4006 Federal Register / Vol. 90, No. 9 / Wednesday, January 15, 2025 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 10024] 

RIN 1545–BR17 

Section 45Y Clean Electricity 

Production Credit and Section 48E 

Clean Electricity Investment Credit 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document sets forth final 

regulations regarding the clean 

electricity production credit and the 

clean electricity investment credit 

established by the Inflation Reduction 

Act of 2022. These final regulations 

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 final regulations affect all taxpayers 

that claim the clean electricity 

production credit with respect to a 

qualified facility or the clean electricity 

investment credit with respect to a 

qualified facility or energy storage 

technology, as applicable, that is placed 

in service after 2024. 

DATES: 

Effective date: These regulations are 

effective on January 15, 2025. 

Applicability dates: For dates of 

applicability, see §§ 1.45Y–1(e), 1.45Y– 

2(d), 1.45Y–3(d) 1.45Y–4(e), 1.45Y–5(j), 

1.48E–1(e), 1.48E–2(h), 1.48E–3(f), 

1.48E–4(j), and 1.48E–5(l). 

FOR FURTHER INFORMATION CONTACT: 

Maksim Berger, John M. Deininger, 

Martha M. Garcia, Boris Kukso, 

Nathaniel Kupferman, and Alexander 

Scott at (202) 317–6853 (not a toll-free 

number). 

SUPPLEMENTARY INFORMATION: 

Authority 

This Treasury decision amends the 

Income Tax Regulations (26 CFR part 1) 

to implement the statutory provisions of 

sections 45Y and 48E of the Internal 

Revenue Code (Code). The regulations 

contained in this Treasury decision are 

issued by the Secretary of the Treasury 

or her delegate (Secretary) pursuant to 

the authority granted under sections 

45Y(f), 48E(i) and 7805(a) of the Code 

(final regulations). 

Section 45Y(f) provides an express 

delegation of authority to the Secretary 

to prescribe rules to implement section 

45Y, ‘‘including calculation of 

greenhouse gas emissions rates for 

qualified facilities and determination of 

clean electricity production credits 

under section 45Y.’’ Section 48E(i) 

provides an express delegation of 

authority to prescribe rules ‘‘regarding 

implementation of [section 48E].’’ 

Finally, section 7805(a) authorizes the 

Secretary ‘‘to prescribe all needful rules 

and regulations for the enforcement of 

[the Code], including all rules and 

regulations as may be necessary by 

reason of any alteration of law in 

relation to internal revenue.’’ 

Background 

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), corrected in 88 FR 73807 (Oct. 

27, 2023), and 89 FR 25550 (April 11, 

2024), providing guidance on the 

Prevailing Wage and Apprenticeship 

(PWA) requirements under sections 

30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 

48, 48C, 48E, and 179D (PWA proposed 

regulations). 

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), corrected in 89 FR 2182 

(January 12, 2024), proposing rules that 

would provide guidance under section 

48 (section 48 proposed regulations). On 

February 22, 2024, the Treasury 

Department and the IRS published a 

second correction to the proposed 

regulations in the Federal Register (89 

FR 13293) that re-opened the comment 

period through March 25, 2024. Among 

other matters, the section 48 proposed 

regulations withdrew and reproposed 

§ 1.48–13 of the PWA proposed 

regulations addressing the PWA 

requirements under section 48, the rules 

under section 48(a)(9)(B)(i) related to an 

energy project with a maximum net 

output of less than one megawatt of 

electrical (as measured in alternating 

current) or thermal energy (One 

Megawatt Exception), and the recapture 

rules under section 48(a)(10)(C) related 

to the prevailing wage requirements. 

Although the section 48 proposed 

regulations withdrew certain portions of 

the PWA proposed regulations, the 

section 48 proposed regulations 

incorporated the preamble to the PWA 

proposed regulations for generally 

applicable rules. 

On June 3, 2024, a notice of proposed 

rulemaking (REG–119283–23) relating to 

the clean electricity production credit 

determined under section 45Y (section 

45Y credit) and the clean electricity 

investment credit determined under 

section 48E (section 48E credit) was 

published in the Federal Register (89 

FR 47792) proposing amendments to 26 

CFR part 1 (proposed regulations). See 

the Background and Explanation of 

Provisions sections of the preamble to 

the proposed regulations, which is 

incorporated in this preamble to the 

extent consistent with the following 

Summary of Comments and Explanation 

of Revisions. Additionally, the Treasury 

Department and the IRS requested 

comments on the proposed definition of 

a qualified facility with a maximum net 

output of less than one megawatt (as 

measured in alternating current) for 

purposes of the One Megawatt 

Exception under section 45Y(a)(2)(B)(i). 

The proposed regulations incorporated 

the preamble to the PWA proposed 

regulations for generally applicable 

rules. 

On June 25, 2024, the Treasury 

Department and the IRS published final 

regulations (T.D. 9998) in the Federal 

Register (89 FR 53184) adopting the 

PWA proposed regulations (PWA final 

regulations) with certain modifications 

and revisions in response to public 

comments on the PWA proposed 

regulations. Comments received on 

generally applicable rules in response to 

the PWA proposed regulations, 

including rules that merely referenced 

section 48 or 48E, are addressed in the 

PWA final regulations. The preamble to 

the PWA final regulations explained 

that comments received regarding the 

specific PWA requirements related to 

the One Megawatt Exception under 

sections 45Y, 48, and 48E, and the 

recapture rules in section 48(a)(10)(C), 

whether received in response to the 

PWA proposed regulations or the 

section 48 proposed regulations, would 

be addressed in future guidance. 

Because proposed § 1.48E–3 of the PWA 

proposed regulations generally 

incorporated the rules of proposed 

§ 1.48–13, the PWA final regulations did 

not include final regulations under 

section 48E. Proposed § 1.48E–3 of the 

PWA proposed regulations and the 

provisions relating to section 48E of the 

proposed regulations would be 

addressed in future guidance. 

On December 12, 2024, the Treasury 

Department and the IRS published final 

regulations (T.D. 10015) in the Federal 

Register (89 FR 100598) adopting the 

section 48 proposed regulations, 

including the rules for the PWA 

requirements in § 1.48–13 (section 48 

final regulations). The Treasury 

Department and the IRS addressed the 

comments related to the PWA 

requirements with respect to section 48 

including the One Megawatt Exception 


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under section 48(a)(9)(B)(i), the 

recapture rules under section 

48(a)(10)(C), and the definition of an 

energy project in the section 48 final 

regulations. 

As described in the Summary of 

Comments and Explanation of 

Revisions, this Treasury decision adopts 

the proposed regulations with certain 

modifications after full consideration of 

all comments received, including 

comments pertaining to the One 

Megawatt Exception under section 

45Y(a)(2)(B)(i) and to issues related to 

the PWA requirements under section 

48E and proposed § 1.48E–3. 

Summary of Comments and 

Explanation of Revisions 

I. Overview 

The Treasury Department and the IRS 

received over 1,800 written comments 

timely submitted by the August 2, 2024, 

comment submission deadline, in 

response to the proposed regulations, 

which are available for public 

inspection at https://

www.regulations.gov or upon request. A 

public hearing was held in person on 

August 12, 2024, and telephonically on 

August 13, 2024, at which 36 speakers 

provided testimony over the two days. 

After careful consideration of the 

comments and testimony, the proposed 

regulations are adopted with 

modifications as described in this 

Summary of Comments and Explanation 

of Revisions. 

Comments summarizing the statute or 

the proposed regulations, 

recommending statutory revisions to 

sections 45Y and 48E or other statutes, 

or addressing issues that are outside the 

scope of this rulemaking (such as 

revising other Federal regulations and 

recommending changes to IRS forms) 

are generally not described in this 

Summary of Comments and Explanation 

of Revisions or adopted in these final 

regulations. In addition to modifications 

described in this Summary of 

Comments and Explanation of 

Revisions, the final regulations also 

include non-substantive grammatical or 

stylistic changes to the proposed 

regulations. Unless otherwise indicated 

in this Summary of Comments and 

Explanation of Revisions, provisions of 

the proposed regulations with respect to 

which no comments were received are 

adopted without substantive change. 

The Treasury Department and the IRS 

consulted extensively with scientific 

and technical experts from across the 

Federal government, including 

personnel from the Department of 

Energy (DOE), the Environmental 

Protection Agency (EPA), and the 

Department of Agriculture (USDA), in 

developing and drafting these final 

regulations. The Treasury Department 

and the IRS had regular working group 

meetings with these experts from the 

time that sections 45Y and 48E were 

enacted by the Inflation Reduction Act 

(IRA) through the drafting and 

publication of the proposed and final 

regulations. These meetings included 

discussions on the full range of issues 

related to determining greenhouse gas 

emissions rates for the production of 

electricity, petitioning for provisional 

emissions rates, and determining 

eligibility for the section 45Y and 48E 

credits in various circumstances. These 

meetings also included comprehensive 

briefing and full consideration of the 

issues raised in the comments received 

on the proposed regulations and 

proposed § 1.48E–3 of the PWA 

proposed regulations. In addition, 

experts from the DOE, the EPA, and the 

USDA reviewed multiple drafts of the 

proposed and final regulations in their 

entirety. The conclusions reached in 

these final regulations and explained in 

this Summary of Comments and 

Explanation of Revisions were deeply 

informed by these working group 

meetings and the scientific and 

technical expertise that was shared in 

those meetings. 

For purposes of this preamble, a 

provision of the proposed regulations, 

for example, § 1.45Y–1 of the proposed 

regulations, is referred to as ‘‘proposed 

§ 1.45Y–1.’’ 

II. Rules Specific to Section 45Y 

Proposed § 1.45Y–1 provided an 

overview of proposed §§ 1.45Y–1 

through 1.45Y–5 and definitions of 

terms for purposes of proposed 

§§ 1.45Y–1 through 1.45Y–5, including 

the terms ‘‘combined heat and power 

system (CHP) property,’’ ‘‘metering 

device,’’ ‘‘related person,’’ ‘‘unrelated 

person,’’ and ‘‘qualified facility.’’ 

A. Metering Device 

Proposed § 1.45Y–1(a)(5)(i) through 

(iii) defined, for purposes of section 

45Y(a)(1)(A)(ii)(II), the term ‘‘metering 

device;’’ provided standards for 

maintaining and operating a metering 

device for purposes of section 

45Y(a)(1)(A)(ii)(II) and proposed 

§ 1.45Y–1(a)(5), including by providing 

that a metering device should meet 

certain standards and be properly 

calibrated, and provided rules related to 

monitoring and locating the metering 

device. Proposed § 1.45Y–1(a)(5)(iv) 

provided examples illustrating the rules 

provided by proposed § 1.45Y–1(a)(5). 

Commenters provided feedback on 

the definition of ‘‘metering device.’’ 

Two commenters noted that the 

proposed regulations defined a 

‘‘metering device’’ related to ‘‘energy 

revenue metering,’’ and asserted that 

metering devices typically measure 

energy production, not revenue. The 

commenters recommended revising the 

term ‘‘energy revenue metering’’ to 

‘‘energy production metering’’ in the 

final regulations. 

The Treasury Department and the IRS 

have determined that, because energy 

revenue metering encompasses energy 

production measurement as part of its 

function, the commenters’ concern is 

addressed by the proposed regulations. 

Therefore, these final regulations adopt 

the definition of metering device as 

proposed. 

Another commenter requested that 

the final regulations provide 

clarifications regarding third-party 

metering requirements. The commenter 

requested that the Treasury Department 

and the IRS clarify whether operation of 

the metering device by a third party 

could be fully remote, or if the meter 

owner must be granted access to the 

site. The commenter further requested 

that the final regulations clarify whether 

the meter can be located prior to energy 

delivery to storage, or whether it must 

be located at the point of 

interconnection. Finally, the commenter 

requested clarification regarding 

whether the section 45Y credit amount 

is determined at the point of sale or 

where the electricity is metered. 

Section 45Y(a)(1)(A) provides, in part, 

that the amount of the credit is the 

kilowatt hours of electricity produced 

by the taxpayer at a qualified facility 

and in the case of a qualified facility 

which is equipped with a metering 

device which is owned and operated by 

an unrelated person, sold, consumed or 

stored by the taxpayer during the 

taxable year. Proposed § 1.45Y– 

1(a)(5)(ii) required a metering device to 

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 

and maintained in proper working order 

according to the instructions of its 

manufacturer. If a metering device 

satisfies the requirements in § 1.45Y– 

1(a)(5)(ii), the statutory language of 

section 45Y(a)(1)(A) would not prevent 

operation by a third party to be fully 

remote. As to whether the metering 

device can be located prior to energy 

delivery to storage or whether it must be 

located at the point of interconnection, 

the location of the meter should not 

matter provided the meter meets the 

requirements in § 1.45Y–1(a)(5)(ii). 

Accordingly, the final regulations adopt 


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proposed § 1.45Y–1(a)(5) without 

change, and do not impose a specific 

location requirement for such metering 

device based on the lack of such a 

requirement in the statutory language. 

B. Related and Unrelated Persons 

Proposed § 1.45Y–1(a)(7) provided a 

definition of the term ‘‘related person’’ 

and special rules for the treatment of 

corporations that are members of a 

consolidated group (as defined in 

§ 1.1502–1(h)). 

Proposed § 1.45Y–1(a)(11) provided a 

definition of the term ‘‘unrelated 

person;’’ rules for the sales of electricity 

to individual consumers; and an 

example illustrating the application of 

these rules. 

A commenter requested clarification 

regarding the sale to an unrelated 

person requirement. The commenter 

pointed to Notice 2008–60, 2008–30 

I.R.B. 178, which provides guidance on 

the section 45 credit by clarifying that 

the requirement of a sale to an unrelated 

person will be treated as satisfied if the 

producer of electricity sells electricity to 

a related person for resale by the related 

person to a person that is not related to 

the producer. The commenter requested 

that the Treasury Department and the 

IRS likewise confirm that under section 

45Y, a sale to a related person for the 

purposes of resale to an unrelated 

person will also be treated as a sale to 

an unrelated person if there is no 

metering device owned and operated by 

a third party. 

The Treasury Department and the IRS 

disagree that the rule in Notice 2008–60 

that is applicable to the section 45 

credit, under which the sale of 

electricity to a related party with a 

subsequent sale to an unrelated party is 

treated as a sale to an unrelated party, 

should apply to the section 45Y credit. 

Section 45 does not include a provision 

similar to section 45Y(a)(1)(A)(ii), which 

provides that either (I) a taxpayer must 

sell the electricity to an unrelated party, 

or (II) the taxpayer’s qualified facility 

must be equipped with a metering 

device owned and operated by an 

unrelated person, and the electricity 

must be sold, consumed or stored by the 

taxpayer during the taxable year. The 

inclusion of section 45Y(a)(1)(A)(ii) 

demonstrates that Congress intended to 

allow the section 45Y credit for related 

party sales only if the taxpayer produces 

electricity at a qualified facility that has 

a metering device owned and operated 

by an unrelated person. Congress did 

not carve out an exception for related 

party sales for purposes of resale to 

unrelated persons and the final 

regulations cannot create one. To allow 

taxpayers to apply the concepts 

provided in Notice 2008–60 to the 

section 45Y credit for sales to unrelated 

parties would undermine the metering 

obligation in section 45Y(a)(1)(A)(ii)(II). 

Accordingly, the Treasury Department 

and the IRS cannot adopt the 

commenter’s recommendation and the 

rule will be adopted as proposed. 

C. Credit Phase Out 

Proposed § 1.45Y–1(c) provided rules 

for calculating the amount of the credit 

under section 45Y(a) and the applicable 

phase-out percentages; defined the term 

‘‘applicable year’’ and provided rules for 

determining the applicable year, 

including rules regarding the use of 

certain datasets in determining the 

applicable year. The definition of 

‘‘applicable year’’ also applies for 

purposes of the section 48E credit 

phase-out rules. In the preamble to the 

proposed regulations, the Treasury 

Department and the IRS requested 

comments on which datasets are most 

appropriate to determine the applicable 

year and why. 

Commenters generally agreed with the 

Treasury Department and the IRS that 

the Energy Information Administration’s 

(EIA) Electric Power Annual and 

Monthly Energy Review, the EPA 

Inventory of U.S. Greenhouse Gas 

Emissions and Sinks (GHGI), the EPA 

Greenhouse Gas Reporting Program 

(GHGRP), and the Emissions and 

Generation Resource Integrated 

Database (eGrid) are suitable datasets to 

determine the applicable year and 

recommended the final rules adopt one 

or more of these dataset(s) as providing 

the timeliest assessment of emissions to 

minimize potential confusion. One 

commenter suggested using a single 

annually published government data 

source, and recommended the EIA 

Monthly Energy Review that delineates 

electricity sector greenhouse gas (GHG) 

emissions for 2022 and the following 

years. 

Review of the comments confirmed 

that the EIA Electric Power Annual and 

the EPA GHGI are well-established data 

sources that are representative of the 

annual GHG emissions from the 

production of electricity in the United 

States. Moreover, the requirement in 

§ 1.45Y–1(c)(4) that both the EIA 

Electric Power Annual and the EPA 

GHGI must be assessed separately 

increases certainty that emissions from 

the power sector meet the required 

levels. 

Another commenter requested that 

the Treasury Department and the IRS 

consider whether a single year drop in 

GHG emissions of less than the 

applicable year threshold followed by 

GHG emissions increases in subsequent 

years should trigger the phase-out of the 

credits. 

Section 45Y(d)(3) describes the term 

‘‘applicable year’’ as the later of 2032, or 

the calendar year in which the Secretary 

determines that the annual GHG 

emissions from the production of 

electricity in the United States are equal 

to or less than 25 percent of the annual 

GHG emissions from the production of 

electricity in the United States for 

calendar year 2022. Section 45Y(d)(2) 

provides that the section 45Y credit 

phases out over a four-year period 

subsequent to the applicable year. The 

statutory language describes the 

applicable year as a single year, and the 

credit phase-out begins subsequent to 

the applicable year. Based on the 

statutory language, the phase-out period 

is a continual period. Therefore, the 

statutory language does not grant the 

Treasury Department and the IRS 

authority to reverse a determination that 

GHG emissions were at a sufficient level 

to meet the definition of the applicable 

year. For this reason, the comment is 

not adopted. 

D. Qualified Facility 

The proposed regulations adopted the 

statutory definition of a ‘‘qualified 

facility.’’ Section 45Y(b)(1)(A) provides, 

in part, that a qualified facility is a 

facility for which the GHG emissions 

rate is not greater than zero. The GHG 

emissions rate is further defined in 

section 45Y(b)(2). Section 45Y(b)(1)(B) 

provides that a facility is only treated as 

a qualified facility during the 10-year 

period beginning on the date the facility 

was originally placed in service. 

A commenter asked for clarification 

regarding changes to a facility that 

impact its GHG emissions rate from 

electricity generation and whether such 

changes impact a qualified facility’s 

credit eligibility. The commenter 

requested confirmation that a facility 

that initially operates with greater than 

zero GHG emissions but later operates 

with not greater than zero GHG 

emissions can still be considered a 

qualified facility under section 45Y. The 

commenter suggested clarifying that in 

the case of such a facility, the 10-year 

credit period begins when the facility 

first becomes a ‘‘qualified facility’’ 

operating at commercial scale with not 

greater than zero GHG emissions. The 

commenter asserted that providing a 

different interpretation would 

disincentivize facilities that are built 

with the capacity to produce power 

with greater than zero GHG emissions 

from undertaking such investment. 

The Treasury Department and the IRS 

note that section 45Y(b)(1)(B) treats a 

facility as a qualified facility only 


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during the 10-year period beginning on 

the date the facility was originally 

placed in service. Generally, a qualified 

facility is considered placed in service 

in the earlier of (i) the taxable year in 

which, under the taxpayer’s deprecation 

practice, the period for depreciation 

with the respect to such property 

begins; or (ii) 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. Accordingly, a 

facility that initially operates with 

greater than zero GHG emissions may 

later be treated as a qualified facility if 

it meets the requirements under section 

45Y(b) in a taxable year, but only during 

the 10-year period beginning on the date 

the facility was originally placed in 

service. For example, taxpayer places in 

service a facility in year 1 that has GHG 

emission that are greater than zero. In 

year 6, the facility has GHG emissions 

that are not greater than zero and is a 

qualified facility under section 45Y. If 

the facility continues to have not greater 

than zero GHG emissions, the facility 

continues to be a qualified facility under 

section 45Y and taxpayer may claim the 

section 45Y credit until year 10 (years 

6 through 10), provided the facility 

continues to have not greater than zero 

GHG emissions for each of the 

remaining years. The Treasury 

Department and the IRS cannot adopt 

the commenter’s recommendation and 

the rule will be adopted as proposed. 

A commenter asserted that a facility 

qualifying for a section 45Y credit 

should not cease to be a qualified 

facility if, for a limited time or in a 

limited amount, it has a GHG emissions 

rate above zero (for example, as a result 

of a temporary change in fuel or 

feedstock). The commenter referenced 

Notice 2008–60, which it described as 

allowing the use of minimal fossil fuels 

for flame startup and stabilization in an 

open-loop biomass facility that qualifies 

under section 45. The commenter stated 

that zero-carbon fuels are not always 

available. The commenter emphasized 

that the proposed regulations under 

section 48E, in contrast to those under 

section 45Y, provide flexibility for 

purposes of recapture for those facilities 

that produce 10 grams of CO2e per kWh. 

As a result, the commenter requested 

that the final regulations allow a facility 

to claim the section 45Y credit for the 

days or months of the year during which 

the facility produces electricity with a 

GHG emissions rate of zero. The 

commenter asserted that flexibility is 

needed for de minimis emissions or 

periods during the tax year. 

Section 45Y(b)(1)(A) defines a 

qualified facility as having a GHG 

emissions rate from the production of 

electricity of not greater than zero. The 

statute does not provide a de minimis 

exception and the final regulations 

cannot create one. Accordingly, a 

facility cannot qualify for the section 

45Y credit in a taxable year during the 

10-year credit period after such facility 

is originally placed in service if such 

facility has a GHG emissions rate from 

the production of electricity of greater 

than zero, even if for a limited time or 

in a limited amount. However, the 

Treasury Department and the IRS note 

that a facility’s failure to qualify for the 

section 45Y credit in one or more 

taxable years does not prevent such 

facility from qualifying for the section 

45Y credit in any other taxable years 

during the 10-year credit period after 

such facility is originally placed in 

service. The statute allows a facility a 

10-year credit period from the date the 

facility is originally placed in service, 

and a facility can be considered a 

qualified facility for any taxable year 

during such 10-year credit period in 

which it satisfies the requirements of 

the section 45Y credit. 

E. Combined Heat and Power (CHP) 

Property 

Proposed § 1.45Y–1(a)(2) defined 

‘‘combined heat and power (CHP) 

property.’’ Proposed § 1.45Y–1(d) set 

forth the credit eligibility requirements 

for CHP property; provided rules for 

determining the energy efficiency 

percentage of CHP property and for 

calculating electricity produced by CHP 

property; and defined the term ‘‘heat 

rate’’ and provided rules for its 

calculation. 

Section 45Y(g)(2) generally provides 

special rules for the calculation of the 

credit with respect to CHP property. 

Section 45Y(g)(2)(A)(i) states that ‘‘the 

kilowatt hours of electricity produced 

by a taxpayer at a qualified facility shall 

include any production in the form of 

useful thermal energy by any combined 

heat and power system property within 

such facility.’’ Section 45Y(g)(2)(A)(i) 

requires the thermal energy output from 

a CHP property to be included in 

determining the energy that qualifies for 

the credit in contrast to a non-CHP 

facility, for which only the electricity 

generation should be credited. For 

example, if a CHP property produces 1 

kWh of electricity output and 1 kWh of 

thermal output, then the taxpayer that 

owns the CHP property may compute a 

credit based on production of 2 kWh of 

electricity. 

Section 45Y(g)(2)(B) provides that the 

term ‘‘combined heat and power 

property’’ has the same meaning given 

such term by section 48(c)(3) (without 

regard to subparagraphs (A)(iv), (B), and 

(D) thereof). Section 48(c)(3)(C)(i) and 

proposed § 1.45Y–1(d)(2) define the 

energy efficiency percentage for 

purposes of a CHP property as a 

fraction—(I) 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 (II) the denominator of 

which is the lower heating value of the 

fuel sources for the system. Section 

45Y(g)(2)(C)(ii) provides that the term 

‘‘heat rate’’ means the amount of energy 

used by the qualified facility to generate 

1 kilowatt hour of electricity, expressed 

as British thermal units per net kilowatt 

hour generated. Proposed § 1.45Y– 

1(d)(3)(ii) addressed how to determine 

the ‘‘heat rate’’ for a qualified facility 

that includes CHP property that uses 

combustion. In the preamble to the 

proposed regulations, the Treasury 

Department and the IRS requested 

comments regarding the application of 

the energy efficiency percentage 

requirements to CHP property for which 

there is no combustion and whether the 

statutory definition of ‘‘heat rate’’ for 

this property should be further clarified 

in the final regulations. 

One commenter addressed the 

application of the energy efficiency 

percentage requirements to CHP 

property involving nuclear power and 

recommended the final regulations 

adopt the EIA’s definition of ‘‘heat 

content’’ as a substitute for the lower 

heating value used to calculate the 

energy efficiency of a CHP property. The 

commenter emphasized that the lower 

heating value usually applies to 

combustion fuels, not fuels such as 

uranium that are non-combustible, and 

for non-combustion fuels the lower 

heating value should be the same as the 

heat content. Another commenter made 

a similar request that the final 

regulations permit the use of a nuclear 

reactor’s maximum licensed thermal 

output to serve as the functional 

equivalent of the lower heating value of 

fuel sources, in recognition that nuclear 

fission does not involve combustion. 

A separate commenter requested the 

final regulations establish a 

methodology for taxpayers to determine 

the energy efficiency percentage for CHP 

property using non-combustible fuel 

sources for which there is no lower 

heating value. With respect to the 

definition of heat rate, the commenter 

asserted that the methodology in 

proposed § 1.45Y–1(d)(3)(ii)(B) to 

calculate heat rate does not take into 

account that there is no lower heating 


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value for CHP property using noncombustible fuel sources. The 

commenter further questioned the 

accuracy of the formula for converting 

from BTU to kWh to calculate electricity 

produced by CHP property because the 

formula relies upon a definition of heat 

rate that does not account for CHP 

property using non-combustion fuel 

sources. The commenter recommended 

providing a conversion formula in the 

final regulations for CHP property using 

non-combustion fuel sources. 

The Treasury Department and the IRS 

recognize there is a gap in the current 

guidance regarding how to calculate the 

energy efficiency percentage and heat 

rate for fuels without lower heating 

values as referenced in section 

48(c)(3)(C)(i)(II) and the proposed 

methodology in proposed § 1.45Y– 

1(d)(3)(ii)(B). The lower heating value is 

intended to provide a measure for the 

energy released when a fuel is 

combusted under certain conditions. 

Fuels that are not combusted will not 

have a lower heating value, but the 

amount of energy such fuels could 

release under certain conditions can 

still be measured. 

The Treasury Department and the IRS 

agree with commenters that the final 

regulations should permit the use of a 

nuclear reactor’s thermal output to serve 

as the functional equivalent of the lower 

heating value of fuel sources, in 

recognition that nuclear fission does not 

involve combustion. The final 

regulations are amended accordingly. 

With respect to other technologies, the 

Treasury Department and the IRS will 

continue to consult with experts in 

order to develop additional approaches 

that are either generally applicable or 

appropriate for other particular 

technologies. The final regulations are 

therefore also amended to reflect this 

continuing consideration and to provide 

flexibility to prescribe these additional 

approaches in guidance published in 

the Internal Revenue Bulletin. Section 

1.45Y–1(d)(2) and (d)(3)(ii)(B) of the 

final regulations are revised 

accordingly. 

In addition, for organizational 

purposes, the definition under proposed 

§ 1.45Y–1(a)(2) of a unit of a qualified 

facility for purposes of CHP property, 

has been moved within the definition of 

a unit of a qualified facility under 

§ 1.45Y–2(b)(2)(i). 

F. 80/20 Rule 

The 80/20 Rule is designed to broaden 

the availability of investment and 

production tax credits by providing a 

new original placed in service date for 

a qualified facility that includes some 

components of property previously 

placed in service, rather than requiring 

the qualified facility to be composed 

entirely of new components of property. 

In the context of section 45Y, the 80/20 

Rule applies at the qualified facility 

level to the components of property 

within the unit of qualified facility. 

Proposed § 1.45Y–4(d)(1) provided 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). 

Although this section focuses on the 

80/20 Rule in the section 45Y context, 

section III.E. of this Summary of 

Comments and Explanation of Revisions 

describes some comments received on 

both sections 45Y and 48E. This 

includes discussion of the interaction 

between the rule for addition of a new 

unit or an addition of capacity 

(Incremental Production Rule) and the 

80/20 Rule. As described in that section, 

the Treasury Department and the IRS 

agree that the statutory provisions 

allowing for new units and additions of 

capacity provided in sections 

45Y(b)(1)(C) and 48E(b)(3)(B)(i) are 

separate and distinct from the 80/20 

Rule. If a retrofitted facility satisfies the 

80/20 Rule, the final regulations provide 

that the facility will be treated as newly 

placed in service even if the taxpayer 

also satisfies the provisions regarding 

new units and additions of capacity. 

These final regulations provide an 

additional example, in § 1.45Y– 

4(c)(5)(v) that specifically addresses 

decommissioned and restarted facilities. 

In response to a comment, the Treasury 

Department and the IRS removed the 

reference to a decommissioned nuclear 

facility in Example 3 in § 1.45Y– 

4(c)(6)(iii) to avoid referring to 

decommissioned and restarted nuclear 

facilities in the additions of capacity 

rule and the 80/20 Rule. Additionally, 

§ 1.45Y–4(d)(1) is clarified to confirm 

that a qualified facility that meets the 

requirements of section 45Y(b)(1)(A) 

may claim the full section 45Y credit 

rather than the credit resulting from the 

addition of a new unit or an addition of 

capacity. 

While commenters generally 

supported the need for the 80/20 Rule 

for the section 45Y credit, commenters 

also asked for clarity regarding the 

application of the 80/20 Rule. A 

commenter requested clarification that a 

facility that previously qualified for a 

credit under section 45 or 48 and is later 

retrofitted may be eligible for a section 

45Y or 48E credit if it satisfies the 80/ 

20 Rule. The Treasury Department and 

the IRS agree that if a qualified facility 

under section 45 or an energy property 

under section 48 is later retrofitted in a 

manner that satisfies the 80/20 Rule, it 

will be considered a new qualified 

facility and may be eligible for a section 

45Y or 48E credit so long as the 

qualified facility meets all requirements 

of section 45Y or 48E. 

Another commenter generally stated 

that under Notice 2018–59, 2018–28 

I.R.B. 196, the 80/20 Rule applies at the 

property level and not the project or 

system level. The commenter requested 

that the 80/20 Rule similarly only apply 

at the property level for the section 45Y 

credit. In response to this comment, the 

Treasury Department and the IRS 

confirm that for purposes of the section 

45Y credit, the 80/20 Rule does not 

apply to a project or system but instead 

to a qualified facility. Proposed § 1.45Y– 

4(d)(1) set forth the 80/20 Rule for 

purposes of the section 45Y credit and 

applies the rule to a retrofitted qualified 

facility. The 80/20 Rule applies at the 

qualified facility level to the 

components of property within the unit 

of qualified facility. The final 

regulations retain this application of the 

80/20 Rule to the section 45Y credit. 

Another commenter requested 

clarification regarding how the 80/20 

Rule is applied for purposes of section 

45Y by comparing its application to 

section 48E. The commenter pointed out 

that proposed § 1.48E–4(c)(4) looked 

only to functionally interdependent 

components of property (and not 

integral property) to determine what is 

considered new components of the unit 

of qualified facility, while proposed 

§ 1.45Y–4(d) did not. This commenter 

requested clarification regarding which 

components are included in the 

determination under the 80/20 Rule for 

purposes of the section 45Y credit. 

Similarly, another commenter 

recommended that the final regulations 

define a ‘‘unit of qualified facility’’ as 

the specific components necessary for 

the production of electricity and not the 

integral property essential to the 

completeness of that function. With 

respect to dam-based hydropower 

facilities, another commenter supported 

proposed § 1.45Y–4(d) permitting 

existing dam-based hydroelectric 

facilities to qualify for the 80/20 Rule. 

The commenter asked to confirm that 

the 80/20 Rule is applied on a turbineby-turbine basis and not the whole 

facility, because individual turbines 

may be repowered separately. As noted 


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earlier, the 80/20 Rule applies at the 

qualified facility level to the 

components of property within the unit 

of qualified facility and therefore in the 

context of a hydropower facility the 80/ 

20 Rule cannot be applied on a turbineby-turbine basis. 

The Treasury Department and the IRS 

decline to modify the proposed rule in 

response to these requests for specific 

applications to particular technologies. 

Proposed § 1.45Y–2(b)(2)(i) provided 

that for purposes of the section 45Y 

credit, the unit of qualified facility 

includes all functionally interdependent 

components of property (as defined in 

proposed § 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 §§ 1.45Y–4(d)(2) and 1.48E– 

4(c)(3) both provided 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 of property of the unit 

of qualified facility. Under both 

proposed §§ 1.45Y–2(b)(2) and 1.48E– 

2(b)(2), a unit of qualified facility only 

includes functionally interdependent 

components of property and not integral 

property. Thus, the Treasury 

Department and the IRS agree with the 

commenter that only functionally 

interdependent property is taken into 

account to determine whether a 

retrofitted qualified facility satisfies the 

80/20 Rule for purposes of sections 45Y 

and 48E. Proposed § 1.48E–4(c)(4) 

provided a rule allowing costs for 

integral property to be included in 

determining the section 48E credit after 

it has been determined that the qualified 

facility has satisfied the 80/20 Rule. 

Because the section 45Y credit is a 

production tax credit calculated based 

on electricity produced and not the 

amount of investment in the qualified 

facility, there is no need for a rule 

similar to proposed § 1.48E–4(c)(4) in 

the final regulations under section 45Y. 

III. Rules Specific to Section 48E 

Proposed § 1.48E–1(b)(1) provided 

rules for determining the amount of the 

credit; defined the term ‘‘applicable 

percentage;’’ and explained how to 

determine the applicable percentage for 

a qualified facility. Proposed § 1.48E– 

1(c) provided the credit phase-out rules 

and proposed § 1.48E–1(c)(3) defined 

applicable year for purposes of the 

credit phase-out rules by reference to 

proposed § 1.45Y–1(c)(3). See section 

II.C. of this Summary of Comments and 

Explanation of Revisions for a 

discussion of those rules. 

A. Organization of Proposed § 1.48E–2 

Proposed § 1.48E–2(a) defined a 

qualified facility for purposes of section 

48E. Proposed § 1.48E–2(b) described 

the property included in a qualified 

facility for purposes of section 48E, 

defined the terms ‘‘unit of qualified 

facility’’ as well as ‘‘functionally 

interdependent’’ and ‘‘integral part’’ 

(both as they apply to a qualified 

facility), and provided several examples 

to illustrate the rules. Proposed § 1.48E– 

2(c) provided rules for the coordination 

of the section 48E credit with certain 

other Federal income tax credits with 

respect to qualified facilities. Proposed 

§ 1.48E–2(d) provided rules for 

determining the qualified investment 

with respect to a qualified facility. 

Proposed § 1.48E–2(e) defined the term 

‘‘qualified property.’’ Proposed § 1.48E– 

2(f) defined certain terms related to 

requirements for qualified property, 

including ‘‘tangible personal property,’’ 

‘‘other tangible property,’’ 

‘‘construction, reconstruction, or 

erection of qualified property,’’ 

‘‘acquisition of qualified property,’’ 

‘‘original use of qualified property,’’ 

‘‘depreciation allowable,’’ ‘‘placed in 

service’’ and ‘‘claim.’’ Proposed § 1.48E– 

2(g) provided rules for energy storage 

technology (EST). 

The Treasury Department and the IRS 

determined that the organization of 

proposed § 1.48E–2, as it related to 

qualified facilities, did not adhere to the 

organization of section 48E. The final 

regulations reorganize § 1.48E–2 to more 

clearly follow the organization of 

section 48E. The Treasury Department 

and the IRS do not intend for the 

reorganization of § 1.48E–2 to create any 

substantive differences from the rules as 

they were provided in the proposed 

regulations. 

As reorganized, § 1.48E–2(a) of these 

final regulations provides the rules for 

determining the qualified investment 

with respect to a qualified facility. 

Section 1.48E–2(b) defines the term 

‘‘qualified facility’’ as it relates to 

section 48E, as well as the term ‘‘placed 

in service.’’ Section 1.48E–2(c) defines 

the term ‘‘qualified property.’’ Section 

1.48E–2(d) provides the rules for 

property included in a qualified facility, 

including a description of ‘‘unit of 

qualified facility’’ and ‘‘integral part,’’ 

and provides examples illustrating these 

rules. Section 1.48E–2(e) provides 

definitions related to the requirements 

for qualified property. Section 1.48E– 

2(f) provides rules for the coordination 

of the section 48E credit with certain 

other Federal income tax credits with 

respect to qualified facilities and 

includes examples to illustrate those 

rules. Section 1.48E–2(g) provides rules 

relating to EST. Finally, the definition of 

the term ‘‘claim’’ for both a qualified 

facility and EST is moved to § 1.48E– 

1(a)(2) and is modified to also apply to 

the other Federal income tax credits 

described in section 48E(b)(3)(C). 

B. Qualified Investment With Respect to 

a Qualified Facility and Qualified 

Property 

Proposed § 1.48E–2(d) described a 

qualified investment with respect to any 

qualified facility. Proposed § 1.48E–2(e) 

defined ‘‘qualified property’’ for 

purposes of proposed § 1.48E–2(a). 

A commenter requested that the final 

regulations clarify that the qualified 

property included in a qualified 

investment in a qualified hydropower 

facility includes all the components and 

property identified as qualified property 

in prior guidance under section 48, up 

through and including the substation at 

which the electrical voltage is stepped 

up to transmission voltage. Similarly, 

another commenter asked whether the 

scope of qualified property under 

section 48E(b)(2) includes all property 

identified as energy property under 

section 48(a)(3), unless explicitly 

excluded under section 48E. 

The Treasury Department and the IRS 

recognize that some technologies may 

be creditable under both sections 48 and 

48E. Although the rules for eligibility 

differ between the two sections, they 

share many overlapping concepts (for 

example, functional interdependence 

and integral property). For those 

facilities that generate electricity and for 

EST that are eligible for both the section 

48 and 48E credits, the Treasury 

Department and the IRS expect similar 

property to be eligible. However, the 

application of these concepts to a 

specific facility or EST is ultimately a 

fact-specific determination. 

That said, unlike section 48, these 

final regulations are technology neutral, 

and the rules are meant to apply to all 

qualified facilities. A definitive 

response to these comments would 

require the Treasury Department and 

the IRS to conduct a complete factual 

analysis of the property in question, 

which may include information beyond 

that which was provided by the 

commenters. Because more information 

is needed to make the determinations 

requested by the commenters, the 

requested clarifications are not 

addressed in these final regulations. 

C. Energy Storage Technology Overview 

1. In General 

Proposed § 1.48E–2(g) provided rules 

defining a unit of EST. Section 48E(c)(2) 


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defines the term ‘‘energy storage 

technology’’ by reference to section 

48(c)(6) (noting that the beginning of 

construction requirement in section 

48(c)(6)(D) does not apply). A 

commenter suggested clarifying that 

EST may include either ‘‘property . . . 

which receives, stores, and delivers 

energy for conversion,’’ or ‘‘thermal 

energy storage property,’’ by reading the 

‘‘and’’ between sections 48(c)(6)(A)(i) 

and (ii) as disjunctive. The Treasury 

Department and the IRS confirm that the 

term ‘‘and’’ between sections 

48(c)(6)(A)(i) and (ii) is disjunctive for 

purposes of section 48E(c)(2) and 

property described in section 

48(c)(6)(A)(i) or (ii) are included as EST. 

2. Functionally Interdependent 

Proposed § 1.48E–2(g)(2)(i) provided 

that, for purposes of the section 48E 

credit, a unit of EST includes all 

functionally interdependent 

components of property (as defined in 

proposed § 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. Proposed § 1.48E– 

2(g)(2)(ii) provided 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. 

A commenter requested that the 

Treasury Department and the IRS 

explicitly clarify that the section 48E 

credit can be claimed with respect to 

EST that is co-located and used in 

conjunction with electricity generation 

equipment for which the section 45 or 

45Y credits are claimed, without regard 

to whether the EST would be 

considered a functionally 

interdependent component or an 

integral part of the electricity generation 

equipment under other rules or whether 

the EST and electricity generation 

equipment are owned by the same or 

different taxpayers. 

Section 48E(a) provides that the clean 

electricity investment credit is 

determined separately with respect to 

any qualified facility and any EST. This 

statutory text establishes an important 

categorical distinction between 

qualified facilities and ESTs. While 

integral property may be shared by a colocated qualified facility and an EST, a 

unit of qualified facility and a unit of 

EST cannot share components for 

purposes of section 48E. Further, the 

Treasury Department and the IRS 

confirm that an EST is eligible for the 

section 48E credit if it satisfies the 

requirements of section 48E, even if the 

EST is co-located with a qualified 

facility that has claimed the section 45 

or 45Y credits. See section III.C.6. of this 

Summary of Comments and Explanation 

of Revisions for additional discussion of 

comments on co-located, or ‘‘hybrid,’’ 

projects that include an EST and 

qualified facility. 

3. Qualified Investment With Respect to 

Energy Storage Technology 

Proposed § 1.48E–2(g)(4) provided 

that the qualified investment with 

respect to any EST for a taxable year is 

the basis of any EST placed in service 

by the taxpayer during such taxable 

year. Commenters requested 

clarification that the entire cost basis of 

EST property that converts energy to 

electricity is eligible for the section 48E 

credit, even if some functionally 

interdependent property is used to 

produce heat. The commenters asserted 

that there is no statutory requirement 

that the energy stored be exclusively 

converted to electricity and that the 

Code is silent about any minimum 

percentage requirement of energy being 

converted to electricity. 

Proposed § 1.48E–2(g)(6)(i) described 

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. This definition 

is adopted from section 48E(c)(2), which 

defines ‘‘energy storage technology’’ 

including electrical energy storage 

property by reference to section 48(c)(6). 

Because the purpose of an electrical 

energy storage property is to receive, 

store and deliver energy for conversion 

to electricity, not to produce thermal 

energy, components of property of an 

energy storage property used to produce 

thermal energy would be subject to the 

incremental cost rule discussed in 

section III.G. of this Summary of 

Comments and Explanation of 

Revisions. 

4. Placed in Service 

Proposed § 1.48E–2(g)(5)(i) provided 

rules for determining when an EST has 

been placed in service for purposes of 

the section 48E credit. Notwithstanding 

the general rules provided in proposed 

§ 1.48E–2(g)(5)(i), an EST with respect 

to which an election is made under 

section 50(d)(5) of the Code and § 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. 

Commenters suggested expanding the 

definition of placed in service for EST 

because ‘‘energy storage may charge and 

discharge prior to being ready for 

commercial operation.’’ Specifically, a 

commenter suggested that EST property 

should be treated as placed in service 

when (i) such property has all licenses, 

permits, and approval required to store 

and dispatch power, (ii) pre-operational 

testing is complete, (iii) the taxpayer has 

title to the property, and (iv) the 

property is available to store and 

discharge power on a regular, 

commercial basis. 

Instead of providing specific indicia 

of when an EST is treated as being 

placed in service, the rule in proposed 

§ 1.48E–2(g)(5)(ii) provided general 

principles for a taxpayer to determine 

when an EST has been placed in service 

that are broadly applicable to all types 

of EST. These principles are based upon 

the placed in service rules provided by 

§ 1.48–9(b)(5), which generally adopt 

the placed in service rules of § 1.46– 

3(d)(1). The general principles under 

§ 1.46–3(d)(1) have applied to the 

section 48 credit since its enactment. 

These principles are well-understood, 

general standards for determining when 

property is placed in service, and they 

are widely relied upon by industry. The 

Treasury Department and the IRS view 

the general principles provided by the 

proposed rule as adequate for 

determining when EST is placed in 

service, and as sufficiently broad to 

address these commenters’ concerns. 

Therefore, the final regulations adopt 

the placed in service rules as proposed. 

5. Electrical Energy Storage Property 

Proposed § 1.48E–2(g)(6)(i) described 

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. 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 lithiumion, vanadium redox flow, sodium 

sulfur, and lead-acid); ultracapacitors; 

physical storage such as pumped storage 

hydropower, compressed air storage, 

and flywheels; as well as reversible fuel 

cells. 

Commenters asked for clarification 

regarding what constitutes property 

‘‘primarily used’’ in the transportation 

of goods or individuals. One commenter 

suggested that the final regulations 


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provide a bright line rule and clarify 

that property that receives, stores, and 

delivers energy for conversion to 

electricity and is intended to be used for 

less than 35 percent of its hours of use 

in a calendar year for transporting goods 

or individuals is not considered 

‘‘primarily used in the transportation of 

goods or individuals.’’ In this 

commenter’s view, property, including a 

school bus, that receives, stores, and 

delivers energy for conversion to 

electricity that is used less than 35 

percent of its hours of use in a calendar 

year for transporting goods or 

individuals is not primarily used for 

transportation. However, the commenter 

clarified that if electric school buses 

paired with a bidirectional vehicle-togrid (V2G) charger are permitted to 

qualify as EST, then the charger itself 

should not be considered part of the 

electrical energy storage property. 

The final regulations mirror the 

language of section 48E(c)(2), which 

adopts the definition of EST provided in 

section 48(c)(6)(A), and excludes 

property primarily used in the 

transportation of individuals or goods. 

The Treasury Department and the IRS 

consider school buses as primarily used 

in transportation because the primary 

reason for a taxpayer to acquire school 

buses is to transport individuals, not 

store energy, notwithstanding the 

overall amount of time buses are used 

to actually transport individuals. A 

‘‘bright line’’ test requested by the 

commenter is not feasible because any 

given situation and determination is fact 

dependent. 

In addition, there are other IRA tax 

incentives intended to benefit some 

technologies for which these 

commenters seek section 48E credit 

eligibility. For instance, section 45W of 

the Code provides a tax credit for 

vehicles such as electric school buses. 

Furthermore, a notice of proposed 

rulemaking (REG–118269–23) published 

in the Federal Register (89 FR 76759) on 

September 19, 2024, regarding the 

section 30C alternative fuel vehicle 

refueling property credit (September 

2024 proposed regulations) proposed a 

definition for property primarily used in 

the transportation of goods or 

individuals and not for the production 

of electricity for purposes of sections 48 

and 48E. In particular, proposed 

§ 1.48E–2 provided that energy storage 

property is primarily used in the 

transportation of goods or individuals 

and not for the production of electricity, 

and therefore is not EST eligible for the 

section 48E credit, if a credit is claimed 

under section 30C for such property. 

Comments regarding this proposed 

definition will be further addressed in 

the Treasury decision that finalizes the 

September 2024 proposed regulations. 

The Treasury Department and IRS note 

that energy storage property for which 

the section 30C credit is not claimed 

may be creditable as EST under sections 

48 and 48E if that property meets the 

requirements of those tax credits. 

6. Hybrid Systems (Qualified Facility + 

EST) 

Several commenters addressed the 

treatment of qualified facilities, such as 

solar generation facilities, and EST that 

are co-located, or so-called ‘‘hybrid’’ 

projects. At least one commenter 

supported treating a qualified facility 

and EST as separate for purposes of the 

section 48E credit. The commenter 

emphasized that such an approach is 

critical for the long-term success of the 

section 45Y and 48E credits, and 

importantly, will align with the goal of 

the domestic content bonus credit 

amount to reshore clean energy supply 

chains. 

Other commenters requested that 

taxpayers be able to elect a single 

section 48E credit for hybrid systems, 

consisting of a qualified facility and an 

EST, and sought clarification of whether 

property included in a unit of EST may 

be included in a unit of qualified 

facility. A commenter noted that for 

purposes of rooftop solar and storage 

hybrid systems, the EST and the solar 

energy property are dependent upon 

each being placed in service because 

both are essential to the completeness of 

the intended function of the hybrid 

system. Commenters asserted that 

including EST in the definition of 

‘‘integral part’’ of a qualified facility and 

providing examples of dual eligibility 

for section 48 and 48E credits during the 

transition period would help maintain 

consistency and reduce administrative 

burdens. One commenter recommended 

modifying proposed § 1.48E–2(b) to 

clarify that EST may (but is not required 

to) be considered an integral part of a 

qualified facility. Commenters stated 

that such a clarification would align 

with current guidance for the domestic 

content bonus credit amount and the 

test for determining whether multiple 

energy properties will be considered an 

energy project under the section 48 

proposed regulations. Another 

commenter stated that this approach 

would allow for increased technological 

flexibility for purposes of the section 

48E credit and would allow residential 

solar energy developers to continue 

claiming a single credit for hybrid 

systems. A commenter claimed that 

adding EST as an integral part of a 

qualified facility would allow utility 

scale solar energy developers the option 

to claim separate credits for the EST and 

the qualified facility under the section 

48E proposed regulations. 

Another commenter suggested 

permitting a taxpayer developing a 

hybrid system and claiming the section 

48E credit on both the qualified facility 

and EST to elect to treat them as a single 

energy project. Other commenters 

requested that the final regulations 

clarify that even if qualified facilities 

and EST are separate categories under 

section 48E, a taxpayer developing a 

hybrid system that incorporates both 

may file a single Form 3468, Investment 

Credit, and register only once for 

purposes of section 6418 of the Code 

relating to transfer elections for eligible 

credits (section 6418 credit transfer 

elections). 

As noted earlier in section III.C.2. of 

this Summary of Comments and 

Explanation of Revisions, the statutory 

framework of section 48E does not 

support treating a qualified facility and 

EST as a single creditable property. 

Instead, the text of section 48E 

repeatedly treats a qualified facility and 

EST as separately creditable properties. 

Accordingly, there is no statutory basis 

to allow taxpayers an option to claim a 

single credit for hybrid systems that 

include both qualified facilities and 

EST. In addition, although beyond the 

scope of these final regulations, the 

Treasury Department and the IRS note 

that, because a hybrid system would be 

considered two separate eligible credit 

properties, a taxpayer would need to 

register them separately for purposes of 

making section 6418 credit transfer 

elections. See §§ 1.6418–1(d) and 

1.6418–4. 

Some commenters also requested that 

the final regulations provide an option 

to claim a single credit for a hybrid 

system rather than two credits, one for 

the EST and one for the qualified 

facility, in part, because those 

commenters currently enter into a single 

leasing agreement with customers for 

both a solar qualified facility and an 

EST. These commenters expressed 

concern about whether, under the 

proposed regulations, they would need 

to enter into separate contracts for the 

solar qualified facility and the EST. 

These commenters noted that if they are 

able to use a single contract, the contract 

will need to have separate term lengths 

for the solar qualified facility and the 

EST to satisfy the leasing rules for tax 

purposes. These commenters raised the 

issue that since a solar qualified facility 

and an EST generally have different 

useful lives the leasing rules could not 

cover both the solar qualified facility 

and the EST if they claimed separate 

credits. 


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The Treasury Department and the IRS 

are not aware of any case law or 

guidance related to leasing rules that 

would require a taxpayer to break up the 

scope of a lease into components before 

analyzing whether there is a true lease 

for tax purposes regardless of the useful 

life of different assets included in the 

lease. In order to claim section 48E 

credits for both the solar qualified 

facility and an EST that are part of a 

combined solar qualified facility and 

EST, a taxpayer must retain ownership 

of both at the time such property is 

placed in service. This is true regardless 

of whether there are separate credits or 

separate credit calculations required for 

a solar qualified facility and an EST. 

While the final regulations define a unit 

of property as a qualified facility or an 

EST for purposes of section 48E, the 

final regulations are not intended to 

apply more broadly to define what 

comprises a unit of property for any 

other purpose of the Code. 

Another commenter requested that 

the section 48E credit be made available 

for pumped storage hydropower 

property, including if such property 

overlaps or shares property with a 

qualified hydropower facility that has 

claimed or will claim the credit under 

section 45 or 45Y, and that no allocation 

of costs is required with respect to such 

overlapping property. 

The Treasury Department and the IRS 

confirm that an EST is eligible for a 

separate section 48E credit if it satisfies 

the requirements of section 48E and the 

section 48E regulations. A taxpayer that 

makes a qualified investment with 

respect to a qualified facility or an EST 

is eligible for the section 48E credit only 

to the extent of the taxpayer’s eligible 

investment in the qualified facility or 

EST. As described in proposed § 1.48E– 

2(b)(3)(vi), 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, 45, 

or 45Y or another Federal income tax 

credit, may include shared property that 

may be considered part of a qualified 

investment for 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 the qualified facility for 

which the taxpayer is claiming a section 

48E credit. The proposed rule addresses 

the commenter’s concerns and will be 

adopted as proposed. 

7. Thermal Energy Storage Property 

Proposed § 1.48E–2(g)(6)(ii) defined 

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. 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. Thermal energy storage 

property does not include a swimming 

pool, CHP property, or a building or its 

structural components. 

Several commenters requested 

additional examples of thermal energy 

storage property and asked whether 

specific property would be considered 

part of thermal energy storage. For 

example, a commenter recommended 

including an example of thermal energy 

storage property that includes phase 

change materials operating as a battery 

in place of a refrigeration cycle to 

reduce energy consumption in cold 

storage. Several commenters requested 

an example allowing for solar thermal 

systems to be treated as thermal energy 

storage property and noted that solar 

thermal systems are explicitly eligible 

under the section 48 credit. A 

commenter specifically contended that 

solar thermal systems that collect energy 

from the sun to heat a storage medium 

(for example, water) and then provide 

energy through an HVAC system for a 

residential or commercial building 

should be treated as thermal energy 

storage systems under section 48E. 

Another commenter suggested 

clarifying that energy storage technology 

includes property capable of 

discharging both heat and electricity 

regardless of how the facility’s heat is 

utilized as long as the facility has an 

electrical nameplate capacity of at least 

5 kWh and the taxpayer claims a section 

48E credit only on the parts of the 

facility that are essential to receiving, 

storing, and delivering energy for the 

conversion to electricity (that is, 

excluding components related to 

discharging heat). A different 

commenter suggested clarifying that 

thermal energy storage property 

includes property directly connected to 

a refrigeration system given that 

refrigeration systems are a subset of 

HVAC systems. Another commenter 

requested clarifying that otherwisequalifying property that operates 

squarely within an HVAC ecosystem, or 

directly in connection with such a 

system, and that directly impacts the 

temperature of air being conditioned by 

an HVAC system, is ‘‘directly 

connected’’ to such system within the 

meaning of section 48E (and section 48); 

and non-structural, energy-saving, 

portable products that are incorporated 

into building elements specifically 

because of their energy-saving 

properties are not themselves ‘‘a 

building or its structural components,’’ 

and remain non-structural even if 

integrated into a ceiling. 

Another commenter suggested 

providing examples of thermal energy 

storage property that include thermal 

ice or chilled water storage systems that 

use electricity to run a refrigeration 

cycle to produce ice or chilled water 

that is later connected to the HVAC 

system as an exchange medium for air 

conditioning the 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. Similarly, a commenter 

recommended several modifications to 

the examples of thermal energy storage 

in proposed § 1.48E–2(g)(6)(ii): (i) 

replace the reference to ‘‘thermal ice 

storage systems’’ with ‘‘chilled water or 

ice storage systems,’’ (ii) acknowledge 

that tanks could be above or below 

ground, and (iii) include ‘‘electric 

boilers that use electricity to heat water 

and later use this stored energy to 

provide heat and/or domestic hot water 

to a building through the HVAC 

system.’’ Several other commenters 

suggested clarifying whether the phrase 

‘‘directly connect to’’ in proposed 

§ 1.48E–2(g)(6)(ii) means that thermal 

storage systems that function as selfcontained heating or cooling systems 

qualify as thermal energy storage 

property. 

The Treasury Department and the IRS 

agree that the definition of thermal 

energy storage property requires 

clarification. Proposed § 1.48E– 

2(g)(6)(ii) defined thermal energy 

storage property, in part, as a system 

which ‘‘removes heat from, or adds heat 

to, a storage medium for subsequent 

use.’’ The Treasury Department and the 

IRS understand the phrase ‘‘adds heat 

to’’ as including equipment that is 

involved in adding, or transferring, 

already-existing heat from one medium 

to the storage medium, but not 

equipment involved in transforming 

other forms of energy into heat in the 

first instance. Equipment that just adds 

(or removes) heat includes technologies, 

like heat pumps, that draw heat from 

the ambient air or other stores of heat 

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By contrast, equipment that transforms 

other forms of energy into heat in the 

first instance, for example through 

combustion or electric resistance, is not 

property that ‘‘removes heat from, or 

adds heat to’’ a storage medium and is 

therefore not an eligible component of a 

thermal energy storage property. For 

example, a conventional gas boiler with 

an integrated storage tank would not 

generally be thermal energy storage 

property, as it would generate new heat 

in the first instance through combustion 

and subsequently add that heat to the 

storage medium, rather than merely 

adding existing heat to the storage 

medium. While the gas boiler elements 

would not be part of such property, the 

integrated storage tank, may be thermal 

energy storage property if it otherwise 

meets the thermal energy storage 

property definition. Further, an air-towater heat pump with a thermal storage 

tank, for example, would generally be 

thermal energy storage property 

provided it otherwise meets the 

definition of thermal energy storage. 

