Biden infrastructure plan includes numerous ESG proposals: PwC

In brief

President Joe Biden on March 31 announced a $2 trillion "American Jobs Plan" focused on infrastructure and other spending initiatives, including tax incentives for clean energy and domestic manufacturing. He also proposed a 'Made in America Tax Plan' containing corporate tax increase proposals designed to offset the costs of the American Jobs Plan infrastructure spending. In advance of the President’s remarks, the White House released an outline of specific infrastructure proposals and corporate tax increase offsets.

Action item: These proposals would have broad economic impacts across sectors. Some businesses may benefit from enhanced or new credits or similar incentives, while many others may face potentially significant tax increases. Given the range of potentially significant consequences, businesses should analyze these proposals and model their impact. Businesses also should consider potential changes to their manufacturing or operating models consistent not only with the specific tax incentives under consideration but also from the perspective of active stakeholders — both shareholders and customers — increasingly interested in the actions a business may be taking or considering in the environmental area. Many businesses will want to consider how to engage with policymakers on these taxes and ESG issues.

This PwC Insight focuses on the tax-related aspects of President Biden’s plan related to environmental, social, and governance (ESG) issues.

In detail

According to the ‘fact sheet’ released by the White House, the President’s plan includes the following items aimed at the following goals:

To encourage the growth of the US electrical vehicle (EV) industry, the President is calling for consumers to have access to tax incentives to buy American-made EVs.
To safeguard critical infrastructure and services, and defend vulnerable communities, the President’s plan includes a tax credit to provide incentives to low- and middle-income families and to small businesses to invest in disaster resilience.
To encourage the creation of ‘next generation industries in distressed communities,’ President Biden proposes, for example, pairing an investment in 15 decarbonized hydrogen demonstration projects in distressed communities with a new production tax credit to spur capital-project retrofits and installations that bolster and decarbonize US industry.
To spur the construction of a more resilient electric transmission system, the President’s plan starts with the creation of a targeted investment tax credit that incentivizes the buildout of at least 20 gigawatts of high-voltage capacity power lines and mobilizes tens of billions in private capital.
To spur jobs modernizing power generation and delivering clean electricity, President Biden is proposing a 10-year extension and phase down of an expanded direct-pay investment tax credit and production tax credit for clean energy generation and storage.
To encourage the building and rehabilitation of more than 500,000 homes for low- and middle-income homebuyers. President Biden is calling for passage of the Neighborhood Homes Investment Act (NHIA), which includes $20 billion worth of NHIA tax credits to be issued over the next five years.
To encourage the upgrading of homes more generally, President Biden’s plan would extend and expand home and commercial efficiency tax credits.
To accelerate responsible carbon capture deployment and ensure permanent storage, President Biden’s plan reforms and expands the Section 45Q tax credit, making it direct pay and easier to use for hard-to-decarbonize industrial applications, direct air capture, and retrofits of existing power plants.
To encourage the production, preservation, and retrofitting of more than a million affordable, resilient, accessible, energy efficient, and electrified housing units, President Biden’s plan proposes targeted tax credits, formula funding, grants, and project-based rental assistance to expand affordable housing rental opportunities to underserved communities nationwide, including rural and tribal areas.
To further the goal of upgrading child-care facilities and building new supply in high-need areas, the plan includes an expanded tax credit to encourage businesses to build child care facilities at places of work.
To support the modernization of supply chains, including in the auto sector, the President’s plan includes specific supports such as extending the Section 48C tax credit program.
As part of the President’s commitment to put the country on a path to net-zero emissions by 2050, the plan would eliminate tax preferences for fossil fuels, including subsidies, loopholes, and special foreign tax credits for the fossil fuel industry.

The takeaway

The American Jobs Plan features a wide array of proposals that, if enacted, likely would encourage investment in lower-carbon technologies and other elements of infrastructure intended to move the economy toward ESG goals. It would represent a significant step towards widespread adoption and promotion of these technologies by businesses and individuals, and it would help meet the various climate-related goals adopted by the administration, including those set forth in the Paris Climate Accords.

However, as proposed, these incentives would have significant costs, and President Biden proposes to finance the cost of his proposals with broad tax increases on businesses that could dampen business investment and employment in other parts of the economy. The tax offset provisions are similar to those proposed during Biden’s presidential campaign, and more details are expected in the near future (for a summary of the tax proposals as currently set forth, see the March 31 PwC Insight). Companies should model and compare their anticipated benefits from the tax incentives with their expected costs from the offsetting tax increases.