic and expected future levels or an equivalent metric, for 
example by

[[Page 47805]]

generating biogas through the intentional generation of waste, and to 
ensure that other factors affecting the emissions rate of electricity 
produced with biogas, biogas-based RNG or RNG procurement via RNG 
certificates are taken into account. The Treasury Department and the 
IRS request comment on these and other potential conditions. Any 
fugitive sources of methane would be treated in the same fashion as 
biogas or RNG with respect to these requirements, albeit with different 
considerations in development of the counterfactual.
    The Treasury Department and the IRS also recognize that different 
sources of methane may have significantly different characteristics 
(for example, counterfactuals, alternative fates, baseline 
characteristics, upstream leakage rates, etc.) and therefore 
significantly different lifecycle emissions. For this reason, the 
Treasury Department and the IRS are considering requiring an LCA to be 
conducted for electricity produced by each category of feedstock, 
rather than across all feedstocks used for the production of 
electricity by a facility. The Treasury Department and the IRS request 
comment on whether LCAs should be conducted on a feedstock-by-feedstock 
basis or averaged across feedstocks, and how to determine the 
appropriate categories of feedstock.
    For purposes of the Clean Electricity Tax Credits, producers using 
biogas, RNG, or fugitive methane would be required to acquire and 
retire corresponding energy attribute certificates (EACs) through a 
book-and-claim system that can verify in an electronic tracking system 
that all applicable requirements are met.
    Electricity producers would also be required to have a pipeline 
interconnection and measurement capability using a revenue grade meter. 
These rules would apply to the use of EACs with both direct and non-
direct claims of biogas, RNG, or fugitive methane use. Direct use would 
involve a direct exclusive pipeline connection to a facility that 
generates biogas or RNG or from which fugitive methane is being 
sourced, while non-direct use would involve production using biogas, 
RNG, or fugitive methane sourced from a commercial or common-carrier 
natural gas or other specified pipeline. In all cases, EACs would need 
to document the biogas, RNG, or fugitive methane procurement use claims 
and that the energy attributes of the RNG or fugitive methane being 
used are not sold to other parties or used for compliance with other 
policies or programs.
    The Treasury Department and the IRS request comments on these and 
other approaches related to biogas, RNG and fugitive methane. Regarding 
these sources of methane, the Treasury Department and the IRS request 
comment on the appropriate LCA considerations associated with them, 
such as counterfactual scenarios (that is, appropriate baselines), to 
account for direct and significant indirect emissions, and also the 
manner in which to assess methane from these sources if the current 
practice is flaring. In particular, the Treasury Department and the IRS 
request comments on the following questions:
    (1) What data sources and peer reviewed studies provide information 
on fugitive methane, biogas, and RNG production systems (including 
biogas production and reforming systems), markets, monitoring, 
reporting, and verification processes, and greenhouse gas emissions 
associated with these production systems and markets?
    (2) What conditions for the use of biogas, RNG, and fugitive 
methane would ensure that emissions accounting for purposes of the 
Clean Electricity Tax Credits reflect and reduce the risk of indirect 
emissions effects from electricity production using biogas and RNG? How 
can taxpayers verify that they have met these requirements?
    (3) How broadly available and reliable are existing electronic 
tracking systems and verification protocols and practices for biogas, 
RNG, or fugitive methane certificates in book and claim systems? What 
developments may be required, if any, before such systems are 
appropriate for use with biogas or RNG certificates used to claim the 
Clean Electricity Tax Credits?
    (4) How should biogas, RNG or fugitive methane resulting from the 
first productive use of methane be defined, documented, and verified? 
What industry best practices or alternative methods would enable such 
verification to be reflected in a biogas, RNG or methane certificate or 
other documentation? What additional information should be included in 
such EACs to help certify compliance?
    (5) What are the emissions associated with different methods of 
transporting biogas, RNG or fugitive methane to electricity producers 
(for example, vehicular transport, pipeline)?
    (6) How can the final regulations reflect and mitigate indirect 
emissions effects from the diversion of biogas, RNG, or fugitive 
methane from potential future productive uses? What other new uses of 
biogas, RNG, or fugitive methane could be affected in the future if 
more gas from new capture and productive use of methane from these 
sources is used in the electricity production process?
    (7) How can the potential for the generation of additional 
emissions from the production of additional waste, waste diversion from 
lower-emitting disposal methods, and changes in waste management 
practices be limited through emissions accounting or rules for biogas 
and RNG use established for purposes of the Clean Electricity Tax 
Credits?
    (8) To limit the additional production of waste, should the final 
regulations limit eligibility to methane sources that existed as of a 
certain date or waste or waste streams that were produced before a 
certain date, such as the date that the IRA was enacted? If so, how can 
that be documented or verified? How should any changes in volumes of 
waste and waste capacity at existing methane sources be documented and 
treated for purposes of the Clean Electricity Tax Credits? How should 
additional capture of existing waste or waste streams be documented and 
treated?
    (9) Are geographic or temporal deliverability requirements needed 
to reflect and reduce the risk of indirect emissions effects from 
biogas, RNG, or fugitive methane use in the electricity production 
process? If so, what should these requirements be and are electronic 
tracking systems able to capture these details?
    (10) How should variation in methane leakage across the existing 
natural gas pipeline system be taken into account in estimating the 
emissions from the transportation of RNG or fugitive methane or 
establishing rules for RNG or fugitive methane use? How should methane 
leakage rates be estimated based on factors such as the location where 
RNG or fugitive methane is injected and withdrawn, the distance between 
the locations where RNG or fugitive methane is injected and withdrawn, 
season of year, age of pipelines, or other factors? Are data or 
analysis available to support this?
    (11) What counterfactual assumptions and data should be used to 
assess the net greenhouse gas emissions of facilities that rely on 
biogas, RNG, or fugitive methane (for example, venting, flaring, or 
other practice)? Is venting an appropriate counterfactual assumption in 
some cases? If not, what other factors should be considered?
    (12) What criteria should be used in assessing biogas, fugitive 
methane, or RNG-based provisional emissions rates? What practices 
should be put in place to reduce the risk of unintended consequences 
(for example, gaming)? Should conservative default parameters

[[Page 47806]]

and counterfactuals be used unless proven otherwise by a third party?
    (13) What are the effects on greenhouse gas emissions of capturing 
methane emissions for use as biogas or RNG, such as on livestock farms?
    The Treasury Department and the IRS recognize that sufficient 
tracking and verification mechanisms for biogas, RNG, or fugitive 
methane are not yet available, and existing systems have limited 
capabilities for tracking and verifying RNG pathways, especially in the 
part of the production process before the methane has been reformed to 
RNG. Existing tracking and verification systems do not clearly 
distinguish between inputs, verify or require verification of 
underlying practices claimed by biogas or RNG production sources, 
require proof of generator interconnection or revenue-quality metering, 
provide validation of generation methodology, include exclusively 
United States based-generation, verify generator registration, and 
track the vintage of generator interconnection. The Treasury Department 
and the IRS are considering providing rules to address whether or how 
book-and-claim systems with sufficient tracking and verification 
mechanisms may be used to attribute the environmental benefits of 
biogas, RNG, or fugitive methane in the final regulations.
    The treatment of biogas, RNG, and fugitive methane presents a range 
of complex issues that the Treasury Department and the IRS will 
consider in the development of the final regulations.
b. Analytical LCA Parameters, Including Spatial Scales and Time 
Horizons
    An LCA may require decisions on a wide range of analytical 
parameters that may have a meaningful impact on the accuracy and 
utility of its results. The Treasury Department and the IRS request 
comment on the analytical LCA parameters that are most relevant to 
particular types of categories of facilities that may be eligible for 
the Clean Electricity Tax Credits.
    The Treasury Department and the IRS specifically request comment 
regarding spatial and temporal scales, including the factors that 
should be considered in setting the spatial and temporal scales for 
LCAs conducted for the Clean Electricity Tax Credits. Spatial scale 
involves defining the area over which emissions impacts will be 
evaluated. Temporal scale involves defining the time period over which 
emissions impacts will be evaluated. The decision of setting the 
spatial scale should be considered in conjunction with decisions on 
temporal scale, as the two can interact in ways that affect greenhouse 
gas assessment outcomes.
    In conducting a greenhouse gas assessment for biomass feedstocks, 
for example, carbon stocks or flows that have high variability at fine 
spatial or temporal scales may have much less variability if averaged 
over larger areas or longer temporal scales. Averaging over long 
temporal scales may reduce the variability observed at small spatial 
scales, and averaging over large areas may reduce the variability 
observed over small temporal scales. However, it is not safe to assume 
that integrating over large areas and long timeframes is always 
preferable. Large spatial scales and long temporal scales are not 
necessarily the most accurate way to conduct specific policy or program 
assessments because the combination of the two may obscure important 
information (for example, biophysical differences in species or 
landscapes, or shorter time frames or subregional analysis needed for 
policy analysis) or may mask important smaller-scale impacts. It is 
important to note that utilizing a large spatial scale and a short 
temporal scale could yield the same result as a small spatial scale 
combined with a longer temporal scale.
    The Treasury Department and the IRS acknowledge that it may be 
appropriate to utilize different spatial and temporals scales for 
different feedstocks given their heterogeneity. The Treasury Department 
and the IRS request comment on the following questions regarding 
spatial and temporal scale:
    (1) What factors should be considered in establishing the timeframe 
for the LCA analysis? What timeframe would provide confidence that 
significant emissions have been accounted for?
    (2) Should the LCA distinguish between an ``emissions horizon'' 
(the timeframe over which emissions effects from the feedstock use 
persist into the future) and an ``assessment horizon'' (the timeframe 
over which the emissions effects are included in the analysis), and how 
would that be reflected in the choice of temporal scale? What 
assessment horizon will provide reasonable confidence that significant 
LCA emissions have been incorporated? Should the modeled future 
anticipated baseline include estimated emissions from electricity 
production to reflect the effects of the anticipated phase out of the 
Clean Electricity Tax Credits?
    (3) If the assessment horizon is shorter than the emissions 
horizon, should an estimate of the emissions beyond the assessment 
horizon be included in the LCA?
    (4) What considerations should be reflected in the choice(s) of 
spatial scale? For example, the increased use of some fuels/feedstocks 
may have global effects (for example, changes in commodity production 
and ensuing land use and greenhouse gas changes), though this may not 
be the case for all feedstocks or fuels. What factors should be 
considered to assess whether a global scale is necessary for certain 
feedstocks to ensure that significant emissions are captured? Should 
all feedstock/fuels assessments be conducted with the same spatial 
scale to determine the extent to which increased use has estimated 
global ramifications?
    (5) The choice of spatial scale can be greatly influenced by the 
availability and accuracy of data and the precision with which one can 
measure and model feedstock production as well as market dynamics. What 
sources of data would be most important to consider for modeling? What 
strengths or weaknesses do these sources have?
c. Distinguish Between Co-Products, Byproducts, and Waste Products and 
How Emissions Should Be Allocated to Each in LCAs
    The categorization and assessment of products as co-products, 
byproducts, or waste products in an LCA may affect the LCA's results. 
Products, co-products, byproducts, and wastes may all be produced in 
the full fuel cycle or used as inputs to the same. A co-product is a 
product produced together with another product, both of which are 
economic drivers of the process. A byproduct is a product that is 
produced together with another product, and which has a productive use 
but is not the primary economic driver of the process from which it is 
produced. It is not solely or separately produced. A waste product is a 
substance or object that the holder intends or is required to dispose 
of. See ISO:14040, ``Environmental management--Life cycle assessment--
Principles and framework. For biogenic sources, scientific literature 
often classifies byproducts, wastes, and residues together in one 
category.
    The categorization of products as co-products, byproducts, and 
waste products may be relevant to an LCA's assessment of the greenhouse 
gas emissions related to the production of inputs to electricity 
generation or in the generation of electricity itself if the LCA 
modeling approach or approaches used for purposes of the Clean 
Electricity Tax Credits have the ability to distinguish between such 
categories. For example, in certain circumstances, the use of a waste 
product as a feedstock or fuel for

[[Page 47807]]

electricity production may generate more, less, or the same greenhouse 
gas emissions than relevant disposal practices for that waste material. 
The emissions released in the production process during which a waste 
product is created could be fully allocated to the main product, co-
products, and byproducts of that process meaning that the emissions 
associated with the production of the waste could be considered zero in 
the LCA assessment pending further analysis, potentially reducing the 
overall LCA GHG emissions rates for the electricity production. 
Alternatively, if the waste product were considered to have a 
productive use and therefore instead categorized as a co-product it 
would be considered as a driver of the production process and could 
have a positive emissions value. A material may initially have no 
economic value or useful purpose, but if that material later gains an 
economic value, its categorization may shift to a byproduct or co-
product.
    The Treasury Department and the IRS intend to clarify the 
principles for categorizing products as co-products, byproducts, or 
waste input materials and products and assessing the emissions impacts 
for such products in an LCA for C&G Facilities in the final regulations 
for the Clean Electricity Tax Credits if such categorization is 
relevant to the LCA model or models used. Under such principles, if 
byproducts are produced concurrently with electricity production, then 
a portion of the process emissions may be allocated to those 
byproducts. If applying an analytical approach that considers the 
consequences of the material being used for electricity production and 
byproducts are produced concurrent with electricity production, the LCA 
may consider the market impacts associated with the byproducts. In 
addition, if wastes are produced concurrently with electricity 
production, then no process emissions may be allocated to those wastes; 
all emissions must be associated with the electricity produced. Whether 
alternative productive uses of a byproduct-derived feedstock exist 
would be determined by expert analysis of the likely alternative uses 
of the byproduct, taking into account technological and economic 
capabilities and common practice. The alternative fate of waste-derived 
feedstocks would be determined by expert analysis, literature review, 
and historical practice.
    To inform the development of these categorization principles for 
the final regulations, the Treasury Department and the IRS request 
comment on the following:
    (1) What principles should be used to distinguish between co-
products, byproducts, and waste products for the purposes of the Clean 
Electricity Tax Credits? Are there common scientific or industry 
definitions that can be relied upon to distinguish between co-products, 
byproducts, and waste products?
    (2) What principles should be used to determine whether a product 
has sufficient value to be considered a co-product or byproduct?
    (3) The Clean Electricity Tax Credits may provide additional 
economic incentive for the consumption of a product categorized as 
waste prior to the availability of the incentive provided by the Clean 
Electricity Tax Credits. How should this additional economic incentive 
be considered to determine if a product is a waste product, byproduct, 
or co-product? Should this categorization be reevaluated and, if so, 
how often?
    (4) To limit the additional production of waste, should the final 
regulations limit eligible waste sources that existed as of a certain 
date, or waste or waste streams that were produced before a certain 
date, such as the date that the IRA was enacted? If so, how could that 
be documented or verified? How should any changes in volumes of waste 
and waste capacity at existing sources be documented and treated for 
purposes of the Clean Electricity Tax Credits? How should additional 
capture of existing waste or waste streams be documented and treated?
    (5) More generally, how could the potential for the intentional 
generation of waste or co-products for the purposes of lowering the 
allocated process emissions to electricity be addressed?
    (6) Would the classification of feedstocks as products, co-
products, byproducts, or waste change depending on the technology? For 
example, would products, co-products, byproducts, and waste be 
described and accounted for differently if derived from biogenic 
sources, such as biogenic biomass?
d. Attributing Emissions to the Heat Produced by Facilities Using CHP 
Property
    Section 45Y(g)(2)(A) provides that the kWh of electricity produced 
by a taxpayer at a qualified facility includes any production in the 
form of useful thermal energy by any CHP property within such facility, 
and the amount of greenhouse gases emitted into the atmosphere by such 
facility in the production of such useful thermal energy will be 
included for purposes of determining the GHG emissions rate for such 
facility. See Explanation of Provisions section I.A. for the definition 
of CHP property. The inclusion of thermal energy production-related 
emissions in an LCA for a CHP facility introduces additional 
considerations, such as how to set an appropriate baseline for useful 
energy production-related emissions and what rules should govern the 
attribution of emissions for thermal energy production. The Treasury 
Department and the IRS intend to clarify the principles for assessing 
the emissions related to the generation of useful thermal energy by a 
CHP facility in an LCA in the final regulations for the Clean 
Electricity Tax Credits. Accordingly, the Treasury Department and the 
IRS request comment on the following:
    (1) To determine the amount of greenhouse gases emitted by a CHP 
facility, the LCA must include the greenhouse gas emissions emitted by 
that facility in the production of useful thermal energy. For purposes 
of the LCA of a CHP facility, what principles should govern how 
emissions from the production of useful thermal energy are calculated?
    (2) What principles should be used to determine the baseline for 
useful thermal energy production by a CHP facility? For example, should 
the baseline for the heat production for a CHP facility be an 
alternative form of thermal energy production such as natural gas 
boilers, such that emissions from the production of thermal energy from 
the boilers would be subtracted from the facility's emissions? 
Alternatively, is it more appropriate if the baseline for a CHP 
facility is no thermal energy production by the facility?
    (3) There may be scenarios in which a facility generates 
electricity that is used (a) by the electricity generation facility in 
the production of electricity or (b) in the production of fuel 
ultimately consumed by that facility to generate electricity. For 
example, a wastewater treatment plant's post-processing materials are 
digested to produce biogas; this biogas is then used in a CHP facility 
that produces electricity; this electricity is consumed by the 
wastewater treatment facility. In such scenarios, what principles 
should be used to determine how emissions from the consumption of 
electricity in the production of electricity or in the production of 
the fuel consumed by the facility are calculated? Similarly, there may 
be scenarios in which a facility self-consumes thermal energy that it 
produces, for example, if a facility generates steam as a byproduct 
that is

[[Page 47808]]

used (a) by the facility to turn a turbine that generates electricity 
or (b) to clean or compress fuel ultimately consumed by that facility 
to generate electricity. What principles should be used be used to 
determine emissions from the self-consumption of thermal energy by the 
CHP facility?
e. Certain Issues Related to LCA Baselines and Modeling
    The Treasury Department and the IRS intend to provide additional 
rules and principles addressing what factors must be considered to 
assess the emissions associated with feedstocks used by C&G Facilities 
to produce electricity for purposes of the Clean Electricity Tax 
Credits.
    Such rules would apply to all feedstocks used for the purposes of 
the Clean Electricity Tax Credits and would provide conditions that 
must be met in determining GHG emissions rates for purposes of the 
Clean Electricity Tax Credits. The CAA explicitly defines the term 
``lifecycle greenhouse gas emissions'' to include ``the aggregate 
quantity of greenhouse gas emissions (including direct emissions and 
significant indirect emissions such as significant emissions from land 
use changes).'' Given the highly interconnected economic, energy, and 
agricultural and other lands-based systems involved in electricity 
production, the Treasury Department and the IRS recognize that 
electricity production may have effects, including emissions effects, 
beyond the direct supply chain. The Treasury Department and the IRS 
think that the provision ``including direct emissions and significant 
indirect emissions'' requires any LCA for the Clean Electricity Tax 
Credits to adopt an approach that considers the consequential, or 
market-mediated, impacts of increased demand for the input feedstocks 
or fuels used in electricity production.
    The EPA interpreted CAA 211(o)(1)(H) as requiring the agency in the 
RFS context to account for the real-world emissions consequences of 
increased production of biofuels. Thus, the EPA determined that CAA 
section 211(o)(1)(H)'s inclusion of ``direct emissions and significant 
indirect emissions such as significant emissions from land-use 
changes'' requires a ``consequential'' approach to considering the 
real-world emissions associated with biofuel production. Such an 
approach includes consideration of market interactions induced by 
expanded biofuel production and use that may result in secondary or 
indirect greenhouse gas emissions.
    The Treasury Department and the IRS propose to use a future 
anticipated baseline approach for analyzing the greenhouse gas 
emissions associated with the production of electricity by C&G 
Facilities and feedstocks used by such facilities. This approach would 
require generating a baseline projection of the future, which reflects 
estimated future conditions under a business-as-usual (BAU) trajectory 
that incorporates key drivers and trends informed by historical data 
and other considerations. This baseline would then serve as the 
``reference'' against which another scenario in which specific 
conditions or changes, such as implementation of the policy embodied by 
the Clean Electricity Tax Credits, can be projected. This construct 
would allow for the evaluation of the projected estimated change or 
difference of emissions outcomes between the two scenarios. These 
scenarios would include (1) the baseline scenario (that is, without the 
Clean Electricity Tax Credits) and (2) a policy scenario (that is, with 
the Clean Electricity Tax Credits).
    These scenarios would require, to the extent possible, data on: (1) 
feedstock or fuel production systems (including fuel/feedstock 
generation or extraction, etc.); (2) associated greenhouse gas 
emissions and, if applicable, carbon pool fluxes; (3) the feedstock or 
fuel's sector details; (4) feedstock or fuel demand and prices; (5) 
energy market projections, including electricity demand and supply and 
prices, if applicable; (6) future macroeconomic factors (for example, 
EIA Annual Energy Outlook-derived population growth, gross domestic 
product projections, demand functions tied to population or income); 
(7) technological progress assumptions, especially if applicable to 
stationary sources for which efficiency improvements are possible and 
anticipated; and (8) other parameters (for example, representation of 
current and anticipated, energy, environmental, or other policies 
including expected outcomes from other parts of the IRA or other 
policies, if relevant, that can inform or constrain BAU trajectories).
    For example, the list that follows identifies proposed key modeling 
approach elements and considerations for simulation of a future 
anticipated baseline and policy scenarios specific to biomass-based 
feedstocks: (1) model function types and model dynamics (for example, 
economic optimization, intertemporal and/or recursive dynamic); (2) 
anticipated future conditions (for example, macroeconomic, biophysical, 
chemical); (3) greenhouse gas emissions representation, by including 
the different greenhouse gases and the relevant greenhouse gas 
emissions and sequestration sources (for example, how greenhouse gases 
and their effects on the environment are incorporated and represented, 
such as what emissions sources and factors are reflected in the model 
or models); (4) forest sector representation (for example, how are 
forestry and forest industries reflected in the model and how are they 
tied to the rest of the economy); (5) agricultural sector 
representation; (6) land use competition; (7) energy sector 
representation; and (8) the appropriate spatial scale (for example, 
international representation) for all of these considerations.
    There may be different ways to model or estimate greenhouse gas 
emissions associated with the production of electricity by a C&G 
Facility. Consistent with the parameters in proposed Sec.  1.45Y-5(d), 
the Treasury Department and the IRS seek comment on general principles 
and factors to be considered to estimate net greenhouse gas emissions 
associated with electricity production by C&G Facilities, including the 
selection or creation of an assessment or modeling approach for the 
purposes of Clean Electricity Tax Credits. Comment is specifically 
requested on the following topics:
    (1) What factors should be considered in deciding how to create and 
maintain LCA baseline scenarios?
    (2) What factors should be considered in deciding how to create and 
maintain LCA scenarios other than the baseline?
    (3) What existing model or suite of models are capable of 
completing an LCA consistent with the section 45Y(b)(2)(B) and proposed 
Sec.  1.45Y-5(d) and (e)? Please explain whether any such model or 
models are open source or proprietary including what type of 
documentation is publicly available detailing the model design, data, 
inputs, and assumptions, as well as whether such models are able to 
link with external data sources or models. Please also explain which 
entities own, manage, or update such models. Furthermore, because some 
LCA models may be used for only a certain aspect of the total required 
analysis (for example, a model may solely assess the agriculture 
sector) or only include certain feedstocks or technologies, please 
specify what technologies, feedstocks, or type of impacts are included 
or are not included in the recommended model or models. Please also 
explain how widely and for what purposes the recommended model or 
models are used, including whether the model has previously been used 
by a Federal or State agency or national

[[Page 47809]]

laboratory. Please explain whether and how the model has been peer-
reviewed. Finally, please explain whether the recommended model or 
models would need to be updated or combined with another model in order 
to be fully consistent with section 45Y(b)(2)(B) and proposed Sec.  
1.45Y-5(d) and (e).
    (4) What data sources and peer-reviewed studies provide information 
on different feedstock production systems that would be most important 
to consider for gathering data for LCA modeling? These sources and 
studies should provide information on the feedstock production process 
(ideally, beginning with the extraction or generation of the feedstock 
and ending at the electrical meter) and on markets related to the 
feedstock production process. Appropriate sources and studies should 
also describe the greenhouse gas emissions associated with these 
production systems and markets, as well as any monitoring, reporting, 
and verification processes used in the creation of the source or study. 
If recommending data sources or peer-reviewed studies, please specify 
whether they are open source or proprietary; their temporal and spatial 
scale (for example, regional versus national studies); whether they are 
regularly updated and with what frequency; whether they are collected 
by a Federal or State agency or statistical agency or national 
laboratory; and whether they employ direct measurements or modeling or 
use remote sensing data. Finally, please assess overall the strengths 
and weaknesses of the recommended sources or studies with respect to 
their usefulness as modeling data inputs.
    (5) The availability of the Clean Electricity Tax Credits may 
create an incentive to use a given material differently than in the 
past (for example, a material that was not typically used for 
electricity production is initially used or used more broadly after the 
credits are available). How could an LCA or LCAs establish and account 
for whether the incentives created by the Clean Electricity Tax Credits 
have resulted in a reduction, removal of, or increase in greenhouse gas 
emissions beyond the emissions that would have occurred in the absence 
of the Clean Electricity Tax Credits? For example, consider a scenario 
in which, in the absence of the incentive provided by the Clean 
Electricity Tax Credits, an amount of woody biomass would be either 
left standing or laying in a forest, pile burned, or used to create 
timber products, such as charcoal or mulch, each an ``alternative 
fate.'' In the presence of the Clean Electricity Tax Credits, that 
amount of woody biomass is now being used to generate electricity. How 
should the possible fates of the feedstock in the absence of the Clean 
Electricity Tax Credits (for example, left in standing or laying in a 
forest, pile burned, or used to create a timber product, such as 
charcoal or mulch) be represented in an LCA, including the different 
potential direct and indirect greenhouse gas effects of those fates?
    (6) How could an LCA account for alternative fates stemming from 
events such as potential future greenhouse gas emissions from wildfires 
that could be associated with woody biomass feedstocks that may be left 
on the landscape in the absence of the incentive created by the Clean 
Electricity Tax Credits? How would these considerations be affected if, 
in the absence of the incentive provided by the Clean Electricity Tax 
Credits, a feedstock is used productively but not in electricity 
production?
    (7) Which feedstock classification categories should be established 
for purposes of LCA analyses, if any? To what extent should the LCA or 
LCAs differentiate between the sources and subtypes of a given 
feedstock for electricity production or not (for example, all forest-
derived materials as one category, or subcategories such as logging 
residues)? If applied, should subcategories of feedstocks be aggregated 
in modeling, or should they be should they be separately modeled? How 
could the LCA or LCAs account for the emissions attributed to 
feedstocks that include a mixture of sub-types of feedstocks, such as 
products, coproducts, byproducts and residues? Should LCAs be 
standardized or provide average estimates for feedstocks and how could 
such standardization best be done?
    (8) What factors should be considered to determine the appropriate 
scale(s) of feedstock demand changes or other shocks to evaluate the 
extent to which the production, processing, and use of the feedstocks 
used for electricity production results in net greenhouse gas 
emissions?
    (9) Should the shock reflect a small incremental increase in use of 
the feedstock to reflect the marginal impact, or a large increase to 
reflect the average effect of all potential users?
    (10) What could the general increment of the shock be? Should it be 
specified as an absolute or relative increase?
    (11) What factors should be considered to determine whether shocks 
for different feedstocks should be implemented in isolation (separate 
model runs), in aggregate (for example, as an across-the-board increase 
in biomass usage endogenously allocated by the model across 
feedstocks), or something in between (for example, separately model 
agriculture-derived and forest-derived feedstocks, but endogenously 
allocate within each category)?
    (12) How should variation and uncertainty be considered in 
evaluating model estimates of the GHG emissions associated with an 
increase in the use of a feedstock for electricity generation? 
Feedstock modeling will likely involve uncertainties and variabilities 
associated with data, parameterization, scenario, and model choices. 
For example, if the modeling reports a range of GHG emissions changes 
that are greater and less than zero, how should such a range of 
outcomes be evaluated under section 45Y(b)(2)(B)?
f. Book and Claim Accounting
    The Treasury Department and the IRS are considering whether to 
allow and provide rules governing the use of book and claim accounting 
in the final regulations for the Clean Electricity Tax Credits. Under 
these proposed regulations, the methods used, and emissions associated 
with the production of fuels and feedstocks used in the generation of 
electricity are essential to determining whether a facility is a C&G 
Facility and assessing its GHG emissions rate. See Explanation of 
Provisions sections I.D.1 and I.D.3 for discussion of tracking fuel or 
feedstock production to determine whether a facility is a C&G Facility 
or Non-C&G Facility. EACs are a form of book-and-claim accounting that 
conveys information about the attributes associated with a unit of 
energy, including the fuel or feedstock used to create the energy. EACs 
may also include information about the location of the facility that 
generated the unit of energy, when that facility began operations, and 
when the unit of energy was produced. Because EACs can serve as a 
system for tracking the attributes associated with the production of a 
unit of energy and as a means to avoid double-counting, the Treasury 
Department and the IRS are considering whether to provide rules that 
address the use of book-and-claim systems as a means of verifying the 
emissions profile of a facility's use of fuel and electricity 
production. The Treasury Department and the IRS request comment on 
whether and how it may be appropriate for such systems to be used in 
determining GHG emissions rates in the final regulations for the Clean 
Electricity Tax Credits. In particular, comment is requested regarding 
what types of

[[Page 47810]]

energy inputs, including fuels and feedstocks, have or may develop 
sufficiently robust book-and-claim systems that may be suitable for use 
in substantiating and verifying claims of use of such energy inputs for 
purposes of the Clean Electricity Tax Credits. The Treasury Department 
and the IRS are considering providing rules that may permit the use of 
book and claim accounting in the final regulations if there are 
sufficient assurances that the energy attributes claimed under such 
system are verifiable and not susceptible to double counting.
5. Carbon Capture and Sequestration
    Proposed Sec.  1.45Y-5(e) would provide that, for purposes of 
proposed Sec.  1.45Y-5(c) and (d), the GHG emissions rate for a Non-C&G 
Facility or C&G Facility must exclude any qualified carbon dioxide in 
such facility's production of electricity that is captured by the 
taxpayer, and, pursuant to any regulations established under section 
45Q(f)(2), disposed of by the taxpayer in secure geological storage, or 
utilized by the taxpayer in a manner described in section 45Q(f)(5) and 
any regulations established under such section. The Treasury Department 
and the IRS request comment on the following:
    (1) What requirements should apply to substantiate and verify that 
carbon dioxide that is captured by the taxpayer is (a) disposed of by 
the taxpayer in secure geological storage pursuant to any regulations 
established under section 45Q(f)(2), disposed of by the taxpayer in 
secure geological storage, or (b) utilized by the taxpayer in a manner 
described in section 45Q(f)(5)? For example, would it be appropriate to 
limit the carbon dioxide that may be considered to be qualified carbon 
dioxide under section 45Y(e)(3), and thus excluded under section 
45Y(b)(2)(D), to carbon dioxide that has been reported to the U.S. 
Greenhouse Gas Reporting Program (GHGRP)? If so, which GHGRP subpart or 
subparts should be used?
    (2) In the event that carbon dioxide that was captured and 
sequestered as required by section 45Y(e)(3) subsequently escapes into 
the atmosphere after such carbon dioxide was taken into account by a 
taxpayer that claimed a Clean Electricity Tax Credit, what enforcement 
mechanisms or regulatory regimes should be used to identify when such 
emissions leakages have occurred? How should such emissions leakages be 
taken into account in determining compliance with the GHG emissions 
rate requirements under sections 45Y and 48E? Are the existing 
recapture provisions under section 45Q sufficient for this purpose?
    (3) Should carbon capture and sequestration that occurs in the 
production of fuel that is used by a facility to produce electricity be 
taken into account under proposed Sec.  1.45Y-5(e) and section 
45Y(e)(3)? If so, how should such use of carbon capture and 
sequestration (for example, emissions from CO2 capture, 
purification and compression, transportation, and CO2 site 
injection) be assessed in an LCA? Should emissions that occur from 
carbon capture and sequestration be taken into account in determining 
the net rate of greenhouse gases emitted into the atmosphere by a C&G 
Facility in the production of electricity? What verification and 
substantiation requirements would be appropriate to establish that 
carbon capture and sequestration that met the requirements of proposed 
Sec.  1.45Y-5(e) and section 45Y(e)(3) were met in the production of a 
fuel or feedstock? Are the existing recapture provisions under section 
45Q sufficient for this purpose?
6. Annual Table
    Proposed Sec.  1.45Y-5(f)(1) would provide that, as required by 
section 45Y(b)(2)(C)(i), the Secretary will annually publish a table 
that sets forth the GHG emissions rates for types or categories of 
facilities (Annual Table), which a taxpayer must use for purposes of 
section 45Y. Proposed Sec.  1.45Y-5(f)(1) would further provide that, 
except as provided in proposed Sec.  1.45Y-5(h), a taxpayer that owns a 
facility that is described in the Annual Table on the first day of the 
taxpayer's taxable year in which the section 45Y or section 48E credit 
is determined with respect to such facility must use the Annual Table 
as of such date to determine an emissions rate for such facility for 
such taxable year. Types or categories of facilities must be added or 
removed from the Annual Table consistent with, for Non-C&G Facilities, 
a technical assessment of the fundamental energy transformation into 
electricity as provided in proposed Sec.  1.45Y-5(c)(1)(ii), and, for 
C&G Facilities, an LCA that complies with proposed Sec.  1.45Y-5(d) and 
(e). Proposed Sec.  1.45Y-5(f)(2) would also provide that in connection 
with the publication of the Annual Table, the Secretary must publish an 
accompanying expert analysis that addresses any types or categories of 
facilities added or removed from the Annual Table since its last 
publication. Such analysis must be prepared by one or more of the 
National Laboratories, in consultation with other agency experts, such 
as experts from DOE, the Treasury Department, the United States 
Department of Agriculture (USDA), and the EPA, as appropriate, and must 
address whether the addition or removal of types or categories of 
facilities from the Annual Table complies with section 45Y(b)(2)(A) and 
45Y(b)(2)(B) (which refers to the definition of lifecycle greenhouse 
gas emissions in section 211(o)(1)(H) of the CAA) of the Code and 
proposed Sec.  1.45Y-5. The Treasury Department and the IRS view the 
requirement to publish an expert analysis prepared by the National 
Laboratories of changes to the Annual Table as essential to ensuring 
public accountability and adherence to sound scientific principles. 
This requirement would also ensure that the Secretary has a robust 
record to inform any changes to the Annual Table.
    The Treasury Department and the IRS intend to include in the Annual 
Table the types or categories of facilities that are described in the 
final regulations as having a GHG emissions rate that is not greater 
than zero. The Treasury Department and the IRS intend to publish the 
first Annual Table after the publication of the final regulations. 
Until the first publication of the Annual Table, taxpayers may treat 
the types or categories of facilities that are listed in proposed Sec.  
1.45Y-5(c)(2)(i) through (viii) as being described in an Annual Table 
as having a GHG emissions rate that is not greater than zero. Further, 
any types or categories of facilities that are added or removed from 
this list in the first publication of the Annual Table must be 
accompanied by the publication of an expert analysis of such change as 
provided in proposed Sec.  1.45Y-5(f)(2).
7. Provisional Emissions Rates
    Proposed Sec.  1.45Y-5(g) would provide the rules applicable to 
provisional emissions rates. Proposed Sec.  1.45Y-5(g)(1) would provide 
that, in the case of any facility that is of a type or category for 
which an emissions rate has not been established by the Secretary under 
proposed Sec.  1.45Y-5(g), a taxpayer that owns such facility may file 
a petition with the Secretary for the determination of the emissions 
rate with respect to such facility (Provisional Emissions Rate or PER).
    Proposed Sec.  1.45Y-5(g)(2) would provide that an emissions rate 
has not been established by the Secretary for a facility for purposes 
of section 45Y(b)(2)(C)(ii) if such facility is not described in the 
Annual Table. Proposed Sec.  1.45Y-5(g)(2) would further provide that 
if a taxpayer's request for an emissions value pursuant to proposed 
Sec.  1.45Y-5(g)(5) is pending at