This could be the case even if the heat 

pump also serves a purpose in the 

connected HVAC system’s real-time 

heating or cooling of a building. In that 

case, the thermal storage tank would be 

thermal energy storage property and the 

heat pump may also qualify as part of 

the thermal energy storage property to 

the extent the taxpayer’s costs exceed 

the cost of an HVAC system without 

thermal storage capacity that would 

meet the same functional heating or 

cooling needs as the heat pump system 

with a storage medium, other than time 

shifting of heating or cooling. See 

section III.G. of the Summary of 

Comments and Explanation of Revisions 

for discussion of the Incremental Cost 

Rule. 

Proposed § 1.48E–2(g)(6)(ii) included 

an example of 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. The Treasury 

Department and the IRS acknowledge 

that this example needs to be refined to 

more precisely delineate the scope of 

eligible thermal energy storage property. 

Whereas the heated bricks and 

equipment that adds heat generated by 

the furnace to those bricks, or removes 

heat from the bricks, is eligible thermal 

energy storage property, the electric 

furnace equipment that transforms 

energy into the thermal energy via 

electrical resistance in the first instance 

is not. Section 1.48E–2(g)(6)(ii) of the 

final regulations provides that thermal 

energy storage property does not 

include property that transforms other 

forms of energy into heat in the first 

instance. 

With respect to subsequent use, the 

Treasury Department and the IRS also 

agree that additional clarity is 

warranted. The statute requires that 

thermal energy storage property must be 

able to perform certain functions, not 

simply perform heat transfer. Any heat 

transfer may take some amount of time 

and heat does not immediately dissipate 

even if no effort is made to store it. 

While some commenters asserted that 

such heat transfer is subsequent use, the 

Treasury Department and the IRS 

disagree. A plain reading of the statute 

supports the conclusion that thermal 

energy storage property does not 

include property that simply engages in 

heat transfer. The thermal energy 

storage property must be able to store 

the thermal energy. The Treasury 

Department and the IRS find that a 

minimum time interval for subsequent 

use provides certainty for taxpayers and 

sound tax administration. 

Accordingly, the final regulations 

clarify that property that ‘‘removes heat 

from, or adds heat to, a storage medium 

for subsequent use’’ is property that is 

designed with the particular purpose of 

substantially altering the time profile of 

when heat added to or removed from 

the thermal storage medium can be used 

to heat or cool the interior of a 

residential or commercial building. The 

final regulations also provide a safe 

harbor for thermal energy storage 

property. If the thermal energy storage 

property can store energy that is 

sufficient to provide heating or cooling 

of the interior of a residential or 

commercial building for a minimum of 

one hour, it is deemed to have the 

purpose of substantially altering the 

time profile of when heat added to or 

removed from the thermal storage 

medium can be used to heat or cool the 

interior of a residential or commercial 

building. 

These final regulations also add that 

thermal energy storage property may 

store thermal energy in an artificial pit, 

an aqueous solution, or a solid-liquid 

phase change material, in addition to 

the underground tank or a borehole field 

already included in the proposed 

regulations, in order to be extracted for 

later use for heating and/or cooling. The 

final regulations clarify that sources of 

thermal energy that transform other 

forms of energy into heat, such as 

electric boilers, are not thermal energy 

storage property. 

The Treasury Department and the IRS 

clarified the definition of thermal 

energy storage property and the 

examples in the final regulations to 

illustrate what constitutes thermal 

energy storage property. The final 

regulations provide revised examples of 

thermal energy storage property, and 

those examples are intended to be a 

non-exhaustive list. The Treasury 

Department and the IRS have also 

determined that the revised description 

of thermal energy storage property in 

§ 1.48E–2(e)(6)(ii) provides taxpayers 

with a sufficient means to determine 

whether specific property qualifies as 

thermal energy storage property. To the 

extent that commenters asked whether 

additional systems, configurations, or 

technologies would qualify as thermal 

energy storage property, such a 

determination would require the 

Treasury Department and the IRS to 

conduct a complete factual analysis of 

the system, configuration, or 

technology, which may include 

information beyond that which was 

provided by the commenters. Because 

more information is needed to make any 

such determinations requested by the 

commenters, the final regulations do not 

provide such additional requested 

clarifications. 

Several commenters recommended 

clarifying that thermal energy storage 

property includes property providing 

energy for the heating or cooling of the 

interior of an industrial building, or 

other types of buildings. A commenter 

asserted that a wide variety of buildings 

are served by thermal energy storage, 

such as city halls, libraries, and jails, 

and that the definition of thermal energy 

storage property should not be limited 

to residential or commercial settings. 

Commenters requested that property 

used to convey stored energy and 

deliver it to building spaces (such as 

pipes and pumps), used to distribute 

stored thermal energy for heating or 

cooling or to supply domestic hot water 

for consumption in a residential or 

commercial building, be included 

within the definition of thermal energy 

storage property. One commenter 

recommended defining thermal energy 

storage property to include equipment, 

including pipes and pumps, used to 

distribute stored thermal energy to and 

within buildings. The commenter noted 

that such a clarification would 

necessitate incorporation of a dual use 

rule consistent with § 1.48–14(b), 

because thermal energy storage may use 

pipes to distribute stored thermal energy 

to and within buildings that are also 

used by non-qualifying sources. 

One commenter requested clarifying 

whether thermal energy storage property 

includes liquid desiccant storage 

systems that use electricity to store 

energy in liquid desiccants that remove 

latent heat from the air for use in a 

connected HVAC system. Another 


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commenter noted that most solar 

thermal systems are combination or 

hybrid systems that provide thermal 

storage in the form of water or another 

fluid for a variety of applications. 

Regarding such combination systems, 

other commenters recommended 

clarifying that thermal energy property 

includes water heating applications and 

providing an example of such 

applications. 

Section 48E(c)(2) defines EST as 

having the same meaning as under 

section 48(c)(6), and section 48(c)(6) 

defines EST to include thermal energy 

storage property. The statutory 

definition of thermal energy storage 

property under section 48(c)(6)(C) 

provides that such property is directly 

connected to a HVAC, 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. 

To maintain consistency with the 

statutory text, the final regulations 

maintain the wording regarding eligible 

building applications set forth in section 

48(c)(6)(C)(i)(III). With respect to 

property used to distribute stored 

thermal energy, such as pipes and 

pumps, the final regulations provide a 

function-oriented method to evaluate 

whether property is a functionally 

interdependent or an integral part of 

thermal energy storage property. Beyond 

the examples included in the proposed 

regulations and additional examples 

added here, commenters have described 

a number of additional innovative 

technologies that might qualify as 

thermal energy storage property. 

However, application of the functional 

definition of thermal energy storage 

property provided at section 48E(c)(2) 

(by reference to section 48(c)(6)) would 

be necessary to determine if these 

technologies are, in fact, examples of 

qualifying thermal energy storage 

property. Moreover, the examples 

contained in proposed § 1.48E– 

2(g)(6)(ii) are a non-exhaustive list. 

Therefore, the final regulations do not 

adopt all the recommended additional 

examples. 

Because section 48E(c)(2) provides 

that the term ‘‘energy storage 

technology’’ has the meaning given such 

term in section 48(c)(6), the final 

regulations incorporate modifications 

made to the section 48 proposed 

regulations by the section 48 final 

regulations to clarify the definition of 

EST, including with respect to thermal 

energy property. 

8. Hydrogen Energy Storage Property 

Proposed § 1.48E–2(g)(6)(iii) provided 

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 § 1.48E– 

2(g)(6)(iii) also provided 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 (for 

example, fertilizer), and set forth 

examples of hydrogen energy storage 

property. 

A commenter stated that property 

storing hydrogen should be at least 1 

GWh in capacity (which is equivalent to 

96,554 gallons of liquid hydrogen 

storage capacity or about 25.4 metric 

tons) in order to qualify as hydrogen 

energy storage property. The Treasury 

Department and the IRS note that 

section 48E(c)(2) defines ‘‘energy storage 

technology’’ as having the meaning 

given such term in section 48(c)(6) 

(without the application of the 

beginning of construction deadline). 

Section 48(c)(6) defines ‘‘energy storage 

technology’’ as, in part, having a 

nameplate capacity of not less than 5 

kilowatt hours. Accordingly, the final 

regulations do not adopt the 

commenter’s suggestion, as doing so 

would be inconsistent with the statute. 

a. End Use Requirement 

Numerous commenters disagreed 

with the requirement that hydrogen 

energy storage property must store 

hydrogen that is solely used as energy 

and not for other purposes, which the 

commenters referred to as the ‘‘end use 

requirement.’’ Commenters noted that 

the end use requirement is not 

statutorily prescribed and asserted that 

it would be difficult, if not impossible, 

to implement. Commenters asserted that 

a single industrial customer may have 

multiple uses for hydrogen, sometimes 

for energy and sometimes for other 

purposes such as stripping pollutants 

from flue gas streams, and that 

customers are not generally willing to 

restrict their use in order to indemnify 

the hydrogen energy storage property 

against investment credit recapture risk. 

Commenters also pointed out that 

hydrogen storage projects may sell to 

intermediaries in which case the end 

use of hydrogen is not necessarily 

known, and ensuring that the end use 

requirement is respected by export 

markets would be impossible. A 

commenter contended that the limited 

number of examples and use cases 

offered in the proposed regulations raise 

several questions for taxpayers and 

hydrogen storage developers. 

Some commenters also maintained 

that the end use requirement would be 

inconsistent with the Biden 

Administration’s U.S. National Clean 

Hydrogen Roadmap. One of these 

commenters stated that a major buildout of hydrogen storage facilities 

targeting exclusively power sector end 

use makes little sense from a strategic 

perspective. A commenter asserted that 

the definition of EST in section 

48(c)(6)(A)(i), which includes 

‘‘hydrogen, which stores energy,’’ 

simply recognizes that hydrogen is 

inherently a form of energy itself. A 

commenter also claimed that section 

48(c) only sets out affirmative 

requirements for EST and that, 

therefore, hydrogen storage property 

that is not primarily used in the 

transportation of goods or individuals 

should qualify for the section 48E credit 

regardless of where the stored hydrogen 

ends up. Commenters further noted that 

some energy uses may be indirect (for 

example, via intermediary molecules), 

further complicating application of an 

end use requirement. 

Commenters also asserted that an end 

use requirement would bifurcate and 

adversely affect the hydrogen market, 

and that additional uses for hydrogen, 

such as feedstock for industrial 

processes, could present significant 

decarbonization opportunities. A 

commenter asserted that disallowing the 

section 48E credit for hydrogen storage 

from serving applications such as steel 

production and iron refining would be 

a significant disservice to America and 

delay or prevent massive reductions in 

carbon emissions while hindering U.S. 

manufacturing of essential construction 

materials. Commenters noted that a 

hydrogen end use requirement would 

disadvantage large-scale hydrogen 

storage facilities relative to smaller ones. 

Commenters expressed concern that 

hydrogen energy storage is being 

unfairly singled out for disadvantageous 

treatment as compared to other EST, 

noting that the proposed regulations do 

not place an end use restriction on 

electricity stored within and discharged 

from batteries or other storage 

technologies; noting that energy 

withdrawn from batteries may be used 

for any purpose without losing its 

eligibility status. Commenters 

contended that the end use requirement 

would unduly push potential customers 

towards using battery-focused solutions 

instead of letting batteries and hydrogen 

solutions compete on equal footing, or 

in cases in which no alternative exists, 

would continue to extend the use of 


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existing technologies, fuels, and 

processes. 

Some commenters supported the 

principle of an energy-based end use 

requirement for hydrogen energy storage 

property. One commenter sought 

clarification that ‘‘energy’’ was not 

limited to electricity production. 

Another commenter supported the 

principle of an energy-based end use 

limitation by comparing the statutory 

text of section 48(c)(6) from three 

legislative bills, including the version 

ultimately enacted by Congress, but 

opposed the ‘‘solely’’ criteria and cited 

practical challenges including 

administrability. Commenters generally 

requested that if an end use requirement 

is maintained that it be clarified and 

altered, and safe harbors provided. For 

example, a commenter suggested 

providing a rebuttable presumption of 

meeting the end use requirement if a 

taxpayer can demonstrate that it stored 

hydrogen predominantly for energy use. 

Commenters also suggested creating a 

safe harbor as long as the facility itself 

uses some of the stored hydrogen for 

energy or the facility is an open access 

facility. A commenter requested flexible 

rules for determining the end use of 

hydrogen, including permitting 

taxpayers to assign withdrawn hydrogen 

based on commercial sales 

arrangements, or, alternatively, being 

able to rely on a mass balance approach 

based on the inputs and outputs to the 

storage property during the year. 

Commenters also suggested that the end 

use requirement conclude with the end 

of the 5-year recapture period provided 

by section 50. Several commenters 

suggested inverting the end use 

requirement to only disqualify property 

used to store hydrogen that is solely 

used for non-energy end products, or to 

exempt common carrier infrastructure 

from the end use requirement. Another 

commenter recommended a rule under 

which a facility that uses ‘‘qualified 

clean hydrogen’’ as defined under 

section 45V of the Code is deemed to 

qualify under section 48E if such 

hydrogen is used to create electricity. 

Several commenters recommended 

implementing a dual use safe harbor to 

permit a taxpayer to claim a reduced 

section 48E credit when a portion of 

stored hydrogen is used for a purpose 

other than energy. Commenters noted 

that a dual use safe harbor could apply 

if at least half of the hydrogen in 

hydrogen energy storage property is 

used for energy purposes. In contrast, 

other commenters were opposed to any 

dual use approach to the end use 

limitation and asserted that such an 

approach would be unworkable, 

requiring ‘‘unknowable, unprovable, 

unmonitorable, unauditable facts.’’ 

Commenters asked for clarification 

regarding what constitutes energy use of 

stored hydrogen and what 

documentation is needed to 

demonstrate such energy use. Several 

commenters were opposed to any 

recordkeeping requirements related to 

the end use of hydrogen and contended 

that such requirements would be 

unduly burdensome to taxpayers given 

the fungibility of hydrogen. Another 

commenter noted that there are 

currently no recordkeeping or 

documentation precedents available for 

a taxpayer to efficiently demonstrate the 

final end use of hydrogen stored in such 

taxpayer’s hydrogen energy storage 

property. The commenter asserted that, 

as there is no available documentation 

pathway for tracking hydrogen 

molecules through to their end use, it 

would be both impractical and 

prohibitively costly for a taxpayer to 

develop and implement such 

recordkeeping practices. 

After consideration of the comments 

received, the Treasury Department and 

the IRS agree that section 48(c)(6)(A)(i) 

does not require that hydrogen energy 

storage property store hydrogen that 

will be used for the production of 

energy. The Treasury Department and 

the IRS recognize commenters’ concerns 

regarding the administrative challenges 

the end use requirement could present 

for taxpayers and agree that it should be 

removed. The final regulations therefore 

do not adopt the requirement that 

hydrogen energy storage property store 

hydrogen that is solely used as energy 

and not for other purposes such as for 

the production of end products like 

fertilizer. 

b. Hydrogen Storage Media 

Many commenters provided feedback 

regarding the qualifying types of 

hydrogen storage media. Specifically, a 

commenter requested expanding the 

definition of hydrogen energy storage to 

include storage of ammonia and 

electrolytic hydrogen derivative e-fuels. 

A commenter also requested that the 

Treasury Department and the IRS 

recognize and clarify that, unlike 

electricity, hydrogen is a chemical 

building block for other molecules that 

are capable of more efficiently carrying 

hydrogen. According to the commenter, 

this means that hydrogen can be stored 

as a physical material medium such as 

a metal hydride. The commenter also 

requested confirmation that the 

examples of hydrogen storage mediums 

provided in the preamble to the 

proposed regulations are non-exhaustive 

and that the type of storage medium is 

intentionally unlimited. 

The Treasury Department and the IRS 

decline to adopt comments requesting 

that the final regulations provide that 

chemical storage (that is, equipment 

used to store hydrogen carriers (such as 

ammonia and methanol)) is hydrogen 

energy storage property. Section 

48E(c)(2) provides that the term ‘‘energy 

storage technology’’ has the meaning 

given to such term in section 48(c)(6). 

Section 48(c)(6)(A)(i) defines ‘‘energy 

storage technology’’ as property (other 

than property primarily used in the 

transportation of goods or individuals 

and not for the production of electricity) 

which 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 kilowatt hours. Section 

48(c)(6)(A) references hydrogen, but not 

compounds containing hydrogen. 

c. Hydrogen Storage Components and 

Equipment 

Several commenters requested 

clarifications regarding the components 

included in the definition of hydrogen 

energy storage. Commenters generally 

requested that the final regulations 

expand the list of integral and 

functionally interdependent equipment 

to be more inclusive of existing and 

future hydrogen energy storage property 

technologies. One commenter noted that 

while the functional interdependence 

test provided by the proposed 

regulations is helpful, specifying further 

what components are considered part of 

hydrogen energy storage is paramount. 

The commenter requested additional 

examples that address specific 

components including equipment 

needed to functionally store hydrogen, 

equipment used to change the phase of 

matter, equipment used to liquify 

hydrogen prior to storage, equipment 

used to convert stored hydrogen to 

ammonia to be used as a carrier of that 

stored hydrogen, equipment used to 

store electrolytic hydrogen derivative efuels, and any related and necessary 

pipelines. Similarly, commenters 

requested that additional components 

and equipment be specifically identified 

as eligible parts of hydrogen energy 

storage property, including hydrogen 

liquefaction and related equipment and 

other equipment required to operate 

underground hydrogen storage property. 

A commenter requested that the final 

regulations demarcate between 

equipment used for hydrogen 

production, conditioning, 

transportation, and storage. The 

commenter emphasized that a clear 

demarcation is necessary to prevent 


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gaming the system if storage property 

would qualify for the section 48E credit 

under section 48(c)(6) and the 

production equipment will, in many or 

most cases, be associated with the 

production tax credit under section 45V. 

The commenter suggested that the 

proper demarcation between hydrogen 

production and conditioning, 

transportation, or storage equipment is 

the point at which any post-production 

conditioning to remove impurities or to 

put the hydrogen into a saleable form is 

completed. The commenter stated that, 

in distinguishing hydrogen production 

equipment from storage equipment, the 

associated conditioning equipment 

should include all equipment necessary 

to treat, process, compress, pump, or 

perform other physical action on 

hydrogen prior to its storage or delivery. 

The commenter noted that equipment 

used to convert hydrogen into ammonia, 

methanol, or another hydrogen carrier 

also should be associated with postproduction processing of hydrogen and 

not eligible for the section 48E credit. 

Similarly, the commenter asserted that 

equipment, such as compressors, used 

to liquify hydrogen (liquefaction) to put 

it into a deliverable and salable form 

should not qualify as hydrogen energy 

storage property, including the 

equipment necessary for liquefaction, 

conversion to ammonia, methanol, or 

other hydrogen carrier, and dissociation 

or cracking equipment necessary to 

convert a hydrogen carrier back into 

hydrogen. The commenter emphasized 

that if compressors are used in direct 

connection with storage devices, rather 

than to change the form of the hydrogen 

(for example, from gas to liquid), 

compressors are integral to the storage 

equipment and should qualify for the 

section 48E credit. Another commenter 

stated that the definition of hydrogen 

storage property should be limited to 

tanks and caverns of scale, and the 

associated equipment necessary to fill or 

discharge hydrogen from those tanks or 

caverns. 

Commenters also requested further 

guidance on the eligibility of pipelines 

as hydrogen energy storage property 

noting that there are specific cases in 

which hydrogen pipelines that are 

directly connected to an energy storage 

facility can operate as hydrogen storage, 

by providing additional volumes that 

can adjust pressure in direct 

coordination with the storage facility 

compression system. One commenter 

requested clarification of the term 

‘‘primarily’’ in the phrase ‘‘other than 

property primarily used in the 

transportation of goods or individuals’’ 

as applied to pipelines that can be used 

to store hydrogen. Another commenter 

suggested clarifying the scope of 

hydrogen storage property with respect 

to transportation, customer delivery, 

and use. 

One commenter that opposed the 

inclusion of pipelines, rail cars, and 

truck trailers in the definition of 

hydrogen storage property, noted that if 

hydrogen has been stored in qualified 

storage property, such as tanks or 

underground storage salt caverns, the 

energy storage property should end at 

the valve where the stored hydrogen is 

delivered into a pipeline system. 

Additional commenters recommended 

limiting the treatment of hydrogen 

pipelines as integral or interdependent 

to hydrogen storage property. 

Commenters pointed to Federal Energy 

Regulatory Commission (FERC) rulings 

and applicable case law, such as 

Hawaiian Independent Refinery, Inc. v. 

U.S., 697 F.2d 1063 (Fed. Cir. 1983), 

which delineate the circumstances 

under which pipeline systems would be 

considered part of the storage facility. 

One commenter recommended only 

including pipelines directly linked to 

storage facilities and further 

recommended that the final regulations 

more precisely define the boundary 

between storage and transportation 

infrastructure. This commenter’s 

proposed guideline would define the 

boundary between storage and 

transportation infrastructure by only 

considering specific interconnected 

pipeline segments as part of the storage 

system: point-to-point lines starting 

from the storage facility and ending at 

the first intersection point with explicit 

compression equipment. Commenters 

also requested a safe harbor for 

interconnecting pipelines whereby the 

pipelines would be deemed integral or 

interdependent to a hydrogen storage 

facility if (i) the complex is conceived 

and designed concurrently, and all 

offsite interconnecting pipeline 

components are placed into service 

within twenty four months of the date 

on which the first such component is 

placed into service, and (ii) the offsite 

interconnecting components are within 

100 miles of the storage facility or 

within the same State as the storage 

facility. 

Commenters proposed the inclusion 

of additional examples that would 

provide additional specific eligible 

components and provide capitalization 

rules; establish eligibility of pipelines 

connecting storage facilities if exclusive 

to use of those facilities; and establish 

eligibility of purification equipment 

intended to return the purity of 

hydrogen post-storage to its purity level 

upon entering storage. 

A commenter suggested allowing 

tanks and associated equipment for the 

storage of ammonia when used as a 

hydrogen carrier to qualify for the 

section 48E credit but stated that 

equipment used to disassociate 

ammonia into hydrogen (referred to as 

cracking) is a separate function from 

hydrogen storage and should not be 

treated as hydrogen energy storage 

property. 

The Treasury Department and the IRS 

agree that clarifying the definition of 

hydrogen energy storage property is 

warranted. Hydrogen liquefaction 

equipment may prepare hydrogen for 

storage in the hydrogen energy storage 

property, making such property an 

integral part of hydrogen energy storage 

property. The final regulations provide 

that property that is an integral part of 

hydrogen energy storage property 

includes, but is not limited to, hydrogen 

liquefaction equipment. 

Section 48E(c)(2) generally defines 

‘‘energy storage technology’’ as having 

the meaning given such term in section 

48(c)(6). Section 48(c)(6)(A)(i) defines 

‘‘energy storage technology’’ as 

excluding property primarily used in 

the transportation of goods or 

individuals and not for the production 

of electricity. In general, whether 

property is ‘‘primarily’’ used in the 

transportation of goods or individuals 

and not for the production of electricity, 

is dependent on the facts and 

circumstances. Pipelines, trailers, and 

railcars are property primarily used in 

the transportation of goods or 

individuals and not for the production 

of electricity. Accordingly, such 

property generally would not be 

considered part of hydrogen energy 

storage property for purposes of section 

48E. 

The Treasury Department and the IRS 

recognize that there are specific cases in 

which hydrogen pipelines that are 

directly connected to an energy storage 

facility can operate as hydrogen storage. 

Hydrogen energy storage property may 

have hydrogen pipelines that are used 

as gathering and distribution lines to 

transport hydrogen within the hydrogen 

energy storage property, making such 

hydrogen pipelines an integral part of 

the hydrogen energy storage property. 

These gathering and distribution lines 

are not pipelines used to transport 

hydrogen outside of the hydrogen 

energy storage property. The final 

regulations clarify that property that is 

an integral part of hydrogen energy 

storage property includes, but is not 

limited to, gathering and distribution 

lines within a hydrogen energy storage 

property. 


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The Treasury Department and the IRS 

decline to provide additional examples 

of integral equipment and functionally 

interdependent equipment in the 

context of hydrogen energy storage 

property. The final regulations provide 

a function-oriented method to 

determine whether a technology is EST 

that is broad enough to encompass 

nascent technologies without rendering 

the regulations quickly obsolete. It is 

impossible to enumerate every 

technology that may be eligible for the 

section 48E credit given the everchanging nature of the industry and 

pace of technological development. 

Although these regulations do not list 

all technologies that may qualify for the 

section 48E credit, the final regulations 

provide adequate guidance and 

examples to illustrate the application of 

the rules for taxpayers to analyze a 

particular technology. The Treasury 

Department and the IRS, therefore, do 

not adopt commenters’ requests 

concerning specific technologies. 

9. Modification of Energy Storage 

Technology 

Proposed § 1.48E–2(g)(7) provided 

that with respect to electrical energy 

storage property and hydrogen energy 

storage property, modified as set forth in 

proposed § 1.48E–2(g)(7), such property 

will be treated as an electrical energy 

storage property (as described in 

proposed § 1.48E–2(g)(6)(i)) or a 

hydrogen energy storage property (as 

described in proposed § 1.48E– 

2(g)(6)(iii)), except that the basis of the 

existing electrical energy storage 

property or hydrogen energy storage 

property prior to such modification is 

not taken into account for purposes of 

proposed § 1.48E–2(g)(7) and section 

48E. 

Commenters noted that taxpayers 

often replace energy storage equipment 

to manage the natural degradation of 

storage assets over time and to prolong 

the useful life of these projects, even if 

such improvements do not meet a 5- 

kWh capacity threshold. One 

commenter therefore contended that 

references to nameplate capacity in 

section 48E are best read to disregard 

any degradation of the EST between 

when it is placed in service and when 

capacity is added. The same commenter 

contended that modifications to EST 

should be eligible for the section 48E 

credit if one of the 5kWh nameplate 

measurement tests under proposed 

§ 1.48E–2(g)(7)(i) and (ii) are met, 

regardless of any degradation that has 

occurred to the EST’s nameplate 

capacity since its original in-service 

date. The commenter requested 

clarifying that the nameplate capacity 

after a modification is the nameplate 

capacity of such property before the 

modification plus the capacity added by 

the modification. Another commenter 

suggested permitting a ‘‘modification 

that leads to a demonstrated increase in 

capacity (measured and recorded 

immediately before such modifications) 

of not less than 5kWh,’’ to be eligible for 

the section 48E credit. 

Another commenter explained that 

nameplate capacity of EST is typically 

defined when initial interconnection is 

approved, meaning that taxpayers who 

wish to claim the estimated 

expenditures of storage augmentation 

under section 48E will need to modify 

the original interconnection agreement 

or oversize their assets before placing 

them into service. The commenter 

requested that the section 48E rules 

recognize the eligibility of storage 

augmentation beyond nameplate 

capacity and suggested that the 

estimated expenditures associated with 

augmentation of qualifying EST be fully 

eligible for the section 48E credit. 

Another commenter suggested clarifying 

that augmentation of EST over time is 

eligible for the section 48E credit, either 

by treating estimated future 

augmentation costs at the time the EST 

is originally placed in service as 

eligible, with recapture provisions if 

estimated costs are not realized, or by 

treating any costs related to 

augmentation that are incurred as part 

of the upfront investment to construct 

an energy storage site as eligible. The 

commenter described augmentation as 

the periodic upgrade to capacity over a 

project’s lifetime by either adding new 

inverters and enclosures or recycling 

batteries to old enclosures and adding 

new batteries behind an existing 

inverter. 

Section 48E(c)(2) defines EST by 

reference to section 48(c)(6). Proposed 

§ 1.48E–2(g)(7)(i) and (ii) applied the 

rules for modification of EST described 

in section 48(c)(6)(A)(i). In defining 

EST, section 48(c)(6)(A)(i) uses the term 

‘‘nameplate capacity.’’ Accordingly, the 

rules for modification of EST apply with 

respect to the nameplate capacity of 

EST, and do not take into account 

potential degradation of the EST prior to 

its modification. The final regulations 

clarify that for purposes of the 

modification rules, the increase in 

nameplate capacity is equal to the 

difference between nameplate capacity 

immediately after the modification and 

nameplate capacity immediately prior to 

the modification. To maintain 

consistency with the statute, the final 

regulations do not adopt commenters’ 

suggestions to measure an increase in 

nameplate capacity in a different 

manner. 

A commenter also suggested 

clarifying that a modification is taken 

into account whether the increase in 

capacity is within an existing enclosure, 

the existing enclosure is expanded, a 

new enclosure is added for the 

increased capacity, or a new enclosure 

is constructed to include both the 

existing capacity and the added 

capacity. 

Section 48(a)(6)(B) defines 

modifications of EST without any 

reference to physical space limitations. 

Proposed § 1.48E–2(g)(7) also does not 

address limiting modifications of EST 

based on physical space. The Treasury 

Department and the IRS conclude that a 

modification of EST is not limited by 

the physical space occupied by the EST 

before or after the modification and 

adopt the proposed regulations without 

change. 

D. Rules for Certain Lower-Output 

Qualified Facilities 

Proposed § 1.48E–4(a)(1) provided 

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 

§ 1.48E–4(a)(1) provided 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 § 1.48E–4(a)(1) 

also provided 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 the rules in proposed 

§ 1.48E–4(a)(6). Proposed § 1.48E–4(a)(2) 

defined the term ‘‘qualified 

interconnection property.’’ Proposed 

§ 1.48E–4(a)(2) further provided 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 § 1.48E–4(a)(3) 

described the Five-Megawatt Limitation 

as a measurement taken at the qualified 

facility level. Proposed § 1.48E–4(a)(3)(i) 

provided 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 


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not include the nameplate capacity of 

any integral property, at the time that 

the qualified facility is placed in 

service. Proposed § 1.48E–4(a)(3)(i) 

additionally provided 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 § 1.48E–4(a)(3)(ii) 

provided how the nameplate capacity at 

a qualified facility is measured. 

Proposed § 1.48E–4(a)(4) defined the 

term ‘‘interconnection agreement’’ and 

proposed § 1.48E–4(a)(5) defined the 

term ‘‘utility.’’ Proposed § 1.48E–4(a)(6) 

provided 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). Proposed § 1.48E–4(a)(6) provided 

that 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. The preamble 

to proposed § 1.48E–4(a)(6) explained 

that 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. 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 preamble to the proposed 

regulations explained that 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 be 

unknown at the time the first taxpayer 

interconnects to the utility’s 

transmission system. 

Additionally, in the preamble to the 

proposed regulations, the Treasury 

Department and the IRS requested 

comments on several issues related to 

reimbursements. The Treasury 

Department and the IRS requested 

comment on whether such payment, 

credit, or service received by the first 

taxpayer, as a 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 requested 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 

requested 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 requested 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 addition to updates discussed in 

Sections III.D.1 through 6, the final 

regulations clarify the definition of an 

interconnection agreement in § 1.48E– 

4(a)(4) by stating that in the case of the 

election provided under section 50(d)(5) 

(relating to certain leased property), the 

term includes an agreement regarding a 

qualified facility leased by such 

taxpayer. 

1. Qualified Interconnection Property 

Some commenters requested 

clarification on whether certain costs 

are considered amounts paid or 

incurred for qualified interconnection 

property. A commenter requested that 

the final regulations confirm that 

equipment required to modify and 

upgrade transmission or distribution 

systems beyond the point of 

interconnection would be considered 

qualified interconnection property. 

Section 48E(b)(4) provides that the 

term ‘‘qualified interconnection 

property’’ has the meaning given such 

term in section 48(a)(8)(B). Section 

48(a)(8)(B) defines, in relevant part, the 

term ‘‘qualified interconnection 

property’’ to mean, with respect to an 

energy project that is not a microgrid 

controller, 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 energy 

project interconnects to such 

transmission or distribution system in 

order to accommodate such 

interconnection. Proposed § 1.48E– 

4(a)(2) adopted this definition. The 

Treasury Department and the IRS 

confirm that under this definition, 

tangible property required to modify 

and upgrade transmission or 

distribution systems beyond the point of 

interconnection would (provided the 

property satisfies the other requirements 

of section 48(a)(8)(B)) be considered 

qualified interconnection property and 

eligible for inclusion in basis for 

purposes of the section 48E credit. 

Another commenter requested that 

the final regulations expand the 

definition of qualified interconnection 

property to include grid-enhancing 

property. A definitive response to this 

comment would require the Treasury 

Department and the IRS to conduct a 

complete factual analysis of the 

property in question, which would 

include information beyond that which 

was provided by the commenter. 

Because more information is needed to 

make the determinations requested by 

the commenter, the requested 

clarifications are not addressed in these 

final regulations. 

A commenter requested that, in 

instances in which the taxpayer funds 

network upgrades and is then later 

reimbursed by the transmission owner, 

taxpayers not be required to account for 

any reimbursements of interconnectionrelated expenses paid in later years to 

the taxpayer. Another commenter 

requested that in such a scenario, the 

final regulations should disregard 

reimbursements to the extent that the 

reimbursement is includable in the 

taxpayer’s gross income. The 

commenter also asserted that in 

circumstances in which the taxpayer 

receives a later payment from a 

customer utilizing the qualified 

interconnection property, the taxpayer 

be permitted to treat the payments as 

revenue, rather than reimbursement. 

One of the commenters also requested 

confirmation that taxpayers can include 

in their basis qualifying interconnection 

costs recovered through ‘‘Transmission 


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Owner Initial Funding.’’ According to 

the commenters, in certain regional 

markets, the transmission owner funds 

the costs of interconnection upgrades 

for which a taxpayer is responsible, and 

the taxpayer then reimburses the 

transmission owner over a certain 

period, typically 20 years. The 

commenters requested that a taxpayer 

with such an arrangement be allowed to 

include the full amount of 

interconnection costs that it will 

ultimately pay over that period in 

calculating their section 48E credit for 

the taxable year that the qualified 

facility is placed in service. 

The Treasury Department and the IRS 

note that the statute limits qualified 

interconnection property to tangible 

property. In the case of a taxpayer that 

pays costs over 20 years, the 

commenters do not describe whether 

these amounts paid may include 

amounts that are not tangible property. 

To the extent commenters are asking 

generally about the inclusion of the full 

allocated cost of interconnection 

upgrades and, therefore, any amounts 

paid or incurred by the taxpayer for 

qualified interconnection property, the 

Treasury Department and the IRS 

recognize these payments could include 

a number of markups that the utility 

that builds and owns the relevant 

interconnection property might charge 

for that property (whether currently or 

over a later reimbursement period), such 

as the markup for a rate of return or 

other costs (for example, a tax gross-up). 

Whether specific costs are allowable 

would be a fact-specific inquiry related 

to, among other things, whether such 

costs are incurred with respect to 

eligible tangible property. Therefore, the 

final regulations do not adopt 

commenters’ suggestion to provide that 

the full allocated cost of interconnection 

upgrades is always eligible, although in 

many cases it may be. However, the 

Treasury Department and the IRS clarify 

that it is not determinative whether 

such costs are charged upfront or over 

time. 

The final regulations under § 1.48E– 

4(a)(2) also clarify that for purposes of 

determining the original use of 

interconnection property in the context 

of a sale-leaseback or lease transaction, 

the principles of section 50(d)(4) must 

be taken into account, as applicable, 

with such original use determined on 

the date of the sale-leaseback or lease. 

2. Interaction With Other Bonus Credit 

Amounts 

Commenters requested that the final 

regulations clarify the interaction 

between the rules for qualified 

interconnection costs and the 

computation of the domestic content 

bonus credit amount and the increased 

credit amount for energy projects 

located in an energy community since 

this clarification was provided in 

section 48. 

Section 48E(b)(4) provides that the 

term ‘‘qualified interconnection 

property’’ has the meaning given such 

term in section 48(a)(8)(B). Section 

48(a)(8)(B) defines qualified 

interconnection property as distinct 

from the definition of ‘‘energy property’’ 

provided in section 48(a)(3). 

Additionally, section 48(a)(8)(A) 

includes amounts paid or incurred for 

qualified interconnection property 

meeting certain requirements for 

purposes of determining the credit 

under section 48(a). Similarly, section 

48E(b)(1) includes expenditures paid or 

incurred by the taxpayer for qualified 

interconnection property meeting 

certain requirements for purposes of 

determining a qualified investment 

under section 48E(a) and defines 

qualified interconnection property 

discretely from a qualified facility 

eligible under section 48E(a)(1). Given 

that qualified interconnection property 

is not part of a qualified facility, 

§ 1.48E–4(a)(2) provides 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. 

Therefore, no further clarification is 

needed in the final regulations. 

Additionally, because the credit 

under section 48E(a) is calculated by 

multiplying the applicable percentage— 

which includes any domestic content 

bonus credit amount—by the basis of 

the qualified facility—which includes 

amounts paid or incurred by the 

taxpayer for qualified interconnection 

property, qualified interconnection 

costs are taken into account in 

calculating the domestic content bonus 

credit amount and the increased credit 

amounts for energy projects located in 

an energy community and for certain 

facilities placed in service in connection 

with low-income communities. 

3. Basis Reduction 

For purposes of section 48E(b), the 

term ‘‘qualified interconnection 

property’’ has the meaning given such 

term in section 48(a)(8)(B). There are no 

additional references to section 48(a)(8) 

other than section 48(a)(8)(B). As a 

result, the basis reduction language in 

section 48(a)(8)(E), which provides that 

in the case of expenses paid or incurred 

for interconnection property, amounts 

otherwise chargeable to capital account 

with respect to such expenses are to be 

reduced under rules similar to the rules 

of section 50(c), is not explicitly 

incorporated. However, the Treasury 

Department and the IRS determined that 

the section 50(c) basis reduction rules 

apply because section 50(c) provides for 

basis adjustments to investment credit 

property generally. Section 50(c) has 

two basis adjustment rules that could 

apply to interconnection property, 

section 50(c)(1) or (3). Although 

interconnection property is not part of 

a qualified facility as provided in 

proposed § 1.48E–4(a)(2), qualified 

interconnection costs are included in 

the basis used to calculate the section 

48E credit. Therefore, the Treasury 

Department and the IRS confirm the 

special rule in section 50(c)(3)(A), 

which provides for a basis reduction of 

50 percent in the case of any section 48E 

credit, applies to qualified 

interconnection property that is 

properly chargeable to capital account 

of the taxpayer which is the amount 

included in the basis used to calculate 

the section 48E credit. 

4. Reimbursements and Other Cost 

Reductions 

The proposed regulations requested 

comment on several issues related to 

reimbursement. Generally, the proposed 

regulations requested feedback on 

treatment of reimbursements in 

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. The proposed 

regulations also requested comments on 

the outcome when a different taxpayer 

makes payments to a utility for the same 

additions, modifications, or upgrades of 

another taxpayer. Comments were also 

requested on industry practices and tax 

implications of reimbursements. In 

response to these requests, a commenter 

requested the final regulations clarify 

that a taxpayer is not required to reduce 

its section 48E credit on account of any 

reimbursement of interconnection costs 

in the absence of a fixed right (that is 

specific in amount and time) to receive 

the reimbursement at the time the 

taxpayer incurs the interconnection 

costs. This commenter recommended 

that the final regulations include rules 

that are administrable and provide only 

a single credit on qualified 

interconnection costs (for example, a 

case in which another possible section 

48E claimant reimburses directly or 

indirectly a first claimant). 

Other commenters requested 

clarification of the reimbursement rules 

under specific scenarios. One 

commenter suggested that for cases in 


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which the taxpayer funds network 

upgrades and is later reimbursed by the 

transmission owner, the final 

regulations should avoid accounting for 

any reimbursements of interconnectionrelated expenses paid in later years to 

the taxpayer. 

Another commenter suggested that 

including reimbursed interconnection 

costs in the credit basis should be based 

on whether the amounts are includible 

in gross income. The commenter stated 

that in circumstances in which a utility 

reimburses a qualified facility owner 

under a set schedule, the final rule 

should disregard the utility’s 

reimbursements to the extent that the 

reimbursement is includable in a 

taxpayer’s gross income. The 

commenter added that if a subsequent 

interconnection customer’s use of the 

qualified interconnection property 

results in a later payment or credit to 

the taxpayer, the payment or credit 

should be treated as revenue rather than 

reimbursement. The commenter also 

requested clarification that in 

circumstances in which a qualified 

facility owner pays for qualified 

interconnection property without 

reimbursement, the owner should be 

able to utilize the full cost of those 

facilities in determining its investment 

tax credit. 

The Treasury Department and the IRS 

recognize that situations may arise in 

which the initial amount paid or 

incurred for qualified interconnection 

property is reduced after the taxable 

year in which the taxpayer claims the 

section 48E credit. The Treasury 

Department and the IRS also recognize 

that other complicated situations may 

arise in determining whether a taxpayer 

has paid or incurred qualified 

interconnection costs. The comments 

received confirmed that these questions 

are not unique to the reimbursement of 

qualified interconnection costs and may 

also arise in the context of other tax 

credits. Therefore, the determination of 

whether qualified interconnection costs 

have been paid or incurred by the 

taxpayer and whether such amounts are 

reduced by virtue of transactions with 

the utility or with a third party should 

be based on generally applicable Federal 

tax principles. 

In consideration of the comments, the 

final regulations revise the rule under 

§ 1.48E–4(a)(6) regarding reduction to 

amounts chargeable to capital account 

to reflect the application of Federal tax 

principles to such transactions in 

determining the amount a taxpayer paid 

or incurred for qualified interconnection 

costs. The final regulations at § 1.48E– 

4(a)(1) explain that if the costs borne by 

the taxpayer are reduced by utility or 

non-utility payments, Federal tax 

principles may require the taxpayer to 

reduce the amount treated as paid or 

incurred for qualified interconnection 

property to determine a section 48E 

credit. The final regulations at § 1.48E– 

4(a)(7) also include two additional 

examples related to reducing costs 

borne by the taxpayer. 

5. Five-Megawatt Limitation 

Some commenters provided feedback 

on the measurement rule for the FiveMegawatt Limitation provided at 

proposed § 1.48E–4(a)(3). Two 

commenters suggested that the FiveMegawatt Limitation be modified to 

clarify the relevant measurement is 

performed at the point of output (that is, 

5 MW AC at the inverter) rather than 

nameplate generation capacity to better 

align with section 48E(b)(1)(B). As 

described by one of the commenters, the 

text of section 48E(b)(1)(B) does not 

contain the words ‘‘nameplate’’ or 

‘‘capacity’’ and instead it specifically 

refers to the 5 MW limit by reference to 

‘‘output . . . measured in alternating 

current’’ which, for solar photovoltaic 

systems can only be read to refer to 

post-inverter measurement. Another 

commenter recommended that the final 

regulations refer only to output 

measured in alternating current, without 

presuming that the direct current 

nameplate capacity is identical. 

Additionally, this commenter requested 

that the final regulations specifically 

clarify that qualified facilities be 

defined at the inverter level for the 

limited purpose of evaluating if they 

meet the Five-Megawatt Limitation, as 

this is the source of any alternating 

current output. 

Measuring output with accuracy and 

consistency must be done using a 

defined standard. The Treasury 

Department and the IRS conclude that 

nameplate generating capacity is the 

best and most practical measure of the 

maximum net output of a unit of 

qualified facility. Nameplate generating 

capacity is an objective and identifiable 

standard that can be accurately 

measured with consistency. Therefore, 

the Treasury Department and the IRS do 

not adopt the comment suggesting 

changes to the use of nameplate 

capacity. The final regulations at 

§ 1.48E–4(a)(3)(ii) retain the rule that 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. 

Regarding measurement of the FiveMegawatt Limitation in alternating or 

direct current, the Treasury Department 

and the IRS understand the 

commenter’s concerns and agree that 

the rule provided in the proposed 

regulations should be revised. Section 

48E(b)(1)(B)(i)(I) refers to a maximum 

net output of not greater than five 

megawatts (as measured in alternating 

current). Proposed § 1.48E–4(a)(3)(ii) 

provided for nameplate capacity in 

alternating current, without addressing 

types of qualified facilities, such as solar 

facilities, that generate electricity in 

direct current. Nameplate capacity for 

these types of qualified facilities is 

measured before the facility’s output is 

converted to alternating current by an 

inverter. Because an inverter would be 

considered property that is an integral 

part of the qualified facility and not part 

of the unit of qualified facility itself, 

measuring the nameplate capacity of a 

qualified facility that generates 

electricity in direct current would be 

difficult under the proposed regulations. 

However, in response to comments, 

the final regulations provide a method 

of measuring nameplate capacity for a 

qualified facility that generates 

electricity in direct current. The final 

regulations at § 1.48E–4(a)(3)(iii) 

provide that, for qualified facilities that 

generate electricity in direct current, the 

taxpayer determines whether a qualified 

facility has a maximum net output of 

not greater than 5 MW (in alternating 

current) by using the lesser of: (i) the 

sum of the nameplate generating 

capacities within the unit of qualified 

facility in direct current, which is 

deemed the nameplate generating 

capacity of the unit of qualified facility 

in alternating current; or (ii) the 

nameplate capacity of the first 

component of the qualified facility that 

inverts the direct current electricity 

generated into alternating current. This 

rule provides flexibility for taxpayers 

while ensuring that the maximum net 

output (in alternating current) of a 

qualified facility can be determined in 

an administrable and reasonably 

accurate manner for qualified facilities 

that generate electricity in direct 

current. 

A few commenters suggested 

providing additional examples to 

illustrate output rules for 

interconnection property. Another 

commenter recommended finalizing 

Example 1 in proposed § 1.48E–4(a)(7)(i) 

which specified that two section 48E 

facilities, each with a maximum output 

of 5 MW AC, can share—and treat as 

qualified interconnection property—a 

step-up transformer, which is integral to 

both properties. 

In response to commenters that 

requested additional clarification of the 

Five-Megawatt Limitation, the final 


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1 In some configurations, the addition of EST to 

a qualified facility may have no or limited impact 

on the interconnection costs of that hybrid facility. 

regulations add an additional example 

under § 1.48E–4(a)(7) as well as provide 

clarifications to the existing examples. 

These clarifications illustrate the 

revised method of measuring nameplate 

capacity for a qualified facility that 

generates electricity in direct current. 

The clarifications also demonstrate the 

application of the Five-Megawatt 

Limitation in cases in which the 

nameplate capacity differs from the 

maximum output provided in the 

interconnection agreement. Specifically, 

the newly added example describes the 

application of the Five-Megawatt 

Limitation to separate interconnection 

agreements for a single qualified facility 

made up of units of a qualified facility 

owned by a single taxpayer. In that 

example, although the taxpayer has 

interconnection agreements with the 

utility that each allow for a maximum 

output of 10 MW (as measured in 

alternating current), the taxpayer may 

include the costs taxpayer paid or 

incurred for qualified interconnection 

property, subject to the terms of the 

interconnection agreement, to calculate 

the taxpayer’s section 48E credits for 

each of the qualified facilities because 

each has a maximum net output of not 

greater than 5 MW (alternating current). 

6. Energy Storage Technology 

Two commenters suggested that the 

final regulations permit interconnection 

costs for stand-alone EST. Both 

commenters explained that although 

sections 48E(b) and (c) do not mention 

eligible interconnection costs in the 

context of stand-alone EST, the term 

‘‘qualified interconnection property’’ is 

defined by reference to section 48(a)(8). 

Therefore, according to the commenters, 

this result is supported because the 

statutory text of that section expressly 

includes ‘‘amounts paid or incurred by 

the taxpayer for qualified 

interconnection property . . . to 

provide for the transmission or 

distribution of the electricity produced 

or stored by such property.’’ These 

commenters also added that this result 

would reconcile sections 48 and 48E 

and would advance the IRA’s express 

policy of encouraging storage 

deployment. 

Based on the explicit language of 

section 48E, the Treasury Department 

and the IRS disagree that including 

costs for qualified interconnection 

property for a standalone EST is 

supported by the statute. Section 

48E(c)(1), which describes the qualified 

investment with respect to EST, does 

not refer to qualified interconnection 

property. 

Section 48E(b)(1) generally provides, 

in part, that the qualified investment 

with respect to any qualified facility for 

any taxable year includes the amount of 

any expenditures which are both paid or 

incurred by the taxpayer for qualified 

interconnection property in connection 

with a qualified facility which has a 

maximum net output of not greater than 

5 megawatts (as measured in alternating 

current), and placed in service during 

the taxable year of the taxpayer. The 

amount of any expenditures which are 

paid or incurred by the taxpayer for 

qualified interconnection property must 

also be properly chargeable to capital 

account of the taxpayer. Section 

48E(b)(4) defines qualified 

interconnection property by reference to 

section 48(a)(8)(B). While commenters 

are correct that the reference to qualified 

interconnection property in section 

48(a)(8)(A) also refers to ‘‘electricity 

stored,’’ the cross-reference applicable 

for qualified facilities is to section 

48(a)(8)(B) (the definition of qualified 

interconnection property) and there is 

no similar cross-reference in section 48E 

to support including the costs of 

qualified interconnection property for 

an EST. The overt omission of a 

reference to qualified interconnection 

property in section 48E(c), which 

provides rules for determining qualified 

investment with respect to an EST is 

instructive. The clear exclusion of 

qualified interconnection property for 

EST under section 48E(c)(1), 

particularly when compared to its 

inclusion in section 48E(b)(1)(B)(i)(I), 

demonstrates Congressional intent. 

Therefore, the final regulations do not 

adopt commenters’ recommendation 

that expenditures paid or incurred by 

the taxpayer for qualified 

interconnection property are includible 

in the section 48E credit for EST. 

As discussed earlier, the Treasury 

Department and the IRS understand that 

some hybrid systems (such as those for 

a solar qualified facility and EST) 

operate under a single interconnection 

agreement.1 In these situations, while 

expenditures paid or incurred by a 

taxpayer for qualified interconnection 

property are not includible in the 

section 48E credit for an EST, those 

expenditures paid or incurred for 

qualified interconnection property that 

are properly allocated to the qualified 

facility (for example, the solar qualified 

facility) may be included in the credit 

base for the qualified facility’s qualified 

investment for the section 48E credit. 

E. 80/20 Rule 

As noted earlier, the 80/20 Rule is 

designed to broaden the availability of 

the investment credit by providing a 

new original placed in service date for 

a qualified facility that includes some 

components of property previously 

placed in service, rather than requiring 

the qualified facility to be composed 

entirely of new components of property. 

In the context of section 48E, the 80/20 

Rule applies at the qualified facility 

level to the components of property 

within the unit of qualified facility or 

unit of EST. 

Proposed § 1.48E–4(c)(1) provided 

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). In addition to providing a new 

placed in service date for a qualified 

facility that includes some components 

of property that have previously been 

placed in service, the 80/20 Rule also 

encourages investment in the retrofitting 

of existing facilities. 

Although this section focuses on the 

80/20 Rule in the section 48E context, 

section II.F. of this Summary of 

Comments and Explanation of Revisions 

describes comments received on both 

sections 45Y and 48E. As described in 

that section, the Treasury Department 

and the IRS confirm that if a qualified 

facility under section 45 or energy 

property or EST under section 48 is later 

retrofitted in a manner that satisfies the 

80/20 Rule, it will be considered a new 

qualified facility or a new EST and may 

be eligible for a section 48E credit so 

long as the qualified facility or EST 

meets all requirements of section 48E. 

Additionally, the Treasury Department 

and the IRS confirm that section 48E 

does not refer to a project or system but 

in the case of section 48E to a qualified 

facility and an EST. 

1. Relevance of Prior Section 48 

Guidance 

Prior guidance and regulations under 

section 48 are not binding for purposes 

of section 48E. However, several 

commenters stated that application of 

the 80/20 Rule as proposed violated 

longstanding precedent under section 

48. These commenters stated that under 

section 48 as previously applied, 


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taxpayers would be allowed to claim the 

section 48E credit for capital 

improvements as well as additions or 

modifications to existing property 

without regard to the 80/20 Rule. 

Further, some commenters suggested 

that the 80/20 Rule as originally applied 

in the section 48 context was only 

relevant for addressing the ‘‘original use 

requirement’’ for property and was not 

intended to prevent additions of new 

property from qualifying for a credit. 

These commenters pointed to Example 

2 in § 1.48–2(b)(7) and Examples 4 and 

5 in § 1.48–2(c), to illustrate that, in the 

context of the section 48 credit, the 80/ 

20 Rule was intended to address the 

‘‘original use requirement.’’ Consistent 

with this view, several commenters 

asserted that the prohibition against 

claiming the section 48E credit for 

additions that do not meet the 80/20 

Rule (Excluded Costs Rule) is 

inconsistent with the statute and 

regulations and should be removed. 

One commenter, like many others that 

asserted that the application of the 80/ 

20 Rule for purposes of section 48E is 

contrary to historical precedent, also 

focused on the negative economic 

impact. The commenter stated that the 

proposed regulations would negatively 

impact the economics of both existing 

and future development of clean energy 

projects and that existing project 

investments were based on reasonable 

reliance that future capital 

improvements would be eligible for the 

section 48E credit without regard to the 

80/20 Rule. Similarly, another 

commenter stated it did not see a policy 

rationale for application of the 80/20 

Rule in the manner provided in the 

proposed regulations, as it would lead 

to uneconomic decisions, such as 

favoring demolition and rebuilding 

instead of capital expenditures to 

modify an existing energy property and, 

like others, pointed to what they view 

as inconsistency with more than 60 

years of prior investment tax credit 

(ITC) precedent. 

The Treasury Department and the IRS 

understand the concerns raised by 

commenters. However, prior guidance 

and regulations based on section 48 are 

not binding for purposes of section 48E. 

Section 48E provides a credit only for a 

qualified investment with respect to a 

qualified facility or an EST and not for 

components of property within a 

qualified facility or an EST. For the 

reasons provided here, the Treasury 

Department and the IRS believe that the 

best interpretation of ‘‘qualified 

investment with respect to a qualified 

facility or an EST’’ is that if a taxpayer 

does not place in service a qualified 

facility or an EST, a taxpayer is not 

eligible for a credit. Therefore, the 

application of the 80/20 Rule to the 

section 48E credit in the proposed 

regulations benefits taxpayers by 

providing a path to access the section 

48E credit when less than an entirely 

new qualified facility or EST is placed 

in service. 

Section 48E contains several features 

that require the credit to be analyzed at 

the level of a qualified facility or an 

EST. The PWA requirements are applied 

to a qualified facility or an EST under 

section 48E(a)(2)(A) and (B). Likewise, 

determining whether the increased 

credit amounts for domestic content and 

energy communities also apply to a 

qualified facility or an EST. Finally, 

determining whether a taxpayer may 

include qualified interconnection 

property expenditures is tied to the 

maximum net output of a qualified 

facility. These determinations cannot be 

made with respect to individual 

components of property. This statutory 

construction clearly contemplates 

calculating the credit on the basis of an 

entire qualified facility or EST. 

Applying the 80/20 Rule for purposes of 

section 48E provides taxpayers with an 

opportunity for additions of property to 

an existing facility or an EST to be 

eligible for the section 48E credit if the 

rule is satisfied. 

Other commenters pointed to what 

they describe as longstanding rules that 

otherwise ITC-eligible improvements 

made to existing energy property may 

qualify for the ITC. One commenter 

stated that the IRA did not change this 

rule in any way. According to this 

commenter, application of the 80/20 

Rule has always uniquely been relevant 

for purposes of the production tax credit 

(PTC) and is simply not relevant for 

purposes of the ITC. The Treasury 

Department and the IRS affirm the role 

of the 80/20 Rule in the ITC context to 

allow for additions of new property to 

an existing facility or EST to be eligible 

for the section 48E credit if the rule is 

satisfied. 

2. Excluded Costs 

Several commenters asserted that 

section 48E allows a credit for adding 

components or making capital additions 

to a qualified facility. One commenter 

concluded that capital improvements 

should not be penalized under the 80/ 

20 Rule. According to the commenter, 

owners of a qualified facility, such as a 

solar qualified facility, should be 

allowed to upgrade or replace 

components and claim new section 48E 

credits. The commenter pointed to two 

examples in the existing Treasury 

Regulations under section 48 that the 

commenter stated illustrate the proper 

interpretation of the original use 

requirement in § 1.48–2(b)(7) and the 

difference between a reconditioned or 

rebuilt unit of property previously 

placed in service and/or the use of 

‘‘some used parts,’’ on the one hand, 

and the addition of new property or 

capital improvements, on the other. 

Another commenter stated that the 

excluded costs described in proposed 

§ 1.48E–4(c)(5) are unclear because a 

taxpayer is always adding new 

components to used components, and it 

should be reworded to clarify that it 

does not imply that the taxpayer must 

exclude the cost of new components 

when a taxpayer adds them to used 

components. 

Some of these commenters requested 

that the 80/20 Rule and the Excluded 

Costs Rule provided at proposed 

§ 1.48E–4(c)(5) not apply for section 48E 

purposes to additions of otherwise 

eligible new components of property 

added to an existing qualified facility on 

which a PTC was not claimed. As an 

example, the commenter asserted that 

the owner of a solar qualified facility 

should be able to make capital 

improvements to upgrade or replace 

existing solar modules or inverters and 

claim a new section 48E credit without 

regard to the 80/20 Rule on such capital 

improvements. This commenter stated 

that the 80/20 Rule should only apply 

when a new category of components is 

added to an existing qualified facility 

comprised of different categories of 

components (such as wind being added 

to solar), then that new category of 

component should be treated as a 

separate ‘‘unit of qualified facility.’’ The 

commenter stated that this result is also 

consistent with the IRA generally, 

which does not prevent a taxpayer from 

claiming both a PTC with respect to the 

output of a qualified facility and an ITC 

with respect to any associated EST. The 

commenter stated that this is also 

consistent with Notice 2018–59. 

