Republicans Shouldn’t Repeal the Tech Neutral Tax Credits They’re Winning With

Starting this year, two new tech neutral tax credits, sections 48E and 45Y, will go into effect as part of the Inflation Reduction Act (IRA). There’s one surprising fact about clean energy and climate policy- many changes create significantly positive impacts in red states. Places such as Texas, North Dakota, and Wyoming are benefiting from the clean energy boom through a set of tax credits that reward innovation.

Texas, for example, announced over $17 billion in clean energy and transportation projects. These initiatives have led to the creation of 26,500 new jobs and the establishment of 206 new manufacturing facilities. North Dakota has seen significant innovation in projects such as the Rural Energy for America Program and the Powering Affordable Clean Energy program. Each project received approximately $4.3 million and $4.4 million in funding respectively.

These new credits do not impose any additional regulations on businesses. Instead, they simply offer incentives for businesses that achieve emissions reductions. If a facility that produces zero-emission energy is built, the government will provide a tax credit in support of that project. Companies can either pick 48E or 45Y based on what works best for them. 48E rewards businesses based on how much they invest, and 45Y provides credits based on how much electricity is generated.

The work of many conservative lawmakers ensures that the new policy allows for far more flexibility in terms of what energy production method businesses choose to utilize. The old legislation specifies examples of energy production, such as solar and wind. The new language leaves this decision completely up to the companies. This will encourage innovation in newer energy technologies, as there would be no restrictions on what types of production can qualify for the tax credit. Nuclear, geothermal, oil and gas companies can take advantage of these advantages, leveling the playing field. The businesses decide what works best for them while the government takes a step back from decision making. Already, oil and gas companies are seeking to take advantage of the resources. 

The 48E and 45Y credits reward companies that produce zero emissions without penalizing those that don’t meet the standards. Businesses that build energy production facilities that generate zero emissions receive the credit they choose, but there is no punishment for others that choose not to follow what is outlined in these sections. No one is forced to follow the standards or use the credits if they prefer not to.

While a small number of commentators have suggested repealing these credits, this action would hurt rural communities and small towns the most. That’s why more than 21 House members and four Senators have written letters in support of the credits. These areas are seeing real investment as their lands are used to develop clean energy facilities. Americans are able to pursue rewarding careers in energy manufacturing while bringing in more money to their small communities. Repealing these credits would also slow down the innovation process of many clean energy production methods, such as carbon capture and nuclear energy. Private companies should know that their efforts are being supported by the federal government. 

Additionally, national priorities such as energy independence and manufacturing competition with other countries are at stake. Businesses are stepping up to help our country thrive in the global economy, and the government must encourage this new wave of innovation and technology development. These credits are already working, and the new model will only make it easier for businesses to follow. Communities that are often overlooked or fall behind are thriving with more money in their pockets.

Let’s not repeal what’s already powering the future, and let’s make sure that our communities can keep developing new technologies.

Check out the full policy brief here.