[[Page 47811]]

the time such facility is or becomes described in the Annual Table, the 
taxpayer's request for an emissions value will be automatically denied.
    Proposed Sec.  1.45Y-5(g)(3) would provide the process for filing a 
PER petition. Proposed Sec.  1.45Y-5(g)(3) would provide that to file a 
PER petition with the Secretary, a taxpayer must submit a PER petition 
by attaching it to the taxpayer's Federal income tax return or Federal 
return, as appropriate, for the first taxable year in which the 
taxpayer claims the section 45Y credit with respect to the facility to 
which the PER petition applies. Proposed Sec.  1.45Y-5(g)(3) would 
further provide that a PER petition must contain an emissions value 
and, if applicable, the associated DOE letter. An emissions value may 
be obtained from DOE or by using the LCA model designated in proposed 
Sec.  1.45Y-5(g)(6). An emission value obtained from DOE will be based 
on an analytical assessment of the emissions rate associated with the 
facility, performed by one or more National Laboratories, in 
consultation with other agency experts as appropriate, consistent with 
proposed Sec.  1.45Y-5. A taxpayer would be required to retain in its 
books and records the request to DOE for an emissions value, including 
any information provided by the taxpayer to DOE pursuant to the 
emissions value request process provided in proposed Sec.  1.45Y-
5(g)(5). Alternatively, an emissions value can be determined by the 
taxpayer for a facility using the most recent version of an LCA model 
or models, as of the time the PER petition is filed, that have been 
designated by the Secretary for such use under proposed Sec.  1.45Y-
5(g)(6). If an emissions value is determined using the designated 
model, a taxpayer is required to provide to the IRS information to 
support its determination of the emissions value in the form and manner 
prescribed in IRS forms or instructions or in publications or guidance 
published in the Internal Revenue Bulletin. A taxpayer may not request 
an emissions value from DOE for a facility for which an emissions value 
can be determined by using the most recent version of an LCA model or 
models that have been designated by the Secretary for such use under 
proposed Sec.  1.45Y-5(g)(6).
    Proposed Sec.  1.45Y-5(g)(4) would provide that, upon the IRS's 
acceptance of the taxpayer's Federal income tax return or Federal 
return, as appropriate, containing a PER petition, the emissions value 
of the facility specified on such petition will be deemed accepted. 
Proposed Sec.  1.45Y-5(g)(4) would further provide that a taxpayer 
would be able to rely upon an emissions value provided by DOE for 
purposes of calculating and claiming a section 45Y credit, provided 
that any information, representations, or other data provided to DOE in 
support of the request for an emissions value are accurate. If 
applicable, a taxpayer may rely upon an emissions value determined for 
a facility using the most recent version of the LCA model or models 
that, as of the time the PER petition is filed, have been designated by 
the Secretary for such use under proposed Sec.  1.45Y-5(g)(6), provided 
that any information, representations, or other data used to obtain 
such emissions value are accurate. The IRS's deemed acceptance of an 
emissions value is the Secretary's determination of the PER. Finally, 
proposed Sec.  1.45Y-5(g)(4) would provide that the taxpayer must still 
comply with all applicable requirements for the section 45Y credit and 
any information, representations, or other data supporting an emissions 
value are subject to later examination by the IRS.
    Proposed Sec.  1.45Y-5(g)(5) would provide the rules applicable to 
the emissions value request process. Proposed Sec.  1.45Y-5(g)(5) would 
provide that an applicant that submits a request for an emissions value 
must follow the procedures specified by DOE to request and obtain such 
emissions value, and that emissions values will be determined 
consistent with the rules provided in proposed Sec.  1.45Y-5. Proposed 
Sec.  1.45Y-5(g)(5) would further provide that an applicant may request 
an emissions value from DOE only after a front-end engineering and 
design (FEED) study or similar indication of project maturity, as 
determined by DOE, such as the completion of a project specification 
and cost estimation sufficient to inform a final investment decision 
for the facility. Proposed Sec.  1.45Y-5(g)(5) would provide that DOE 
may decline to review applications that are non-responsive and those 
applications that relate to a facility that is described in the Annual 
Table (consistent with proposed Sec.  1.45Y-5(g)(2)) or a facility that 
can determine an emissions value using a designated LCA model under 
proposed Sec.  1.45Y-5(g)(6) (consistent with proposed Sec.  1.45Y-
5(g)(3)), or applications that are incomplete. Proposed Sec.  1.45Y-
5(g)(5) would also provide that applicants must follow DOE's guidance 
and procedures for requesting and obtaining an emissions value from 
DOE. DOE will publish guidance and procedures that applicants must 
follow to request and obtain an emissions value from DOE. DOE's 
guidance and procedure will include a process, under limited 
circumstances, for a taxpayer to request a revision to DOE's initial 
assessment of an emissions value on the basis of revised technical 
information or facility design and operation. The Treasury Department 
and the IRS anticipate that the emissions value request process will 
open after the publication of the final regulations.
    Proposed Sec.  1.45Y-5(g)(6) would provide that the Secretary may 
designate one or more LCA models for a taxpayer to determine an 
emissions value for C&G Facilities that are not described in the Annual 
Table. Proposed Sec.  1.45Y-5(g)(6) would further provide that a model 
may only be designated if it complies with section 45Y(b)(2)(B) and 
proposed Sec.  1.45Y-5(d) and (e). The Secretary may revoke the 
designation of an LCA model or models. In connection with the 
designation or revocation of a designation of an LCA model or models, 
the Secretary would be required to publish an accompanying expert 
analysis of the model prepared by one or more of the National 
Laboratories, in consultation with other agency experts as appropriate, 
and such analysis must address the model's compliance with section 
45Y(b)(2)(B) of the Code and proposed Sec.  1.45Y-5(d) and (e). The 
Treasury Department and the IRS view the requirement to publish an 
expert analysis prepared by the National Laboratories of the 
designation or revocation of designation of an LCA model or models as 
essential to ensuring public accountability and adherence to sound 
scientific principles. This requirement would also ensure that the 
Secretary has a robust record to inform any designations or revocations 
of an LCA model or models.
    Proposed Sec.  1.45Y-5(g)(7) would provide the rules governing the 
effect of a PER. Proposed Sec.  1.45Y-5(g)(7) would provide that a 
taxpayer may use a PER determined by the Secretary to determine the 
section 45Y credit for the facility to which the PER applies, provided 
all other requirements of section 45Y are met. Proposed Sec.  1.45Y-
5(g)(7) would further provide that the Secretary's PER determination is 
not an examination or inspection of books of account for purposes of 
section 7605(b) of the Code and does not preclude or impede the IRS 
(under section 7605(b) or any administrative provisions adopted by the 
IRS) from later examining a return or inspecting books or records with 
respect to any taxable year for which the section 45Y credit is 
claimed. Finally, proposed Sec.  1.45Y-5(g)(7) would provide that a PER 
determination does not signify that the IRS has determined that the

[[Page 47812]]

requirements of section 45Y have been satisfied for any taxable year.
8. Reliance on Annual Table or Provisional Emissions Rate
    Proposed Sec.  1.45Y-5(h) would provide that taxpayers may rely on 
the Annual Table in effect as of the date a facility began construction 
or the provisional emissions rate that has been determined by the 
Secretary for the taxpayer's facility under proposed Sec.  1.45Y-
5(g)(4) to determine the facility's GHG emissions rate for that 
facility for any taxable year that is within the 10-year period 
described in section 45Y(b)(1)(B), provided that the facility continues 
to operate as a type of facility that is described in the Annual Table 
or the facility's emissions value request, as applicable, for the 
entire taxable year.
9. Substantiation
    Taxpayers have a general obligation to substantiate and verify that 
they have met the requirements of any tax credits claimed on their tax 
returns. Section 6001 of the Code provides that every person liable for 
any tax imposed by the Code, or for the collection thereof, must keep 
such records as the Secretary may from time to time prescribe. Section 
1.6001-1(a) provides that any person subject to income tax must keep 
such permanent books of account or records as are sufficient to 
establish the amount of gross income, deductions, credits, or other 
matters required to be shown by such person in any return of such tax. 
Section 1.6001-1(e) provides that the books and records required by 
Sec.  1.6001-1 must be retained so long as the contents thereof may 
become material in the administration of any internal revenue law.
    In addition to this general obligation to substantiate eligibility 
for a claimed tax credit, taxpayers may also be required to keep 
specific records as prescribed by the Secretary. This may be 
appropriate for purposes of the section 45Y credit because certain 
types of facilities may depend on operational choices, such as the use 
of certain types of feedstocks or fuels or engaging in carbon capture 
and sequestration, to achieve a net GHG emissions rate that is not 
greater than zero for a taxable year, and these operational choices may 
vary by year. Proposed Sec.  1.45Y-5(i)(1) would provide that a 
taxpayer must maintain in its books and records documentation regarding 
the design, operation, and if applicable, feedstock or fuel source used 
by the facility that establishes that such facility had a GHG emissions 
rate, as determined under Sec.  1.45Y-5, that is not greater than zero 
for the taxable year. The Treasury Department and the IRS intend to 
require in the final regulations that taxpayers maintain specific types 
of documentation to substantiate that a facility for which a section 
45Y credit is claimed has a net GHG emissions rate that is not greater 
than zero. The Treasury Department and the IRS request comment on the 
types of documentation taxpayers should be required to maintain to 
substantiate eligibility for the section 45Y credit.
    Proposed Sec.  1.45Y-5(i)(2) would further provide that 
documentation that is sufficient to substantiate that a facility had a 
GHG emissions rate of not greater than zero includes documentation or a 
report prepared by an unrelated party that verifies that a facility had 
such an emissions rate. Proposed Sec.  1.45Y-5(i)(2) would also provide 
that facilities described in Sec.  1.45Y-5(c)(2) can maintain 
sufficient documentation to demonstrate a GHG emissions rate showing 
that the facility is described in Sec.  1.45Y-5(c)(2). Finally, 
proposed Sec.  1.45Y-5(i)(2) would provide that future guidance may 
describe sufficient documentation to substantiate that certain 
facilities have a GHG emissions rate of not greater than zero. Because 
certain types or categories of facilities may have emissions rates that 
are highly variable and dependent on complex interactions between 
design choices, operational choices, and fuel and feedstock sourcing 
choices, the Treasury Department and the IRS seek comment on the 
relative risk of inadvertently crediting above-zero-emissions 
electricity generation for types or categories of facilities that may 
potentially be eligible for the section 45Y credit. In addition, 
comment is also requested on supply chain tracing and substantiation 
requirements that the Treasury Department and the IRS may require in 
the final regulations to demonstrate whether a facility used a specific 
fuel to produce electricity and that such fuel has the emissions 
attributes claimed by the taxpayer. Specifically, to inform the 
development of the substantiation rules for the Clean Electricity Tax 
Credits, comment is requested on the following topics:
    (1) What types of documentation or substantiation should a taxpayer 
maintain to establish that an input in the supply chain of a fuel/
feedstock used for electricity production has the energy attributes or 
other relevant characteristics (for example, source and production 
process) that were taken into account in determining a GHG emissions 
rate?
    (2) What existing systems, industry standards, or practices may be 
used to substantiate that a facility's operations and the supply chain 
for the inputs it used to produce electricity resulted in a GHG 
emissions rate that is not greater than zero for a taxable year? If 
existing systems, standards, or practices are currently not 
sufficiently developed to serve as a form of substantiation, how should 
such tracking and verification systems be developed and how long might 
such development take?
    (3) What supply chain tracing systems or verification bodies 
address fuels or feedstocks that may be commonly used by facilities 
that may be eligible for the Clean Electricity Tax Credits? What fuels 
or feedstocks could these systems or bodies address and for what 
purpose?
E. One-Megawatt Exception for Section 45Y
    The Treasury Department and the IRS intend to provide a more 
detailed definition for the One-Megawatt Exception in section 
45Y(a)(2)(B)(i) by expanding upon the definition provided in the August 
Proposed Regulations. The final regulations would provide that, for 
purposes of section 45Y(a)(2)(B)(i), the determination of whether a 
qualified facility has a maximum net output of less than one megawatt 
of electricity (as measured in alternating current) is determined based 
on the nameplate capacity. If applicable, taxpayers must use the 
International Standard Organization (ISO) conditions to measure the 
maximum electrical generating output of a qualified facility. For 
purposes of this measurement, the nameplate capacity is the maximum 
electrical generating output in MW (as measured in alternating current) 
that the qualified facility is capable of producing on a steady state 
basis and during continuous operation under standard conditions, as 
measured by the manufacturer and consistent with the definition of 
nameplate capacity provided in 40 CFR 96.202. The Treasury Department 
and the IRS request comment on this proposed definition. This rule is 
proposed to apply to qualified facilities placed in service after 
December 31, 2024, and during taxable years ending on or after the date 
of publication of the final regulations in the Federal Register.

II. Rules Applicable to the Clean Electricity Investment Tax Credit

    These proposed regulations are organized in five sections, proposed 
Sec. Sec.  1.48E-1 through 1.48E-5 (section 48E regulations). Proposed 
Sec.  1.48E-1 would provide an overview of the section 48E regulations, 
generally applicable definitions, and the rules applicable to the 
calculation of section 48E credit. Proposed Sec.  1.48E-2 would provide 
rules

[[Page 47813]]

relating to a qualified facility, a qualified investment, a qualified 
property, and an energy storage technology (EST). Section 1.48E-3 is 
reserved for rules relating to the increased credit amount for meeting 
the prevailing wage and apprenticeship requirements. A cross reference 
will be added to Sec.  1.48E-3 in the final regulations when Sec.  
1.48E-3 is finalized. Proposed Sec.  1.48E-4 would provide the rules of 
general application under section 48E, including the rules regarding 
the inclusion of qualified interconnection costs in the basis of a low-
output associated qualified facility, rules for expansion of a facility 
and incremental production, rules for retrofitting an existing 
facility, rules for the ownership of a qualified facility or an EST, 
rules regarding the coordination of the section 48E credit with other 
Federal income tax credits, and rules for credit recapture. Proposed 
Sec.  1.48E-5 would provide rules pertaining to the determination of a 
GHG emissions rate for a facility under section 48E.
A. Amount of Credit
    Proposed Sec.  1.48E-1(a) would provide an overview of the section 
48E regulations and provide definitions of terms for purposes of the 
section 48E regulations. Proposed Sec.  1.48E-1(b) would explain how to 
calculate the amount of the section 48E credit for any taxable year.
    Proposed Sec.  1.48E-1(b)(1) would provide that the credit is an 
amount equal to the applicable percentage of the qualified investment 
for such taxable year with respect to any qualified facility (as 
defined in proposed Sec.  1.48E-2(a)) and any EST (as defined in 
proposed Sec.  1.48E-2(g)). Proposed Sec.  1.48E-1(b)(2) would define 
the applicable percentage as the base rate in proposed Sec.  1.48E-
1(b)(3) or the alternative rate in proposed Sec.  1.48E-1(b)(4). 
Proposed Sec.  1.48E-1(b)(2) would also propose that the applicable 
percentage may be increased as provided in section 48E(a)(3)(A) and 
proposed Sec.  1.48E-1(b)(5) in the case of a qualified facility that 
is located in an energy community. Similarly, Sec.  1.48E-1(b)(2) would 
propose that the applicable percentage may be increased as provided in 
section 48E(a)(3)(B) and proposed Sec.  1.48E-1(b)(6) in the case of a 
qualified facility that satisfies the domestic content requirements.
    Proposed Sec.  1.48E-1(b)(3) would describe the base rate as 6 
percent. Proposed Sec.  1.48E-1(b)(4) would describe the alternative 
rate as 30 percent if certain prevailing wage and apprenticeship 
requirements are satisfied.
    Proposed Sec.  1.48E-1(b)(5) would provide rules applicable to the 
energy communities increase in credit rate. Proposed Sec.  1.48E-
1(b)(6) would provide rules applicable to the domestic content increase 
in credit rate.
    Proposed Sec.  1.48E-1(c) would provide the credit phase-out rules. 
Generally, proposed Sec.  1.48E-1(c)(1) would provide that the amount 
of the clean electricity investment credit under section 48E for any 
qualified facility or EST the construction of which begins during a 
calendar year described in section 48E(e)(2) is equal to the product of 
the amount of the credit determined under section 48E(a) and proposed 
Sec.  1.48E-1(b) without regard to section 48E(e), multiplied by the 
phase-out percentage under section 48E(e)(2) and proposed Sec.  1.48E-
1(c)(2). Proposed Sec.  1.48E-1(c)(2) would provide that the phase-out 
percentage is 100 percent for any qualified investment with respect to 
any qualified facility or EST the construction of which begins during 
the first calendar year following the applicable year; 75 percent for 
any qualified investment with respect to any qualified facility or EST 
the construction of which begins during the second calendar year 
following the applicable year; 50 percent for any qualified investment 
with respect to any qualified facility or EST the construction of which 
begins during the third calendar year following the applicable year; 
and 0 percent for any qualified investment with respect to any 
qualified facility or EST the construction of which begins during any 
calendar year subsequent to the calendar year described in section 
48E(e)(2)(C). Proposed Sec.  1.48E-1(c)(3) would define ``applicable 
year'' for purposes of proposed Sec.  1.48E-1(c) as having the same 
meaning as provided in proposed Sec.  1.45Y-1(c)(3).
B. Qualified Facility
    Proposed Sec.  1.48E-2(a) would define a ``qualified facility'' to 
mean a facility that is used for the generation of electricity; is 
placed in service by the taxpayer after December 31, 2024; and has a 
GHG emissions rate of not greater than zero (as determined under rules 
provided in Sec.  1.45Y-5).
1. Property Included in Qualified Facility
    Proposed Sec.  1.48E-2(b) would provide that a qualified facility 
includes a unit of qualified facility (as defined in proposed Sec.  
1.48E-2(b)(2)(i)) and property owned by the same taxpayer that is 
integral to the unit of qualified facility (as described in proposed 
Sec.  1.48E-2(b)(3)). Proposed Sec.  1.48E-2(b)(1) would provide that 
any component of property that meets the requirements of proposed Sec.  
1.48E-2(b) is part of a qualified facility regardless of where such 
component of property is located. Proposed Sec.  1.48E-2(b)(1) would 
provide that a qualified facility does not include any electrical 
transmission equipment, such as transmission lines and towers, or any 
equipment beyond the electrical transmission stage. Proposed Sec.  
1.48E-2(b)(1) would also provide that a qualified facility generally 
does not include equipment that is an addition or modification to an 
existing qualified facility. However, proposed Sec.  1.48E-2(b)(1) 
would reference proposed Sec.  1.48E-4(b) regarding the expansion of a 
facility or incremental production and proposed Sec.  1.48E-4(c) for 
rules regarding retrofitted facilities (80/20 Rule).
2. Functionally Interdependent
    Proposed Sec.  1.48E-2(b)(2)(i) would provide that the unit of a 
qualified functionally interdependent components of a property (as 
defined in Sec.  1.48E-2(b)(2)(ii) owned by the taxpayer that are 
operated together and that can operate apart from other property to 
produce electricity. Proposed Sec.  1.48E-2(b)(2)(i) would further 
provide that no provision of this section, Sec.  1.48E-1, or Sec.  
1.48E-4 through 1.48E-5 uses the term ``unit'' in respect of a 
qualified facility with any meaning other than that provided in Sec.  
1.48E-2(b)(2)(ii). A reference to Sec.  1.48E-3 will also be added to 
the previous sentence in proposed Sec.  1.48E-2(b)(2)(i) when that 
regulation is finalized, but it cannot be added until Sec.  1.48E-3 is 
finalized. Proposed Sec.  1.48E-2(b)(2)(ii) would define components as 
``functionally interdependent'' if the placing in service of each of 
the components is dependent upon the placing in service of each of the 
other components to produce electricity.
3. Integral Part
    Proposed Sec.  1.48E-2(b)(3)(i) would provide that property owned 
by a taxpayer is an integral part of a qualified facility owned by the 
same taxpayer if it is used directly in the intended function of the 
qualified facility and is essential to the completeness of the intended 
function. Proposed Sec.  1.48E-2(b)(3)(i) would also clarify that 
property that is an integral part of a qualified facility is part of 
the qualified facility. Lastly, proposed Sec.  1.48E-2(b)(3)(i) would 
explain that a taxpayer may not claim the section 48E credit for any 
property that is an integral part of a qualified facility that is not 
owned by the taxpayer.

[[Page 47814]]

    Proposed Sec.  1.48E-2(b)(3)(ii) would describe power conditioning 
equipment and transfer equipment as integral parts of a qualified 
facility. Proposed Sec.  1.48E-2(b)(3)(ii) would further provide that 
power conditioning equipment includes equipment that modifies the 
characteristics of electricity into a form suitable for use or 
transmission or distribution. Proposed Sec.  1.48E-2(b)(3)(ii) would 
also provide that parts related to the functioning or protection of 
power conditioning equipment are also treated as power conditioning 
equipment and include examples.
    Proposed Sec.  1.48E-2(b)(3)(ii) would further provide that 
transfer equipment includes components that permit the aggregation of 
electricity generated by components of qualified facilities and 
components that alter voltage to permit transfer to a transmission or 
distribution line and would clarify that transfer equipment does not 
include transmission or distribution lines. Proposed Sec.  1.45Y-
2(b)(3)(ii) would provide examples of transfer equipment that include, 
but are not limited to, wires, cables, and combiner boxes that conduct 
electricity. Proposed Sec.  1.45Y-2(b)(3)(ii) would provide that parts 
related to the functioning or protection of transfer equipment are also 
treated as transfer equipment and include examples.
    Proposed Sec.  1.48E-2(b)(3)(iii) would provide that roads that are 
an integral part of a qualified facility are those roads integral to 
the intended function of the qualified facility such as onsite roads 
that are used to operate and maintain the qualified facility. Proposed 
Sec.  1.48E-2(b)(3)(iii) would also clarify that roads primarily for 
access to the site, or roads used primarily for employee or visitor 
vehicles, are not integral to the intended function of the qualified 
facility, and thus are not an integral part of a qualified facility.
    Proposed Sec.  1.48E-2(b)(3)(iv) and (v) would provide that fences 
and buildings (also referred to as structures) are generally not 
integral parts of a qualified facility because they are not integral to 
the intended function of the qualified facility. However, a building 
(or structure) may be an integral part of a qualified facility if it is 
essentially an item of machinery or equipment and a structure that 
houses property that is integral to the intended function of the 
qualified facility, if the use of the structure is so closely related 
to the use of the housed components of property therein that the 
structure clearly can be expected to be replaced if the components of 
property it initially houses are replaced.
    Proposed Sec.  1.48E-2(b)(3)(vi) would provide a rule for shared 
integral property stating that multiple qualified facilities (whether 
owned by one or more taxpayers), including qualified facilities with 
respect to which a taxpayer has claimed a credit under section 48E or 
another Federal income tax credit, may include shared property that may 
be considered an integral part of each qualified facility so long as 
the cost basis for the shared property is properly allocated to each 
qualified facility and the taxpayer only claims a section 48E credit 
with respect to the portion of the cost basis properly allocable to a 
facility for which the taxpayer is claiming a section 48E credit. 
Proposed Sec.  1.48E-2(b)(3)(vi) would further clarify that the total 
cost basis of such shared property divided among the qualified 
facilities may not exceed 100 percent of the cost of such shared 
property. Lastly, proposed Sec.  1.48E-2(b)(3)(vi) specifies that 
property that is shared by a qualified facility (as defined in section 
48E(b)(3)) (48E Qualified Facility) and a qualified facility (as 
defined by section 45Y(b) (45Y Qualified Facility) that is an integral 
part of both qualified facilities will not affect the eligibility of 
the 48E Qualified Facility for the section 48E credit or the 45Y 
Qualified Facility for the section 45Y credit.
4. Coordination With Other Credits
    Proposed Sec.  1.48E-2(c)(1) would provide that the term 
``qualified facility'' (as defined in section 48E(b)(3)) will not 
include any facility for which a credit determined under section 45, 
45J, 45Q, 45U, 45Y, 48, or 48A is allowed under section 38 for the 
taxable year or any prior taxable year. Proposed Sec.  1.48E-2(c)(1) 
would further clarify that a taxpayer that directly owns a qualified 
facility (as defined in section 48E(b)(3)) that is eligible for both a 
section 48E credit and another Federal income tax credit is eligible 
for the section 48E credit only if the other Federal income tax credit 
was not allowed with respect to the qualified facility. Proposed Sec.  
1.48E-2(c)(1) would provide that nothing in proposed Sec.  1.48E-2(c) 
precludes a taxpayer from claiming a section 48E credit with respect to 
a qualified facility (as defined in section 48E(b)(3)) that is co-
located with another facility for which a credit determined under 
section 45, 45J, 45Q, 45U, 45Y, 48, or 48A is allowed under section 38 
for the taxable year or any prior taxable year.
    Proposed Sec.  1.48E-2(c)(2) would clarify that for purposes of 
proposed Sec.  1.48E-2(c)(1), the term ``allowed'' only includes 
credits that taxpayers have claimed on a Federal income tax return or 
Federal return, as appropriate, and that the IRS has not challenged in 
terms of the taxpayer's eligibility.
    Proposed Sec.  1.48E-2(c)(3) would include several examples that 
illustrate the application of the rules provided in proposed Sec.  
1.48E-2(c).
5. Qualified Investment With Respect to a Qualified Facility
    Proposed Sec.  1.48E-2(d) would describe a qualified investment 
with respect to any qualified facility for any taxable year as the sum 
of the basis of any qualified property (as defined in proposed Sec.  
1.48E-2(e)(1)) placed in service by the taxpayer during such taxable 
year that is part of a qualified facility (as defined in proposed Sec.  
1.48E-2(a)) and the amount of any expenditures paid or incurred by the 
taxpayer for qualified interconnection property (as defined in proposed 
Sec.  1.48E-4(a)(2)).
6. Qualified Property
a. Generally
    Proposed Sec.  1.48E-2(e) would define ``qualified property'' for 
purposes of proposed Sec.  1.48E-2(a) to mean property that meets three 
requirements. First, proposed Sec.  1.48E-2(e)(1)(i) would require that 
the property is tangible personal property (as defined in proposed 
Sec.  1.48E-2(f)(1)) or other tangible property (not including a 
building or its structural components) (as defined in proposed Sec.  
1.48E-2(f)(2)), but only if such other tangible property is used as an 
integral part (as defined proposed Sec.  1.48E-2(b)(3)) of the 
qualified facility (as defined in proposed Sec.  1.48E-2(a)).
    Second, proposed Sec.  1.48E-2(e)(1)(ii) would require that 
depreciation (or amortization in lieu of depreciation) be allowable (as 
defined in proposed Sec.  1.48E-2(f)(6)) with respect to the property.
    Third, proposed Sec.  1.48E-2(e)(1)(iii) would require that the 
taxpayer either constructs, reconstructs, or erects the property (as 
defined in proposed Sec.  1.48E-2(f)(3)) or acquires the property (as 
defined in proposed Sec.  1.48E-2(f)(4)) if the original use of the 
property (as defined in proposed Sec.  1.48E-2(f)(5)) commences with 
the taxpayer.
    Proposed Sec.  1.48E-2(e)(2) would provide that any component of a 
qualified property that meets the requirements of proposed Sec.  1.48E-
2(e) is part of a qualified facility regardless of where such component 
of property is located.