Another commenter explained that 

the 80/20 Rule has its origins under the 

section 48 credit and in the context of 

the section 48 regulations the phrase, 

‘‘some used parts,’’ that has been the 

focus of the IRS’s administrative 

practice for almost 60 years. According 

to the commenter, Rev. Rul. 68–111, 

1968–1 C.B. 29, reflects the proper 

application of the 80/20 Rule albeit 

under a prior version of the section 48 

credit. The commenter asserted that the 

Excluded Costs Rule in proposed 

§ 1.48E–4(c)(5) distorts the 80/20 Rule 

by shifting the focus from the use of 

‘‘used parts’’ at the time the unit of 

property is originally placed in service 

to ‘‘new’’ property and capital 

improvements that are added later. 


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The Treasury Department and the IRS 

note that the application of the 80/20 

Rule clarifies that expenditures for 

components of property that are not a 

unit of qualified facility can only qualify 

if the 80/20 Rule is satisfied, and thus 

any new property and capital 

improvements added later that are not a 

unit of qualified facility are ineligible 

for a section 48E credit unless the 80/ 

20 Rule is satisfied. In response to the 

commenters that asserted that section 

48E allows a credit for a component of 

property rather than a qualified facility, 

the Treasury Department and the IRS 

disagree with commenters’ 

interpretation of the statutory language. 

The Treasury Department and the IRS 

also emphasize that existing regulations 

under § 1.48–2 do not reflect the current 

version of section 48 and are not 

applicable to section 48E. Additionally, 

a taxpayer who makes a capital 

improvement to an existing facility 

should consider the application of the 

Incremental Production Rule provided 

in § 1.45Y–4(d). Similarly, a taxpayer 

that makes modifications to an EST 

should consider the application of the 

rule provided at § 1.48E–2(g)(7). 

Another commenter suggested that 

the purpose of the 80/20 Rule is to allow 

a facility that was placed in service 

prior to January 1, 2025, to nevertheless 

satisfy the requirement in section 

48E(b)(3)(A)(ii) that a qualified facility 

be placed in service after December 31, 

2024, if a substantial portion of the 

facility is reconstructed after 2024. 

The Treasury Department and the IRS 

disagree that the 80/20 Rule is tied to a 

particular year. The 80/20 Rule allows 

a taxpayer to treat an existing facility as 

originally placed in service at a later 

date by adding new components of 

property that represent at least 80 

percent of the value of the unit of 

qualified facility. A retrofitted qualified 

facility or EST will be eligible for the 

section 48E credit if it meets the 

requirements of the 80/20 Rule before 

the section 48E credit phases out. 

3. Recapture 

A commenter stated that if the 

Treasury Department and the IRS retain 

the Excluded Costs Rule as written, the 

final regulations should further clarify 

that investment tax credit recapture 

rules will not apply to additions of 

property that do not satisfy the 80/20 

Rule. Generally, recapture under section 

48E is governed by section 50(a)(1)(A), 

which provides for recapture of the 

credit if property ceases to be 

investment credit property. Additions of 

property that do not satisfy the 80/20 

Rule and that are thus subject to the 

Excluded Costs Rule are not included in 

the calculation of the section 48E credit. 

Accordingly, there is no credit to 

recapture with respect to such additions 

of property. 

4. Original Use Requirement 

Some commenters asserted that the 

original use requirement applies only to 

acquired property, and therefore, the 

80/20 Rule is unnecessary for other 

types of property. These commenters 

pointed to section 48E(b)(2)(C), which 

provides, in part, that qualified property 

means property (i) the construction, 

reconstruction, or erection of which is 

completed by the taxpayer, or (ii) which 

is acquired by the taxpayer if the 

original use of such property 

commences with the taxpayer. This 

language was incorporated at proposed 

§ 1.48E–2(f)(3) through (5). The 

commenters cited this language to 

support their view that the original use 

requirement applies only to acquired 

property. Therefore, according to the 

commenters, the ‘‘original use’’ 

requirement applies to property 

acquired by a taxpayer, but does not 

apply to property the construction, 

reconstruction, or erection of which is 

completed by the taxpayer. The 

commenters concluded that this 

statutory language supports the position 

that capital additions to an existing 

qualified facility or EST qualify for the 

section 48E credit. 

The Treasury Department and the IRS 

disagree with the commenters’ 

interpretation of the statutory language 

and corresponding language in the 

proposed regulations. The commenters 

are correct that section 48E(b)(2)(C)(ii) 

requires original use for acquired 

property, whereas section 48E(b)(2)(C)(i) 

does not mention original use with 

respect to property that is constructed, 

reconstructed, or erected by or for the 

taxpayer, however, that is because an 

original use requirement is unnecessary 

in the latter context. The taxpayer that 

is claiming a credit for property that it 

constructed, reconstructed, or erected 

by or for such taxpayer will necessarily 

be the original user of such property. 

Although some commenters suggested 

the 80/20 Rule has historically been 

applied in the section 48 context with 

respect to the original use requirement, 

the Treasury Department and the IRS 

emphasize that the 80/20 Rule was first 

applied to the section 48 credit through 

guidance issued in the Internal Revenue 

Bulletin providing beginning of 

construction guidance. The Treasury 

Department and the IRS reiterate that for 

section 48E purposes, the 80/20 Rule 

allows a taxpayer that retrofits an 

existing facility to treat such facility as 

a new qualified facility or EST. 

5. EST 

In the context of section 48E, the 

proposed regulations discussed the 80/ 

20 Rule for purposes of retrofitting a 

qualified facility but did not specifically 

address the application of the 80/20 

Rule to EST. Some commenters asked if 

the 80/20 Rule applied to EST. 

Commenters requested that the final 

regulations clarify that the 80/20 Rule 

also applies to EST, including battery 

energy storage systems and pumped 

storage hydropower. Another 

commenter stated that new component 

categories, like EST, added to existing 

facilities should be treated as separate 

units of qualifying facility and 

exempted from the 80/20 Rule. 

In response to these comments, the 

Treasury Department and the IRS note 

that the 80/20 Rule applies to EST. The 

80/20 Rule, as it is applied to EST, is a 

separate rule from the modification of 

EST provided by the section 48E(c)(2) 

reference incorporating section 

48(c)(6)(B) (modifications of EST). The 

final regulations adopt the application 

of the 80/20 Rule for EST, and this 

Summary of Comments and Explanation 

of Revisions addresses EST in regard to 

the 80/20 Rule. With respect to the 

addition of EST to a site with an 

existing qualified facility, the Treasury 

Department and the IRS note that an 

EST is separate from a qualified facility 

as discussed in section III.C.2. of this 

Summary of Comments and Explanation 

of Revisions. As a result, merely adding 

an EST to a site with an existing 

qualified facility does not require 

application of the 80/20 Rule. 

6. Specific Technologies 

Some commenters asked for specific 

clarifications regarding the 80/20 Rule 

and particular technologies. A 

commenter suggested that in the case of 

a hydropower facility combined with a 

pumped storage hydropower facility, 

each powerhouse generating unit 

(turbine or pump turbine, generator and 

controls) should be considered a unit of 

qualified facility for purposes of the 

final regulations. Additionally, this 

commenter asserted, that, in the case of 

a wind facility, the functionally 

interdependent components of a unit of 

qualified facility should be the turbine, 

tower, and foundation pad. In both 

cases, the commenter requested that the 

80/20 Rule apply to the functionally 

interdependent components of the unit 

of qualified facility. 

For purposes of the section 45Y and 

section 48E credits, the unit of qualified 

facility includes all functionally 

interdependent components of property 

(as defined in proposed § 1.48E– 


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2(d)(2)(ii)) owned by the taxpayer that 

are operated together and that can 

operate apart from other property to 

produce electricity. The final 

regulations adopt these rules, which 

provide a function-oriented approach to 

determine if property is considered part 

of the qualified facility that generates 

electricity, to ensure that the final 

regulations are broad enough to 

encompass nascent technologies 

without rendering the regulations 

quickly obsolete. After consideration of 

the comments, an example of the 

application of the 80/20 Rule to a 

qualified hydropower production 

facility has been added to the final 

regulations under § 1.48E–4(c)(6)(v). 

Additionally, the Treasury Department 

and the IRS made revisions to Example 

3 of § 1.48E–4(c)(6)(iii), similar to those 

made for § 1.45Y–4(d)(3)(iii), that 

removed the reference to a 

decommissioned nuclear facility to 

avoid referring to decommissioned and 

restarted nuclear facilities in the 

Incremental Production Rule and the 

80/20 Rule. 

Another commenter specifically asked 

that the 80/20 Rule be eliminated for 

certain types of facilities such as power 

generation, thermal generation, or CHP 

facilities upgraded to be carbon neutral. 

To support this request, the commenter 

noted that the 80/20 Rule discourages 

the use of existing infrastructure in CHP 

applications. While the Treasury 

Department and the IRS appreciate the 

concerns raised for particular 

technologies, as described in the 

preamble to the proposed regulations, a 

qualified facility generally does not 

include equipment that is an addition or 

modification to an existing qualified 

facility or EST. However, see § 1.48E– 

4(b) regarding the Incremental 

Production Rule. 

7. Interaction Between the Incremental 

Production Rule and the 80/20 Rule 

Some commenters were concerned 

about the interaction of the Incremental 

Production Rule and the 80/20 Rule and 

the provided at proposed §§ 1.45Y–4(c) 

and 1.48E–4(b). One commenter 

requested that the Treasury Department 

and the IRS make clear that the 

provision for retrofitted facilities is 

separate and distinct from the 

requirements for the Incremental 

Production Rule, and that if there is any 

overlap between the two, the 80/20 Rule 

should control. The commenter stated 

that a retrofitted facility that results in 

the addition of capacity should be 

treated as newly placed in service if it 

meets the 80/20 Rule (rather than 

requiring the retrofitted facility to 

follow the Incremental Production 

Rule). 

Another commenter recommended 

clarifying when to apply one rule or the 

other in situations in which both the 80/ 

20 and Incremental Production rules 

could apply. A commenter also asserted 

that the statutory text under sections 

45Y(b)(1)(C) and 48E(b)(3)(B)(i), 

regarding the Incremental Production 

Rule, is without regard to the 80/20 Rule 

or the facility’s original placed in 

service date, and that, therefore, 

Congress sought to incentivize 

investment in existing facilities without 

requiring taxpayers to meet the 80/20 

Rule. Similarly, commenters 

recommended providing an example of 

a decommissioned facility without any 

reference to the 80/20 Rule, and to 

revise Example 3 in proposed § 1.45Y– 

4(d)(3)(iii), regarding the 80/20 Rule, to 

remove the reference to 

decommissioning. 

The Treasury Department and the IRS 

agree that the Incremental Production 

Rule provided in sections 45Y(b)(1)(C) 

and 48E(b)(3)(B)(i) are separate and 

distinct from the 80/20 Rule. If a 

retrofitted facility satisfies the 80/20 

Rule, the final regulations provide that 

the facility will be treated as newly 

placed in service even if the taxpayer 

also satisfies the Incremental Production 

Rule. Separately, these final regulations 

provide an additional example, in 

§ 1.48E–4(b)(5), which specifically 

addresses decommissioned and 

restarted facilities. Additionally, 

§ 1.48E–4(c)(1) is clarified to confirm 

that a qualified facility or EST may 

claim the full available credit rather 

than the credit resulting from an 

addition of capacity. Finally, Example 3 

in § 1.45Y–4(d)(3)(iii) is modified to 

remove the reference to 

decommissioning. 

Another commenter requested 

clarification that even if a facility placed 

in service before 2025 (pre-2025 facility) 

fails the 80/20 Rule, property that is 

added to the facility may still qualify for 

the section 48E credit under the 

Incremental Production Rule in section 

48E(b)(3)(B)(i). Proposed § 1.48E–4(b)(1) 

provided, in part, 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 

48E(b)(3)(A) (without regard to section 

48E(b)(3)(A)(ii)), 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. Thus, a pre-2025 facility that 

fails the 80/20 Rule may still qualify for 

the section 48E credit under the 

Incremental Production Rule. 

Additionally, the Treasury Department 

and the IRS confirm that this rule will 

apply to a pre-2025 facility regardless of 

whether it satisfies the 80/20 Rule. 

8. Other Comments 

While the majority of commenters 

that opposed the 80/20 Rule suggested 

eliminating it, particularly the Excluded 

Costs Rule, one commenter provided an 

additional recommendation. This 

commenter recommended that the 

proposed regulations be revised to 

permit taxpayers to elect either the 80/ 

20 Rule or a rule based on the original 

cost of the qualified facility (Original 

Cost Rule). Under the Original Cost Rule 

as proposed by the commenter, a 

qualified facility would be treated as 

originally placed in service, even 

though it contains some used 

components of property, provided the 

cost of the new components of the unit 

of qualified facility is at least 50 percent 

of the original cost of the unit of 

qualified facility. Original cost would be 

defined as the unadjusted GAAP book 

basis at the time the qualified facility 

was originally placed in service. The 

commenter also explained that this new 

rule could be limited in its application 

and stated that outside of sections 45 

and 48 an 80/20 Rule currently applies 

to determine eligibility for bonus 

depreciation under section 168(k)(7) 

and the carbon oxide sequestration 

credit under section 45Q of the Code. 

Therefore, the commenter requested that 

the final regulations adopt an optional 

Original Cost Rule limited to section 

45Y and section 48E qualified facilities, 

which would limit the effect to the 

section 45Y and 48E credits and permit 

the 80/20 Rule adopted in other 

contexts to remain in place. 

The Treasury Department and the IRS 

understand the commenter’s desire for a 

less restrictive standard than what the 

proposed 80/20 Rule provides, but the 

Treasury Department and the IRS think 

the 80/20 Rule strikes the appropriate 

balance between allowing taxpayers 

flexibility and creating an incentive for 

new investment. Therefore, the final 

regulations do not adopt the 

commenter’s proposal. 

After consideration of all comments 

expressing opposition to the 80/20 Rule 

in the context of section 48E, the 

Treasury Department and the IRS 

decline to modify or abandon the 80/20 

Rule as requested. Section 48E(b)(1) 

provides that the section 48E credit is 

available for the qualified investment 

with respect to any qualified facility for 

any taxable year that includes the basis 

of any qualified property placed in 

service by the taxpayer during such 


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taxable year which is part of a qualified 

facility. Section 48E(c)(1) provides that 

a credit for the qualified investment 

with respect to an EST for any taxable 

year is the basis of any EST placed in 

service by the taxpayer during such 

taxable year. The 80/20 Rule is designed 

to broaden the availability of the section 

48E credit to provide a new original 

placed in service date for a qualified 

facility or EST that includes some 

components of a qualified facility or 

EST that have already been placed in 

service, rather than requiring the entire 

unit of qualified facility or EST to be 

composed of only new property. The 

80/20 Rule also encourages retrofitting 

an existing qualified facility or EST 

provided there is sufficient new 

investment. As described earlier in this 

section on the 80/20 Rule, if a qualified 

facility under section 45 or energy 

property under section 48 is retrofitted 

in a manner that satisfies the 80/20 

Rule, it will be considered a new 

qualified facility and may be eligible for 

the section 45Y or 48E credits if the 

qualified facility meets all of the 

sections 45Y and 48E requirements. 

Section 48E(c)(2) incorporates the 

lone express rule for modification of 

existing energy property that is found in 

section 48(c)(6)(B). This special rule is 

limited to modifications of existing EST. 

The inclusion of this specific provision 

suggests that modifications of existing 

EST that do not meet the 80/20 Rule or 

the Incremental Production Rule are 

ineligible for the section 45Y or 48E 

credits. Adopting the 80/20 Rule for the 

section 48E credit is favorable to 

taxpayers and encourages substantial 

additional investment in existing 

qualified facilities and EST. 

As discussed in section IV.G. of this 

Summary of Comments and Explanation 

of Revisions, the ownership rules 

provided that the section 45Y and 48E 

credits are available for an entire unit of 

qualified facility or unit of EST and not 

for individual components of property. 

The 80/20 Rule is consistent with the 

ownership rules because it ensures that 

a qualified facility or EST that is 

retrofitted to a sufficient extent is 

considered a new qualified facility or 

EST, whereas the addition of mere 

components is not eligible for the 

section 48E credit. 

F. Qualified Progress Expenditures 

Section 48E(d)(1) provides 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). 

Footnote 5 of the proposed regulations 

explained that the rules provided by 

§ 1.46–5 related to qualified progress 

expenditures apply for purposes of 

section 48E(a). 

Several commenters requested that 

the final regulations provide additional 

clarifications related to whether 

qualified progress expenditures are 

allowable for purposes of elective 

payment elections under section 6417 

(section 6417 elective payment 

elections). Commenters requested 

clarifying the application of qualified 

progress expenditure payments to 

‘‘applicable entities,’’ as defined in 

section 6417(d)(1), and confirming that 

progress expenditures permitted by 

section 48E are allowable for purposes 

of section 6417 elective payment 

elections. Commenters noted that, while 

section 6418(g)(4) provides an explicit 

statutory prohibition on using the 

section 6418 credit transfer election 

provisions for progress expenditures, a 

similar prohibition was not included for 

section 6417 elective payment elections 

and that, therefore, permitting 

applicable entities to use the section 

48E credit for purposes of section 6417 

elective payment elections is consistent 

with the statutory text of section 6417. 

Given the statutory language under 

section 48E(d)(1), a taxpayer can make 

a qualified progress expenditure 

election, as provided in § 1.46–5, to 

increase its qualified investment with 

respect to a qualified facility or EST for 

the taxable year by any qualified 

expenditures made during such taxable 

year. Section 6417(b)(12) provides that 

the section 48E credit is an applicable 

credit for purposes of making an 

elective payment election. The statutory 

text of sections 48E(d)(1) and 

6417(b)(12), when read in tandem, 

permit a taxpayer to make an elective 

payment election with respect to a 

section 48E credit determined pursuant 

to a qualified progress expenditure 

election. Therefore, the Treasury 

Department and the IRS confirm that for 

the section 48E credit, qualified 

progress expenditures are allowable for 

purposes of section 6417 elective 

payment elections but have determined 

that no change is necessary in the final 

regulations. The final regulations at 

§ 1.48E–4(g) adopt language similar to 

footnote 5 from the proposed 

regulations, that the rules provided by 

§ 1.46–5 related to qualified progress 

expenditures apply for purposes of 

section 48E(a). 

G. Incremental Cost Rule 

One commenter requested that the 

final regulations ‘‘clarify the application 

of the ‘incremental cost’’’ concept to 

section 48E. Incremental cost is the 

excess of the total cost of equipment 

over the amount that would have been 

expended for the equipment if the 

equipment were not used for a 

qualifying purpose. The regulations 

under former § 1.48–9(k) provided the 

incremental cost rule. The preamble to 

the Treasury Decision (TD 7765, 46 FR 

7291) that implemented this rule noted 

that in many instances one item of 

property can be used in part for a 

qualifying energy purpose and in part 

for non-qualifying functions. The 

preamble to TD 7765 explained that the 

Treasury Department and the IRS 

approached this situation by 

considering whether to deny the credit, 

provide partial credit, or allow a full 

credit. The preamble stated that simply 

denying the credit entirely would 

discourage investments, but that, on the 

other hand, property which incidentally 

serves an energy function should not 

receive the subsidy of a full energy 

credit. For these reasons, the Treasury 

Department and the IRS viewed the 

incremental cost rule as the most fair 

approach. 

The Treasury Department and the IRS 

have determined that a similar approach 

should be taken in these final 

regulations. Section 1.48E–4(h)(1) 

provides that for purposes of section 

48E, if a component of qualified 

property of a qualified facility or a 

component of property of an EST is also 

used for a purpose other than the 

intended function of the qualified 

facility or EST, only the incremental 

cost of such component is included in 

the basis of the qualified facility or EST. 

This section also defines the term 

‘‘incremental cost’’ to mean the excess 

of the total cost of a component over the 

amount that would have been expended 

for the component if that component 

were used for a non-qualifying purpose. 

Section 1.48E–4(h)(2) provides an 

example to illustrate this rule. 

H. Application of Normalization OptOut 

Proposed § 1.48E–4(g)(4) referred 

taxpayers to section 50(d)(2) for 

application of the normalization rules to 

the section 48E credit in the case of 

certain regulated companies, including 

rules regarding the election not to apply 

the normalization rules to EST (as 

defined in section 48(c)(6) of the Code). 

Several commenters requested that the 

final regulations clarify that the 

normalization opt-out election provided 

in section 50(d)(2) is available for the 

section 48E credit claimed with respect 

to an EST, without regard to the date on 

which construction of such EST begins. 

After consideration of the comments, 

the requested clarification has been 

adopted in § 1.48E–4(i)(4). 


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2Notice 2013–29, 2013–20 I.R.B. 1085; clarified 

by Notice 2013–60, 2013–44 I.R.B. 431; clarified 

and modified by Notice 2014–46, 2014–36 I.R.B. 

520; updated by Notice 2015–25, 2015–13 I.R.B. 

814; clarified and modified by Notice 2016–31, 

2016–23 I.R.B. 1025; updated, clarified, and 

modified by Notice 2017–04, 2017–4 I.R.B. 541; 

Notice 2018–59, 2018–28 I.R.B. 196; modified by 

Notice 2019–43, 2019–31 I.R.B. 487; modified by 

Notice 2020–41, 2020–25 I.R.B. 954; clarified and 

modified by Notice 2021–5, 2021–3 I.R.B. 479; 

clarified and modified by Notice 2021–41, 2021–29 

I.R.B. 17. 

IV. Combined Qualified Facilities 

(Sections 45Y and 48E) 

This section covers issues that impact 

both sections 45Y and 48E and includes 

the topics: beginning of construction, 

property included in a qualified facility, 

qualified facilities and specific 

technologies, coordination with other 

credits, integral part, shared integral 

property, ownership, the Incremental 

Production Rule, and the dual use rule. 

Proposed § 1.45Y–2(a) defined a 

‘‘qualified facility’’ to mean a facility 

owned by the taxpayer that is used for 

the generation of electricity, 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 § 1.45Y–5). 

Proposed § 1.48E–2(a) defined 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 § 1.45Y–5). 

A. Beginning of Construction 

Notice 2022–61, 2022–52 I.R.B. 560, 

provides guidance regarding the 

prevailing wage and apprenticeship 

(PWA) requirements and provides 

guidance for determining the beginning 

of construction of a facility for the 

section 45Y and 48E credits. Section 5 

of the Notice provides that, to determine 

when construction begins for purposes 

of sections 30C, 45V, 45Y, and 48E, 

principles similar to those under Notice 

2013–29, 2013–20 I.R.B. 1085, regarding 

the Physical Work Test and Five Percent 

Safe Harbor apply, and taxpayers 

satisfying either test will be considered 

to have begun construction. 

Section 5 of Notice 2022–61 also 

provides that principles similar to those 

provided in certain IRS Notices 2

regarding the Continuity Requirement 

for purposes of sections 30C, 45V, 45Y, 

and 48E apply. Section 5 further 

provides that whether a taxpayer meets 

the Continuity Requirement under 

either test is determined by the relevant 

facts and circumstances. Additionally, 

section 5 states that principles similar to 

those under section 3 of Notice 2016– 

31, 2013–44 I.R.B. 431, regarding the 

Continuity Safe Harbor also apply for 

purposes of sections 30C, 45V, 45Y, and 

48E. Section 5 also provides that 

taxpayers may rely on the Continuity 

Safe Harbor provided the facility is 

placed in service no more than four 

calendar years after the calendar year 

during which construction began. For 

purposes of the section 45Y and 48E 

credits, Notice 2022–61 continues to 

apply. 

A commenter requested that final 

regulations clarify that projects failing to 

qualify for the section 45 or 48 credits 

due to a failure to satisfy continuity 

requirements may still qualify for the 

section 45Y or 48E credits, assuming all 

other requirements for the section 45Y 

or 48E credit are satisfied. The 

commenter contended that a taxpayer 

may meet the January 1, 2025, beginning 

of construction requirement to qualify 

for the section 45 and 48 credits, but 

may not be able to satisfy continuity 

requirements under existing IRS 

guidance by placing the facility in 

service within four years after 

construction began. The Treasury 

Department and the IRS confirm that a 

facility that fails to satisfy the 

requirements (including beginning of 

construction requirements) for the 

section 45 or 48 credit, is not 

disqualified from claiming either 

section 45Y or 48E so long as the facility 

meets all requirements under those 

Code sections. 

The commenter also noted that 

sections 45Y and 48E employ a ‘‘start of 

construction’’ metric for purposes of 

determining whether a qualified facility 

is eligible for the increase in credit rates 

for satisfying the domestic content or 

energy communities bonus, and for 

assessing the applicable credit phaseout 

amounts. The commenter recommended 

resolving what they characterized as 

uncertainty related to application of 

beginning of construction rules under 

existing IRS guidance to sections 45Y 

and 48E by adopting modified 

continuity safe harbor requirements for 

determining the beginning of 

construction. One such modified safe 

harbor would permit a taxpayer to apply 

whatever rules were applicable to the 

‘‘commence construction’’ year that 

corresponds to the earliest year that 

would still meet a continuity safe harbor 

based on when the facility was 

ultimately placed in service. 

The Treasury Department and the IRS 

have determined that the existing 

Internal Revenue Bulletin guidance 

(referred to as the IRS Notices) 

adequately addresses the beginning of 

construction rules applicable to sections 

45Y and 48E. Additionally, 

modifications to the beginning of 

construction guidance provided by the 

IRS Notices for sections 45 and 48 are 

beyond the scope of these final 

regulations. 

B. Property Included in Qualified 

Facility 

Proposed § 1.45Y–2(b) provided a 

description of the property included in 

a qualified facility. Proposed § 1.45Y– 

2(b)(1) provided that a qualified facility 

includes a unit of qualified facility, 

defined in proposed § 1.45Y–2(b)(2)(i), 

and also includes qualified property 

owned by the taxpayer that is an 

integral part of a qualified facility, 

defined in proposed § 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. Accordingly, 

proposed § 1.45Y–2(b)(1) clarified that 

any property that meets the 

requirements of a qualified facility 

described in proposed § 1.45Y–2(b) is 

part of a qualified facility, regardless of 

where such property is located. 

Proposed § 1.48E–2(b) provided that a 

qualified facility includes a unit of 

qualified facility, defined in proposed 

§ 1.48E–2(b)(2)(i), and also includes 

property owned by the taxpayer that is 

integral to the unit of qualified facility, 

which is defined in proposed § 1.48E– 

2(b)(3). For purposes of section 48E, a 

qualified facility does not include any 

electrical transmission equipment, such 

as transmission lines and towers, or any 

equipment beyond the electrical 

transmission stage, and generally does 

not include equipment that is an 

addition or modification to an existing 

qualified facility. However, the 

proposed regulations provided two 

specific exceptions to that rule: the 

Incremental Production Rule, and the 

80/20 Rule. 

A commenter stated that there are 

inconsistencies between the definitions 

of a ‘‘property included in a qualified 

facility’’ in proposed § 1.45Y–2(b)(1) 

and ‘‘unit of qualified facility’’ in 

proposed § 1.45Y–2(b)(2). The 

commenter stated that the first 

definition provides that the qualified 

facility equals the ‘‘unit of qualified 

facility’’ plus the ‘‘integral property’’, 

however, the second definition provides 

that a ‘‘unit of qualified facility’’ equates 

to ‘‘functionally interdependent 

components of property.’’ The 

commenter stated that proposed 

§ 1.48E–2 had similar inconsistencies. 

The commenter suggested that the final 

regulations include an example to more 

clearly define a qualified facility. The 

commenter also referred to the 

coordination with other credits in 


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proposed § 1.45Y–2(c) and stated that a 

taxpayer must assume that what 

constitutes a ‘‘qualified facility’’ under 

section 45Y, namely, all functionally 

interdependent components of property 

as well as any integral property, is the 

same with respect to all other Federal 

income tax credits that reference a 

qualified facility, but that this definition 

needs to be made consistent across all 

the other Code sections. 

The Treasury Department and the IRS 

do not agree that an ambiguity exists 

between the references to a qualified 

facility. For both sections 45Y and 48E, 

the unit of qualified facility is the 

narrower definition and includes only 

the functionally interdependent 

components of property. A qualified 

facility is this ‘‘unit of qualified facility’’ 

plus integral property. Multiple 

examples in the proposed regulations 

illustrate these concepts. 

The Treasury Department and the IRS 

also do not agree that taxpayers must 

assume that the definition of a 

‘‘qualified facility’’ under sections 45Y 

and 48E is the same in all other Federal 

income tax credits. Each Code section 

has its own unique definition of a 

facility that must be considered; 

addressing definitions in other Code 

sections is beyond the scope of these 

final regulations. In response to 

commenters’ concerns, though, the final 

regulations add additional examples to 

illustrate the interaction of Federal 

income tax credits in §§ 1.45Y–2(c)(3) 

and 1.48E–2(f)(3). The final regulations 

at §§ 1.45Y–2(b)(3)(vii) and 1.48E– 

2(b)(3)(vii) also change the term 

‘‘qualified property’’ in proposed 

§ 1.45Y–2(b)(1) to ‘‘property’’ as 

‘‘qualified property’’ is not a term used 

in section 45Y. 

C. Qualified Facilities and Specific 

Technologies for Purposes of Sections 

45Y and/or 48E 

1. Biogas 

Commenters stated that the energy 

feedstock production property 

comprising a feedstock processing and 

treatment system, when owned by the 

same taxpayer that owns the electric 

generation facility placed in service 

after December 31, 2024, is either a 

functionally interdependent component 

property operated together with the 

electric generation facility or an integral 

part of that facility. Commenters 

asserted that anaerobic digester and gas 

conditioning components are used 

directly in the intended function of the 

facility and that, without this feedstock 

treatment, the electricity production 

component would not be able to 

produce zero or negative GHG 

electricity. Accordingly, commenters 

requested that the final regulations 

recognize all components of an 

electricity production facility, including 

the anaerobic digester and gas 

conditioning equipment as part of a 

qualified facility. The final regulations 

do not adopt these comments because 

while the energy feedstock production 

property described is generally used to 

produce fuel that may be used by a 

qualified facility to generate electricity, 

it is not part of such qualified facility 

based on the definition of qualified 

facility for purposes of the section 45Y 

and 48E credits. 

2. Solar 

A commenter encouraged the 

Treasury Department and the IRS to 

explicitly define solar photovoltaic 

panels used to generate electricity for an 

automated shading system as a qualified 

facility. The commenter noted that the 

example in proposed § 1.45Y–5(c)(1)(iii) 

already describes the GHG emissions 

rate for qualified facilities that produce 

electricity using solar photovoltaic 

properties as not greater than zero and 

that proposed § 1.45Y–5(c)(2)(iv) also 

describes solar photovoltaic power as a 

type of non-C&G facility. 

The Treasury Department and the IRS 

have determined that the example in 

proposed § 1.45Y–5(c)(1)(iii) and the list 

of non-C&G facilities in proposed 

§ 1.45Y–5(c)(2)(iv) are sufficient to 

address commenter’s request as the 

rules adequately provide that facilities 

using solar photovoltaic property to 

produce electricity are eligible for the 

section 45Y and 48E credits assuming 

the taxpayer satisfies the other statutory 

requirements. Accordingly, the final 

regulations adopt the proposed rule 

without change. 

3. Nuclear 

A commenter requested that the final 

regulations confirm that nuclear 

structures, components, and fuel are 

part of qualified property for purposes 

of section 48E. Similarly, another 

commenter requested confirmation that 

specific components, such as reactor 

cores, are included in the qualified 

investment in a qualified facility under 

section 48E. Another commenter 

suggested adding language to the 

definition of integral part with respect 

to buildings to specifically address a 

building used for nuclear fusion or 

fission. The commenter specifically 

requested the final regulations describe 

a structure or building that is integral to 

the intended function of a qualified 

facility because it is needed to comply 

with or maintain required radiological 

health and safety conditions as required 

by a qualified facility’s regulator. 

Section 48E(b)(1) generally provides 

that the section 48E credit is available 

for a taxpayer’s qualified investment 

with respect to a qualified facility, 

which is the sum of the basis of any 

qualified property placed in service by 

the taxpayer during such taxable year 

that is part of such qualified facility and 

if applicable, qualified interconnection 

costs. Section 48E(b)(2)(A) provides, in 

relevant part, that qualified property is 

property which 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. Therefore, tangible 

property, including structures (other 

than buildings or their structural 

components), components, and fuel, 

that meets the definition of qualified 

property may be included in the credit 

base of a qualified facility. As provided 

in § 1.48E–2(d)(3)(v), generally 

buildings are not integral parts of a 

qualified facility because they are not 

integral to the intended function of the 

qualified facility. Due to the exclusion 

of a building or its structural 

components, this would exclude, for 

example, buildings that house nuclear 

reactor control rooms. 

However, as the proposed regulations 

acknowledged, not all structures are 

considered ‘‘buildings’’ for the purpose 

of excluding buildings and their 

structural components. Proposed 

§ 1.48E–2(b)(3)(v)(A) and (B) provided 

that a structure is not considered a 

building if it is essentially an item of 

machinery or equipment, or if it houses 

components of property that are integral 

to the intended function of the qualified 

facility and 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. The Treasury 

Department and the IRS confirm that 

nuclear containment structures fall 

within the exception provided in 

proposed § 1.48E–2(b)(3)(v)(A) and (B), 

which has been adopted and moved to 

§ 1.48E–2(d)(3)(v)(A) and (B) of the final 

regulations. Like hydropower dams, but 

unlike control room buildings, nuclear 

containment structures are integral to 

the intended function of the qualified 

facility. Moreover, given their 

complexity, technical requirements, 

Nuclear Regulatory Commissionmandated testing requirements, severe 

limits on the time workers and other 

personnel can spend inside the 

structure, and purpose, nuclear 


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containment structures are essentially 

pieces of specialized equipment. They 

ensure the fulfillment of several safety 

functions at a nuclear power plant, 

including: (i) confinement of radioactive 

substances in operational states and in 

accidental conditions; (ii) protection of 

the reactor against natural external 

events and human induced events; and 

(iii) radiation shielding in operational 

states and in accident conditions. 

4. Hydropower 

A commenter requested that the final 

regulations provide additional examples 

illustrating the scope of a ‘‘qualified 

investment credit facility’’ and 

‘‘qualified property’’ with respect to 

hydropower. Another commenter asked 

that the final regulations confirm that 

components of project works as 

identified in FERC licenses (referred to 

by the commenter as physical structures 

of a project) are integral property to a 

hydropower facility and therefore 

eligible for the section 48E credit. 

Specifically, the commenter suggested 

adopting principles from the section 48 

proposed regulations regarding qualified 

offshore wind facilities, whereby all 

FERC-licensed components of any kind, 

including remote islanded hydropower 

generation components, including the 

switchgear or substation housed in an 

onshore substation, are either 

functionally interdependent 

components of a unit of the qualified 

facility or integral parts of a qualified 

facility. 

A definitive response to these 

comments would require the Treasury 

Department and the IRS to conduct a 

complete factual analysis of the 

hydropower property in question, 

which may include information beyond 

that which was provided by the 

commenters. Because more information 

is needed to make the determinations 

requested by the commenters, the final 

regulations do not provide these 

requested clarifications. However, 

further discussion of relevant 

components of hydropower facilities is 

provided in section IV.E. of this 

Summary of Comments and Explanation 

of Revisions. 

5. Section 48 Energy Properties 

A commenter suggested that, for 

purposes of the qualified investment 

calculation in section 48E(b), the final 

regulations should clarify that the term 

‘‘qualified property’’ includes any 

energy property defined in section 

48(a)(3), unless it is specifically 

excluded. The Treasury Department and 

the IRS reiterate that the determination 

of whether a qualified facility is eligible 

for the section 48E credit depends, in 

part, on the anticipated GHG emissions 

of the facility as determined under 

section 48E(b)(3)(B)(ii) and § 1.48E–5 of 

these regulations rather than the 

technology used. This is distinct from 

section 48(a)(3), which identified 

specific types of energy property that 

are eligible for the section 48 credit. See 

the discussion of qualified property for 

section 48E in section III.B. of this 

Summary of Comments and Explanation 

of Revisions. Accordingly, the Treasury 

Department and the IRS cannot adopt 

the commenter’s recommendation and 

the rule will be adopted as proposed. 

6. Facilities That Are Not Used for the 

Generation of Electricity 

A commenter requested that the final 

regulations provide flexibility to ensure 

that the following thermal energy 

technologies would not be prohibited 

from qualifying for the section 45Y and 

48E credits: alternative water thermal 

sourcing, heat recovery systems for 

ventilation air, simultaneous heat 

recovery, and air source heat pumps. 

Similarly, another commenter suggested 

that thermal production from non-waste 

energy recovery should be eligible for 

the section 45Y credit and provided 

sample regulatory language to that 

effect. Another commenter suggested 

that technologies such as air-source heat 

pumps and building efficiency retrofits 

should be eligible for the section 45Y 

and 48E credits. Other commenters 

stated that microgrid controllers, which 

are energy property under section 48, 

should be eligible for the section 48E 

credit. 

Sections 45Y(b)(1)(A)(i) and 

48E(b)(3)(A)(i) define a qualified facility 

as a facility which is used for the 

generation of electricity. A facility 

cannot be considered a qualified facility 

under either section 45Y or 48E if it 

does not meet this requirement. 

However, the Treasury Department and 

the IRS note that the section 48E credit 

applies to both qualified facilities and 

EST. Section III.C.1. of this Summary of 

Comments and Explanation of Revisions 

discusses the definition of EST for 

purposes of the section 48E credit. 

Given the earlier-described 

comments, and a few comments on 

other topics that indirectly suggested 

that EST that are net consumers of 

electricity were nonetheless ‘‘used for 

the generation of electricity,’’ the 

Treasury Department and the IRS have 

determined that additional clarification 

of the phrase ‘‘used for the generation of 

electricity’’ is warranted. The final 

regulations at §§ 1.45Y–2(a)(1) and 

1.48E–2(b)(1)(i) clarify that, for a facility 

to meet the requirements of sections 

45Y(b)(1)(A)(i) and 48E(b)(3)(A)(i), the 

facility must be a net generator of 

electricity, taking into account any 

electricity consumed by the facility. 

D. Coordination With Other Credits 

Proposed §§ 1.45Y–2(c) and 1.48E– 

2(c) provided rules for coordination of 

the section 45Y and 48E credits with 

other Federal income tax credits, 

including those determined under 

sections 45, 45J, 45Q, 45U, 48, and 48A. 

Proposed § 1.45Y–1(c)(1) provided, in 

part, that a taxpayer that owns a 

qualified facility 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. 

A commenter suggested clarifying that 

the reference in proposed § 1.45Y– 

2(c)(1) to ‘‘another Federal income tax 

credit’’ does not extend beyond those 

credits specifically listed in section 

45Y(c)(1). The commenter stated that, 

although the reference to ‘‘another 

Federal income tax credit’’ follows a 

specific reference to specific sections of 

the Code, the general reference is 

ambiguous and may inadvertently 

preclude claiming the section 45Y or 

48E credits when a taxpayer claims a 

non-energy credit such as the credit for 

increasing research activities under 

section 41 of the Code or the advanced 

manufacturing production credit under 

section 45X of the Code. 

A commenter requested modifying 

§ 1.45Y–2(c)(1) to permit a taxpayer to 

claim the section 45Y credit with 

respect to a qualified facility that is colocated with another facility for which 

a credit determined under section 45V 

or 45Z of the Code is allowed. Another 

commenter requested that the final 

regulations clarify that the carbon 

capture portion of a bioenergy and 

carbon sequestration facility is a section 

45Q facility separate from the electricity 

generating portion of a qualified facility 

under section 45Y. 

A commenter asked whether the 

‘‘anti-abuse provision’’ in the section 

45V proposed regulations would bar a 

taxpayer from claiming the section 45V 

credit in addition to either the section 

45Y or 48E credits. Similarly, 

commenters requested clarifying 

whether taxpayers claiming the section 

48E credit in a taxable year would be 

unable to claim the section 45Q credit 

in any subsequent year. The 

commenters asserted that section 

48E(b)(3)(C) only specifically prohibits a 

taxpayer from claiming a section 48E 

credit for a facility for which a section 

45Q credit was claimed ‘‘for the taxable 

year or any prior taxable year,’’ but does 


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not directly state that a taxpayer cannot 

claim a section 45Q credit for that 

facility in a future taxable year. 

Some commenters requested that the 

final regulations prevent taxpayers from 

claiming multiple Federal or State tax 

incentives based on the same 

investment in or for the production of 

clean energy. By contrast, another 

commenter requested confirmation that 

claiming the section 45Y and 48E 

credits would not impact a taxpayer’s 

ability to qualify for other subsidies, 

grants, or loans from DOE’s Loans 

Program Office. 

In accordance with the statutory 

language under section 45Y(b)(1)(D), the 

Treasury Department and the IRS 

confirm that the phrases ‘‘another 

Federal income tax credit’’ and ‘‘other 

Federal income tax credit’’ in proposed 

§ 1.45Y–2(c)(1) refer solely to the credits 

claimed under sections 45, 45J, 45Q, 

45U, 48, 48A, and 48E. Similarly, in 

accordance with section 48E(b)(3)(C), 

the phrases ‘‘another Federal income tax 

credit’’ and ‘‘other Federal income tax 

credit’’ in proposed § 1.48E–2(c)(1) refer 

solely to those credits claimed under 

sections 45, 45J, 45Q, 45U, 45Y, 48, and 

48A. Moreover, the provisions under 

sections 45Y(b)(1)(D) and 48E(b)(3)(C) 

do not impact the ability of a taxpayer 

to claim a credit for a qualified facility 

that is co-located with a facility for 

which a credit under any Code section 

is claimed. In general, a taxpayer may 

claim a section 45Y or 48E credit for a 

qualified facility that is co-located with 

another facility, irrespective of any 

credit that the co-located facility 

claimed. 

The determination of what constitutes 

a qualified facility for purposes of 

section 45Q is addressed in regulations 

under section 45Q and thus is beyond 

the scope of these final regulations. 

However, as described earlier, a 

taxpayer may not claim the section 45Y 

credit and the section 45Q (or sections 

45, 45J, 45U, 48, 48A, and 48E) credit 

with respect to the same qualified 

facility for the taxable year or any prior 

taxable year. Nor may a taxpayer claim 

the section 48E credit and the section 

45Q (or sections 45, 45J, 45U, 45Y, 48, 

and 48A) credit with respect to the same 

qualified facility for the taxable year or 

any prior taxable year. An examination 

of the whether the regulations under 

section 45Q prohibit a taxpayer from 

claiming the section 45Q credit with 

respect to a qualified facility for which 

the taxpayer has claimed a section 45Y 

or section 48E credit in any prior 

taxable year is beyond the scope of these 

final regulations. Finally, an 

examination of the application of the 

anti-abuse provision in the section 45V 

proposed regulations, or an analysis of 

Federal or State tax incentives, 

including subsidies, grants, or loans 

from DOE’s Loans Program Office, are 

also beyond the scope of these final 

regulations. The final regulations add 

examples to §§ 1.45Y–2(c)(3) and 1.48E– 

2(f)(3) to further illustrate the 

interaction of sections 45Y and 48E with 

other Federal income tax credits. 

E. Integral Part 

Proposed § 1.45Y–2(b)(3)(i) provided 

that for purposes of the section 45Y 

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. 

Proposed § 1.45Y–2(b)(3)(ii) through (v) 

applied this rule to different types of 

property. 

Proposed § 1.48E–2(b)(3)(i) similarly 

provided that 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 the intended 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 a qualified facility 

that is not owned by the taxpayer. 

Proposed § 1.48E–2(b)(3)(ii) through (v) 

applied this rule to different types of 

property. 

Proposed § 1.48E–2(g)(3) provided 

that for purposes of the section 48E 

credit, 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. 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 an EST that is not owned by the 

taxpayer. 

A commenter supported the facilityby-facility approach that section 48E 

uses and sought confirmation that 

taxpayers can determine section 48E 

credits on this basis, rather than under 

the ‘‘energy project’’ definition used in 

section 48 by which multiple energy 

properties would be treated as one 

energy project if, at any point during 

their construction, they are owned by a 

single taxpayer and meet two or more of 

seven factors set forth the in section 48 

proposed regulations. 

Section 48 was amended by the IRA 

to, among other things, provide a 

definition of the term ‘‘energy project’’ 

and provide increased credit amounts 

for energy property if that property is 

part of an energy project that satisfies 

specified conditions. While sections 

45Y and 48E provide for similar 

increased credit amounts, the sections 

45Y and 48E apply the increased credit 

amounts at the level of a qualified 

facility rather than an energy project. As 

a result, taxpayers can only determine 

section 48E credits on the facility-byfacility approach described in the 

statute and the proposed regulations. 

Commenters requested expanding the 

scope of power conditioning equipment 

that is considered an integral part of a 

qualified facility to include software 

that optimizes or automates the function 

of power conditioning equipment. 

Commenters also requested that the 

final regulations clarify that software 

performing similar functions to other 

integral parts of the qualified facility, 

such as energy management systems, 

battery management systems, data 

acquisition systems, and optimization 

software, are all considered ‘‘power 

conditioning equipment.’’ 

Section 48E(b)(2) defines qualified 

property, in part, as 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. 

Software is not tangible property and 

therefore cannot be integral property 

included in the qualified investment of 

a section 48E qualified facility. Because 

the statutory definition limits ‘‘qualified 

property’’ to tangible property, the final 

regulations modify the language in 

proposed § 1.48E–2(b)(3)(ii) to remove 

any reference to software. The same 

language regarding software that was 

included in proposed § 1.48E–2(b)(3)(ii) 

was also included in proposed § 1.45Y– 

2(b)(3)(ii). The Treasury Department and 

the IRS note that, while the inclusion or 

exclusion of software does not impact 

the calculation of the section 45Y credit, 

in order to provide uniform definitions 

that are consistent with the statutory 

structure governing both credits, the 

final regulations also remove the 

references to software in § 1.45Y– 

2(b)(3)(ii). 

Commenters requested retaining the 

treatment of offshore wind power 

conditioning and transfer equipment as 

an integral part of an offshore wind 

facility if it is owned by the same 

taxpayer that owns the unit of qualified 

facility. In addition, commenters stated 

that the examples in proposed § 1.48E– 

2(b)(3)(ii) were useful in illustrating the 


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project components that are integral 

parts of an offshore wind facility. 

Commenters stated that full eligibility is 

critically important, as power 

conditioning and transfer equipment 

represents a significant portion (up to 40 

percent) of the total cost of an offshore 

wind facility. The final regulations 

adopt the proposed rule without change. 

A commenter expressed concern that 

special-purpose buildings or buildinglike structures that have long been 

considered integral property under 

section 48 may be inadvertently 

excluded under the section 48E final 

regulations. For example, the 

commenter noted that the IRS 

previously issued revenue rulings (Rev. 

Rul. 72–223, 1972–1 C.B. 17; Rev. Rul. 

72–96, 1972–1 C.B. 67; Rev. Rul. 84–40, 

1984–12 I.R.B. 4) holding that specialpurpose property such as hydroelectric 

power plant structures, reservoirs to be 

used with steam turbine generating 

plants, and dams were eligible for the 

section 48 credit as other tangible 

property rather than being considered 

buildings or their structural 

components. The commenter noted that 

in only one of the revenue rulings was 

the property not considered a building 

based on the idea that replacement of 

the turbine and support have to be 

undertaken at the same time. Similarly, 

commenters requested verification that 

the definition of integral property 

includes canopies for solar carports, 

racking structures specific to 

commercial and industrial solar 

projects, rooftop specialized battery 

housing structures, enclosures for 

densely populated urban environments, 

and similar components. In contrast, a 

commenter recommended clarifying 

that containers for utility-scale battery 

energy storage systems, inverter 

housing, and transformer housing are 

specifically considered buildings or 

equivalents. 

As an alternative, some commenters 

suggested modifying the rule for 

buildings to generally include structures 

but exclude buildings of particular 

concern to the IRS (for example, 

housing or offices for maintenance 

equipment or regular operations staff). A 

commenter requested that, similar to 

proposed § 1.48E–2(b)(3)(v), the final 

regulations include a permanent 

building or structure as an integral part 

of an EST to the extent it can be 

demonstrated that (i) the construction of 

such building or structure would not 

have occurred but for placing the EST 

in service and (ii) the design and cost of 

such structure is consistent with the 

requirements of the EST. According to 

the commenter, such a rule would treat 

the portion of the building or structure 

used to house the EST as an integral 

part of the EST, whether or not 

permanent in nature. The commenter 

noted that in harsh environments, the 

taxpayer must construct a permanent 

structure for housing the EST and the 

applicable HVAC equipment needed to 

regulate the temperature of the structure 

so that the EST will function properly. 

The commenter also explicitly 

requested that HVAC equipment needed 

to regulate the temperature of the 

structure so that the EST will function 

properly be considered an integral part 

of the EST. Another commenter 

requested modifying proposed § 1.48E– 

2(b)(3)(v) to allow for structures or 

buildings integral to the intended 

function of the qualified facility if such 

building or structure is required to 

comply with or maintain required 

health and safety conditions required by 

the qualified facility’s regulator. 

Another commenter requested 

confirmation that devices used to 

manage load served by EST, such as 

critical loads panels or load controllers, 

are integral parts of EST. The 

commenter noted that backup batteries 

need load management devices to 

function correctly during grid failures or 

for off-grid power. 

The definition of qualified property in 

section 48E(b)(2)(A)(ii) includes tangible 

property that is used as an integral part 

of a qualified facility, but explicitly 

excludes buildings or their structural 

components. Proposed § 1.48E– 

2(b)(3)(v) provides that while buildings 

are generally not integral parts of a 

qualified facility because they are not 

integral to the intended function of the 

qualified facility (to generate 

electricity), 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. 

Although the proposed regulations do 

not list particular buildings that may 

qualify as an integral part of a qualified 

facility, the Treasury Department and 

the IRS have concluded that the 

guidance and examples included are 

adequate to illustrate the intended 

application of the rules. The revenue 

rulings raised by a commenter with 

respect to special-purpose buildings or 

building-like structures involved 

specific situations arising under section 

48. A definitive response regarding the 

situations in the revenue rulings or 

other specific situations described by 

the previous comments would require 

the Treasury Department and the IRS to 

conduct a complete factual analysis of 

the property in question, which may 

include information beyond that which 

was provided by the commenters. 

Because more information is needed to 

make the determinations requested by 

the commenters, the requested 

clarifications are not addressed in these 

final regulations. 

In the case of hydropower facilities, a 

commenter stated that it is critical that 

final regulations confirm that costs 

incurred for new property with respect 

to a hydropower facility qualify for the 

section 48E credit even though certain 

portions of a hydropower project may be 

owned by Federal agencies. This 

commenter explained that in some 

cases, the U.S. Army Corps of Engineers 

may own all or a portion of the dam and 

associated property but asserted that 

this circumstance should not affect the 

credit eligibility of other qualified 

property (the electric-generating assets) 

within the qualified facility owned by 

the taxpayer. 

While a taxpayer may not claim the 

section 48E credit for any property that 

is not owned by the taxpayer even if it 

is an integral part of a qualified facility, 

the inverse is not true. A taxpayer is not 

required to own all the other tangible 

property that is an integral part of a 

qualified facility to claim a credit for the 

qualified facility. In the case of a 

hydropower facility, the qualified 

facility consists of a unit of qualified 

facility including water intake, water 

isolation mechanisms, turbine, pump, 

motor, and generator. The associated 

impoundment (dam) and power 

conditioning equipment are integral 

property to the unit of qualified facility. 

Therefore, in response to the 

commenter’s example, the final 

regulations incorporate a new example 

in §§ 1.45Y–2 and 1.48E–3 illustrating 

that property such as a dam being 

owned by a Federal agency would not 

prevent a taxpayer that owns the 

hydropower facility from qualifying for 

a section 45Y or 48E credit. 

F. Shared Integral Property 

Proposed § 1.45Y–2(b)(3)(vi) provided 

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 48E or 

another Federal income tax credit, may 

include shared property that can be 

considered an integral part of each 

qualified facility. A component of 

property that is shared by a qualified 


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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 45Y 

Qualified Facility for the section 45Y 

credit or the 48E Qualified Facility for 

the section 48E credit. Proposed 

§ 1.45Y–2(b)(3)(vii) provides examples 

illustrating proposed § 1.45Y–2(b)(3). 

Proposed § 1.48E–2(b)(3)(vi) provided 

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 

qualified facility for which the taxpayer 

is claiming a section 48E credit. The 

total cost basis of such shared property 

divided among qualified facilities may 

not exceed 100 percent of the cost of 

such shared property. Property that is 

shared by a 48E Qualified Facility and 

a 45Y Qualified Facility that is an 

integral part of both qualified facilities 

will not affect the eligibility of the 48E 

Qualified Facility to claim the section 

48E credit or the 45Y Qualified Facility 

to claim the section 45Y credit. To 

better illustrate the treatment of shared 

integral property, these final regulations 

add an additional example to § 1.48E– 

4(d)(5) regarding related taxpayers. 

A commenter expressed confusion 

with what is meant by ‘‘another facility’’ 

in proposed § 1.45Y–2(c)(1), in the 

context of defining a qualified facility 

co-located with another facility. 

Additionally, as explained in section 

IV.B. of this Summary of Comments and 

Explanation of Revisions, each Code 

section has its own unique definition of 

a facility that must be considered. 

Proposed § 1.45Y–2(c)(3) (Examples 1 

and 2) involve fact patterns addressing 

the ability of one or more taxpayers to 

claim a section 45Y credit for a solar 

farm and a section 48E credit for a colocated EST. The Treasury Department 

and the IRS view these examples as 

adequately addressing this comment. 

G. Ownership 

1. Qualified Facility 

Proposed § 1.48E–4(d) provided rules 

related to the ownership of a qualified 

facility or EST. In addition to the 

ownership rules in proposed § 1.48E– 

4(d), proposed § 1.48E–2(b)(3)(i) 

provided 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. 

Some commenters opposed the 

proposed rule that only the taxpayer 

that owns a unit of qualified facility is 

eligible for a section 48E credit with 

respect to property that is an integral 

part of that qualified facility. These 

commenters asserted that property that 

is treated as an integral part of a 

qualified facility should be eligible for 

the section 48E credit regardless of 

whether the taxpayer also owns any 

interest in the unit of qualified facility. 

As an example, one commenter 

described a qualified facility in which 

generation assets and transfer 

equipment are constructed together but 

owned by separate taxpayers and 

suggested that both taxpayers should be 

able to claim a section 48E credit on the 

basis of their respectively owned 

portions. This commenter similarly 

suggested that if a unit of qualified 

facility is constructed and placed in 

service by a taxpayer, and another 

taxpayer later constructs and places in 

service an integral part of such qualified 

facility, both taxpayers should be able to 

claim section 48E credits on their 

respective property. 

A commenter opposed to the 

ownership requirement suggested that, 

under their reading of the proposed 

regulations and the existing section 48 

regulations, different components 

treated as ‘‘integral parts’’ would still be 

energy property and, thus, should still 

qualify for the section 48E credit when 

separately owned. According to this 

commenter, under section 48 taxpayers 

have the flexibility to own and claim 

credit for separate ‘‘integral parts.’’ The 

commenter stated that this flexibility in 

ownership is essential for many projects 

because it may be impractical (if not 

impossible) for one taxpayer to own all 

components of a larger system. The 

commenter stated that the limitation in 

the proposed regulations 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 is not found in the 

statutory text and could have an 

unnecessary chilling effect on 

investment. 

Raised in the context of offshore 

wind, commenters requested that the 

final regulations eliminate the 

requirement that the generating facility 

and the integral power conditioning and 

transfer equipment be owned by the 

same taxpayer. In the commenters’ 

view, this would allow owners of 

offshore wind power conditioning and 

transfer equipment that do not own an 

interest in the offshore turbines to claim 

the section 48E credit. A commenter 

stated that the ownership rules, as 

proposed, would result in the buildout 

of more equipment and cables at a 

greater total expense, be more disruptive 

of the environment, and cause more 

interference with coastal communities, 

while at the same time failing to achieve 

the desired resiliency, reliability, 

flexibility, and ability to plan for future 

expansion of offshore wind. A comment 

submitted jointly by seven states 

requested that the Treasury Department 

and the IRS reconsider the rule to 

require that the owner of integral power 

conditioning and transfer equipment to 

also own the offshore wind facility to 

claim the section 48E credit. This 

comment expressed similar concerns 

regarding potential impacts of the 

ownership rules. 

A commenter proposed that the 

Treasury Department and the IRS revise 

the proposed rule to allow owners of 

integral property that do not own an 

interest in the associated unit of 

qualified facility to claim a section 48E 

credit if the integral property is used in 

the trade or business of furnishing or 

selling electrical energy and if a 

regulatory authority determines that 

ownership of integral property separate 

from ownership of the underlying unit 

of qualified facility is in the public 

interest. 

The Treasury Department and the IRS 

have determined that the ownership 

rules provided in the proposed 

regulations are appropriate. Although 

commenters asserted that property that 

is treated as an integral part of a 

qualified facility should be eligible for 

the credit regardless whether the 

taxpayer also owns any interest in the 

unit of qualified facility (as defined in 

proposed § 1.48E–2(b)(2)), such an 

approach would conflict with the 

statutory requirement that a credit only 

be available for a qualified facility, that 

is, a facility that generates electricity 

and for which the anticipated GHG 

emissions rate is not greater than zero. 

Integral property alone does not 

constitute a qualified facility. Adopting 

the commenters’ recommendation that a 

taxpayer be able claim the section 48E 

credit for integral property alone would 

conflict with the application of several 

other provisions in the statute that 

apply to an entire qualified facility 

rather than individual components of 

property (including the PWA 

requirements, certain bonus credit 

amounts, and certain rules applicable to 

lower-output qualified facilities to 


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include expenditures for qualified 

interconnection property). 

