Treasury ‘Green Book’ fleshes out Biden ESG tax proposals

June 2021

In brief

The Treasury Department’s General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals (commonly referred to as the ‘Green Book’), released on May 28, provides explanations of the tax proposals included in the Biden Administration’s fiscal year 2022 budget, also released on May 28. For a detailed discussion of the Green Book explanations of the Administration’s business and individual tax proposals, see PwC Tax Insights, Treasury Green Book explains Administration tax proposals affecting high-income individuals, June 3, 2021; and Treasury ‘Green Book’ describes Biden’s tax proposals for businesses, June 4, 2021.

This PwC Tax Insight focuses on the discussion of the Biden tax proposals related to incentives for clean energy and domestic manufacturing listed in the Green Book under the heading ‘Prioritize Clean Energy.’ For prior coverage of these incentives, see PwC Tax Insight, Biden infrastructure plan includes numerous ESG proposals, April 1, 2021.

In addition to extending and enhancing the existing credits for solar, wind, and carbon sequestration, the proposal also includes:

  • A new production tax credit related to electricity production from existing nuclear power plants
  • An expansion of the investment tax credit (ITC) for certain renewable energy property to include stand-alone energy storage technology
  • An extension of the credit for electric vehicles to larger vehicles such as delivery trucks
  • A new production tax credit for low-carbon hydrogen 
  • A new ITC for investments in electricity transmission
  • An option for taxpayers to select a direct-pay option in lieu of several of the credits (i.e., refundable credits)
  • A list of fossil fuel tax incentives to be eliminated.

Observation: The proposals offer insights into the Administration's plans for accelerating decarbonization of the US economy, including a goal to reduce emissions by 50% by 2030, against a 2005 baseline.

Action item: These proposals, if enacted, would have broad economic impacts across sectors. Some businesses may benefit from enhanced or new credits or similar incentives, while others may face potential 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. 

The takeaway 

This wide array of proposals, if enacted, likely would encourage investment in lower-carbon technologies and other elements of infrastructure intended to move the economy toward ESG goals. That result would represent a significant step towards adoption and promotion of these technologies by businesses and individuals, and it would help meet the various climate-related goals adopted by the Biden Administration, including those set forth in the Paris Climate Accords.

The budget includes extensions and incremental expansions of existing incentives with a particular focus on electrifying transportation. It also proposes noteworthy new incentives for green hydrogen, sustainable aviation fuel, nuclear energy, and electric transmission. These proposals indicate the sweep of the Administration’s energy and climate goals and could be of significant interest to affected industries.

As proposed, these incentives would have significant costs, which President Biden proposes to finance with both targeted elimination of existing fossil fuel incentives and broad tax increases (also described in the Green Book) on businesses that could dampen business investment and employment in other parts of the economy. (For detailed discussion of these tax-increase proposals, see PwC Tax Insight, Treasury ‘Green Book’ describes Biden’s tax proposals for businesses, June 4, 2021.) 

Now that the Administration has added considerable detail to its clean energy proposals, companies should pay particular attention to possible action in Congress. Moderate Democrats in particular will have some influence in determining which of the Green Book proposals may be enacted into law. Further, whether ongoing bipartisan infrastructure talks succeed in producing a bill will impact the timeline for enactment of any tax legislation, so companies should continue to monitor those talks as well.

In the meantime, companies should model and compare their anticipated benefits from the tax incentives with their expected costs from the offsetting tax increases.

Contact us

David A. Parrish

ESG Tax Leader, PwC US

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