[[Page 47815]]

b. Definitions Related to Qualified Property
Tangible Personal Property
    Proposed Sec.  1.48E-2(f)(1) would define the term ``tangible 
personal property'' for purposes of section 48E and proposed Sec.  
1.48E-2(b) to mean any tangible property except land and improvements 
thereto, such as buildings or other inherently permanent structures 
(including items that are structural components of such buildings or 
structures). Proposed Sec.  1.48E-2(f)(1) would further provide that 
tangible personal property includes all property (other than structural 
components) that is contained in or attached to a building and that all 
property that is in the nature of machinery (other than structural 
components of a building or other inherently permanent structure) is 
considered tangible personal property even though located outside a 
building. Finally, proposed Sec.  1.48E-2(f)(1) would clarify that 
local law is not controlling for purposes of determining whether 
property is or is not tangible property or tangible personal property. 
Therefore, proposed Sec.  1.48E-2(f)(1) would explain that tangible 
property may be personal property for purposes of the section 48E 
credit even though under local law the property is considered a fixture 
and therefore real property.
Other Tangible Property
    Proposed Sec.  1.48E-2(f)(2) would define the term ``other tangible 
property'' to mean tangible property other than tangible personal 
property (not including a building and its structural components), that 
is used as an integral part of furnishing electricity by a person 
engaged in a trade or business of furnishing any such service.
Construction, Reconstruction, or Erection of Qualified Property
    Proposed Sec.  1.48E-2(f)(3) would define the term ``construction, 
reconstruction, or erection of qualified property'' to mean work 
performed to construct, reconstruct, or erect qualified property either 
by the taxpayer or for the taxpayer in accordance with the taxpayer's 
specifications.
Acquisition of Qualified Property
    Proposed Sec.  1.48E-2(f)(4) would define the term ``acquisition of 
qualified property'' to mean a transaction by which a taxpayer obtains 
rights and obligations with respect to qualified property including 
title to the qualified property under the law of the jurisdiction in 
which the qualified property is placed in service, unless the qualified 
property is possessed or controlled by the taxpayer as a lessee, and 
physical possession or control of the qualified property.
Original Use of Qualified Property
    Proposed Sec.  1.48E-2(f)(5)(i) would provide that the term 
``original use of qualified property'' means the first use to which 
qualified property is put, whether or not such use is by the taxpayer. 
Proposed Sec.  1.48E-2(f)(5)(ii) would clarify that a retrofitted 
qualified facility acquired by the taxpayer will not be treated as 
being put to original use by the taxpayer unless the rules in proposed 
Sec.  1.48E-4(c) regarding retrofitted qualified facilities (80/20 
Rule) apply. Proposed Sec.  1.48E-2(f)(5)(ii) explains that the 
question of whether a qualified facility meets the 80/20 Rule is a 
facts and circumstances determination.
Depreciation Allowable
    Proposed Sec.  1.48E-2(f)(6)(i) would provide a general rule for 
purposes of applying proposed Sec.  1.48E-2(b), that depreciation (or 
amortization in lieu of depreciation) is allowable with respect to 
qualified property if such property is of a character subject to the 
allowance for depreciation under section 167 of the Code and the basis 
or cost of such property is recovered using a method of depreciation 
(for example, the straight line method), which includes any additional 
first year depreciation deduction method of depreciation (for example, 
under section 168(k) of the Code). Proposed Sec.  1.48E-2(f)(6)(i) 
would further clarify that if an adjustment with respect to the Federal 
income tax or Federal return for such taxable year requires the basis 
or cost of such qualified property to be recovered using a method of 
depreciation, depreciation is allowable to the taxpayer with respect to 
the qualified property. Proposed Sec.  1.48E-2(f)(6)(ii) would describe 
exclusions from allowable depreciation stating that for purposes of 
proposed Sec.  1.48E-2(b), depreciation is not allowable with respect 
to a qualified facility if the basis or cost of such qualified facility 
is not recovered through a method of depreciation but, instead, such 
basis or cost is recovered through a deduction of the full basis or 
cost of the qualified facility in one taxable year (for example, under 
section 179 of the Code).
Placed in Service
    Proposed Sec.  1.48E-2(f)(7)(i) would provide the general rule for 
determining when a qualified facility has been placed in service for 
purposes of the section 48E credit. Proposed Sec.  1.48E-2(f)(7)(ii) 
would provide that notwithstanding the general placed in service rules 
provided in proposed Sec.  1.48E-2(b)(7)(i), a qualified facility with 
respect to which an election is made under Sec.  1.48-4 to treat the 
lessee as having purchased such qualified facility is considered placed 
in service by the lessor in the taxable year in which possession is 
transferred to such lessee.
Claim
    Proposed Sec.  1.48E-2(f)(8) would provide that with respect to a 
section 48E credit determined with respect to qualified facility of a 
taxpayer, the term ``claim'' would be defined to mean filing a 
completed Form 3468, Investment Credit, or any successor form(s), with 
the taxpayer's timely filed (including extensions) Federal income tax 
return or Federal return, as appropriate, for the taxable year in which 
the qualified facility is placed in service, and includes making an 
election under section 6417 or 6418 of the Code and corresponding 
regulations with respect to such section 48E credit and made on the 
taxpayer's filed return.
C. Energy Storage Technology
1. General Rule
    Proposed Sec.  1.48E-2(g)(1) would provide that an EST includes a 
unit of EST that meets the requirements of proposed Sec.  1.48E-
2(g)(2)(i). An EST also would include property owned by the taxpayer 
that is an integral part (as defined in proposed Sec.  1.48E-2(g)(3)) 
of the unit of EST. Proposed Sec.  1.48E-2(g)(1) would provide that 
equipment that is an addition or modification to an existing EST is not 
eligible for the section 48E credit. Proposed Sec.  1.48E-2(g)(1) would 
further provide that, an EST would include electrical energy storage 
property described in proposed Sec.  1.48E-2(g)(6)(i), thermal energy 
storage property described in proposed Sec.  1.48E-2(g)(6)(ii), and 
hydrogen energy storage property described in proposed Sec.  1.48E-
2(g)(6)(iii).
    Proposed Sec.  1.48E-2(g)(2) would provide that a unit of EST 
includes all functionally interdependent components of property (as 
defined in proposed Sec.  1.48E-2(g)(2)(ii)), owned by the taxpayer 
that are operated together and that can operate apart from other 
property to perform the intended function of the EST.
2. Functionally Interdependent
    Proposed Sec.  1.48E-2(g)(2)(i) would provide that for purposes of 
the section 48E credit, a unit of EST includes all functionally 
interdependent components of property (as defined in paragraph proposed 
Sec.  1.48E-2(g)(2)(ii))

[[Page 47816]]

owned by the taxpayer that are operated together and that can operate 
apart from other property to perform the intended function of the EST. 
Proposed Sec.  1.48E-2(g)(2)(i) would also provide that no provision of 
this section, Sec.  1.48E-1, or Sec.  1.48E-3 through 1.48E-5 uses the 
term unit in respect of an EST with any meaning other than that 
provided in Sec.  1.48E-2(g)(2)(i). Proposed Sec.  1.48E-2(g)(2)(ii) 
would provide that components are functionally interdependent if the 
placing in service of each of the components is dependent upon the 
placing in service of each of the other components to perform the 
intended function of the EST.
3. Integral Part
    Proposed Sec.  1.48E-2(g)(3) would provide that property owned by a 
taxpayer is an integral part of EST owned by the same taxpayer if it is 
used directly in the intended function of the EST and is essential to 
the completeness of such function. Proposed Sec.  1.48E-2(g)(3) would 
also provide that property that is an integral part of an EST is part 
of an EST. Lastly, proposed Sec.  1.48E-2(g)(3) would provide that a 
taxpayer may not claim the section 48E credit for any property that is 
an integral part of an EST that is not owned by the taxpayer.
4. Qualified Investment With Respect to Energy Storage Technology
    Proposed Sec.  1.48E-2(g)(4) would describe the qualified 
investment with respect to any EST for any taxpayer year as the basis 
of any EST placed in service by the taxpayer during such taxable year.
5. Placed in Service
    Proposed Sec.  1.48E-2(g)(5)(i) would provide rules for determining 
when an EST has been placed in service for purposes of the section 48E 
credit. Proposed Sec.  1.48E-2(g)(5)(ii) also would provide that 
notwithstanding the general placed in service rules provided in 
proposed Sec.  1.48E-2(g)(5)(i), an EST with respect to which an 
election is made under Sec.  1.48-4 to treat the lessee as having 
purchased such EST is considered placed in service by the lessor in the 
taxable year in which possession is transferred to such lessee.
6. Types of Energy Storage Technologies
    Proposed Sec.  1.48E-2(g)(6)(i) would describe electrical energy 
storage property as property (other than property primarily used in the 
transportation of goods or individuals and not for the production of 
electricity) that receives, stores, and delivers energy for conversion 
to electricity and has a nameplate capacity of not less than 5 kWh. See 
subsection C of Overview of Section 48E. Proposed Sec.  1.48E-
2(g)(6)(i) also would provide examples of such electrical energy 
storage property, subject to the exclusion for property primarily used 
in the transportation of goods or individuals.
    The Treasury Department and the IRS understand that this exclusion 
for property primarily used in the transportation of goods or 
individuals, at a minimum, would apply to batteries and other EST that 
are incorporated into or otherwise physically integrated within motor 
vehicles and other modes of transportation of goods or individuals and 
from which an electric motor of such vehicle or other mode of 
transportation draws electricity for propulsion.
    Proposed Sec.  1.48E-2(g)(6)(ii) would describe thermal energy 
storage property as property comprising a system that is directly 
connected to a heating, ventilation, or air conditioning (HVAC) system; 
removes heat from, or adds heat to, a storage medium for subsequent 
use; and provides energy for the heating or cooling of the interior of 
a residential or commercial building. See section C of Overview of 
Section 48E. Proposed Sec.  1.48E-2(g)(6)(ii) would also provide that 
thermal energy storage property includes equipment and materials, and 
parts related to the functioning of such equipment, to store thermal 
energy for later use to heat or cool, or to provide hot water for use 
in heating a residential or commercial building. In addition, proposed 
Sec.  1.48E-2(g)(6)(ii) would provide that thermal energy storage 
property does not include a swimming pool, CHP property, or a building 
or its structural components. Lastly, proposed Sec.  1.48E-2(g)(6)(ii) 
would provide examples of thermal energy storage property.
    Proposed Sec.  1.48E-2(g)(6)(iii) would provide that hydrogen 
energy storage property is property (other than property primarily used 
in the transportation of goods or individuals and not for the 
production of electricity) that stores hydrogen and has a nameplate 
capacity of not less than 5 kWh, equivalent to 0.127 kg of hydrogen or 
52.7 standard cubic feet (scf) of hydrogen. Proposed Sec.  1.48E-
2(g)(6)(iii) would also provide that hydrogen energy storage property 
must store hydrogen that is solely used as energy and not for other 
purposes such as for the production of end products such as fertilizer. 
Proposed Sec.  1.48E-2(g)(6)(iii) would also provide examples of 
hydrogen energy storage property.
    Although the list of examples of energy storage technologies that 
proposed Sec.  1.48E-2(g)(6) would provide is nonexclusive, and 
therefore many other technologies that are not addressed would meet 
these functional definitions, there are some examples that do not meet 
the functional definition. For example, some technologies are marketed 
as ``virtual batteries,'' which are aggregations of controllable 
electricity demand providing similar electrical grid services to an 
electrical grid battery. Such ``virtual batteries'' receive energy in 
the form of electricity, but they do not store it for later discharge 
as electricity. The function of ``virtual batteries'' is to shift 
demand to different points in time. Because such demand shifting is not 
a storage activity for purposes of section 48(c)(6) (and thus for 
purposes of section 48E(c)(2)), this technology is not an EST. There 
are other technologies for which the determination of whether they meet 
the statutory requirements is less clear.
7. Modification of Energy Storage Technology
    Proposed Sec.  1.48E-2(g)(7) would provide rules for modification 
of EST. Based on the rules in section 48(c)(6)(B), proposed Sec.  
1.48E-2(g)(7) would provide that with respect to electrical energy 
storage property and hydrogen energy storage property, modified as set 
forth in proposed Sec.  1.48E-2(g)(7), such property will be will be 
treated as an electrical energy storage property (as described in 
proposed Sec.  1.48E-2(g)(6)(i)) or a hydrogen energy storage property 
(as described in proposed Sec.  1.48E-2(g)(6)(iii)), except that the 
basis of any existing electrical energy storage property or hydrogen 
energy storage property prior to such modification is not taken into 
account for purposes of proposed Sec.  1.48E-2(g)(7) and section 48E.
8. Claim
    Proposed Sec.  1.48E-2(g)(8) would provide that with respect to a 
section 48E credit determined with respect to an EST of a taxpayer, the 
term ``claim'' means filing a completed Form 3468, Investment Credit, 
or any successor form(s), with the taxpayer's timely filed (including 
extensions) Federal income tax return or Federal return, as 
appropriate, for the taxable year in which the EST is placed in 
service, and includes making an election under section 6417 or 6418 and 
corresponding regulations with respect to such section 48E credit and 
made on the taxpayer's filed return.

[[Page 47817]]

D. Rules of General Application to Section 48E
1. Rules for Certain Lower-Output Qualified Facilities
    Proposed Sec.  1.48E-4(a)(1) would provide rules for qualified 
facilities with a maximum net output of not greater than 5 megawatts to 
include qualified interconnection costs in the basis of an associated 
qualified facility. Proposed Sec.  1.48E-4(a)(1) would provide that the 
qualified investment for a qualified facility includes amounts paid or 
incurred by the taxpayer for qualified interconnection property in 
connection with the installation of a qualified facility that has a 
maximum net output of not greater than 5 MW (as measured in alternating 
current) (Five-Megawatt Limitation). Proposed Sec.  1.48E-4(a)(1) would 
provide that the qualified interconnection property must provide for 
the transmission or distribution of the electricity produced by a 
qualified facility and must be properly chargeable to the capital 
account of the taxpayer as reduced by proposed Sec.  1.48E-4(a)(6). 
Proposed Sec.  1.48E-4(a)(2) would define the term ``qualified 
interconnection property.'' Proposed Sec.  1.48E-4(a)(2) would further 
provide that qualified interconnection property is not taken into 
account to determine if a qualified facility meets the requirements for 
the increase in credit rate for energy communities or domestic content 
because qualified interconnection property is not part of a qualified 
facility.
    Proposed Sec.  1.48E-4(a)(3) would describe the Five-Megawatt 
Limitation as a measurement taken at the qualified facility level. 
Proposed Sec.  1.48E-4(a)(3)(i) would provide that the maximum net 
output of a qualified facility is measured only by the nameplate 
generating capacity of the unit of qualified facility, which does not 
include the nameplate capacity of any integral property, at the time 
that the qualified facility is placed in service. Further, proposed 
Sec.  1.48E-4(a)(3)(i) would also provide that the nameplate generating 
capacity of the unit of qualified facility is measured independently 
from any other qualified facilities that share the same integral 
property.
    Proposed Sec.  1.48E-4(a)(4) would define the term 
``interconnection agreement.'' and proposed Sec.  1.48E-4(a)(5) would 
define the term ``utility.''
    Proposed Sec.  1.48E-4(a)(6) would provide that expenses paid or 
incurred for qualified interconnection property and amounts otherwise 
chargeable to capital account with respect to such expenses must be 
reduced under rules similar to the rules contained in section 50(c). 
The taxpayer must pay or incur the interconnection property costs, and 
therefore, any reimbursement, including by a utility, must be accounted 
for by reducing the taxpayers' expenditure to determine eligible costs.
    A taxpayer that is reimbursed for these costs may not include such 
reimbursed costs in the amount paid or incurred by the taxpayer for 
qualified interconnection property. Proposed Sec.  1.48E-4(a)(6) would 
adopt this rule. In the case of a utility reimbursing a taxpayer for 
costs the taxpayer pays or incurs for qualified interconnection 
property, the utility should provide the taxpayer with information 
regarding such costs by the date on which the project is placed in 
service.
    The Treasury Department and the IRS are aware of common situations 
in which a taxpayer could ultimately receive a payment, credit, or 
service from another entity, including a utility, related to the costs 
the taxpayer pays or incurs for qualified interconnection property. For 
example, one taxpayer may place in service a qualified facility and 
make payments to a utility with respect to qualified interconnection 
property involving the addition, modification, or upgrade to the 
utility's transmission system related to such qualified facility. 
Subsequently, a different taxpayer may, at a later date, place in 
service a qualified facility and make payments to the same utility 
related to the same additions, modifications, or upgrades to the 
utility's transmission system that were made in response to the first 
taxpayer's interconnection. The utility may pay, credit, or provide 
services to the first taxpayer in an amount related to the costs paid 
by the second taxpayer. The likely amount or timing of any such 
payment, credit, or service would not be known at the time the first 
taxpayer interconnects to the utility's transmission system.
    The Treasury Department and the IRS request comment on whether such 
payment, credit, or service received by the first taxpayer, as the 
result of subsequent payments made to a utility by other parties, 
should be treated as a reimbursement to the first taxpayer and impact 
the amount of the costs of qualified interconnection property that the 
first taxpayer may include in its basis for purposes of the section 48E 
credit. The Treasury Department and the IRS also request comment on 
whether the costs paid by the second taxpayer should be treated as 
amounts paid or incurred for qualified interconnection property in 
connection with the installation of the second taxpayer's qualified 
facility. The Treasury Department and the IRS request comment on 
industry practices relevant to the determination of costs paid or 
incurred for qualified interconnection property, including the 
accounting treatment of costs paid or incurred for qualified 
interconnection property. The Treasury Department and the IRS also 
request comment on whether any clarifications are needed regarding the 
tax treatment of amounts paid or incurred for qualified interconnection 
property, including reimbursement of costs paid or incurred by a 
taxpayer for qualified interconnection costs.
    In section 3.02(1)(b)(ii) of Notice 2022-49, the Treasury 
Department and the IRS requested comments concerning what type of 
documentation, in addition to interconnection agreements and cost 
certification reports, is readily available for a taxpayer to 
demonstrate that they have paid or incurred interconnection costs in 
the context of the section 48 credit. Taxpayers must retain 
documentation in compliance with section 6001. The proposed regulations 
do not provide any specific type of required documentation, and any 
documentation that satisfies section 6001 will suffice to substantiate 
that a taxpayer has paid or incurred qualified interconnection costs. 
Commenters to Notice 2022-49 provided feedback on the documentation 
that taxpayers may use to substantiate costs paid or incurred for 
qualified interconnection property in the context of the section 48 
credit. The Treasury Department and the IRS request comments on this 
same question in the context of the section 48E credit.
    Qualified interconnection property is either constructed, 
reconstructed, or erected by the taxpayer, or the taxpayer pays or 
incurs the cost with respect to the construction, reconstruction, or 
erection of such property; and the original use of which, pursuant to 
an interconnection agreement, commences with a utility. Therefore, in 
some cases, taxpayers will have the necessary information and 
documentation on these costs. In other cases, the taxpayers will need 
to receive this information from the utility, which, the Treasury 
Department and the IRS understand, will be a common scenario. For 
situations in which property is constructed, reconstructed, or erected 
by a party other than the taxpayer, final information with conclusive 
details such as a true-up report with the actual costs, final invoices, 
proof of payment or reimbursement, and permission to operate 
documentation or any other final project accounting documentation 
should be maintained. Other examples

[[Page 47818]]

of cost documentation records include, but are not limited to, the 
interconnection agreement, interconnection study, signed customer 
contracts, and cost certification reports.
2. Expansion of Facility; Incremental Production
    Proposed Sec.  1.48E-4(b) would provide rules related to the 
expansion of capacity of a qualified facility by the addition of a new 
unit or an addition of capacity. Proposed Sec.  1.48E-4(b)(1) would 
provide, that solely for purposes of Sec.  1.48E-4(b), the term 
``qualified facility'' includes either a new unit or an addition of 
capacity placed in service after December 31, 2024, in connection with 
a facility described in section 48E(b)(3)(A) (without regard to clause 
(ii) of such paragraph), which was placed in service before January 1, 
2025, but only to the extent of the increased amount of electricity 
produced at the facility by reason of such new unit or addition of 
capacity. Proposed Sec.  1.48E-4(b)(1) further provides that a new unit 
or an addition of capacity that meets the requirements of proposed 
Sec.  1.48E-4(b) will be treated as a separate qualified facility. 
Proposed Sec.  1.48E-4(b) provides that a new unit or addition of 
capacity requires the addition or replacement of qualified property (as 
defined in Sec.  1.48E-2(e)), including any new or replacement integral 
property added to the facility necessary to increase capacity. If 
applicable, taxpayers must use modified or amended facility operating 
licenses or the International Standard Organization (ISO) conditions to 
measure the maximum electrical generating output of a facility to 
determine nameplate capacity. Additionally, Sec.  1.48E-4(b)(1) would 
provide that for purposes of section 48E(a)(2)(B)(ii)(I) (that is, the 
One-Megawatt Exception), the capacity for a new unit or an addition of 
capacity is the sum of the nameplate capacity of the added qualified 
facility and the nameplate capacity of the facility to which the 
qualified facility was added.
    Proposed Sec.  1.48E-4(b)(2) would provide that solely for purposes 
of Sec.  1.48E-4(b), a facility that is decommissioned or in the 
process of decommissioning and restarts can be considered to have 
increased capacity if the following conditions are met: (1) the 
existing facility must have ceased operations; (2) the existing 
facility must have a period of at least one calendar year during which 
it is without a valid operating license from its respective Federal 
regulatory authority (that is, the Federal Energy Regulatory Commission 
(FERC) or the Nuclear Regulatory Commission (NRC)); and (3) the 
increased capacity of the restarted facility must have a new, 
reinstated, or renewed operating license issued by either FERC or NRC.
    Proposed Sec.  1.48E-4(b)(3) would describe two different methods 
for a taxpayer to compute the qualified investment that increased the 
amount of electricity produced by either a new unit or an addition of 
capacity described in Sec.  1.48E-4(b)(1). Proposed Sec.  1.48E-
4(b)(3)(i) would provide that the term ``new unit'' means components of 
property including any new or replacement integral property added to a 
facility necessary to increase the capacity of the facility but do not 
replace the existing capacity of the facility. Further, proposed Sec.  
1.48E-4(b)(3)(i) would provide that the taxpayer's qualified investment 
in the new unit during the taxable year that results in an increase in 
capacity is eligible for the section 48E credit.
    Proposed Sec.  1.48E-4(b)(3)(ii) would address the application of 
the rule to an addition of capacity by providing that the term 
``addition of capacity'' means components of property, including any 
new or replacement integral property added to a facility necessary to 
increase the capacity of the facility by replacing, in whole or in 
part, the existing capacity of the facility. Proposed Sec.  1.48E-
4(b)(3)(ii) would provide that to determine a taxpayer's qualified 
investment during the taxable year that resulted in an increased 
capacity of a facility by reason of an addition of capacity not 
described in proposed Sec.  1.48E-4(b)(3)(i), a taxpayer must multiply 
its total qualified investment during the taxable year with respect to 
the facility, by a fraction, the numerator of which is the increase in 
nameplate capacity that results from the addition of capacity, and the 
denominator of which is the total nameplate capacity associated with 
the components of property that result in the addition of capacity.
    Proposed Sec.  1.48E-4(b)(4) would provide examples to illustrate 
the application of both methods to determine the increased amount of 
electricity attributable to a new unit or an addition of capacity 
described in Sec.  1.48E-4(b)(1).
3. Retrofit of an Existing Facility (80/20 Rule)
    Proposed Sec.  1.48E-4(c) would provide rules related to the 
retrofit of an existing qualified facility. Proposed Sec.  1.48E-
4(c)(1) would provide that for purposes of section 48E(b)(3)(A)(ii), a 
facility may qualify as originally placed in service even if it 
contains some used components of property within the unit of qualified 
facility, provided that the fair market value of the used components of 
the unit of qualified facility is not more than 20 percent of the unit 
of qualified facility's total value (that is, the cost of the new 
components of property plus the value of the used components of 
property within the unit of qualified facility) (80/20 Rule).
    Proposed Sec.  1.48E-4(c)(2) would provide that only expenditures 
paid or incurred that related to the new components of the unit of 
qualified facility are taken into account for computing the section 48E 
credit with respect to the unit of qualified facility.
    Proposed Sec.  1.48E-4(c)(3) would provide that the cost of new 
components of the unit of qualified facility includes all costs 
properly included in the depreciable basis of the new components.
    Proposed Sec.  1.48E-4(c)(4) would provide that if the taxpayer 
satisfies the 80/20 Rule with regard to a unit of qualified facility, 
and the taxpayer incurs new costs for property that is an integral part 
of the qualified facility, the taxpayer may include these new costs 
paid or incurred for property that is an integral part of the qualified 
facility in the basis of the qualified facility for purposes of 
calculating the section 48E credit.
    Proposed Sec.  1.48E-4(c)(5) would provide that costs incurred for 
new components of property added to used components of a unit of 
qualified facility may not be taken into account for purposes of the 
section 48E credit unless the taxpayer satisfies the 80/20 Rule. 
Proposed Sec.  1.48E-4(c)(6) would provide examples.
4. Special Rules Regarding Ownership
    Proposed Sec.  1.48E-4(d) would provide rules related to the 
ownership of a qualified facility or EST. Proposed Sec.  1.48E-4(d)(1) 
would provide that a taxpayer that owns a qualified investment with 
respect to a qualified facility or EST is eligible for the section 48E 
credit only to the extent of the taxpayer's eligible investment in the 
qualified facility or EST. In the case of multiple taxpayers holding 
direct ownership through their qualified investments in a single 
qualified facility or EST, each taxpayer determines its eligible 
investment based on the taxpayer's fractional ownership interest in the 
qualified facility or EST.
    Proposed Sec.  1.48E-4(d)(2) would provide that a taxpayer must 
directly own at least a fractional interest in the entire unit of 
qualified facility (as defined in Sec.  1.48E-2(b)(2) or unit of EST 
(as defined in Sec.  1.48E-2(g)(2)) for a section 48E credit to be 
determined with

[[Page 47819]]

respect to such taxpayer's interest. Proposed Sec.  1.48E-4(d)(2) also 
provides that no section 48E credit may be determined with respect to a 
taxpayer's ownership of one or more separate components of a qualified 
facility or EST if the components do not constitute a unit of qualified 
facility (as defined in proposed Sec.  1.48E-2(b)(2)) or unit of EST 
(as defined in proposed Sec.  1.48E-2(g)(2)). However, proposed Sec.  
1.48E-4(d)(2) provides that the use of the components of property owned 
by one taxpayer that is an integral part of a qualified facility or EST 
owned by another taxpayer will not prevent a section 48E credit from 
being determined with respect to the second taxpayer's qualified 
investment in a qualified facility or EST.
    Proposed Sec.  1.48E-4(d)(3) would provide that if a qualified 
facility or EST is owned through an unincorporated organization that 
has made a valid election under section 761(a), each member's undivided 
ownership share in the facility or EST will be treated as a separate 
qualified facility or EST owned by such member.
    Proposed Sec.  1.48E-4(d)(4)(i) would define the term ``related 
taxpayers'' and proposed Sec.  1.48E-4(d)(4)(ii) would provide a 
related taxpayer rule, that related taxpayers are treated as one 
taxpayer in determining whether a taxpayer has made an investment in a 
qualified facility or EST with respect to which a section 48E credit 
may be determined. Proposed Sec.  1.48E-4(d)(5) would provide examples 
illustrating these ownership rules.
5. Coordination Rule for Section 42 and 48E Credits
    Proposed Sec.  1.48E-4(e) would provide that as provided under 
section 50(c)(3)(C), in the case of a taxpayer determining eligible 
basis for purposes of calculating a credit under section 42 of the Code 
(section 42 credit), a taxpayer is not required to reduce its basis in 
a qualified facility or EST by the amount of the section 48E credit 
determined with respect to the qualified investment with respect to 
such qualified facility or EST. Further, proposed Sec.  1.48E-4(e) 
would provide that the qualified investment with respect to a qualified 
facility or EST may be used to determine a section 48E credit and may 
also be included in eligible basis to determine a section 42 credit.
6. Credit Recapture
    Proposed Sec.  1.48E-4(f)(1) would provide recapture rules for the 
section 48E credit that incorporate the recapture provisions of section 
50(a). Proposed Sec.  1.48E-4(f)(1) would further provide that the 
credit calculated under proposed Sec.  1.48E-1(b) is subject to 
recapture for any qualified facility that has a GHG emissions rate (as 
determined under proposed Sec.  1.48E-5) that exceeds 10 grams of 
CO2e per kWh during the five-year period beginning on the 
date such qualified facility is originally placed in service (five-year 
recapture period).
Recapture Event
    Proposed Sec.  1.48E-4(f)(2)(i) would provide that any failure of 
the qualified facility to not exceed a GHG emissions rate of 10 grams 
per CO2e per kWh during the five-year recapture period is a 
recapture event. If a qualified facility's GHG emissions rate exceeds 
10 grams of CO2e per kWh averaged over the taxable year, the 
section 48E credit is subject to recapture. Proposed Sec.  1.48E-
4(f)(2)(ii) would provide that a change to the GHG emissions rate for a 
type or category of facility that is published in the Annual Table (as 
defined in proposed Sec.  1.45Y-5(f)) after the facility is placed in 
service does not result in a recapture event.
    Proposed Sec.  1.48E-4(f)(2)(iii) would provide that a 
determination of whether a recapture event has occurred must be made 
for each taxable year (or portion thereof) occurring within the five-
year recapture period, beginning with the taxable year ending after the 
date the qualified facility is placed in service. For each taxable year 
that begins or ends within the five-year recapture period, the taxpayer 
must determine, for any qualified facility for which it has claimed the 
section 48E credit, whether such facility has maintained a GHG 
emissions rate of not greater than 10 grams of CO2e per kWh. 
A taxpayer that has claimed the section 48E credit amount under 
proposed Sec.  1.48E-1 or transferred a specified credit portion under 
section 6418 of the Code is required to provide to the IRS information 
on the GHG emissions rate of the qualified facility during the 
recapture period at the time and in the form and manner prescribed in 
IRS forms or instructions or in publications or guidance published in 
the Internal Revenue Bulletin.
    Proposed Sec.  1.48E-4(f)(2)(iv) would provide that in the case of 
any recapture event, the carrybacks and carryforwards under section 39 
must be adjusted by reason of such recapture event.
    Proposed Sec.  1.48E-4(f)(3)(i) would provide that if a recapture 
event has occurred, the tax under chapter 1 of the Code for the taxable 
year in which the recapture event occurs is increased by an amount 
equal to the applicable recapture percentage multiplied by the credit 
amount that was claimed by the taxpayer under proposed Sec.  1.48E-1. 
Proposed Sec.  1.48E-4(f)(3)(ii) provides the applicable recapture 
percentage for each year during the five-year recapture period.
    Proposed Sec.  1.48E-4(f)(4) would provide that the five-year 
recapture period begins on the date the qualified facility is placed in 
service and ends on the date that is five full years after the placed-
in-service date. Each 365-day period (366-day period in the case of a 
leap year) within the five-year recapture period is a separate 
recapture year for recapture purposes.
    Proposed Sec.  1.48E-4(f)(5) would provide that the increased tax 
under chapter 1 of the Code for the recapture of the credit amount 
under proposed Sec.  1.48E-1 occurs in the year of the recapture event.
E. Greenhouse Gas Emissions Rates
    Section 48E(b)(3)(B)(ii) provides that rules similar to the rules 
of section 45Y(b)(2) regarding greenhouse emissions rates apply for 
purposes of section 48E. Proposed Sec.  1.48E-5(a) would provide an 
overview of the rules pertaining to GHG emissions rates for qualified 
facilities under section 48E. Proposed Sec.  1.48E-5(b) through (f) 
would clarify that the definitions of certain terms, rules for 
determining GHG emissions rates for Non-C&G Facilities, the rules for 
determining net GHG emissions rates for C&G Facilities, rules regarding 
carbon capture and sequestration, and requirement to publish the Annual 
Table provided in proposed Sec.  1.45Y-5(b) through (f) also apply for 
purposes of section 48E and this section.
    Proposed Sec.  1.48E-5(g) would provide the rules applicable to 
provisional emissions rates. Proposed Sec.  1.48E-5(g)(1) would provide 
that, in the case of any facility for which an emissions rate has not 
been established by the Secretary, a taxpayer that owns such facility 
may file a petition with the Secretary for determination of the 
emissions rate with respect to such facility (Provisional Emissions 
Rate or PER).
    Proposed Sec.  1.48E-5(g)(2) would provide that an emissions rate 
has not been established by the Secretary for a facility if such 
facility is not described in the Annual Table. Proposed Sec.  1.48E-
5(g)(2) would further provide that if a taxpayer's request for an 
emissions value pursuant to proposed Sec.  1.48E-5(g)(5) is pending at 
the time such facility is or becomes described in the Annual Table, the 
taxpayer's request for an emissions value would be automatically 
denied.