The Treasury Department and the IRS 

conclude that no section 48E credit may 

be determined with respect to a 

taxpayer’s ownership of integral 

property which is a separate component 

of a qualified facility (or EST) if the 

same taxpayer does not own the 

components that constitute a unit of 

qualified facility (as defined in 

proposed § 1.48E–2(b)(2)) or unit of EST 

(as defined in proposed § 1.48E–2(g)(2)). 

Additionally, based on similar 

considerations, the Treasury 

Department and the IRS maintain that 

no section 48E credit may be allowed 

unless a taxpayer directly owns at least 

a fractional interest in the entire unit of 

qualified facility or unit of EST. Thus, 

in the case of an offshore wind farm, a 

taxpayer directly owning power 

conditioning and transfer equipment 

would only be able to claim a section 

48E credit on that equipment if the same 

taxpayer also directly owned a 

fractional interest in at least one 

qualified facility (wind turbine, tower, 

and pad) for which such power 

conditioning and transfer equipment in 

is integral property. 

In response to the comment that 

retaining the common ownership 

requirement will result in the buildout 

of more equipment and cables at a 

greater total expense, more disruption of 

the environment, and more interference 

with coastal communities, the Treasury 

Department and the IRS acknowledge 

the commenters’ concerns. However, as 

explained later, retaining the rule is 

necessary based on legal and 

administrability concerns. 

Section 48E provides an investment 

credit equal to a specified percentage of 

the taxpayer’s qualified investment with 

respect to a qualified facility or EST. 

Section 48E(b)(1) defines a qualified 

investment with respect to a qualified 

facility as the sum of ‘‘the basis of any 

qualified property placed in service by 

the taxpayer during such taxable year 

which is part of a qualified facility, plus 

the amount of any expenditures which 

are paid or incurred by the taxpayer for 

qualified interconnection property . . .’’ 

Section 48E(b)(2) provides, in part, that 

the term qualified property means 

property which 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. 

While the language in section 

48E(b)(1) and 48E(b)(2), on its own, 

could be read to suggest that a taxpayer 

may claim a section 48E credit with 

respect to any property that does not 

constitute a unit of qualified facility, 

section 48E must be read holistically to 

give effect to its provisions. The statute 

provides a credit with respect to a 

qualified facility, which is a facility that 

generates electricity and that has a GHG 

emissions rate not greater than zero. 

Only once it has been determined that 

a facility is a qualified facility that is 

eligible for a section 48E credit may the 

amount on which the credit will be 

calculated—the qualified investment in 

that qualified facility—be determined 

under section 48E(b)(1) and (2). Section 

48E(b)(1) identifies what items comprise 

that qualified investment—the basis of 

any qualified property that is part of the 

qualified facility plus certain qualified 

interconnection costs. Section 48E(b)(2) 

specifies what types of property are 

considered qualified property—tangible 

personal property or, only if used as an 

integral part of the qualified facility, 

other tangible property (not including a 

building or its structural components). 

The term ‘‘integral part’’ specifically 

modifies the term ‘‘other tangible 

property.’’ It serves to include or 

exclude items like fencing that are not 

directly related to the function of the 

qualified facility. The statutory language 

thus provides that any property that 

does not meet the definition of 

‘‘qualified property,’’ or any property 

that is not part of the qualified facility, 

is not part of the qualified investment. 

Once the qualified investment has 

been determined, the credit rate by 

which that qualified investment will be 

multiplied to calculate the credit 

amount must be determined. The credit 

rate is the applicable percentage under 

section 48E(a)(2)(A), which is either 6 

percent or 30 percent depending on 

whether the qualified facility satisfies 

any of the three tests for the alternative 

rate set forth in section 48E(2)(A)(ii). 

The requirements of section 48E apply 

to the qualified facility (rather than 

components of property comprising 

such qualified facility): a qualified 

facility is a facility that generates 

electricity and that has a GHG emissions 

rate not greater than zero; the applicable 

percentage depends on whether the 

qualified facility meets the various 

requirements for PWA, or the domestic 

content and energy communities bonus 

credit amounts. Within this statutory 

structure, section 48E(a)(1)(A) and 

(2)(A) operate to identify what is 

included and what is excluded from the 

credit base. Accordingly, the statute 

requires ownership of a qualified 

facility rather than mere components of 

property. 

Section 48E provides a credit for an 

investment in a qualified facility that 

satisfies the definition of ‘‘qualified 

facility’’ provided at section 48E(b)(3). 

The statute defines a ‘‘qualified 

facility’’, in part, by requiring that the 

facility be used for the generation of 

electricity and that the anticipated GHG 

emissions rate is not greater than zero. 

The Treasury Department and the IRS 

view the concepts of qualified 

investment and qualified property as 

inextricably tied to the statutory 

definition of a qualified facility. As 

discussed throughout this Summary of 

Comments and Explanation of 

Revisions, the section 48E credit is 

available for a qualified facility that 

generates electricity for which the 

anticipated GHG emissions rate is not 

greater than zero. Electricity can only be 

generated by, and GHG emissions can 

only be determined with respect to, a 

unit of qualified facility. Integral 

property, by itself, does not satisfy this 

statutory definition because integral 

property is not property used for the 

generation of electricity, nor can the 

GHG emissions of a qualified facility be 

determined solely on the basis of 

integral property. 

Furthermore, a taxpayer who owns 

only property that is an integral part of 

a qualified facility may not be able to 

establish the anticipated GHG emissions 

rate for the entire qualified facility. For 

the determination of the anticipated 

GHG emissions rate of a qualified 

facility, section 48E mandates rules 

similar to those in section 

45Y(b)(2)(C)(ii), which requires that 

‘‘[i]n the case of any facility for which 

an emissions rate has not been 

established by the Secretary, a taxpayer 

which owns such facility may file a 

petition with the Secretary for 

determination of the emissions rate with 

respect to such facility’’ (emphasis 

added). The statute does not appear to 

permit a taxpayer who does not own a 

unit of qualified facility, but instead 

only owns property that is integral to a 

unit of qualified facility, to petition for 

a determination of the emissions rate. 

This further bolsters the conclusion that 

ownership interest in a qualified 

facility, not in mere integral part, is 

required for the credit to operate. 

Several other key provisions of 

section 48E are only applicable to a 

qualified facility: the placed in service 

date; the applicable percentage; 

application of the PWA requirements, 

eligibility for the domestic content and 

energy communities bonus credit 

amounts; and inclusion of qualified 

interconnection expenditures for loweroutput qualified facilities. These 

provisions apply at the level of a 

qualified facility, not to components of 

property within such qualified facility 

or components of property that are an 


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3Payment for Specified Energy Property in Lieu 

of Tax Credits Under the American Recovery and 

Reinvestment Act of 2009, Frequently Asked 

Questions and Answers. 

integral part of such qualified facility. 

For example, the owner of a component 

of property within a qualified facility 

cannot claim a domestic content bonus 

credit amount if another owner of 

components of property included 

within the unit of qualified facility does 

not satisfy the domestic content 

requirements with respect to its 

components. The determination 

requires an analysis of the entire 

qualified facility. 

Unless a taxpayer directly owns at 

least a fractional interest in the entire 

unit of qualified facility, the taxpayer 

cannot effectively claim the section 48E 

credit or the bonus or increase credit 

amounts. The availability of the section 

48E credit for the taxpayer who owns 

only integral property would depend on 

whether another taxpayer’s qualified 

facility meets the GHG emission 

requirements. The availability of any 

bonus or increased credit amounts for 

the taxpayer who owns only integral 

property would also depend on whether 

other taxpayers who invested in the 

qualified facility satisfy all the adder 

requirements. Similarly, in cases in 

which one taxpayer’s tangible property 

ceases to be eligible for the credit, 

recapture under sections 48E(g) and 

50(a) would implicate all other 

taxpayers who invest in the qualified 

facility. All these cases further support 

the conclusion that the statutory scheme 

applies at the level of a qualified 

facility, and that the owner of only 

integral property cannot effectively 

claim the credit or the bonus or 

increased credit amounts. 

Finally, taxpayers would need access 

to information about all other property 

that is part of the qualified facility to 

properly determine whether the 

taxpayer’s specific investment in 

integral property is eligible for a section 

48E credit and to determine the amount 

of that credit. This would impose a high 

burden of information sharing on the 

taxpayers and increase uncertainty, as 

one taxpayer’s choices would impact 

another taxpayer’s eligibility for the 

credit and bonus or increased credit 

amounts. It would also create 

corresponding administrative problems 

for the IRS to effectively analyze and, if 

necessary, adjust multi-party credit 

claims. 

Some commenters pointed to Internal 

Revenue Bulletin guidance, caselaw, 

and other guidance to support their 

position that a taxpayer that owns 

property that is an integral part of a 

qualified facility should not be required 

to also own the qualified facility to be 

eligible for a section 48E credit. 

Commenters cited Rev. Rul. 78–268, 

1978–2 C.B. 10, PLR 201536017, PLR 

201208035, and FAQ 35 of guidance 

from the Treasury Department regarding 

payments under section 1603 of the 

American Recovery and Reinvestment 

Act of 2009 3 (Section 1603 Grant 

Program) to support the premise that 

ownership of an entire qualified facility 

is not required to be eligible to claim a 

section 48E credit. 

The commenters’ reliance on Revenue 

Ruling 78–268, which addressed a prior 

version of the section 48 credit, is 

misplaced. In Revenue Ruling 78–268, 

four parties, two of which were taxexempt, owned an electric generating 

facility through a tenancy in common. 

In other words, each taxpayer owned a 

fractional interest in the entire energy 

property. Revenue Ruling 78–268 held 

that the presence of the tax-exempt 

owners did not disqualify the other 

owners from claiming a section 48 

credit because the fractional interests in 

the tenancy in common were treated as 

separate assets. Because the fractional 

ownership arrangement in Revenue 

Ruling 78–268 is consistent with the 

fractional ownership rule in proposed 

§ 1.48E–4(d)(2), the Treasury 

Department and the IRS disagree with 

commenters that the holding of Revenue 

Ruling 78–268 supports their position. 

Commenters’ reliance on PLR 

201536017 is also misplaced. Private 

letter rulings (PLR) are not precedential 

and cannot be relied upon by a taxpayer 

other than the one addressed in the 

letter (see section 6110(k)(3) of the 

Code). Furthermore, this PLR involved 

the section 25D credit, which, in 

relevant part, provides a credit for 

‘‘qualified solar electric property 

expenditures,’’ rather than the section 

48E credit. Regardless, like Revenue 

Ruling 78–268, the PLR involves credit 

eligibility through fractional ownership 

of an entire energy property, not 

ownership of just certain components. 

The PLR addresses a factual scenario in 

which a taxpayer purchased solar PV 

panels in an offsite array (that also 

contains other solar PV panels owned 

by other individuals) as well as a partial 

ownership in racking equipment, 

inverter equipment, and wiring and 

other equipment and installation 

services required for the integration of 

the panels in the array and the 

interconnection of the array to a local 

utility’s electric distribution system. 

The PLR concludes that the taxpayer 

made a ‘‘qualified solar electric property 

expenditure’’ under section 25D(d)(2) 

and is eligible to claim a section 25D 

credit. To the extent this PLR provides 

any helpful analysis to a section 48E 

credit, it involves partial ownership in 

all the equipment necessary to integrate 

the solar PV panels into the array and 

interconnect the array to a local utility’s 

electric distribution system. It does not 

apply the section 25D credit to just 

certain components of property. Like 

Revenue Ruling 78–268, the PLR 

involves credit eligibility through 

fractional ownership of a unit of 

property analogous to a qualified facility 

under section 48E rather than 

ownership of mere components of 

property. 

Similarly, commenters’ reliance on 

PLR 201208035 for the proposition that 

taxpayers should be permitted to claim 

the section 48E credit on any portion of 

eligible property owned by such 

taxpayer is inapposite. The factual 

scenario in that PLR involved a taxpayer 

seeking to add energy storage property 

to an existing wind facility for which 

section 48 credits had been claimed 

with respect to certain phases of the 

facility and a Section 1603 Grant 

Program payment had been received 

with respect to another phase of the 

facility. Because the same taxpayer 

owned the existing wind facility and the 

later added energy storage property 

(which was treated as property integral 

to the wind facility under the relevant 

version of section 48), the cited PLR 

does not establish that a taxpayer who 

has no ownership of a unit of a qualified 

facility is entitled to the section 48E 

credit for ownership of integral parts 

only. 

Finally, commenters also relied on 

FAQ 35 of the Section 1603 Grant 

Program guidance to support their 

contention that ownership of an entire 

qualified facility is not required to claim 

the section 48E credit. Under the 

Section 1603 Grant Program, the 

Treasury Department made payments in 

lieu of section 45 and 48 credits to 

eligible applicants for specified energy 

property. FAQ 35 addressed the 

procedural requirements of the Section 

1603 Grant Program in a situation in 

which an open-loop biomass facility 

was owned by one party that uses offsite feedstock conversion equipment 

owned by another party. FAQ 35 

provided that the party that owns the 

conversion equipment and the party 

that owns the open-loop biomass facility 

must each submit an application in 

order to receive Section 1603 Grant 

Program payments. While the Section 

1603 Grant Program guidance borrowed 

important concepts from the section 45 

and 48 credits, it is not based on any 

specific income tax provisions and is 


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not precedential for purposes of the 

section 48E credit. 

Moreover, FAQ 35 required the 

multiple parties that owned the 

different components of property to join 

in each separate application for the 

Section 1603 Grant Program payment 

and agree to the terms and conditions. 

The Treasury Department would then 

review those applications together and 

make any determination regarding 

eligibility for a Section 1603 Grant 

Program payment for the entire facility 

based on information provided with 

respect to the entire facility rather than 

each party’s respective components. 

This is very different from the 

commenters’ requests to allow taxpayers 

to claim and substantiate separate 

section 48E credits claimed by separate 

taxpayers on Federal income tax 

returns. This type of tax filing has 

significantly fewer guardrails than 

Treasury’s advance review of Section 

1603 Grant Program applications. And, 

as discussed earlier, the statute requires 

ownership of a qualified facility, rather 

than ownership of mere components of 

property to claim the credit. 

Other commenters cited Cooper v. 

Comm’r, 88 T.C. 84 (1987), to support 

allowing a taxpayer to claim a section 

48E credit with respect to components 

of property they own that are an integral 

part of a qualified facility owned by a 

different taxpayer. Cooper, which was 

decided under prior versions of sections 

46 and 48 and the regulations 

thereunder, does not directly support 

the commenters’ contention. In Cooper, 

the taxpayer asserted that owning 

specific components of solar water 

heating system was sufficient to claim 

the section 48 credit for solar energy 

property. Acknowledging that the 

taxpayer did not own the entire working 

solar water heating system, the Tax 

Court held that the definition of a solar 

energy property provided by the 

regulations under former section 48(l)(4) 

were sufficiently broad to provide a 

credit for component parts of a solar 

water heating system. In a subsequent 

case, the Tax Court distinguished 

Cooper, explaining that ‘‘the property in 

Cooper consisted of integrated waterheating systems that were ready for 

installation to discharge their 

designated function.’’ Olsen v. 

Commissioner, T.C. Memo 2021–41, 

*14, aff’d, 52 F.4th 1039 (10th Cir., 

2022). Conversely, in the Olsen case, the 

taxpayer owned certain solar lenses that 

the Tax Court described as ‘‘mere 

components of a system’’ that were 

‘‘intended to operate as part of a 

complicated solar energy system and 

were incapable of performing any useful 

function in isolation.’’ Id. at 13–14. The 

Tax Court held that the solar lenses 

‘‘were not ‘placed in service’ because 

the solar energy system as a whole was 

not ‘in a condition or state of readiness 

and availability for a specifically 

assigned function.’’’ Id. at 13. Thus, the 

taxpayer was not entitled to claim a 

section 48 credit. 

Finally, the IRS has no authority to 

compel taxpayers to coordinate tax 

credit claims or share tax return 

information with other taxpayers. 

Accordingly, the rules as provided in 

proposed §§ 1.48E–4(d) and 1.48E– 

2(b)(3)(i) that require a taxpayer to 

directly own at least a fractional interest 

in the entire unit of qualified facility or 

unit of EST and that deny a credit for 

owners of integral property alone are 

adopted and moved to § 1.48E–1(c) of 

the final regulations. 

However, while the final regulations 

maintain the overall structure of the 

proposed ownership rules, after further 

consideration, the Treasury Department 

and the IRS have determined that 

certain modifications to proposed 

§ 1.48E–2 are required to more closely 

reflect the statutory language. The final 

regulations adopt those modifications. 

2. Ownership of EST 

A commenter requested clarification 

that the section 48E credit can be 

claimed with respect to an EST that is 

co-located and used in conjunction with 

a qualified facility for which the section 

45 or 45Y credit is claimed even if the 

EST could be considered a functionally 

interdependent or an integral part of 

that qualified facility and whether the 

EST and the facility may be owned by 

different taxpayers. Proposed § 1.48E– 

2(g)(3) provides 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. 

Commenters expressed concern that this 

rule prohibits the owner of an EST from 

claiming a section 48E credit if that EST 

is an integral part of a qualified facility 

that is owned by another taxpayer. 

This commenter’s concerns are 

misplaced. Section 48E(a) describes the 

clean electricity investment credit 

generally as determined separately with 

respect to any qualified facility and any 

EST. Accordingly, an EST cannot be 

included in a unit of qualified facility 

under either the integral part or 

functional interdependence rules for 

purposes of section 48E. Therefore, the 

Treasury Department and the IRS 

confirm that an EST is eligible for the 

section 48E credit if it satisfies the 

requirements of section 48E, even if the 

EST is co-located with a qualified 

facility that has claimed the section 45 

or 45Y credits. Assuming all statutory 

and regulatory requirements are 

satisfied, a qualified facility owned by 

one taxpayer and an EST owned by 

another taxpayer may each be eligible 

for a separate section 48E credit. From 

the perspective of credit eligibility, EST 

is not an integral part of a qualified 

facility. 

H. Incremental Production Rule 

Proposed § 1.45Y–4(c)(1) provided, 

solely for purposes of proposed § 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 § 1.45Y– 

4(c)(1) also provided that a new unit or 

an addition of capacity will be treated 

as a separate qualified facility. Proposed 

§ 1.45Y–4(c)(1) provided, for purposes 

of proposed § 1.45Y–4(c), that a new 

unit 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. Proposed § 1.45Y–4(c) 

provided that, 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 its nameplate capacity. 

Additionally, proposed § 1.45Y–4(c)(1) 

provided 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 § 1.45Y–4(c)(2) provided 

that, solely for purposes of proposed 

§ 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 

certain conditions are met. Proposed 

§ 1.45Y–4(c)(3) described how to 

compute the increased amount of 

electricity produced as a result of a new 

unit or an addition of capacity. 

Proposed § 1.45Y–4(c)(4) illustrated the 

application of these rules to determine 

the increased amount of electricity 

attributable to a new unit or an addition 

of capacity described in proposed 

§ 1.45Y–4(c). 


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Proposed § 1.48E–4(b)(1) provided, 

solely for purposes of proposed § 1.48E– 

4(b), 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 

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 will be treated as a 

separate qualified facility. For purposes 

of proposed § 1.48E–4(b), a new unit or 

an addition of capacity requires the 

addition or replacement of qualified 

property (as defined in proposed 

§ 1.48E–2(e)), including any new or 

replacement integral property added to 

a facility necessary to increase capacity. 

Proposed § 1.48E–4(b) provided that, if 

applicable, taxpayers must use modified 

or amended facility operating licenses 

or ISO conditions to measure the 

maximum electrical generating output 

of a facility to determine its nameplate 

capacity. Additionally, proposed 

§ 1.48E–4(b)(1) provided that for 

purposes of section 48E(a)(2)(A)(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 § 1.48E–4(b)(2) provided 

that, solely for purposes of proposed 

§ 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 

certain conditions are met. Proposed 

§ 1.48E–4(b)(3) described how to 

compute the qualified investment for a 

new unit or an addition of capacity. 

Proposed § 1.48E–4(b)(4) illustrated the 

application of the rules described in 

proposed § 1.48E–4(b). 

1. General Rules 

A commenter noted that proposed 

§§ 1.45Y–4(c)(1) and 1.48E–4(b)(3) both 

reference ‘‘components of property,’’ 

whereas proposed § 1.48E–4(b)(1) 

references ‘‘qualified property,’’ and 

requested that the final regulations use 

a consistent reference to property 

included in the qualified facility. The 

final regulations at § 1.48E–4(b)(4) 

change the term ‘‘components of 

property’’ in proposed § 1.48E–4(b)(3) to 

‘‘components of qualified property’’ to 

align with the requirement of section 

48E(b)(1)(A) that the qualified 

investment (as defined in proposed 

§ 1.48E–1(a)(6)) in a qualified facility is 

the basis of any qualified property (as 

defined in proposed § 1.48E–2(e)) 

placed in service by the taxpayer which 

is part of a qualified facility. However, 

the term ‘‘components of property’’ in 

proposed § 1.45Y–4(c)(1) remains 

unchanged in these final regulations, 

because the term ‘‘qualified property’’ is 

not used in section 45Y. 

Several commenters recommended 

permitting modifications to a facility to 

qualify as an addition of capacity, and 

specifically requested that the final 

regulations define additions of capacity 

as ‘‘modifications to the facility, 

including any new or replacement 

integral property added to a facility 

necessary to increase the capacity of the 

facility by replacing or modifying, in 

whole or in part, the existing capacity 

of the facility. . .’’ (emphasis added). 

Several commenters also requested that 

the final regulations clarify whether 

such modifications could be to existing 

components, physical or digital, or 

whether existing components need to be 

replaced or new components added. 

Other commenters asked whether any 

uprate, upgrade, or efficiency 

improvement to an existing facility that 

results in an incremental increase in the 

electric-generating output based on the 

actual productive capacity of the facility 

would qualify as an addition of 

capacity. A commenter noted that 

sometimes components, including 

software, are modified or adjusted to 

increase electrical generating output. 

Another commenter stated that the 

example related to an addition of 

capacity in proposed § 1.45Y–4(c)(4)(ii) 

does not represent a typical fact pattern. 

In response to these comments, the 

Treasury Department and the IRS 

confirm that the Incremental Production 

Rule is based on the increased amount 

of electricity produced at a facility as a 

result of a new unit or an addition to 

capacity. For purposes of the section 

45Y credit, a new unit or an addition of 

capacity requires an addition or 

replacement of components of property, 

including any new or replacement 

integral property, added to a facility 

necessary to increase capacity. For 

purposes of the section 48E credit, a 

new unit or addition of capacity 

requires the addition or replacement of 

qualified property (as defined in 

§ 1.48E–2(e)), including any new or 

replacement integral property, added to 

the facility necessary to increase 

capacity. 

Several commenters asked whether 

there is a minimum capital expenditure 

necessary to qualify as a new unit or an 

addition of capacity. Additionally, a 

commenter suggested that the final 

regulations list the types of new units 

that would be considered to increase the 

amount of electricity produced. In 

response to these comments, the 

Treasury Department and the IRS note 

there is no minimum capital 

expenditure that would satisfy the 

Incremental Production Rule for either a 

new unit or an addition to capacity. 

Additionally, to provide greater clarity 

regarding what would qualify as a new 

unit or an addition to capacity, 

additional examples are included in 

proposed §§ 1.45Y–4(c)(4) and 1.48E– 

4(b)(4), and moved to §§ 1.45Y–4(c)(5) 

and 1.48E–4(b)(5), respectively, in the 

final regulations. These additional 

examples illustrate the range and 

diversity of types of investments that 

can result in an addition of capacity. 

Another commenter requested that 

each stage of a multi-staged expansion 

be eligible for the section 45Y credit 

even if the larger, overall program for 

improvement and expansion has not yet 

been completed. A commenter 

requested permitting multiple additions 

of capacity or new units added to the 

same facility over time to separately 

qualify for the section 45Y credit. The 

commenter noted that, in this case, a 

taxpayer would measure the electricity 

production attributable to each new 

addition by reducing earlier additions’ 

proportionate share of total energy 

production. Another commenter 

recommended that taxpayers should be 

permitted to aggregate all components 

added to a facility and placed in service 

in the same tax year as a single new unit 

or addition of capacity. 

In response to comments that 

taxpayers should be able to aggregate all 

components of property added to a 

facility and placed in service in the 

same tax year as a single new unit or 

addition of capacity, the Treasury 

Department and the IRS note that 

proposed §§ 1.45Y–4(c)(1) and 1.48E– 

4(b)(1) both provided, in part, that a 

new unit or an addition of capacity that 

meets the requirements of the 

Incremental Production Rule will be 

treated as a separate qualified facility. In 

response to the commenters’ request 

that a series of additions to capacity 

should be eligible for the Incremental 

Production Rule, the Treasury 

Department and the IRS interpret 

section 45Y(b)(1)(C) (and by reference, 

section 48E(b)(3)(B)) to mean that if a 

single facility includes multiple new 

units or additions to capacity, the 

taxpayer must apply the Incremental 

Production Rule to each of the new 

units or additions to capacity to 

determine whether such property meets 

the Incremental Production Rule. 


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A commenter also suggested treating 

new units as qualified facilities that are 

distinct and separate from the existing 

qualified facility to which they are 

added and clarifying that all energy 

produced by the new unit would qualify 

for the section 45Y credit. In response 

to this comment, the Treasury 

Department and the IRS confirm that the 

Incremental Production Rule is only 

applicable to additions of capacity and 

new units that would not otherwise 

qualify as a separate qualified facility as 

defined in section 45Y(b)(1)(A) (or by 

reference section 48E(b)(3)) and 

therefore clarify this in the final 

regulations at § 1.45Y–4(c)(1) and 

§ 1.48E–4(b)(1). 

2. Application to Hydropower Facilities 

Commenters noted that FERC 

guidance has described ‘‘additions of 

capacity’’ to mean any increase in 

generating capacity other than an 

addition resulting from an efficiency 

improvement or an addition resulting 

from an operational change. 

Commenters noted that FERC has 

provided guidance generally indicating 

that efficiency improvements 

encompass additional generation from 

existing equipment in the form of 

upgrades to generators or turbines. 

Commenters also noted that FERC 

guidance provides examples of 

efficiency improvements that include 

rewinding generators, replacing turbines 

with more efficient units, and 

computerizing control of turbines and 

generators to optimize regulation of 

flows for generation. 

A commenter requested that the final 

regulations define an ‘‘addition of 

capacity’’ for purposes of a hydropower 

facility and referenced a FERC 

certification procedure required by 

section 45(c)(8), which provides a 

production tax credit for certain 

incremental hydropower production. 

While the commenter acknowledged 

that section 45(c)(8) does not define the 

term ‘‘additions of capacity,’’ the 

commenter noted that FERC has 

provided guidance related to 

certification required under section 

45(c)(8) in which FERC describes 

‘‘additions of capacity’’ as ‘‘any increase 

in generating capacity other than an 

addition resulting from an efficiency 

improvement or an addition resulting 

from an operational change.’’ 

Commenters also requested that 

efficiency improvements and upgrades 

to a hydropower facility consisting of 

refurbished or modified existing 

components, but not the addition or 

replacement of existing components, 

may qualify as an addition of capacity. 

Commenters specifically noted that 

upgrades to generators or turbines, 

rewinding generators, replacing turbines 

with more efficient units, and 

computerizing control of turbines and 

generators to optimize regulation of 

flows for generation should be treated as 

efficiency improvements and upgrades 

that should qualify as additions of 

capacity. 

Similarly, another commenter noted 

that the requirements for establishing 

incremental hydropower are wellestablished and well-understood, and 

provide precedent for modifications and 

changes to a hydropower facility that 

result in incremental hydropower 

production. The commenter asserted 

that the final regulations should take 

those precedents into account in 

establishing rules for determining an 

increase in capacity for purposes of 

sections 45Y and 48E. 

The Treasury Department and the IRS 

acknowledge that section 45(c)(8) 

provides that incremental hydropower 

production attributable to ‘‘efficiency 

improvements’’ or ‘‘additions of 

capacity’’ are eligible for the section 45 

credit. However, section 45(c)(8) does 

not define the terms ‘‘efficiency 

improvements’’ nor ‘‘additions of 

capacity.’’ While section 45(c)(8)(B) 

allows for a determination of 

incremental hydropower production at 

an existing facility attributable to the 

efficiency improvements or additions of 

capacity, section 45Y(b)(1)(C) (and by 

reference section 48E(b)(3)(B)(i)) 

provides a credit for a new unit or any 

additions of capacity, but only to the 

extent of the increased amount of 

electricity production at the facility. 

Notably, section 45Y(b)(1)(C) does not 

provide for a credit for efficiency 

improvements. As a result, the relevant 

determination is whether a facility’s 

electrical generation capacity increased 

as a result of an addition or replacement 

of components or property (including 

any new or replacement integral 

property) to a facility necessary to 

increase capacity. Accordingly, these 

final regulations do not adopt the 

recommendation that any efficiency 

improvement could meet the 

requirements of the Incremental 

Production Rule. However, efficiency 

improvements that are an addition or 

replacement of components of property 

(including integral property) that result 

in an addition to capacity could meet 

the requirements of the Incremental 

Production Rule. 

The final regulations add an 

additional example at §§ 1.45Y–4(c)(5) 

and 1.48E–4(b)(5) to illustrate the 

application of the Incremental 

Production Rule to a hydropower 

facility. 

3. Method of Measuring Increased 

Amount of Electricity Produced at the 

Facility by Reason of New Units or 

Additions of Capacity 

As noted earlier, the Incremental 

Production Rule is based on the 

increased amount of electricity 

produced at a facility as a result of a 

new unit or an addition to capacity. The 

Incremental Production Rule is focused 

on measuring the amount of the 

capacity increase. In response to 

commenters, the final regulations 

permit the measurement of increased 

capacity in several ways, including: (i) 

modified or amended facility operating 

licenses from the Federal Energy 

Regulatory Commission (FERC) or the 

Nuclear Regulatory Commission (NRC), 

or related reports prepared by FERC or 

NRC as part of the licensing process (as 

described in section IV.H.4. of this 

Summary of Comments and Explanation 

of Revisions); (ii) the ISO conditions to 

measure the nameplate capacity of the 

facility consistent with the definition of 

nameplate capacity provided in 40 CFR 

96.202; or (iii) a measurement standard 

prescribed by the Secretary in guidance 

published in the Internal Revenue 

Bulletin (see 26 CFR 601.601). The final 

regulations also clarify that taxpayers 

able to use the measurement standard 

described in § 1.45Y–4(c)(2)(i) or 

§ 1.48E–4(b)(2)(i) may not use the 

method described in § 1.45Y–4(c)(2)(ii) 

or § 1.48E–4(b)(2)(ii) (permitting use of 

the ISO conditions to measure the 

maximum electrical generating output 

of a facility to determine its nameplate 

capacity). 

A commenter asserted that all energy 

produced by a new unit should be 

eligible for the section 45Y credit 

regardless of the degree to which that 

new unit and its electricity replaced 

existing electricity production at that 

facility. The Treasury Department and 

the IRS disagree with this comment, as 

the statute limits the application of the 

Incremental Production Rule to the 

increased amount of electricity 

produced at the facility by reason of the 

new unit or an addition of capacity. 

As proposed, the Incremental 

Production Rule provided that if 

applicable, taxpayers must use modified 

or amended facility operating licenses 

or the ISO conditions to measure the 

maximum electrical generating output 

of a facility to determine its nameplate 

capacity. Several commenters supported 

the use of the ISO conditions to measure 

the maximum electrical generating 

output of a facility to determine 

nameplate capacity. Additionally, a 

commenter noted that the proposed 

regulations properly focus on measuring 


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the maximum generating output, rather 

than measuring increases in annual 

generation that do not impact the 

maximum output. 

Conversely, several commenters 

expressed concern with the proposed 

rule requiring the use of nameplate 

capacity to measure the increased 

amount of electricity produced at a 

facility because section 45Y(b)(1)(C) 

does not mention the term ‘‘nameplate 

capacity’’ and only provides that the 

credit is available to the extent of the 

increased amount of electricity 

produced at a facility without additional 

elaboration. A commenter also raised 

the importance of consistency when 

referring to a facility’s ‘‘electrical 

generating output,’’ ‘‘electrical 

generating capacity,’’ ‘‘nameplate 

capacity,’’ and ‘‘additions of capacity.’’ 

Several commenters contended that 

using nameplate capacity would not be 

an accurate way to measure additions of 

capacity and emphasized that not every 

addition of capacity results in a new 

nameplate issued by the manufacturer. 

Additional commenters noted that 

manufacturer-stamped nameplate 

capacity is, by design, the maximum 

theoretical output of the facility and 

differs from a facility’s actual electric 

generating capacity. The ISO conditions 

generally require that this measurement 

be done by the manufacturer and would 

normally occur when the facility is 

originally placed in service. As a result, 

several commenters noted that 

measurement of nameplate capacity 

using the ISO conditions would not take 

into account physical depreciation, 

degradation, and other factors that may 

significantly reduce the maximum 

generating output and safe operating 

conditions of the facility over time 

when compared to the facility’s original 

nameplate capacity. The Treasury 

Department and the IRS acknowledge 

that using the ISO conditions to 

determine nameplate capacity may limit 

nameplate capacity to the nameplate 

capacity of the facility on the original 

placed in service date, or to a revised 

nameplate capacity of the facility based 

on major upgrades that would result in 

a revised nameplate capacity rating. 

Commenters noted that the proposed 

regulations only define nameplate 

capacity by adopting the definition at 40 

CFR 96.202 in reference to the FiveMegawatt Limitation while noting that 

the final regulations did not adopt the 

same definition for the Incremental 

Production Rule. In response, the 

Treasury Department and the IRS have 

modified the Incremental Production 

Rule at §§ 1.45Y–4(c)(2)(ii) and 1.48E– 

4(b)(2)(ii) to clarify that the definition of 

nameplate capacity for the Incremental 

Production Rule is consistent with the 

definition of nameplate capacity 

provided in 40 CFR 96.202. 

A commenter requested additional 

flexibility in demonstrating incremental 

generation, including through the use of 

actual baseline generation data reported 

to government and quasi-government 

agencies such as independent system 

operators, regional transmission 

organizations, or other balancing 

authorities where the generator is 

connected. Additionally, several 

commenters stated that ISO standards 

are not widely used in the industry and 

that other standards more widely used 

by the industry would be more effective 

at determining true capacity additions. 

Several commenters that recommended 

other standards for measuring increased 

capacity noted that geothermal facilities, 

hydropower facilities, and other clean 

energy facilities would be 

disadvantaged by relying on nameplate 

capacity to satisfy the Incremental 

Production Rule. Several commenters 

provided options for alternative 

measurements standards, including the 

American Society of Mechanical 

Engineers (ASME) Performance Tests, 

IEC standards, and NERC procedures, 

and other comparable technical 

standard conditions. Additionally, a 

commenter suggested permitting 

taxpayers to use an accredited 

measurement method, such as the 

ASME Performance Test, suitable for the 

particular circumstances associated 

with the facility modification or 

addition, provided that the accredited 

method can be used to reasonably 

measure electrical generating capacity, 

can be consistently applied to measure 

electrical generation capacity before and 

after the modification or addition, and 

can be clearly documented by a thirdparty engineering report specific to the 

project. 

Other commenters proposed 

measuring additional capacity based on 

changes in output compared to the 

facility’s historical baseline output. A 

commenter proposed permitting 

taxpayers to measure by themselves the 

amount by which all components of 

property added to the facility in a 

taxable year increases the generating 

capacity of the facility, relative to a 

baseline in which the components of 

property are not added to the facility. 

Several commenters also noted that 

measurements should be adjusted as 

reasonably practicable to ensure a likefor-like comparison pre- and postaddition. Conversely, a commenter 

noted that additional capacity 

measurements should not rely on 

monthly or annual output of a facility 

prior to and after a project or 

modification because other factors, such 

as weather, demand, and outages will 

affect a facility’s output from one period 

to another. The Treasury Department 

and the IRS have determined that 

increased capacity should not be based 

on a measurement methodology that 

simply compares electricity production 

before the increase in capacity to 

electricity production after the increase 

in capacity because such measurement 

methodologies involve seasonal or other 

fluctuations that are too easily 

manipulated to show a greater increase 

in capacity than the actual increase. 

The Treasury Department and the IRS 

considered the comments regarding 

different methods for measuring 

increased capacity and found that many 

of the proposed measurement standards 

were not broadly applicable across 

technologies. Additionally, many were 

not sufficiently objective. The Treasury 

Department and the IRS recognize, 

though, that different methods may exist 

that are broadly applicable across 

technologies and sufficiently objective. 

The Treasury Department and the IRS 

will continue to consult with experts on 

potential additional measurement 

standards that could apply. The final 

regulations are amended to reflect this 

continuing consideration and to provide 

flexibility by permitting the Secretary to 

prescribe additional measurement 

standards in guidance published in the 

Internal Revenue Bulletin. 

The Treasury Department and the IRS 

recognize the limitations of measuring 

increased capacity with nameplate 

capacity. As a result, the Treasury and 

the IRS have provided additional 

measurement options in the final 

regulations. Measurement options in the 

final rule include: modified or amended 

facility operating licenses from FERC or 

NRC, or related reports prepared by 

FERC or NRC as part of the licensing 

process (as described in section IV.H.4. 

of this Summary of Comments and 

Explanation of Revisions); and any 

measurement standard prescribed by the 

Secretary in guidance published in the 

Internal Revenue Bulletin (see 26 CFR 

601.601). The final regulations also 

clarify that taxpayers that are able to use 

the measurement standard described in 

§ 1.45Y–4(c)(2)(i) or § 1.48E–4(b)(2)(i) 

may not use the method described in 

§ 1.45Y–4(c)(2)(ii) or § 1.48E–4(b)(2)(ii) 

(permitting use of the ISO conditions to 

measure the maximum electrical 

generating output of a facility to 

determine its nameplate capacity). 

Additionally, the final regulations add 

an additional example at §§ 1.45Y– 

4(c)(5) and 1.48E–4(b)(5) to illustrate the 

application of the Incremental 

Production Rule to a geothermal facility. 


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4. Documentation Used To Demonstrate 

Increased Capacity 

As proposed, the Incremental 

Production Rule allowed taxpayers to 

use modified or amended facility 

operating licenses to measure capacity 

and changes therein. Several 

commenters noted that nuclear facilities 

are unable to use modified or amended 

facility operating licenses to measure an 

addition of capacity, because a NRC 

operating license lists a reactor’s 

maximum power level in megawatts 

thermal, rather than maximum electric 

generating capacity, and changes can be 

made to improve a plant’s thermal 

efficiency (and thus electric generating 

capacity) without altering the reactor’s 

thermal power or necessitating a 

modified or amended operating license. 

Nonetheless, the Treasury Department 

and the IRS understand that, under 

certain circumstances, FERC and NRC 

modified or amended licenses and 

reports related to those modified or 

amended licenses do report electrical 

capacity and changes therein. 

For example, the NRC reports the 

electric capacity of nuclear power plants 

before and after uprates involving 

amendments to NRC licenses. Electric 

generating capacity is not typically 

included in NRC operating licenses, as 

operating licenses do not condition or 

limit the electric power output. 

However, electric capacity can be 

included in related NRC-authored safety 

evaluation reports, which are a required 

element of the license amendment 

process. These reports typically express 

power output in MW thermal but can 

also provide information related to 

capacity in MW electric. The final 

regulations at §§ 1.45Y–4(c)(2)(i) and 

1.48E–4(b)(2)(i) allow taxpayers to use 

the electric capacity, and changes 

therein, presented in safety evaluation 

reports that are part of a modified or 

amended operating license to 

demonstrate an increased amount of 

electricity produced at the facility by 

reason of a new unit or addition of 

capacity, and to calculate the amount of 

that increase. Similarly, the final 

regulations at §§ 1.45Y–4(c)(2)(i) and 

1.48E–4(b)(2)(i) also allow taxpayers to 

use electrical capacity and changes 

therein as reported in FERC modified or 

amended licenses, and reports related to 

those modified or amended licenses. 

The final regulations clarify, though, 

that taxpayers that are able to use the 

measurement standard described in 

§ 1.45Y–4(c)(2)(i) or § 1.48E–4(b)(2)(i) 

may not use the method described in 

§ 1.45Y–4(c)(2)(ii) or § 1.48E–4(b)(2)(ii) 

(permitting use of the International 

Standard Organization (ISO) conditions 

to measure the maximum electrical 

generating output of a facility to 

determine its nameplate capacity). 

Several commenters proposed various 

additional methods for documenting an 

increase in capacity including the use of 

a third-party engineering report. The 

Treasury Department and the IRS 

determined that without a specific 

measurement standard and certification 

requirements, an independent thirdparty engineering report alone does not 

provide an adequate method to 

substantiate a facility’s increased 

capacity. 

5. Measurement of Eligible Basis for a 

New Unit or an Addition of Capacity 

Under Section 48E 

Several commenters recommended 

that the cost of any uprates, upgrades, 

efficiency, or other improvements that 

result in additional generation capacity 

at a facility be considered a qualified 

investment for purposes of the section 

48E credit. Specifically, commenters 

asserted that the qualified investment 

with respect to a qualified facility 

should include the entire cost of a new 

unit or any additions of capacity, rather 

than a proportionate share of those costs 

reflective of the extent to which the 

electricity produced attributable to a 

new unit or addition of capacity 

increased (as opposed to replaced) the 

existing facility’s production. 

Commenters supported this 

recommendation by noting a similar 

treatment of basis was used in the 

Section 1603 Grant Program for 

improvements to hydropower facilities. 

Commenters also noted that the 

proposed regulations allow for the full 

basis of a qualified investment in a new 

unit to be eligible for the credit, but not 

for additions of capacity. A commenter 

emphasized that this approach creates 

challenges for administrability, and 

application of the rule based on 

measuring fractional additions of 

capacity. As an example, the commenter 

indicated that some replacement parts 

do not have a nameplate capacity but 

are essential to the total nameplate 

capacity of the overall facility. Several 

commenters recommended an 

alternative rule that prorates an 

investment between qualified and nonqualified property when the investment 

is a discretionary replacement of 

existing capacity but suggested that the 

entire amount of an investment should 

be treated as eligible for the credit if the 

investment would not have occurred but 

for increasing capacity. 

In response to the comments, the 

Treasury Department and the IRS 

acknowledge that a qualified investment 

for an addition of capacity would not be 

paid or incurred but for the increase in 

electricity generation capacity and agree 

that the rules for computing the 

qualified investment for an addition of 

capacity should be modified. Therefore, 

the final regulations at § 1.48E–4(b)(4) 

are amended to make the rule for an 

addition of capacity equivalent to that of 

a new unit by providing that a 

taxpayer’s qualified investment during 

the taxable year that resulted in an 

increased capacity of a facility by reason 

of a new unit or an addition of capacity 

is its total qualified investment in 

components of qualified property that 

result in the new unit or addition of 

capacity. 

6. Special Rule for Restarted Facilities 

A few commenters requested further 

guidance specific to decommissioned 

facilities. These commenters suggested 

treating the capacity of decommissioned 

facilities before restarting as zero and 

clarifying that facilities meeting the 

special rule for restarted facilities under 

proposed §§ 1.45Y–4(c)(2) and 1.48E– 

4(b)(2) can treat their entire capacity as 

an addition of capacity. One commenter 

noted that a decommissioned facility 

ceases operations and is not legally 

permitted to produce electricity due to 

a lack of operating license. Another 

commenter requested that, instead of 

requiring a period without a valid 

operating license, the final regulations 

cover the typical situation for 

decommissioning a hydropower facility 

in which the licensee maintains an 

operating license that no longer 

authorizes the operation of the facility. 

Another commenter similarly asserted 

that a nuclear facility must maintain its 

operating license until 

decommissioning is concluded. The 

commenter stated that a nuclear 

facility’s operating license (issued by 

the NRC) generally does not authorize 

operation and electricity production 

after the licensee submits a written 

certification to the NRC that they have 

determined to permanently cease 

operations and once fuel has been 

permanently removed from the reactor 

vessel. Accordingly, both commenters 

suggested revising proposed §§ 1.45Y– 

4(c)(2)(ii) and 1.48E–4(b)(2)(ii) to treat a 

facility that is decommissioned or in the 

process of decommissioning and restarts 

to have increased capacity if the facility 

shuts down for at least one calendar 

year, during which it was not 

authorized to operate by its respective 

Federal Agency or did not generate 

more than 0 megawatt-hours, while 

holding a license from the FERC or 

NRC. 

An additional commenter 

recommended expanding the special 


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rule for restarted facilities to include 

continuous operation in the case of a 

facility that obtains a renewed operating 

license and enters an initial or 

subsequent period of extended 

operation under the renewed operating 

license after December 31, 2024. The 

commenter suggested treating such a 

scenario as an addition of capacity equal 

to the full capacity of the facility. 

In contrast, a commenter raised 

concerns regarding the special rule for 

restarted facilities, pointing to abuse by 

certain taxpayers and noting that the 

rule strays from the intention of the tax 

credits to deploy new resources. The 

commenter further highlighted a 

potential lack of readiness by implicated 

government agencies, noting specifically 

that the NRC does not have regulations 

governing license reinstatement. The 

commenter recommended removing the 

special rule for restarted facilities from 

the final regulations or, in the 

alternative, engaging in further fact 

finding before finalizing such a rule. If 

a special rule for restarted facilities is 

implemented, the commenter requested 

that additional requirements be 

incorporated to raise the bar to entry for 

decommissioned facilities to prevent 

abuse of loopholes. 

In response to these comments, the 

final regulations make four changes to 

proposed §§ 1.45Y–4(c)(2) and 1.48E– 

4(b)(2) and moved them to §§ 1.45Y– 

4(c)(3) and 48E–4(b)(3), respectively. 

First, the final regulations modify the 

language in proposed §§ 1.45Y– 

4(c)(2)(ii) and 1.48E–4(b)(2)(ii) to state 

that ‘‘[t]he existing facility must have a 

shutdown period of at least one 

calendar year during which it was not 

authorized to operate by its respective 

Federal regulatory authority (that is, the 

FERC or the NRC).’’ (Emphasis added.) 

Second, the final regulations modify the 

language in proposed §§ 1.45Y– 

4(c)(2)(iii) and 1.48E–4(b)(2)(iii) to state 

that the restarted facility must be 

eligible to restart based on an operating 

license issued by either FERC or NRC. 

Third, the final regulations are modified 

to reflect the Treasury Department and 

the IRS’ agreement with the 

commenter’s concerns regarding 

potential abuse by certain taxpayers 

related to the decommissioning and 

shutdown steps in the proposed 

regulations. In order to limit this 

potential abuse, the final regulations 

add an anti-abuse rule to §§ 1.45Y– 

4(c)(3) and 1.48E–4(b)(3) that provides 

that a facility may not cease operation 

for the purpose of qualifying for the 

special rule for restarted facilities. 

Finally, the final regulations reflect that 

the addition of capacity in the case of 

a restarted facility is the total capacity 

of the facility after it is restarted by 

modifying the language to state that a 

facility that is decommissioned or in the 

process of decommissioning and restarts 

can be considered to have increased 

capacity from a base of zero if certain 

conditions are met. The final regulations 

add an additional example at §§ 1.45Y– 

4(c)(5) and 1.48E–4(b)(5) to illustrate the 

application of the Incremental 

Production Rule to a restarted facility. 

I. Dual Use Rule 

A commenter requested clarifying the 

applicability of the ‘‘dual use’’ concept 

to sections 45Y and 48E. Specifically, 

the commenter suggested clarifying that 

the ‘‘75 percent cliff’’ for energy 

property with integrated storage does 

not apply. A previous version of § 1.48– 

9 included a Dual Use Rule, referred to 

as the ‘‘75-percent cliff,’’ which 

provided that a solar energy property, 

wind energy property, or geothermal 

equipment is eligible for the section 48 

credit to the extent of the energy 

property’s basis or cost allocable to its 

annual use of energy from a qualified 

source if the use of energy from ‘‘nonqualifying’’ sources does not exceed 25 

percent of the total energy input of the 

energy property during an annual 

measuring period. 

Historically, the Dual Use Rule was 

used in the section 48 regulations to 

address the treatment of energy storage 

property that stored energy from a 

qualified source and a non-qualified 

source. This was necessary because 

prior to the IRA amendments to section 

48, energy storage property was only 

allowed for the section 48 credit as part 

of an energy property. After the IRA 

amendments, energy storage property 

became a separate type of energy 

property, referred to as ‘‘energy storage 

technology,’’ and the need for the Dual 

Use Rule changed. Similar to the 

treatment of EST in section 48, a 

separate credit is provided under 

section 48E. Accordingly, the Treasury 

Department and IRS clarify that the 

Dual Use Rule contained in a prior 

version of § 1.48–9 is not applicable to 

the section 45Y and 48E credits. 

V. Rules Relating to the Increased Credit 

Amount for Satisfying Certain Prevailing 

Wage and Apprenticeship Requirements 

A. In General 

The PWA final regulations provide 

generally applicable rules on the PWA 

requirements. Comments on the general 

PWA requirements (including 

comments that referenced section 45Y 

or 48E but addressed the PWA 

requirements more generally) were 

addressed in the PWA final regulations. 

To the extent consistent with this 

Summary of Comments and Explanation 

of Revisions, the Explanation of 

Revisions described in the PWA final 

regulations is incorporated in these final 

regulations. Therefore, general 

comments addressed in the preamble to 

the PWA final regulations are not 

readdressed in this Summary of 

Comments and Explanation of 

Revisions. 

Increased credit amounts are 

generally available under section 

45Y(a)(2)(B) for qualified facilities and 

section 48E(a)(2)(A)(ii) for qualified 

facilities and EST if beginning of 

construction of the qualified facility or 

EST occurs before January 29, 2023 

(BOC Exception). Under the relevant 

BOC Exception in sections 45Y and 48E, 

taxpayers may claim the amount of the 

increased credit without satisfying the 

PWA requirements if construction 

‘‘begins prior to the date that is 60 days 

after the Secretary publishes guidance 

with respect to the [PWA 

requirements].’’ On November 30, 2022, 

the Treasury Department and the IRS 

published Notice 2022–61, 2022–52 

I.R.B. 560, providing initial guidance 

with respect to the PWA requirements 

and starting the 60-day period described 

in those sections. To qualify for the BOC 

Exception, a taxpayer must begin 

construction before January 29, 2023. 

Additionally, increased credit 

amounts are generally available under 

sections 45Y and 48E with respect to 

qualified facilities with a maximum net 

output (or capacity for EST under 

section 48E) of less than one megawatt 

(One Megawatt Exception). If a taxpayer 

satisfies the PWA requirements, meets 

the BOC Exception, or meets the One 

Megawatt Exception, the amount of 

section 45Y credit or section 48E credit 

determined is equal to the otherwise 

determined amounts multiplied by five. 

B. Application of the PWA 

Requirements to Section 45Y 

Section 45Y(g)(9) provides that rules 

similar to the rules of section 45(b)(7) 

apply with respect to the prevailing 

wage requirements (Prevailing Wage 

Requirements). Section 45Y(g)(10) 

provides that rules similar to the rules 

of section 45(b)(8) apply with respect to 

the apprenticeship requirements 

(Apprenticeship Requirements). Section 

1.45Y–3(b)(3) adopted by crossreference the rules in the PWA final 

regulations promulgated under section 

45(b)(7) and (8); specifically, §§ 1.45–7 

(Prevailing Wage Requirements), 1.45–8 

(Apprenticeship Requirements), and 

1.45–12 (recordkeeping and reporting). 

As previously explained, the PWA 

final regulations addressed general 


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application of the PWA requirements 

and provided the rules (except the One 

Megawatt Exception) applicable for 

section 45Y in § 1.45Y–3. To provide 

consistent descriptions and 

terminology, non-substantive, technical 

updates have been made to § 1.45Y–3 to 

reflect these final regulations. As 

revised, § 1.45Y–3 also includes a new 

applicability date. These final 

regulations make no substantive change 

regarding application of the general 

PWA requirements, notwithstanding the 

new applicability date, apart from the 

amendments made to address the One 

Megawatt Exception. Taxpayers that 

began construction after June 25, 2024, 

and taxpayers that begin construction 

after the publication of the final 

regulations continue to follow the same 

general rules with respect to the PWA 

requirements. 

Taxpayers also have the option to 

apply these final regulations to qualified 

facilities that began construction before 

the publication of the final regulations, 

provided that taxpayers follow these 

final regulations in their entirety and in 

a consistent manner. Likewise, 

taxpayers that choose to apply these 

final regulations must also follow the 

PWA final regulations, consistent with 

prior § 1.45Y–3. There are no changes to 

the application of the transition rules 

provided for in the PWA final 

regulations for taxpayers choosing to 

apply these final regulations for 

construction that began before the 

publication of the final regulations as 

the general PWA requirements did not 

change between prior § 1.45Y–3 in the 

PWA final regulations and § 1.45Y–3 in 

these final regulations. 

The Treasury Department and the IRS 

understand that taxpayers may need 

additional time to comply with the 

amendments made by these final 

regulations to the One Megawatt 

Exception. Therefore, the amendments 

made to § 1.45Y–3 with respect to the 

One Megawatt Exception have a delayed 

applicability date that is 60 days after 

publication of the final regulations. 

Comments received regarding the One 

Megawatt Exception under section 45Y 

are addressed in these final regulations 

and explained in section V.D. of this 

Summary of Comments and Explanation 

of Revisions. 

C. Application of the PWA 

Requirements to Section 48E 

1. In General 

The PWA requirements in section 48E 

cross-reference both sections 45 and 48 

for operative rules. Section 48E(d)(3) 

provides that rules similar to the rules 

of section 48(a)(10) apply with respect 

to the prevailing wage requirements. 

Section 48(a)(10) provides rules with 

respect to the prevailing wage 

requirements under section 48, 

including the special recapture 

provision under section 48(a)(10)(C). 

Section 48(a)(10)(B) provides that the 

correction and penalty procedures 

under section 45(b)(7)(B) for a failure to 

satisfy the prevailing wage requirements 

generally apply prior to a recapture 

event under section 48(a)(10)(C). 

Section 48E(d)(4) provides that rules 

similar to the rules of section 45(b)(8) 

apply with respect to the apprenticeship 

requirements. Proposed § 1.48E–3 

would adopt by cross-reference those 

rules in the section 48 final regulations 

promulgated under section 48(a)(10) 

and the PWA final regulations 

promulgated under section 45(b)(7) and 

(8); specifically, §§ 1.48–13(c) 

(Prevailing Wage Requirements), 1.45–8 

(Apprenticeship Requirements), and 

1.45–12 (recordkeeping and reporting). 

These rules are generally adopted by 

cross-reference in § 1.48E–3 with 

additional clarifications to reflect 

§§ 1.48–13, 1.45–8, and 1.45–12 and 

these final regulations. 

At least one commenter requested that 

C&G facilities fueled by woody biomass 

feedstocks be eligible to qualify for the 

domestic content bonus credit amount 

and increased credit amount for 

satisfying PWA requirements. As 

discussed in section IV.A. of this 

Summary of Comments and Explanation 

of Revisions, a facility that meets the 

definition of a qualified facility may 

qualify for the relevant section 45Y and 

48E credits. Accordingly, a qualified 

facility may also qualify for an increased 

credit amount under sections 45Y and 

48E provided that the facility satisfies 

the relevant domestic content bonus or 

PWA requirements. 

A commenter praised the PWA final 

regulations for using restraint in 

incorporating elements of the DavisBacon Act and suggested that the 

Treasury Department and the IRS 

exercise the same restraint in drafting 

these regulations. The Treasury 

Department and the IRS generally agree 

with the commenter that the final 

regulations for section 48E should apply 

a similar approach as in the PWA final 

regulations in order to ensure 

consistency across different Code 

sections, provide taxpayer certainty, and 

further tax administration. These final 

regulations reflect such an approach. 

2. Transition Rules 

As stated in the preamble to the PWA 

final regulations and reiterated in the 

preamble to the section 48 final 

regulations, the Treasury Department 

and the IRS have determined that given 

the complexity of the PWA 

requirements, the uncertainty regarding 

the potential retroactive effects of the 

PWA requirements, and the benefits to 

tax administration gained with 

consistency across the various Code 

sections containing PWA requirements, 

that a transition rule is appropriate. The 

PWA final regulations provide that any 

work performed before January 29, 2023 

(that is, the date that is 60 days after the 

publication of Notice 2022–61) is not 

subject to the PWA requirements, 

regardless of whether there is an 

applicable BOC Exception. This 

transition rule also applies for taxpayers 

that may initially satisfy the BOC 

Exception, but later fail to meet the BOC 

Exception (for example, by failing to 

meet certain continuity requirements). 

These taxpayers must satisfy the PWA 

requirements for construction, 

alteration, or repair (as applicable) that 

occurs on or after January 29, 2023, but 

do not need to meet the PWA 

requirements for work that occurred 

prior to that date. For similar reasons, 

this transition rule also applies to the 

PWA requirements under section 48E 

and is incorporated by cross-reference to 

§§ 1.48–13 and 1.45–8 in these final 

regulations. 

The section 48 final regulations (and 

as described in the PWA final 

regulations) also provide a limited 

transition waiver for the penalty 

payment with respect to the correction 

and penalty procedures described in 

section 45(b)(7)(B) for a failure to satisfy 

the Prevailing Wage Requirements. The 

PWA final regulations provide that the 

penalty payment is waived with respect 

to a laborer or mechanic who performed 

work in the construction, alteration, or 

repair of a qualified facility on or after 

January 29, 2023, and prior to June 25, 

2024, if the taxpayer relied upon Notice 

2022–61 or the PWA proposed 

regulations for determining when the 

obligation to pay prevailing wages 

began, provided the taxpayer makes the 

appropriate correction payments to the 

impacted workers within 180 days of 

June 25, 2024. These final regulations 

clarify that this limited transition 

waiver applies to section 48E (by 

incorporation of the cross-reference to 

section 48(a)(10)) provided the taxpayer 

makes the appropriate correction 

payments to the impacted workers 

within 180 days of the publication of 

these final regulations. 

