Ways and Means reconciliation bill includes numerous ESG tax proposals

September 2021

In brief

The ‘Build Back Better’ reconciliation bill approved September 15 by the House Ways and Means Committee (the bill) includes numerous incentives for clean energy.

According to the section-by-section summary of the bill released by Ways and Means Chair Richard M. Neal (D-MA) on September 13, the bill would structure many new and existing renewable-energy and energy-efficiency tax incentives as two-tiered incentives with a ‘base rate’ and a ‘bonus rate.’ The base rate would equal 20% of the bonus rate, which would be an increased rate for projects that meet prevailing wage and apprenticeship requirements. For incentives that would phase down in 2032 and 2033, the phase-down rate would apply proportionally to the base rate and the bonus rate. Some of the credits in the bill also would include bonus rates based on the domestic content of the property to which the credit would apply.

Action item: Businesses should analyze the proposed prevailing wage, apprenticeship, and domestic content requirements to qualify for the bonus rate of each credit. Under the bill’s prevailing wage requirements, with respect to a project the taxpayer must ensure that any laborers and mechanics employed by contractors and subcontractors are paid prevailing wages during the project construction and, in some cases, for the alteration and repair of the project for a defined period after the project is placed into service. Under the bill’s apprenticeship requirements, with respect to a project the taxpayer must ensure that no fewer than the applicable percentage of total labor hours are performed by qualified apprentices. Under the bill’s domestic content requirements, with respect to the facility for which a tax credit is claimed, the taxpayer must ensure that the facility is composed of steel, iron, or products manufactured in the United States.

More specifically, the Ways and Means-approved bill would provide an extensive array of incentives for the production of lower-carbon fuels and energy, capture of carbon from existing fuel sources, and deployment of electric vehicles. These credits and other incentives include 26 of the 27 items listed in the attached Appendix and discussed in the ‘In detail’ section below. For many of these credits, the bill would provide a ‘direct-pay’ option under which taxpayers could receive a payment directly from the Treasury instead of taking tax credits on their returns. Note: While 26 of the provisions discussed in this Insight are credits and other incentives, the bill also would reinstate the Hazardous Substance Superfund Financing Rate on crude oil and imported petroleum products.

Observations: These incentives are intended to encourage additional accelerated investment in lower-carbon technologies. That result would represent a significant step toward adoption and promotion of these technologies by businesses and individuals, by helping to bend their cost curve in light of various climate-related goals adopted by the Biden Administration for accelerating decarbonization of the US economy, including a goal to reduce emissions by 50% by 2030, against a 2005 baseline. 

The bill includes extensions and incremental expansions of existing incentives with a particular focus on electrifying transportation. It also proposes new incentives for green hydrogen, sustainable aviation fuel, nuclear energy, and electric transmission, which could be of significant interest to affected industries.

As proposed, these incentives would have broad economic impacts across sectors. The spending and tax-relief provisions in the Ways and Means-approved bill would be offset in part by corporate and individual tax increases. For detailed discussion of the bill, see PwC Tax Insights, House Ways and Means Committee approves reconciliation tax bill - key business provisions, and House Ways and Means Committee approves reconciliation tax bill - key individual provisions, September 16, 2021.

Action item: 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 to align with the specific tax incentives in the bill, also taking into account the perspective of active stakeholders — both shareholders and customers — increasingly interested in actions a business may be taking or considering in the environmental area. Businesses may want to communicate with policy makers on these taxes and ESG issues as the reconciliation bill evolves and progresses through Congress. 

Action item: In addition, companies should evaluate whether extended incentives for renewable energy and expanded incentives for electric vehicles may help fund their transition toward cleaner energy and attainment of near-term ESG commitments. In the longer term, new incentives such as those for clean hydrogen, carbon capture, and electric transmission property could drive strategies for capital expenditures. Finally, the return of the Section 48C credit for advanced energy manufacturing property may incentivize companies to locate more such facilities in the United States.

Observation: Many of these proposed provisions build upon previously introduced House legislation and the Biden administration's ‘Green Book’ proposals. For prior coverage of clean energy incentives, see PwC Tax Insights, House Democrats reintroduce GREEN Act, setting the stage for renewable energy policy debates, March 2, 2021, and Treasury ‘Green Book’ fleshes out Biden ESG tax proposals, June 9, 2021.

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Scott McCandless

Scott McCandless

Partner, Tax Policy Services, PwC US

Todd Metcalf

Todd Metcalf

Principal, Tax Policy Services, PwC US

David A. Parrish

David A. Parrish

ESG Tax Leader, PwC US

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