[[Page 47820]]

    Proposed Sec.  1.48E-5(g)(3) would provide the process for filing a 
PER petition. Proposed Sec.  1.48E-5(g)(3) would provide that to file a 
PER petition with the Secretary, a taxpayer must submit a PER petition 
attached to the taxpayer's Federal income tax return or Federal return, 
as appropriate, for the taxable year in which the taxpayer claims the 
section 48E credit with respect to the facility. Proposed Sec.  1.48E-
5(g)(3) would further provide that a PER petition must contain an 
emissions value and, if applicable, include as an attachment the DOE 
letter. An emissions value obtained from DOE based on an analytical 
assessment of the emissions rate associated with the facility performed 
by one or more of the National Laboratories, in consultation with other 
agency experts as appropriate, consistent with proposed Sec.  1.48E-5. 
A taxpayer would be required to retain its books and records a copy of 
the taxpayer's request to DOE for an emissions value, including any 
information provided by the taxpayer to DOE pursuant to the emissions 
value request process provided in proposed Sec.  1.48E-5(g)(5). 
Alternatively, an emissions value can be determined for a facility by 
using the most recent version of an LCA model, as of the time the PER 
petition is filed, that has been designated by the Secretary for such 
use under paragraph (g)(6) of this section. If an emissions value is 
determined using a designated LCA model or models, the taxpayer would 
be required to provide to the IRS information to support its use of the 
model or models in the form and manner prescribed in IRS forms or 
instructions or in publications or guidance published in the Internal 
Revenue Bulletin. A taxpayer may not request an emissions value from 
DOE for a facility for which an emissions value can be determined by 
using the most recent version of an LCA model or models that have been 
designated by the Secretary for such use under proposed Sec.  1.48E-
5(g)(6).
    Proposed Sec.  1.48E-5(g)(4) would provide that, upon the IRS's 
acceptance of the taxpayer's Federal income tax return or Federal 
return, as appropriate, containing a PER petition, the emissions value 
of the facility specified on such petition will be deemed accepted. 
Proposed Sec.  1.48E-5(g)(4) would further provide that a taxpayer 
would be able to rely upon an emissions value provided by DOE for 
purposes of claiming a section 48E credit, provided that any 
information, representations, or other data provided to DOE in support 
of the request for an emissions value are accurate. If applicable, a 
taxpayer may rely upon an emissions value determined for a facility 
using an LCA model or models that have been designated by the Secretary 
for such use under proposed Sec.  1.48E-5(g)(6), provided that any 
information, representations, or other data used to obtain such 
emissions value are accurate. The IRS's deemed acceptance of an 
emissions value would be the Secretary's determination of the PER. 
Finally, proposed Sec.  1.48E-5(g)(4) would provide that the taxpayer 
must also comply with all applicable requirements for the section 48E 
credit, and any information, representations, or other data provided to 
DOE in support of the request for an emissions value would be subject 
to later examination by the IRS.
    Proposed Sec.  1.48E-5(g)(5) would provide the rules applicable to 
the emissions value request process. Proposed Sec.  1.48E-5(g)(5) would 
provide that an applicant that submits a request for an emissions value 
must follow the procedures specified by DOE to request and obtain such 
emissions value, and that emissions values will be determined 
consistent with the rules provided in proposed Sec.  1.48E-5. Proposed 
Sec.  1.48E-5(g)(5) would further provide that an applicant may request 
an emissions value from DOE only after a front-end engineering and 
design (FEED) study or similar indication of project maturity, as 
determined by DOE, such as the completion of a project specification 
and cost estimation sufficient to inform a final investment decision 
for the facility. Proposed Sec.  1.48E-5(g)(5) would provide that DOE 
may decline to review applications that are non-responsive, and those 
applications that relate to a facility that is described in the Annual 
Table (consistent with proposed Sec.  1.48E-5(g)(2)) or a facility that 
can determine an emissions value using a designated LCA model under 
proposed Sec.  1.48E-5(g)(6) (consistent with proposed Sec.  1.48E-
5(g)(3)), or applications that are incomplete. Proposed Sec.  1.45Y-
5(g)(5) would also provide that applicants must follow DOE's guidance 
and procedures for requesting and obtaining an emissions value from 
DOE. DOE will publish guidance and procedures that applicants must 
follow to request and obtain an emissions value from DOE. DOE's 
guidance and procedures will include a process that, under limited 
circumstances, a taxpayer may request a revision to DOE's initial 
assessment of an emissions value on the basis of revised technical 
information or facility design and operation. The Treasury Department 
and the IRS anticipate that the emissions value request process will 
open after the publication of the final regulations.
    Proposed Sec.  1.48E-5(g)(6) would provide that the rules provided 
in proposed Sec.  1.45Y-5(g)(6) regarding the designation of an LCA 
model or models for determining an emissions value for C&G Facilities 
apply for purposes of section 48E and this section.
    Proposed Sec.  1.48E-5(g)(7) would provide rules governing the 
effect of a PER. Proposed Sec.  1.48E-5(g)(7) would provide that a 
taxpayer may use a PER determined by the Secretary to determine the 
eligibility for the section 48E credit for a taxable year for the 
facility to which the PER relates, provided all other requirements of 
section 48E are met, unless the emissions rate for such type or 
category of facility is provided in the Annual Table for any portion of 
the taxable year. Proposed Sec.  1.48E-5(g)(7) would further provide 
that the Secretary's PER determination is not an examination or 
inspection of books of account for purposes of section 7605(b) of the 
Code and does not preclude or impede the IRS (under section 7605(b) or 
any administrative provisions adopted by the IRS) from later examining 
a return or inspecting books or records with respect to any taxable 
year for which the section 48E credit is claimed. Finally, proposed 
Sec.  1.48E-5(g)(7) would provide that a PER determination does not 
signify that the IRS has determined that the requirements of section 
48E have been satisfied for any taxable year.
    Proposed Sec.  1.48E-5(h) would provide the rules applicable to 
determining an anticipated GHG emissions rate. Proposed Sec.  1.48E-
5(h)(1) would provide that a facility's anticipated GHG emissions rate 
must be objectively determined based on an examination of all the facts 
and circumstances. Proposed Sec.  1.48E-5(h)(1) would further provide 
that certain Non-C&G Facilities, such as the facilities described in 
proposed Sec.  1.45Y-5(c)(2), may have an anticipated GHG emissions 
rate that is not greater than zero based on the technology and 
practices they rely upon to generate electricity. Finally, proposed 
Sec.  1.48E-5(h)(1) would provide that for facilities that require the 
use of certain feedstocks or carbon capture and sequestration, which 
may vary, to generate electricity with a GHG emissions rate that is not 
greater than zero, objective indicia that such facilities will operate 
with a GHG emissions rate that is not greater than zero for at least 10 
years beginning from the date the facility is placed in service are 
required to establish that its anticipated GHG emissions rate is not 
greater than zero.

[[Page 47821]]

    Proposed Sec.  1.48E-5(h)(2) would provide a non-exhaustive list of 
examples of objective indicia that may establish an anticipated GHG 
emissions rate that is not greater than zero. Proposed Sec.  1.48E-
5(h)(2)(i) through (iv) would provide that these examples include co-
location of the facility with a fuel source for which the combination 
of fuel, type of facility, and practice is reasonably expected to 
result in a GHG emissions rate that is not greater than zero; a 10-year 
contract to purchase fuels for which the combination of fuel, type of 
facility, and practice is reasonably expected to result in a GHG 
emissions rate that is not greater than zero; or a facility type that 
only accommodates one type of fuel or a small range of fuels for which 
the combination of fuel, type of facility, and practice is reasonably 
expected to result in a GHG emissions rate that is not greater than 
zero; or a 10-year contract for the capture, disposal, or utilization 
of qualified carbon dioxide from the facility for which the combination 
of fuel, type of facility, and practice is reasonably expected to 
result in a GHG emissions rate that is not greater than zero.
    The Treasury Department and the IRS interpret the reference in 
section 48E(b)(3)(A)(iii) to an ``anticipated greenhouse gas emissions 
rate'' that is not greater than zero to require a reasonable 
expectation that a facility will operate with a rate or net rate of 
greenhouse gas emissions that is not greater than zero over a specified 
period of time (for example, the anticipated lifetime of the facility). 
The Treasury Department and the IRS request comment on what evidence or 
substantiation taxpayers should be required to maintain to establish an 
anticipated GHG emissions rate for a facility. In addition, comment is 
requested on the appropriate period of time for which taxpayers should 
be required to demonstrate that there is a reasonable expectation that 
a facility will operate with a GHG emissions rate that is not greater 
than zero.
    Proposed Sec.  1.48E-5(i) would provide that taxpayers may rely on 
the Annual Table in effect as of the date a facility began construction 
or the provisional emissions rate determined by the Secretary for the 
taxpayer's facility to determine the facility's GHG emissions rate, 
provided that the facility continues to operate as a type of facility 
that is described in the Annual Table or the facility's emissions value 
request, as applicable, for the entire taxable year.
    Proposed Sec.  1.48E-5(j)(1) would provide that a taxpayer must 
maintain in its books and records documentation regarding the design 
and operation of a facility that establishes that such facility had an 
anticipated GHG emissions rate that is not greater than zero in the 
year in which the section 48E credit is determined and operated with a 
GHG emissions rate that is not greater than 10 grams of CO2e 
per kWh during each year of the recapture period that applies for 
purposes of section 48E(g).
    Proposed Sec.  1.48E-5(j)(2) would further provide that 
documentation sufficient to substantiate that a facility had a GHG 
emissions rate that is not greater than 10 grams of CO2e per 
kWh during each year of the recapture period includes documentation or 
a report prepared by an unrelated party that verifies the facility's 
actual emissions rate. Proposed Sec.  1.48E-5(j)(2) would also provide 
that facilities described in Sec.  1.45Y-5(c)(2) can maintain 
sufficient documentation to demonstrate a GHG emissions rate that is 
not greater than 10 grams of CO2e per kWh during each year 
of the recapture period by showing that the facility is described in 
Sec.  1.45Y-5(c)(2). Finally, proposed Sec.  1.48E-5(j)(2) would 
provide that future guidance may describe sufficient documentation to 
substantiate that certain other types of facilities have a GHG 
emissions rate that is not greater than 10 grams of CO2e per 
kWh during each year of the recapture period.

Proposed Applicability Dates

    These regulations are proposed to apply to qualified facilities 
(and for Sec.  1.48E-1 through 1.48E-4, energy storage technologies) 
placed in service after December 31, 2024, and during taxable years 
ending on or after the date of publication of the final regulations in 
the Federal Register.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) 
generally requires that a Federal agency obtain the approval of the 
Office of Management and Budget (OMB) before collecting information 
from the public, whether such collection of information is mandatory, 
voluntary, or required to obtain or retain a benefit.
    The collections of information in these proposed regulations 
contain recordkeeping and reporting requirements that are required to 
substantiate eligibility to claim a section 45Y or section 48E credit. 
These collections of information would generally be used by the IRS for 
tax compliance purposes and by taxpayers to facilitate proper reporting 
and compliance. The general recordkeeping requirements mentioned within 
these proposed regulations are considered general tax records under 
Sec.  1.6001-1(e).
    The recordkeeping requirements in these proposed regulations with 
respect to section 45Y would include the requirement in proposed Sec.  
1.45Y-5(i)(1) that taxpayers claiming the section 45Y credit must 
maintain in its books and records documentation regarding the design 
and operation of a facility that establishes that such facility had a 
GHG emissions rate that is not greater than zero for the taxable year. 
Included in proposed Sec.  1.45Y-5(i)(2) are examples of documentation 
that sufficiently substantiates that a facility has a GHG emissions 
rate that is not greater than zero for the taxable year, which includes 
documentation, or a report prepared by an unrelated party that verifies 
that a facility had such an emissions rate. A facility described in 
proposed Sec.  1.45Y-5(c)(2) can maintain sufficient documentation to 
demonstrate a GHG emissions rate that is not greater than zero for the 
taxable year by showing that it is a type of facility described in 
proposed Sec.  1.45Y-5(c)(2). Proposed Sec.  1.45Y-5(i)(2) would 
provide that Secretary may determine that other types of facilities can 
sufficiently substantiate a GHG emissions rate, as determined under 
this section, that is not greater than zero with certain documentation 
and will describe such facilities and documentation in IRS forms or 
instructions or in publications or guidance published in the Internal 
Revenue Bulletin. For PRA purposes, these general tax records are 
already approved by OMB under 1545-0074 for individuals, 1545-0123 for 
business entities, 1545-0092 for trust and estate filers, and 1545-0047 
for tax-exempt organizations.
    The recordkeeping requirements in these proposed regulations with 
respect to section 48E would include the requirement in proposed Sec.  
1.48E-5(i)(1) that a taxpayer must maintain in its books and records 
documentation regarding the design and operation of a facility that 
establishes that such facility had an anticipated GHG emissions rate 
that is not greater than 10 grams of CO2e

[[Page 47822]]

per kWh during each year of the recapture period that applies for 
purposes of section 48E(g). Included in proposed Sec.  1.48E-5(i)(2) 
are examples of documentation that sufficiently substantiates that a 
facility has a GHG emissions rate that is not greater 10 grams of 
CO2e per kWh during each year of the recapture period, which 
includes documentation, or a report prepared by an unrelated party that 
verifies that a facility had such an emissions rate. A facility 
described in proposed Sec.  1.45Y-5(c)(2) can maintain sufficient 
documentation to demonstrate a GHG emissions rate that is not greater 
than 10 grams of CO2e per kWh by showing that it is a type 
of facility described in proposed Sec.  1.45Y-5(c)(2). The Secretary 
may determine that other types of facilities can sufficiently 
substantiate a GHG emissions rate that is not greater than 10 grams of 
CO2e per kWh with certain documentation and will describe 
such facilities and documentation in IRS forms or instructions or in 
publications or guidance published in the Internal Revenue Bulletin. 
For PRA purposes, these general tax records are already approved by OMB 
under 1545-0074 for individuals, 1545-0123 for business entities, 1545-
0092 for trust and estate filers, and 1545-0047 for tax-exempt 
organizations.
    The reporting requirements in these proposed regulations are in 
proposed Sec. Sec.  1.45Y-5 and 1.48E-5, which provide the process for 
applicants to file a petition with the Secretary for a PER 
determination. To file a PER petition with the Secretary, a taxpayer 
must submit the PER petition attached to the taxpayer's Federal income 
tax return or Federal return, as appropriate, for the taxable year in 
which the taxpayer claims the section 45Y credit or the section 48E 
credit with respect to the facility to which the PER petition relates. 
A PER petition must contain an emissions value. If the applicant 
obtained an emissions value from DOE, the PER petition made to the IRS 
must include and emissions value letter from DOE. This emission value 
letter process will be approved by OMB under the DOE Control Number 
1910-####. A taxpayer must retain in its books and records a copy of 
the taxpayer's request to DOE for an emissions value, including the 
supporting documentation provided to DOE with the request. 
Alternatively, if applicable, a PER petition may contain an emissions 
value determined for a facility using the most recent version of an LCA 
model, as of the time the PER petition is filed, that has been 
designated by the Secretary for such use. If an emissions value is 
determined using a designated model, a taxpayer is required to provide 
to the IRS information to support its determination of the emissions 
value in the form and manner prescribed in IRS forms or instructions or 
in publications or guidance published in the Internal Revenue Bulletin. 
The burden for these requirements will be included within the forms and 
instructions applicable to sections 45Y and 48E. For section 45Y, the 
burden for these requirements will be associated the form and 
instructions applicable to claiming this credit and will be approved by 
OMB, in accordance with 5 CFR 1320.10, under the following OMB control 
numbers: 1545-0074 for individuals/sole proprietors, 1545-0123 for 
business entities, 1545-0047 for tax-exempt organizations, and 1545-
0092 for trust and estate filers. For section 48E, the burden for these 
requirements will be associated with Form 3468, Investment Credit, and 
will be approved by OMB, in accordance with 5 CFR 1320.10, under the 
following OMB control numbers: 1545-0074 for individuals/sole 
proprietors, 1545-0123 for business entities, 1545-0047 for tax-exempt 
organizations, and 1545-0092 for trust and estate filers.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency determines that a proposal is not likely to 
have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires the agency to present an 
initial regulatory flexibility analysis (IRFA) of the proposed rule. 
The Treasury Department and the IRS have not determined whether the 
proposed rule, when finalized, will likely have a significant economic 
impact on a substantial number of small entities. This determination 
requires further study. However, because there is a possibility of 
significant economic impact on a substantial number of small entities, 
an IRFA is provided in these proposed regulations. The Treasury 
Department and the IRS invite comments on both the number of entities 
affected and the economic impact on small entities.
    Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking has been submitted to the Chief Counsel of the Office of 
Advocacy of the Small Business Administration for comment on its impact 
on small business.
A. Need for and Objectives of the Rule
    The proposed regulations would provide greater clarity to taxpayers 
for purposes of claiming the section 45Y credit or the section 48E 
credit. The proposed regulations would provide necessary definitions 
rules regarding the determination of credit amounts and the procedure 
for requesting a provisional emissions rate. The proposed regulations 
will provide greater clarity to taxpayers for purposes of claiming the 
section 45Y credit and the section 48E credit and encourage taxpayers 
to produce clean energy or invest in clean energy projects and 
facilities. Thus, the Treasury Department and the IRS intend and expect 
that the proposed rules will deliver benefits across the economy that 
will beneficially impact various industries.
B. Affected Small Entities
    The RFA directs agencies to provide a description of, and if 
feasible, an estimate of, the number of small entities that may be 
affected by the proposed rules, if adopted. The Small Business 
Administration's Office of Advocacy estimates in its 2023 Frequently 
Asked Questions that 99.9 percent of American businesses meet its 
definition of a small business. The applicability of these proposed 
regulations does not depend on the size of the business, as defined by 
the Small Business Administration.
    As described more fully in the preamble to this proposed regulation 
and in this IRFA, the section 45Y credit and the section 48E credit 
incentivize the production of clean energy and the investment in clean 
energy projects and facilities. Because the potential credit claimants 
can vary widely, it is difficult to estimate at this time the impact of 
these proposed regulations, if any, on small businesses.
    The Treasury Department and the IRS expect to receive more 
information on the impact on small businesses through comments on these 
proposed rules and again once taxpayers start to claim the section 45Y 
credit or the section 48E credit using the guidance and procedures 
provided in these proposed regulations.
C. Impact of the Rules
    The proposed regulations will allow taxpayers to plan investments 
and transactions based on the ability to claim the section 45Y 
production credit and/or the section 48E investment credit. The 
increased use of these

[[Page 47823]]

credits will incentivize increased production and use of clean energy 
as well as the development of new methods and technologies for 
generating clean energy. The use of the credits will also incentivize 
additional investment in the projects and facilities that produce and 
develop clean energy.
    Because recordkeeping and reporting requirements relating to the 
section 45Y and 48E credits will not materially differ from the 
requirements relating to existing energy production and investment tax 
credits, the recordkeeping and reporting requirements should not 
materially increase for taxpayers that already claim existing credits. 
To claim the section 45Y credit or the 48E credit, taxpayers will 
continue to need to execute the relevant form (or successor form, or 
pursuant to instructions and other guidance) and file such form with 
the taxpayer's timely filed return (including extensions) for the 
taxable year in which the property is placed in service.
    Although the Treasury Department and the IRS do not have sufficient 
data to precisely determine the likely extent of the increased costs of 
compliance, the estimated burden of complying with the recordkeeping 
and reporting requirements are described in the Paperwork Reduction Act 
section of this preamble.
D. Alternatives Considered
    The Treasury Department and the IRS considered alternatives to the 
proposed regulations. For example, the Treasury Department and the IRS 
considered whether to impose different rules for determining if a 
section 48E qualified facility had a recapture event, and how and when 
a taxpayer was required to notify the Secretary that the emissions rate 
at a qualified facility was greater than 10 grams of CO2e 
per kWh. The proposed regulations were designed to minimize burdens on 
taxpayers while ensuring that the IRS has sufficient information to 
determine if a section 48E qualified facility's emissions rate exceeded 
the recapture threshold. The proposed guidance requires that a taxpayer 
that claimed the section 48E credit to annually report to the IRS its 
GHG emissions rate in the form and manner prescribed in IRS forms or 
instructions or in published guidance as published in the Internal 
Revenue Bulletin.
    An additional example is that the Treasury Department and the IRS 
considered alternatives to how a taxpayer should compute any increase 
in capacity at a qualified facility that for purposes of section 45Y 
and 48E was a qualified facility due to an increase in capacity. The 
proposed regulations were designed to provide a rule that was 
administrable for the IRS and taxpayers. Thus, the proposed regulations 
adopt a rule for taxpayers to compute the increase in capacity by 
multiplying the amount of electricity that the facility produces during 
a taxable year after the new unit or an addition of capacity is placed 
in service by a fraction, the numerator of which is the nameplate 
capacity that results from the new unit or an addition of capacity, and 
the denominator of which is the total nameplate capacity of the 
facility with the new unit or an addition of capacity
    Comments are requested on the requirements in the proposed 
regulations, including specifically, whether there are less burdensome 
alternatives that ensure the IRS has sufficient information to 
administer the Clean Electricity Tax Credits.
E. Duplicative, Overlapping, or Conflicting Federal Rules
    The proposed rules would not duplicate, overlap, or conflict with 
any relevant Federal rules. As discussed above, the proposed 
regulations would provide guidance relating to the section 45Y tax 
credit and the section 48E tax credit. The Treasury Department and the 
IRS invite input from interested members of the public about 
identifying and avoiding overlapping, duplicative, or conflicting 
requirements.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Indian Tribal government, in the aggregate, or by the 
private sector, of $100 million (updated annually for inflation). This 
proposed rule does not include any Federal mandate that may result in 
expenditures by State, local, or Indian Tribal governments, or by the 
private sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. This proposed rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

VI. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175 (Consultation and Coordination With Indian 
Tribal Governments) prohibits an agency from publishing any rule that 
has Tribal implications if the rule either imposes substantial, direct 
compliance costs on Indian Tribal governments, and is not required by 
statute, or preempts Tribal law, unless the agency meets the 
consultation and funding requirements of section 5 of the Executive 
order. This proposed rule does not have substantial direct effects on 
one or more federally recognized Indian tribes and does not impose 
substantial direct compliance costs on Indian Tribal governments within 
the meaning of the Executive order.

Comments and Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to comments regarding 
the notice of proposed rulemaking that are submitted timely to the IRS 
as prescribed in the preamble under the ADDRESSES section. The Treasury 
Department and the IRS request comments on all aspects of the proposed 
regulations. All comments will be made available at https://www.regulations.gov. Once submitted to the Federal eRulemaking Portal, 
comments cannot be edited or withdrawn.
    A public hearing with respect to this notice of proposed rulemaking 
has been scheduled for August 12, 2024, beginning at 10 a.m. (ET) and 
August 13, 2024, at 10 a.m. (ET). The hearing scheduled for August 12, 
2024, will be held in the Auditorium at the Internal Revenue Building, 
1111 Constitution Avenue NW, Washington, DC Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. Participants may alternatively attend the public 
hearing on August 12, 2024, by telephone. On August 13, 2024, the 
public hearing will be by telephone only.
    The rules of 26 CFR 601.601(a)(3) apply to the public hearing. 
Persons who wish to present oral comments at the public hearing must 
submit an

[[Page 47824]]

outline of the topics to be discussed and the time to be devoted to 
each topic by August 2, 2024. A period of 10 minutes will be allotted 
to each person for making comments. An agenda showing the scheduling of 
the speakers will be prepared after the deadline for receiving outlines 
has passed. Copies of the agenda will be available free of charge at 
the public hearing. If no outline of the topics to be discussed at the 
public hearing is received by August 2, 2024, the public hearing will 
be cancelled. If the public hearing is cancelled, a notice of 
cancellation of the public hearing will be published in the Federal 
Register.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have your name added to 
the building access list. The subject line of the email must contain 
the regulation number REG-119283-23 and the language TESTIFY In Person. 
For example, the subject line may say: Request to TESTIFY In Person at 
Hearing for REG-119283-23.
    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the public hearing. The subject line of the 
email must contain the regulation number REG-119283-23 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-119283-23.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
your name added to the building access list. The subject line of the 
email must contain the regulation number REG-119283-23 and the language 
ATTEND In Person. For example, the subject line may say: Request to 
ATTEND Hearing In Person for REG-119283-23. Requests to attend the 
public hearing must be received by 5 p.m. ET on August 8, 2024.
    Individuals who want to attend the public hearing by telephone 
without testifying must also send an email to [email protected] to 
receive the telephone number and access code for the public hearing. 
The subject line of the email must contain the regulation number REG-
119283-23 and the language ATTEND Hearing Telephonically. For example, 
the subject line may say: Request to ATTEND Hearing Telephonically for 
REG-119283-23. Requests to attend the public hearing must be received 
by 5 p.m. ET on August 8, 2024.
    Public hearings will be made accessible to people with 
disabilities. To request special assistance during a public hearing 
please contact the Publications and Regulations Branch of the Office of 
Associate Chief Counsel (Procedure and Administration) by sending an 
email to [email protected] (preferred) or by telephone at (202) 
317-6901 (not a toll-free number) and must be received by 5 p.m. ET on 
August 7, 2024.

Statement of Availability of IRS Documents

    Guidance cited in this preamble is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal author of these proposed regulations is the Office of 
the Associate Chief Counsel (Passthroughs and Special Industries). 
However other personnel from the Treasury Department, the DOE, the EPA, 
the USDA, and the IRS participated in the development of the proposed 
regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order for Sec. Sec.  1.45Y-1 through 1.45Y-5 and 
1.48E-1 through 1.48E-5 to read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.45Y-1 also issued under 26 U.S.C. 45Y(a), (c), (d), 
and (g).
    Section 1.45Y-2 also issued under 26 U.S.C. 45Y(b) and (e).
    Section 1.45Y-3 also issued under 26 U.S.C. 45Y(a) and (g).
    Section 1.45Y-4 also issued under 26 U.S.C. 45Y(b) and (g).
    Section 1.45Y-5 also issued under 26 U.S.C. 45Y(b).
* * * * *
    Section 1.48E-1 also issued under 26 U.S.C. 48E(a) and (c).
    Section 1.48E-2 also issued under 26 U.S.C. 48E(b) and (c).
    Section 1.48E-3 also issued under 26 U.S.C. 48E(a) and (b).
    Section 1.48E-4 also issued under 26 U.S.C. 48E(b), (d), and 
(g).
    Section 1.48E-5 also issued under 26 U.S.C. 48E(b).
* * * * *

0
Par. 2. An undesignated center heading is added immediately following 
Sec.  1.37-3 to read as follows:

General Business Credits

* * * * *
0
Par. 3. Sections 1.45Y-0 through 1.45Y-5 are added to read as follows:
Sec.
* * * * *
1.45Y-0 Table of contents.
1.45Y-1 Clean electricity production credit.
1.45Y-2 Qualified facility for purposes of section 45Y.
1.45Y-3 [Reserved]
1.45Y-4 Rules of general application.
1.45Y-5 Greenhouse gas emissions rates for qualified facilities 
under section 45Y.
* * * * *


Sec.  1.45Y-0   Table of contents.

    This section lists the captions contained in Sec. Sec.  1.45Y-1 
through 1.45Y-5.

Sec.  1.45Y-1 Clean electricity production credit.

    (a) Overview.
    (1) In general.
    (2) CHP property.
    (i) In general.
    (ii) Components excluded.
    (iii) Unit of qualified facility.
    (3) Code.
    (4) kWh.
    (5) Metering device.
    (i) In general.
    (ii) Standards for maintaining and operating a metering device.
    (iii) Network equipment.
    (iv) Examples.
    (6) Qualified facility.
    (7) Related person.
    (i) In general.
    (ii) Member of a consolidated group.
    (8) Secretary.
    (9) Section 45Y credit.
    (10) Section 45Y regulations.
    (11) Unrelated person.
    (b) Credit amount.
    (1) In general.
    (2) Applicable amount.
    (i) In general.
    (ii) Base amount.
    (iii) Alternative amount.
    (3) Inflation adjustment.
    (i) In general.
    (ii) Annual computation.
    (iii) Inflation adjustment factor.
    (iv) GDP implicit price deflator.
    (4) Energy communities increase in credit.
    (5) Domestic content bonus credit amount.
    (c) Credit phase-out.
    (1) In general.
    (2) Phase-out percentage.
    (3) Applicable year.
    (4) Phase-out data.
    (5) Determination of phase-out.

[[Page 47825]]

    (d) Requirements for CHP property.
    (1) In general.
    (2) Energy efficiency percentage.
    (3) Special rule for calculating electricity produced by CHP 
property.
    (i) In general.
    (ii) Conversion from Btu to kWh.
    (e) Applicability date.

Sec.  1.45Y-2 Qualified facility for purposes of section 45Y.

    (a) Qualified facility.
    (b) Property included in qualified facility.
    (1) In general.
    (2) Unit of qualified facility.
    (i) In general.
    (ii) Functionally interdependent.
    (3) Integral part.
    (i) In general.
    (ii) Power conditioning and transfer equipment.
    (iii) Roads.
    (iv) Fences.
    (v) Buildings.
    (vi) Shared integral property.
    (vii) Examples.
    (c) Coordination with other credits.
    (1) In general.
    (2) Allowed.
    (3) Examples.
    (d) Applicability date.

Sec.  1.45Y-3 [Reserved]
Sec.  1.45Y-4 Rules of general application.

    (a) Only production in the United States taken into account.
    (b) Production attributable to the taxpayer.
    (1) In general.
    (2) Example of gross sales.
    (3) Section 761(a) election.
    (c) Expansion of facility; Incremental production.
    (1) In general.
    (2) Special rule for restarted facilities.
    (3) Computation of increased amount of electricity produced.
    (4) Examples.
    (d) Retrofit of an existing facility (80/20 Rule).
    (1) In general.
    (2) Cost of new components of property.
    (3) Examples.
    (e) Applicability date.

Sec.  1.45Y-5 Greenhouse gas emissions rates for qualified 
facilities under section 45Y.

    (a) In general.
    (b) Definitions.
    (1) CO2e per kWh.
    (2) Combustion.
    (3) Gasification.
    (4) Facility that produces electricity through combustion or 
gasification.
    (5) Greenhouse gas emissions rate.
    (6) Greenhouse gases emitted into the atmosphere by a facility 
in the production of electricity.
    (7) Non-C&G Facility.
    (8) Fuel.
    (9) Feedstock.
    (c) Non-C&G Facilities.
    (1) Determining a greenhouse gas emissions rate for Non-C&G 
Facilities.
    (i) Excluded emissions.
    (ii) Emissions assessment process.
    (iii) Example of greenhouse gas emissions rate determination for 
a Non-C&G Facility.
    (2) Non-C&G Facilities with a greenhouse gas emissions rate that 
is not greater than zero.
    (d) C&G Facilities.
    (1) Determining a greenhouse gas emissions rate for C&G 
Facilities.
    (2) LCA requirements.
    (i) Starting boundary.
    (ii) Ending boundary.
    (iii) Baseline.
    (iv) Offsets and offsetting activities.
    (v) Principles for included emissions.
    (vi) Principles for excluded emissions.
    (vii) Alternative fates and avoided emissions.
    (e) Carbon capture and sequestration.
    (f) Annual publication of emissions rates.
    (1) In general.
    (2) Publication of analysis required for changes to the Annual 
Table.
    (g) Provisional emissions rates.
    (1) In general.
    (2) Rate not established.
    (3) Process for filing a PER petition.
    (4) PER determination.
    (5) Emissions value request process.
    (6) LCA model for determining an emissions value for C&G 
Facilities.
    (7) Effect of PER.
    (h) Reliance on Annual Table or Provisional Emissions Rate.
    (i) Substantiation.
    (1) In general.
    (2) Sufficient substantiation.
    (j) Applicability date.


Sec.  1.45Y-1  Clean electricity production credit.