Similarly, these final regulations also 

allow taxpayers to use Notice 2022–61 

for determining when construction 

begins for purposes of the applicable 

percentage of labor hours performed by 

qualified apprentices required under 


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section 45(b)(8) in satisfying the labor 

hours requirement described in § 1.45– 

8. These transition rules are further 

explained in the preamble to the PWA 

final regulations. 

3. Recapture 

The section 48 final regulations also 

addressed the recapture rules under 

section 48(a)(10)(C). The preamble to 

the section 48 final regulations contains 

detailed discussion of the recapture 

rules, and similar rules apply for 

purposes of the special recapture rule in 

section 48E(d)(3) (by reference to 

section 48(a)(10)). The recapture rules in 

§ 1.48–13 are incorporated by crossreference in § 1.48E–3. These final 

regulations do clarify that if there is no 

alteration or repair that occurs during 

the relevant year during the five-year 

recapture period, the taxpayer is 

deemed to satisfy the PWA 

requirements with respect to that year. 

4. Interconnection Property 

Some commenters suggested 

clarifying that the PWA requirements do 

not apply to the construction, alteration, 

or repair of interconnection property. 

Section 48E(a)(2)(A)(ii) provides that the 

increased credit amount (for satisfying 

the PWA requirements) is determined in 

the case of a qualified facility. The 

qualified investment with respect to a 

qualified facility described in section 

48E(b) 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. 

Therefore, interconnection property is 

eligible for the increased credit amount. 

However, consistent with section 

48(a)(8), § 1.48E–4(a)(2) clarifies that 

interconnection property is not part of 

a qualified facility and therefore is not 

subject to the PWA requirements. 

In addition to not being part of the 

qualified facility, as defined in section 

48E(b)(3)(A), interconnection property 

generally is also not within the control 

of the taxpayer that owns the qualified 

facility because it generally is not 

owned by the same taxpayer. Instead, 

qualified interconnection property is 

generally owned by a utility and 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. It would therefore 

be difficult or impossible in such a case 

for the taxpayer to control or monitor 

whether the construction of the 

interconnection property complies with 

the PWA requirements. This may 

explain why the statute permits the 

increased credit amount for amounts 

paid or incurred for qualified 

interconnection property, without 

subjecting the construction of that 

property to the PWA requirements. 

With respect to EST, section 48E(c)(1) 

describes the qualified investment with 

respect to EST without reference to 

interconnection property. This differing 

treatment of interconnection property 

between qualified facilities under 

section 48E(b) and EST under section 

48E(c) is further supported by section 

48E(b)(4), which solely defines 

interconnection property ‘‘[f]or 

purposes of this paragraph [(b)(4)].’’ 

Accordingly, the qualified investment 

with respect to any EST does not 

include qualified interconnection costs 

and qualified interconnection property 

is not subject to PWA requirements. 

Interconnection property with respect to 

EST is further discussed in section 

III.D.6. of this Summary of Comments 

and Explanation of Revisions. 

D. One Megawatt Exception Under 

Section 45Y 

The preamble to the PWA final 

regulations explained that the One 

Megawatt Exception for purposes of 

section 45Y would be addressed in 

these final regulations. Comments 

pertaining to the technical aspects of 

measuring output for the purposes of 

the One Megawatt Exception under 45Y 

were limited. Commenters stated that 

some technologies, such as solar, 

generate electricity in direct current not 

alternating current, so it is unclear how 

to measure such technologies. 

The Treasury Department and the IRS 

agree that the One Megawatt Exception 

under section 45Y(a)(2)(B)(i) requires 

clarification. The final regulations under 

§ 1.45Y–3(c)(1) provide that 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 

based on the nameplate capacity of the 

qualified facility. The nameplate 

capacity for purposes of the One 

Megawatt Exception is the maximum 

electrical generating output in 

megawatts that a 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 must use the ISO 

conditions to measure the maximum 

electrical generating output of a 

qualified facility. For qualified facilities 

that generate electrical output in direct 

current, the final regulations under 

§ 1.45Y–3(c)(2) provide an alternative 

nameplate capacity measurement. For 

qualified facilities that generate 

electricity in direct current, the taxpayer 

may choose to determine the maximum 

net output (in alternating current) of 

each qualified facility for purposes of 

the One Megawatt Exception by using 

the lesser of: (i) the sum of the 

nameplate generating capacities within 

the unit of qualified facility in direct 

current, which is deemed the nameplate 

generating capacity of the unit of 

qualified facility in alternating current; 

or (ii) the nameplate capacity of the first 

component of property that inverts the 

direct current electricity into alternating 

current. 

When evaluating whether the One 

Megawatt Exception under section 45Y 

applies, the Treasury Department and 

the IRS have determined that a 

consistent approach should apply for 

purposes of sections 48E and 45Y. A 

plain reading of the statutory exception 

for facilities with a maximum net output 

of less than one megawatt demonstrates 

Congress’s intent to have only lower 

output, small facilities excepted from 

the PWA requirements and still be 

eligible for the increased credit amount. 

For purposes of determining whether a 

qualified facility must satisfy the PWA 

requirements to obtain an increased 

credit amount, the output of any 

qualified facility must be evaluated 

consistent with its operations. These 

final regulations provide, in part, that 

the 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 electricity. The 

Treasury Department and the IRS 

intended for the term ‘‘operated 

together’’ to be given effect when 

considering whether the One Megawatt 

Exception applies to the PWA 

requirements. 

When measuring nameplate capacity 

for the purposes of the One Megawatt 

Exception under section 45Y, these final 

regulations provide parity with the rules 

for section 48E and include the same 

special rule that if the qualified facility 

has integrated operations with one or 

more other qualified facilities, then the 

aggregate nameplate capacity of the 

qualified facilities is used for purposes 

of determining whether the One 

Megawatt Exception applies to the 

qualified facility. Solely for the 

purposes of the One Megawatt 

Exception, these final regulations 

provide that a qualified facility is 

treated as having integrated operations 

with any other qualified facility of the 


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same technology type if the facilities 

are: (i) owned by the same or related 

taxpayers; (ii) placed in service in the 

same taxable year; and (iii) transmit 

electricity generated by the facilities 

through the same point of 

interconnection or, if the facilities are 

not grid-connected or are delivering 

electricity directly to an end user 

behind a utility meter, are able to 

support the same end user. The final 

regulations also provide a definition for 

related taxpayers. For purposes of the 

One Megawatt Exception, the term 

related taxpayers means members of a 

group of trades or businesses that are 

under common control (as defined in 

§ 1.52–1(b)). Related taxpayers are 

treated as one taxpayer in determining 

whether a qualified facility has 

integrated operations. 

The Treasury Department and the IRS 

understand that some taxpayers who 

have integrated operations may need 

additional time to comply with the 

PWA requirements where construction 

has already begun, or is imminent, 

before publication of these final 

regulations. To alleviate these 

circumstances, the rule for qualified 

facilities with integrated operations has 

a delayed applicability date that is 60 

days after publication of the final 

regulations. 

E. Election To Group Qualified 

Facilities for Purposes of PWA 

Requirements Under Section 45Y 

Commenters suggested that the 

taxpayers should be allowed to group 

facilities as they chose when applying 

the PWA requirements for an increased 

credit amount. For example, a 

commenter suggested that a taxpayer 

that owns interrelated facilities should 

be allowed elect to combine multiple 

interrelated facilities into one 

aggregated unit or, alternatively, elect to 

treat the facilities individually for the 

PWA requirements. Some commenters 

asserted that it is difficult to certify 

compliance at each qualified facility 

level, so taxpayers should be allowed to 

certify PWA compliance at an 

interrelated facilities level. 

To claim an increased credit amount 

for satisfying the PWA requirements, 

section 45Y requires that each qualified 

facility satisfy the requirements. The 

statute does not support commenters’ 

request to allow PWA certification for 

qualified facilities based on one 

qualified facility. If a taxpayer does not 

satisfy the PWA requirements for a 

qualified facility, the taxpayer may cure 

with correction payments paid to 

impacted workers and a penalty paid to 

the IRS. The PWA final regulations 

provide taxpayers the rules for the 

Prevailing Wage Requirement, 

Apprenticeship Requirement, and the 

recordkeeping and reporting applicable 

to section 45Y. 

F. One Megawatt Exception Under 

Section 48E 

The preamble to the PWA final 

regulations explained that the One 

Megawatt Exception for purposes of 

section 48E would be addressed in these 

final regulations. Proposed § 1.48–13 

would have provided by cross-reference 

that maximum net output is based on 

nameplate capacity and proposed 

conversion formulas for certain types of 

qualified facilities and ESTs. 

Some commenters recommended 

revisions to the conversion formulas. 

For example, one commenter asserted 

that by defining the threshold for the 

One Megawatt Exception for thermal 

systems at about a quarter of the 

equivalent output of electrical energy 

systems, investors in thermal energy 

storage systems will not qualify for the 

One Megawatt Exception. The 

commenter recommended that the One 

Megawatt Exception be measured as the 

maximum net output according to a 

facility’s electrical equivalent. The 

commenter explained this means that 

for thermal energy resources, the use of 

electricity (in kW) that would be 

avoided or offset by each unit of thermal 

energy (Btu/h for heat, or Ton of 

cooling) provided by the thermal energy 

resource. The commenter recommended 

that the conversion value for thermal 

energy cooling systems for purposes of 

measuring the One Megawatt Exception 

for qualified facilities be 1,550 tons for 

water-cooled systems and 870 tons for 

air-cooled systems. 

The Treasury Department and the IRS 

have concluded that the conversion 

formulas in the proposed regulations 

provide a direct and accurate 

conversion and that no changes are 

needed to the conversion factors for 

thermal energy storage property. By 

providing a broadly applicable rule, the 

conversion formulas should provide 

accurate results for a broad set of 

applications and technologies. The 

commenters’ requests for specific 

formulas applicable to specific 

technologies conflict with the approach 

of these final regulations to provide 

general, rather than narrow, rules. 

Therefore, the final regulations do not 

adopt these comments. The final 

regulations provide conversion formulas 

for thermal energy storage technology in 

§ 1.48E–3(c)(3)(iii) and hydrogen storage 

technology in § 1.48E–2(g)(6)(iii). 

Commenters also stated that certain 

technologies generate electricity in 

direct current, not alternating current, 

so it is unclear how such qualified 

facilities could qualify for the One 

Megawatt Exception. The Treasury 

Department and the IRS agree that the 

One Megawatt Exception under section 

48E requires clarification for 

technologies that generate output in 

direct current. 

The final regulations provide that 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 

based on the nameplate capacity of the 

qualified facility. The nameplate 

capacity for purposes of the One 

Megawatt Exception is the maximum 

electrical generating output in 

megawatts that a qualified facility is 

capable of producing on a steady state 

basis and during continuous operation 

under standard conditions, as specified 

by the manufacturer and consistent with 

the definition of nameplate capacity 

provided in 40 CFR 96.202. If 

applicable, taxpayers must use the ISO 

conditions to measure the maximum 

electrical generating output of a facility. 

Section 48E(a)(2)(B)(ii)(I) describes the 

One Megawatt Exception for EST as 

based on the capacity of the EST. The 

final regulations adopt this general term, 

and also clarify that the nameplate 

capacity of the for EST is based on the 

output of the EST. 

For qualified facilities that generate 

electrical output in direct current, the 

final regulations provide a new 

alternative nameplate capacity 

measurement. Only for qualified 

facilities that generate electricity in 

direct current, the taxpayer may choose 

to determine the maximum net output 

(in alternating current) of each qualified 

facility by using the lesser of: (i) the sum 

of the nameplate generating capacities 

within the unit of qualified facility in 

direct current, which is deemed the 

nameplate generating capacity of the 

unit of qualified facility in alternating 

current; or (ii) the nameplate capacity of 

the first component of property that 

inverts the direct current electricity into 

alternating current. The final regulations 

also provide these same rules apply for 

ESTs that have output in direct current 

for the purposes of determining if the 

EST One Megawatt Exception applies. 

Commenters also stated opposition to 

adopting the concept of an ‘‘energy 

project’’ or aggregation rule similar to 

those in the section 48 proposed 

regulations for purposes of claiming the 

increased rate for meeting the PWA 

requirements under section 48E (as well 

as section 45Y). Commenters asserted 

that there is no legal basis for using the 

definition of an energy project or any 

aggregation rule for the section 48E 


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4Section 48(a)(16) provides the same broad 

authority for administering the PWA provisions in 

section 48(a). 

credit. A commenter instead suggested 

permitting a taxpayer to elect to 

combine multiple interrelated facilities 

into one aggregated unit or, 

alternatively, elect to treat the facilities 

individually for purposes of the PWA 

requirements. Another commenter 

requested permitting taxpayers to certify 

that individual qualified facilities meet 

the PWA requirements if interrelated 

facilities meet the PWA requirements. 

The commenter stated that taxpayers 

typically contract with mechanics and 

laborers for an entire project, rather than 

for an individual qualified facility, and 

that it would be difficult to certify 

compliance with the PWA requirements 

at the qualified facility level. 

The Treasury Department and the IRS 

do not agree with commenters that there 

is no legal basis to incorporate an 

aggregation rule into section 48E. 

Section 48E(d)(3) provides that ‘‘[r]ules 

similar to the rules of section 48(a)(10) 

shall apply.’’ Section 48(a)(10) applies 

the prevailing wage requirements to 

‘‘energy projects,’’ which requires the 

aggregation of energy properties under 

section 48. Additionally, the reference 

in section 48E(d)(3) to the prevailing 

wage requirements provided in section 

48(a)(10) 4 indicates that the express 

delegation of authority in section 

48(a)(16) also applies in the context of 

section 48E for implementation of the 

prevailing wage requirements. Although 

the apprenticeship requirements 

provided in section 48E(d)(4) applies 

rules similar to section 45(b)(8) rather 

than section 48(a)(11), an appropriate 

reading of the statute is to apply a 

consistent interpretation to both of 

section 48E’s prevailing wage 

requirements and apprenticeship 

requirements, as inconsistent 

interpretations would frustrate 

congressional intent by creating 

different standards for the prevailing 

wage requirements and apprenticeship 

requirements and would be difficult for 

the IRS to administer. For the reasons 

noted in this Summary of Comments 

and Explanation of Revisions, 

interpreting the PWA requirements for 

section 48E consistently with section 

48(a)(10) is the best implementation of 

the overall statutory framework because 

it results in the PWA requirements 

being applied appropriately and 

consistently across credits. 

The concept of interrelated facilities 

raised by commenters is relevant to the 

One Megawatt Exception. As discussed 

in section IV.B. of this Summary of 

Comments and Explanation of 

Revisions, these final regulations apply 

a functional definition to implement the 

term ‘‘qualified facility.’’ These final 

regulations provide, in part, that the 

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 electricity. This 

functional definition could result in 

some qualified facilities with a 

maximum net output that is far greater 

than one megawatt being treated as 

though they were many separate 

facilities each with a maximum net 

output of less than one megawatt. This 

would have unintended impacts on the 

PWA requirements. Accordingly, the 

Treasury Department and the IRS intend 

to give effect to the term ‘‘operated 

together’’ when considering whether 

and how the One Megawatt Exception 

applies to the PWA requirements. 

A plain reading of the statutory 

exception for facilities with a maximum 

net output of less than one megawatt 

demonstrates Congress’s intent to have 

only lower output, small facilities 

excepted from the PWA requirements 

and still be eligible for the increased 

credit amount. Any other interpretation 

undermines the purpose of the statutory 

exception and Congress’s intent to have 

PWA requirements apply to the 

construction of clean energy facilities. 

For purposes of determining whether a 

qualified facility must satisfy the PWA 

requirements to obtain an increased 

credit amount, the output of any 

qualified facility must be evaluated 

consistent with its operations. This 

supports the purpose of the One 

Megawatt Exception, provides certainty 

for taxpayers seeking increased credit 

amounts under section 48E, and furthers 

sounds tax administration. 

When measuring nameplate capacity 

for the purposes of the One Megawatt 

Exception, the final regulations provide 

a special rule. Solely for the purposes of 

the One Megawatt Exception, if the 

qualified facility has integrated 

operations with one more other 

qualified facilities, then the aggregate 

nameplate capacity of the qualified 

facilities is used for the purposes of 

determining if the One Megawatt 

Exception applies. The final regulations 

under § 1.48E–3(c)(4)(i) provide that 

solely for the purposes of the One 

Megawatt Exception, a qualified facility 

is treated as having integrated 

operations with any other qualified 

facility of the same technology type, if 

the facilities are: (i) owned by the same 

or related taxpayers; (ii) placed in 

service in the same taxable year; and 

(iii) transmit electricity generated by the 

facilities through the same point of 

interconnection or, if the facilities are 

not grid-connected or are delivering 

electricity directly to an end user 

behind a utility meter, are able to 

support the same end user. The final 

regulations under § 1.48E–3(c)(4)(ii) 

provide a similar integrated operations 

rule for EST. 

As discussed in section IV.G. of this 

Summary of Comments and Explanation 

of Revisions, the final regulations 

provide for a generally applicable 

related taxpayer rule in § 1.48E–1(c), 

including for purposes of the One 

Megawatt Exception. The term related 

taxpayers means members of a group of 

trades or businesses that are under 

common control as defined in § 1.52– 

1(b). Related taxpayers are treated as 

one taxpayer in determining whether a 

qualified facility or EST has integrated 

operations. 

As with section 45Y, the Treasury 

Department and the IRS understand that 

some taxpayers who have integrated 

operations may need additional time to 

comply with the PWA requirements 

where construction has already begun, 

or is imminent, before publication of 

these final regulations. To alleviate 

these circumstances, final regulations 

for § 1.48–3 have an applicability date 

that applies 60 days after publication of 

the final regulations. 

For the reasons provided herein, 

aggregation of the nameplate capacity of 

qualified facilities with integrated 

operations is applicable only to the One 

Megawatt Exception under the PWA 

requirements and is not applicable to 

other circumstances related to qualified 

facilities, such as the Five-Megawatt 

Limitation for qualified interconnection 

property for Qualified Interconnection 

Property, evaluation of eligibility for the 

domestic content or energy 

communities bonuses. 

G. Election To Group Qualified 

Facilities or ESTs for Purposes of the 

PWA Requirements Under Section 48E 

As with section 45Y, commenters 

suggested that the taxpayers should be 

allowed to group facilities as they chose 

when applying the PWA requirements 

for an increased credit amount under 

section 48E. A commenter suggested 

that a taxpayer that owns interrelated 

facilities should be allowed to elect to 

combine multiple interrelated facilities 

into one aggregated unit or, 

alternatively, elect to treat the facilities 

individually for the PWA requirements. 

A commenter suggested that taxpayers 

should be allowed to certify compliance 

with the PWA requirements for an 

individual facility based on compliance 

of interrelated facilities. Commenters’ 


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5Some of the proposed regulations related to 

recapture and substantiation are relevant only to 

section 48E and not section 45Y. Those rules are 

discussed separately later. 

suggestions to allow elective grouping to 

certify compliance with the PWA 

requirements or allow taxpayers to 

certify for an individual qualified 

facility based on compliance of 

interrelated facilities are not adopted. 

The statute requires that each qualified 

facility satisfy the requirements and for 

this reason the commenter’s suggestions 

cannot be adopted. If a taxpayer does 

not satisfy the PWA requirements for a 

qualified facility, the taxpayer may cure 

with correction payments paid to 

impacted workers and a penalty paid to 

the IRS. The PWA final regulations 

provide taxpayers the rules for the 

Prevailing Wage Requirement, 

Apprenticeship Requirement, and the 

recordkeeping and reporting applicable 

to section 48E. 

VI. Domestic Content Bonus 

The proposed regulations provided 

rules related to the increase in credit 

rate for qualified facilities (or EST in the 

case of section 48E) that meet the 

domestic content bonus requirements. 

Some commenters supported and 

some commenters opposed adopting the 

concept of an ‘‘energy project’’ or 

aggregation rule similar to those in the 

section 48 proposed regulations for 

purposes of claiming the domestic 

content bonus credit amount under 

section 45Y or 48E. Commenters 

contended that there is no legal basis for 

importing the definition of an energy 

project or any aggregation rule for the 

section 48E credit. A commenter instead 

suggested permitting a taxpayer to elect 

to combine multiple interrelated 

facilities into one aggregated unit or, 

alternatively, elect to treat the facilities 

individually for purposes of the 

domestic content bonus credit amount. 

An aggregation rule is incorporated 

into the section 48 final regulations for 

purposes of claiming the domestic 

content bonus credit amount, because 

section 48 applies the domestic content 

bonus credit amount to an entire energy 

project defined as one or more energy 

properties that are part of a single 

project. However, section 45Y(g)(11)(A) 

defines the domestic content bonus 

credit amount in general with respect to 

a qualified facility, without reference to 

section 48. Although section 

48E(a)(3)(B) provides that ‘‘[r]ules 

similar to the rules of section 48(a)(12) 

shall apply’’ for purposes of the 

domestic content bonus credit amount, 

section 48(a)(12)(B) dictates that ‘‘[r]ules 

similar to the rules of section 45(b)(9)(B) 

shall apply.’’ Additionally, even though 

section 48(a)(12)(A) describes the 

domestic content bonus credit amount 

rules ‘‘[i]n the case of any energy 

project,’’ sections 45Y and 48E do not 

have the energy project concept like 

section 48 to allow grouping. Under 

section 45(b)(9)(B), the domestic content 

bonus credit amount applies with 

respect to a qualified facility. 

Accordingly, for purposes of claiming 

the domestic content bonus credit 

amount, more than one qualified facility 

under section 45Y and more than one 

qualified facility or EST under section 

48E may not be treated as a single 

qualified facility or EST. Each qualified 

facility under section 45Y and each 

qualified facility or EST under section 

48E must separately qualify for the 

increased credit rate for meeting 

domestic content bonus requirements. 

VII. Energy Communities 

Similar to some commenters’ 

opposition to aggregation with respect 

to the domestic content bonus credit 

amounts, some commenters also 

opposed adopting the concept of an 

‘‘energy project’’ or aggregation rule 

similar to those in the section 48 

proposed regulations for purposes of the 

increase in credit for energy 

communities, under section 45Y or 48E. 

Commenters contended that there is no 

legal basis for importing the definition 

of an energy project or any aggregation 

rule for the section 48E credit. However, 

one commenter instead suggested 

permitting a taxpayer to elect to 

combine multiple interrelated facilities 

into one aggregated unit or, 

alternatively, elect to treat the facilities 

individually for purposes of the increase 

in credit in energy communities. 

An aggregation rule is incorporated 

into the section 48 regulations for 

purposes of claiming the increase in 

credit rate in energy communities under 

section 48, because section 48 applies 

the increase in credit rate to an entire 

energy project defined as one or more 

energy properties that are part of a 

single project. However, section 

45Y(g)(7) and section 48E(a)(3)(A)(i) 

define an energy community by crossreference to section 45(b)(11)(B), instead 

of section 48. Section 45 does not have 

the energy project concept like section 

48 to allow grouping. Nor do section 

45Y or 48E. Accordingly, for purposes 

of claiming the increase in credit in 

energy communities, more than one 

qualified facility under section 45Y and 

more than one qualified facility or EST 

under section 48E will not be treated as 

a single qualified facility or EST. Each 

qualified facility under section 45Y and 

each qualified facility or EST under 

section 48E must separately qualify for 

the increased credit rate for a qualified 

facility or EST located in an energy 

community. 

VIII. Greenhouse Gas Emissions Rates 

for Qualified Facilities 

Section 45Y(b)(2) provides rules for 

determining GHG emissions rates. 

Section 48E(b)(3)(B)(ii) provides that 

rules similar to the rules of section 

45Y(b)(2) regarding GHG emissions rates 

apply for purposes of section 48E.5

Proposed § 1.45Y–5 provided rules 

pertaining to GHG emissions rates as 

well as definitions of terms relevant to 

determining GHG emissions rates. 

A. Definitions Related to Greenhouse 

Gas Emissions Rates 

Proposed § 1.45Y–5(b) provided 

definitions of terms relevant to 

determining GHG emissions rates. 

1. CO2e per kWh 

Section 45Y(e)(1) defines the term 

‘‘CO2e per kWh’’ to mean, with respect 

to any GHGs, the equivalent carbon 

dioxide (as determined based on global 

warming potential (GWP)) per kilowatt 

hour of electricity produced. Proposed 

§ 1.45Y–5(b)(1) clarified that the 

determination must be based on the 

100-year time horizon global warming 

potential (GWP–100). Proposed § 1.45Y– 

5(b)(1) also provided GWP–100 amounts 

for certain specific GHGs from the 

Intergovernmental Panel on Climate 

Change’s (IPCC) Fifth Assessment 

Report (AR5). 

Commenters presented a range of 

views on the proposed definition of 

‘‘CO2e per kWh.’’ Some agreed with the 

proposed definition, including one 

commenter who noted that the proposed 

definition aligns with Congressional 

intent in enacting sections 45Y and 48E. 

Some commenters advocated for 

revisions to the proposed definition of 

‘‘CO2e per kWh.’’ One commenter stated 

that the urgent need for near-term GHG 

emissions reductions may justify the use 

of different GWP values. Several 

commenters suggested that the proposed 

definition be revised to use a 20-year 

GWP for methane to appropriately 

prioritize methane reductions. The 

commenters asserted that despite its 

prevalence, relying on GWP–100 is 

arbitrary and lacks scientific basis. To 

support this position, one commenter 

further asserted that the IPCC does not 

specifically recommend the use of 

GWP–100, or any other specific metric 

for the conversion of non-CO2 GHG 

emissions into CO2 equivalents. The 

commenter also noted recent adoptions 

of a 20-year GWP by individual States 

and asserted that other policymakers 


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recognize the urgency to incorporate the 

use of the 20-year GWP to accelerate 

efforts towards reducing methane 

emissions. 

After consideration of the comments 

the Treasury Department and the IRS 

decline to modify the proposed 

definition of the term ‘‘CO2e per kWh.’’ 

GWP–100 is a commonly accepted 

standard that appropriately captures the 

GWP of relevant GHGs and it is the 

internationally accepted standard for 

reporting GHG emissions. Specifically, 

the AR5 GWP–100 is required for all 

nations reporting national GHG 

emissions inventories to the United 

Nations Framework Convention on 

Climate Change (UNFCCC). 

Additionally, the use of a GWP–100 is 

consistent with the use of GWP–100 to 

calculate GHG emissions rates reported 

to the EPA Inventory of U.S. 

Greenhouse Gas Emissions and Sinks 

(GHGI). The GHGI is one of the datasets 

that proposed § 1.45Y–1(c)(4) requires to 

confirm when the applicable year 

threshold has been passed as required 

by section 45Y(d). The Treasury 

Department and the IRS view a uniform 

standard for GWP that is consistent 

across GHGs as necessary for evaluating 

the GWP of different GHGs for purposes 

of the section 45Y and 48E credits. An 

approach that uses different GWP time 

horizons for different types of GHGs 

would not provide a consistent basis for 

evaluating GHG emissions rates. 

Therefore, proposed § 1.45Y–5(b)(1) will 

be adopted without change. 

2. Combustion 

Section 45Y(b)(2)(B) provides rules 

for determining a GHG emissions rate 

for a facility that produces electricity 

through combustion or gasification. 

Proposed § 1.45Y–5(b)(2) provided that 

the term ‘‘combustion’’ means a rapid 

exothermic chemical reaction, 

specifically the oxidation of a fuel that 

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 from hydrogen 

inside a hydrogen fuel cell. The 

Treasury Department and the IRS 

received no comments on the proposed 

definition of ‘‘combustion’’ and the 

definition will be adopted as proposed. 

For discussion of the definition of 

Facility which Produces Electricity 

through Combustion or Gasification 

(C&G Facility) see section VIII.A.4. of 

this Summary of Comments and 

Explanation of Revisions. 

3. Gasification 

Proposed § 1.45Y–5(b)(3) provided 

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. Commenters 

expressed support for this definition 

and it will be adopted without change. 

For discussion of the definition of 

Facility which Produces Electricity 

through Combustion or Gasification 

(C&G Facility) see section VIII.A.4. of 

this Summary of Comments and 

Explanation of Revisions. 

4. Facility Which Produces Electricity 

Through Combustion or Gasification 

(C&G Facility) 

Building on the definitions of 

‘‘combustion’’ and ‘‘gasification’’ 

provided in the proposed regulations, 

proposed § 1.45Y–5(b)(4) defined the 

phrase ‘‘facility which produces 

electricity through combustion or 

gasification’’ (C&G Facility) in section 

45Y(b)(2)(B) as 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. In the preamble to the 

proposed regulations, the Treasury 

Department and the IRS requested 

comment on this proposed definition of 

a C&G Facility, including comment on 

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. 

Many commenters supported the 

proposed definition of a C&G Facility. 

Several commenters noted that the 

proposed definition is a reasonable 

interpretation of section 45Y(b)(2)(B) 

because it reflects the reality that 

electricity production can drive 

combustion and gasification reactions 

elsewhere in the production chain even 

if those reactions are not occurring 

directly at the electricity generation 

facility. Other commenters supported 

the proposed definition and noted that 

section 45Y(b)(2)(B) provides the 

appropriate statutory basis for looking at 

transformations beyond the generation 

facility to determine GHG emissions 

from a C&G Facility. The commenters 

asserted that this interpretation is 

supported by two concepts within the 

statutory language. First, the inclusion 

of gasification in section 45Y(b)(2)(B) 

supports the proposed interpretation 

because ‘‘gasification produces fuel not 

electricity,’’ and, therefore, gasification 

must be given independent meaning 

from the term combustion. Second, the 

commenters asserted that it is 

appropriate to look at transformations 

outside the generation facility because 

the statute’s use of the word ‘‘through’’ 

requires looking at the larger electricity 

production process to determine 

whether electricity is produced 

‘‘through’’ combustion or gasification. In 

this context, the commenters noted that 

‘‘through’’ means ‘‘because of,’’ ‘‘by 

means of,’’ or ‘‘as a result of.’’ Therefore, 

the commenters asserted that the plain 

meaning of ‘‘through’’ is broad enough 

to indicate that all the reactions leading 

up to the production of electricity are 

relevant in determining whether 

electricity is produced through 

gasification. 

Some commenters questioned or 

suggested revisions to the proposed 

definition of the term C&G Facility. 

Many of these commenters raised 

questions and concerns regarding the 

application of the proposed definition of 

C&G Facility, particularly as applied to 

fuel cells. Several commenters asserted 

that the proposed definition of a C&G 

Facility misinterprets the statute. 

Commenters asserted that Congress 

intended the determination of whether 

a facility should be treated as being 

described under section 45Y(b)(2)(B) to 

be based on consideration of only the 

activities occurring at the facility such 

as a fuel cell itself, not a far-removed 

process concerning a third-party fuel or 

feedstock producer’s production 

process, or inputs used in such process. 

These commenters further asserted that 

the proposed definition of C&G Facility 

is not a credible reading of the statutory 

reference to a ‘‘facility which produces 

electricity through combustion or 

gasification,’’ in section 45Y(b)(2)(B) 

because that language should be 

interpreted narrowly as requiring 

consideration of facilities that engage in 

combustion or gasification within the 

facility itself, such as within a solid 

oxide fuel cell. In other words, the 

commenters suggested that 

consideration of fuel production 

processes occurring upstream from the 

electricity-generating facility is not 

relevant to determining whether a 

facility is a ‘‘facility which produces 

electricity through combustion or 

gasification,’’ as provided in section 

45Y(b)(2)(B). 

Commenters also asserted that the 

proposed definition would result in 

most or all fuel cells being categorized 

as C&G Facilities. The commenters 

asserted that this categorization is 


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erroneous and further asserted that fuel 

cell GHG emissions are not directly 

produced by the fundamental 

transformation of the input energy 

source into electricity. The commenters 

stated that fuel cell systems, including 

non-hydrogen fuel cells, use neither 

combustion nor gasification to produce 

electricity but are electrochemical 

devices. Other commenters asserted that 

at least a subset of fuel cells should be 

unequivocally treated as Non-C&G 

Facilities by drawing a comparison to 

nuclear facilities. A commenter stated 

that nuclear facilities (which are 

categorized as Non-C&G Facilities by 

proposed § 1.45Y–5(c)(2)) generally use 

uranium fuel that is enriched, in part, 

using grid electricity generated through 

combustion. 

Another commenter specifically noted 

that fuel cells that directly use biogas or 

renewable natural gas (RNG) do not 

require combustion or gasification to 

produce electricity because combustion 

is not necessary to produce biogas or 

RNG. As a result, the commenter 

asserted that fuel cells utilizing biogas 

or RNG should be categorized as NonC&G Facilities. After consultation with 

the DOE, the Treasury Department and 

the IRS note that in some cases, biogas 

or RNG can be produced through 

gasification or combustion. Therefore, 

categorizing fuel cells that directly use 

biogas or RNG as Non-C&G Facilities 

would be improper. 

Some commenters disagreed with the 

proposed definition of C&G Facility 

because of its application to hydrogen 

fuel cells. These commenters requested 

that if the proposed definition is 

retained, the GHG emissions 

determination for hydrogen used to 

operate a fuel cell facility should follow 

the carbon intensity standards provided 

in section 45V of the Code. The 

commenters asserted that this approach 

would appropriately result in a 

hydrogen fuel cell that uses ‘‘qualified 

clean hydrogen’’ as defined in section 

45V being considered a Non-C&G 

Facility. Another commenter noted that 

the proposed definition of combustion 

and gasification included the entire 

supply chain for hydrogen fuel cells and 

recommended an alternative approach 

to determining whether hydrogen fuel 

cells produce electricity through 

combustion. Under this alternative 

approach, only transformations 

happening at the fuel production and 

generation facilities would be 

considered and a full examination of the 

supply chain would not be required. 

The Treasury Department and the IRS 

acknowledge that the preamble to the 

proposed regulations addressed the 

application of the definition of a C&G 

Facility to fuel cells by explaining that, 

under proposed § 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. Thus, because the energy 

transformation that produces electricity 

in a fuel cell would not be considered 

combustion under the definition in 

proposed § 1.45Y–5(b)(2), a fuel cell 

facility would only be considered a C&G 

Facility if the fuel it used to produce 

electricity was produced through 

combustion or gasification under the 

proposed regulations. 

The Treasury Department and the IRS 

generally agree with the commenters’ 

rationale for retaining the proposed 

definition of the term C&G Facility but 

view certain modifications to this 

definition as appropriate to address 

some of the concerns raised by other 

commenters. To appropriately give 

effect to the term ‘‘gasification’’ in 

section 45Y(b)(2)(B), consideration of 

transformations beside the 

transformation directly producing 

electricity are necessary in determining 

the appropriate classification of a 

facility as a C&G Facility. Congress’s use 

of the word ‘‘through’’ in section 

45Y(b)(2)(B) indicates that the steps 

leading up to the production of 

electricity by a C&G Facility are relevant 

in determining whether electricity is 

produced through combustion or 

gasification. However, requiring an 

evaluation of whether a fuel or 

feedstock used by an electricitygenerating facility involved combustion 

or gasification at any point of the fuel 

or feedstock supply chain would be 

difficult to administer, particularly 

given the complexity of such supply 

chains. To enable the section 45Y and 

48E credits to be administered, the 

Treasury Department and the IRS are 

limiting the analysis of production 

‘‘through combustion or gasification’’ to 

the electricity production itself and the 

production of the input energy source. 

The Treasury Department and the IRS 

continue to view proposed § 1.45Y– 

5(b)(4) as reflecting the best 

interpretation of the term ‘‘facility that 

produces electricity through combustion 

or gasification’’ in section 45Y(b)(2)(B). 

However, after consideration of the 

comments and the administrability 

challenges the proposed definition may 

pose, the final regulations revise the 

definition of the term ‘‘facility that 

produces electricity through combustion 

or gasification’’ to ‘‘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 of one 

energy source into another using 

combustion or gasification.’’ 

Under the revised definition in these 

final regulations, a hydrogen fuel cell 

would still be considered a C&G Facility 

if it produced electricity using hydrogen 

that was produced through combustion 

or gasification, for example through 

steam methane reforming. A fuel cell 

facility such as a solid oxide fuel cell, 

which uses methane as fuel, would also 

still 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 

using electrolysis 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. This modified definition of 

C&G Facility is consistent with section 

45Y(b)(2)(B) because it gives appropriate 

effect to the word ‘‘gasification’’ and 

considers whether the facility produces 

electricity through combustion or 

through the use of a fuel produced using 

combustion or gasification in 

determining the net GHG emissions rate 

for the qualified facility in the 

production of electricity. Considering 

only the process that produced the 

input energy source that is used by a 

facility to generate electricity 

implements section 45Y(b)(2)(B)’s 

directive to assess whether electricity 

was produced ‘‘through combustion or 

gasification’’ while addressing 

significant administrability concerns 

posed by the task of tracing complex 

fuel and feedstock supply chains 

beyond the production of the input 

energy source to assess whether they 

involved combustion or gasification. 

5. Non-C&G Facility 

Proposed § 1.45Y–5(b)(7) defined a 

‘‘Non-C&G Facility’’ as a facility that 

produces electricity and is not described 

in proposed § 1.45Y–5(b)(4). Generally, 

commenters supported the proposed 

definition of a ‘‘Non-C&G Facility.’’ 

Several commenters requested that the 

final regulations remove the terms ‘‘C&G 

Facility’’ and ‘‘Non-C&G Facility’’ in 

favor of the term ‘‘qualified facility.’’ 

Section 45Y(b)(2)(A) specifically 

provides rules to determine the GHG 

emissions rate for a Non-C&G Facility 

and section 45Y(b)(2)(B) provides 

similar rules for a C&G Facility. As a 

result, the Treasury Department and the 

IRS view the proposed definitions of a 

‘‘Non-C&G facility’’ and a ‘‘C&G 


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Facility’’ as required to implement the 

distinct requirements provided in 

section 45Y(b)(2)(A) and (B). An 

electricity-generating facility must be a 

qualified facility to be eligible for the 

credits provided under section 45Y or 

48E but categorizing a facility as a C&G 

Facility or a Non-C&G Facility is 

required for purposes of section 

45Y(b)(2)(A) and (B). The proposed 

definition of the term ‘‘Non-C&G 

Facility’’ is therefore adopted as 

proposed. 

6. Greenhouse Gas Emissions Rate 

Proposed § 1.45Y–5(b)(5) provided 

that, consistent with section 

45Y(b)(2)(A), the term ‘‘greenhouse gas 

emissions rate’’ means the amount of 

GHGs emitted into the atmosphere by a 

facility in the production of electricity, 

expressed as grams of CO2e per kWh. 

Several commenters requested that the 

definition of ‘‘greenhouse gas emissions 

rate’’ be expanded to take account of 

emitted co-pollutants such as 

particulate matter, nitrogen oxides, and 

sulfur dioxides. Some commenters 

noted that, because of their effect on 

local air quality, environmental justice 

communities are significantly impacted 

in the near term by the co-pollutants of 

energy generation in addition to the 

impact of GHGs. The commenters 

further noted that increased and 

prolonged exposure to co-pollutants 

results in increased local air pollution 

and the development of a plethora of 

diseases, from skin conditions to cancer. 

The commenters asserted that copollutant emissions must be integrated 

into all GHG emissions rate calculations 

to view emissions holistically and 

understand and account for both climate 

impacts and human health impacts. The 

commenters further asserted that this 

approach would ensure that electricity 

production does not contribute to 

climate change and global GHG 

emissions and does not increase the 

levels of local air pollution. 

Section 45Y(e)(2) defines the term 

‘‘greenhouse gas’’ as having 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. Pollutants or gases that 

are described in 42 U.S.C. 7545(o)(1)(G) 

are already treated as GHGs under 

sections 45Y and 48E. However, 

pollutants or gases that are not 

described in 42 U.S.C. 7545(o)(1)(G) 

may not be treated as GHGs under 

section 45Y or 48E and any requests to 

do so cannot be adopted. Therefore, 

proposed § 1.45Y–5(b)(5) will be 

adopted without change. 

7. Greenhouse Gases Emitted Into the 

Atmosphere by a Facility in the 

Production of Electricity 

Proposed § 1.45Y–5(b)(6) provided 

that, for purposes of section 

45Y(b)(2)(A), and 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 § 1.45Y–5(b)(6)(i) through (vi) 

provided a list of certain GHG emissions 

associated with a facility and relevant 

electricity production process excluded 

from the definition in proposed 

§ 1.45Y–5(b)(6) (for example, GHG 

emissions associated with facility 

siting). For Non-C&G Facilities only, 

proposed § 1.45Y–5(c)(1)(i) provided 

additional types of excluded emissions 

associated with a facility and relevant 

electricity production process (for 

example, emissions occurring due to 

activities and operations occurring offsite such as the production and 

transportation of fuels used by the 

facility). For C&G Facilities only, 

proposed § 1.45Y–5(d)(2) provided 

additional rules on included and 

excluded GHG emissions associated 

with a facility and relevant electricity 

production processes that apply in order 

to conduct a GHG emissions lifecycle 

analysis (LCA) as required by section 

45Y(b)(2)(B). The Treasury Department 

and the IRS received a wide range of 

comments in response to the definition 

of ‘‘greenhouse gases emitted into the 

atmosphere by a facility in the 

production of electricity’’ at proposed 

§ 1.45Y–5(b)(6). 

One commenter suggested that the 

final regulations clarify which 

emissions (both direct and indirect) 

must be included (rather than excluded) 

in determining GHG emissions. The 

Treasury Department and the IRS note 

that the proposed definition would 

include emissions that occur from the 

processes that transform the input 

energy source into electricity. This 

definition provides a standard for 

determining included emissions that 

may be applied to multiple types of 

facilities that may be eligible for the 

section 45Y and 48E credits. However, 

the Treasury Department and the IRS 

have made modifications to the 

proposed standard for determining 

included emissions to further clarify the 

principles outlined in the proposed 

regulations. 

Several commenters requested 

additions to the list of excluded 

emissions. A commenter requested an 

exclusion for emissions from standby 

and auxiliary power for critical 

infrastructure that is not used directly 

for the production of an input used to 

produce electricity. Proposed § 1.45Y– 

5(b)(6)(i) and these final regulations 

provide that emissions from electricity 

production by back-up or auxiliary 

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 

would be excluded. The Treasury 

Department and the IRS would 

generally consider standby and 

auxiliary power systems to fall within 

this exclusion. This commenter also 

requested an exclusion for emissions 

offset by indirect financial or ‘‘book’’ 

accounting methods, including but not 

limited to, renewable energy certificates 

and environmental attribute certificates 

that demonstrate a carbon intensity no 

greater than 0 kg CO2e per unit of 

output. Whether indirect or book-andclaim accounting methods are permitted 

is addressed in section VIII.E.4.d. of this 

Summary of Comments and Explanation 

of Revisions and whether offsets are 

permitted is addressed in section 

VIII.C.2.d of this Summary of Comments 

and Explanation of Revisions. 

Another commenter requested that 

emissions associated with various 

processes related to the production of 

electricity from stationary fuel cells be 

excluded from the scope of assessed 

emissions. The commenter specifically 

requested that this exclusion cover 

upstream emissions occurring due to the 

production of fuels, including hydrogen, 

methane, RNG, and other hydrocarbons, 

for stationary fuel cell systems; and 

emissions related to the production or 

refinement of fuel for stationary fuel cell 

systems, such as steam reformation, 

whether or not such processes are 

internal reactions. This commenter also 

requested an exclusion for emissions 

associated with the distribution of 

hydrogen to consumers. The Treasury 

Department and the IRS decline to 

adopt these requested revisions to the 

proposed definition of the term 

‘‘greenhouse gases emitted into the 

atmosphere by a facility in the 

production of electricity.’’ Because the 

final regulations provide rules that may 

result in fuel cells being categorized as 

either a C&G Facility or a Non-C&G 

Facility depending on its operations and 

the fuel it uses to produce electricity, 

which would entail different rules for 

assessing emissions, it would not be 

appropriate to provide fuel-cell-specific 

emissions exclusions applicable to all 

categories of fuel cells. In addition, 

some of the exclusions requested by the 


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commenter would inappropriately 

deviate from the requirement in section 

45Y(b)(2)(B) to take into account 

lifecycle GHG emissions, as described in 

42 U.S.C. 7545(o)(1)(H). The final 

regulations thus do not adopt the 

changes recommended by the 

commenter. 

Commenters requested other changes 

to the list of excluded emissions. 

Several commenters supported 

excluding emissions from backup 

generators, step-up transformers, routine 

operational and maintenance activities, 

construction, infrastructure, and 

distribution associated activities from 

the definition. Other commenters voiced 

concerned about the breadth of 

emissions excluded from the proposed 

definition for certain activities. A 

commenter asserted that the definition 

improperly excluded emissions from the 

activities listed in proposed § 1.45Y– 

5(b)(6)(i) through (vi). The commenter 

noted that each of these activities are 

critical steps in electricity generation, 

production, and distribution. As an 

example, the commenter noted that if 

operational and maintenance activities 

are disrupted, an energy producing 

facility may need to shut down and 

pause production. Therefore, the 

commenter asserted that routine 

maintenance is a vital component to 

electricity generation. Additionally, 

several commenters specifically 

opposed the exclusion of emissions 

from infrastructure associated with a 

facility, including, but not limited to, 

emissions from road construction for 

feedstock production. A commenter 

noted that road construction generates 

substantial emissions from the clearing 

of vegetation, ground disturbance, and 

equipment operation. Commenters 

asserted that GHG emissions from these 

activities must be factored into the 

definition of the GHG emissions rate. 

Several commenters asserted that the 

breadth of the exclusions proposed was 

too narrow. A commenter specifically 

disagreed with the scope of the 

exclusion for 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. The 

commenter asserted that the proposed 

definition includes emissions from 

back-up generators used to avoid system 

outages while only excluding emissions 

that occur during or after an outage. The 

commenter stated that as a result, this 

exclusion could significantly limit the 

time period during which a qualified 

facility could be eligible for the section 

45Y and 48E credits. 

The Treasury Department and the IRS 

decline to modify the list of excluded 

emissions as requested by these 

commenters. The excluded emissions 

are appropriate in scope because they 

address emissions associated with 

activities that are ancillary to the 

electricity generating operations of a 

facility. Excluding emissions from 

contingency operations, operations that 

are tangentially related to the regular 

electricity generating operations of a 

facility, or activities that are beyond the 

scope of the production of electricity 

(for example, emissions from 

construction of a facility or distribution 

of the electricity) allows for a more 

accurate evaluation of the emissions 

stemming from a facility’s production of 

electricity and related processes. 

Although the activities covered by these 

exclusions (such as construction, 

routine maintenance, or distribution) 

may in fact enable a facility to generate 

electricity, these activities are ancillary 

to the process of generating electricity 

and the final regulations retain the list 

of excluded emissions as originally 

proposed. 

B. Determining GHG Emissions Rates for 

Non-C&G Facilities 

1. General Rules 

Proposed § 1.45Y–5(c) provided rules 

for determining a GHG emissions rate 

for Non-C&G Facilities, including for 

determinations by the Secretary when 

publishing the table described in section 

45Y(b)(2)(C)(i) or by the Secretary when 

determining a provisional emissions 

rate under section 45Y(b)(2)(C)(ii). 

Proposed § 1.45Y–5(c)(1)(i) provided 

that, with respect to Non-C&G Facilities 

only, GHG emissions that are not 

directly produced by the fundamental 

transformation of the input energy 

source into electricity are excluded from 

the emissions accounting. The proposed 

regulations excluded 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. Proposed 

§ 1.45Y–5(c)(2) provided a list of 

specific types or categories of facilities 

that are Non-C&G Facilities with a GHG 

emissions rate that is not greater than 

zero. The Treasury Department and the 

IRS received a number of comments on 

this proposed provision, including 

several in support of it. 

While one commenter requested that 

these Non-C&G Facilities be listed in the 

Secretary’s Annual Table as having a 

GHG emissions rate that is not greater 

than zero, another recommended that 

the Treasury Department and the IRS 

confirm that inclusion of these types or 

categories of facilities in the Annual 

Table or PER certification described in 

proposed § 1.45Y–5(f) and (g) are not 

required for such listed facilities. The 

Treasury Department and the IRS 

confirm that taxpayers may rely on the 

inclusion of these types or categories of 

facilities in these final regulations as 

having a GHG emissions rate that is not 

greater than zero unless and until the 

regulations are amended. 

The Treasury Department and the IRS 

received a variety of comments 

regarding the inclusion of specific 

technologies in proposed § 1.45Y– 

5(c)(2), which are discussed in sections 

VIII.B.2. through 6. of this Summary of 

Comments and Explanation of Revisions 

by type of technology. 

2. Nuclear 

Several commenters expressed their 

support for the inclusion of nuclear 

fission and nuclear fusion facilities as a 

type or category of facility that is a NonC&G Facility with a GHG emissions rate 

of not greater than zero in proposed 

§ 1.45Y–5(c)(2)(vi) and (vii). One 

commenter recommended clarification 

of why the use of electricity, which may 

be produced through combustion and 

gasification, to enrich uranium and 

produce nuclear fuel would not render 

nuclear energy a C&G Facility. Based on 

the definition of a facility that produces 

electricity through combustion or 

gasification provided in § 1.45Y–5(b)(4), 

only the fundamental transformations of 

energy from one energy source into 

another are considered when 

determining whether a facility uses 

combustion or gasification. In the case 

of nuclear fission and nuclear fusion 

facilities, the fundamental 

transformations of energy are the 

conversion of nuclear binding energy in 

the nuclear fuel into heat and 

electricity. Nuclear fuel often contains 

uranium, which may require 

enrichment. However, the energy used 

to enrich the uranium only increases the 

concentration of the isotope needed for 

nuclear fuel. It does not transform the 

energy in the isotope, and accordingly, 

it does not transform one energy source 

into another. Therefore, enrichment is 

not considered when determining 

whether a facility is a C&G Facility. 

Because there is no other process in the 

production of enriched uranium or 

nuclear energy that would involve 

combustion or gasification, the final 

regulations retain nuclear fission as a 

type or category of facility that is a NonC&G Facility. 


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Some commenters who supported this 

inclusion asked that the final 

regulations amend the reference to 

‘‘nuclear fusion’’ in proposed § 1.45Y– 

5(c)(2)(vii) to reduce confusion with 

nuclear fission. These commenters 

noted that Congress recently enacted the 

ADVANCE Act of 2024, Public Law 

118–67, which included a definition of 

‘‘fusion energy machine’’ within the 

Atomic Energy Act and asked that the 

final regulations amend proposed 

§ 1.45Y–5(c)(2)(vii) to align with that 

terminology. The Treasury Department 

and the IRS agree that the term ‘‘nuclear 

fusion’’ in proposed § 1.45Y–5(c)(2)(vii) 

should be amended and adopt one 

commenter’s suggestion that the new 

term be ‘‘fusion energy.’’ The final 

regulations under § 1.45Y–5(c)(2)(vii) 

reflect this change. 

3. Hydropower 

Proposed § 1.45Y–5(c)(1)(i)(A) and (B) 

provided that in the case of Non-C&G 

Facilities, emissions from hydropower 

reservoirs due to anoxic conditions and 

ebullitive, diffuse, and degassing 

emissions from hydropower operations 

are not GHGs emitted into the 

atmosphere by a facility in the 

production of electricity. Proposed 

§ 1.45Y–5(c)(1)(i) explained that these 

emissions are not directly produced by 

the fundamental transformation of the 

input energy source into electricity. 

Some commenters stated that the 

Treasury Department and the IRS erred 

in excluding the emissions related to 

hydropower as described in proposed 

§ 1.45Y–5(c)(1)(i)(A) and (B). These 

commenters stated that, because the 

language in section 45Y(b)(2)(A) 

provides that a GHG emissions rate 

means the amount of GHGs emitted into 

the atmosphere by a facility in the 

production of electricity, the exclusion 

of such emissions because they are not 

‘‘directly produced by the fundamental 

transformation of the input energy 

source into electricity’’ by the facility is 

flawed. Several commenters noted that 

hydropower facilities do in fact result in 

GHG emissions that are directly 

produced by the fundamental 

transformation of the input energy 

source into electricity within the 

meaning of proposed § 1.45Y–5(c)(1)(i). 

The commenters noted that a reservoir, 

which is an integral component of a 

hydropower facility, is one of the 

primary sources of emissions because 

they emit GHGs due to the 

decomposition of organic matter 

through diffusion and ebullition. 

Accordingly, the commenters asserted 

that such emissions should not be 

excluded for hydropower facilities. 

Another commenter stated that 

degassing emissions that result from 

water passing through a turbine in a 

hydropower facility are part of the 

‘‘fundamental transformation of [the 

input energy source into] electricity,’’ 

because the kinetic energy of flowing 

water passing through turbines is 

harnessed to produce electricity. The 

GHGs that may be released during 

degassing exist before flowing water 

passes through turbines that are 

harnessed to create electricity. Such 

methane is therefore not directly 

produced or created by flowing water 

passing through turbines. In addition, 

the GHGs associated with degassing 

may have been emitted passively into 

the atmosphere even in the absence of 

hydropower electricity generation. For 

these reasons, the Treasury Department 

and the IRS affirm that GHGs released 

during degassing are properly excluded 

because they are not directly produced 

by the fundamental transformation of 

the input energy source into electricity. 

The Treasury Department and the IRS 

have determined that the proposed 

treatment of emissions accounting for 

hydropower is appropriate and the best 

implementation of section 45Y(b)(2)(A). 

A hydropower facility converts the 

kinetic energy of flowing water into 

electricity with a turbine that spins a 

rotor within a generator to produce 

electricity. GHGs may be released from 

the hydropower reservoir due to 

diffusion at the water surface or due to 

ebullition, and from degassing from 

water passing through a pump house or 

turbine. The GHGs that may be released 

during degassing exist before flowing 

water passes through turbines that are 

harnessed to create electricity. Such 

GHGs are therefore not directly 

produced or created by flowing water 

passing through turbines. In addition, 

the GHGs associated with degassing 

may be emitted passively into the 

atmosphere even in the absence of 

hydropower electricity generation. It is 

not appropriate to treat such emissions 

as GHGs emitted into the atmosphere by 

a hydropower facility in the production 

of electricity because these emissions 

are not created by the fundamental 

transformation of potential energy in 

flowing water into electricity. 

Some commenters stated that because 

dams and reservoirs are required 

components of hydropower facilities in 

order for such facilities to generate 

energy, GHG emissions associated with 

these components should not be 

excluded from emissions accounting. 

The Treasury Department and the IRS 

have determined that GHG emissions 

associated with dams and reservoirs are 

properly excluded emissions. Emissions 

associated with the construction and 

maintenance of such dams and 

reservoirs are properly excluded under 

proposed § 1.45Y–5(b)(6)(iv), which 

states, in relevant part, that emissions 

that occur before commercial operations 

commence are properly excluded. 

Furthermore, emissions associated with 

the continued existence of such dams or 

reservoirs are properly excluded 

because they are not directly produced 

by the fundamental transformation of 

the input energy source into electricity 

within the meaning of proposed 

§ 1.45Y–5(c)(1)(i). 

Commenters also had varied reactions 

to the inclusion of hydropower as a type 

or category of Non-C&G Facility with a 

GHG emissions rate of not greater than 

zero in proposed § 1.45Y–5(c)(2)(ii). 

Many commenters supported the 

proposed designation of and rationale 

for treating hydropower as a type or 

category of Non-C&G Facility with a 

GHG emissions rate of not greater than 

zero. For the reasons summarized earlier 

in this section, the Treasury Department 

and the IRS agree with these 

commenters that the fundamental 

energy transformation of kinetic energy 

into electricity does not result in GHGs 

emitted in the production of electricity. 

Some commenters, however, 

questioned this proposed treatment of 

hydropower by questioning the 

excluded emissions rules in proposed 

§ 1.45Y–5(c)(1)(i)(A) and (B), citing 

aspects of hydropower operations that 

they asserted give rise to emissions from 

a hydropower facility’s production of 

electricity. For the reasons summarized 

earlier in this part of the Summary of 

Comments and Explanation of 

Revisions, the Treasury Department and 

the IRS disagree with these commenters. 

One commenter opposed to this 

proposed treatment of hydropower 

stated that hydropower causes adverse 

ecological impacts and recommended 

that facilities be eligible for the credit 

based not only on whether they have a 

GHG emissions rate that is not greater 

than zero but also on whether they have 

an ‘‘environmentally low impact’’ more 

generally. 

Section 45Y(b)(1) defines a qualified 

facility, in relevant part, as a facility 

used for the generation of electricity, 

placed in service after December 31, 

2024, and for which the GHG emissions 

rate is not greater than zero. The statute 

does not provide the Treasury 

Department and the IRS the authority to 

consider environmental impacts beyond 

GHG emissions rates in determining 

eligibility for the section 45Y and 48E 

credits. Therefore, the final regulations 

do not adopt the commenter’s 

suggestion. 


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4. Waste Energy Recovery Property 

(WERP) 

Proposed § 1.45Y–5(c)(2)(viii) 

provided that waste energy recovery 

property (WERP) that derives energy 

from a source described in proposed 

§ 1.45Y–5(c)(2)(i) through (vii) is a NonC&G Facility with a GHG emissions rate 

that is not greater than zero. The 

preamble to the proposed regulations 

explained that 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. In the preamble to the 

proposed regulations, the Treasury 

Department and the IRS requested 

comment on this proposed definition 

and on whether and why it would be 

appropriate to revise proposed § 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). 

Some commenters supported the 

proposed definition of WERP. One 

commenter stated that this longstanding definition is appropriate for 

the purpose of the section 45Y and 48E 

credits and would provide taxpayers 

with strong incentives to install WERP 

to produce electricity using heat that 

would otherwise be wasted. The 

commenter further noted that this 

definition would also prevent facilities 

whose primary purpose is to generate 

electricity from ‘‘double dipping’’ by 

taking a tax credit on the original 

electricity generated and again on 

electricity generated from WERP. 

Some commenters requested that 

facilities using exothermic reactions or 

pressure drop technologies be included 

in the definition of WERP for purposes 

of the section 45Y and 48E credits. 

Additionally, these commenters 

asserted that these types of technologies 

do not rely on combustion or 

gasification and thus could and should 

be classified as Non-C&G Facilities. A 

commenter further recommended that 

GHG emissions that occur with respect 

to exothermic reactions or pressure drop 

technologies (for example, 

turboexpanders on a pipeline) that do 

not rely on combustion or gasification 

should be treated as Non-C&G Facilities 

and any significant direct or indirect 

emissions should be accounted for. 

Other commenters suggested that the 

final regulations revise proposed 

§ 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). 

The Treasury Department and the IRS 

have determined that the final 

regulations should not be revised to 

explicitly include these additional types 

of facilities as WERP, which is included 

as a Non-C&G Facility at § 1.45Y– 

5(c)(2)(viii). Because some facilities that 

employ exothermic reactions release 

energy into the environment in the form 

of heat via combustion, it would not be 

appropriate to classify all WERP 

facilities using exothermic reactions as 

Non-C&G Facilities. 

Pressure drop technologies are also 

not appropriately considered WERP for 

purposes of the section 45Y and 48E 

credits because they convert pressure, 

rather than heat, directly to electricity. 

As a result, this type of technology does 

not fall within the definition of WERP 

provided in the preamble to the 

proposed regulations. At this time, this 

type of technology is also not included 

within the list of certain Non-C&G 

Facilities with a GHG emissions rate 

that is not greater than zero provided at 

§ 1.45Y–5(c)(2). The preamble to the 

proposed regulations defined WERP as 

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. This definition of WERP is 

appropriate for the purposes of the 

section 45Y and 48E credits because it 

mirrors the statutory definition 

provided in section 48(c)(5)(A). As a 

result, these final regulations add the 

definition of WERP, as provided in the 

preamble to the proposed regulations, to 

§ 1.45Y–1(a)(12) and to § 1.48E–1(a)(12). 

The Treasury Department and the IRS 

also received a number of comments 

recommending that the final regulations 

provide that all WERP be included in 

the list of Non-C&G Facilities with a 

GHG emissions rate that is not greater 

than zero at § 1.45Y–5(c)(2). The 

Treasury Department and the IRS have 

determined that because many of the 

energy sources for WERP rely on 

combustion or gasification, it would not 

be appropriate to classify all WERP 

facilities as Non-C&G Facilities because 

some WERP facilities produce 

electricity using an input energy source 

that was produced through a 

fundamental transformation of one 

energy source into another using 

combustion or gasification. WERP 

facilities that produce electricity 

through combustion or gasification 

would be considered C&G Facilities and 

can be evaluated for inclusion in the 

Annual Table or for a PER as described 

later in section VIII.H. of this Summary 

of Comments and Explanation of 

Revisions. 

One commenter recommended that 

the definition of WERP be amended to 

allow for the use of waste heat to create 

thermal energy. However, section 

45Y(b)(1)(A)(i) requires a facility to be 

‘‘used for the generation of electricity’’ 

to be considered a qualified facility that 

is eligible for the section 45Y and 48E 

credits and section 45Y(a)(1)(A) 

provides that the credit is granted on the 

basis of the electricity produced by a 

qualified facility. The facilities 

described by the commenter do not 

produce electricity, so they would not 

qualify on that basis. The Treasury 

Department and the IRS do not have 

authority under the statute to expand 

the scope of eligible facilities as 

requested by the commenter. The final 

regulations thus adopt the provisions of 

proposed § 1.45Y–5(c)(2)(viii) and the 

proposed definition of WERP without 

modification. To aid taxpayers in 

determining whether a specific facility 

meets that definition, the final 

regulations include examples in 

§ 1.45Y–1(a)(12) that illustrate buildings 

or equipment the primary purpose of 

which is not the generation of 

electricity. These examples remain 

largely the same as those provided in 

the preamble of the proposed 

regulations, but, for clarity, pipeline 

compressor stations have not been 

included in the examples in the final 

regulations. While pipeline compressor 

stations are buildings or equipment the 

primary purpose of which is not the 

generation of electricity, they do not 

generate electricity solely from heat and 

thus are not appropriately considered 

WERP. 

5. Geothermal 

Proposed § 1.45Y–5(c)(2)(v) provided 

that facilities using geothermal energy, 

including flash and binary plants, were 

Non–C&G Facilities with a GHG 

emissions rate that is not greater than 

zero. The Treasury Department and the 

IRS requested 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 § 1.45Y–5(c)(2)(v) 

was appropriate. 

Several commenters supported the 

inclusion of geothermal facilities in 

proposed § 1.45Y–5(c)(2)(v), with some 

noting that inclusion of these facilities 

on this list is appropriate because the 

carbon dioxide emitted by the 

geothermal facility is emitted naturally 

and passively from geothermal 


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6See, e.g., National Renewable Energy Laboratory 

(2021), Life Cycle Greenhouse Gas Emissions from 

Electricity Generation: Update, NREL/FS–6A50– 

80580, https://www.nrel.gov/docs/fy21osti/ 

80580.pdf; O’Donoughue, P.R., Heath, G.A., Dolan, 

S.L. and Vorum, M. (2014), Life Cycle Greenhouse 

Gas Emissions of Electricity Generated from 

Conventionally Produced Natural Gas. Journal of 

Industrial Ecology, 18: 125–144. https://doi.org/ 

10.1111/jiec.12084. 

reservoirs. Commenters noted that some 

emissions often occur even without a 

geothermal facility in place. 

One commenter stated that the 

Treasury Department and the IRS 

should consider measuring the 

incremental emissions associated with 

the production of electricity at flash 

geothermal facilities as compared to the 

emissions occurring without such 

production. The Treasury Department 

and the IRS have determined that such 

measurement will not be required in the 

final regulations. As described in the 

preamble to the proposed regulations, 

such emissions from flash geothermal 

facilities would not be considered GHGs 

emitted into the atmosphere by a facility 

in the production of electricity under 

proposed § 1.45Y–5(c)(1)(i)(C), because 

the GHGs 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 also 

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. Furthermore, such 

measurement may not be possible given 

the challenges associated with 

quantifying emissions from geothermal 

sites with and without electricity 

production facilities. Therefore, 

proposed § 1.45Y–5(c)(2)(v) is adopted 

without change. 

6. Solar Technologies 

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 requested 

comment on whether the existing 

definitions of C&G Facility and NonC&G Facility are sufficient to 

distinguish between these two 

categories of facilities, or whether 

additional clarification is needed. 

One commenter requested that the 

Treasury Department and the IRS clarify 

that the use of auxiliary burners at a 

concentrated solar power (CSP) facility 

does not necessarily mean that a facility 

will be considered a C&G Facility. This 

commenter stated that CSP 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. As previously indicated 

in the preamble to the proposed 

regulations and reiterated here, in the 

former instance, such use of auxiliary 

burners would not mean that a facility 

is properly categorized as a C&G 

Facility. However, in the latter instance, 

a facility would be producing electricity 

through combustion within the meaning 

of proposed § 1.45Y–5(b)(4) and thus 

would be a C&G Facility. 

C. GHG Emissions Rates for C&G 

Facilities 

1. Determining a Greenhouse Gas 

Emissions Rate for C&G Facilities 

Consistent with section 

45Y(b)(1)(A)(iii), proposed § 1.45Y– 

2(a)(3) provided that, for purposes of the 

section 45Y credit, a qualified facility 

must have a GHG emissions rate of not 

greater than zero. Proposed § 1.45Y–5(d) 

provided the rules applicable to the 

Secretary for determining a net GHG 

emissions rate for C&G Facilities, 

including for 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 § 1.45Y–5(d)(1) provided, 

consistent with section 45Y(b)(2)(B), 

that the GHG emissions rate for a facility 

that produces electricity through 

combustion or gasification (C&G 

Facility) equals the net rate of GHGs 

emitted into the atmosphere by such 

facility (taking into account lifecycle 

GHG emissions, as described in 42 

U.S.C. 7545(o)(1)(H)) in the production 

of electricity, expressed as grams of 

CO2e per kWh. 

The Treasury Department and the IRS 

received comments supporting these 

proposed regulations and some 

comments recommending alternative 

approaches for evaluating the GHG 

emissions rate of a C&G Facility. One 

commenter recommended that the final 

regulations apply a standard of 

‘‘commercially acceptable practices’’ or 

‘‘commercially reasonable practices’’ as 

of the date of passage of the section 45Y 

and 48E credits for inputs and 

considerations in determining the LCA 

of GHG emissions from a C&G Facility. 

Other commenters recommended that 

the final regulations not take into 

account lifecycle GHG emissions in the 

production of electricity for a C&G 

Facility. Some commenters suggested 

that the final regulations permit the 

GHG emissions rate of a facility to be 

greater than zero. The changes requested 

by these commenters cannot be adopted 

because they are not permitted by the 

statutory mandate to take into account 

lifecycle GHG emissions for C&G 

Facilities as required by section 

45Y(b)(2)(B). 

A number of commenters also 

requested that certain types of C&G 

Facilities be categorically deemed to 

have a net GHG emissions rate of not 

greater than zero in the final regulations. 

Other commenters requested that 

certain types of C&G Facilities be 

categorically deemed to have a net GHG 

emissions rate of greater than zero in the 

final regulations. The Treasury 

Department and the IRS decline to 

adopt this request at this time. 

Additional analysis is required to 

achieve sufficient certainty that a type 

or category of facility has a net GHG 

emissions rate that is greater than or not 

greater than zero as determined by an 

LCA conducted in accordance with the 

principles required under section 

45Y(b)(2)(B) and these final regulations. 

The Treasury Department and the IRS 

note that many C&G Facilities using 

particular technologies and fuel sources 

are highly likely to have GHG emissions 

rates that are greater than zero, whereas 

other C&G Facilities with similar but 

varied technologies or fuels may have 

GHG emissions rates that are not greater 

than zero. For example, review of 

existing scientific and technical 

literature indicates that C&G Facilities 

that combust natural gas—such as 

natural gas-fired boilers and combustion 

turbines—are expected to have GHG 

emissions rates greater than zero, even 

with the use of carbon capture and 

sequestration (CCS) technology, because 

the LCA must consider emissions in the 

fuel lifecycle prior to CCS through the 

point of electricity production and the 

rate of capture and sequestration of 

carbon dioxide produced when 

combusting the gas is not technically 

capable of reaching 100 percent.6

However, subject to further analysis and 

dependent on specific facts and 

circumstances, there may be cases in 

which a C&G Facility that uses a blend 

of natural gas and other feedstocks that 

have negative lifecycle emissions and 

use CCS could potentially achieve 

lifecycle GHG emissions not greater 

than zero. 

A number of commenters submitted 

analyses or referred to studies 

supporting their request that certain 


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types of C&G Facilities that burn 

biomass be categorically deemed to have 

a net GHG emissions rate of not greater 

than zero in the final regulations. Some 

of these comments state that biomass, 

industrial wastes, or manufacturing 

residuals used for generating electricity 

have negative lifecycle GHG emissions. 

The studies submitted in support of this 

recommendation rely on studies that (i) 

use assumptions that are not adopted in 

this final rule, (ii) use assumptions that 

are potentially specific to a particular 

facility and thus are not appropriate for 

use in evaluating the emissions rate for 

a type or category of facility as listed in 

the Annual Table without further study, 

or (iii) do not consistently apply the 

requirements for an LCA that are 

required by these final regulations 

pursuant to the statute. For example, 

some of these studies consider grid 

electricity displacement or fossil fuel 

displacement, neither of which can be 

considered in an LCA for electricity 

generation from C&G Facilities as it is 

outside of the LCA boundary. Moreover, 

some studies do not take into account 

the direct emissions and significant 

indirect emissions outlined in § 1.45Y– 

5(d)(2)(v)(A) and (B) or other 

requirements finalized in this rule. The 

Treasury Department and the IRS will 

continue to consider all analysis 

submitted by commenters in evaluating 

the emissions of the relevant types or 

categories of facilities. However, studies 

that rely on assumptions or LCA 

principles that are inconsistent with the 

requirements of this final rule or those 

within the underlying statute will be 

given less weight. Several commenters 

note that any LCA must include 

rigorous modeling, carefully consider 

assumptions, follow recognized 

protocols, as well as apply consistent 

principles. The Treasury Department 

and the IRS agree that the principles 

identified in these comments reflect 

appropriate LCA practices. 

Furthermore, as stated in the 

preamble to the proposed regulations, 

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 of not 

greater than zero and intend to publish 

the first Annual Table after the 

publication of the final regulations. In 

addition, 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 of greater than zero. Any types or 

categories of facilities that are added or 

removed from this list in the first 

publication of the Annual Table will be 

accompanied by the publication of an 

expert analysis of such change as 

provided in proposed § 1.45Y–5(f)(2). If 

any type or category of C&G Facility is 

added to this list in the publication of 

the Annual Table, the accompanying 

expert analysis of the addition will 

explain the basis for the lifecycle GHG 

emissions analysis that has been 

conducted to determine that a given 

type or category of facility has a net 

GHG emissions rate of not greater than 

zero or greater than zero. 

One commenter noted that the 

proposed regulations assumed a binary 

distinction between C&G Facilities and 

Non-C&G Facilities and requested that 

the final regulations clarify how the 

rules for categorizing facilities would 

apply in the case of fuel-switching 

facilities such as linear generators. The 

Treasury Department and the IRS have 

determined that the classification of a 

facility, such as a linear generator, that 

may or may not produce electricity 

through combustion or gasification 

depends upon the fuel’s method of 

production and whether the facility 

does in fact produce electricity through 

combustion or gasification, and this 

assessment must be made separately for 

each taxable year. A facility that uses a 

fuel produced via combustion or 

gasification in the production of 

electricity any time during a given 

taxable year is properly classified as a 

C&G Facility for the duration of that 

taxable year. For example, if a linear 

generator exclusively uses hydrogen 

produced with electrolysis or other fuels 

not produced via combustion or 

gasification during a taxable year, then 

that linear generator would be a NonC&G Facility for that taxable year. 

However, if in the production of 

electricity, a facility uses a fuel 

produced using combustion or 

gasification (for example, steam 

methane reforming) during a taxable 

year, even if only to produce a portion 

of the electricity generated that year, 

that facility is a C&G Facility for that 

year. Such facility’s status can change 

from year to year depending on the fuel 

it uses during a taxable year. The 

Treasury Department and the IRS view 

this scenario as analogous to the 

treatment of WERP facilities and fuel 

cells. 

A few commenters recommended that 

the net rate of GHGs emitted into the 

atmosphere by a C&G Facility should 

not take into account lifecycle GHG 

emissions because there is no similar 

requirement when calculating the GHG 

emissions rate of Non-C&G Facilities. 

Section 45Y(b)(2)(B) states that, ‘‘[i]n the 

case of a facility which produces 

electricity through combustion or 

gasification, the [GHG] emissions rate 

for such facility shall be equal to the net 

rate of [GHGs] emitted into the 

atmosphere by such facility (taking into 

account lifecycle GHG emissions, as 

described in . . . 42 U.S.C. 

7545(o)(1)(H))) in the production of 

electricity, expressed as grams of CO2e 

per kWh.’’ Because the requirement that 

lifecycle GHG emissions be taken into 

account for C&G Facilities is statutory 

and does not apply to Non-C&G 

Facilities, the final regulations cannot 

implement this recommendation. 

One commenter recommended that 

C&G Facilities be subject to an 

attributional LCA rather than a 

consequential LCA. This commenter 

stated that consequential models are 

highly dependent on the assumptions 

used, are more complex, and have more 

uncertainty. 

The Treasury Department and the IRS 

have determined that a consequential 

analysis is required to accurately assess 

GHG emissions outcomes under section 

45Y(b)(2)(B), which requires taking into 

account lifecycle GHG emissions, as 

described in 42 U.S.C. 7545(o)(1)(H). As 

explained in the preamble to the 

proposed regulations, in a 2010 noticeand-comment rulemaking establishing 

the regulatory framework for the 

updated renewable fuel standard (RFS) 

program, the EPA interpreted 42 U.S.C. 

7545(o)(1)(H) as requiring the agency to 

account for the real-world emissions 

consequences of increased production 

of biofuels. The EPA determined that, in 

the context of the RFS program, the 

inclusion of ‘‘direct emissions and 

significant indirect emissions such as 

significant emissions from land-use 

changes’’ in 42 U.S.C. 7545(o)(1)(H) 

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 have determined it is 

appropriate to adopt this interpretation 

and overall approach in the context of 

the section 45Y and 48E credits. The 

Treasury Department and the IRS 

further note that attributional analytical 

approaches may be part of the broader 

consequential analysis in appropriate 

cases. 

2. LCA Requirements 

Proposed § 1.45Y–5(d)(2) provided 

certain requirements for conducting an 

LCA of GHG emissions for purposes of 

the section 45Y and 48E credits. These 


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requirements and responsive comments 

are discussed in section VIII.C. of this 

Summary of Comments and Explanation 

of Revisions. See also section VIII.F. 

(Carbon Capture and Sequestration) and 

section VIII.E.4. (Use of Natural Gas 

Alternatives) of this Summary of 

Comments and Explanation of Revisions 

for a discussion of responsive comments 

addressing the requirements of 

proposed § 1.45Y–5(d)(2) in relation to 

those topics. 

a. Starting Boundary 

Proposed § 1.45Y–5(d)(2)(i) provided, 

for the purposes of the section 45Y and 

48E credits, a definition of the starting 

boundary for an LCA involving 

generation-derived feedstocks (such as 

biogenic feedstocks) and for an LCA 

involving extraction-derived feedstocks 

(such as fossil fuel feedstocks). 

One commenter expressed support for 

the starting boundaries provided in the 

proposed regulations. Another 

commenter opposed the proposed 

starting boundary, asserting that the 

boundaries for a C&G Facility should be 

the same as those for a Non-C&G 

Facility. Because the statute requires 

distinct treatment of a C&G Facility and 

a Non-C&G Facility in assessing their 

GHG emissions rate, the final 

regulations do not adopt this 

commenter’s request. 

One commenter asserted that section 

45Y is ‘‘limited by statute to the 

boundaries of the electricity generation 

facility (which may include carbon 

capture equipment) but excludes 

upstream and downstream emissions.’’ 

The Treasury Department and the IRS 

have determined that the change 

requested by this commenter would be 

contrary to the statute because it would 

fail to give effect to the requirement in 

section 45Y(b)(2)(B) that the net rate of 

GHG emissions for a C&G Facility take 

into account lifecycle GHG emissions as 

described in 42 U.S.C. 7545(o)(1)(H). 

Therefore, the final regulations do not 

adopt this commenter’s 

recommendation. 

Another commenter requested that 

the final regulations clarify the activities 

that constitute the starting boundary. 

The commenter requested that the final 

regulations provide a specific example 

illustrating that the starting boundary 

for biomass feedstock includes the 

activities to grow the plant material. The 

Treasury Department and the IRS have 

determined that such activities are 

sufficiently included within the 

definition of starting boundary, and no 

further examples are required within the 

final regulations. 

After consideration of all comments, 

the Treasury Department and the IRS 

have determined that the final 

definition of starting boundary should 

be adopted without substantive change. 

b. Ending Boundary 

Proposed § 1.45Y–5(d)(2)(ii) provided, 

for the purposes of the section 45Y and 

48E credits, that 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 electricity production at a 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. For the 

reasons provided in the preamble to the 

proposed regulations, 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, 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) but 

rather occur in the distribution and use 

of such electricity. The preamble to the 

proposed regulations further explained 

that this result is consistent with section 

45Y(b)(2)(B) (and the term ‘‘ultimate 

consumer’’ in 42 U.S.C. 7545(o)(1)(H) as 

referenced therein) because it would 

treat the C&G Facility as the ultimate 

consumer of the fuel used to produce 

electricity. 

Several commenters supported the 

ending boundary of the LCA provided 

in the proposed regulations. Other 

commenters requested that the ending 

boundary of the LCA be extended to 

take into the account circumstances in 

which the emissions from a C&G 

Facility or the emissions related to the 

production of electricity available on 

the grid are less than they would have 

been in the absence of the credits 

because of a facility’s use of a different 

fuel or feedstock. 

The Treasury Department and the IRS 

have determined that extending the 

ending boundary of the LCA as 

requested by these commenters would 

impermissibly shift the GHG emissions 

rate inquiry from whether electricity 

production at a C&G Facility has a net 

GHG emissions rate of not greater than 

zero to whether such facility has fewer 

emissions than either (i) the emissions 

the C&G Facility would have or did 

have in the absence of the credit or (ii) 

the marginal unit emissions of the grid 

to which the facility is connected. 

Conducting the LCA in such a manner 

would conflict with the plain text of the 

statute, which requires that the net rate 

of GHGs emitted by a C&G Facility, 

considering lifecycle GHG emissions, in 

the production of electricity not be 

greater than zero. 

Furthermore, the Treasury 

Department and the IRS have 

determined that the meter at the point 

of electricity production at a C&G 

Facility is an appropriate ending 

boundary because eligibility for the 

section 45Y and 48E credits depends on 

the net rate of GHG emissions associated 

with electricity production rather than 

use. Extending the boundary beyond the 

meter would consider activities that are 

beyond the scope of electricity 

generation which is beyond the scope of 

these provisions. For these reasons and 

the reasons further explained in section 

VIII.C.2.f. of these Summary of 

Comments and Explanation of 

Revisions, the final regulations do not 

adopt this request, and the definition of 

ending boundary is adopted as 

proposed. See section VIII.C.2.f. of these 

Summary of Comments and Explanation 

of Revisions for further discussion of the 

interaction between the LCA ending 

boundary, avoided emissions, and use 

of a particular fuel or feedstock in the 

generation of electricity in lieu of a fuel 

or feedstock with a greater rate of GHG 

emissions. 

The Treasury Department and the IRS 

further note that the ending boundary of 

an LCA, as discussed earlier, is not 

intended to limit the rules applicable to 

carbon capture and sequestration. See 

section VIII.F. of these Summary of 

Comments and Explanation of Revisions 

for further discussion of these carbon 

capture and sequestration rules. 

c. Baseline 

Proposed § 1.45Y–5(d)(2)(iii) provided 

that an LCA must be based on a future 

anticipated baseline, which projects 

future status quo in the absence of the 

availability of the section 45Y and 48E 

credits (taking into account anticipated 

changes in technology, policies, 

practices, and environmental and other 

socioeconomic conditions). 

The Treasury Department and the IRS 

received comments on several aspects of 

the proposed rule regarding an LCA 

baseline. A number of commenters 

recommended that an LCA baseline take 

into account the relevant laws and 

regulations already in place, including 

any mitigation of emissions already 

legally required. The Treasury 

Department and the IRS have 

determined that this recommendation is 

already incorporated in the proposed 

rule on LCA baselines, which project 

the future status quo, including relevant 

laws and regulations, in the absence of 

the availability of the section 45Y and 

48E credits. As such, a baseline would 


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necessarily incorporate mitigation of 

emissions already required, and the 

effects of other law and regulations. 

Accordingly, further clarification in the 

final rule is unnecessary. 

Some commenters supported the 

proposed rule, while providing 

recommendations on how to approach 

the creation of an LCA future 

anticipated baseline. For instance, one 

commenter recommended considering 

historical data and anticipated future 

conditions under a business-as-usual 

trajectory, incorporating key drivers and 

trends to project future emissions; a 

second commenter recommended a 

dynamic, adaptive baseline that would 

account for broader system effects such 

as market dynamics; and a third 

commenter recommended that the 

baseline focus on the geographic 

location of the facility to accurately 

reflect local conditions and market 

dynamics. The Treasury Department 

and the IRS appreciate this feedback 

and will consider these 

recommendations at a later time as 

development of LCA baselines 

continues. 

The Treasury Department and the IRS 

also received comments specifically 

addressing the approach to LCA 

baselines for biomass feedstocks. One 

commenter encouraged the use of 

historical forest data to inform the 

creation of a baseline, taking into 

account longer growth cycles of forests, 

drivers of regional forest management, 

and economic factors. Another 

commenter recommended that each 

source of woody biomass have its own 

LCA baseline. Finally, one commenter 

recommended that the LCA baseline 

take into account the current use of 

pertinent feedstocks and existing 

facilities. 

The Treasury Department and the IRS 

appreciate these recommendations and 

have taken them into consideration. 

However, given the diversity of fuels 

and feedstocks that may be evaluated in 

creating LCA baselines for the purposes 

of the section 45Y and 48E credits, the 

final regulations provide general 

requirements for baseline development 

but do not specify requirements for 

specific fuels or feedstocks. Therefore, 

the commenters’ specific 

recommendations will not be included 

in the final regulations, but they will be 

considered in developing LCAs for 

purposes of the section 45Y and 48E 

credits in the future. Specific 

recommendations related to LCA 

baselines will be considered and 

addressed as their development 

continues. 

Several commenters recommended 

that the final regulations provide an 

LCA scenario design that compares a 

future anticipated baseline with biomass 

use to one without biomass use. The 

Treasury Department and the IRS have 

determined that this is not the most 

appropriate scenario design with which 

to assess GHG emissions pursuant to 

45Y(b)(2)(B). Such a scenario would 

model a situation in which the entirety 

of the feedstock required for additional 

electricity production comes from 

additional removals of biomass 

materials. The commenters’ suggestion 

would mean testing impacts from only 

one potential outcome at one end of a 

range of potential real-world responses. 

This contrasts with the scenario design 

approach that considers more than one 

likely scenario, which more accurately 

assesses the various ways that feedstock 

is sourced based on the supply options 

and markets in a model. This design 

approach is more accurate because, in 

reality, biomass feedstocks for a facility 

could be sourced from a variety of 

sources, including being diverted from 

other end uses. An LCA should reflect 

best estimates of how and from where 

biomass may be sourced taking into 

account historical and future 

anticipated feedstock, region, and 

market specific conditions. The 

Treasury Department and the IRS 

therefore decline to include these 

commenters’ recommendation in the 

final regulations. 

The Treasury Department and the IRS, 

in consideration of the comments 

received, have determined that certain 

additional principles pertaining to LCA 

baselines will be provided in the final 

regulations. LCA future anticipated 

baselines, which project future status 

quo in the absence of the availability of 

the section 45Y and 48E credits (taking 

into account anticipated changes in 

technology, policies, practices, and 

environmental and other socioeconomic 

conditions), will be updated as 

necessary to capture material regulatory, 

economic, supply chain, or 

environmental changes. The baseline 

must be updated at least every ten years, 

but not more often than every five years. 

Such updates will ensure that any LCA 

baseline applied for purposes of 

determining the net rate of GHG 

emissions associated with C&G 

Facilities under this rule robustly 

reflects the projected future status quo 

in the absence of the section 45Y and 

48E credits. 

d. Offsets and Offsetting Activities 

Proposed § 1.45Y–5(d)(2)(iv) provided 

that 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. 

Several commenters supported this 

proposed rule. However, one 

commenter requested that the final rules 

clarify that offsets and offsetting 

activities are not the same as accounting 

for avoided emissions, as avoided 

emissions are directly related to the 

electricity production value chain. The 

Treasury Department and the IRS have 

determined that such clarification is not 

necessary given the prohibition on 

offsets and offsetting activities provided 

in proposed § 1.45Y–5(d)(2)(iv) and the 

rule provided in proposed § 1.45Y– 

5(d)(2)(vii) that the LCA may consider 

alternative fates of feedstocks and fuels 

and account for avoided emissions. Both 

the prohibition on offsets and offsetting 

activities and the rule that the LCA may 

consider alternative fates and account 

for avoided emissions are retained in 

this final rule. 

Furthermore, after reviewing the 

comments, the Treasury Department 

and the IRS have determined that the 

proposed regulations were not clear in 

the description of offsets and offsetting 

activities. In particular, the reference to 

offsets and offsetting activities that are 

unrelated to the production of 

electricity by the C&G Facility could 

have been read overly broadly to suggest 

that offsets and offsetting activities that 

are related to the production of 

electricity would be allowed. The 

reference was intended to make clear 

that offsets and offsetting activities 

should not be included because they are 

not related to the production of 

electricity or the lifecycle of the fuel 

used in electricity production rather 

than to specify a set of offsets and 

offsetting activities that may be 

permissible. The statute requires a C&G 

Facility’s net GHG emissions rate to 

include the facility’s lifecycle emissions 

from the production of electricity. To 

avoid taxpayer confusion, the Treasury 

Department and the IRS have revised 

the rule in proposed § 1.45Y–5(d)(2)(iv) 

to remove the phrase ‘‘that are unrelated 

to the production of electricity by the 

C&G Facility, including the production 

and distribution of any input fuel.’’ 

e. Principles for Included Emissions 

Proposed § 1.45Y–5(d)(2)(v) provided 

that 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 


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feedstock production and distribution, 

and emissions associated with 

distribution, delivery, and use of 

feedstocks to and by a C&G Facility. The 

preamble to the proposed regulations 

explained that this provision interprets 

the reference to 42 U.S.C. 7545(o)(1)(H) 

as requiring under section 45Y(b)(2)(B) 

that an LCA must take into account 

these emissions as they are a part of the 

full fuel lifecycle through the point of 

electricity production. Proposed 

§ 1.45Y–5(d)(2)(v)(A) provided that, for 

purposes of proposed § 1.45Y–5(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). 

Proposed § 1.45Y–5(d)(2)(v)(B) provided 

that, for purposes of proposed § 1.45Y– 

5(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. The preamble to the 

proposed regulations explained that 

significant indirect emissions may 

include positive or negative emissions, 

and that, for biogenic resources, 

significant indirect emissions may 

include emissions from growth and 

regrowth. 

The Treasury Department and the IRS 

received a range of comments about the 

proposal to include these emissions in 

the LCA. Most comments were 

supportive of this proposed approach. A 

few commenters suggested revisions to 

the proposal. One commenter 

recommended that market effects and 

induced land-use change not be 

assessed in the emissions included in an 

LCA due to what the commenters view 

as limited credible estimates of such 

dynamics. Another commenter cited a 

lack of Congressional intent to include 

market-mediated effects within the 

meaning of ‘‘significant indirect 

emissions’’ as this term does not appear 

in the statute. As explained earlier, the 

Treasury Department and the IRS 

interpret section 45Y(b)(2)(B) as 

requiring these emissions to be 

considered in the LCA, which by citing 

42 U.S.C. 7545(o)(1)(H) directly 

specifies inclusion of ‘‘significant 

indirect emissions such as land use 

change’’. Estimating the emissions 

effects associated with increased 

electricity production, including 

significant indirect emissions such as 

land use change necessarily involves 

some amount of uncertainty, but 

inclusion of such elements was the clear 

Congressional directive. The final 

regulations will therefore not include 

the revisions requested by commenters. 

Another commenter suggested that 

the LCA include emissions from ‘‘copollutants’’ such as sulfur dioxide, 

nitrogen oxides, and fine particulate 

matter, which are not GHG emissions 

within the meaning of sections 45Y and 

48E. The Treasury Department and the 

IRS do not have the authority to adopt 

this proposal, as it is contrary to the text 

of the statute. Section 45Y(b)(2)(B) 

requires that an LCA be conducted to 

determine the amount of GHGs emitted 

into the atmosphere by a facility in the 

production of electricity, expressed in 

grams of CO2e per kWh. Section 

45Y(e)(1) states that ‘‘CO2e per kWh’’ 

means, with respect to any greenhouse 

gas, the equivalent carbon dioxide (as 

determined based on global warming 

potential) per kilowatt hour of 

electricity produced. Section 45Y(e)(2) 

states that ‘‘greenhouse gas’’ has the 

same meaning given such term under 42 

U.S.C. 7545(o)(1)(G), as in effect on the 

date of the enactment of this section. 42 

U.S.C. 7545(o)(1)(G) defines greenhouse 

gas as ‘‘carbon dioxide, 

hydrofluorocarbons, methane, nitrous 

oxide, perfluorocarbons, sulfur 

hexafluoride.’’ The provision further 

states that ‘‘[t]he Administrator may 

include any other anthropogenicallyemitted gas that is determined by the 

Administrator, after notice and 

comment, to contribute to global 

warming.’’ Because ‘‘co-pollutants’’ 

such as sulfur dioxide, nitrogen oxides, 

and fine particulate matter are not GHGs 

within the meaning of 42 U.S.C. 

7545(o)(1)(G), the Treasury Department 

and the IRS do not have the authority 

to adopt the commenter’s proposal. 

The Treasury Department and the IRS 

generally adopt § 1.45Y–5(d)(2)(v) as 

proposed. The Treasury Department and 

the IRS clarify in § 1.45Y–5(b)(10) that 

market-mediated effects are those 

resulting from policy interventions and 

other factors (for example, technological 

advances) that alter the availability of 

and demand for marketed goods and 

activities and their related GHG 

emissions profiles. These effects are 

driven by and result in changes in 

absolute and relative prices which can 

occur at local, national, and global 

boundaries. Examples of marketmediated effects include direct and 

significant indirect emissions, such as 

land use changes or land use 

management changes that result from 

the production of fuels derived from 

biomass and shifts in total market 

demand and supply for input fuels, 

feedstocks and related commodities, 

and other materials, as a result of 

changes associated with the policy 

intervention. 

For further clarity, the final 

regulations better distinguish in 

§ 1.45Y–5(d)(2)(v) between included 

emissions that are direct emissions and 

those that are significant indirect 

emissions. The final rule also clarifies 

that all these emissions are within the 

system boundary of the LCA. 

f. Principles for Excluded Emissions 

Proposed § 1.45Y–5(d)(2)(vi) provided 

a list of types of emissions that the LCA 

must not take into account. The 

Treasury Department and the IRS 

received several comments on these 

proposed excluded emissions from the 

LCA. Several commenters requested that 

further items be excluded from 

emissions accounting in the LCA. For 

instance, a few commenters requested 

the exclusion of emissions resulting 

from standby auxiliary power for 

electrolyzers or emissions from 

supplementary ‘‘peaker plants’’. A few 

commenters proposed that emissions 

resulting from the conditioning and 

distribution of hydrogen be excluded 

from the LCA. In each of these 

instances, the Treasury Department and 

the IRS have determined that such 

emissions may be considered emitted 

into the atmosphere in the production of 

electricity within the meaning of section 

45Y(b)(2)(B), and thus may not be 

appropriately excluded from an LCA. 

The Treasury Department and the IRS 

therefore decline to adopt these changes 

in the final regulations. The final 

regulations adopt the principles for 

excluded emissions as proposed. 

g. Alternative Fates and Avoided 

Emissions 

Proposed § 1.45Y–5(d)(2)(vii) 

provided that an LCA may consider 

alternative fates and may account for 


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avoided emissions. The preamble to the 

proposed regulations defined the term 

‘‘alternative fate’’ to mean a set of 

informed assumptions (for example, 

production processes, material 

outcomes, and 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). The final 

regulations adopt this definition of 

alternative fate in § 1.45Y–5(d)(2)(vii). 

Because the alternative fate for some 

feedstocks may be disposal, in the 

interest of completeness and clarity, 

these final regulations clarify that the 

term ‘‘alternative fate’’ may include the 

disposal of a feedstock. 

The preamble to the proposed 

regulations defined the term ‘‘avoided 

emissions’’ to mean the estimated 

emissions associated with the feedstock, 

including the feedstock’s production 

and use or disposal, 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. The preamble to 

the proposed regulations further 

explained that, while, in some 

circumstances, emissions may be 

avoided if compared to the alternative 

fate, in other circumstances 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. The 

final regulations adopt this definition of 

avoided emissions in § 1.45Y– 

5(d)(2)(vii) without change. 

Many commenters generally 

supported the proposed rule. Several 

commenters opposed allowing the LCA 

to consider alternative fates or avoided 

emissions because the commenters 

asserted that it is not possible to 

accurately measure avoided emissions 

and hence many claims of avoided 

emissions are unreliable. 

Finally, a number of commenters 

suggested guardrails that might be 

implemented in the final regulations or 

in the analysis of emissions to enhance 

accuracy. One commenter 

recommended that the final regulations 

set a minimum carbon intensity score of 

zero for all fuels and feedstocks. The 

Treasury Department and the IRS have 

determined that, while this 

recommendation may have merit with 

respect to certain types of fuels or 

feedstocks, such an approach may not 

be appropriate for all fuels and 

feedstocks. Thus, this recommendation 

will not be adopted in the final 

regulations as a generally applicable 

rule but will be considered in targeted 

cases where the relevant facts and 

circumstances support its application. 

Another commenter suggested that 

analysis of avoided emissions or 

alternative fates of fuel or feedstock 

employ a geographical limiting element 

to address local air pollution and health 

issues. However, sections 45Y and 48E 

do not authorize the Treasury 

Department and the IRS to specifically 

take into account local air pollution and 

health issues in the assessment of GHG 

emissions. Therefore, the Treasury 

Department and the IRS decline to 

adopt this commenter’s 

recommendation in the final 

regulations. 

Several commenters recommended 

that the LCA take into account only 

reliable and documented alternative 

fates that are supported by data, 

including land management records and 

market statistics, showing customary 

practice for the relevant feedstocks or 

fuels. The Treasury Department and the 

IRS agree that taking care to assess the 

reliability and documentation of any 

data elements, including those 

concerning alternative fates is good 

practice for conducting a GHG LCA. 

However, the Treasury Department and 

the IRS decline at this time to require 

the use of specific forms of 

documentation and data sources in the 

final regulations given the diversity of 

fuels and feedstocks and their 

alternative fates that may be evaluated 

for the purposes of the section 45Y and 

48E credits. Therefore, the commenters’ 

recommendation will not be adopted in 

the final regulations. Specific 

substantiation and documentation data 

requirements related to alternative fates 

or avoided emissions may be identified 

for specific fuels or feedstocks in future 

guidance. 

One commenter further recommended 

that prospective claimants of the section 

45Y credit be required to support the 

alternative fate of a feedstock or fuel 

with credible evidence and that 

verification of such fate be required to 

the maximum extent possible. The 

Treasury Department and the IRS view 

this request as covered by a taxpayer’s 

existing general substantiation 

obligations under section 6001 of the 

Code so further clarification in the final 

regulations is not necessary. Therefore, 

the final regulations do not adopt this 

commenter’s suggestion. 

A number of commenters 

recommended that the evaluation of 

alternative fates be comprehensive, with 

suggestions including that the LCA 

assess multiple alternative fates to 

improve the robustness of the analysis, 

that such alternative fates account for 

emissions related to the full fuel 

lifecycle, that alternative fate 

assumptions be updated regularly, and 

that consideration be given to the 

influence of market conditions and 

effects. 

The Treasury Department and the IRS 

agree that ensuring that the LCA 

assessment of alternative fates and 

avoided emissions is comprehensive 

and up to date is critical to ensure 

robust estimation of the net GHG 

emissions rates for C&G Facilities. These 

recommendations will be considered in 

the development of future LCA 

assessments. 

Commenters also opined on whether 

the LCA should take into account 

emissions ‘‘displacement’’ from 

electricity grids. This analytical 

framework assumes that, in the absence 

of the incentive provided by the section 

45Y and 48E credits, fuels or feedstocks 

that would otherwise have a greater 

GHG emissions rate will be used to 

generate electricity, and that the 

assumed reduction in emissions due to 

the use of fuels or feedstocks with a 

lesser GHG emissions rate at a facility 

due to this rule should be taken into 

account when evaluating the net GHG 

emissions rate of a facility using those 

fuels or feedstocks. A number of 

commenters recommended treating this 

displacement as an avoided emission 

that could lessen the net GHG emissions 

rate of a facility using those fuels or 

feedstocks, stating that such treatment 

would spur investment in a number of 

technologies and reduce net GHG 

emissions. 

Other commenters recommended 

against treating this displacement as an 

avoided emission that could lessen the 

net GHG emissions rate of a facility 

using those fuels or feedstocks, asserting 

that to do so would improperly shift the 

GHG emissions rate inquiry from 

whether a C&G Facility has a net GHG 

emissions rate of not greater than zero 

to whether the facility has fewer 

emissions than the marginal unit 

emissions of the grid the facility is on. 

The Treasury Department and the IRS 

have determined that the proposed rule 

in § 1.45Y–5(d)(2)(ii), which states that 

energy sources displaced by the 

electricity generated by a C&G Facility 

are outside of the LCA boundary, should 

be retained in the final regulations. This 

rule appropriately requires that the net 

GHG emissions rate be assessed at the 

level of the C&G Facility, with an 

ending boundary for assessment for 

electricity that is transmitted to the grid 


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or electricity that is used on-site is the 

meter at the point of electricity 

production of the C&G Facility. This 

ending boundary is consistent with 

section 45Y’s focus on the C&G Facility 

and the full fuel lifecycle of any fuel or 

feedstock used by the C&G Facility to 

produce electricity as the relevant 

sources of GHG emissions, rather than 

any change to the emissions profile of 

the electricity grid. 

The Treasury Department and the IRS 

agree with commenters that taking into 

account potential post-production grid 

electricity displacement as an avoided 

emission would impermissibly shift the 

GHG emissions rate inquiry from 

whether electricity production at a 

qualified facility has a net GHG 

emissions rate of not greater than zero 

to whether the facility has fewer 

emissions than the marginal unit 

emissions of the grid to which the 

facility is connected. Conducting the 

LCA in such a manner would conflict 

with the plain text of the statute, which 

requires that the net rate of GHGs 

emitted by a C&G Facility, considering 

lifecycle GHG emissions, in the 

production of electricity not be greater 

than zero. In contrast to this distinct 

concept of displacement of electricity 

production from other more highly 

polluting sources on the electricity grid 

due to electricity produced by a C&G 

Facility, the LCA of electricity 

production calculates the net GHG 

emissions of the electricity production 

by that facility, including by taking into 

account alternative fates and avoided 

emissions of the fuels or feedstocks that 

are themselves used to produce 

electricity at such a facility over the 

entire lifecycle of that particular fuel or 

feedstock or its supply chain. The 

statute directs the Treasury Department 

to calculate the GHG emissions 

associated with electricity production 

by a specific facility. The statute does 

not direct or authorize the Secretary to 

conduct a relative assessment of a 

facility’s GHG emissions before and 

after earning the tax credit or a relative 

assessment of a facility’s electricity 

production volumes and related GHG 

emissions compared to other facilities 

on the grid. For additional clarity, the 

Treasury Department and the IRS have 

determined that proposed § 1.45Y– 

5(d)(2)(vii) should be modified to add 

the phrase ‘‘including for the fuels and 

feedstocks consumed in the fuel and 

feedstock supply chain and at the 

electricity generating facility.’’ 

The Treasury Department and the IRS 

also received many comments regarding 

the purported alternative fates or 

avoided emissions associated with the 

use of a particular fuel or feedstock. 

Several commenters requested that an 

LCA of municipal solid waste take into 

account emissions that may be avoided 

by use of such waste to produce 

electricity rather than placement in a 

landfill. Others shared their views or 

research on common alternative fates of 

woody biomass, including natural 

decay, prescribed burning, wildfire fuel, 

and transfer to disposal sites. 

The Treasury Department and the IRS 

appreciate the information shared by 

commenters on these matters and have 

taken it into consideration. Because 

these assertions make technical claims 

that must be evaluated in the context of 

an LCA and because they are applicable 

to only certain categories of feedstocks, 

the Treasury Department and the IRS 

have determined that incorporation of 

these recommendations in the final 

regulations as a broadly applicable rule 

would not be appropriate. 

Finally, commenters had mixed 

reactions to the assertion that the use of 

woody biomass in the production of 

electricity drives forest regrowth that 

might render the use of such feedstock 

carbon neutral for purposes of the 

section 45Y and 48E credits. Some 

commenters asserted that woody 

biomass, when used to produce 

electricity, has a net GHG emissions rate 

of not greater than zero, and that 

therefore, facilities using such feedstock 

should be included as qualified 

facilities in the final regulations and in 

the Annual Table. 

Because section 45Y(b)(2)(B) requires 

taking into account lifecycle GHG 

emissions as described in 42 U.S.C. 

7545(o)(1)(H), the Treasury Department 

and the IRS do not have the authority 

to designate such facilities as qualified 

facilities before ensuring that an LCA 

specific to implementation of sections 

45Y and 48E is conducted in accordance 

with statutory requirements. The 

Treasury Department and the IRS thus 

decline to adopt these commenters’ 

recommendations in the final 

regulations. The Treasury Department 

and the IRS appreciate commenters’ 

feedback and note in particular that 

certain woody biomass-derived 

feedstocks require significant energy 

inputs which could make qualification 

of facilities using these specific 

feedstocks unlikely (for example, 

pelletized biomass due to the electricity 

used in pelletization processes). 

D. 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 48E 

credits. The Treasury Department and 

the IRS requested comment on the 

following topics: (i) the treatment of 

RNG and fugitive sources of methane; 

(ii) analytical LCA parameters, 

including spatial scales and time 

horizons; (iii) whether and how to 

distinguish between co-products, 

byproducts, and waste products and 

how emissions should be allocated to 

each in LCAs; (iv) how to attribute 

emissions to the heat produced by 

facilities using combined heat and 

power systems; (v) how to create and 

maintain LCA baselines; and (vi) certain 

issues related to LCA modeling. 

1. Analytical LCA Parameters, Including 

Spatial Scales and Time Horizons 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS requested comment on the 

analytical LCA parameters that are most 

relevant to particular types of categories 

of C&G Facilities that may be eligible for 

the section 45Y and 48E credits. In 

particular, the Treasury Department and 

the IRS requested 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 section 45Y 

and 48E credits. As noted in the 

preamble to the proposed regulations, 

spatial scale involves defining the area 

over which emissions outcomes will be 

evaluated. Temporal scale involves 

defining the time period over which 

emissions outcomes 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. 

The Treasury Department and the IRS 

received a number of comments on 

these topics. 

a. Temporal Scales 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS requested comment 

regarding what factors should be 

considered in establishing the 

timeframe for the LCA analysis. 

Commenters suggested a number of 

specific considerations. Multiple 

commenters advocated for the LCA to 

account for the full timeframe over 

which lifecycle emissions can occur, 

with some commenters specifically 

asking for a ‘‘climate-relevant’’ 

timeframe. A commenter argued that a 

full accounting of the effects of activities 

should include the effects of small-scale 

projects over long time frames with each 

activity assessed individually. Another 

commenter argued that the full 


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7Regulatory Impact Analysis for Renewable Fuel 

Standard (RFS) Program: Standards for 2023–2025 

and Other Changes, Section 4.2.2. (pp129–130), 

available at https://nepis.epa.gov/Exe/ 

ZyPDF.cgi?Dockey=P1017OW2.pdf. 

timeframe over which emission effects 

persist into the future should be 

included. Conversely, a commenter 

noted that any approach that requires 

use of long-run future marginal grid 

emissions projections could be 

prohibitively challenging or 

problematically inaccurate. Some 

commenters advocated for inclusion of 

all relevant emissions fluxes on the 

same timescale. A commenter suggested 

counting any emissions 

counterbalanced by the regrowth of 

feedstock on the same time scale as the 

positive emissions from combustion and 

other direct and indirect positive 

emissions. A commenter also asked to 

match the time horizon with the 

economic life of a plant that abates 

existing methane or other GHG 

emissions. Some commenters argued 

that no specific geographic or temporal 

requirements were required as long as 

the timeframe covered the occurrence of 

emissions in the counterfactual 

scenario. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS requested comment 

regarding what timeframe would 

provide confidence that significant 

emissions have been accounted for. 

Commenters suggested a wide variety of 

specific lengths of time, citing a variety 

of policy reasons. Some commenters 

suggested time horizons of 100 years (or 

more), citing the importance of 

accounting for potential long-term 

changes in emissions in order for certain 

feedstocks to qualify. Other commenters 

advocated for much shorter time 

horizons. One commenter requested that 

CHP property which relies on 

combustion, such as woody biomass 

energy, should be required to show 

carbon-neutrality over a short period of 

time such as a year. Multiple 

commenters advocated for a 10-year 

time horizon. Commenters also cited 

potential ranges somewhere in the 

middle, such as 20 to 50 years or 20 to 

25 years. 

After thorough review of the 

comments the Treasury Department and 

the IRS have determined that it is 

appropriate to base the selection of 

temporal scale on the regulatory 

context. This is reinforced by the 2019 

recommendations by the Science 

Advisory Board (SAB) on EPA’s Draft 

2014 Framework for Assessing Biogenic 

CO2 Emissions from Stationary Sources. 

The SAB recommended ‘‘using the 

‘emissions horizon’ that is determined 

to be relevant by the specific regulatory 

objective,’’ meaning the technical choice 

should be contingent upon the specific 

policy and regulatory context. The SAB 

went further to state that ‘‘the SAB 

favors selecting the time horizon for 

calculating the [factor representing the 

net atmospheric biogenic CO2

contributions associated with biogenic 

feedstock production, processing, and 

use at a stationary source] to comport 

with the objective under consideration, 

which is generally dependent on the 

regulation mandating use of that 

particular [factor].’’ ISO guidance also 

states that an LCA should be conducted 

within the context of a specified goal. 

The broader regulatory context 

requires the Treasury Department and 

the IRS to balance multiple 

considerations. The statute creates a 

pathway for C&G Facilities that have a 

net GHG emissions rate of zero or less 

as determined via LCA to qualify for the 

credit. Setting a relatively short time 

horizon would not allow for the 

consideration of potential increases or 

decreases in emissions that can occur as 

the result of electricity production, such 

as the regrowth of biogenic feedstocks or 

increased emissions from land use or 

land use management changes. 

However, while biogenic feedstock 

regrowth can occur over long 

timescales, commenters have raised 

significant concerns that longer time 

horizons introduce additional 

uncertainty about the likelihood that 

these theoretical future scenarios and 

emissions-offsetting activities will occur 

in practice. This uncertainty 

significantly decreases the confidence of 

the Treasury Department and the IRS 

that LCAs with a longer time horizon 

will ensure that a facility meets the 

requirements of the statute. Moreover, 

the broader structure of the IRA and 

specific features of sections 45Y and 

48E—including the phase-out of the 

credit occurring after the later of 2032 

or the achievement of specified GHG 

emissions reduction target and the 

requirement that qualified facilities 

have a GHG emissions rate of zero or 

less—demonstrate congressional intent 

for the section 45Y and 48E credits to 

contribute to significant reductions of 

GHG emissions in the power sector in 

the near- to medium-term. Setting a 

temporal scale that allows C&G 

Facilities that do not contribute to the 

reduction of GHG emissions (or even 

increase GHG emissions) in the nearand medium-term would also frustrate 

congressional intent. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS asked whether the LCA 

should 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 that would be reflected in the 

choice of temporal scale. Although some 

commenters advocated for applying 

different time horizons in different 

contexts (for example, for different 

electricity production pathways), the 

Treasury Department and the IRS have 

determined that it furthers the interest 

of fairness and administrability in the 

tax system to apply consistent rules for 

all LCAs under sections 45Y and 48E. 

Applying different time horizons, 

including different assessment and 

emissions horizons, in different contexts 

could lead to taxpayer confusion and 

disparate treatment for similarly 

situated facilities. Moreover, a single 

time horizon would allow LCAs to be 

conducted as efficiently and accurately 

as possible. The Treasury Department 

and the IRS further clarify that the final 

rules in § 1.45Y–5(d)(2)(viii) adopt the 

same assessment horizon and emissions 

horizon. 

In balancing these considerations and 

commenters’ different views, the final 

regulations adopt a time horizon for 

LCA of 30 years from the year in which 

a qualified facility produces electricity 

(or, for purposes of the section 48E 

credit, the year in which a qualified 

facility was placed in service). This 30- 

year time horizon is supported by 

several points, including consistency 

with the longstanding time horizon for 

EPA’s RFS program. This program, 

authorized under the Energy Policy Act 

of 2005 and expanded under the Energy 

Independence and Security Act of 2007, 

determined that GHG emissions analysis 

for renewable fuels would quantify the 

GHG impacts over a 30-year period in a 

March 2010 rule (75 FR 14670) (RFS2). 

A 30-year analysis time period was 

further maintained in the Final 

Renewable Fuels Standards Rule for 

2023, 2024, and 2025.7 The RFS2 rule 

made this determination balancing a 

number of considerations, including the 

expected life of biofuel production 

facilities—and their long-term market 

impacts on emissions—and the inherent 

uncertainty in estimating GHG 

emissions over a longer period of time. 

The Treasury Department and the IRS 

assess that solely for the purposes of 

setting temporal scales in these final 

regulations, the section 45Y and 48E 

credits and RFS2 are similar regulatory 

contexts based on the information 

currently available. 

A commenter advocated for 

modifying the Greenhouse Gases, 


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Regulated Emissions, and Energy use in 

Transportation model (GREET model) to 

capture 20-year and 100-year time 

horizons as the GREET model already 

uses the GWP metric to capture both 

near-term and long-term climate 

impacts. The Treasury Department and 

the IRS note that the temporal scale of 

the LCA is the time period over which 

GHG emissions are assessed in the 

context of sections 45Y and 48E, rather 

than the warming potential of such 

emissions. Reliance upon specific GWPs 

to determine time horizons or upon the 

GREET model, which is a particular 

model that does not generally include 

explicit temporal considerations when 

applying certain assumptions about 

what activities and related GHG 

emissions to include, is therefore 

separate from the issue of temporal 

scales. The decision to use GWP–100 is 

discussed in section VIII.A.1. of this 

Summary of Comments and Explanation 

of Revisions. 

b. Spatial Scales 

Commenters also submitted a wide 

range of recommendations pertaining to 

spatial scales. A few commenters 

recommended that spatial boundaries be 

set narrowly around the geographic 

location of the facility, which they 

stated would more accurately reflect 

local conditions. Another commenter 

advocated for setting spatial scales such 

that they capture the potential impact of 

having multiple facilities with a GHG 

emissions rate of greater than zero in the 

same area. One commenter suggested 

that the LCA spatial scales not be 

beyond the facility producing the 

feedstock. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS asked (i) what factors 

should be considered to assess whether 

a global scale is necessary for certain 

feedstocks to ensure that significant 

emissions are captured, and (ii) whether 

all feedstock/fuels assessments should 

be conducted with the same spatial 

scale to determine the extent to which 

increased use has estimated global 

ramifications. Some commenters had 

feedstock-specific suggestions regarding 

appropriate spatial scales. Several 

commenters recommended that, in the 

case of woody biomass, spatial 

boundaries be broad to more accurately 

represent forest dynamics. A commenter 

also suggested that spatial scales not be 

limited when taking into account 

wastes, including when such wastes are 

managed outside of the United States. 

After consideration of all comments 

and of LCA modeling practices that take 

into account the full lifecycle of 

emissions as described by 42 U.S.C. 

7545(o)(1)(H), the Treasury Department 

and the IRS have determined and 

provided in § 1.45Y–(d)(2)(ix) that 

spatial scales analysis for LCAs 

conducted for the section 45Y and 48E 

credits should identify GHG effects from 

changes in input fuel or feedstock 

production and use, including indirect 

emissions effects stemming from 

market-related changes in supply and 

demand. When estimating the net GHG 

emissions outcomes associated with a 

fuel or feedstock that has current or 

anticipated market uses and thus 

potential market-mediated impacts for 

the entity-level analysis (that is, for a 

Provisional Emissions Rate (PER)) or 

generally applicable analysis (that is, for 

the Annual Table), the LCA assessment 

must start with a qualitative market 

analysis to aid with the formation of 

parameters and other decisions in the 

LCA modeling. This market analysis 

serves the purpose of analyzing whether 

the prospective fuel or feedstock has 

been or is anticipated to be used directly 

in or as an input to an activity or 

commodity in local markets, is 

transported for use in domestic markets 

elsewhere, or is traded for use in 

international markets, whether use of 

the material does or is anticipated to 

have significant ramifications on other 

markets, and the magnitude of the use 

or anticipated use. Findings of this 

assessment should inform the decisions 

about what spatial scales, such as subregional, regional, national, or 

international, are most appropriate for 

assessing the market and related GHG 

emissions effects associated with the 

feedstock and use case under 

consideration. The GHG emissions 

analysis should then be conducted 

using the designated model(s) with the 

applicable spatial scales to estimate the 

market and GHG emissions implications 

of changing supply flows to provide the 

feedstock for energy purposes and 

sourcing new or additional feedstock 

material for electricity generation across 

the applicable market and spatial scales 

for use in the LCA assessment to 

determine the net GHG emissions rate 

needed as part of the eligibility 

qualification for the section 45Y and 

48E credits. If the initial market analysis 

concludes that the prospective feedstock 

is (i) not currently, has not recently, nor 

is anticipated in the future in the 

absence of the section 45Y and 48E 

credits to be used or sold on the market, 

(ii) not used as an input to an activity 

or good in local markets, (iii) not 

transported for use in domestic markets 

elsewhere, (iv) not traded for use in 

international markets, or (v) use of the 

material does not or is not anticipated 

to have significant ramifications on 

other markets, then an analysis of 

market-mediated impacts would only 

need to apply across the spatial scales 

that are applicable to the fuel or 

feedstock in the LCA emissions 

assessment. 

2. Distinguishing Between Co-Products, 

Byproducts, and Waste Products and 

How Emissions Should Be Allocated to 

Each in LCAs 

As explained in the preamble to the 

proposed regulations, the categorization 

and assessment of products as coproducts, byproducts, or waste products 

in an LCA may affect the LCA’s results. 

The preamble to the proposed 

regulations provided potential 

definitions to guide the categorization of 

co-products, by products or waste 

products and further provided that 

products, co-products, byproducts, and 

wastes may all be produced in the full 

fuel cycle or used as inputs to the same. 