    (a) Overview--(1) In general. For purposes of section 38 of the 
Code, the section 45Y credit is determined under section 45Y of the 
Code and the section 45Y regulations (as defined in paragraph (a)(10) 
of this section). This paragraph (a) provides definitions of terms 
that, unless otherwise specified, apply for purposes of section 45Y, 
the section 45Y regulations, and any provision of the Code or this 
chapter that expressly refers to any provision of section 45Y or the 
section 45Y regulations. Paragraph (b) of this section provides rules 
for determining the amount of the section 45Y credit for any taxable 
year. Paragraph (c) of this section provides rules regarding the phase-
out of the section 45Y credit. Paragraph (d) of this section provides 
rules regarding combined heat and power system (CHP) property. See 
Sec.  1.45Y-2 for rules relating to qualified facilities for purposes 
of the section 45Y credit. See Sec.  1.45Y-4 for rules of general 
application for the section 45Y credit. See Sec.  1.45Y-5 for rules to 
determine greenhouse gas emissions rates for qualified facilities.
    (2) CHP property--(i) In general. For purposes of section 
45Y(g)(2)(B) and paragraph (d) of this section, the term CHP property 
means property comprising a system that uses the same energy source for 
the simultaneous or sequential generation of electrical power, 
mechanical shaft power, or both, in combination with the generation of 
steam or other forms of useful thermal energy (including for heating 
and cooling applications).
    (ii) Components excluded. CHP property does not include property 
used to transport the energy source to the generating facility or to 
distribute energy produced by the facility.
    (iii) Unit of qualified facility. For purposes of Sec.  1.45Y-2(a), 
a unit of qualified facility includes all functionally interdependent 
components of property owned by the taxpayer that are operated together 
and that can operate apart from other property to produce useful 
thermal energy and electricity.
    (3) Code. The term Code means the Internal Revenue Code.
    (4) kWh. The term kWh means kilowatt hours.
    (5) Metering device--(i) In general. For purposes of section 
45Y(a)(1)(A)(ii)(II), the term metering device, means equipment that is 
owned and operated by an unrelated person (as defined in paragraph 
(a)(11) of this section) for energy revenue metering to measure and 
register the continuous summation of an electricity quantity with 
respect to time.
    (ii) Standards for maintaining and operating a metering device. For 
purposes of section 45Y(a)(1)(A)(ii)(II) and this section, a metering 
device must be maintained in proper working order in accordance with 
the instructions of its manufacturer, meet the requirements of the 
American National Standards Institute C12.1-2022 standard, or 
subsequent revisions, be revenue grade with a +/- 0.5% accuracy and be 
properly calibrated.
    (iii) Network equipment. For purposes of operating the metering 
device, the unrelated person may share network equipment, such as spare 
fiber optic cable owned by the taxpayer that produces the electricity 
and co-locate network equipment in the taxpayer's facilities.
    (iv) Examples. This paragraph (a)(5)(iv) provides examples 
illustrating the application of this paragraph (a)(5).
    (A) Example 1. Qualified facility equipped with a metering device 
owned and operated by an unrelated person. X owns a qualified facility 
equipped with a metering device that is owned and operated by Y, an 
unrelated person. The metering device meets the requirements of 
paragraphs (a)(5)(i) through (iii). X sells electricity produced at the 
qualified facility to Z, a related person during the taxable year. 
Because the

[[Page 47826]]

qualified facility is equipped with a metering device that is owned and 
operated by an unrelated person and meets the requirements of 
paragraphs (a)(5)(i) through (iii), X may claim a section 45Y credit 
based on the electricity produced by X and sold to Z during the taxable 
year.
    (B) Example 2. Electricity produced by the taxpayer at a qualified 
facility sold, consumed, or stored by the taxpayer during the taxable 
year. X owns a qualified facility equipped with a metering device that 
is owned and operated by an unrelated person, Y. The metering device 
meets the requirements of paragraphs (a)(5)(i) through (iii). Because 
the qualified facility is equipped with a metering device that is owned 
and operated by an unrelated person and that meets the requirements of 
paragraphs (a)(5)(i) through (iii), X may sell electricity produced at 
the qualified facility during the taxable year to a related or 
unrelated person. X may also consume the electricity produced at the 
qualified facility during the taxable year onsite. Additionally, X may 
store the electricity produced at the qualified facility during the 
taxable year in EST owned by X. In any of these three situations, X may 
claim a section 45Y credit for the taxable year for the kWh of 
electricity produced at the qualified facility and sold, consumed, or 
stored by X during the taxable year.
    (6) Qualified facility. The term qualified facility for purposes of 
the section 45Y credit has the meaning provided in Sec.  1.45Y-2(a).
    (7) Related person--(i) In general. For purposes of the section 45Y 
credit, the term related person means a person that is related to 
another person if such persons would be treated as a single employer 
under the regulations in this chapter under section 52(b) of the Code.
    (ii) Member of a consolidated group. In the case of a corporation 
that is a member of a consolidated group (as defined in Sec.  1.1502-
1(h)), such member will be treated as selling electricity to an 
unrelated person if such electricity is sold to an unrelated person by 
another member of such group.
    (8) Secretary. The term Secretary means the Secretary of the 
Treasury or her delegate.
    (9) Section 45Y credit. The term section 45Y credit means the clean 
electricity production credit determined under section 45Y of the Code 
and the section 45Y regulations.
    (10) Section 45Y regulations. The term section 45Y regulations 
means this section and Sec. Sec.  1.45Y-2 through 1.45Y-5.
    (11) Unrelated person. For purposes of section 45Y(a), the term 
unrelated person means a person who is not a related person as defined 
in section 45Y(g)(4) and paragraph (a)(7) of this section. In the case 
of sales of electricity to an individual consumer, such sales will be 
treated as sales to an unrelated party for purposes of the section 45Y 
credit. For example, assume Taxpayer X produces electricity at a 
qualified facility and sells it to Consumer Y. Consumer Y is an 
individual consumer and is not subject to aggregation under the 
regulations prescribed under section 52(b). Therefore, Consumer Y is 
not treated as a single employer with Taxpayer X under section 52(b), 
and a sale to Consumer Y is treated as a sale to an unrelated person. 
The result is the same if Consumer Y is an individual consumer who is a 
member of a cooperative or Indian tribe that owns or controls, directly 
or indirectly, Taxpayer X. The result is also the same if Consumer Y is 
an individual consumer who is a resident of a State or municipality 
that owns or controls, directly or indirectly, Taxpayer X.
    (b) Credit amount--(1) In general. For purposes of section 38 of 
the Code, the section 45Y credit for any taxable year is an amount 
equal to the product of the kWh of electricity that is produced at a 
qualified facility and sold by the taxpayer to an unrelated person 
during the taxable year, multiplied by the applicable amount with 
respect to such qualified facility. In the case of a qualified facility 
equipped with a metering device that is owned and operated by an 
unrelated person, the section 45Y credit for any taxable year is an 
amount equal to the product of the kWh of electricity that is produced 
at a qualified facility and sold, consumed, or stored by the taxpayer 
during the taxable year, multiplied by the applicable amount with 
respect to such qualified facility. Only one section 45Y credit can be 
claimed for each kWh of electricity produced by the taxpayer at a 
qualified facility.
    (2) Applicable amount--(i) In general. The term applicable amount 
means the base amount described in paragraph (b)(2)(ii) of this section 
or the alternative amount described in paragraph (b)(2)(iii) of this 
section. The applicable amount is subject to the inflation adjustment 
as provided in section 45Y(c)(1) and paragraph (b)(3) of this section. 
The applicable amount may also be increased as provided in section 
45Y(g)(7) and paragraph (b)(4) of this section in the case of a 
qualified facility that is located in an energy community.
    (ii) Base amount. In the case of any qualified facility that does 
not satisfy the requirements provided in section 45Y(a)(2)(B), the term 
base amount means 0.3 cents.
    (iii) Alternative amount. In the case of any qualified facility 
that satisfies the prevailing wage and apprenticeship requirements 
provided in section 45Y(a)(2)(B), the term alternative amount means 1.5 
cents.
    (3) Inflation adjustment--(i) In general. In the case of a calendar 
year beginning after 2024, the base amount and the alternative amount 
will each be adjusted by multiplying such amount by the inflation 
adjustment factor for the calendar year in which the sale, consumption, 
or storage of the electricity occurs. If the base amount as adjusted 
under this paragraph (b)(3)(i) is not a multiple of 0.05 cent, such 
amount will be rounded to the nearest multiple of 0.05 cent. If the 
alternative amount as adjusted under this paragraph (b)(3)(i) is not a 
multiple of 0.1 cent, such amount will be rounded to the nearest 
multiple of 0.1 cent.
    (ii) Annual computation. The inflation adjustment factor for each 
calendar year will be published in the Federal Register not later than 
April 1 of that calendar year. The base amount and the alternative 
amount, as adjusted under paragraph (b)(3)(i) of this section, will 
also be published in the Federal Register not later than April 1 of 
each calendar year.
    (iii) Inflation adjustment factor. The term inflation adjustment 
factor means, with respect to a calendar year, a fraction--
    (A) The numerator of which is the GDP implicit price deflator for 
the preceding calendar year, and
    (B) The denominator of which is the GDP implicit price deflator for 
the calendar year 1992.
    (iv) GDP implicit price deflator. The term GDP implicit price 
deflator means the most recent revision of the implicit price deflator 
for the gross domestic product as computed and published by the 
Department of Commerce before March 15 of the calendar year.
    (4) Energy communities increase in credit. In the case of any 
qualified facility that is located in an energy community (as defined 
in section 45(b)(11)(B)), for purposes of determining the amount of the 
section 45Y credit with respect to any electricity produced by the 
taxpayer at such facility during the taxable year, the applicable 
amount will be increased by an amount equal to 10 percent of the 
applicable amount. The 10 percent increase under this paragraph (b)(4) 
applies after the inflation adjustment under paragraph (b)(3) of this 
section.
    (5) Domestic content bonus credit amount. In the case of any 
qualified

[[Page 47827]]

facility that satisfies the requirements of section 45Y(g)(11)(B)(i) 
(domestic content requirement), for purposes of determining the amount 
of the section 45Y credit with respect to any electricity produced by 
the taxpayer at such facility during the taxable year, the amount of 
the credit otherwise determined under this paragraph (b), without 
application of paragraph (b)(4) of this section (related to energy 
communities), is increased by 10 percent.
    (c) Credit phase-out--(1) In general. The amount of the section 45Y 
credit for any qualified facility, the construction of which begins 
during a calendar year provided in section 45Y(d)(2) and described in 
paragraph (c)(2) of this section, is equal to the product of--
    (i) The amount of the credit determined under section 45Y(a) and 
described in paragraph (b) of this section, without regard to section 
45Y(d) and this paragraph (c), multiplied by
    (ii) The phase-out percentage provided under section 45Y(d)(2) and 
described in paragraph (c)(2) of this section.
    (2) Phase-out percentage. The phase-out percentage described in 
this paragraph (c)(2) is equal to--
    (i) For a facility the construction of which begins during the 
first calendar year following the applicable year, 100 percent,
    (ii) For a facility the construction of which begins during the 
second calendar year following the applicable year, 75 percent,
    (iii) For a facility the construction of which begins during the 
third calendar year following the applicable year, 50 percent, and
    (iv) For a facility the construction of which begins during any 
calendar year subsequent to the calendar year described in paragraph 
(c)(2)(iii) of this section, 0 percent.
    (3) Applicable year. For purposes of this paragraph (c), the term 
applicable year means the later of--
    (i) The calendar year in which the Secretary makes the 
determination that the annual greenhouse gas emissions from the 
production of electricity in the United States are equal to or less 
than 25 percent of the annual greenhouse gas emissions from the 
production of electricity in the United States for calendar year 2022, 
or
    (ii) 2032.
    (4) Phase-out data. For purposes of paragraph (c)(3)(i) of this 
section, the annual greenhouse gas emissions from the production of 
electricity in the United States for any calendar year must be assessed 
separately using both of the following data sources:
    (i) The U.S. Energy Information Administration's Electric Power 
Annual, summing the annual carbon dioxide emissions data from 
conventional power plants and combined heat and power plants and the 
Monthly Energy Review annual carbon dioxide emissions from the 
combustion of biomass to produce electricity in the Electric Power 
Sector; and
    (ii) The U.S. Environmental Protection Agency (EPA) Inventory of 
U.S. Greenhouse Gas Emissions and Sinks (GHGI) annual electric power-
related carbon dioxide, methane, and nitrous oxide emissions data 
including carbon dioxide emissions from the combustion of biomass to 
produce electricity.
    (5) Determination of phase-out. For purposes paragraph (c)(3)(i) of 
this section, the Secretary will determine that the annual greenhouse 
gas emissions from the production of electricity in the United States 
are equal to or less than 25 percent of the annual greenhouse gas 
emissions from the production of electricity in the United States for 
calendar year 2022 only if, the annual greenhouse gas emissions from 
the production of electricity in the United States, as determined 
separately under both of the data sources described in paragraph (c)(4) 
of this section, are each equal to or less than 25 percent of the 
annual greenhouse gas emissions from the production of electricity in 
the United States for calendar year 2022. If a data source described in 
paragraph (c)(4) of this section becomes unavailable (for example, it 
is no longer published or does not provide the specified data), the 
Secretary must designate a similar data source to replace the 
unavailable data source.
    (d) Requirements for CHP property--(1) In general. To be eligible 
for the section 45Y credit, a CHP property must produce at least 20 
percent of its total useful energy in the form of useful thermal energy 
that is not used to produce electrical or mechanical power (or 
combination thereof), and at least 20 percent of its total useful 
energy in the form of electrical or mechanical power (or combination 
thereof). The energy efficiency percentage of CHP property must exceed 
60 percent. These percentages are determined on a British thermal unit 
(Btu) basis.
    (2) Energy efficiency percentage. The energy efficiency percentage 
of a CHP property is the fraction the numerator of which is the total 
useful electrical, thermal, and mechanical power produced by the system 
at normal operating rates, and expected to be consumed in its normal 
application, and the denominator of which is the lower heating value of 
the fuel sources for the system.
    (3) Special rule for calculating electricity produced by CHP 
property--(i) In general. For purposes of section 45Y(a) and paragraph 
(b) of this section, the kWh of electricity produced by a taxpayer at a 
qualified facility includes any production in the form of useful 
thermal energy by any CHP property within such facility, and the amount 
of greenhouse gases emitted into the atmosphere by such facility in the 
production of such useful thermal energy is included for purposes of 
determining the greenhouse gas emissions rate for such facility.
    (ii) Conversion from Btu to kWh--(A) In general. For purposes of 
section 45Y(g)(2)(A)(i) and this paragraph (d)(3), the amount of kWh of 
electricity produced in the form of useful thermal energy is equal to 
the quotient of the total useful thermal energy produced by the CHP 
property within the qualified facility, divided by the heat rate for 
such facility.
    (B) Heat rate. For purposes of this paragraph (d)(3), the term heat 
rate means the amount of energy used by the qualified facility to 
generate 1 kWh of electricity, expressed as Btus per net kWh generated. 
In calculating the heat rate of a qualified facility that includes CHP 
property that uses combustion, a taxpayer must use the annual average 
heat rate, defined as the total annual fuel consumption of the CHP 
property (in Btus, using the lower heating value of the fuel) during 
the taxable year for which the section 45Y credit is claimed, divided 
by the annual net electricity generation (in kWh) of the CHP property 
during such taxable year.
    (e) Applicability date. This section applies to qualified 
facilities placed in service after December 31, 2024, and during a 
taxable year ending on or after [DATE OF PUBLICATION OF THE FINAL 
REGULATIONS IN THE FEDERAL REGISTER].


Sec.  1.45Y-2   Qualified facility for purposes of section 45Y.

    (a) Qualified facility. For purposes of the section 45Y credit, the 
term qualified facility means a facility owned by the taxpayer that 
meets the following requirements:
    (1) The facility is used for the generation of electricity,
    (2) The facility is placed in service after December 31, 2024, and
    (3) The facility has a greenhouse gas emissions rate of not greater 
than zero

[[Page 47828]]

(as determined under rules provided in Sec.  1.45Y-5).
    (b) Property included in qualified facility--(1) In general. A 
qualified facility includes a unit of qualified facility (as defined in 
paragraph (b)(2) of this section) that meets the requirements of 
paragraph (b)(2) of this section. A qualified facility also includes 
qualified property owned by the taxpayer that is an integral part (as 
defined in paragraph (b)(3) of this section) of the qualified facility. 
Any component of property that meets the requirements of this paragraph 
(b) is part of a qualified facility regardless of where such component 
of property is located. A qualified facility generally does not include 
equipment that is an addition or modification to an existing qualified 
facility. However, see Sec.  1.45Y-4(c) for rules regarding the 
expansion of a facility or incremental production and Sec.  1.45Y-4(d) 
for rules regarding a retrofitted qualified facility (80/20 Rule).
    (2) Unit of qualified facility--(i) In general. For purposes of the 
section 45Y credit, the unit of qualified facility includes all 
functionally interdependent components of property (as defined in 
paragraph (b)(2)(ii)) of this section) owned by the taxpayer that are 
operated together and that can operate apart from other property to 
produce electricity. No provision of this section, Sec.  1.45Y-1, or 
Sec.  1.45Y-4 through 1.45Y-5 uses the term unit in respect of a 
qualified facility with any meaning other than that provided in this 
paragraph (b)(2)(i).
    (ii) Functionally interdependent. Components of property are 
functionally interdependent if placing in service each component is 
dependent upon placing in service other components to produce 
electricity.
    (3) Integral part--(i)In general. For purposes of thesection 
45Ycredit, a component of property owned by a taxpayer is an integral 
part of a qualified facility if it is used directly in the intended 
function of the qualified facility and is essential to the completeness 
of such function. Property that is an integral part of a qualified 
facility is part of the qualified facility.
    (ii) Power conditioning and transfer equipment. Power conditioning 
equipment and transfer equipment are integral parts of a qualified 
facility. Power conditioning equipment includes equipment that modifies 
the characteristics of electricity into a form suitable for use, 
transmission, or distribution. Parts related to the functioning or 
protection of power conditioning equipment are also treated as power 
conditioning equipment and include, but are not limited to, switches, 
circuit breakers, arrestors, and hardware and software used to monitor, 
operate, and protect power conditioning equipment. Transfer equipment 
includes components of property that allow for the aggregation of 
electricity generated by a qualified facility and components of 
property that alter voltage to permit electricity to be transferred to 
a transmission or distribution line. Transfer equipment does not 
include transmission or distribution lines. Examples of transfer 
equipment include, but are not limited to, wires, cables, and combiner 
boxes that conduct electricity. Parts related to the functioning or 
protection of transfer equipment are also treated as transfer equipment 
and may include items such as current transformers used for metering, 
electrical interrupters (such as circuit breakers, fuses, and other 
switches), and hardware and software used to monitor, operate, and 
protect transfer equipment.
    (iii) Roads. Roads that are an integral part of a qualified 
facility are those roads integral to the intended function of the 
qualified facility such as onsite roads that are used to operate and 
maintain the qualified facility. Roads used primarily for access to the 
site, or roads used primarily for employee or visitor vehicles, are not 
integral to the intended function of the qualified facility and thus 
are not an integral part of a qualified facility.
    (iv) Fences. Fencing is not an integral part of a qualified 
facility because it is not integral to the intended function of the 
qualified facility.
    (v) Buildings. Generally, buildings are not integral parts of a 
qualified facility because they are not integral to the intended 
function of the qualified facility. However, the following structures 
are not treated as buildings for this purpose:
    (A) A structure that is essentially an item of machinery or 
equipment; and
    (B) A structure that houses components of property that are 
integral to the intended function of a qualified facility if the use of 
the structure is so closely related to the use of the housed components 
of property therein that the structure clearly can be expected to be 
replaced if the components of property it initially houses are 
replaced.
    (vi) Shared integral property. Multiple qualified facilities 
(whether owned by one or more taxpayers), including qualified 
facilities with respect to which a taxpayer has claimed a credit under 
section 48E or another Federal income tax credit, may include shared 
property that may be considered an integral part of each qualified 
facility. In addition, a component of property that is shared by a 
qualified facility (as defined in section 45Y(b)) (45Y Qualified 
Facility) and a qualified facility (as defined by section 48E(b)(3)) 
(48E Qualified Facility) that is an integral part of both qualified 
facilities will not affect the eligibility of the 45Y Qualified 
Facility for the section 45Y credit or the 48E Qualified Facility for 
the section 48E credit.
    (vii) Examples. This paragraph (b)(3)(vii) provides examples 
illustrating the rules of paragraphs (b)(3)(i) through (vi) of this 
section.
    (A) Example 1. Co-located qualified facilities owned by the same 
taxpayer that share integral property. X constructs a solar farm (Solar 
Qualified Facility) and nearby also constructs a wind facility (Wind 
Qualified Facility) that are each a qualified facility (as defined in 
Sec.  1.45Y-2(a)). The Solar Qualified Facility and Wind Qualified 
Facility each connect to a transformer that steps up the electricity 
produced by each qualified facility to electrical grid voltage before 
it is transmitted to the electrical grid through an intertie. The fact 
that the Solar Qualified Facility and Wind Qualified Facility share 
property that is integral to both does not impact the ability of X to 
claim a section 45Y credit for both qualified facilities.
    (B) Example 2. Co-located qualified facilities owned by different 
taxpayers that share integral property. X constructs a solar farm 
(Solar Qualified Facility), and nearby Y constructs a wind facility 
(Wind Qualified Facility) that are each a qualified facility (as 
defined in Sec.  1.45Y-2(a)). X's Solar Qualified Facility and Y's Wind 
Qualified Facility each connect to a transformer that steps up the 
electricity produced by both qualified facilities to electrical grid 
voltage before it is transmitted to the electrical grid through an 
intertie. The fact that the Solar Qualified Facility and Wind Qualified 
Facility share property that is integral to both does not impact the 
ability of X or Y to claim a section 45Y credit for the electricity 
produced by their respective qualified facilities.
    (C) Example 3. Co-located qualified facility and Energy Storage 
Technology owned by the same taxpayer that share integral property. X 
constructs a wind facility that is a qualified facility (as defined in 
Sec.  1.45Y-2(a)) (Wind Qualified Facility) that is co-located with an 
EST (as defined in Sec.  1.48E-2(g)) (Energy Storage). The Wind 
Qualified Facility and Energy Storage share transfer equipment that is 
integral to both. The fact that the Wind Qualified Facility and Energy 
Storage share property that is integral to both does not impact the 
ability of X to claim a section 45Y credit for the electricity produced

[[Page 47829]]

by the Wind Qualified Facility or to claim a section 48E credit for the 
Energy Storage.
    (D) Example 4. Co-located wind qualified facility and Energy 
Storage Technology owned by different taxpayers that share integral 
property. X constructs a solar farm that is a qualified facility (as 
defined in Sec.  1.45Y-2(a)) (Solar Qualified Facility) that is co-
located with an EST (as defined in Sec.  1.48E-2(g)) (Energy Storage) 
owned by Y. The Wind Qualified Facility and Energy Storage share 
transfer equipment that is integral to both. The fact that the Wind 
Qualified Facility and Energy Storage share property that is integral 
to both does not impact the ability of X to claim a section 45Y credit 
for the electricity produced by the Wind Qualified Facility or the 
ability of Y to claim a section 48E credit for the Energy Storage.
    (c) Coordination with other credits--(1) In general. The term 
qualified facility (as defined in section 45Y(b)) does not include any 
facility for which a credit determined under section 45, 45J, 45Q, 45U, 
48, 48A, or 48E is allowed under section 38 of the Code for the taxable 
year or any prior taxable year. A taxpayer that directly owns a 
qualified facility (as defined in section 45Y(b)) that is eligible for 
both a section 45Y credit and another Federal income tax credit is 
eligible for the section 45Y credit only if the other Federal income 
tax credit was not allowed with respect to the qualified facility. 
Nothing in this paragraph (c) precludes a taxpayer from claiming a 
section 45Y credit with respect to a qualified facility (as defined in 
section 45Y(b)) that is co-located with another facility for which a 
credit determined under section 45, 45J, 45Q, 45U, 48, 48A, or 48E is 
allowed under section 38 for the taxable year or any prior taxable 
year.
    (2) Allowed. For purposes of paragraph (c)(1) of this section, the 
term allowed only includes credits that taxpayers have claimed on a 
Federal income tax return or Federal return, as appropriate, and that 
the Internal Revenue Service (IRS) has not challenged in terms of the 
taxpayer's eligibility.
    (3) Examples. This paragraph (c)(3) provides examples illustrating 
the rules of paragraph (c) of this section.
    (i) Example 1. Taxpayer claims a section 45Y credit on a solar farm 
and section 48E credit on co-located EST. X owns a solar farm that is a 
qualifying facility (as defined in Sec.  1.45Y-2(a)) (Solar Qualified 
Facility), and X owns a co-located EST (as defined in Sec.  1.48E-2(g)) 
(Energy Storage). The Energy Storage is not part of the Solar Qualified 
Facility, and, therefore, X may claim the section 45Y credit based on 
the kWh of electricity produced by the Solar Qualified Facility, and X 
may also claim the section 48E credit based on its qualified investment 
in the Energy Storage.
    (ii) Example 2. Different taxpayers claim section 45Y credit for a 
solar farm and a section 48E credit for co-located Energy Storage 
Technology. X owns a solar farm that is a qualifying facility (as 
defined in Sec.  1.45Y-2(a)) (Solar Qualified Facility), and Y owns a 
co-located EST (as defined in Sec.  1.48E-2(g)) (Energy Storage). The 
Energy Storage is not part of the Solar Qualified Facility, and 
therefore, X may claim the section 45Y credit based on the kWh of 
electricity produced by the Solar Qualified Facility, and Y may claim 
the section 48E credit based on its qualified investment in the Energy 
Storage.
    (iii) Example 3. Taxpayer claiming a section 45Y credit; another 
credit is not allowed to the Taxpayer. X owns a wind facility that 
satisfies the requirements of a qualified facility (as defined in Sec.  
1.45Y-2(a)) as well as the requirements of a qualified facility (as 
defined in Sec.  1.48E-2(a)). X claims a section 45Y credit with 
respect to the wind facility. While a credit may be available with 
regard to the wind facility under section 48E, because X has claimed a 
section 45Y credit with respect to the wind facility, a section 48E 
credit is not allowed.
    (iv) Example 4. Interaction of section 45Y and section 45Q credits. 
X owns a qualified facility (as defined in Sec.  1.45Y-2(a)) (45Y 
Facility) that includes carbon capture equipment, which is functionally 
interdependent to the production of electricity by the 45Y Facility. X 
used the carbon capture equipment to capture and utilize (as described 
in section 45Q(f)(5)) qualified carbon dioxide and claimed a section 
45Q credit in a prior taxable year. As a result, X cannot claim a 
credit for its 45Y Facility because a qualified facility does not 
include a facility for which a credit determined under section 45Q is 
allowed.
    (d) Applicability date. This section applies to qualified 
facilities placed in service after December 31, 2024, and during a 
taxable year ending on or after [DATE OF PUBLICATION OF THE FINAL 
REGULATIONS IN THE FEDERAL REGISTER].


Sec.  1.45Y-3  [Reserved]


Sec.  1.45Y-4  Rules of general application.

    (a) Only production in the United States taken into account. 
Consumption, sales, or storage are taken into account for purposes of 
the section 45Y credit only with respect to electricity the production 
of which is within the United States (within the meaning of section 
638(1) of the Code), or a United States territory, which for purposes 
of section 45Y and the section 45Y regulations has the meaning of the 
term a possession of the United States (within the meaning of section 
638(2)).
    (b) Production attributable to the taxpayer--(1) In general. In the 
case of a qualified facility in which more than one person has an 
ownership share (and the arrangement is not treated as a partnership 
for Federal tax purposes) production from the qualified facility is 
allocated among such persons in proportion to their respective 
ownership shares in the gross sales from such qualified facility. The 
respective owners each determine their respective section 45Y credit 
under section 45Y(a) and based on their respective ownership shares in 
the gross sales from such qualified facility during the taxable year.
    (2) Example of gross sales. A, B and C, all calendar year 
taxpayers, each own an interest in Facility, which is a qualified 
facility (as defined in Sec.  1.45Y-2(a)). A owns 45 percent, B owns 35 
percent, and C owns 20 percent, and each are allocated gross sales from 
Facility in proportion to their ownership interest. Facility produced 
1000 kWh of electricity during the taxable year. A, B, and C will each 
determine their respective section 45Y credit under section 45Y(a) and 
Sec.  1.45Y-1(b) based on their allocable share of the gross sales from 
the 1000 kWh of electricity produced at Facility during the taxable 
year.
    (3) Section 761(a) election. If a qualified facility is owned 
through an unincorporated organization that has made a valid election 
under section 761(a) of the Code, each member's undivided ownership 
share in the qualified facility will be treated as a separate qualified 
facility owned by such member.
    (c) Expansion of facility; Incremental production--(1) In general. 
Solely for purposes of this paragraph (c), the term qualified facility 
includes either a new unit or an addition of capacity placed in service 
after December 31, 2024, in connection with a facility described in 
section 45Y(b)(1)(A) (without regard to clause (ii) of such paragraph), 
which was placed in service before January 1, 2025, but only to the 
extent of the increased amount of electricity produced at the facility 
by reason of such new unit or addition of capacity. A new unit or an 
addition of capacity that meets the requirements of this

[[Page 47830]]

paragraph (c) will be treated as a separate qualified facility. For 
purposes of this paragraph (c), a new addition or an addition of 
capacity requires the addition or replacement of components of 
property, including any new or replacement integral property added to a 
facility necessary to increase capacity. If applicable for purposes of 
this paragraph (c), taxpayers must use modified or amended facility 
operating licenses or the International Standard Organization (ISO) 
conditions to measure the maximum electrical generating output of a 
facility to determine its nameplate capacity. For purposes of assessing 
the One-Megawatt Exception provided in section 45Y(a)(2)(B)(i), the 
capacity for a new unit or an addition of capacity is the sum of the 
nameplate capacity of the added qualified facility and the nameplate 
capacity of the facility to which the qualified facility was added.
    (2) Special rule for restarted facilities. Solely for purposes of 
this paragraph (c), a facility that is decommissioned or in the process 
of decommissioning and restarts can be considered to have increased 
capacity if the following conditions are met:
    (i) The existing facility must have ceased operations;
    (ii) The existing facility must have a shutdown period of at least 
one calendar year during which it is without a valid operating license 
from its respective Federal regulatory authority (that is, the Federal 
Energy Regulatory Commission (FERC) or the Nuclear Regulatory 
Commission (NRC); and
    (iii) The increased capacity of the restarted facility must have a 
new, reinstated, or renewed operating license issued by either FERC or 
NRC.
    (3) Computation of increased amount of electricity produced. To 
determine the increased amount of electricity produced by a facility by 
reason of a new unit or an addition of capacity, a taxpayer must 
multiply the amount of electricity that the facility produces during a 
taxable year after the new unit or addition of capacity is placed in 
service by a fraction, the numerator of which is the added nameplate 
capacity that results from the new unit or addition of capacity, and 
the denominator of which is the total nameplate capacity of the 
facility with the new unit or addition of capacity added.
    (4) Examples. This paragraph (c)(4) provides examples illustrating 
the rules of paragraph (c) of this section.
    (i) Example 1. New Unit. X owns a hydropower facility (Facility H) 
that was originally placed in service in 2020, with a nameplate 
capacity of 600 megawatts. During taxable years 2020 through 2024, X 
claimed a section 45 credit for the electricity produced by Facility H. 
On July 1, 2025, X places in service components of property comprising 
a new unit that results in Facility H having an increased nameplate 
capacity of 900 megawatts in 2025. For purposes of paragraph (c) of 
this section, this new unit will be treated as a separate facility 
(Facility J). X may claim a section 45Y credit during the 10-year 
credit period starting on July 1, 2025, based on the increased amount 
of electricity generated as a result of the new unit, which is 
determined by multiplying the electricity that Facility H produces by 
one-third (equal to the 300-megawatt increase in nameplate capacity 
that results from the addition of Facility J divided by the 900 
megawatt nameplate capacity of Facility H with Facility J). Even though 
X claimed a section 45 credit for the existing capacity of Facility H 
in taxable years 2020 through 2024, X can claim a section 45Y credit 
for the production of electricity associated with Facility J. X may 
also continue to claim the section 45 credit through taxable year 2030 
for electricity generated by Facility H (excluding the incremental 
electricity generation related to Facility J).
    (ii) Example 2. Addition of Capacity. Y owns a nuclear facility 
(Facility N) that was originally placed in service on January 1, 2000, 
with a nameplate capacity of 800 megawatts. Y claimed a section 45U 
credit in taxable years 2024 and 2025 for the electricity generated by 
Facility N. On January 15, 2026, Y removed components of property with 
a nameplate capacity of 200 megawatts and placed in service components 
of property with a nameplate capacity of 400 megawatts. For purposes of 
this paragraph (c), Facility N's addition of capacity is treated as a 
new separate qualified facility placed in service on January 15, 2026 
(Facility P). Y may claim a section 45Y credit during the 10-year 
credit period starting on January 15, 2026, based on the increased 
amount of electricity produced at Facility N that is attributable to 
the addition of capacity (Facility P), which is determined by 
multiplying the electricity that Facility N produces by \1/5\ (equal to 
the 200-megawatt increase in nameplate capacity divided by Facility N's 
new total nameplate capacity of 1,000 megawatts). Even though Y claimed 
a section 45U credit in taxable years 2024 and 2025 for the existing 
capacity of Facility N, Y can claim a section 45Y credit for the 
production of electricity associated with Facility P. Y may also 
continue to claim the section 45U credit through taxable year 2032 for 
electricity generated by Facility N (excluding the incremental 
electricity generation related to Facility P).
    (d) Retrofit of an existing facility (80/20 Rule)--(1) In general. 
For purposes of section 45Y(b)(1)(B), a facility may qualify as 
originally placed in service even if it contains some used components 
of property within the unit of qualified facility, provided the fair 
market value of the used components of the unit of qualified facility 
is not more than 20 percent of the total value of the unit of qualified 
facility (that is, the cost of the new components of property plus the 
fair market value of the used components of property within the unit of 
qualified facility) (80/20 Rule). If a facility satisfies the 
requirements of the 80/20 Rule, then the date on which such qualified 
facility is considered originally placed in service for purposes of 
section 45Y(b)(1)(B) is the date on which the new components of 
property of the unit of qualified facility are placed in service.
    (2) Cost of new components of property. For purposes of this 80/20 
Rule, the cost of new components of the unit of qualified facility 
includes all costs properly included in the depreciable basis of the 
new components of property of the unit of qualified facility.
    (3) Examples. The following examples illustrate the rules of this 
paragraph (d).
    (i) Example 1. Retrofitted facility that that meets the 80/20 Rule. 
A owns an existing wind facility. On February 1, 2026, A replaces used 
components of the wind facility with new components at a cost of $2 
million. The fair market value of the remaining original components of 
the wind facility is $400,000, which is not more than 20 percent of the 
retrofitted wind facility's total fair market value of $2.4 million 
(the cost of the new components ($2 million) + the fair market value of 
the remaining original components ($400,000)). Thus, the retrofitted 
wind facility will be considered newly placed in service for purposes 
of section 45Y, and the section 45Y credit is allowable for electricity 
produced by A at the wind qualified facility and sold, consumed, or 
stored, during the 10-year period beginning on February 1, 2026, 
assuming all the other requirements of section 45Y are met.
    (ii) Example 2. Retrofit of an existing facility that meets the 80/
20 Rule. Facility Z, a facility that was originally placed in service 
on January 1, 2026, was not a qualified facility (as described in Sec.  
1.45Y-2(a)) when it was placed in service because it did not meet the 
greenhouse gas emissions rate

[[Page 47831]]

requirements (as determined under rules provided in Sec.  1.45Y-5). On 
January 1, 2027, Facility Z was retrofitted and now meets the 
requirements to be a qualified facility under Sec.  1.45Y-2(a). After 
the retrofit, the cost of the new property included in Facility Z is 
greater than 80 percent of Facility Z's total fair market value. 
Because Facility Z meets the 80/20 Rule, Facility Z is deemed to be 
originally placed in service on January 1, 2027. Therefore, a section 
45Y credit is allowable for electricity produced by Facility Z and 
sold, consumed, or stored during the 10-year period beginning on 
January 1, 2027, assuming all the other requirements of section 45Y are 
met.
    (iii) Example 3. Retrofitted nuclear facility that satisfied the 
80/20 Rule. T owns a nuclear facility (Facility N) that was originally 
placed in service on March 1, 1982, and was decommissioned on September 
20, 2010. T replaces used components of property at Facility N with new 
components at a cost of $200 million, and then places Facility N in 
service on July 15, 2026. The fair market value of the remaining 
original components of the Facility N, after being decommissioned and 
prior to restart, is $30 million, which is not more than 20 percent of 
Facility N's total fair market value of $230 million (the cost of the 
new components ($200 million) + the fair market value of the remaining 
original components ($30 million)). Thus, Facility N will be considered 
newly placed in service on July 15, 2026, for purposes of section 45Y, 
and T will be able to claim a section 45Y credit based on the 
electricity generated at Facility N, assuming all the other 
requirements of section 45Y are met.
    (iv) Example 4. Capital improvements to an existing qualified 
facility that do not satisfy the 80/20 Rule. X owns an existing 
facility, Facility C, that was originally placed in service on January 
1, 2023. X makes capital improvements to Facility C that are placed in 
service on June 1, 2026. The cost of the capital improvements is 
$500,000 and the fair market value of Facility C after the improvements 
is $2 million. The value of the old components of property is 
$1,500,000 out of $2.0 million, or 75 percent of the total fair market 
value of Facility C after the improvements. Because the fair market 
value of the new property included in Facility C is less than 80 
percent of Facility C's total fair market value, Facility C does not 
meet the 80/20 Rule. Facility C will not be considered a qualified 
facility (as defined in Sec.  1.45Y-2(a)) eligible for the section 45Y 
credit.
    (e) Applicability date. This section applies to qualified 
facilities placed in service after December 31, 2024, and during a 
taxable year ending on or after [DATE OF PUBLICATION OF THE FINAL 
REGULATIONS IN THE FEDERAL REGISTER].


Sec.  1.45Y-5  Greenhouse gas emissions rates for qualified facilities 
under section 45Y.

    (a) In general. This section provides rules and definitions for 
determining emissions rates for purposes of section 45Y. Section 1.45Y-
5(b)(4) provides a definition for a facility that produces electricity 
through combustion or gasification and Sec.  1.45Y-5(b)(7) defines a 
facility that does not produce electricity through combustion or 
gasification. Section 1.45Y-5(c) through (e) provide rules for 
determining the greenhouse gas emissions rates for facilities for 
purposes of section 45Y. Section 1.45Y-5(f) provides rules for the 
annual publication of emissions rates. Section 1.45Y-5(g) provides 
rules related to provisional emissions rates. Section Sec.  1.45Y-5(h) 
provides rules regarding reliance on the annual publication of 
emissions rates and provisional emissions rates. Finally, Sec.  1.45Y-
5(i) provides rules regarding substantiation requirements.
    (b) Definitions. The following definitions apply for purposes of 
this section.
    (1) CO2e per kWh. The term CO2e per kWh means with respect to any 
greenhouse gas, the equivalent carbon dioxide (as determined based on 
global warming potential) per kWh of electricity produced. The 100-year 
time horizon global warming potentials (GWP-100) from the 
Intergovernmental Panel on Climate Change's Fifth Assessment Report 
(AR5) must be used to convert emissions to equivalent carbon dioxide 
emissions. For purposes of this definition, the GWP-100 from AR5 (as 
shown in Table 1) excludes climate-carbon feedbacks. Table 1 provides 
GWP-100 amounts for certain greenhouse gases applicable to this 
section.

   Table 1 to Paragraph (b)(1)--100 Year Global Warming Potentials for
                            Greenhouse Gases
------------------------------------------------------------------------
             Greenhouse gas                             GWP
------------------------------------------------------------------------
CO2.....................................  1.
CH4.....................................  28.
N2O.....................................  265.
SF6.....................................  23,500.
Hydrofluorocarbons......................  Varies by gas.
Perfluorocarbons........................  Varies by gas.
------------------------------------------------------------------------

    (2) Combustion. The term combustion means a rapid exothermic 
chemical reaction, specifically the oxidation of a fuel, which 
liberates energy including heat and light.
    (3) Gasification. The term gasification means a thermochemical 
process that converts carbon-containing materials into syngas, a 
gaseous mixture that is composed primarily of carbon monoxide, carbon 
dioxide, and hydrogen.
    (4) Facility that produces electricity through combustion or 
gasification. The term facility that produces electricity through 
combustion or gasification (C&G Facility) means a facility that 
produces electricity through combustion or uses an input energy source 
to produce electricity, if the input energy source was produced through 
a fundamental transformation, or multiple transformations, of one 
energy source into another using combustion or gasification.
    (5) Greenhouse gas emissions rate. Consistent with section 
45Y(b)(2)(A), the term greenhouse gas emissions rate means the amount 
of greenhouse gases emitted into the atmosphere by a facility in the 
production of electricity, expressed as grams of CO2e per 
kWh.
    (6) Greenhouse gases emitted into the atmosphere by a facility in 
the production of electricity. For purposes of section 45Y(b)(2)(A), 
for both C&G and Non-C&G Facilities, the term greenhouse gases emitted 
into the atmosphere by a facility in the production of electricity 
means emissions from a facility that directly occur from the process 
that transforms the input energy source into electricity. This 
definition excludes the following:
    (i) Emissions from electricity production by back-up generators 
that are primarily used in maintaining critical systems in case of a 
power system outage or for supporting restart of a generator after an 
outage.
    (ii) Emissions from routine operational and maintenance activities 
that are integral to the production of electricity, including, but not 
limited to, emissions from internal combustion vehicles used to access 
and perform maintenance on remote electricity generating facilities or 
emissions occurring from heating and cooling control rooms or dispatch 
centers.
    (iii) Emissions from a step-up transformer that conditions the 
electricity into a form suitable for productive use or sale.
    (iv) Emissions that occur before commercial operations commence or 
after commercial operations terminate, including, but not limited to, 
on-site emissions occurring from construction

[[Page 47832]]

or manufacturing of the facility itself, emissions from the off-site 
manufacturing of facility components, or emissions occurring due to 
siting or decommissioning.
    (v) Emissions from infrastructure associated with the facility, 
including, but not limited to, emissions from road construction for 
feedstock production.
    (vi) Emissions from the distribution of electricity to consumers.
    (7) Non-C&G Facility. The term Non-C&G Facility means a facility 
that produces electricity and is not described in Sec.  1.45Y-5(b)(4).
    (8) Fuel. The term fuel means material directly used to produce 
electricity or energy inputs that are used to produce electricity.
    (9) Feedstock. The term feedstock means any raw material used in a 
process for electricity generation or to produce an intermediate 
product or finished fuel used for electricity generation.
    (c) Non-C&G Facilities--(1) Determining a greenhouse gas emissions 
rate for Non-C&G Facilities. Greenhouse gas emissions rates for Non-C&G 
Facilities must be determined under this paragraph (c) and paragraph 
(e) of this section.
    (i) Excluded emissions. With respect to Non-C&G Facilities only, 
greenhouse gases emitted into the atmosphere by a facility in the 
production of electricity excludes emissions of greenhouse gases that 
are not directly produced by the fundamental transformation of the 
input energy source into electricity, including, but not limited to, 
the following:
    (A) Emissions from hydropower reservoirs due to anoxic conditions;
    (B) Ebullitive, diffuse, and degassing emissions from hydropower 
operations;
    (C) Emissions of non-condensable gases from underground reservoirs 
during geothermal operations; and
    (D) Emissions occurring due to activities and operations occurring 
off-site, including but not limited to, the production and 
transportation of fuels used by the facility, or land use change from 
siting or changes in demand.
    (ii) Emissions assessment process. Subject to Sec.  1.45Y-5(b)(6) 
and (c)(1), a greenhouse gas emissions rate for a Non-C&G Facility must 
be determined through a technical and engineering assessment of the 
fundamental energy transformation into electricity. This assessment 
must consider all input and output energy carriers and chemical 
reactions or mechanical processes taking place at the facility in the 
production of electricity.
    (iii) Example of greenhouse gas emissions rate determination for a 
Non-C&G Facility.
    (A) Facts. A facility uses solar photovoltaic technologies to 
convert light directly into electricity through use of the photovoltaic 
effect. This is a physical phenomenon in which certain semiconducting 
materials upon exposure to light, absorb the light and transform the 
energy contained in the light directly into an electric current. There 
are many materials that may be used to generate electricity through 
this method, including crystalline silicon, amorphous silicon, cadmium 
telluride, copper indium gallium diselenide, perovskites, quantum dots, 
and carbon-based materials known as organic photovoltaics. The smallest 
unit of photovoltaic materials is a cell. Multiple cells are typically 
assembled into a panel or module and electrically connected. Multiple 
modules or panels are generally connected to comprise a solar system or 
installation. Solar photovoltaic technologies produce direct current 
electricity that can be used as is or, more typically, can be fed into 
inverters to transform it into alternating current. Solar panels can be 
ground mounted at a fixed angle or can be mounted with tracking systems 
that move the panels to track the location of the sun over the course 
of the day and season in order to maximize electricity production. 
Solar panels may also be mounted on buildings (for example, on roofs), 
or solar photovoltaic materials can be integrated into other building 
components such as roofing tiles.
    (B) Analysis. For solar photovoltaic technologies, the fundamental 
transformation of input energy (solar electromagnetic radiation) into 
electricity using the photovoltaic effect involves no mechanical energy 
or chemical reactions. Academic studies on the lifecycle greenhouse gas 
emissions from solar photovoltaic power indicate that there is a small 
but non-zero amount of emissions associated with the operational phase 
of these technologies. However, these emissions exclusively occur due 
to ongoing maintenance (for example, the washing of solar panels), 
preventative maintenance (for example, the periodic replacement of 
electrical equipment such as inverters), and a minimal amount of 
project management (for example, inverter standby mode at night). These 
emissions do not occur directly due to the production of electricity. 
Therefore, consistent with Sec.  1.45Y-5(c)(1)(ii), the greenhouse gas 
emissions rate for facilities that produce electricity by solar 
photovoltaic properties is not greater than zero.
    (2) Non-C&G Facilities with a greenhouse gas emissions rate that is 
not greater than zero. The following types or categories of facilities 
are Non-C&G Facilities with a greenhouse gas emissions rate that is not 
greater than zero:
    (i) Wind (including small wind properties);
    (ii) Hydropower (including retrofits that add electricity 
production to non-powered dams, conduit hydropower, hydropower using 
new impoundments, and hydropower using diversions such as a penstock or 
channel);
    (iii) Marine and hydrokinetic;
    (iv) Solar (including photovoltaic and concentrated solar power);
    (v) Geothermal (including flash and binary plants);
    (vi) Nuclear fission;
    (vii) Nuclear fusion; and
    (viii) Waste energy recovery property that derives energy from a 
source described in paragraphs (c)(2)(i) through (vii) of this section.
    (d) C&G Facilities--(1) Determining a greenhouse gas emissions rate 
for C&G Facilities. Greenhouse gas emissions rates for C&G Facilities 
must be determined by a lifecycle analysis (LCA) that complies with 
this paragraph (d) and paragraph (e) of this section. The greenhouse 
gas emissions rate for a C&G Facility equals the net rate of greenhouse 
gases emitted into the atmosphere by such facility (taking into account 
lifecycle greenhouse gas emissions, as described in section 
211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H))) in the 
production of electricity, expressed as grams of CO2e per 
kWh.
    (2) LCA requirements. For purposes of this paragraph (d), an LCA 
must comply with the following requirements:
    (i) Starting boundary. The starting boundary of the LCA for an LCA 
involving generation-derived feedstocks (such as biogenic feedstocks) 
is feedstock generation. The starting boundary of the LCA for an LCA 
involving extraction-derived feedstocks (such as fossil fuel 
feedstocks) is feedstock extraction. The starting boundaries include 
the processes necessary to produce and collect or extract the raw 
materials used to produce electricity from combustion or gasification 
technologies, including those used as energy inputs to electricity 
production. This includes the emissions effects of relevant land 
management activities or changes related to or associated with 
feedstock production. The starting conditions are the material and 
energy flows, including associated direct and indirect greenhouse gas 
emissions, of the processes associated with the extraction or 
production of raw feedstock materials or fuel.

[[Page 47833]]

    (ii) Ending boundary. The ending boundary of the LCA for 
electricity that is transmitted to the grid or electricity that is used 
on-site is the meter at the point of production of the C&G Facility. 
The use of such electricity generated by the C&G Facility (and what 
other types of energy sources it displaces), including emissions from 
transmission and distribution, are outside of the LCA boundary.
    (iii) Baseline. The LCA must be based on a future anticipated 
baseline, which projects future status quo in the absence of the 
availability of the sections 45Y and 48E credits (taking into account 
anticipated changes in technology, policies, practices, and 
environmental and other socioeconomic conditions).
    (iv) Offsets and offsetting activities. Offsets and offsetting 
activities that are unrelated to the production of electricity by the 
C&G Facility, including the production and distribution of any input 
fuel, may not be taken into account in the LCA.
    (v) Principles for included emissions. The LCA must take into 
account direct emissions, significant indirect emissions in the United 
States or other countries, emissions associated with market-mediated 
changes in related commodity markets, emissions associated with 
feedstock generation or extraction, emissions consequences of increased 
production of feedstocks, emissions at all stages of fuel and feedstock 
production and distribution, and emissions associated with 
distribution, delivery, and use of feedstocks to and by a C&G Facility.
    (A) Direct emissions. For purposes of paragraph this paragraph 
(d)(2)(v), direct emissions include, but are not limited to:
    (1) Emissions from feedstock generation, production, and extraction 
(including emissions from feedstock and fuel harvesting and extraction 
and direct land use change and management, including emissions from 
fertilizers, and changes in carbon stocks);
    (2) Emissions from feedstock and fuel transport (including 
emissions from transporting the raw or processed feedstock to the fuel 
processing facility);
    (3) Emissions from transporting and distributing fuels to 
electricity production facility;
    (4) Emissions from handling, processing, upgrading, and/or storing 
feedstocks, fuels and intermediate products (including emissions from 
on/offsite storage and preparation/pre-treatment for use (for example, 
torrefaction or pelletization) and emissions from process additives); 
and
    (5) Emissions from combustion and gasification at the electricity 
generating facility (including emissions from the combustion and/or 
gasification process and emission from gasification or combustion 
additives).
    (B) Significant indirect emissions. For purposes of this paragraph 
(d)(2)(v), examples of significant indirect emissions include, but are 
not limited to, emissions from indirect land use and land use change 
and induced emissions associated with the increased use of the 
feedstock for energy production.
    (vi) Principles for excluded emissions. The LCA must not take into 
account the following types of emissions:
    (A) Emissions from facility construction, siting or decommissioning 
(including on-site emissions occurring from construction or 
manufacturing of the facility itself);
    (B) Emissions from facility maintenance (including emissions from 
the on and offsite construction or maintenance of the facility; 
emissions from vehicles used to access and perform maintenance on 
electricity generating facilities; emissions from back-up generators 
that do not provide additional firm power and are used in maintaining 
critical systems in case of a power system outage or for supporting 
restart of a generator after an outage; and emissions occurring from 
heating and cooling control rooms or dispatch centers);
    (C) Emissions from infrastructure associated with the facility 
(including emissions from road construction for feedstock production 
and emissions from onsite backup or emergency generators used in an 
emergency or unplanned outage); and
    (D) Emissions from the distribution of electricity to consumers.
    (vii) Alternative fates and avoided emissions. The LCA may consider 
alternative fates and account for avoided emissions.
    (e) Carbon capture and sequestration. For purposes of paragraphs 
(c) and (d) of this section, a greenhouse gas emissions rate for a Non-
C&G Facility or C&G Facility must exclude any qualified carbon dioxide 
(as defined in section 45Y(c)(3)) that is produced in such facility's 
production of electricity, captured by the taxpayer, and pursuant to 
any regulations established under section 45Q(f)(2), disposed of by the 
taxpayer in secure geological storage, or utilized by the taxpayer in a 
manner described in section 45Q(f)(5) and any regulations established 
under such section.
    (f) Annual publication of emissions rates--(1) In general. As 
required by section 45Y(b)(2)(C)(i), the Secretary will annually 
publish a table that sets forth the greenhouse gas emissions rates for 
types or categories of facilities (Annual Table), which a taxpayer must 
use for purposes of section 45Y. Except as provided in paragraph (h) of 
this section, a taxpayer that owns a facility that is described in the 
Annual Table on the first day of the taxpayer's taxable year in which 
the section 45Y credit or section 48E credit is determined with respect 
to such facility must use the Annual Table as of such date to determine 
an emissions rate for such facility for such taxable year.
    (2) Publication of analysis required for changes to the Annual 
Table. In connection with the publication of the Annual Table, the 
Secretary must publish an accompanying expert analysis that addresses 
any types or categories of facilities added or removed from the Annual 
Table since its last publication. Types or categories of facilities 
will be added or removed from the Annual Table consistent with, for 
Non-C&G Facilities, a technical assessment of the fundamental energy 
transformation into electricity as provided in paragraph (c)(1)(ii) of 
this section, and, for C&G Facilities, an LCA that complies with 
paragraphs (d) and (e) of this section. Such expert analysis must be 
prepared by one or more of the National Laboratories, in consultation 
with other agency experts as appropriate, and must address whether the 
addition or removal of types or categories of facilities from the 
Annual Table complies with section 45Y(b)(2)(A) and (B) of the Internal 
Revenue Code and this section.
    (g) Provisional emissions rates--(1) In general. In the case of any 
facility that is of a type or category for which an emissions rate has 
not been established by the Secretary under this paragraph (g), a 
taxpayer that owns such facility may file a petition with the Secretary 
for the determination of the emissions rate with respect to such 
facility (Provisional Emissions Rate or PER). A PER must be determined 
and obtained under the rules of this section.
    (2) Rate not established. An emissions rate has not been 
established by the Secretary for a facility for purposes of section 
45Y(b)(2)(C)(ii) if such facility is not described in the Annual Table. 
If a taxpayer's request for an emissions value pursuant to paragraph 
(g)(5) of this section is pending at the time such facility is or 
becomes described in the Annual Table, the taxpayer's request for an 
emissions value will be automatically denied.
    (3) Process for filing a PER petition. To file a PER petition with 
the Secretary, a taxpayer must submit a PER petition by attaching it to 
the taxpayer's Federal income tax return or Federal

[[Page 47834]]

return, as appropriate, for the first taxable year in which the 
taxpayer claims the section 45Y credit with respect to the facility to 
which the PER petition applies. The PER petition must contain an 
emissions value, and, if applicable, the associated letter from DOE. An 
emissions value may be obtained from the Department of Energy (DOE) or 
by using an LCA model in accordance with paragraph (g)(6) of this 
section. An emission value obtained from DOE will be based on an 
analytical assessment of the emissions rate associated with the 
facility, performed by one or more National Laboratories, in 
consultation with other agency experts as appropriate, consistent with 
this section. A taxpayer must retain in its books and records a copy of 
the application and correspondence to and from DOE including a copy of 
the taxpayer's request to DOE for an emissions value, including any 
information provided by the taxpayer to DOE pursuant to the emissions 
value request process provided in paragraph (g)(5) of this section. 
Alternatively, an emissions value can be determined by the taxpayer for 
a facility using the most recent version of an LCA model, as of the 
time the PER petition is filed, that has been designated by the 
Secretary for such use under paragraph (g)(6) of this section. If an 
emissions value is determined using the most recent version of the 
model or models, the taxpayer is required to provide to the IRS 
information to support its determination in the form and manner 
prescribed in IRS forms or instructions or in publications or guidance 
published in the Internal Revenue Bulletin. See Sec.  601.601 of this 
chapter. A taxpayer may not request an emissions value from DOE for a 
facility for which an emissions value can be determined by using the 
most recent version of an LCA model or models that have been designated 
by the Secretary for such use under paragraph (g)(6) of this section.
    (4) PER determination. Upon the IRS's acceptance of the taxpayer's 
Federal income tax return or Federal return, as appropriate, containing 
a PER petition, the emissions value of the facility specified on such 
petition will be deemed accepted. A taxpayer may rely upon an emissions 
value provided by DOE for purposes of claiming a section 45Y credit, 
provided that any information, representations, or other data provided 
to DOE in support of the request for an emissions value are accurate. 
If applicable, a taxpayer may rely upon an emissions value determined 
for a facility using the most recent version of the specific LCA model 
or models that, as of the time the PER petition is filed, have been 
designated by the Secretary for such use under paragraph (g)(6) of this 
section, provided that any information, representations, or other data 
used to obtain such emissions value are accurate. The IRS's deemed 
acceptance of an emissions value is the Secretary's determination of 
the PER. However, the taxpayer must still comply with all applicable 
requirements for the section 45Y credit and any information, 
representations, or other data supporting an emissions value are 
subject to later examination by the IRS.
    (5) Emissions value request process. An applicant that submits a 
request for an emissions value must follow the procedures specified by 
DOE to request and obtain such emissions value. Emissions values will 
be determined consistent with the rules provided in this section. An 
applicant may request an emissions value from DOE only after a front-
end engineering and design (FEED) study or similar indication of 
project maturity, as determined by DOE, such as completion of a project 
specification and cost estimation sufficient to inform a final 
investment decision for the facility. DOE may decline to review 
applications that are not responsive, including those applications that 
relate to a facility described in the Annual Table (consistent with 
paragraph (g)(2) of this section) or a facility for which an emissions 
value can be determined by an LCA model designated under paragraph 
(g)(6) of this section (consistent with paragraph (g)(3) of this 
section), or applications that are incomplete. DOE will publish 
guidance and procedures that applicants must follow to request and 
obtain an emissions value from DOE. DOE's guidance and procedures will 
include a process for, under limited circumstances, requesting a 
revision to DOE's initial assessment of an emissions value based on 
revised technical information or facility design and operation.
    (6) LCA model for determining an emissions value for C&G 
Facilities. The Secretary may designate one or more LCA models for 
determining an emissions value for C&G Facilities that are not 
described in the Annual Table. The Secretary may only designate a model 
under this paragraph (g)(6) if the model complies with section 
45Y(b)(2)(B) and paragraphs (d) and (e) of this section. The Secretary 
may revoke the designation of an LCA model or models. In connection 
with the designation or revocation of a designation of an LCA model or 
models, the Secretary is required to publish an accompanying expert 
analysis of the model that is prepared by one or more of the National 
Laboratories, in consultation with other agency experts as appropriate, 
and such analysis must address the model's compliance with section 
45Y(b)(2)(B) of the Internal Revenue Code and paragraphs (d) and (e) of 
this section.
    (7) Effect of PER. A taxpayer may use a PER determined by the 
Secretary to determine eligibility for the section 45Y credit for the 
facility to which the PER applies, provided all other requirements of 
section 45Y are met. The Secretary's PER determination is not an 
examination or inspection of books of account for purposes of section 
7605(b) of the Code and does not preclude or impede the IRS (under 
section 7605(b) or any administrative provisions adopted by the IRS) 
from later examining a return or inspecting books or records with 
respect to any taxable year for which the section 45Y credit is 
claimed. Further, a PER determination does not signify that the IRS has 
determined that the requirements of section 45Y have been satisfied for 
any taxable year.
    (h) Reliance on Annual Table or Provisional Emissions Rate. 
Taxpayers may rely on the Annual Table in effect as of the date a 
facility began construction or the provisional emissions rate 
determined by the Secretary for the taxpayer's facility under paragraph 
(g)(4) of this section to determine the facility's greenhouse gas 
emissions rate for any taxable year that is within the 10-year period 
described in section 45Y(b)(1)(B), provided that the facility continues 
to operate as a type of facility that is described in the Annual Table 
or the facility's emissions value request, as applicable, for the 
entire taxable year.
    (i) Substantiation--(1) In general. A taxpayer must maintain in its 
books and records documentation regarding the design, operation, and, 
if applicable, feedstock or fuel source used by the facility that 
establishes that such facility had a greenhouse gas emissions rate, as 
determined under this section, that is not greater than zero for the 
taxable year.
    (2) Sufficient substantiation. Documentation sufficient to 
substantiate that a facility had a greenhouse gas emissions rate, as 
determined under this section, that is not greater than zero for the 
taxable year includes documentation or a report prepared by an 
unrelated party that verifies that a facility had such an emissions 
rate. A facility described in paragraph (c)(2) of this

[[Page 47835]]

section can maintain sufficient documentation to demonstrate a 
greenhouse gas emissions rate that is not greater than zero for the 
taxable year by showing that it is the type of facility described in 
paragraph (c)(2) of this section. The Secretary may determine that 
other types of facilities can sufficiently substantiate a greenhouse 
gas emissions rate, as determined under this section, that is not 
greater than zero with certain documentation and will describe such 
facilities and documentation in IRS forms or instructions or in 
publications or guidance published in the Internal Revenue Bulletin. 
See Sec.  601.601 of this chapter.
    (j) Applicability date. This section applies to qualified 
facilities placed in service after December 31, 2024, and during a 
taxable year ending on or after [the date of publication of the final 
regulations in the Federal Register].
0
Par. 4. Sections 1.48E-0 through 1.48E-5 are added to read as follows:
Sec.
* * * * *
Sec.  1.48E-0 Table of contents.
Sec.  1.48E-1 Clean electricity investment credit.
Sec.  1.48E-2 Qualified investments in qualified facilities and EST 
for purposes of section 48E.
Sec.  1.48E-3 [Reserved]
Sec.  1.48E-4 Rules of general application.
Sec.  1.48E-5 Greenhouse gas emissions rates for qualified 
facilities under section 48E.
* * * * *


Sec.  1.48E-0  Table of contents.

    This section lists the captions contained in Sec. Sec.  1.48E-1 
through 1.48E-5.

Sec.  1.48E-1 Clean electricity investment credit.

    (a) Overview.
    (1) In general.
    (2) Code.
    (3) EST.
    (4) kWh.
    (5) Qualified facility.
    (6) Qualified investment with respect to a qualified facility.
    (7) Qualified investment with respect to EST.
    (8) Secretary.
    (9) Section 48E credit.
    (10) Section 48E regulations.
    (b) Credit amount.
    (1) In general.
    (2) Applicable percentage.
    (3) Base rate.
    (4) Alternative rate.
    (5) Energy communities increase in credit rate.
    (i) In general.
    (ii) Applicable credit rate increase.
    (6) Domestic content increase in credit rate.
    (i) In general.
    (ii) Applicable credit rate increase.
    (c) Credit phase-out.
    (1) In general.
    (2) Phase-out percentage.
    (3) Applicable year.
    (d) Applicability date.

Sec.  1.48E-2 Qualified investments in qualified facilities and EST 
for purposes of section 48E.

    (a) Qualified facility.
    (b) Property included in qualified facility.
    (1) In general.
    (2) Unit of qualified facility.
    (i) In general.
    (ii) Functionally interdependent.
    (3) Integral part.
    (i) In general.
    (ii) Power conditioning and transfer equipment.
    (iii) Roads.
    (iv) Fences.
    (v) Buildings.
    (vi) Shared integral property.
    (vii) Examples.
    (c) Coordination with other credits.
    (1) In general.
    (2) Allowed.
    (3) Examples.
    (d) Qualified investment with respect to a qualified facility.
    (e) Qualified property.
    (1) In general.
    (2) Location of qualified property.
    (f) Definitions related to requirements for qualified property.
    (1) Tangible personal property.
    (2) Other tangible property.
    (3) Construction, reconstruction, or erection of qualified 
property.
    (4) Acquisition of qualified property.
    (5) Original use of qualified property.
    (i) In general.
    (ii) Retrofitted qualified facility.
    (6) Depreciation allowable.
    (i) In general.
    (ii) Exclusions from allowable.
    (7) Placed in service.
    (i) In general.
    (ii) Qualified facility subject to Sec.  1.48-4 election to 
treat lessee as purchaser.
    (8) Claim.
    (g) EST.
    (1) Property included in EST.
    (2) Unit of EST.
    (i) In general.
    (ii) Functionally interdependent.
    (3) Integral part.
    (4) Qualified investment with respect to EST.
    (5) Placed in service.
    (i) In general.
    (ii) EST subject to Sec.  1.48-4 election to treat lessee as 
purchaser.
    (6) Types of EST.
    (i) Electrical energy storage property.
    (ii) Thermal energy storage property.
    (iii) Hydrogen energy storage property.
    (7) Modification of EST.
    (8) Claim.
    (h) Applicability date.

Sec.  1.48E-3 [Reserved]
Sec.  1.48E-4 Rules of general application.

    (a) Rules for certain lower-output qualified facilities to 
include qualified interconnection costs in the basis of associated 
qualified facility.
    (1) In general.
    (2) Qualified interconnection property.
    (3) Five-Megawatt Limitation.
    (i) In general.
    (ii) Nameplate capacity for purposes of the Five-Megawatt 
Limitation.
    (4) Interconnection agreement.
    (5) Utility.
    (6) Reduction to amounts chargeable to capital account.
    (7) Examples.
    (b) Expansion of facility; Incremental production.
    (1) In general.
    (2) Special rule for restarted facilities.
    (3) Computation of qualified investment for a new unit or an 
addition of capacity.
    (i) New unit.
    (ii) Addition of capacity.
    (4) Examples.
    (c) Retrofit of an existing facility (80/20 Rule).
    (1) In general.
    (2) Expenditures taken into account.
    (3) Cost of new components.
    (4) New costs.
    (5) Excluded costs.
    (6) Examples.
    (d) Special rules regarding ownership.
    (1) Qualified investment with respect to a qualified facility or 
EST.
    (2) Multiple owners.
    (3) Section 761(a) election.
    (4) Related taxpayers.
    (i) Definition.
    (ii) Related taxpayer rule.
    (5) Examples.
    (e) Coordination rule for section 42 credits and section 48E 
credits.
    (f) Recapture.
    (1) In general.
    (2) Recapture event.
    (i) In general.
    (ii) Changes to the Annual Table.
    (iii) Yearly determination.
    (iv) Carryback and carryforward adjustments.
    (3) Recapture amount.
    (i) In general.
    (ii) Applicable recapture percentage.
    (4) Recapture period.
    (5) Increase in tax for recapture.
    (g) Cross references.
    (h) Applicability date.

Sec.  1.48E-5 Greenhouse gas emissions rates for qualified 
facilities under section 48E.

    (a) In general.
    (b) Definitions.
    (c) Non-C&G Facilities.
    (d) C&G Facilities.
    (e) Carbon capture and sequestration.
    (f) Annual publication of emissions rates.
    (g) Provisional emissions rates.
    (1) In general.
    (2) Rate not established.
    (3) Process for filing a PER petition.
    (4) PER determination.
    (5) Emissions value request process.
    (6) LCA model for determining an emissions value for C&G 
Facilities.
    (7) Effect of PER.
    (h) Determining anticipated greenhouse gas emissions rate.
    (1) In general.
    (2) Examples of objective indicia.
    (i) Reliance on Annual Table or Provisional Emissions Rate.

[[Page 47836]]

    (j) Substantiation.
    (1) In general.
    (2) Sufficient substantiation.
    (k) Applicability date.


Sec.  1.48E-1   Clean electricity investment credit.

    (a) Overview--(1) In general. For purposes of section 46 of the 
Code, the section 48E credit is determined under section 48E of the 
Code and the section 48E regulations (as defined in paragraph (a)(10) 
of this section). This paragraph (a) provides definitions of terms 
that, unless otherwise specified, apply for purposes of section 48E, 
the section 48E regulations, and any provision of the Code or this 
chapter that expressly refers to any provision of section 48E or the 
section 48E regulations. Paragraph (b) of this section provides rules 
for determining the amount of the section 48E credit for any taxable 
year. Paragraph (c) of this section provides rules regarding the phase-
out of the section 48E credit. See Sec.  1.48E-2 for rules relating to 
qualified investments in qualified facilities and energy storage 
technology (EST) for purposes of the section 48E credit. See Sec.  
1.48E-4 for rules of general application for the section 48E credit. 
See Sec.  1.48E-5 for rules to determine greenhouse gas emissions rates 
for qualified facilities under section 48E.
    (2) Code. The term Code means the Internal Revenue Code.
    (3) EST. The term EST for purposes of the section 48E credit means 
energy storage technology as defined in Sec.  1.48E-2(g).
    (4) kWh. The term kWh means kilowatt hours.
    (5) Qualified facility. The term qualified facility for purposes of 
the section 48E credit has the meaning provided in Sec.  1.48E-2(a).
    (6) Qualified investment with respect to a qualified facility. The 
term qualified investment with respect to a qualified facility for 
purposes of the section 48E credit has the meaning provided in Sec.  
1.48E-2(d).
    (7) Qualified investment with respect to EST. The term qualified 
investment with respect to EST for purposes of the section 48E credit 
has the meaning provided in Sec.  1.48E-2(g)(4).
    (8) Secretary. The term Secretary means the Secretary of the 
Treasury or her delegate.
    (9) Section 48E credit. The term section 48E credit means the clean 
electricity investment credit determined under section 48E of the Code 
and the section 48E regulations.
    (10) Section 48E regulations. The term section 48E regulations 
means this section and Sec. Sec.  1.48E-2 through 1.48E-5.
    (b) Credit amount--(1) In general. For purposes of section 46 of 
the Code, the section 48E credit for any taxable year is an amount 
equal to the applicable percentage of the qualified investment for such 
taxable year with respect to any qualified facility and any EST.
    (2) Applicable percentage. The term applicable percentage means the 
base rate described in paragraph (b)(3) of this section or the 
alternative rate described in paragraph (b)(4) of this section. The 
applicable percentage may be increased as provided in section 
48E(a)(3)(A) and paragraph (b)(5) of this section in the case of a 
qualified facility that is located in an energy community. Similarly, 
the applicable percentage may be increased as provided in section 
48E(a)(3)(B) and paragraph (b)(6) of this section in the case of a 
qualified facility that satisfies the domestic content requirements.
    (3) Base rate. In the case of any qualified facility or EST that 
does not satisfy the requirements provided in section 48E(a)(2)(A)(ii) 
or (B)(ii), the term base rate means 6 percent.
    (4) Alternative rate. In the case of any qualified facility or EST 
that satisfies the prevailing wage and apprenticeship requirements 
provided in section 48E(a)(2)(A)(ii) or (B)(ii), the term alternative 
rate means 30 percent.
    (5) Energy communities increase in credit rate--(i) In general. In 
the case of any qualified facility or EST that is placed in service 
within an energy community (as defined in section 45(b)(11)(B)), the 
applicable percentage under section 48E(a)(2) and paragraph (b)(2) of 
this section will be increased by the applicable credit rate increase 
described in section 48E(a)(3)(A)(ii) and paragraph (b)(5)(ii) of this 
section.
    (ii) Applicable credit rate increase. In the case of any qualified 
investment with respect to a qualified facility or EST to which the 
base rate is applicable, the applicable credit rate increase is 2 
percentage points, and with respect to any qualified investment with 
respect to a qualified facility or EST to which the alternative rate is 
applicable, the applicable credit rate increase is 10 percentage 
points.
    (6) Domestic content increase in credit rate--(i) In general. In 
the case of any qualified facility or EST that satisfies the 
requirements of section 45(b)(9)(B) (domestic content requirement), the 
applicable percentage under section 48E(a)(2) and paragraph (b)(2) of 
this section will be increased by the applicable credit rate increase 
described in paragraph (b)(6)(ii) of this section.
    (ii) Applicable credit rate increase. In the case of any qualified 
investment with respect to a qualified facility or EST to which the 
base rate is applicable, 2 percentage points, and with respect to any 
qualified investment with respect to a qualified facility or EST to 
which the alternative rate is applicable, 10 percentage points.
    (c) Credit phase-out--(1) In general. The amount of the credit as 
determined under section 48E(a) and paragraph (b) of this section for 
any qualified facility or EST, the construction of which begins during 
a calendar year described in section 48E(e)(2) and paragraph (c)(2) of 
this section is equal to the product of--
    (i) The amount of the credit determined under section 48E(a) and 
paragraph (b) of this section without regard to section 48E(e) and 
paragraph (c) of this section, multiplied by
    (ii) The phase-out percentage under section 48E(e)(2) and paragraph 
(c)(2) of this section.
    (2) Phase-out percentage. The phase-out percentage under this 
paragraph (c)(2) is equal to--
    (i) For any qualified investment with respect to any qualified 
facility or EST the construction of which begins during the first 
calendar year following the applicable year, 100 percent,
    (ii) For any qualified investment with respect to any qualified 
facility or EST the construction of which begins during the second 
calendar year following the applicable year, 75 percent,
    (iii) For any qualified investment with respect to any qualified 
facility or EST the construction of which begins during the third 
calendar year following the applicable year, 50 percent, and
    (iv) For any qualified investment with respect to any qualified 
facility or EST the construction of which begins during any calendar 
year subsequent to the calendar year described in paragraph (c)(2)(iii) 
of this section, 0 percent.
    (3) Applicable year. For purposes of this paragraph (c), the term 
applicable year has the same meaning provided under Sec.  1.45Y-
1(c)(3).
    (d) Applicability date. This section applies to qualified 
facilities and ESTs placed in service after December 31, 2024, and 
during a taxable year ending on or after [DATE OF PUBLICATION OF THE 
FINAL REGULATIONS IN THE Federal Register].