The preamble to the proposed 

regulations further explained that the 

categorization of products as coproducts, byproducts, and waste 

products may be relevant to an LCA’s 

assessment of the GHG 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 section 45Y and 48E 

credits have the ability to distinguish 

between such categories. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS stated an intent to clarify 

the principles for categorizing products 

as co-products, byproducts, or waste 

input materials and products and 

assessing the emissions outcomes for 

such products in an LCA for C&G 

Facilities in the final regulations for the 

section 45Y and 48E credits if such 

categorization is relevant to the LCA 

model or models used. To inform the 

development of these categorization 

principles for the final regulations, in 

the preamble to proposed regulations 

the Treasury Department and the IRS 

requested comment on what principles 

should be used to distinguish between 

co-products, byproducts, and waste 

products for the purposes of the section 

45Y and 48E credits. The Treasury 

Department and the IRS also asked 

whether there are common scientific or 

industry definitions that can be relied 

upon to distinguish between coproducts, byproducts, and waste 

products. 

The Treasury Department and the IRS 

received a large number of comments in 

response to these questions. A few 

commenters suggested broad principles 


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that should be used to distinguish 

between co-products, byproducts, or 

waste products. One such commenter 

recommended that the definitions of coproducts, byproducts, and waste 

products be less rigid than those shared 

in the preamble to the proposed 

regulations and that they reflect the 

scientific literature on the lifecycle GHG 

emissions of various materials. Another 

commenter recommended that the final 

regulations adopt simple common-sense 

definitions that assign emissions of the 

facility to primary products and coproducts. This commenter further 

suggested that all materials left over 

after the production of any primary 

products be deemed waste unless they 

have significant value, and that the full 

breadth of potential co-product 

materials be considered. Another 

commenter recommended that the final 

regulations provide a broad definition of 

residue materials, citing the need to give 

industry the ability to respond to local 

market forces. Another commenter 

recommended using mass-based 

allocation to allocate emissions to coproducts, byproducts, and waste 

products, stating that such an approach 

is straightforward to administer and can 

reduce abuse. 

A number of commenters opposed 

distinguishing between co-products, 

byproducts, and waste products for the 

purposes of the section 45Y and 48E 

credits. Several stated that such 

categorization of products would result 

in impermissibly failing to associate all 

GHG emissions to the feedstock or fuel 

that produced the electricity, or that if 

such categories do not do so, they are 

therefore irrelevant. Some commenters 

opposed to such categorization noted its 

complexity, with one commenter stating 

opposition to including these categories 

in the final rule in favor of expert 

agencies due to the highly technical 

nature of the work. Another commenter, 

noting the complexity of the 

designations, recommended using 

caution in any such categorization 

process to avoid rewarding emissions 

shifting rather than a true reduction in 

emissions. 

The Treasury Department and the IRS 

have determined that distinguishing 

between co-products, byproducts, and 

waste products will help facilitate 

efficient and consistent LCA taking into 

account lifecycle GHG emissions as 

described in 42 U.S.C. 7545(o)(1)(H). 

Moreover, providing a framework of 

categorization will facilitate 

communications among stakeholders by 

providing a common set of terms. Such 

designations were also used in EPA’s 

2010 notice-and-comment rulemaking 

establishing the regulatory framework 

for the updated RFS program, in which 

EPA interpreted 42 U.S.C. 7545. 

The Treasury Department and the IRS 

have determined that, as noted in the 

preamble to the proposed regulations, it 

is appropriate to provide clarifications 

to the definitions of products, coproducts, byproducts, and waste and the 

principles for categorizing and 

informing the assessment of the GHG 

emissions associated with such 

materials in an LCA for C&G Facilities 

in the final regulations under § 1.45Y– 

5(d)(2)(x) for the section 45Y and 48E 

credits. These clarifications were 

informed by consideration of the 

comments received on these definitions 

and principles in the proposed 

regulations. The Treasury Department 

and the IRS have also determined that 

these clarifications are consistent with 

the statutory direction in section 45Y to 

determine GHG emissions rates taking 

into account lifecycle GHG emissions as 

described in 42 U.S.C. 7545(o)(1)(H). 

The EPA interpreted 42 U.S.C. 

7545(o)(1)(H) as requiring the agency, in 

the RFS context, to account for the realworld emissions consequences of 

increased production of biofuels, 

including consideration of market 

interactions that may result in indirect 

emissions. The Treasury Department 

and the IRS find that the clarifications 

to these definitions and principles 

therefore appropriately incorporate the 

concepts of marketability and market 

effects in the context of the designation 

and emissions assessment of primary 

products, co-products, byproducts, and 

waste products. 

These clarifications include the 

definitions in § 1.45Y–(d)(2)(x)(A)(1) 

through (4): 

• A ‘‘primary product’’ is an input or 

an output with marketability and is the 

main driver of the process from which 

it is produced. 

• A ‘‘co-product’’ is an input or an 

output with marketability that is 

produced together with another 

product, both of which are economic 

drivers of the process from which they 

are produced. 

• A ‘‘byproduct’’ is an input or an 

output that is produced together with 

another product, and which has a 

market recognized economic value of 

zero or greater, but the output is not an 

economic driver of the process from 

which it is produced. 

• A ‘‘waste product’’ is an input or an 

output with negative economic value, 

demonstrated by (1) the absence of a 

market in which the product is 

purchased and sold and (2) the 

existence of a market in which 

producers pay for the collection and 

removal or disposal of the input or 

output material or the existence of a 

predominant operational practice in 

which producers themselves collect and 

remove, give away, or dispose of the 

input or output material as part of 

operational processes. 

For the purposes of these definitions, 

the Treasury Department and the IRS 

note that a ‘‘market’’ should be an 

established set of transactions between 

parties and that whether or not a market 

exists—and therefore the categorization 

of the same product—may vary by 

region. A single or very small number of 

local transactions of insignificant 

volumes at nominal prices to expedite 

disposal generally would not constitute 

a market. Moreover, the existence of a 

market and therefore the analysis of 

market-mediated effects for a particular 

product or material does not prejudge 

the magnitude of those effects. For 

example, a market may have existed in 

the past for a particular product or 

material, but market analysis may 

indicate that this market is anticipated 

to not exist in the future, and vice versa. 

Relatedly, for the purposes of these 

definitions, marketability is defined as 

the ability to be consistently sold or 

marketed in the regular course of 

business. 

For example, an input or output 

generated as part of operational 

processes that would otherwise be 

subsequently: (i) given away; (ii) sold at 

nominal prices to expedite disposal; or 

(iii) disposed of (without creating a 

commercial product or generating 

electricity) by burning onsite, burying, 

piling and burning onsite or leaving to 

decompose, or scattering would 

generally be considered a waste for the 

purposes of these definitions. 

Consistent with this approach, the 

final regulations also add in § 1.45Y– 

5(d)(2)(x)(B)(1) through (6) principles 

for categorizing and informing the 

assessment of the GHG emissions for 

such materials in an LCA for C&G 

Facilities for the section 45Y and 48E 

credits if such categorization is relevant 

to the LCA model or models used. The 

principles are as follows: 

• All classification of materials and 

LCAs should take into account relevant 

geospatial variations in supply and 

demand (that is, differences across local, 

sub-regional, and larger regions), as well 

as variations across specific product 

types and characteristics, and producer 

types as relevant. For example, a 

material may meet the previously 

described definition of a waste in 

certain regions and the definition of a 

by-product or co-product in other 

regions. 

• The LCA should assess whether 

there are market-mediated effects and, if 


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so, take these into account as part of the 

GHG analysis. In some cases, marketmediated effects will be small or 

nonexistent. 

• Regardless of how a material is 

categorized, the LCA should consider 

whether the availability of the section 

45Y and 48E credits is expected to 

result in additional production of that 

material or in material changes in the 

supply chain, and, if so, should take 

into account the direct and indirect 

emissions impact of the additional 

production or changes in the supply 

chain. 

• Policy and other interventions (for 

example, technological advances) can 

alter the availability and demand for 

marketed goods and services, which can 

alter the treatment of materials once 

disposed of. Therefore, reevaluation of 

material categorization should occur at 

least every ten years, but not more often 

than every five years. 

• All determinations of marketability, 

market-mediated effects, and behavioral 

changes must be supported by an 

analytical assessment performed by one 

or more National Laboratories, in 

consultation with other Federal agency 

experts as appropriate. 

• A material should be considered to 

have a market recognized economic 

value and an established market if one 

existed within the last five years as of 

the date of the analysis. 

To inform the development of these 

categorization principles for the final 

regulations, in the preamble to proposed 

regulations the Treasury Department 

and the IRS requested comment on what 

principles should be used to determine 

whether a product has sufficient value 

to be considered a co-product or 

byproduct. Two comments were 

received in response. These commenters 

stated that if a policy rewards the use of 

a waste product, that product has 

inherent value, and that that value 

could possibly surpass the value of the 

ostensible primary product. One such 

commenter noted that this would make 

these materials co-products. Another 

recommended that the Treasury 

Department rigorously interrogate the 

designation of waste fuels because of the 

change in value of such items due to the 

section 45Y and 48E credits as well as 

any other relevant subsidies. This 

commenter further suggested that when 

product designation is likely shifted as 

a result of these incentives, so should 

the associated emissions accounting. 

The Treasury Department and the IRS 

have considered these comments and 

others in evaluating the appropriate 

definition and treatment of co-products. 

The Treasury Department and the IRS 

have determined that the definition of 

‘‘co-product’’ will be amended in the 

final regulations under § 1.45Y– 

5(d)(2)(x)(A)(2) to reflect that a coproduct not only must be an economic 

driver of the production process 

alongside another product, but also 

must have marketability. However, 

regardless of how a material is 

categorized, the LCA will consider 

whether the availability of the section 

45Y and 48E credits can result in 

additional production of that material or 

changes within the production and 

supply chain of that material and take 

into account any direct and indirect 

GHG emissions outcomes of the 

additional production or any such 

supply chain changes. Furthermore, 

because policy and other interventions 

can alter the availability and demand for 

marketed goods and services, even 

turning waste products into byproducts, 

co-products, or even primary products, 

the categorization of materials will be 

reevaluated and must be updated at 

least every ten years, but not more often 

than every five years. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS also requested comment 

regarding whether the section 45Y and 

48E 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 section 45Y and 48E 

credits. The Treasury Department and 

the IRS also asked how this additional 

economic incentive should be 

considered to determine if a product is 

a waste product, byproduct, or coproduct, and asked whether this 

categorization should be reevaluated 

and, if so, how often. 

The Treasury Department and the IRS 

received several comments about the 

economic incentive for the consumption 

of a product categorized as waste prior 

to the availability of the incentive 

provided by the section 45Y and 48E 

credits. One commenter recommended 

that, because of this possible incentive, 

the final regulations not distinguish 

between co-products, byproducts, and 

wastes for the purposes of emissions 

allocation. For all materials, the LCA 

must consider whether the availability 

of the section 45Y and 48E credits can 

result in additional production or use of 

that material, or changes in the 

production of or supply chain to 

provide that material and take into 

account any direct and indirect 

emissions outcomes of the additional 

production or use and any supply chain 

changes. 

Another commenter similarly warned 

about the risk of incentivizing the 

classification of waste when such 

categorization is not factually justified. 

This commenter stated that the 

European Union’s Renewable Energy 

Directive (RED) waives sustainability 

criteria for solid biomass fuels that are 

considered industrial residues, but that 

to protect against the risk of fraudulent 

classification of such fuels as waste, the 

RED requires that feedstock auditing 

verify such classification. The 

commenter recommended that the 

Treasury Department adopt similar 

measures for the section 45Y and 48E 

credits. The Treasury Department and 

the IRS have determined that a similar 

requirement would be appropriate to 

ensure accurate tracking and 

verification of any materials determined 

to constitute waste materials. If a 

qualified facility uses feedstocks that do 

not have marketability, but which are 

indistinguishable from marketable 

feedstocks (for instance, after 

processing), the taxpayer will be 

expected to maintain documentation 

substantiating the origin and original 

form of the feedstock. See section VIII.J. 

of this Summary of Comments and 

Explanation of Revisions for further 

discussion of substantiation. 

The Treasury Department and the IRS 

also received several comments 

regarding the possible reevaluation of a 

material’s categorization as a waste. A 

few commenters were opposed to 

recategorizing a material from a waste to 

another designation, arguing that such 

actions could be damaging to emissions 

mitigation efforts or to efforts to find 

productive uses for materials previously 

disposed of. Another commenter 

recommended that any reevaluation of 

the classification of waste be conducted 

predictably and only to prospective 

qualified facilities. The commenter 

further recommended that such 

reevaluations focus on only major 

changes external to the section 45Y and 

48E credits or other Federal incentives. 

The Treasury Department and the IRS 

have determined that reevaluation of 

material categorization should occur at 

least every ten years, but not more often 

than every five years, consistent with 

the reevaluation period outlined for 

baselines, because policy interventions 

and other developments in the market 

can alter the availability and demand for 

marketed goods and services, and can 

sometimes turn waste products into 

byproducts, co-products, or even 

primary products. This reevaluation is 

therefore necessary to ensure robust 

estimation of the net GHG emissions 

rates for C&G Facilities in a manner 

consistent with section 45Y(b)(2)(B). 

Regardless of the results of any such 

reevaluation, taxpayers may rely on the 

Annual Table in effect as of the date a 


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facility began construction or the 

provisional emissions rate determined 

by the Secretary for the taxpayer’s 

facility 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 or category of facility 

that is described in the Annual Table or 

the facility’s emissions value request, as 

applicable, for the entire taxable year. If 

the facility changes the type or method 

of production of their fuel or feedstock, 

this constitutes a potential change in 

their provisional emissions rate 

determined by the Secretary. 

To limit the additional production of 

waste, in the preamble to the proposed 

regulations, the Treasury Department 

and the IRS requested comment 

regarding whether the final regulations 

should 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. The Treasury 

Department and the IRS also requested 

comment regarding how these factual 

scenarios could be documented or 

verified, including any changes in 

volumes of waste and waste capacity at 

existing sources, and additional capture 

of existing waste or waste streams. 

The Treasury Department and the IRS 

received several comments in response 

to these questions. One commenter 

recommended that, to limit the 

additional production of waste, 

materials be classified as waste only if 

the material was created before a 

qualified facility begins claiming the 

section 45Y and 48E credits. The 

Treasury Department and the IRS have 

determined that prohibiting 

classification of a material used by a 

qualified facility as waste after the 

qualified facility begins claiming the 

section 45Y and 48E credits is 

unnecessary in light of the requirements 

that the LCA take into account the 

emissions impact of any additional 

production or use of such material and 

the requirements that the LCA be 

conducted at the market level. In some 

cases, this may result in different 

emissions determinations for materials 

that make up waste streams that existed 

prior to the credits versus for those same 

materials produced after and potentially 

in response to the credits. 

Another commenter responded to this 

question with a recommendation that 

materials not be classified as wastes 

unless disposal or incineration, as 

opposed to repurposing, is the only 

option for such material. The 

commenter offered the ‘‘cascading’’ 

principle in the European Union’s 

revised RED that prioritize material use, 

reuse, and recycling of wood over 

burning for energy as a model for how 

incentives to burn materials should be 

treated under the section 45Y and 48E 

credits. The Treasury Department and 

the IRS have determined that, for the 

purposes of the final regulations, a 

waste product is defined as noted 

earlier. The requirement that a waste 

material lacks marketability for sale but 

has a market for disposal is consistent 

with this commenter’s recommendation 

that materials be classified as waste only 

if such material lacks a productive use 

beyond such disposal. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS also requested comment 

regarding the potential for and 

approaches to prevent the intentional 

generation of waste or co-products for 

the purposes of lowering the allocated 

process emissions to electricity. The 

Treasury Department and the IRS 

received several comments in response 

to this question. A few commenters, as 

discussed earlier, recommended against 

designating materials as wastes, coproducts, or byproducts to avoid 

intentional generation of waste. Another 

commenter recommended use of a 

dynamic LCA that incorporates every 

product, flow, and material use when 

accounting for emissions, including 

assessing the environmental impact of 

production processes such as generation 

of waste or co-products. This 

commenter stated that this practice 

would prevent intentional generation of 

waste because the dynamic LCA would 

accurately reflect the potential benefit of 

not intentionally generating the waste. 

As discussed earlier, the Treasury 

Department and the IRS have 

determined that distinguishing between 

these products will facilitate efficient 

and consistent evaluation of GHG 

emissions rates taking into account 

lifecycle GHG emissions as described in 

42 U.S.C. 7545(o)(1)(H). However, 

regardless of how a material is 

categorized, the LCA must consider 

whether the availability of the section 

45Y and 48E credits will result in 

additional production or use of that 

material or changes in the supply chain 

of that material resulting in GHG 

emissions effects and take into account 

any direct and indirect emissions 

impact of the additional production or 

use and such changes. 

Another commenter stated that, in the 

case of municipal solid waste facilities, 

intentional generation of waste is 

unlikely because the cost of waste 

disposal will be greater than the value 

of the credit. The Treasury Department 

and the IRS appreciate this commenter 

feedback and have taken it into 

consideration. Because this is a 

technical claim that must be evaluated 

in the context of an LCA and is 

applicable to only certain categories of 

feedstock, it would not be appropriate to 

incorporate these recommendations in 

the text of the final regulations as a 

generally applicable rule. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS also requested comment on 

whether the classification of feedstocks 

as products, co-products, byproducts, or 

waste change depending on the 

technology. Specifically, the Treasury 

Department and the IRS asked whether 

products, co-products, byproducts, and 

waste should be described and 

accounted for differently if derived from 

biogenic sources. 

The Treasury Department and the IRS 

received a wide range of comments in 

response to this question. A number of 

commenters requested that either all or 

a subset of woody biomass feedstocks be 

designated as waste or residue, with 

many pointing to woody biomassspecific industry definitions of terms 

like waste, residue, co-product, and 

byproduct. Some commenters requested 

that woody biomass feedstocks be 

designated as waste or residue if the 

feedstock is not intentionally grown and 

harvested for wood energy applications 

or if the feedstock is grown in a 

particular region where woody biomass 

has an alternative fate that is typically 

high in GHG emissions. One commenter 

requested that woody biomass feedstock 

that is left over from the manufacturing 

and repair of wood pallets be classified 

as a residue. 

One commenter suggested that 

products, co-products, byproducts, and 

waste be accounted for differently if 

derived from biogenic sources by using 

ASTM D6866 Method B to determine 

and report their biogenic content. This 

commenter noted this standard’s use in 

Canada’s Clean Fuels Regulation. 

Other commenters recommended 

against classifying woody biomass 

feedstocks as waste or residue. Some 

stated that the definition of these terms 

as used in the forest industry is broadly 

defined and does not sufficiently 

consider alternative uses of the 

feedstock. Some further expressed 

concern that the appropriate designation 

of woody biomass as a residue or a 

waste is not verifiable after its initial 

processing by foresters. 

One commenter asked that the final 

regulations clarify whether the LCA will 

recognize treatment of residue materials 

as distinct from waste. The commenter 

further recommended that forestry and 

logging residues should be defined as 


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‘‘materials generated by some other 

process, where the alternative fate is 

decomposition or burning without 

energy recovery.’’ The commenter 

suggested that such materials should not 

be designated as residues if their most 

likely alternative fate is decay because 

it is less carbon intensive than burning 

the materials for electricity. 

One commenter recommended that 

trees harvested for the forest biomass 

industry that come from land harvested 

entirely (or almost entirely) to satisfy 

wood pellet or bioenergy demand not be 

designated as byproducts. The 

commenter stated that because the trees 

would not have been harvested but for 

demand from the forest biomass 

industry, they are therefore the primary 

economic driver of the harvest and thus 

not a byproduct. The commenter further 

recommended that the final regulations 

clarify what it means for a material to 

be the primary economic driver of a 

process. 

The Treasury Department and the IRS 

also received a comment about the 

designation of materials used by a 

WERP facility. A commenter 

recommended that the final regulations 

treat such waste heat as a waste product. 

The Treasury Department and the IRS 

appreciate these commenters’ feedback 

and have taken it into consideration. 

Because technical and fact-specific 

suggestions regarding designation or 

emissions accounting for a particular 

feedstock must be evaluated in the 

context of an LCA, the suitability of 

these recommendations requires further 

consideration of their application to 

specific cases and these 

recommendations are not included in 

these final regulations at this time. 

The Treasury Department and the IRS 

have also determined that 

distinguishing between residues and 

wastes in the final regulations is 

unnecessary. The principles for 

categorizing and evaluating the GHG 

emissions of materials that are provided 

in these final regulations require an 

assessment of their associated uses or 

removal or disposal processes, as 

applicable, and associated GHG 

emissions. This requirement mitigates 

the need to address a distinction 

between residues and wastes as a 

residue may be categorized within one 

of the categories defined earlier. 

The Treasury Department and the IRS 

have further determined that further 

clarification of the term ‘‘the primary 

economic driver of the process’’ within 

the previously described definitions is 

not necessary in the final regulations 

because this concept provides sufficient 

clarity in conducting an LCA. 

3. LCA Modeling Topics 

a. Certain Issues Related to LCA 

Baselines and Modeling 

The preamble to the proposed 

regulations posed twelve questions 

related to factors that must be 

considered to assess the net GHG 

emissions associated with the 

production of electricity by a C&G 

Facility in the context of the section 45Y 

and 48E credits. This list included 

questions on six subtopics, including 

about: (1) the creation and maintenance 

of LCA baselines; (2) existing models 

and data sources that could be used for 

modeling; (3) how to account for 

incentives created by the section 45Y 

and 48E credits; (4) how to establish 

feedstock categories; (5) how to assess 

shocks; and (6) how to account for 

variation and uncertainty in models. 

Responses to comments received about 

the creation and maintenance of LCA 

baselines can be found in section 

VIII.C.2.c. of this Summary of 

Comments and Explanation of 

Revisions. Responses to comments 

received about how to account for 

incentives created by the section 45Y 

and 48E credits can be found in section 

VIII.D.2. of this Summary of Comments 

and Explanation of Revisions. This 

section contains responses to the 

comments received on the other four 

sub-topics listed earlier. 

i. Feedstock Categorization 

The preamble to the proposed 

regulations requested comment on 

feedstock classification and posed a 

series of questions. The Treasury 

Department and the IRS received a 

number of comments in response to 

these questions. One comment 

expressed support generally for the idea 

of differentiating between subcategories 

of feedstock in the LCA, and another 

comment recommended subcategorizing 

feedstocks to the greatest extent 

possible. 

The Treasury Department received a 

number of comments on the topic of 

whether to subcategorize biomass 

feedstocks to differentiate between 

feedstock that is waste and feedstock 

that is not. Several commenters 

expressed support for this idea, while 

several others expressed opposition to 

it. See section VIII.D.2. of this Summary 

of Comments and Explanation of 

Revisions for further discussion of 

categorizing some feedstock as waste. 

The Treasury Department and the IRS 

received comments that provided a 

range of suggestions regarding how best 

to categorize woody biomass feedstocks. 

A few opposed subcategorization of 

woody biomass feedstocks. One 

commenter recommended that forest 

biomass feedstocks be considered one 

type or category of facility to avoid 

unduly burdensome complex analysis. 

Another who opposed subcategorizing 

feedstock altogether urged that, in the 

event that forest biomass feedstocks are 

subcategorized, the Treasury 

Department require reliable, verifiable 

bases for each sub-categorization as a 

means of reducing uncertainty. Several 

commenters endorsed the idea of 

creating subcategories of woody biomass 

feedstock and provided various 

recommendations about how to do so. 

One commenter recommended that trees 

be categorized based upon species and 

upon management practices such as 

clear cutting or thinning to most 

accurately capture ‘‘carbon debt 

payback times.’’ Another recommended 

that woody biomass forest feedstock be 

categorized based on use, with at least 

five categories, including saw timber, 

low-grade roundwood or pulpwood, 

forestry or harvesting residues, sawmill 

and other woody industry residues, and 

post-consumer waste wood. A different 

commenter suggested creating feedstock 

categories that are further divided by the 

feedstock’s potential alternative fates. 

Several commenters provided 

information or recommendations on 

how blends of fuels or feedstocks 

should be treated in the LCA or the 

annual publication of emissions rates. 

One commenter suggested that 

precaution is warranted to ensure that 

facilities using a blend of fuels are not 

deemed to have a net GHG emissions 

rate of not greater than zero if they do 

in fact have a positive net GHG 

emissions rate. Another commenter 

recommended that the LCA 

accommodate site specific feedstock 

use, which may include mixed 

feedstocks or blending with RNG. 

Finally, one commenter stated that there 

are several options for providing an 

emissions rate to facilities that use a mix 

of feedstocks. This commenter further 

stated that the Secretary could provide 

a formula by which taxpayers can use 

the published emissions rates in the 

Annual Table to calculate their facility’s 

rate; that all facilities using a blend of 

fuels could be required to obtain an 

emissions rate via the provisional 

emissions rate (PER) process; or that 

facilities using multiple fuels could be 

deemed to be multiple separate facilities 

for the purposes of the credit and a rate 

calculated for each facility. 

The Treasury Department and the IRS, 

appreciate these recommendations and 

have taken them into consideration. 

However, given the diversity of fuel and 

feedstock blends that may be evaluated 

for the purposes of the section 45Y and 


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48E credits, incorporating specific 

requirements suggested by these 

commenters in the text of the final 

regulations would be inappropriate as a 

generally applicable rule. Therefore, the 

commenters’ recommendations will not 

be included in the text of the final 

regulations. 

ii. Shocks 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS posed several questions 

about the treatment of shocks in 

modeling. One such question solicited 

comment regarding 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. One commenter 

recommended that the scale of demand 

be assessed in the context of what types 

of feedstocks are most likely to be used, 

which the commenter recommends 

projecting based on current practice. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS further requested comment 

on whether shocks should reflect a 

small incremental increase in the use of 

the feedstock to reflect the marginal 

impact or a large increase to reflect the 

average effect of all potential users. One 

commenter recommended that both 

approaches be used to provide a 

comprehensive understanding of the 

potential impacts of the change. 

Another commenter suggested that 

incremental increases may not 

accurately reflect the consequences of a 

policy because large demand shocks can 

have qualitatively different effects than 

incremental shocks. This commenter 

further stated that a shock that reflects 

all users can be a poor tool in cases in 

which local markets are important. This 

commenter recommended estimating 

regional factors before averaging to find 

the effect on all users and suggested that 

model testing be similarly applied to 

evaluate differences between marginal 

increases in feedstock demand and 

absolute demand provided in the region. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS also requested comment on 

what the general increment of the shock 

could be and whether it should be 

specified as an absolute or relative 

increase. One commenter suggested that 

when demand is not pre-determined, 

scenario modeling could be used to 

evaluate potential effects. The 

commenter recommended 

complementing this analysis with a 

series of marginal model runs to 

evaluate how an increase in demand 

impacts model results. 

Finally, in the preamble to the 

proposed regulations, the Treasury 

Department and the IRS requested 

comment on 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). A commenter recommended 

that similar feedstocks that offer 

comparable results in model testing be 

implemented in aggregate. Another 

commenter suggested that in a 

regulatory framework, it is likely most 

appropriate to model at the asset level, 

such as by modeling a shock applied to 

the surrounding landscape based on 

anticipated demand for feedstock of a 

new bioenergy investment. 

The Treasury Department and the IRS 

appreciate these recommendations and 

have taken them into consideration. 

However, given the complexity of 

modeling shocks in the LCA and the 

diversity of fuels and feedstocks that 

may be evaluated for the purposes of the 

section 45Y and 48E credits, 

incorporating the specific requirements 

suggested by these commenters in the 

final regulations would be inappropriate 

as a generally applicable rule. Therefore, 

the commenters’ recommendations will 

not be included in the final regulations. 

iii. Variation and Uncertainty in Models 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS posed a number of 

questions about the treatment of 

variation and uncertainty in evaluating 

model estimates. Commenters provided 

a range of recommendations in response 

to these questions. Some suggested that 

modeling multiple outcomes is an 

important factor in reducing the 

uncertainty of modeled GHG emissions 

changes. One commenter further 

recommended that Treasury be 

transparent about the assumptions made 

when modeling, ensure that biomass 

feedstock utilization assumptions are 

backed by robust traceability and a 

supply chain of custody to ensure that 

the biomass modeled in the LCA is the 

biomass transported across the supply 

chain, and use conservative estimates. 

Another commenter recommended a 

similarly precautionary approach in 

situations in which a given assumption 

could ‘‘fully flip’’ an outcome from 

being calculated as a net climate benefit 

to being calculated as a net climate 

harm. 

One commenter noted their support 

for the use of consequential modeling, 

stating that their recommendation is ‘‘in 

part’’ because land sector modeling is 

frequently subject to large uncertainties 

that are better addressed by effective 

policy design than by embedding 

quantified impacts within the regulatory 

framework. The commenter stated that 

this is especially true when applying 

complex econometric modeling to 

scenarios relying on large temporal and 

spatial boundaries. 

Another commenter similarly noted 

that longer assessment horizons increase 

uncertainties and asserted that using an 

assessment horizon that constrains the 

compounding effects of uncertainties is 

an essential component to limit 

uncertainty. This commenter further 

recommended against the use of 

economic models, stating that they 

generate unacceptable levels of 

uncertainty. 

The Treasury Department and the IRS 

appreciate these recommendations and 

have taken them into consideration. 

However, given the complexity of 

considering variation and uncertainty in 

evaluating model estimates and the 

diversity of fuels and feedstocks that 

may be evaluated for the purposes of the 

section 45Y and 48E credits, 

incorporating the specific requirements 

suggested by these commenters in these 

final regulations would be inappropriate 

as a generally applicable rule. Therefore, 

although the considerations that 

commenters raise—such as the 

importance of verification and the 

uncertainty inherent to modeling—have 

been incorporated in concept in other 

aspects of the LCA and substantiation 

requirements, the commenters’ specific 

recommendations will not be included 

in these final regulations. 

b. Recommended Models and Modeling 

Sources 

i. Recommended LCA Models 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS requested comment 

regarding what existing model or suite 

of models are capable of completing an 

LCA consistent with the section 

45Y(b)(2)(B) and proposed § 1.45Y–5(d) 

and (e) and asked for additional 

information regarding suggested models. 

Commenters provided a wide range of 

views. Several commenters requested a 

consistent and technology-neutral 

approach be adopted for LCA 

assessment of all renewable energy 


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technology and from all feedstocks. 

Another commenter emphasized that 

whatever model is employed, it is 

critical that it reflects current peer 

reviewed literature and is well 

supported by available data and science. 

Most commenters strongly advocated 

for the use of a version of the GREET 

model to complete an LCA consistent 

with requirements of the section 45Y 

and 48E credits. Several commenters 

noted that the GREET model is 

thorough, widely accepted, and the 

ideal model to be used for tax incentives 

in the IRA. These commenters further 

asserted that allowing the GREET model 

as the assessment tool for the section 

45Y and 48E credits (in addition to the 

section 40B and 45V credits) would 

further bring all the emission 

calculations required under the IRA tax 

credit provisions under a single 

verification regime, which could be 

controlled by U.S. Federal agencies 

responsible for implementing the IRA 

2022 tax incentives. A commenter 

emphasized that methodological 

consistency between IRA tax credits is 

important to avoid unintended market 

effects, particularly if credited products 

under sections 45Y and 48E, 40B, and 

45V have overlapping accounting 

boundaries (for example, RNG lifecycle 

emissions are relevant under all four). 

Notably, most commenters 

overwhelmingly supported the use of 

the GREET model for the emissions 

assessment required by sections 45Y 

and 48E without specifying a specific 

version of the GREET model. 

While supporting the use of the 

GREET model, a commenter noted that 

the GREET model is still an 

approximation of reality and must be 

regularly updated to reflect real-world 

trends and the latest research. Several 

commenters recommended that the 

Treasury Department and the IRS 

leverage both the existing GREET model 

and EPA modeling to inform feedstockspecific GHG emissions rates and 

associated avoided emissions. 

Other commenters specifically 

requested that the former ANL–GREET 

model, (now referred to as the R&D 

GREET model) be used. Specially, these 

commenters asserted that the Treasury 

Department and the IRS adopt the 2023 

R&D GREET model (or a successor) for 

emissions assessments for the section 

45Y and 48E credits. These commenters 

note that this would assist the Treasury 

Department and the IRS in timely 

providing a model and allow for 

efficiencies going forward as the R&D 

GREET model is already regularly 

updated. These commenters also assert 

that using the R&D GREET model (or a 

successor) will make the LCA process 

clearer, more certain, and more 

effective, consistent with congressional 

intent to encourage the deployment of 

zero-emission technologies. Other 

commenters suggested the use of the 

R&D GREET model because it takes 

methane leakage and counterfactual 

assumptions into account. A commenter 

noted that using the R&D GREET model 

will reduce the prospect of relying on 

the PERs process because the R&D 

GREET model allows for site-specific 

RNG carbon intensity scores. Another 

commenter noted that the R&D GREET 

model is another publicly available 

model which has incorporated a process 

model for estimating emissions from 

landfills. However, the commenter 

noted that the current version of the 

GREET R&D model needs several 

updates and modifications to properly 

reflect the latest peer-reviewed 

information. 

Several commenters opposed the use 

of the GREET model. A commenter 

noted that the GREET model lags 

deployment and so favors longer 

established technologies like wind and 

solar to the detriment of technologies 

such as biomass gasification with CCS. 

This commenter noted that relying on 

the GREET model would certainly 

disadvantage and perhaps disqualify 

new technologies that are the most 

carbon-negative, while simultaneously 

favoring projects which would use a 

fuel such as municipal solid waste, 

which is not climate friendly, yet is 

considered by the model to be carbonnegative. This commenter also asserted 

that such a perverse incentive is not a 

desired outcome and yet is possible 

with the application of a static model to 

a dynamic industry deploying novel and 

first-of-kind technologies. Other 

commenters opposed the use of the 

GREET model by asserting that the 

GREET model underestimates avoided 

methane emissions from diverting waste 

from a landfill. The Treasury 

Department and the IRS do not believe 

that the R&D GREET model is the 

appropriate model for determining GHG 

emissions rates for the section 45Y and 

48E credits because it does not conform 

to the principles and requirements for 

LCA analysis provided in this final 

regulation. 

Several commenters suggested the use 

of alternate models for a specific type of 

feedstock. For municipal solid waste 

(referred to as MSW), several 

commenters recommended the use of 

the MSW–DST and the EPA’s WARM 

models, which are publicly available 

waste management-focused lifecycle 

models. The MSW–DST is an LCA 

model tailored directly for the waste 

sector that has been used by the DOE’s 

National Renewable Energy Laboratory 

(NREL) for previous analyses. The 

WARM model is provided by the EPA 

and specifically built to allow high-level 

comparisons of potential greenhouse gas 

emissions reductions, energy savings, 

and economic impacts when 

considering different materials 

management practices. 

A commenter expressed concern that 

both the MSW–DST and the WARM 

models require further refinements to 

ensure they are accurately quantifying 

the GHG emissions outcomes associated 

with diverting post-recycled waste from 

landfills to waste-to energy (WTE) 

facilities. The commenter noted that 

these models are not equipped to model 

emissions for other energy generation 

technologies and acknowledges that the 

use of these models for wastes, while 

potentially using the GREET model to 

evaluate other technologies, could pose 

challenges. 

For biomass, several commenters 

recommended the use of the California 

Biomass Residue Emissions 

Characterization (C–BREC) model. 

These commenters note that the C– 

BREC model provides a robust LCA for 

forest residues used for electricity 

generation, which enables detailed and 

transparent accounting for GHG and air 

pollutant emissions and evaluates 

emissions across different project 

profiles, including the reference fate of 

unutilized biomass. The commenter 

noted that although the C–BREC model 

results show that the emissions 

associated with wildfire risk are 

significant for biomass residues left in 

the forest, the wildfire probability 

factors used in the model are outdated 

and the real risk is much higher. 

Therefore, the commenter asserts that 

C–BREC likely underestimates the 

actual risk of wildfires in California, 

leading to potential underestimation of 

emissions from biomass residues left in 

forests. 

Several commenters suggested models 

related to forest-related feedstocks. A 

commenter suggested the use of the 

published C–ROADS and En-ROADS 

models to calculate forest ecosystem 

and harvested carbon estimates. The 

commenter noted that these dynamic 

models represent the carbon cycle, 

budgets and stocks of GHGs, radiative 

forcing, and the heat balance of the 

Earth. The commenter also noted that 

both models are freely available and 

fully documented. 

Another commenter supported the 

use of timber projection models like 

ATLAS (Aggregate Timberland 

Assessment System), which is managed 

and updated by the U.S. Forest Service, 

providing projections at regional and 


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national scales. This commenter noted 

that ATLAS models different timber 

yield scenarios, and their respective 

implications for carbon stocks. 

Additionally, a commenter supported 

the use of the Landscape Carbon Factor 

Tool, developed by the American Forest 

Foundation, to calculate net carbon 

stock changes in forest regions of 

variable sizes using the USFS Forest 

Inventory Assessment (FIA) data. The 

commenter noted that this tool can 

provide important data on the current 

state of carbon stocks in a sourcing area 

that can be used to inform a full 

consequential LCA, which will also 

predict future changes in carbon stocks. 

The commenter pointed out that this 

tool could be used as an initial screen 

to determine whether biomass will meet 

the ‘‘not greater than zero’’ emissions 

rate criterion provided that net forest 

stocks in the region of consideration are 

maintained or increased. 

While no commenters suggested using 

the Forestry and Agricultural Sector 

Optimization Model with Greenhouse 

Gases (FASOM–GHG) Model to assess 

GHG emissions for purposes of the 

section 45Y and 48E credits, several 

commenters specifically asserted that 

the Treasury Department and the IRS 

should not adopt it for this purpose. 

These commenters noted that the 

FASOM–GHG model is not a credible 

source of estimates of wood harvest 

emissions due to a lack of global 

analysis, poor performance for this 

purpose, lack of reasonable cost data 

and contradiction with known 

estimates, and structural bias. 

The Treasury Department and the IRS 

appreciate the thoughtful responses 

provided by commenters. After taking 

into account the wide variety of 

different mechanisms for generating 

electricity through combustion or 

gasification that would require an LCA, 

the Treasury Department and the IRS 

have determined that there is not a clear 

or obvious single model or models that 

would be appropriate for all situations. 

After consideration of these comments, 

the Treasury Department and the IRS 

will coordinate with Federal agency 

scientific and technical experts on the 

selection and development of a model 

or models to assess net GHG emissions 

for purposes of the section 45Y and 48E 

credits. 

ii. Recommended Data Sources and 

Peer-Reviewed Studies 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS requested comments 

regarding what data sources and peerreviewed studies provide information 

on different feedstock production 

systems that would be most important 

to consider for gathering data for LCA 

modeling. The Treasury Department and 

the IRS also noted that 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. 

The commenters recommended a 

wide range of data sets to provide 

information on different feedstock 

production systems. A commenter noted 

that feedstock production systems vary 

by industry and should be assessed on 

an industry-by-industry basis. However, 

the same commenter also noted that the 

same principles can be used to make 

decisions on feedstock production 

system irrespective of the industry. 

For biomass, a commenter 

recommended the use of forest 

inventories that characterize the stocks 

of carbon in different forests. This 

commenter noted the USDA Forest 

Service’s Forest Inventory and Analysis 

(FIA) Program as an open-source, 

nationally consistent inventory of forest 

resources that is regularly updated. 

Further, the commenter noted that the 

FIA database provides comprehensive 

information on forest stand 

characteristics, growth rates, and carbon 

stocks across different regions of the 

United States. It employs direct 

measurements from a network of 

permanent sample plots, offering highquality, empirical data at both regional 

and national scales. 

For MSW, several commenters noted 

that the EPA should be referenced as a 

primary source of information on the 

physical properties of MSW and 

specifically pointed to the EPA’s 

emission factor database, AP–42: A 

Compilation of Emissions Factors from 

Stationary Sources (AP–42), based on 

data from 40 landfills, U.S. EPA Landfill 

Gas Emission Model (LandGEM) default 

L0 for inventory purposes. Additionally, 

a commenter noted that the importance 

of data reported from the combustion of 

MSW at existing WTE facilities to the 

EPA’s GHGRP. These commenters 

asserted that given the extensive 

monitoring employed at WTE facilities, 

they can serve as a critical source of 

lifecycle data, including for biogenic 

carbon fraction and total carbon content 

both for WTE emissions and to serve as 

a possible resource for data on process 

inputs used for the baseline scenario of 

landfilling. 

The Treasury Department and the IRS 

appreciate the data sources provided by 

commenters. Given the extensive range 

of feedstocks and types of facilities, and 

the fact that no data source seems to 

address all use cases, the Treasury 

Department and the IRS are continuing 

to evaluate and consider the utility of 

the data sources identified by 

commenters. The Treasury Department 

and the IRS will coordinate with 

Federal agency scientific and technical 

experts on the use of data sets in the 

development of a model or models to 

assess GHG emissions for purposes of 

the section 45Y and 48E credits. 

E. Treatment of Specific Types of 

Facilities and Feedstocks 

1. Combined Heat and Power (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 

GHGs 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. The 

inclusion of thermal energy productionrelated emissions in an LCA for a CHP 

property 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. In the preamble to the 

proposed regulations, the Treasury 

Department and the IRS indicated an 

intention to clarify the principles for 

assessing the emissions related to the 

generation of useful thermal energy by 

a CHP property in an LCA in the final 

regulations for the section 45Y and 48E 

credits and posed a number of 

questions. 

Several commenters requested that 

CHP property be categorized as nonC&G Facilities. A commenter requested 

that CHP property that derives its 

energy from facilities on the 

‘‘categorically non-C&G’’ list should also 

be included on that list. However, the 

statute does not alter the definition of a 

‘‘qualified facility’’ for CHP property, 

and the Treasury Department and the 

IRS therefore do not have the authority 

to treat CHP property that produce 

electricity through combustion or 

gasification any differently from other 

facilities (that is, the same rules for 

classifying facilities and determining 

emissions rates apply). However, the 

Treasury Department and the IRS note 

that certain types of CHP facilities may 

meet the definition of a Non-C&G 

Facility if they do not produce 

electricity and heat through combustion. 


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Under the statute, to determine the 

amount of GHGs emitted by a C&G CHP 

property, the LCA must include the net 

GHG emissions emitted by that facility 

in the production of useful thermal 

energy. For purposes of an LCA for a 

CHP property, the Treasury Department 

and the IRS asked what principles 

should govern how GHG emissions from 

the production of useful thermal energy 

are calculated. In response, several 

commenters advocated for the use of an 

output-based standard for emissions 

calculation for a CHP property. An 

output-based standard is based on 

emissions per unit of energy generated 

rather than amount of fuel used, which 

is addressed in an input-based standard. 

Commenters asserted that an outputbased standard is appropriate to govern 

an LCA for a CHP property because it 

produces two useful outputs (electrical 

and thermal energy) that are each fully 

credited under this analysis. 

Additionally, several commenters 

recommended that the final regulations 

adopt LCA principles similar to those 

incorporated by the 2023 R&D GREET 

model (or a successor), which includes 

inputs for ‘‘equivalent electric efficiency 

using fuel allocated to power 

generation’’ and ‘‘overall plant 

conversion efficiency.’’ These 

commenters supported this 

recommendation by noting that this 

LCA approach would incorporate 

principles similar to the LCA principles 

used for the section 40B and 45V 

credits. A commenter noted that an LCA 

for natural gas-fired CHP property 

should account for lower emission gas 

supplies, or use assumptions for projectspecific leakage rates, to encourage 

suppliers to reduce methane leakages. 

The Treasury Department and the IRS 

appreciate this feedback and will 

consider these recommendations as LCA 

development for CHP property 

continues. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS requested comment 

regarding what principles should be 

used to determine the baseline for 

useful thermal energy production by a 

CHP property. In response, several 

commenters noted that fossil fuel 

displacement should be the baseline for 

an LCA for a CHP property. The 

commenters asserted that to quantify the 

GHG emissions savings of a CHP 

property, the emissions from the CHP 

property should be subtracted from the 

fuel use that would normally occur 

without the CHP property in place— 

normally generating heat from an onsite 

natural gas boiler and using power from 

offsite generation powering the grid. 

The commenters suggested establishing 

a baseline emissions profile and then 

quantifying expected GHG emission 

reductions and providing methods for 

accounting for the displacement of 

marginal grid resources to account for 

energy efficiency improvements. To 

support this recommendation, the 

commenters generally cited common 

LCA practice, ISO guidance, and the 

plain language of the CAA for 

calculating GHG emissions. 

A commenter recommended that an 

LCA assess GHG emissions from the 

production of useful thermal energy in 

a CHP property by using a baseline 

emissions rate composed of (i) an 

electric-only plant using the same prime 

mover design (make/model of the steam 

turbine, combustion turbine or 

reciprocating engine plant) producing 

the same net quantity of electricity 

generation as produced in the CHP 

property; and (ii) a natural gas boiler 

producing the same net quantity of 

useful thermal energy produced in the 

CHP property. The GHG emissions from 

the production of useful thermal energy 

in the CHP property would then be 

calculated by subtracting the emissions 

of the CHP property (based on LCA 

emissions per unit of fuel consumed) 

and the net generation of electrical and 

thermal energy (net of energy produced 

and used within the facility before 

energy is exported from the facility) 

from the baseline emissions. 

Similarly, a commenter noted that 

following the GHG Protocol for Project 

Accounting, the typical baseline for 

C&G projects would include the current 

fate of the residue, the current emissions 

associated with the grid where the 

project would be located, and the 

current energy source for thermal energy 

when looking at a CHP property. The 

commenter recommended that an LCA 

is conducted for the baseline, and an 

LCA is conducted for the proposed 

project. The difference between these 

two is the ‘‘net’’ GHG emissions rate for 

the project. 

Additionally, several commenters 

supported the adoption of displacement 

principles by noting that biologic carbon 

(such as wood) would enter the 

atmosphere regardless of whether it is 

combusted or through the ecological 

process of decomposition once a tree 

dies. Conversely, these commenters 

noted that fossil fuels are sources of 

geologic carbon that would otherwise 

not enter the atmosphere if not for their 

combustion. Therefore, the commenters 

asserted that wood utilized for 

cogeneration releases no additional net 

carbon to this cycle and can even reduce 

emissions when used as a substitute for 

fossil fuels. 

While supporting the adoption of 

displacement principles in an LCA, 

several commenters also advocated for 

the final regulations to give credit for 

avoided GHG emissions from the 

alternative fate of the biomass which 

include being piled and burned with 

uncontrolled criteria pollutants and 

GHG emissions; masticated and left onsite, increasing fuels for future fires; or 

transported long distances to available 

disposal sites, incurring high costs and 

associated emissions. These 

commenters also noted that an LCA 

must credit emissions offsets by biomass 

generated energy when compared to the 

emissions from alternative replacement 

power. These commenters noted that if 

these two considerations are allowed, 

utilization of woody biomass will easily 

be shown to be carbon neutral or likely 

negative, with net GHG emissions at an 

acceptable level. The issues raised by 

these comments are addressed in 

section VIII.C. of this Summary of 

Comments and Explanation of 

Revisions. 

Section 45Y(g)(2)(A) provides a 

special rule for CHP property, which 

explicitly includes any production in 

the form of useful thermal energy in the 

calculation of the credit as well as the 

amount of GHG emissions from the 

facility in the production of such useful 

thermal energy. After consideration of 

the comments, the Treasury Department 

and the IRS have determined that the 

best reading of section 45Y(g)(2)(A) is 

that thermal energy produced by a CHP 

property is accounted for with the 

electricity produced by the facility in 

assessing the GHG emissions from the 

facility. As a result, the baseline for 

GHG emissions from thermal energy 

produced by a CHP property are zero, 

which is consistent with LCA 

accounting for electricity and provides a 

consistent baseline between electrical 

and thermal energy. Even though it is a 

departure from some of the LCA 

methods typically used within the CHP 

industry, this treatment is an option 

within LCA accounting methodology 

that is consistent with the principles 

and requirements for an LCA used to 

determine a GHG emissions rate for 

purposes of sections 45Y and 48E. 

Additionally, the preamble to the 

proposed regulations noted that there 

may be scenarios in which a facility 

generates electricity that is used (i) by 

the electricity generation facility in the 

production of electricity; or (ii) 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 property that 


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produces electricity; and this electricity 

is consumed by the wastewater 

treatment facility. The Treasury 

Department and the IRS requested 

comment on what principles should be 

used to determine how GHG emissions 

from the consumption of electricity in 

the production of electricity or in the 

production of the fuel consumed by the 

facility are calculated. In response, a 

commenter noted they were not aware 

of any circumstances in which any CHP 

property host would consume electricity 

from the CHP property for the sole or 

primary purpose of generating 

electricity. The commenter also noted 

that generally facilities hosting CHP 

property use the electricity and thermal 

energy onsite to meet the needs of host 

facility or export that energy via the grid 

or district energy system respectively. 

The commenter asserted that to the 

extent such facilities support the 

production of useful biogas from the 

wastewater stream that can be used for 

future fuel for the CHP property, the 

Treasury Department and the IRS 

should not craft rules that would 

discourage productive use of byproducts 

as fuel. 

The Treasury Department and the IRS 

confirm that the rules provided in these 

final regulations are not intended to 

encourage or discourage certain fuels or 

feedstocks for electricity production but 

to outline LCA principles such that 

LCAs of C&G Facilities, including CHP 

property, result in impartial and robust 

assessments of net GHG emissions 

across feedstocks, fuels, and facility 

types to determine eligibility. 

The preamble to the proposed 

regulations similarly noted that 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 

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. 

The Treasury Department and the IRS 

requested comment regarding what 

principles should be used be used to 

determine GHG emissions from the selfconsumption of thermal energy by the 

CHP property. In response, a commenter 

proposed that facilities should not be 

assessed based on the purposes for 

which the useful energy is used, 

including both electricity and the heat 

in the case of a CHP property. Proposed 

§ 1.45Y–5(d)(2)(ii) provided that the 

ending boundary ‘‘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’’ 

therefore the use of the electricity does 

not impact the LCA assessment as it is 

outside of the LCA system boundary. 

See section VIII.C. of this Summary of 

Comments and Explanation of Revisions 

for additional discussion of comments 

pertaining to the LCA ending boundary. 

The anticipated future baseline 

scenario as described in § 1.45Y– 

5(d)(2)(iii) will not be impacted by 

whether the electricity is sold to the grid 

or used onsite. Therefore, whether the 

electricity generated from any type of 

facility, including a CHP property, is 

supplementing or replacing an existing 

power source onsite or grid electricity 

for the host facility (for example, a 

wastewater treatment plant) will not 

impact the LCA of the generating 

facility. 

2. Biomass 

The Treasury Department and the IRS 

received a number of comments 

pertaining to the use of biomass as a 

feedstock in the production of 

electricity. While these comments and 

their responses are addressed 

throughout this Summary of Comments 

and Explanation of Revisions, the 

following paragraphs address comments 

regarding the substantiation of 

eligibility for the section 45Y and 48E 

credits for taxpayers whose C&G Facility 

uses biomass as a feedstock. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS requested comment on the 

types of documentation that taxpayers 

should be required to maintain to 

substantiate eligibility for the section 

45Y and 48E credits. Specifically, 

comment was requested on the types of 

documentation or substantiation a 

taxpayer should maintain to establish 

that an input in the supply chain of a 

fuel or feedstock used for electricity 

production has the energy attributes or 

other relevant characteristics that were 

taken into account in determining a 

GHG emissions rate; what existing 

systems, industry standards, or practices 

may be used to substantiate that a 

facility’s operations and supply chain 

for such inputs resulted in a GHG 

emissions rate that is not greater than 

zero; how to develop such tracking and 

verification systems if they do not 

currently exist and how long 

development of such systems may take; 

and 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 

section 45Y and 48E credits. 

The Treasury Department and the IRS 

received a number of comments about 

whether taxpayers should be required to 

maintain documentation or provide 

third-party verification of fuels or 

feedstocks in order for their qualified 

biomass facility to be eligible for the 

section 45Y and 48E credits. While 

some noted the importance of oversight 

and independent means of verification 

to properly substantiate that inputs to 

fuel or feedstock have the energy 

attributes or other relevant 

characteristics that were taken into 

account in determining a GHG rate, 

others disagreed. Some commenters 

requested that taxpayers whose 

qualified facilities have less than one 

megawatt of capacity not be required to 

maintain or provide any documentation 

to be eligible for the section 45Y and 

48E credits. These commenters further 

recommended that taxpayers be 

required only to self-attest to the volume 

of biogenic feedstock received under a 

given category for that year, total 

generation, and percentage of fuel usage, 

similar to the procedure that currently 

exists for biomass facilities participating 

in the California Bioenergy Market 

Adjusting Tariff (BioMAT). 

Other commenters suggested 

verification bodies or tools for use in 

confirming the GHG emissions rate of 

qualified biomass facilities. One 

commenter suggested a tool in 

development that they have 

commissioned to calculate net carbon 

stock changes in forest regions. Other 

commenters suggested existing thirdparty certifications, such as those 

provided by the Sustainable Forestry 

Initiative (SFI), the Forest Stewardship 

Council (FSC), the Sustainable Biomass 

Program (SBP), and the International 

Sustainability and Carbon Certification 

System (ISCC). However, some 

commenters critiqued the design of 

these certifications, asserting that they 

provide inadequate monitoring and 

enforcement. 

The Treasury Department and the IRS 

appreciate the information shared by 

commenters on these matters and have 

taken it into consideration. Woody 

biomass can pose unique issues 

warranting verification because wood 

sourced from different types and parts 

of trees may have very different LCA 

profiles but appear uniform after 

processing and upon delivery to an 

electricity production facility. The 

Treasury Department and the IRS intend 

to provide additional information in 

future guidance about how taxpayers 

should substantiate compliance with the 

statute’s requirements. See section 

VIII.J. of this Summary of Comments 

and Explanation of Revisions for more 

information about substantiation. To 

ensure that C&G Facilities that utilize 

biomass feedstocks meet the statutory 

requirement of a net GHG emissions rate 

not greater than zero, the Treasury 

Department and the IRS anticipate that 


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it may be appropriate to require or 

encourage taxpayers to maintain thirdparty certification that verifies that these 

facilities meet the criteria that the LCA 

has found are necessary for a facility to 

meet this statutory requirement. 

3. Waste-to-Energy (WTE) Facilities 

The Treasury Department and the IRS 

received many comments pertaining to 

the use of WTE facilities in the 

production of electricity. While these 

comments and their responses are 

addressed throughout this preamble, 

including in section VIII.C. (LCA 

Requirements), the following paragraphs 

address comments regarding the 

eligibility for the section 45Y and 48E 

credits for taxpayers that use WTE 

facilities (such as landfills and waste 

incinerators) in the production of 

electricity. 

Commenters have sharply divergent 

views regarding the eligibility of WTE 

facilities for the section 45Y and 48E 

credits. Many commenters requested 

that the production of electricity from 

WTE facilities be specifically excluded 

from qualifying for the credits. To 

support this view, several commenters 

noted that WTE facilities are significant 

emitters of GHG emissions, and as it 

was clearly not the intent of Congress to 

allow GHG producing industries to be 

eligible for the credits, WTE facilities 

should not be eligible. These 

commenters also asserted that WTE 

facilities should not be eligible for the 

credits because WTE facilities are 

disproportionately located in lowincome and marginalized communities 

and can endanger a community’s health. 

Conversely, several commenters 

strongly advocated for the eligibility of 

WTE facilities for the section 45Y and 

48E credits. These commenters noted 

that WTE facilities would have 

traditionally fit into the category of 

landfill or trash facilities once eligible 

for the section 45 credit and therefore, 

should be eligible for the section 45Y 

and 48E credits. Several commenters 

requested that WTE facilities be 

included as Non-C&G Facilities on the 

Annual Table that will be published by 

the Treasury Department and the IRS. 

The Treasury Department and the IRS 

appreciate the input shared by 

commenters and have taken it into 

consideration. Because WTE facilities 

produce electricity through combustion, 

they are C&G Facilities, and whether a 

WTE facility is eligible for the section 

45Y or 48E credits must be assessed 

through an LCA. Accordingly, 

categorically excluding or including 

WTE facilities as eligible for the section 

45Y and 48E credits is not appropriate 

unless and until their eligibility has 

been assessed and confirmed through an 

LCA that satisfies all the requirements 

of section 45Y(b)(2)(B) and these final 

regulations. The final regulations will 

therefore not reflect these commenters’ 

suggestions. 

4. Use of Natural Gas Alternatives 

The Treasury Department and the IRS 

announced in the preamble to the 

proposed regulations an intent to 

provide final regulations addressing 

electricity production that uses biogas, 

RNG, and fugitive sources of methane 

(collectively, natural gas alternatives), 

for purposes of the section 45Y and 48E 

credits. The assessment of GHG 

emissions with respect to such natural 

gas alternatives presents a complex set 

of technical questions. Thus, the 

preamble to the proposed regulations 

described various rules related to the 

use of natural gas alternatives in the 

production of electricity that the 

Treasury Department and the IRS were 

considering for inclusion in these final 

regulations. The preamble to the 

proposed regulations also included 

detailed comment requests about 

various aspects of the use of natural gas 

alternatives to inform the development 

of these final rules. 

The Treasury Department and the IRS 

received many comments regarding the 

treatment of natural gas alternatives. 

While specific recommendations are 

addressed later in this section, 

commenters broadly emphasized the 

importance and complexity of 

establishing appropriate alternative fates 

for these feedstocks. For example, some 

commenters noted that it is critical for 

the Treasury Department and the IRS to 

provide clear rules to enable RNG to be 

used in the production of clean 

electricity. Other commenters warned 

that failure to specify appropriate 

guardrails in this area could lead to 

incorrect emissions assessments and 

substantial claims under sections 45Y 

and 48E for C&G Facilities that in fact 

have net rates of GHG emissions that are 

greater than zero, which would 

undermine the purpose of sections 45Y 

and 48E. 