Sec.  1.48E-2   Qualified investments in qualified facilities and EST 
for purposes of section 48E.

    (a) Qualified facility. For purposes of the section 48E credit, the 
term qualified facility means a facility that meets all the following 
requirements:
    (1) The facility is used for the generation of electricity;

[[Page 47837]]

    (2) The facility is placed in service by the taxpayer after 
December 31, 2024; and
    (3) The facility has a greenhouse gas emissions rate of not greater 
than zero (as determined under rules provided in Sec.  1.45Y-5).
    (b) Property included in qualified facility--(1) In general. A 
qualified facility includes a unit of qualified facility (as defined in 
paragraph (b)(2) of this section). A qualified facility also includes 
components of property owned by the taxpayer that are an integral part 
(as defined in paragraph (b)(3) of this section) of the qualified 
facility. Any component of property that meets the requirements of this 
paragraph (b) is part of a qualified facility regardless of where such 
component of property is located. A qualified facility does not include 
any electrical transmission equipment, such as transmission lines and 
towers, or any equipment beyond the electrical transmission stage. A 
qualified facility also generally does not include equipment that is an 
addition or modification to an existing qualified facility. However, 
see Sec.  1.48E-4(b) regarding the expansion of a facility or 
incremental production and Sec.  1.48E-4(c) for rules regarding a 
retrofitted qualified facility (80/20 Rule).
    (2) Unit of qualified facility--(i) In general. For purposes of the 
section 48E credit, the unit of qualified facility includes all 
functionally interdependent components of property (as defined in 
paragraph (b)(2)(ii) of this section) owned by the taxpayer that are 
operated together and that can operate apart from other property to 
produce electricity. No provision of this section, Sec.  1.48E-1, or 
Sec.  1.48E-4 through 1.48E-5 uses the term unit in respect of a 
qualified facility with any meaning other than that provided in this 
paragraph (b)(2)(i).
    (ii) Functionally interdependent. Components of property are 
functionally interdependent if the placing in service of each of the 
components is dependent upon the placing in service of each of the 
other components to produce electricity.
    (3) Integral part--(i) In general. For purposes of the section 48E 
credit, a component of property owned by a taxpayer is an integral part 
of a qualified facility if it is used directly in the intended function 
of the qualified facility and is essential to the completeness of such 
function. Property that is an integral part of a qualified facility is 
part of the qualified facility. A taxpayer may not claim the section 
48E credit for any property that is an integral part of the taxpayer's 
qualified facility that is not owned by the taxpayer.
    (ii) Power conditioning and transfer equipment. Power conditioning 
equipment and transfer equipment are integral parts of a qualified 
facility. Power conditioning equipment includes equipment that modifies 
the characteristics of electricity into a form suitable for use, 
transmission, or distribution. Parts related to the functioning or 
protection of power conditioning equipment are also treated as power 
conditioning equipment and include, but are not limited to, switches, 
circuit breakers, arrestors, and hardware and software used to monitor, 
operate, and protect power conditioning equipment. Transfer equipment 
includes components of property that allow for the aggregation of 
electricity generated a qualified facility and components of property 
that alter voltage to permit electricity to be transferred to a 
transmission or distribution line. Transfer equipment does not include 
transmission or distribution lines. Examples of transfer equipment 
include, but are not limited to, wires, cables, and combiner boxes that 
conduct electricity. Parts related to the functioning or protection of 
transfer equipment are also treated as transfer equipment and may 
include items such as current transformers used for metering, 
electrical interrupters (such as circuit breakers, fuses, and other 
switches), and hardware and software used to monitor, operate, and 
protect transfer equipment.
    (iii) Roads. Roads that are an integral part of a qualified 
facility are those roads integral to the intended function of the 
qualified facility such as onsite roads that are used to operate and 
maintain the qualified facility. Roads used primarily for access to the 
site, or roads used primarily for employee or visitor vehicles, are not 
integral to the intended function of the qualified facility, and thus 
are not an integral part of a qualified facility.
    (iv) Fences. Fencing is not an integral part of a qualified 
facility because it is not integral to intended function of the 
qualified facility.
    (v) Buildings. Generally, buildings are not integral parts of a 
qualified facility because they are not integral to the intended 
function of the qualified facility. However, the following structures 
are not treated as buildings for this purpose:
    (A) A structure that is essentially an item of machinery or 
equipment; and
    (B) A structure that houses components of property that is integral 
to the intended function of the qualified facility if the use of the 
structure is so closely related to the use of the housed components of 
property therein that the structure clearly can be expected to be 
replaced if the components of property it initially houses are 
replaced.
    (vi) Shared integral property. Multiple qualified facilities 
(whether owned by one or more taxpayers), including qualified 
facilities with respect to which a taxpayer has claimed a credit under 
section 48E or another Federal income tax credit, may include shared 
property that may be considered an integral part of each qualified 
facility so long as the cost basis for the shared property is properly 
allocated to each qualified facility and the taxpayer only claims a 
section 48E credit with respect to the portion of the cost basis 
properly allocable to a qualified facility for which the taxpayer is 
claiming a section 48E credit. The total cost basis of such shared 
property divided among the qualified facilities may not exceed 100 
percent of the cost of such shared property. In addition, a component 
of property that is shared by a qualified facility (as defined by 
section 48E(b)(3)) (48E Qualified Facility) and a qualified facility 
(as defined in section 45Y(b)) (45Y Qualified Facility) that is an 
integral part of both qualified facilities will not affect the 
eligibility of the 48E Qualified Facility to claim a section 48E credit 
or the 45Y Qualified Facility to claim the section 45Y credit.
    (vii) Examples. This paragraph (b)(3)(vii) provides examples 
illustrating the rules of this paragraph (b)(3).
    (A) Example 1. Co-located qualified facilities owned by the same 
taxpayer that share integral property. X constructs a solar farm (Solar 
Qualified Facility) and nearby also constructs a wind facility (Wind 
Qualified Facility) that are each a qualified facility (as defined in 
Sec.  1.48E-2(a)). The Solar Qualified Facility and Wind Qualified 
Facility each connect to a transformer that steps up the electricity 
produced by each qualified facilities to electrical grid voltage before 
it is transmitted to the electrical grid through an intertie. X assigns 
50% of the cost of the shared transformer to the Solar Qualified 
Facility and the Wind Qualified Facility, respectively. The fact that 
the Solar Qualified Facility and Wind Qualified Facility share property 
that is integral to both does not impact the ability of X to claim a 
section 48E credit for both qualified facilities. When X places the 
qualified facilities in service, 50% of the cost of the transformer is 
included in X's basis in each of the qualified facilities for purposes 
of computing the section 48E credit.
    (B) Example 2. Co-located qualified facilities owned by different 
taxpayers that share integral property. X constructs a solar farm 
(Solar Qualified

[[Page 47838]]

Facility), and nearby Y constructs a wind facility (Wind Qualified 
Facility) that are each a qualified facility (as defined in Sec.  
1.48E-2(a)). The Solar Qualified Facility and the Wind Qualified 
Facility both connect to a transformer that steps up the electricity 
produced by both qualified facilities to electrical grid voltage before 
it is transmitted to the electrical grid through an intertie. X and Y 
each pay 50% of the cost of the transformer. The fact that the Solar 
Qualified Facility and Wind Qualified Facility share property that is 
integral to both does not impact the ability of X or Y to claim a 
section 48E credit for their respective qualified facilities. When X 
and Y place their respective qualified facilities in service, 50% of 
the cost of the transformer is included in X's and Y's basis in their 
respective qualified facilities for purposes of computing the section 
48E credit.
    (C) Example 3. Co-located qualified facility and Energy Storage 
Technology owned by the same taxpayer. X constructs a wind qualified 
facility (as defined in Sec.  1.48E-2(a)) (Wind Qualified Facility) 
that is co-located with an EST (as defined in Sec.  1.48E-2(g)) (Energy 
Storage). The Wind Qualified Facility and Energy Storage share transfer 
equipment that is integral to both. X assigns 50% of the cost of the 
shared transfer equipment to the Wind Qualified Facility and 50% of the 
cost to the Energy Storage. The fact that the Wind Qualified Facility 
and Energy Storage share property that is integral to both does not 
impact the ability of X to claim a section 48E credit for the Wind 
Qualified Facility and the Energy Storage. X may include 50% of the 
cost of the transfer equipment in its basis to determine a section 48E 
credit for the Wind Qualified Facility and the Energy Storage.
    (D) Example 4. Co-located qualified facility and Energy Storage 
Technology owned by different taxpayers. X constructs a solar farm that 
is a qualified facility (as defined in Sec.  1.48E-2(a)) (Solar 
Qualified Facility) and is co-located with an EST (as defined in Sec.  
1.48E-2(g)) (Energy Storage) owned by Y. The Solar Qualified Facility 
and Energy Storage share transfer equipment that is integral to both. X 
and Y each incur 50% of the cost of the transfer equipment. The fact 
that the Solar Qualified Facility and Energy Storage share property 
that is integral to both does not impact the ability of X to claim a 
section 48E credit for the Solar Qualified Facility or Y to claim a 
section 48E credit for the Energy Storage. When X and Y place in 
service the Solar Qualified Facility and Energy Storage, for purposes 
of computing the section 48E credit, 50% of the cost of the transfer 
equipment is included in X's basis in the Solar Qualified Facility and 
50% of the cost is included in Y's basis in the Energy Storage.
    (c) Coordination with other credits--(1) In general. The term 
qualified facility (as defined in section 48E(b)(3)) and paragraph (a) 
of this section does not include any facility for which a credit 
determined under section 45, 45J, 45Q, 45U, 45Y, 48, or 48A is allowed 
under section 38 of the Code for the taxable year or any prior taxable 
year. A taxpayer that directly owns a qualified facility (as defined in 
section 48E(b)(3)) that is eligible for both a section 48E credit and 
another Federal income tax credit is eligible for the section 48E 
credit only if the other Federal income tax credit was not allowed with 
respect to the qualified facility. Nothing in this paragraph (c) 
precludes a taxpayer from claiming a section 48E credit with respect to 
a qualified facility (as defined in section 48E(b)(3)) that is co-
located with another facility for which a credit determined under 
section 45, 45J, 45Q, 45U, 45Y, 48, or 48A is allowed under section 38 
of the Code for the taxable year or any prior taxable year.
    (2) Allowed. For purposes of paragraph (c)(1) of this section, the 
term allowed only includes credits that taxpayers have claimed on a 
Federal income tax return or Federal return, as appropriate, and that 
the Internal Revenue Service (IRS) has not challenged in terms of the 
taxpayer's eligibility.
    (3) Examples. This paragraph (c)(3) provides examples illustrating 
the rules provided in this paragraph (c).
    (i) Example 1. Taxpayer claims a section 45Y credit on a solar farm 
and section 48E credit on co-located Energy Storage Technology. X owns 
a solar farm that is a qualifying facility (as defined in Sec.  1.45Y-
2(a)) (45Y Solar Qualified Facility), and a co-located EST (as defined 
in Sec.  1.48E-2(g)) (Energy Storage). The Energy Storage is not part 
of the 45Y Solar Qualified Facility, and therefore X may claim the 
section 45Y credit based on the kWh of electricity produced by the 45Y 
Solar Qualified Facility, and X may also claim the section 48E credit 
based on its qualified investment in the Energy Storage.
    (ii) Example 2. Different taxpayers claim section 45Y credit for a 
solar farm and a co-located Energy Storage Technology. X owns a solar 
farm that is a qualifying facility (as defined in Sec.  1.45Y-2(a)) 
(45Y Solar Qualified Facility), and Y owns a co-located EST (as defined 
in Sec.  1.48E-2(g)) (Energy Storage). The Energy Storage is not part 
of the 45Y Solar Qualified Facility, and therefore, X may claim the 
section 45Y credit based on the kWh of electricity produced by the 45Y 
Solar Qualified Facility, and Y may claim the section 48E credit based 
on its qualified investment in the Energy Storage.
    (iii) Example 3. Taxpayer claiming a section 48E credit; another 
credit is not allowed. X owns a wind facility that satisfies the 
requirements of a qualified facility (as defined in Sec.  1.48E-2(a)) 
under section 48E as well as the requirements of a qualified facility 
(as defined in Sec.  1.45Y-2(a)) under section 45Y. X claims a section 
48E credit with respect to the wind facility. While a credit may be 
available with regard to the wind facility under section 45Y, because X 
claimed a section 48E credit with respect to the wind facility, a 
section 45Y credit is not allowed.
    (d) Qualified investment with respect to a qualified facility. For 
purposes of the section 48E credit, the qualified investment with 
respect to any qualified facility for any taxable year is the sum of 
the following--
    (1) The basis of any qualified property (as defined in paragraph 
(e)(1) of this section) placed in service by the taxpayer during such 
taxable year that is part of a qualified facility (as defined in 
paragraph (a) of this section); and
    (2) The amount of any expenditures paid or incurred by the taxpayer 
for qualified interconnection property (as defined in Sec.  1.48E-
4(a)(2)).
    (e) Qualified property--(1) In general. For purposes of this 
paragraph (e), the term qualified property means property that meets 
all the following requirements:
    (i) The property is tangible personal property (as defined in 
paragraph (f)(1) of this section) or other tangible property (not 
including a building or its structural components) (as defined in 
paragraph (f)(2) of this section), but only if such other tangible 
property is used as an integral part of the qualified facility;
    (ii) Depreciation (or amortization in lieu of depreciation) is 
allowable (as defined paragraph (f)(6) of this section) with respect to 
the property; and
    (iii) Either--
    (A) The construction, reconstruction, or erection of the property 
is completed by the taxpayer (as defined in paragraph (f)(3) of this 
section); or
    (B) The taxpayer acquires the property (as defined in paragraph 
(f)(4) of this section) if the original use of the property (as defined 
paragraph (f)(5) of this section) commences with the taxpayer.
    (2) Location of qualified property. Any component of a qualified 
property

[[Page 47839]]

that meets the requirements of paragraph (e) of this section is part of 
a qualified facility regardless of where such component of property is 
located.
    (f) Definitions related to requirements for qualified property. For 
purposes of section 48E and paragraph (b) of this section, the 
definitions of this paragraph (f) apply:
    (1) Tangible personal property. The term tangible personal property 
means any tangible property except land and improvements thereto, such 
as buildings or other inherently permanent structures (including items 
that are structural components of such buildings or structures). 
Tangible personal property includes all property (other than structural 
components) that is contained in or attached to a building. Further, 
all property that is in the nature of machinery (other than structural 
components of a building or other inherently permanent structure) is 
considered tangible personal property even though located outside a 
building. Local law is not controlling for purposes of determining 
whether property is or is not tangible property or tangible personal 
property. Thus, tangible property may be personal property for purposes 
of the energy credit even though under local law the property is 
considered a fixture and therefore real property.
    (2) Other tangible property. The term other tangible property means 
tangible property other than tangible personal property (not including 
a building and its structural components), that is used as an integral 
part of furnishing electricity by a person engaged in a trade or 
business of furnishing any such service.
    (3) Construction, reconstruction, or erection of qualified 
property. The term construction, reconstruction, or erection of 
qualified property means work performed to construct, reconstruct, or 
erect qualified property either by the taxpayer or for the taxpayer in 
accordance with the taxpayer's specifications.
    (4) Acquisition of qualified property. The term acquisition of 
qualified property means a transaction by which a taxpayer obtains 
rights and obligations with respect to qualified property including--
    (i) Title to the qualified property under the law of the 
jurisdiction in which the qualified property is placed in service, 
unless the qualified property is possessed or controlled by the 
taxpayer as a lessee, and
    (ii) Physical possession or control of the qualified property.
    (5) Original use of qualified property--(i) In general. The term 
original use of qualified property means the first use to which the 
unit of qualified property is put, whether or not such use is by the 
taxpayer.
    (ii) Retrofitted qualified facility. A retrofitted qualified 
facility acquired by the taxpayer will not be treated as being put to 
original use by the taxpayer unless the rules in Sec.  1.48E-4(c) 
regarding retrofitted qualified facilities (80/20 Rule) apply. The 
question of whether a qualified facility meets the 80/20 Rule is a 
facts and circumstances determination.
    (6) Depreciation allowable--(i) In general. For purposes of 
applying paragraph (b) of this section, depreciation (or amortization 
in lieu of depreciation) is allowable with respect to qualified 
property (as defined in paragraph (e) of this section) if such property 
is of a character subject to the allowance for depreciation under 
section 167 of the Code and the basis or cost of such property is 
recovered using a method of depreciation (for example, the straight 
line method), which includes any additional first year depreciation 
deduction method of depreciation (for example, under section 168(k) of 
the Code). Further, if an adjustment with respect to the Federal income 
tax or Federal return, as appropriate, for such taxable year requires 
the basis or cost of such qualified property to be recovered using a 
method of depreciation, depreciation is allowable to the taxpayer with 
respect to the qualified property.
    (ii) Exclusions from allowable. For purposes of paragraph (b) of 
this section, depreciation is not allowable with respect to a qualified 
facility if the basis or cost of such qualified facility is not 
recovered through a method of depreciation but, instead, such basis or 
cost is recovered through a deduction of the full basis or cost of the 
qualified facility in one taxable year (for example, under section 179 
of the Code).
    (7) Placed in service--(i) In general. A qualified facility is 
considered placed in service in the earlier of:
    (A) The taxable year in which, under the taxpayer's depreciation 
practice, the period for depreciation with respect to such qualified 
facility begins; or
    (B) The taxable year in which the qualified facility is placed in a 
condition or state of readiness and availability to produce 
electricity, whether in a trade or business or in the production of 
income. A qualified facility in a condition or state of readiness and 
availability to produce electricity includes, but is not limited to, 
components of property that are acquired and set aside during the 
taxable year for use as replacements for a particular qualified 
facility (or facilities) in order to avoid operational time loss and 
equipment that is acquired for a specifically assigned function and is 
operational but is undergoing testing to eliminate any defects. 
However, components of property acquired to be used in the construction 
of a qualified facility are not considered in a condition or state of 
readiness and availability for a specifically assigned function.
    (ii) Qualified facility subject to Sec.  1.48-4 election to treat 
lessee as purchaser. Notwithstanding paragraph (f)(7)(i) of this 
section, a qualified facility with respect to which an election is made 
under section 50(d)(5) of the Code and Sec.  1.48-4 to treat the lessee 
as having purchased such qualified facility is considered placed in 
service by the lessor in the taxable year in which possession is 
transferred to such lessee.
    (8) Claim. With respect to a section 48E credit determined with 
respect to a qualified facility of a taxpayer, the term claim means 
filing a completed Form 3468, Investment Credit, or any successor 
form(s), with the taxpayer's timely filed (including extensions) 
Federal income tax return or Federal return, as appropriate, for the 
taxable year in which the qualified facility is placed in service, and 
includes making an election under section 6417 or 6418 of the Code and 
corresponding regulations with respect to such section 48E credit and 
made on the taxpayer's filed return.
    (g) EST--(1) Property included in EST. An EST includes a unit of 
energy storage technology (unit of EST) (as defined in paragraph (g)(2) 
of this section) that meets the requirements of paragraph (g)(2)(ii) of 
this section. An EST also includes property owned by the taxpayer that 
is an integral part (as defined in paragraph (g)(3) of this section) of 
the EST. An EST does not include equipment that is an addition or 
modification to an existing EST. For purposes of the section 48E 
credit, EST includes electrical energy storage property (as described 
in paragraph (g)(6)(i) of this section), thermal energy storage 
property (as described in paragraph (g)(6)(ii) of this section), and 
hydrogen energy storage property (as described in paragraph (g)(6)(iii) 
of this section).
    (2) Unit of EST--(i) In general. For purposes of the section 48E 
credit, a unit of EST includes all functionally interdependent 
components of property (as defined in paragraph (g)(2)(ii) of this 
section) owned by the taxpayer that are operated together and that can 
operate apart from other property to perform the intended function of 
the EST. No

[[Page 47840]]

provision of this section, Sec.  1.48E-1, or Sec.  1.48E-4 through 
1.48E-5 uses the term unit in respect of an EST with any meaning other 
than that provided in this paragraph (g)(2)(i).
    (ii) Functionally interdependent. Components of property are 
functionally interdependent if the placing in service of each of the 
components is dependent upon the placing in service of each of the 
other components to perform the intended function of the EST.
    (3) Integral part. For purposes of the section 48E credit, property 
owned by a taxpayer is an integral part of an EST owned by the same 
taxpayer if it is used directly in the intended function of the EST and 
is essential to the completeness of such function. Property that is an 
integral part of an EST is part of an EST. A taxpayer may not claim the 
section 48E credit for any property that is an integral part of the 
taxpayer's EST that is not owned by the taxpayer.
    (4) Qualified investment with respect to EST. The qualified 
investment with respect to any EST for any taxable year is the basis of 
any EST placed in service by the taxpayer during such taxable year.
    (5) Placed in service--(i) In general. An EST is considered placed 
in service in the earlier of:
    (A) The taxable year in which, under the taxpayer's depreciation 
practice, the period for depreciation with respect to such EST begins; 
or
    (B) The taxable year in which the EST is placed in a condition or 
state of readiness and availability for the intended function of the 
EST, whether in a trade or business or in the production of income. An 
EST in a condition or state of readiness and availability for its 
intended function includes, but is not limited to, components of 
property that are acquired and set aside during the taxable year for 
use as replacements for a particular EST (or ESTs) in order to avoid 
operational time loss and equipment that is acquired for a specifically 
assigned function and is operational but is undergoing testing to 
eliminate any defects. However, components of property acquired to be 
used in the construction of an EST are not considered in a condition or 
state of readiness and availability for a specifically assigned 
function.
    (ii) EST subject to Sec.  1.48-4 election to treat lessee as 
purchaser. Notwithstanding paragraph (g)(5)(i) of this section, EST 
with respect to which an election is made under section 50(d)(5) of the 
Code and Sec.  1.48-4 to treat the lessee as having purchased such EST 
is considered placed in service by the lessor in the taxable year in 
which possession is transferred to such lessee.
    (6) Types of EST--(i) Electrical energy storage property. 
Electrical energy storage property is property (other than property 
primarily used in the transportation of goods or individuals and not 
for the production of electricity) that receives, stores, and delivers 
energy for conversion to electricity, and has a nameplate capacity of 
not less than 5 kWh. For example, subject to the exclusion for property 
primarily used in the transportation of goods or individuals, 
electrical energy storage property includes but is not limited to 
rechargeable electrochemical batteries of all types (such as lithium-
ion, vanadium redox flow, sodium sulfur, and lead-acid); 
ultracapacitors; physical storage such as pumped storage hydropower, 
compressed air storage, flywheels; and reversible fuel cells.
    (ii) Thermal energy storage property. Thermal energy storage 
property is property comprising a system that is directly connected to 
a heating, ventilation, or air conditioning (HVAC) system; removes heat 
from, or adds heat to, a storage medium for subsequent use; and 
provides energy for the heating or cooling of the interior of a 
residential or commercial building. Thermal energy storage property 
includes equipment and materials, and parts related to the functioning 
of such equipment, to store thermal energy for later use to heat or 
cool, or to provide hot water for use in heating a residential or 
commercial building. It does not include a swimming pool, combined heat 
and power system property (as defined in section 45Y(g)(2)), or a 
building or its structural components. For example, thermal energy 
storage includes, but is not limited to, thermal ice storage systems 
that use electricity to run a refrigeration cycle to produce ice that 
is later connected to the HVAC system as an exchange medium for air 
conditioning a building, heat pump systems that store thermal energy in 
an underground tank or borehole field to be extracted for later use for 
heating and/or cooling, and electric furnaces that use electricity to 
heat bricks to high temperatures and later use this stored energy to 
heat a building through the HVAC system.
    (iii) Hydrogen energy storage property. Hydrogen energy storage 
property is property (other than property primarily used in the 
transportation of goods or individuals and not for the production of 
electricity) that stores hydrogen and has a nameplate capacity of not 
less than 5 kWh, equivalent to 0.127 kg of hydrogen or 52.7 standard 
cubic feet (scf) of hydrogen. Hydrogen energy storage property must 
store hydrogen that is solely used as energy and not for other purposes 
such as for the production of end products such as fertilizer. For 
example, hydrogen energy storage property includes, but is not limited 
to, a hydrogen compressor and associated storage tank and an 
underground storage facility and associated compressors.
    (7) Modification of EST. With respect to an electrical energy 
storage property or a hydrogen energy storage property, modified as set 
forth in this paragraph (g)(7), such property will be treated as an 
electrical energy storage property (as described in paragraph (g)(6)(i) 
of this section) or a hydrogen energy storage property (as described in 
paragraph (g)(6)(iii) of this section), except that the basis of any 
existing electrical energy storage property or hydrogen energy storage 
property prior to such modification is not taken into account for 
purposes of this paragraph (g)(7) and section 48E. This paragraph 
(g)(7) applies to any electrical energy storage property and hydrogen 
energy storage property that either:
    (i) Was placed in service before August 16, 2022, and would be 
described in section 48(c)(6)(A)(i), except that such property had a 
capacity of less than 5 kWh and is modified in a manner that such 
property (after such modification) has a nameplate capacity of not less 
than 5 kWh; or
    (ii) Is described in section 48(c)(6)(A)(i) and is modified in a 
manner that such property (after such modification) has an increase in 
nameplate capacity of not less than 5 kWh.
    (8) Claim. With respect to a section 48E credit determined with 
respect to an EST of a taxpayer, the term claim means filing a 
completed Form 3468, Investment Credit, or any successor form(s), with 
the taxpayer's timely filed (including extensions) Federal income tax 
return or Federal return, as appropriate, for the taxable year in which 
the EST is placed in service, and includes making an election under 
section 6417 or 6418 of the Code and corresponding regulations with 
respect to such section 48E credit and made on the taxpayer's filed 
return.
    (h) Applicability date. This section applies to qualified 
facilities and EST placed in service after December 31, 2024, and 
during a taxable year ending on or after [DATE OF PUBLICATION OF THE 
FINAL REGULATIONS IN THE FEDERAL REGISTER].

[[Page 47841]]

Sec.  1.48E-3  [Reserved]


Sec.  1.48E-4  Rules of general application.

    (a) Rules for certain lower-output qualified facilities to include 
qualified interconnection costs in the basis of associated qualified 
facility--(1) In general. For purposes of determining the section 48E 
credit, the qualified investment with respect to a qualified facility 
(as defined in Sec.  1.48E-2(a)) includes amounts paid or incurred by 
the taxpayer for qualified interconnection property (as defined in 
paragraph (a)(2) of this section), in connection with a qualified 
facility (as defined in Sec.  1.48E-2(a)) that has a maximum net output 
of not greater than 5 MW (as measured in alternating current) as 
described in paragraph (a)(3) of this section (Five-Megawatt 
Limitation). The qualified interconnection property must provide for 
the transmission or distribution of the electricity produced by a 
qualified facility and must be properly chargeable to the capital 
account of the taxpayer as reduced by paragraph (a)(6) of this section.
    (2) Qualified interconnection property. For purposes of this 
paragraph (a), the term qualified interconnection property means, with 
respect to a qualified facility, any tangible property that is part of 
an addition, modification, or upgrade to a transmission or distribution 
system that is required at or beyond the point at which the qualified 
facility interconnects to such transmission or distribution system in 
order to accommodate such interconnection; is either constructed, 
reconstructed, or erected by the taxpayer (as defined in Sec.  1.48E-
2(f)(3)), or for which the cost with respect to the construction, 
reconstruction, or erection of such property is paid or incurred by 
such taxpayer; and the original use (as defined in Sec.  1.48E-2(f)(5)) 
of which, pursuant to an interconnection agreement (as defined in 
paragraph (a)(4) of this section), commences with a utility (as defined 
in paragraph (a)(5) of this section). Qualified interconnection 
property is not part of a qualified facility. As a result, qualified 
interconnection property is not taken into account in determining 
whether a qualified facility satisfies the requirements for the 
increase in credit rate for energy communities provided in section 
48E(a)(3)(A) or for the increase in credit rate for domestic content 
referenced in section 48E(a)(3)(B) (by reference to rules similar to 
the rules of section 48(a)(12)).
    (3) Five-Megawatt Limitation--(i) In general. For purposes of this 
paragraph (a), the Five-Megawatt Limitation is measured at the level of 
the qualified facility in accordance with section 48E(b)(1)(B). The 
maximum net output of a qualified facility is measured only by 
nameplate generating capacity of the unit of qualified facility, which 
does not include the nameplate capacity of any integral property, at 
the time the qualified facility is placed in service. The nameplate 
generating capacity of the unit of qualified facility is measured 
independently from any other qualified facilities that share the same 
integral property.
    (ii) Nameplate capacity for purposes of the Five-Megawatt 
Limitation. The determination of whether a qualified facility has a 
maximum net output of not greater than 5 MW (as measured in alternating 
current) is based on the nameplate capacity of the unit of qualified 
facility. The nameplate capacity for purposes of the Five-Megawatt 
Limitation is the maximum electrical generating output in megawatts 
that the unit of qualified facility is capable of producing on a steady 
state basis and during continuous operation under standard conditions, 
as measured by the manufacturer and consistent with the definition of 
nameplate capacity provided in 40 CFR 96.202. If applicable, taxpayers 
should use the International Standard Organization (ISO) conditions to 
measure the maximum electrical generating output of a unit of qualified 
facility.
    (4) Interconnection agreement. For purposes of this paragraph (a), 
the term interconnection agreement means an agreement with a utility 
for the purposes of interconnecting the qualified facility owned by 
such taxpayer to the transmission or distribution system of the 
utility.
    (5) Utility. For purposes of this paragraph (a), the term utility 
means the owner or operator of an electrical transmission or 
distribution system that is subject to the regulatory authority of a 
State or political subdivision thereof, any agency or instrumentality 
of the United States, a public service or public utility commission or 
other similar body of any State or political subdivision thereof, or 
the governing or ratemaking body of an electric cooperative.
    (6) Reduction to amounts chargeable to capital account. For 
purposes of this paragraph (a), in the case of expenses paid or 
incurred for qualified interconnection property (as defined in 
paragraph (a)(2) of this section), amounts otherwise chargeable to 
capital account with respect to such expenses must be reduced under 
rules similar to the rules of section 50(c) of the Code, specifically 
the rules under section 50(c)(3). In addition, the taxpayer must pay or 
incur the interconnection property costs; therefore, any reimbursement, 
including by a utility, must be accounted for by reducing the 
taxpayer's expenditure to determine eligible costs.
    (7) Examples. This paragraph (a)(7) provides examples illustrating 
the rules of this paragraph (a).
    (i) Example 1. Application of Five-Megawatt Limitation to an 
interconnection agreement for qualified facilities owned by taxpayer. X 
places in service two solar qualified facilities (48E Facilities) each 
with a maximum net output of 5 MW (as measured in alternating current). 
The two 48E Facilities each have their own inverter, which is integral 
property to each facility, and share a step-up transformer, which is 
integral property to both facilities. As part of the development of the 
48E Facilities, interconnection costs are required by the utility to 
modify and upgrade the transmission system at or beyond the common 
intertie to the utility's transmission system to accommodate the 
interconnection. X has an interconnection agreement with the utility 
that allows for a maximum output of 10 MW (as measured in alternating 
current). The interconnection agreement provides the total cost of the 
qualified interconnection property. X may include the costs paid or 
incurred by X, respectively, for qualified interconnection property 
subject to the terms of the interconnection agreement, to calculate X's 
section 48E credit for each of the 48E Facilities because each 
qualified facility has a maximum net output of not greater than 5 MW.
    (ii) Example 2. Application of Five-Megawatt Limitation to an 
interconnection agreement for qualified facilities owned by separate 
taxpayers. X places in service a solar farm that is a qualified 
facility (as defined in Sec.  1.48E-2(a)) (Solar Qualified Facility) 
with a maximum net output of 5 MW (as measured in alternating current). 
The Solar Qualified Facility includes an inverter, which is integral 
property. Y places in service a wind facility (as defined in Sec.  
1.48E-2(a)) (Wind Qualified Facility), with a maximum net output of 5 
MW (as measured in alternating current). The Solar Qualified Facility 
and the Wind Qualified Facility share a step-up transformer, which is 
integral to both facilities. As part of the development of the Solar 
Qualified Facility and Wind Qualified Facility, interconnection costs 
are required by the utility to modify and upgrade the transmission 
system at or beyond the common intertie to the utility's

[[Page 47842]]

transmission system to accommodate the interconnection. X and Y are 
party to the same interconnection agreement with the utility that 
allows for a maximum output of 10 MW (as measured in alternating 
current). The interconnection agreement provides the total cost of the 
qualified interconnection property. X and Y may include the costs paid 
or incurred by X and Y, respectively, for qualified interconnection 
property subject to the terms of the interconnection agreement, to 
calculate their respective section 48E credits for the Solar Qualified 
Facility and the Wind Qualified Facility because each has a maximum net 
output of not greater than 5 MW.
    (b) Expansion of facility; Incremental production--(1) In general. 
Solely for purposes of this paragraph (b), the term qualified facility 
includes either a new unit or an addition of capacity placed in service 
after December 31, 2024, in connection with a facility described in 
section 48E(b)(3)(A) (without regard to clause (ii) of such paragraph), 
which was placed in service before January 1, 2025, but only to the 
extent of the increased amount of electricity produced at the facility 
by reason of such new unit or addition of capacity. A new unit or an 
addition of capacity that meets the requirements of this paragraph (b) 
will be treated as a separate qualified facility. For purposes of this 
paragraph (b), a new unit or an addition of capacity requires the 
addition or replacement of qualified property (as defined in Sec.  
1.48E-2(e)), including any new or replacement integral property added 
to a facility necessary to increase capacity. If applicable for 
purposes of this paragraph (b), taxpayers must use modified or amended 
facility operating licenses or the International Standard Organization 
(ISO) conditions to measure the maximum electrical generating output of 
a facility to determine nameplate capacity. For purposes of assessing 
the One-Megawatt Exception in section 48E(a)(2)(A)(ii)(I), the capacity 
for a new unit or an addition of capacity is the sum of the nameplate 
capacity of the added qualified facility and the nameplate capacity of 
the facility to which the qualified facility was added.
    (2) Special rule for restarted facilities. Solely for purposes of 
this paragraph (b), a facility that is decommissioned or in the process 
of decommissioning and restarts can be considered to have increased 
capacity if the following conditions are met:
    (i) The existing facility must have ceased operations;
    (ii) The existing facility must have a shutdown period of at least 
one calendar year during which it is without a valid operating license 
from its respective Federal regulatory authority (that is, the Federal 
Energy Regulatory Commission (FERC) or the Nuclear Regulatory 
Commission (NRC)); and
    (iii) The increased capacity of the restarted facility must have a 
new, reinstated, or renewed operating license issued by either FERC or 
NRC.
    (3) Computation of qualified investment for a new unit or an 
addition of capacity--(i) New unit. For purposes of this paragraph (b), 
the term new unit means components of property including any new or 
replacement integral property added to a facility necessary to increase 
the capacity of the facility but do not replace the existing capacity 
of the facility. The taxpayer's qualified investment in the new unit 
during the taxable year that results in an increase in capacity is 
eligible for the section 48E credit.
    (ii) Addition of capacity. For purposes of this paragraph (b), the 
term addition of capacity means components of property, including any 
new or replacement integral property added to a facility necessary to 
increase the capacity of the facility by replacing, in whole or in 
part, the existing capacity of the facility. To determine a taxpayer's 
qualified investment during the taxable year that resulted in an 
increased capacity of a facility by reason of an addition of capacity 
(not described in paragraph (b)(3)(i) of this section), a taxpayer must 
multiply its total qualified investment during the taxable year with 
respect to the facility, by a fraction, the numerator of which is the 
increase in nameplate capacity that results from the addition of 
capacity, and the denominator of which is the total nameplate capacity 
associated with the components of property that result in the addition 
of capacity.
    (4) Examples. This paragraph (b)(4) provides examples illustrating 
the rules of this paragraph (b).
    (i) Example 1. New Unit. X owns a hydropower facility (Facility H) 
that was originally placed in service in 2020, with a nameplate 
capacity of 600 megawatts. During taxable years 2020 through 2024, X 
claimed a section 45 credit for the electricity produced by Facility H. 
On July 1, 2025, X places in service components of property comprising 
a new unit that results in Facility H having an increased nameplate 
capacity of 900 megawatts in 2025. For purposes of this paragraph (b), 
this new unit will be treated as a separate facility (Facility J). X 
determines the amount of its section 48E credit based on the amount of 
its qualified investment in Facility J. Even though X claimed a section 
45 credit for the existing electricity capacity of Facility H in 
taxable years 2020 through 2024, X can claim a section 48E credit for 
its qualified investment in Facility J. X may also continue to claim 
the section 45 credit through taxable year 2030 for electricity 
generated by Facility H (excluding the incremental electricity 
generation related to Facility J).
    (ii) Example 2. Addition of Capacity. Y owns a nuclear facility 
(Facility N) that was originally placed in service on January 1, 2000, 
with a nameplate capacity of 800 megawatts. Y claimed a section 45U 
credit in taxable years 2024 and 2025 for the electricity generated by 
Facility N. On January 15, 2026, Y removed components of property with 
a nameplate capacity of 200 megawatts and placed in service components 
of property with a nameplate capacity of 300 megawatts at Facility N. 
For purposes of this paragraph (b), Facility N's addition of capacity 
is treated as a new separate qualified facility placed in service on 
January 15, 2026 (Facility P). Y determines the amount of its section 
48E credit based on the amount of its qualified investment in Facility 
P, which is determined by multiplying Y's qualified investment with 
respect to the addition of capacity by one-third (equal to the 100-
megawatt increase in nameplate capacity divided by the 300 megawatt 
nameplate capacity associated with the new components of property that 
result in the addition of capacity). Even though Y claimed a section 
45U credit in taxable years 2024 and 2025 for the existing capacity of 
Facility N, Y can claim a section 48E credit for its investment in the 
addition of capacity associated with Facility P. Y may also continue to 
claim the section 45U credit through taxable year 2032 for electricity 
generated by Facility N (excluding the incremental electricity 
generation related to Facility P).
    (c) Retrofit of an existing facility (80/20 Rule)--(1) In general. 
For purposes of section 48E(b)(3)(A)(ii), a retrofitted qualified 
facility may qualify as originally placed in service even if it 
contains some used components of property within the unit of qualified 
facility, provided that the fair market value of the used components of 
the unit of qualified facility is not more than 20 percent of the total 
value of the unit of qualified facility (that is, the cost of the new 
components of property plus the value of the used components of 
property within the unit of qualified facility) (80/20 Rule).
    (2) Expenditures taken into account. Notwithstanding the rule 
provided in

[[Page 47843]]

paragraph (c)(1) of this section, only expenditures paid or incurred 
that relate to the new components of the unit of qualified facility are 
taken into account for purposes of computing the credit determined 
under section 48E with respect to the qualified facility.
    (3) Cost of new components. For purposes of this 80/20 Rule, the 
cost of new components of the unit of qualified facility includes all 
costs properly included in the depreciable basis of the new components 
of the unit of qualified facility.
    (4) New costs. If the taxpayer satisfies the 80/20 Rule with regard 
to the unit of qualified facility and the taxpayer pays or incurs new 
costs for property that is an integral part of the qualified facility 
(as defined in Sec.  1.48E-2(a)), the taxpayer may include these new 
costs paid or incurred for property that is an integral part of the 
qualified facility in the basis of the qualified facility for purposes 
of the section 48E credit.
    (5) Excluded costs. Costs incurred for new components of property 
added to used components of a unit of qualified facility may not be 
taken into account for purposes of the section 48E credit unless the 
taxpayer satisfies the 80/20 Rule by placing in service a unit of 
qualified facility for which the fair market value of the used 
components of property is not more than 20 percent of the total value 
of the unit of qualified facility taking into account the cost of the 
new components of property plus the value of the used components of 
property.
    (6) Examples. The following examples illustrate the rules of this 
paragraph (c).
    (i) Example 1. Retrofitted facility that satisfies the 80/20 Rule. 
A owns an existing wind facility. On February 1, 2026, A replaces used 
components of the wind facility with new components at a cost of $2 
million. The fair market value of the remaining original components of 
the wind facility is $400,000, which is not more than 20 percent of the 
retrofitted facility's total fair market value of $2.4 million (the 
cost of the new components ($2 million) + the fair market value of the 
remaining original components ($400,000)). Thus, the retrofitted wind 
facility will be considered newly placed in service for purposes of 
section 48E, assuming all the other requirements of section 48E are 
met, and A will be able to claim a section 48E credit based on its 
investment in 2026 ($2 million).
    (ii) Example 2. Retrofit of an existing facility that meets the 80/
20 Rule. Facility Z, a facility that was originally placed in service 
on January 1, 2026, was not a qualified facility (as defined in Sec.  
1.48E-2(a)) when it was placed in service because it did not meet the 
greenhouse gas emission rate requirements (as determined under rules 
provided in Sec.  1.48E-5). On January 1, 2027, Facility Z was 
retrofitted and now meets the requirements to be a qualified facility 
(as defined in Sec.  1.48E-2(a)). After the retrofit, the cost of the 
new property included in Facility Z is greater than 80 percent of 
Facility Z's total fair market value. Because Facility Z meets the 80/
20 Rule, Facility Z is deemed to be originally placed in service on 
January 1, 2027. Assuming all the other requirements of section 48E are 
met, Z may claim a section 48E credit based on its investment in the 
new components used to retrofit the existing facility in 2027.
    (iii) Example 3. Retrofitted nuclear facility that satisfied the 
80/20 Rule. T owns a nuclear facility (Facility N) that was originally 
placed in service on March 1, 1982, and was decommissioned on September 
20, 2010. T replaces used components of property at Facility N with new 
components at a cost of $200 million, and then places in Facility N in 
service on July 15, 2026. The fair market value of the remaining 
original components of Facility N, after being decommissioned and prior 
to restart, is $30 million, which is not more than 20 percent of 
Facility N's total fair market value of $230 million (the cost of the 
new components ($200 million) + the fair market value of the remaining 
original components ($30 million)). Thus, assuming all the other 
requirements of section 48E are met, Facility N will be considered 
newly placed in service on July 15, 2026, for purposes of section 48E, 
and T will be able to claim a section 48E credit based on its 
investment in the new components ($200 million).
    (iv) Example 4. Capital improvements to an existing qualified 
facility that do not satisfy the 80/20 Rule. X owns an existing 
facility, Facility C, that was originally placed in service on January 
1, 2023. X makes capital improvements to Facility C that are placed in 
service on June 6, 2026. The cost of the capital improvements total 
$500,000 and the fair market value of Facility C after the improvements 
is $2 million. The fair market value of the old components of Facility 
C is $1,500,000 or 75 percent of the total fair market value of the 
Facility C after the improvements. Because the fair market value of the 
new property included in Facility C is less than 80 percent of Facility 
C's total fair market value, Facility C does not meet the 80/20 Rule. 
Facility C will not be considered a qualified facility (as defined in 
Sec.  1.48E-2(a)) eligible for the section 48E credit.
    (d) Special rules regarding ownership--(1) Qualified investment 
with respect to a qualified facility or EST. For purposes of this 
paragraph (d), a taxpayer that owns a qualified investment with respect 
to a qualified facility or EST is eligible for the section 48E credit 
only to the extent of the taxpayer's eligible investment in the 
qualified facility or EST. In the case of multiple taxpayers holding 
direct ownership through their qualified investments in a single 
qualified facility or EST (and such arrangement is not treated as a 
partnership for Federal income tax purposes), each taxpayer determines 
its eligible investment based on its fractional ownership interest in 
the qualified facility or EST.
    (2) Multiple owners. A taxpayer must directly own at least a 
fractional interest in the entire unit of qualified facility (as 
defined in Sec.  1.48E-2(b)(2)) or unit of EST (as defined in Sec.  
1.48E-2(g)(2)) for a section 48E credit to be determined with respect 
to such taxpayer's interest. No section 48E credit may be determined 
with respect to a taxpayer's ownership of one or more separate 
components of a qualified facility or an EST if the components do not 
constitute a unit of qualified facility (as defined in Sec.  1.48E-
2(b)(2)) or unit of EST (as defined in Sec.  1.48E-2(g)(2)). However, 
the use of property owned by one taxpayer that is an integral part of a 
qualified facility or EST owned by another taxpayer will not prevent a 
section 48E credit from being determined with respect to the second 
taxpayer's qualified investment in a qualified facility or EST. See 
Sec.  1.48E-2(b)(3)(vi) for rules regarding shared integral property.
    (3) Section 761(a) election. If a qualified facility or EST is 
owned through an unincorporated organization that has made a valid 
election under section 761(a) of the Code, each member's undivided 
ownership share in the qualified facility or EST will be treated as a 
separate qualified facility or EST owned by such member.
    (4) Related taxpayers--(i) Definition. For purposes of the section 
48E credit, the term related taxpayers means members of a group of 
trades or businesses that are under common control (as defined in Sec.  
1.52-1(b)).
    (ii) Related taxpayer rule. For purposes of the section 48E credit, 
related taxpayers are treated as one taxpayer in determining whether a 
taxpayer has made an investment in a qualified facility or EST with 
respect to which a section 48E credit may be determined.

[[Page 47844]]

    (5) Examples. The following examples illustrate the rules in this 
paragraph (d). In each example, X and Y are unrelated taxpayers.
    (i) Example 1. Fractional ownership required to satisfy section 
48E. X and Y each own a direct fractional ownership interest in an 
entire qualified facility (as defined in Sec.  1.48E-2(a)) and as a 
result, a section 48E credit may be determined with respect to X's and 
Y's qualified investment in their fractional ownership interests in the 
qualified facility.
    (ii) Example 2. Ownership of separate components of property that 
are part of a qualified facility. X and Y each own separate components 
of a qualified facility, which taken together would constitute a unit 
of qualified facility but taken separately would not constitute a unit 
of qualified facility. X owns component A and Y owns component B. No 
section 48E credit may be determined with respect to either component A 
or component B because X and Y each owns a separate component of a 
qualified facility that does not constitute a unit of qualified 
facility (as defined in Sec.  1.48E-2(b)(2)).
    (iii) Example 3. Separate ownership of property that is an integral 
part of separate qualified facilities. X owns a solar farm that is a 
qualified facility (as defined in Sec.  1.48E-2(a)) (Solar Qualified 
Facility), which includes property that is an integral part of the 
Solar Qualified Facility, specifically a transformer in which the 
electricity is stepped up to electrical grid voltage before being 
transmitted to the electrical grid through an intertie. Y owns a wind 
facility that is a qualified facility (as defined in Sec.  1.48E-2(a)) 
(Wind Qualified Facility) that connects to X's transformer. Because Y 
does not hold an ownership interest in the transformer, Y may compute 
its section 48E credit for the Wind Qualified Facility, but it may not 
include any costs relating to the transformer in its section 48E credit 
base.
    (e) Coordination rule for section 42 credits and section 48E 
credits. As provided under section 50(c)(3)(C) of the Code, in the case 
of a taxpayer determining eligible basis for purposes of calculating a 
credit under section 42 of the Code (section 42 credit), a taxpayer is 
not required to reduce its basis in a qualified facility or EST by the 
amount of the section 48E credit determined with respect to the 
taxpayer's qualified investment with respect to such qualified facility 
or EST. The qualified investment with respect to a qualified facility 
or EST property may be used to determine a section 48E credit and may 
also be included in eligible basis to determine a section 42 credit. 
See paragraph (d) of this section for special rules regarding 
ownership.
    (f) Recapture--(1) In general. The credit calculated under section 
48E(a) and Sec.  1.48E-1(b) is subject to general recapture rules under 
section 50(a). Additionally, section 48E(g) provides for recapture for 
any qualified facility for which a taxpayer claimed a section 48E 
credit that has a greenhouse gas emissions rate (as determined under 
rules provided in Sec.  1.45Y-5) of greater than 10 grams of 
CO2e per kWh during the five-year period beginning on the 
date such qualified facility is originally placed in service (five-year 
recapture period).
    (2) Recapture event--(i) In general. Any event that results in a 
qualified facility having a greenhouse gas emissions rate (as 
determined under rules provided in Sec.  1.45Y-5) of greater than 10 
grams of CO2e per kWh during the five-year period is a 
recapture event. If a qualified facility's greenhouse gas emissions 
rate exceeds 10 grams of CO2e per kWh, the section 48E 
credit is subject to recapture.
    (ii) Changes to the Annual Table. A change to the greenhouse gas 
emissions rate for a type or category of facility that is published in 
the Annual Table (as defined in 1.45Y-5(f)) after a facility is placed 
in service does not result in a recapture event.
    (iii) Yearly Determination. (A) In general. A determination of 
whether a recapture event occurred under paragraph (f)(2) of this 
section must be made for each taxable year (or portion thereof) 
occurring within the five-year recapture period, beginning with the 
taxable year ending after the date the qualified facility is placed in 
service. Thus, for each taxable year that begins or ends within the 
five-year recapture period, the taxpayer must determine, for any 
qualified facility for which it has claimed the section 48E credit, 
whether such facility has maintained a greenhouse gas emissions rate of 
not greater than 10 grams of CO2e per kWh.
    (B) Annual Reporting Requirement. A taxpayer that has claimed the 
section 48E credit amount under Sec.  1.48E-1(b) or transferred a 
specified credit portion under section 6418 of the Code is required to 
provide to the IRS information on the greenhouse gas emissions rate of 
the qualified facility during the recapture period at the time and in 
the form and manner prescribed in IRS forms or instructions or in 
publications or guidance published in the Internal Revenue Bulletin. 
See Sec.  601.601 of this chapter.
    (iv) Carryback and carryforward adjustments. In the case of any 
recapture event described in paragraph (f)(2) of this section, the 
carrybacks and carryforwards under section 39 of the Code must be 
adjusted by reason of such recapture event.
    (3) Recapture Amount--(i) In general. If a recapture event occurred 
as described in paragraph (f)(2) of this section, the tax under chapter 
1 of the Code for the taxable year in which the recapture event occurs 
is increased by an amount equal to the applicable recapture percentage 
multiplied by the credit amount that was claimed by the taxpayer under 
Sec.  1.48E-1(b).
    (ii) Applicable recapture percentage. If the recapture event 
occurs:
    (A) Within one full year after the property is placed in service, 
the recapture percentage is 100;
    (B) Within one full year after the close of the period described in 
paragraph (f)(3)(ii)(A) of this section, the recapture percentage is 
80;
    (C) Within one full year after the close of the period described in 
paragraph (f)(3)(ii)(B) of this section, the recapture percentage is 
60;
    (D) Within one full year after the close of the period described in 
paragraph (f)(3)(ii)(C) of this section, the recapture percentage is 
40;
    (E) Within one full year after the close of the period described in 
paragraph (f)(3)(ii)(D) of this section, the recapture percentage is 
20.
    (4) Recapture period. The five-year recapture period begins on the 
date the qualified facility is placed in service and ends on the date 
that is five full years after the placed in service date. Each 365-day 
period (366-day period in case of a leap year) within the five-year 
recapture period is a separate recapture year for recapture purposes.
    (5) Increase in tax for recapture. The increase in tax under 
chapter 1 of the Code for the recapture of the credit amount claimed 
under section 48E(a) and Sec.  1.48E-1(b) occurs in the year of the 
recapture event.
    (g) Cross references. (1) To determine applicable recapture rules, 
see section 50(a) of the Code.
    (2) For rules regarding the credit eligibility of property used 
outside the United States, see section 50(b)(1) of the Code.
    (3) For rules regarding the credit eligibility of property used by 
certain tax-exempt organizations, see section 50(b)(3) of the Code. See 
section 6417(d)(2) of the Code for an exception to this rule in the 
case of an applicable entity making an elective payment election.
    (4) For application of the normalization rules to the section 48E 
credit in the case of certain regulated companies, including rules 
regarding

[[Page 47845]]

the election not to apply the normalization rules to energy storage 
technology (as defined in section 48(c)(6) of the Code), see section 
50(d)(2) of the Code.
    (5) For rules relating to certain leased property, see section 
50(d)(5) of the Code.
    (h) Applicability date. This section applies to qualified 
facilities and energy storage technologies placed in service after 
December 31, 2024, and during a taxable year ending on or after [DATE 
OF PUBLICATION OF THE FINAL REGULATIONS IN THE FEDERAL REGISTER].


Sec.  1.48E-5  Greenhouse gas emissions rates for qualified facilities 
under section 48E.

    (a) In general. Section 48E(b)(3)(B)(ii) provides that rules 
similar to the rules of section 45Y(b)(2) regarding greenhouse 
emissions rates apply for purposes of section 48E. Paragraphs (b) 
through (f) of this section thus provide that the definitions and rules 
regarding greenhouse gas emission rate requirements (as determined 
under rules provided in Sec.  1.45Y-5) apply for purposes of section 
48E and this section. Paragraph (g) of this section provides rules 
related to provisional emissions rates for purposes of section 48E and 
this section. Paragraph (h) of this section provides rules for 
determining an anticipated greenhouse gas emissions rate. Paragraph (i) 
of this section provides rules regarding reliance on the annual 
publication of emissions rates and provisional emissions rates. 
Finally, paragraph (j) of this section provides rules for 
substantiation.
    (b) Definitions. The definitions provided in Sec.  1.45Y-5(b) apply 
for purposes of section 48E and this section.
    (c) Non-C&G Facilities. The rules provided in Sec.  1.45Y-5(c) 
apply for purposes of determining greenhouse gas emissions rates for 
Non-C&G Facilities for purposes of section 48E and this section.
    (d) C&G Facilities. The rules provided in Sec.  1.45Y-5(d) apply 
for purposes of determining greenhouse gas emissions rates for C&G 
Facilities for purposes of section 48E and this section.
    (e) Carbon capture and sequestration. The rules provided in Sec.  
1.45Y-5(e) regarding carbon capture and sequestration apply for 
purposes of section 48E and this section.
    (f) Annual publication of emissions rates. The rules provided in 
Sec.  1.45Y-5(f) regarding the annual publication of a table (Annual 
Table) that sets forth the greenhouse gas emissions rates for types or 
categories of facilities apply for purposes of section 48E and this 
section.
    (g) Provisional emissions rates--(1) In general. In the case of any 
facility for which an emissions rate has not been established by the 
Secretary, a taxpayer that owns such facility may file a petition with 
the Secretary for determination of the emissions rate with respect to 
such facility (Provisional Emissions Rate or PER). A PER must be 
determined and obtained under the rules of this section.
    (2) Rate not established. An emissions rate has not been 
established by the Secretary for a facility for purposes of sections 
45Y(b)(2)(C)(ii) and 48E(b)(3)(B)(ii) if such facility is not described 
in the Annual Table. If a taxpayer's request for an emissions value 
pursuant to paragraph (g)(5) of this section is pending at the time 
such facility is or becomes described in the Annual Table, the 
taxpayer's request for an emissions value will be automatically denied.
    (3) Process for filing a PER petition. To file a PER petition with 
the Secretary, a taxpayer must submit a PER petition by attaching it to 
the taxpayer's Federal income tax return or Federal return, as 
appropriate, for the taxable year in which the taxpayer claims the 
section 48E credit with respect to the facility to which the PER 
petition relates. The PER petition must contain an emissions value and, 
if applicable, the associated letter from DOE. An emissions value may 
be obtained from DOE or by using the designated LCA model in accordance 
with paragraph (g)(6) of this section. An emission value obtained from 
DOE will be based on an analytical assessment of the emissions rate 
associated with the facility performed by one or more of the National 
Laboratories, in consultation with other agency experts as appropriate, 
consistent with this section. A taxpayer must retain in its books and 
records the application and correspondence to and from DOE including a 
copy of the taxpayer's request to DOE for an emissions value, including 
any information provided by the taxpayer to DOE pursuant to the 
emissions value request process provided in paragraph (g)(5) of this 
section. Alternatively, an emissions value can be determined by the 
taxpayer for a facility using the most the recent version of an LCA 
model, as of the time the PER petition is filed, that has been 
designated by the Secretary for such use under paragraph (g)(6) of this 
section. If an emissions value is determined using the designated LCA 
model under paragraph (g)(6) of this section, a taxpayer is required to 
provide to the IRS information to support its determination in the form 
and manner prescribed in IRS forms or instructions or in publications 
or guidance published in the Internal Revenue Bulletin. See Sec.  
601.601 of this chapter. A taxpayer may not request an emissions value 
from DOE for a facility for which an emissions value can be determined 
using the most recent version of an LCA model or models designated for 
such use under paragraph (g)(6) of this section.
    (4) PER determination. Upon the IRS's acceptance of the taxpayer's 
return to which a PER petition is attached, the emissions value of the 
facility specified on such petition is deemed accepted. A taxpayer can 
rely upon an emissions value provided by DOE for purposes of claiming a 
section 48E credit, provided that any information, representations, or 
other data provided to DOE in support of the request for an emissions 
value are accurate. If applicable, a taxpayer may rely upon an 
emissions value determined for a facility using the LCA model 
designated under paragraph (g)(6) of this section, provided that any 
information, representations, or other data used to obtain such 
emissions value are accurate. The IRS's deemed acceptance of an 
emissions value is the Secretary's determination of the PER. However, 
the taxpayer must also comply with all applicable requirements for the 
section 48E credit and any information, representations, or other data 
supporting an emissions value are subject to later examination by the 
IRS.
    (5) Emissions value request process. An applicant that submits a 
request for an emissions value must follow the procedures specified by 
DOE to request and obtain such emissions value. Emissions values will 
be determined consistent with the rules provided in this section. An 
applicant can request an emissions value from DOE only after a front-
end engineering and design (FEED) study or similar indication of 
project maturity, as determined by DOE, such as the completion of a 
project specification and cost estimation sufficient to inform a final 
investment decision for the facility. DOE may decline to review 
applications that are not responsive, including those applications that 
relate to a facility described in the Annual Table (consistent with 
paragraph (g)(2) of this section) or a facility for which an emissions 
value can be determined by an LCA model under paragraph (g)(6) of this 
section (consistent with paragraph (g)(3) of this section), or 
applications that are incomplete. Applicants must follow DOE's guidance 
and procedures for requesting and obtaining an

[[Page 47846]]

emissions value from DOE. DOE will publish this guidance and 
procedures, including a process for, under limited circumstances, a 
revision to DOE's initial assessment of an emissions value on the basis 
of revised technical information or facility design and operation.
    (6) LCA model for determining an emissions value for C&G 
Facilities. The rules provided in Sec.  1.45Y-5(g)(6) regarding the 
designation of an LCA model or models for determining an emissions 
value for C&G Facilities apply for purposes of section 48E and this 
section.
    (7) Effect of PER. A taxpayer who files for a PER must use a PER 
determined by the Secretary to determine eligibility for the section 
48E credit, provided all other requirements of section 48E are met. The 
Secretary's PER determination is not an examination or inspection of 
books of account for purposes of section 7605(b) of the Code and does 
not preclude or impede the IRS (under section 7605(b) or any 
administrative provisions adopted by the IRS) from later examining a 
return or inspecting books or records with respect to any taxable year 
for which the section 48E credit is claimed. Further, a PER 
determination does not signify that the IRS has determined that the 
requirements of section 48E have been satisfied for any taxable year.
    (h) Determining anticipated greenhouse gas emissions rate--(1) In 
general. A facility's anticipated greenhouse gas emissions rate must be 
objectively determined based on an examination of all the facts and 
circumstances. Certain Non-C&G Facilities, such as the facilities 
described in Sec.  1.45Y-5(c)(2), may have an anticipated greenhouse 
gas emissions rate that is not greater than zero based on the 
technology and practices they rely upon to generate electricity. For 
facilities that require the use of certain feedstocks or carbon capture 
and sequestration, which may vary, to generate electricity with a 
greenhouse gas emissions rate that is not greater than zero, objective 
indicia that such facilities will operate with a greenhouse gas 
emissions rate that is not greater than zero for at least 10 years 
beginning from the date the facility is placed in service are required 
to establish that its anticipated greenhouse gas emissions rate is not 
greater than zero.
    (2) Examples of objective indicia. Examples of objective indicia 
that may establish an anticipated greenhouse gas emissions rate that is 
not greater than zero include, but are not limited to, the following:
    (i) Co-location of the facility with a fuel source (for example, an 
anaerobic digester) for which the combination of fuel, type of 
facility, and practice is reasonably expected to result in a greenhouse 
gas emissions rate that is not greater than zero;
    (ii) A 10-year contract to purchase fuels for which the combination 
of fuel, type of facility, and practice is reasonably expected to 
result in a greenhouse gas emissions rate that is not greater than 
zero;
    (iii) A facility type that only accommodates one type of fuel or a 
small range of fuels for which the combination of fuel, type of 
facility, and practice is reasonably expected to result in a greenhouse 
gas emissions rate that is not greater than zero; or
    (iv) A 10-year contract for the capture, disposal, or utilization 
of qualified carbon dioxide from the facility for which the combination 
of fuel, type of facility, and practice is reasonably expected to 
result in a greenhouse gas emissions rate that is not greater than 
zero.
    (i) Reliance on Annual Table or Provisional Emissions Rate. 
Taxpayers may rely on the Annual Table in effect as of the date a 
facility began construction or the provisional emissions rate 
determined by the Secretary for the taxpayer's facility under paragraph 
(g)(4) of this section to determine the facility's greenhouse gas 
emissions rate, provided that the facility continues to operate as a 
type of facility that is described in the Annual Table or the 
facility's emissions value request, as applicable, for the entire 
taxable year.
    (j) Substantiation--(1) In general. A taxpayer must maintain in its 
books and records documentation regarding the design and operation of a 
facility that establishes that such facility had an anticipated 
greenhouse gas emissions rate that is not greater than zero in the year 
in which the section 48E credit is determined and operated with a 
greenhouse gas emissions rate that is not greater than 10 grams of 
CO2e per kWh during each year of the recapture period that 
applies for purposes of section 48E(g).
    (2) Sufficient substantiation. Documentation sufficient to 
substantiate that a facility had a greenhouse gas emissions rate, as 
determined under this section, not greater than 10 grams of 
CO2e per kWh during each year of the recapture period that 
applies for purposes of section 48E(g) includes documentation or a 
report prepared by an unrelated party that verifies the facility's 
actual emissions rate. A facility described in Sec.  1.45Y-5(c)(2) can 
maintain sufficient documentation to demonstrate a greenhouse gas 
emissions rate that is not greater than 10 grams of CO2e per 
kWh during each year of the recapture period that applies for purposes 
of section 48E(g) by showing that it is the type of facility described 
in Sec.  1.45Y-5(c)(2). The Secretary may determine that other types of 
facilities can sufficiently substantiate a greenhouse gas emissions 
rate, as determined under this section, that is not greater than 10 
grams of CO2e per kWh during each year of the recapture 
period that applies for purposes of section 48E(g) with certain 
documentation and will describe such facilities and documentation in 
IRS forms or instructions or in publications or guidance published in 
the Internal Revenue Bulletin. See Sec.  601.601 of this chapter.
    (k) Applicability date. This section applies to qualified 
facilities placed in service after December 31, 2024, and during a 
taxable year ending on or after [DATE OF PUBLICATION OF THE FINAL 
REGULATIONS IN THE FEDERAL REGISTER].

Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2024-11719 Filed 5-29-24; 8:45 am]
BILLING CODE 4830-01-P