The Treasury Department and the IRS 

agree with commenters that the 

determination of alternative fates for 

natural gas alternatives is both complex 

and important for accurately 

determining eligibility under sections 

45Y and 48E. GHG emissions rates for 

C&G Facilities generally must be 

determined consistent with section 

45Y(b)(2)(B) and the rules provided in 

§ 1.45Y–5(d) and (f). Within this 

statutory and regulatory framework, the 

Treasury Department and the IRS have 

determined that specifically addressing 

the assessment of alternative fates for 

natural gas alternatives will help ensure 

accurate lifecycle GHG emissions 

determinations and prevent improper 

credit claims, advance sound tax 

administration, and increase certainty 

for taxpayers. Therefore, § 1.45Y–5(e)(3) 

applies the rules in § 1.45Y–5(d) and (f) 

to establish alternative fates for natural 

gas alternatives from certain sources 

that are used by a C&G Facility in the 

production of electricity. In assessing 

the alternative fates for certain sources 

of natural gas alternatives that may be 

used by a C&G Facility in the 

production of electricity, as provided in 

§ 1.45Y–5(e)(3), the Treasury 

Department and the IRS consulted 

extensively with interagency technical 

experts, including technical experts 

from the National Laboratories, to 

ensure that the requirements of the 

section 45Y and 48E credits, as well as 

the rules in § 1.45Y–5(d) and (f), were 

applied consistent with sound scientific 

principles. 

The use of natural gas alternatives and 

the assessment of lifecycle GHG 

emissions (as defined in section 42 

U.S.C. 7545(o)(1)(H)) associated with 

such use is relevant beyond the section 

45Y and 48E credits. For example, for 

purposes of the section 45V credit, 

§ 1.45V–4(f)(3) establishes alternative 

fates for certain natural gas alternatives 

used in the production of hydrogen. The 

Treasury Department and the IRS have 

concluded that it will provide taxpayer 

certainty and advance sound tax 

administration to require that 

alternative fates for natural gas 

alternatives be addressed consistently 

across sections 45V, 45Y, and 48E, to 

the extent possible consistent with the 

requirements of each statute and 

incorporating consideration of 

comments. 

After careful consideration of the 

numerous comments submitted in 

response to the proposed regulations’ 

specific requests for comment, the final 

regulations provide rules in § 1.45Y–5(e) 

related to the use of natural gas 

alternatives in the production of 

electricity and the assessment of GHG 

emissions with respect to natural gas 

alternatives. Rather than provide rules 

that would specify a single, generic 

alternative fate for all natural gas 

alternatives (for example, capture and 

flaring), the Treasury Department and 

the IRS have considered the technical 

characteristics of different sources of 

natural gas alternatives and sought to 

apply the approach most appropriate for 

each type of source to provide an 

administrable and robust alternative fate 

for each sector. 


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a. Definitions 

i. Biogas 

The preamble to the proposed 

regulations did not define the term 

‘‘biogas,’’ but, in the interest of 

completeness and clarity, § 1.45Y– 

5(e)(2)(i) clarifies that the term ‘‘biogas’’ 

means gas containing methane that 

results from the decomposition of 

organic matter under anaerobic 

conditions. 

ii. Coal Mine Methane 

The preamble to the proposed 

regulations did not offer a definition of 

the term ‘‘coal mine methane,’’ but, in 

the interest of completeness and clarity, 

§ 1.45Y–5(e)(2)(ii) provides that the term 

‘‘coal mine methane’’ means methane 

that is stored within coal seams and is 

liberated as a result of current or past 

mining activities. ‘‘Liberated’’ coal mine 

methane (CMM) can be released 

intentionally by the mine for safety 

purposes, such as through mine 

degasification boreholes or underground 

mine ventilation systems, or it may leak 

out of the mine through vents, fissures, 

or boreholes. For the purpose of these 

regulations, the term ‘‘coal mine 

methane’’ does not include methane 

removed from virgin coal seams (for 

example, coal bed methane). 

iii. Fugitive Methane 

The preamble to the proposed 

regulations would have defined the term 

‘‘fugitive methane’’ to mean the release 

of methane through, for example, 

equipment leaks, or venting during the 

extraction, processing, transformation, 

and delivery of fossil fuels to the point 

of final use, such as CMM. Commenters 

noted that this definition was broad but 

did not recommend alternatives. The 

proposed definition is adopted in these 

final regulations without substantive 

change in § 1.45Y–5(e)(2)(iii). One 

commenter asserted that under no 

circumstances should methane from oil 

and gas operations be treated as fugitive 

methane because methane from oil and 

gas operations should be attributed the 

emissions profile of oil and natural gas 

production. The Treasury Department 

and IRS understand this concern and 

note that the baseline and alternative 

fates relevant to certain sources of 

fugitive methane are further discussed 

at sections VIII.E.4.c.i.C. and E. of this 

Summary of Comments and Explanation 

of Revisions. 

iv. Renewable Natural Gas 

The preamble to the proposed 

regulations would have defined the term 

‘‘renewable natural gas’’ to mean 

‘‘biogas that has been upgraded to be 

equivalent in nature to fossil natural 

gas.’’ Some commenters suggested that 

the term ‘‘renewable’’ is misleading in 

this context because the production and 

use of such gas results in significant 

adverse impacts on public health and 

welfare. Although the Treasury 

Department and the IRS recognize these 

concerns, § 1.45Y–5(e)(2)(iv) does not 

adopt the suggested change in 

terminology because the term 

‘‘renewable natural gas’’ is sufficiently 

clear, is a commonly used term in other 

regulatory programs and in commerce, 

and is unlikely to result in confusion. 

The term ‘‘renewable natural gas’’ and 

its proposed definition is therefore 

adopted without substantive change. 

b. Considerations Regarding GHG 

Emissions Assessments of the 

Production of Electricity Using Methane 

From Natural Gas Alternatives 

The preamble to the proposed 

regulations explained that the rules 

provided in the final regulations 

regarding natural gas alternatives would 

apply to all natural gas alternatives used 

for purposes of sections 45Y and 48E. 

The preamble to the proposed 

regulations described and requested 

comment on several provisions the 

Treasury Department and the IRS were 

considering adopting in the final 

regulations to address the risk of 

significant indirect emissions and 

induced emissions from the use of 

natural gas alternatives in the 

production of electricity. This risk of 

significant indirect emissions and 

induced emissions can arise when 

natural gas alternatives are diverted 

from another productive use. In these 

situations, such productive uses may be 

backfilled with a different source that is 

not a natural gas alternative, such as 

fossil natural gas, which could result in 

associated emissions. For example, a 

facility that previously used its biogas 

for heat may opt to import fossil natural 

gas to satisfy its on-site energy needs. 

There is also a risk of significant 

indirect emissions, induced emissions, 

or inappropriate claims of the section 

45Y and 48E credits with respect to 

facilities that do not meet the statutory 

emissions requirements, if the 

incentives provided by sections 45Y and 

48E result in the creation of new or 

expanded sources of methane or other 

GHGs that otherwise would not have 

existed, or the creation of additional 

methane that would not have been 

created or would have remained 

sequestered. Section 1.45Y–5(e)(3)(i) 

implements section 45Y(b)(2)(B), which, 

by reference to 42 U.S.C. 7545(o)(1)(H) 

requires consideration of direct and 

significant indirect emissions in the 

determination of the net rate of lifecycle 

GHG emissions into the atmosphere by 

a C&G Facility in the production of 

electricity. 

i. GHG Emissions Associated With the 

Use of Natural Gas Alternatives 

The accurate assessment of GHG 

emissions is vital to determining 

eligibility under sections 45Y and 48E. 

GHG emissions assessments that 

underestimate the emissions associated 

with the production of electricity would 

mean that the section 45Y and 48E 

credits could be claimed for a facility 

even if its GHG emissions rates in fact 

exceed the zero-emissions eligibility 

threshold established by Congress. 

Because the Treasury Department and 

the IRS lack authority under sections 

45Y and 48E to allow a facility that 

produces electricity with a GHG 

emissions rate (or, in the case of section 

48E, an anticipated rate) that is greater 

than zero to be a qualified facility under 

section 45Y(b) and section 48E(b), 

guardrails are needed in the final 

regulations to address the risk of such 

credit claims. 

The preamble to the proposed 

regulations requested comments on the 

LCA considerations for methane derived 

from natural gas alternatives. To 

account for direct and significant 

indirect emissions, these considerations 

include, among other things, 

appropriate alternative fate scenarios 

and the assessment of current feedstock 

management practices. After 

consideration of the comments received, 

the final regulations address aspects of 

the GHG emissions analysis for natural 

gas alternatives used in the production 

of electricity. The following sections of 

this Summary of Comments and 

Explanation of Revisions address first 

productive use and general alternative 

fate assumptions ranging from venting 

to responsible avoidance of methane. 

The Treasury Department and the IRS 

agree with commenters who assert that 

accurately measuring GHG emissions 

rates for facilities that rely on methane 

from natural gas alternatives to produce 

electricity requires taking into account a 

wide range of factors to establish the 

alternative fate against which the use of 

methane to produce electricity should 

be assessed. Consistent with the 

reference to 42 U.S.C. 7545(o)(1)(H), the 

Treasury Department and the IRS 

interpret section 45Y(b)(2)(B) as 

requiring any LCA of a C&G Facility to 

address direct and significant indirect 

emissions. For a facility using methane 

as a fuel or feedstock for the production 

of electricity, that means accounting for 

direct and significant indirect emissions 

associated with the methane including 


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emissions resulting from the diversion 

of methane from an alternative 

productive use or from the expansion of 

existing sources or creation of new 

sources of natural gas alternatives. 

Consideration of such emissions is 

required under the principles for 

included emissions specified in 

§ 1.45Y–5(d)(2)(v). 

ii. First Productive Use 

The preamble to the proposed 

regulations provided that the Treasury 

Department and the IRS intended to 

require that in order for natural gas 

alternatives to receive an emissions 

value consistent with that gas (and not 

fossil natural gas), the natural gas 

alternative used in the production of 

electricity must originate from the first 

productive use of the relevant methane. 

The preamble to the proposed 

regulations further noted that for any 

specific source, productive use would 

generally be defined as any valuable 

application of the relevant methane (for 

example, providing heat or cooling, 

generating electricity, or upgrading to 

RNG) and productive use would 

specifically exclude venting to the 

atmosphere or capture and flaring. The 

preamble to the proposed regulations 

further proposed to define ‘‘first 

productive use’’ as the time when a 

producer of the relevant methane first 

begins using or selling it for productive 

use in the same taxable year as (or after) 

the relevant electricity-generating 

facility was placed in service. Under 

this proposal, RNG produced from any 

source of methane, where the methane 

had been productively used in a taxable 

year prior to the taxable year in which 

the relevant electricity-generating 

facility was placed in service, would not 

have received an emission value 

consistent with biogas-based RNG, but 

would instead have received a value 

consistent with fossil natural gas. This 

proposal was intended to address 

emissions associated with the diversion 

of natural gas alternatives from other 

productive uses and the risk of 

emissions associated with the creation 

of new or expansion of existing sources 

of natural gas alternatives. 

The preamble to the proposed 

regulations noted that, for existing 

biogas or fugitive methane sources that 

typically productively use or sell a 

portion of the biogas and flare or vent 

the remainder, the flared or vented 

portion may be eligible for first 

productive use, provided the flaring or 

venting volume can be adequately 

demonstrated and verified. The 

Treasury Department and the IRS 

requested comment on these and other 

potential conditions on the use of 

natural gas alternatives in the 

production of electricity. 

After full consideration of the 

comments and as further explained 

elsewhere in this section, these final 

regulations do not impose a first 

productive use requirement. Although a 

first productive use requirement could 

effectively address important 

considerations in the determination of a 

GHG emissions rate, the Treasury 

Department and the IRS acknowledge 

that the requirement may be difficult for 

taxpayers to substantiate and to 

independently verify. Establishing 

compliance with a first productive use 

requirement could involve taxpayers 

needing to obtain detailed, often 

unavailable, historical documentation of 

the operations of the methane source, 

including historical production levels, 

material changes in waste source 

composition and volume, use of capture 

equipment and capture rates, sales or 

uses of captured methane, and waste 

management practices. 

Moreover, challenges in the 

administration of a first productive use 

requirement raise questions about the 

practical ability of a first productive use 

requirement to address the risk of direct 

or significant indirect emissions 

effectively. Instead of a first productive 

use requirement, for determining GHG 

emissions rates associated with the use 

of natural gas alternatives, the more 

appropriate approach is to take the 

likelihood of alternative productive use 

into account in assessing the alternative 

fate of such gas. 

The Treasury Department and the IRS 

received many comments addressing the 

first productive use requirement. Many 

commenters questioned the legal and 

technical basis of a first productive use 

requirement. Several commenters 

asserted that a first productive use 

requirement is not authorized by statute, 

overly restricts otherwise eligible biogas 

and RNG feedstocks that could support 

clean electricity production and ignores 

the fact that there are numerous reasons 

an existing biogas facility may switch 

productive uses, including, but not 

limited to, the expiration of existing 

contracts, like power purchase 

agreements. Other commenters asserted 

that there is no evidence that using RNG 

to generate electricity will result in the 

induced emissions that appear to 

underlie the first productive use 

requirement. 

Several commenters argued that 

industry data suggests that domestic 

production of biogas and RNG can 

support both new electricity production 

and current end uses like compressed 

natural gas (CNG) transportation 

vehicles; thus, within the timeframe 

within which the section 45Y and 48E 

credits will be available there is ample 

capacity to serve demand in many 

sectors, without causing induced 

emissions. Similarly, several 

commenters stated that much of the 

RNG produced in the United States is 

used in the transportation sector for 

compliance with the RFS and/or state 

clean fuel programs like the California 

Low Carbon Fuel Standard (LCFS). 

Further, these commenters suggested 

that since these programs drive 

deployment of a specific amount of 

compliant fuels, if an existing RNG 

supplier leaves these transportation 

markets to supply RNG as a feedstock to 

an electricity-generating facility, the 

prior end use of such RNG will be 

backfilled with other compliant fuels 

(for example, those that meet the RFS’s 

GHG requirements). 

In response to these comments, the 

Treasury Department and the IRS 

acknowledge that these existing 

transportation fuel programs, chiefly the 

RFS and California’s LCFS, have been 

the primary drivers for deployment of 

RNG domestically. The Treasury 

Department and the IRS agree that the 

existence of these programs mitigates 

the risk that RNG currently produced for 

such programs will be redirected to 

electricity production. Despite this, 

there still remains a risk that RNG (or 

biogas) could be redirected to electricity 

production from other current uses. 

Additionally, because RNG currently 

comprises the vast majority of cellulosic 

biofuel credits generated under the RFS 

program, it is not necessarily the case 

that RNG previously used in this 

program would be backfilled with other 

compliant fuels should insufficient RNG 

be available for use as U.S. 

transportation fuel. As discussed 

previously, however, these final 

regulations do not impose a first 

productive use requirement at this time, 

but instead take an alternate approach to 

addressing these concerns. 

Several commenters suggested the 

Treasury Department adopt a midprogram 5-year ‘‘check-in’’ to evaluate 

whether electricity produced using RNG 

is leading to unintended increases in 

emissions. Facilities that have achieved 

commercial operation during this period 

could qualify as ‘‘additional’’ for 

purposes of tax credit eligibility. Several 

commenters suggested that a robust 

assessment of any induced emissions 

associated with redirecting RNG from its 

prior use would demonstrate that such 

consideration would not result in an 

increase in the emissions rate and, 

therefore, such emissions need not be 

considered due to the speculative nature 

of the initial premise. One commenter 


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noted that a potential alternative is to 

add an indirect emission charge equal to 

the emissions associated with the 

extraction, processing, and delivery of 

fossil natural gas to backfill the prior 

demand for such gas. 

In response to these comments, the 

Treasury Department and the IRS 

acknowledge that the first productive 

use requirement, which is not required 

as part of these final regulations due to 

the difficulties in proving and verifying 

first productive use, would address two 

aspects of lifecycle GHG emissions 

assessments, both of which must be 

considered under section 45Y(b)(2)(B). 

First, a first productive use requirement 

would mitigate the risk of emissions 

associated with the diversion of natural 

gas alternatives from a productive use 

other than the production of electricity. 

Although methane from natural gas 

alternatives could be used for different 

productive uses, the potential emissions 

associated with changes in use are 

nonetheless relevant in the 

determination of a GHG emissions rate. 

Second, a first productive use 

requirement aids in the determination of 

the appropriate alternative fate of 

natural gas alternatives used in the 

production of electricity. Comments 

questioning a first productive use 

requirement because of a lack of 

evidence of induced emissions arising 

from shifts in behavior due to the 

availability of the section 45Y and 48E 

credits are not dispositive. Section 

45Y(b)(2)(B) does not require empirical 

evidence of direct and significant 

indirect emissions associated with a 

newly available incentive like the 

section 45Y and 48E credits before the 

likelihood of such emissions may be 

considered, and such a restriction 

would systematically underestimate 

such emissions. As further explained 

elsewhere in this section, it is necessary 

for a GHG emissions assessment that is 

consistent with the statutory definition 

of lifecycle GHG emissions in 

45Y(b)(2)(B) to reflect the emissions 

effects that can be reasonably expected 

to occur based on current or future 

market trends and drivers, inclusive of 

incentives and regulation. 

Many commenters raised concerns 

about the effect a first productive use 

requirement would have on deployment 

of RNG production technologies and 

suggested it could also have other 

undesirable effects on the market for 

certain methane sources. Several 

comments suggested the first productive 

use rule limits RNG pathways by 

creating a de facto strict additionality 

requirement that is unnecessary. Several 

commenters stated that the first 

productive use requirement is overly 

burdensome and will unnecessarily 

curtail methane abatement at scale. 

Several commenters argued that the 

proposed ‘‘first productive use’’ 

requirement would cause a significant 

value discrepancy for new projects, 

creating a market distortion, greater risk 

of stranded gas for existing projects, 

added complexity, and higher prices for 

end-consumers. Several commenters 

argued that adding a first productive use 

rule creates potential unintended 

consequences of RNG plants sitting idle 

if the deployment of a facility does not 

coincide with the RNG plant completion 

dates. 

Assuming the implementation of the 

first productive use requirement, many 

comments requested modifications, 

changes to, or transitional relief to the 

first productive use requirement 

outlined in the preamble to the 

proposed regulations. One commenter 

recommended the first productive use 

requirement be satisfied by any use that 

is more productive than the prior use. 

This commenter suggested that the first 

productive use rule may be overly 

restrictive and that it could be beneficial 

to relax the first productive use 

requirement, so long as the new use of 

the RNG delivers overall lower net 

emissions than its original fate. One 

commenter suggested there should be 

no restrictions on RNG; however, if a 

first productive use rule is 

implemented, then it should apply a 

look-back period of 36 months. Several 

commenters stated the first productive 

use requirement should be eliminated or 

modified as it relates to production 

using CMM. Several comments 

recommended that each individual 

borehole for CMM be seen as additional 

and as a first productive use of supply 

due to each of them being a unique 

investment decision requiring 

incremental capital expenditure to 

mitigate leaking methane. Several 

commenters asserted that if the first 

productive use requirement is adopted, 

it must be applied to each methane 

source—that is, at the digester or 

lagoon-level for RNG and borehole-level 

for CMM so as to reflect how investment 

decisions are made. Several commenters 

noted that once a low-carbon gas source 

is accepted as meeting a first productive 

use requirement (if adopted), it should 

not be exclusively tied to a particular 

electricity-generating facility. 

For the reasons previously discussed, 

these final regulations do not impose a 

first productive use requirement, and so 

modifications, changes, and transitional 

relief are not necessary. The Treasury 

Department and the IRS will continue to 

consider the recommendations raised by 

these comments in evaluating whether 

imposing a first productive use 

requirement, with potential 

modifications, may be appropriate in 

future guidance under sections 45Y and 

48E. 

Many commenters supported 

imposing a first productive use 

requirement and some recommended 

additional guardrails. One commenter 

asserted that the proposed first 

productive use rule would help direct 

biomethane that is otherwise vented (or, 

in some cases, flared) to electricity 

generation, rather than creating an 

additional demand for methane by 

taking from other sources that may meet 

that demand through dirtier sources of 

energy. According to the commenter, a 

first productive use requirement is 

important to avoid significant indirect 

emissions associated with electricity 

generation from biomethane. The 

commenter noted that avoiding 

significant indirect emissions is 

especially important for agricultural 

methane emissions, which have risen 

over the last few decades despite overall 

declines in national methane emissions. 

Several commenters supported the 

proposed regulations and argued that 

enforcing the first productive use rule 

and narrowly tailoring the definition of 

first productive use are critical to 

prevent the significant amount of RNG 

production today shifting to electricity 

generation. The commenters posited 

that diversion of currently produced 

and used RNG to electricity generation 

would be backfilled with fossil natural 

gas and contended that this is especially 

true for existing RNG heat applications 

and CNG-powered vehicles. One 

commenter stated that the proposed rule 

requiring the first productive use be 

matched to the same taxable year as (or 

after) the electricity-generating facility is 

placed in service would help to limit 

any diversion of biogas or RNG from 

other pre-existing uses, which might 

otherwise increase overall emissions. 

Several comments supported 

prohibiting crediting biomethane or 

fugitive methane that has previously 

been put to productive use and stated 

that a first productive use requirement 

would ensure emissions reductions 

claimed under the section 45Y and 48E 

credits are indeed additional to the 

climate system overall. The Treasury 

Department and the IRS agree with 

many of the observations made in these 

comments. While these final regulations 

do not adopt a first productive use 

requirement for the reasons stated 

earlier in this Summary of Comments 

and Explanation of Revisions, the 

Treasury Department and the IRS have 

considered these observations regarding 


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alternative productive use of natural gas 

alternatives when establishing the 

alternative fates. 

c. Alternative Fates 

Section 1.45Y–5(d)(2)(vii) clarifies 

that an LCA of a C&G Facility may 

consider alternative fates and account 

for avoided emissions, including for the 

fuels and feedstocks consumed in the 

fuel and feedstock supply chain and at 

the electricity generating facility. 

These final regulations establish 

general requirements for lifecycle GHG 

emissions determinations for facilities 

that use methane derived from natural 

gas alternatives to produce electricity, 

requiring such determinations to 

consider the alternative fates of that 

methane, including avoided emissions 

and alternative productive uses of that 

methane; the risk that the availability of 

tax credits creates incentives to produce 

additional methane or otherwise 

induces additional emissions; and 

observable trends and anticipated 

changes in waste management and 

disposal practices over time as they are 

applicable to methane generation and 

uses. The emissions risks that would 

have been addressed by a first 

productive use requirement are 

addressed in the development of the 

appropriate alternative fates for certain 

sources of natural gas alternatives, 

thereby reflecting an accurate 

assessment of GHG emissions pursuant 

to section 45Y(b)(2)(B). The factors 

considered in establishing the 

appropriate alternative fate are 

interrelated and must account for other 

aspects of these final regulations. For 

example, because these final regulations 

do not impose a first productive use 

requirement, there may be a greater 

likelihood that the appropriate 

alternative fate for certain sources of 

natural gas alternatives should be 

productive use. 

As previously discussed, analytical 

decisions regarding the alternative fate 

of natural gas alternatives are critical in 

the assessment of their carbon intensity. 

Commenters suggested a range of 

broadly applicable alternative fate 

assumptions for methane from natural 

gas alternatives. Recommendations 

included venting, flaring, productive 

use, and responsible avoidance of 

waste-stream-generated methane. Rather 

than adopting a single alternative fate 

for all natural gas alternatives, these 

final regulations instead address 

specific considerations for each major 

source of natural gas alternatives. This 

section of this Summary of Comments 

and Explanation of Revisions addresses 

comments recommending broadly 

applicable alternative fates, while 

comments addressing alternative fates 

for specific sources of methane are 

discussed in section VIII.E.4.c.i. of this 

Summary of Comments and Explanation 

of Revisions. 

Several commenters stated that it is 

only appropriate to compare alternative 

fates against a suite of alternative best 

practices. The commenters noted that 

only comparing utilization emissions 

against a limited scope of alternatives 

may exclude practices that offer the 

greatest potential climate and 

environmental justice benefits. For 

example, one commenter asserted that 

any methane that can be captured 

should be assigned a baseline 

counterfactual of capture and flare, 

which would acknowledge the cost of 

methane pollution and other economic 

and regulatory factors already driving 

abatement. Several commenters 

suggested that the assessment of an 

alternative fate should consider 

practices that offer the best climate and 

environmental justice benefits. The 

Treasury Department and the IRS 

understand these comments but 

emphasize that an alternative fate must 

reflect the appropriate assumptions that 

are relevant to estimating emissions 

impacts that would have occurred in the 

absence of the implementation of 

policy. 

One commenter stated that specificity 

should be critical in designating 

alternative fates because, for example, 

while RNG, biogas, or fugitive methane 

may be chemically the same, they may 

have very different emissions. Several 

commenters stated that any alternative 

fate must assume that relevant laws 

would have been followed if the tax 

credits did not exist. For example, 

according to one commenter, emissions 

should not be based on a venting 

alternative fate, if venting would have 

been illegal. 

Commenters supported and opposed a 

venting alternative fate (that is, 

assuming the methane in question 

would have been released directly to the 

atmosphere rather than flared or 

productively used) for a range of reasons 

that are discussed further in the 

discussion of specific sources of natural 

gas alternatives that follow. In response 

to these commenters, the Treasury 

Department and the IRS note that 

venting is not an appropriate alternative 

fate to apply across all sources of 

natural gas alternatives, because it does 

not account for the prevalence of flaring 

and productive use, nor does it address 

the risk of induced emissions due to the 

incentives provided by the section 45Y 

and 48E credits. The Treasury 

Department and the IRS also anticipate 

that a venting baseline would become 

increasingly inappropriate over time, 

due to ongoing and anticipated changes 

in regulations and operational practices. 

The section 45Y and 48E credits are 

available for facilities that begin 

construction before these credits are 

phased out under sections 45Y(d) and 

48E(e). These final regulations also 

permit taxpayers to rely on the Annual 

Table that was in effect when a facility 

began construction or a PER determined 

with respect to a facility for the duration 

of the facility’s 10-year credit period, 

provided the facility continues to 

operate as a type of facility that is 

described in the Annual Table or in the 

facility’s emissions value request. 

Therefore, consistent with the 

requirement in § 1.45Y–5(d)(2)(iii) to 

apply a future anticipated baseline, 

§ 1.45Y–5(e)(3) provides that the GHG 

emissions rate of a C&G Facility that 

uses methane derived from biogas, RNG, 

or CMM (or any hydrogen derived from 

methane from these sources) as a fuel or 

feedstock to produce electricity must 

take into account anticipated changes in 

waste disposal practices or use of that 

methane over the relevant timeframe. 

The Treasury Department and the IRS 

expect venting prohibitions to expand 

in future years, as local, state, and 

Federal policy restrictions on venting 

are becoming increasingly common. 

While the policy landscape for specific 

methane sources is discussed later in 

this section, a range of current and 

prospective state policies limiting 

venting of different RNG sources or 

encouraging more responsible methane 

management practices indicates the 

trajectory of state action in this area. For 

example, California, Colorado, 

Maryland, Michigan, Oregon, and 

Washington have all recently taken or 

imminently plan to take action to 

restrict venting and require more 

responsible methane management 

practices, in some cases beyond the 

Federal standards currently in place. 

As discussed in more detail regarding 

specific sources of natural gas 

alternatives, there are significant 

voluntary Federal incentives to 

encourage responsible methane 

management practices. There is also 

evidence of ongoing growth in methane 

capture through proliferation of landfill 

gas capture and anaerobic digesters. For 

example, as shown in updated project 

database files from EPA’s Landfill 

Methane Outreach Program (LMOP), as 

of September 2024 there are 1,245 

landfills with operational gas collection 

and control systems, as compared to 


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8LMOP Landfill and Project Database, U.S. 

Environmental Protection Agency, available at 

https://www.epa.gov/lmop/lmop-landfill-andproject-database (last updated Sept. 20, 2024). 9 Id. 

10AgSTAR Data and Trends, Biogas Data and 

Trends, U.S. Environmental Protection Agency, 

available at https://www.epa.gov/agstar/agstardata-and-trends#biogasfacts (last updated Nov. 27, 

2024). 11 Id. 12 Id. 

1,187 in 2014.8 Additionally, LMOP 

data shows growth in the number of 

landfill gas energy projects upgrading 

landfill gas to RNG. As of September 

2024, there are 110 operational RNG 

projects (as compared to 63 projects in 

2019) and 102 planned or under 

construction.9 In addition, as 

subsequently discussed, there has been 

rapid growth in the construction of 

animal waste digesters, largely as a 

result of policy incentives, with data 

from AgSTAR showing an additional 

172 operational anaerobic digesters 

accepting livestock manure in 2024 

relative to 2019 (267 digesters).10

AgSTAR data also demonstrates rapid 

growth in RNG projects (including 

pipeline injection and CNG for vehicle 

fuel or other uses), with 191 RNG 

projects in 2024 compared to 32 in 

2019, and only 8 in 2017.11 As of 2023, 

CNG has surpassed CHP property as the 

most common end use of biogas from 

manure-based anaerobic digestion 

systems in AgSTAR.12 In light of all 

these trends, a methane venting baseline 

across all natural gas alternatives is 

inaccurate today, and, over time, the 

assumptions and inputs will likely 

become increasingly erroneous as 

regulations, markets, and resource 

management practices evolve during the 

period over which the section 45Y and 

48E credits are available. This supports 

the use of reasonably conservative 

alternative fates in the face of 

uncertainty to provide greater assurance 

that facilities will comply with the 

statutory emissions requirements. 

The Treasury Department and the IRS 

also agree that conservative approaches 

to assessing alternative fates of natural 

gas alternatives may be an appropriate 

response to challenges in documenting 

and verifying alternative fates 

applicable to specific sources of natural 

gas alternatives in order to better ensure 

compliance with the statutory emissions 

requirements of sections 45Y and 48E. 

However, such conservative approaches 

should consider the distinct 

characteristics of each source or type of 

source, to the extent reasonably 

practicable. Thus, although a capturing 

and flaring alternative fate may be 

generally appropriate for some 

categories of sources of natural gas 

alternatives, it is not appropriate for all 

sources of natural gas alternatives. 

Some commenters suggested that the 

alternative fate assumption for all 

methane derived from waste streams 

should be alternative productive use. As 

explained subsequently, the Treasury 

Department and the IRS have concluded 

that the significant and, in some cases, 

growing rates of productive use of 

methane from certain waste streams is 

an important consideration in 

establishing alternative fate assumptions 

for measuring GHG emissions rates. 

Because not all methane from waste 

streams is used productively, however, 

applying an alternative fate of 

productive use as a general rule for 

natural gas alternatives would 

understate the potential emissions 

benefits of using such gas in the 

production of electricity in some 

contexts. The final regulations, therefore 

do not adopt these comments. 

Some commenters suggested that the 

alternative fate assumption for all waste 

stream-generated methane should be 

responsible avoidance of such methane 

production by applying practices that 

minimize its production. These 

commenters highlighted the risk that 

incentives created by the section 45Y 

and 48E credits would lead to the 

production of more methane than would 

have otherwise occurred. The Treasury 

Department and the IRS agree that this 

is an important consideration that must 

be addressed pursuant to § 1.45Y– 

5(d)(2)(v)(A) and (B). 

For new methane that would not have 

been produced in the absence of the 

section 45Y and 48E credits, use of such 

methane for electricity production must 

not be reflected as avoided methane 

emissions in an LCA for a C&G Facility. 

For example, for certain waste streams, 

the volumes of waste-stream-generated 

methane produced by a certain practice 

can be affected by operator actions, such 

as a change in manure management 

practices from land disposal to lagoon 

disposal, or heating an anaerobic 

digester to increase the amount of 

methane produced. Moreover, in some 

cases, the cost of generating additional 

methane may be small compared to the 

value of the section 45Y and 48E 

credits. 

The availability of the section 45Y 

and 48E credits may lead to generation 

of methane in the form of natural gas 

alternatives for the purpose of supplying 

feedstocks or fuel that would be used to 

produce electricity by a facility seeking 

to claim a credit under sections 45Y and 

48E. In those instances, the appropriate 

alternative fate is that the methane 

generated from waste streams, or 

increments of it, would not have been 

created in the first place or that it would 

have remained sequestered. In such 

scenarios, it would be inappropriate to 

credit electricity production with 

avoided emissions because the analysis 

must address methane leakage and 

combustion emissions that otherwise 

would not have occurred, and crediting 

these scenarios with avoided emissions 

would likely result in allowing a section 

45Y or 48E credit with respect to a 

facility that is ineligible for the credit 

based on the statutory emissions 

requirements. This is a particularly 

important consideration for certain 

types of methane-producing practices 

and materials, and for determining the 

appropriateness of alternative fates that 

can result in highly negative GHG 

emissions rate estimates if emissions 

from additional methane generation are 

not accounted for, which would create 

potentially large incentives for 

additional waste production, potentially 

resulting in highly inaccurate lifecycle 

GHG emissions assessments. 

In light of the substantial venting and 

flaring of methane that currently occurs, 

an alternative fate of avoidance would 

in many instances understate the 

emissions benefits of capturing such gas 

and using it to produce electricity. To 

meet statutory requirements, however, 

incentives for methane creation must be 

considered in the determination of a 

GHG emissions rate. 

It is not practicable for the Treasury 

Department and the IRS to ascertain 

which specific waste-stream-generated 

methane would not exist absent the 

incentives provided by the section 45Y 

and 48E credits, nor is it practicable to 

precisely estimate the market-mediated 

emissions of such an incentive effect. To 

ensure that these emissions are 

accounted for, as is required under the 

statute, the Treasury Department and 

the IRS have concluded that the most 

administrable and appropriate way to 

take into account the economic 

incentives for additional waste 

production is in the establishment of the 

alternative fates that generally apply to 

particular feedstocks. Specifically, in 

settings where a significant but nonidentifiable share of methane from some 

sources could be produced in response 

to incentives provided by the section 

45Y and 48E credits or other programs, 

alternative fate assumptions that result 

in highly negative emissions estimates 

are likely to be inaccurate and 

understate the real-world GHG 

emissions. The final regulations require 

that determinations of alternative fates 

for methane derived from biogas, RNG, 

or fugitive methane consider the risk 

that the availability of tax credits creates 


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13Non-regulatory Public Docket: Municipal Solid 

Waste Landfills, U.S. Environmental Protection 

Agency, available at https://www.epa.gov/ 

stationary-sources-air-pollution/non-regulatorypublic-docket-municipal-solid-waste-landfills (last 

updated Dec. 9, 2024); Press Release, The White 

House, Fact Sheet: Biden-Harris Administration 

Announces New Actions to Detect and Reduce 

Climate Super Pollutants (Jul. 23, 2024), available 

at https://www.whitehouse.gov/briefing-room/ 

statements-releases/2024/07/23/fact-sheet-bidenharris-administration-announces-new-actions-todetect-and-reduce-climate-super-pollutants; Keaton 

Peters, Is the EPA About to get Serious About 

Methane Pollution from Landfills?, Canary Media 

(Jul. 10, 2024), available at https://www.canary

media.com/articles/methane/is-the-epa-about-toget-serious-about-methane-pollution-from-landfills. 

14Reconsideration of Standards of Performance 

and Emissions Guidelines for Municipal Solid 

Waste Landfills (RIN 2060–AU24) available at 

https://www.reginfo.gov/public/do/eAgendaView

Rule?pubId=202404&RIN=2060-AU24. 

15U.S. Environmental Protection Agency, Final 

Updates to Performance Standards for New, 

Modified and Reconstructed Landfills, and Updated 

to Emission Guidelines for Existing Landfills: Fact 

Sheet (Sept. 2016), available at https://

www.epa.gov/sites/default/files/2016-09/ 

documents/landfills-final-nsps-eg-factsheet.pdf. 

incentives to produce additional 

methane. 

i. Alternative Fate Considerations for 

Methane From Certain Sources 

Informed by the considerations 

discussed previously, § 1.45Y–5(e)(3)(ii) 

through (vi) specifically address the 

alternative fate considerations for 

methane from landfill gas, wastewater, 

CMM, animal waste sources, and 

fugitive methane other than CMM. The 

following sections of this Summary of 

Comments and Explanation of Revisions 

address these specific sources of natural 

gas alternatives in further detail. These 

final regulations have developed 

alternative fates on a sector-by-sector 

basis because determining and 

validating alternative fates on an entityby-entity basis would not be practicable. 

As discussed previously, identifying an 

appropriate alternative fate for specific 

sources of natural gas alternatives 

would depend not only on the specific 

facts and circumstances (for example, 

whether methane from the source was 

already being productively used), but 

would also require an entity-by-entity 

assessment of the applicability of 

alternative fate scenarios with many 

complex factors potentially relevant to 

that assessment (for example, financial 

incentives absent the section 45Y and 

48E credits, regulatory considerations, 

or trends in waste management or 

disposal practices). It would be highly 

burdensome for taxpayers to 

demonstrate, and impractical to confirm 

as a matter of tax administration, that a 

specific methane source had certain 

historic practices and whether in the 

future that source would have had a 

certain disposition other than the one 

that actually occurred. Quantities of 

methane from an individual source 

could even have different alternative 

fates. For example, assuming a situation 

where, absent tax incentives, a source 

capturing and using methane would 

have produced less methane and vented 

it, the alternative fate for that amount of 

methane (venting) would differ 

dramatically from the alternative fate of 

the additional methane produced due to 

the tax incentive (no methane produced 

or emitted). Given these significant 

administrative challenges, alternative 

fates are assessed and applied on a 

sector-by-sector basis in these final 

regulations. 

A. Alternative Fate Considerations for 

Methane From Landfill Gas 

A number of commenters highlighted 

competing considerations in 

determining the appropriate alternative 

fate for methane from landfill gas. 

Several commenters stated that venting 

is the correct alternative fate for landfill 

gas. Several commenters stated that a 

venting alternative fate is not 

appropriate where relevant laws and 

regulations require a landfill to capture 

biogas. Several commenters stated that 

capture and flare is the correct 

alternative fate for methane and that, in 

the case of landfills, the uncaptured 

portion of methane gas should be part 

of the lifecycle analysis. One commenter 

specified the appropriate alternative fate 

is flaring at a 95–98 percent destruction 

efficiency. Another commenter noted 

the GREET model does not currently 

include fugitive methane emissions at a 

landfill in the LCA, even though fugitive 

methane emissions can negate the 

climate and environmental benefits of 

biomethane projects. One commenter 

stated that landfills do not deliberately 

generate additional biogas in order to 

qualify for a tax credit. 

The Treasury Department and the IRS 

note that regulations increasingly 

require flaring of landfill gas, and 

anticipated changes in regulatory 

requirements and operational practice 

are an important consideration in 

determining appropriate alternative 

fates. The EPA currently regulates 

emissions (in the form of landfill gas 

using non-methane organic compound 

(NMOC) emissions as a surrogate) from 

landfills under section 111 of the CAA; 

EPA regulations under the Solid Waste 

Disposal Act (commonly known as the 

Resource Conservation and Recovery 

Act, or RCRA) mandate certain landfill 

management practices that also affect 

methane emissions from landfills. As 

noted later, several states have adopted 

additional more stringent requirements 

for landfill methane emissions. Also, the 

EPA has announced that it intends to 

update and strengthen its existing 

landfill regulations under section 111 of 

the CAA in 2025 (the current rules for 

landfill gas emissions were finalized in 

2016).13 Pursuant to the EPA’s 

regulatory plan, the EPA plans to revisit 

the rule to understand how new 

technologies and approaches could be 

incorporated into updated New Source 

Performance Standards (NSPS) and 

Emissions Guidelines to reduce 

emissions from municipal solid waste 

landfills and to protect the environment 

and the health of people that live 

nearby.14

In particular, certain landfills are 

subject to NSPS (40 CFR part 60, 

subpart XXX) and Emissions Guidelines 

(40 CFR part 60, subpart Cf) under 

section 111 of the CAA (collectively, 

NSPS/EG Rules). The listed regulated 

pollutant under these regulations is 

‘‘landfill gas.’’ The EPA has also 

promulgated National Emissions 

Standards for Hazardous Air Pollutants 

(NESHAP) (40 CFR part 63, subpart 

AAAA) in 2020 that regulate the 

emissions of Hazardous Air Pollutants 

(HAP) from landfills. The NESHAP 

regulates HAP emissions by requiring 

landfills that exceed the size and NMOC 

emission thresholds to install and 

operate a landfill gas collection and 

control system (GCCS). As in the NSPS/ 

EG, the GCCS is required to include a 

control device capable of reducing 

NMOC emissions by 98 percent. This 

system will also reduce emissions of 

methane since methane makes up 

approximately 50 percent of the landfill 

gas. 

The EPA’s current CAA section 111 

NSPS provides emissions control 

requirements for new (since 2014) 

municipal solid waste landfills. 40 CFR 

part 60, subparts WWW and XXX. The 

section 111 emissions guidelines (EG) 

cover existing (pre-2014) municipal 

solid waste landfills through 

requirements that are adopted by states 

through state plans, or by the EPA in the 

event a state does not submit an 

approvable plan. 40 CFR part 60, 

subpart Cf. Both new and existing 

landfills that exceed specified size and 

emissions thresholds must install 

landfill gas GCCS and use, sell, or flare 

(combust) the gas. The EPA estimated 

that 846 landfills would be required to 

collect and control landfill gas under 

these regulations by 2025.15 In addition, 

landfills covered by these regulations 

and that have GCCS installed must 

conduct quarterly surface monitoring for 

leaks. In the states with more stringent 

state requirements, the requirements 


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16 Landfill Methane Outreach Program (LMOP), 

U.S. Environmental Protection Agency, available at 

https://www.epa.gov/lmop (last updated Dec. 5, 

2024). 

17 In addition to upcoming EPA regulations, 

additional states are also contemplating regulations. 

See, for example, Landfill Methane Reductions in 

Colorado, Colorado Department of Public Health 

and Environment, available at https://

cdphe.colorado.gov/landfill-methane-reductions-incolorado; New York Department of Environmental 

Conservation et al., Methane Reduction Plan (May 

2017), available at https://extapps.dec.ny.gov/docs/ 

administration_pdf/mrpfinal.pdf. 

18Ha, Miae, et al. ‘‘Opportunities for Recovering 

Resources from Municipal Wastewater.’’, Jul. 2022. 

https://doi.org/10.2172/1876441. 19See https://afdc.energy.gov/fuels/natural-gasrenewable. 

20National Biosolids Data Project, Nationwide 

Survey of WRRF Biosolids Programs https://

www.biosolidsdata.org/downloads/nationwide-wrrfsurvey-cleaned-data-spreadsheet. 

commonly apply to smaller landfills, 

landfills with lower emissions levels, 

and/or apply more stringent emissions 

control measures compared to the 

Federal requirements. A number of 

other landfills that are not subject to 

emissions control regulations 

nevertheless have installed landfill 

GCCS and are either flaring, combusting 

the gas for energy generation, or 

upgrading it and injecting it in the 

pipeline system for sale.16 The LMOP 

tracks voluntary GCCS installation 

based on available data reported by 

program partners. As of 2024, at least 

450 landfills operate a GCCS without 

being required by regulation. Many of 

the landfills that are not currently 

regulated or voluntarily collecting gas 

may be required to collect and control 

landfill gas emissions during the 

timeframe in which the section 45Y and 

48E credits are available, as additional 

regulation is expected at both the 

Federal and state level.17

Given that landfill gas collection and 

use or flaring is widespread, as it is 

required by regulation for an increasing 

number of landfills and often supported 

by GHG credit programs when it is not 

otherwise required, an assumption that 

absent the section 45Y and 48E credits 

the typical practice would be 

uncontrolled venting is not supportable. 

The Treasury Department and the IRS 

have determined that since collection 

and flaring is required by law for the 

largest sources of landfill gas, and is 

increasingly being required for smaller 

sources as well, collection and flaring is 

the most appropriate alternative fate 

assumption for the sector as a whole 

given its prevalence. Although a flaring 

alternative fate will result in an 

underestimate of lifecycle GHG 

emissions for landfills with current 

productive use, the fact that there are 

some landfills where capture and flaring 

or productive use is not yet occurring, 

in combination with the prevalence of 

flaring, makes a flaring alternative fate 

the most robust approach for the sector 

as a whole. Section 1.45Y–5(e)(3)(ii) of 

the final regulations provides that, for 

purposes of determining the GHG 

emissions rate of a C&G Facility (as 

defined in § 1.45Y–5(b)(4)) that 

produces electricity through combustion 

or gasification using methane derived 

from landfill sources as a fuel or 

feedstock, the alternative fate of such 

gas must be flaring. 

B. Alternative Fate Considerations for 

Methane From Wastewater 

Several commenters stated that the 

R&D GREET 2023 model provides a 

reasonable baseline assumption that 

should be applied for all wastewater 

sludge projects. These commenters 

noted that a digester would be present 

on site and the biogas would be flared 

or consumed on site, and this should 

inform the baseline in establishing the 

alternative fate of the methane. Another 

commenter stated that it would be 

incorrect to presume both that most 

wastewater treatment plants have 

operational biogas/anaerobic digester 

systems and that operational biogas 

systems are flaring their gas. The 

commenter further asserted that, based 

on the American Biogas Council’s 

database of wastewater facilities 

maintained under a memorandum of 

understanding with the Water 

Environment Federation, the vast 

majority of operational digester systems 

at wastewater plants are using such 

biogas to produce renewable electricity, 

RNG, or heat, which, according to the 

commenter, offsets fossil fuel use and its 

related emissions. 

National-level data on anaerobic 

digestion at wastewater treatment plants 

and the use of biogas produced is 

limited. There are more than 16,000 

wastewater treatment plants in the U.S. 

While most wastewater treatment plants 

in the U.S. serve small populations and 

do not process sufficiently large 

wastewater flows to justify the 

installation of anaerobic digesters, 

which are capital-intensive, anaerobic 

digesters are very prevalent among the 

smaller number of large wastewater 

treatment facilities that process the large 

majority of wastewater: the largest 8 

percent of facilities (1,132 facilities that 

each handle greater than 5 million 

gallons per day) process 77 percent of 

total national wastewater flow, 

according to Argonne National 

Laboratory.18 Among the 1,100 

generally large wastewater treatment 

plants that have anaerobic digesters, 860 

have the equipment to use their biogas 

on site, according to the U.S. 

Department of Energy Alternative Fuels 

Data Center.19 Additionally, nearly all 

biogas-producing wastewater treatment 

plants surveyed in 2018 reported flaring 

at least some of their biogas, based on 

the Nationwide Survey of WRRF 

Biosolids Programs released in 2022.20

Venting practices are not reported in 

any national datasets, although vents are 

required to prevent over-pressurization 

events in biogas storage systems and 

local regulators may require facilities to 

track and report venting events. Some 

facilities combust biogas to heat their 

digesters and some also take advantage 

of the additional heat availability for onsite biosolids drying. 

Given that use or flaring of methane 

from wastewater is generally applied to 

the majority of wastewater generated 

domestically, an assumption that absent 

the section 45Y and 48E credits the 

typical practice would be uncontrolled 

venting is not supportable. Section 

1.45Y–5(e)(3)(iii) of the final regulations 

therefore provides that, for purposes of 

determining the GHG emissions rate of 

a C&G Facility (as defined in § 1.45Y– 

5(b)(4)) that produces electricity through 

combustion or gasification using 

methane derived from wastewater 

sources as a fuel or feedstock, the 

alternative fate of such gas must be 

flaring of gas not used to heat the 

anaerobic digester. 

For the large majority of biogas from 

wastewater treatment plants, this is 

either consistent with current practice 

or modestly overestimates avoided 

emissions in cases where the portion of 

biogas not needed to satisfy on-site heat 

requirements would otherwise have 

been productively used. Although a 

flaring alternative fate for this additional 

biogas will result in an over-estimate of 

avoided GHG emissions for wastewater 

treatment plans with current productive 

use beyond satisfying on-site heat 

demands, this potential overestimation 

of GHG emissions avoidance is 

counterbalanced by the existence of 

wastewater treatment plants where 

capture and flaring or productive use is 

not yet occurring, thus making the 

specified alternative fate the most 

appropriate approach for the sector as a 

whole. 

C. Alternative Fate Considerations for 

Coal Mine Methane 

The Treasury Department and the IRS 

recognize that fossil sources of fugitive 

methane can be utilized for the 

production of electricity. Many 

commenters specifically noted the 

feasibility of producing electricity from 


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21Active underground mines that liberate more 

than 36,500,000 actual cubic feet of methane per 

year report annually to GHGRP on whether their 

drainage gas is vented or destroyed. 

CMM and identified venting as a 

common alternative fate. One 

commenter noted concerns associated 

with allowing for the use of fugitive 

methane from sources such as coal 

mines until robust lifecycle analysis, 

verifiability, incrementality, and other 

principles related to the emissions 

impacts of this gas are demonstrated. 

Another commenter recommended that 

the emissions associated with coal mine 

methane be determined consistent with 

the GREET model maintained by 

Argonne National Laboratory. 

Drainage gas is the subset of CMM 

that is most likely to be used for 

electricity generation, due to its high 

methane content. Drainage systems are 

a mechanism of recovering methane 

from underground mines to maintain 

safe operating conditions.21 These 

systems are typically installed when 

ventilation systems are insufficient to 

maintain underground methane 

concentrations within permissible 

limits. Unlike drainage gas, ventilation 

gas is typically dilute in methane 

content and therefore is not widely used 

for electricity production. 

Based on consultation with 

interagency experts, the Treasury 

Department and the IRS understand that 

the EPA’s GHGRP is the only national 

public database with historical 

information provided annually by large 

active underground mines regarding 

their treatment of drainage gas. Review 

of data submitted by coal mines to 

GHGRP under 40 CFR part 98, subpart 

FF, indicates that, while the majority of 

ventilation gas liberated by coal mines 

over the past decade has been vented, 

the majority of drainage gas has been 

productively used or flared. Mine 

practices have fluctuated, with some 

mines transitioning from predominantly 

venting drainage gas to predominantly 

using or destroying such gas. Factors 

that can affect the extent to which a 

mine vents, flares, and/or productively 

uses such gas in a given year include the 

amount of methane required by onsite 

equipment (for example, engines); 

proximity to offsite infrastructure (for 

example, pipelines); and the 

lucrativeness of programs incentivizing 

the capture of CMM. Incentives for 

CMM destruction and utilization that 

are currently available include state 

offset programs, state renewable 

portfolio standards, and voluntary 

offsets, some of which specifically do 

not allow for pipeline injection. 

There is considerable uncertainty 

associated with establishing the 

appropriate alternative fate scenarios for 

CMM for the period over which a 

facility may be able to claim the section 

45Y and 48E credits. Coal mines that are 

currently injecting CMM into pipelines 

may transition to flaring if natural gas 

prices fall, or may exercise flaring at 

future boreholes if those boreholes are 

distant from existing pipeline 

infrastructure. Mines that are currently 

predominantly venting may transition to 

productive use if pipeline infrastructure 

is built in their vicinity. A flaring 

baseline is therefore the most 

appropriate approach for CMM sourced 

from drainage systems given the 

uncertainty with respect to these 

emissions in particular in the United 

States, and reduces the risk of 

inappropriately attributing extremely 

negative lifecycle emissions rates to the 

capture of CMM which would have 

already been captured and productively 

used. 

Accordingly, § 1.45Y–5(e)(3)(iv) of 

these final regulations provides that for 

purposes of determining the GHG 

emissions rate of a C&G Facility (as 

defined in § 1.45Y–5(b)(4)) that 

produces electricity through combustion 

or gasification using coal mine methane 

that is drainage gas as a fuel or 

feedstock, the alternative fate of such 

gas must be flaring. This alternative fate 

accounts for the uncertainties associated 

with future practices, as previously 

described, while recognizing that most 

drainage gas is destroyed today. 

D. Alternative Fate Considerations for 

Animal Waste 

Commenters suggested a variety of 

alternative fate assumptions for 

purposes of estimating GHG emissions 

for biogas derived from animal waste 

sources, including venting, alternative 

productive use, and responsible waste 

management, with some commenters 

recommending a single alternative fate 

for biogas produced from these sources 

and others recommending differentiated 

alternative fates. There is no national 

database that tracks farm-level methane 

emissions, capture, and usage in the 

agricultural sector. Additionally, there 

are no nationally applicable reporting 

requirements for animal waste 

management practices at livestock and 

poultry farms, which differ substantially 

on a farm-to-farm basis, and state-level 

animal waste management reporting 

requirements vary. Therefore, lack of 

data and heterogeneity of animal waste 

management practices are limiting 

factors in establishing a single specific 

alternative fate for methane generated 

from animal waste. 

Many commenters highlighted 

competing considerations in 

determining the appropriate alternative 

fate for methane derived from animal 

waste. Several commenters 

recommended that the R&D GREET 

2023 model be used to calculate the 

avoided emissions from anerobic 

digestion and the associated biogas 

using site-specific baseline manure 

management practices. The commenters 

suggested that the correct alternative 

fates could be entered into the model 

manure management categories and 

practices to accurately quantify baseline 

emissions prevented by a biogas project. 

Several commenters suggested that for 

biogas produced from livestock manure, 

the alternative fate should be that 

methane would continue venting from 

manure handling facilities until such 

time as that venting is no longer 

permissible by law or regulation. The 

consequence of the commenters’ 

suggestion is that any biogas utilized 

would be associated with avoided GHG 

emissions. The commenters noted that 

this alternative fate is similar to what 

the commenters assert is appropriate for 

the landfill gas industry, where once 

regulations are in place requiring 

landfill gas to be captured and 

destroyed, then flaring becomes the 

appropriate alternative fate. One 

commenter noted that although the 

primary precedent for crediting avoided 

methane emissions is the California 

LCFS’s treatment of biomethane from 

manure lagoons, this precedent is not 

appropriate for purposes of the section 

45Y and 48E credits. The commenter 

stated that the avoided GHG emissions 

calculation was specifically 

incorporated within the LCFS as a 

means of subsidizing investments in 

anaerobic digesters to address pollution 

from California’s dairies rather than as 

a reflection of the best available science. 

Determining the appropriate 

alternative fate and emissions intensity 

for biogas produced from animal waste 

sources presents several challenges. 

First, the emissions intensity of biogas 

produced from animal waste can vary 

widely based on the specific waste 

practices used by individual producers. 

These practices are not 

comprehensively tracked and, in many 

cases, would be extremely difficult to 

effectively verify. Different waste 

disposal practices produce very 

different quantities of methane per unit 

of manure, as methane generation is 

much higher in wet anaerobic 

conditions. As one example, the EPA’s 

GHG Inventory data indicates that 

uncovered anaerobic lagoons produce 

roughly one hundred times the amount 


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4080 Federal Register / Vol. 90, No. 9 / Wednesday, January 15, 2025 / Rules and Regulations 

22 Values were calculated using data from the 

AgSTAR Digester Database. Livestock Anaerobic 

Digester Database, U.S. Environmental Protection 

Agency, available at https://www.epa.gov/agstar/ 

livestock-anaerobic-digester-database (last updated 

Oct. 1, 2024). The sum of dairy cattle reported as 

feeding operational digesters in the AgSTAR 

database as of June 2024 was calculated to be 1.55 

million. The sum of swine reported as feeding 

operational digesters was calculated to be 1.68 

million. The total values including underconstruction digesters are 1.87 million dairy cattle 

and 2.08 million swine. Percentages are calculated 

by dividing these values by the most up-to-date data 

on dairy cattle and swine head: total dairy cattle 

head in 2022 (18.6 million) and swine head (73.4 

million) as reported in the EPA GHG Inventory. See 

also U.S. Environmental Protection Agency, 

‘‘Inventory of U.S. Greenhouse Gas Emissions and 

Sinks,’’ available at https://www.epa.gov/ 

ghgemissions/inventory-us-greenhouse-gasemissions-and-sinks (last updated November 22, 

2024); U.S. Department of Energy, ‘‘A Generic 

Counterfactual Greenhouse Gas Emission Factor for 

Life-Cycle Assessment of Manure-Derived Biogas 

and Renewable Natural Gas’’ (2025), available at 

www.energy.gov/45vresources. 

23How Much Should Dairy Farms Get Paid for 

Trapping Methane?—Energy Institute Blog, 

available at https://energyathaas.wordpress.com/ 

2024/10/14/how-much-should-dairy-farms-getpaid-for-trapping-methane/. 

of methane as daily spread. Even among 

farms credited with methane venting 

counterfactuals under the California 

LCFS, the resulting GHG emissions 

intensities for biogas vary widely 

depending on specific practices. Factors 

impacting the emissions intensity 

calculations for that program include, 

but are not limited to, the type of 

animals producing waste for the 

digester, type(s) of feed provided for the 

animals, the digester technology, and 

ambient conditions at the digester. As 

discussed further later in this section, 

none of these practices are 

comprehensively tracked or reported at 

a national level. Commenters also noted 

the further uncertainty and variation 

introduced by a range of leakage rates 

from operations capturing and 

upgrading manure-derived methane, 

including the high likelihood that there 

are ‘‘super emitter’’ sources (consistent 

with the patterns seen in other fugitive 

methane streams). This could introduce 

additional uncertainty and risk of over 

crediting in measuring a GHG emissions 

rate. 

Second, there is substantial and 

growing alternative productive use of 

methane from animal waste. There are 

400 operational animal waste anaerobic 

digesters in the U.S. and 73 additional 

digesters under construction as of 2024, 

according to the AgSTAR Digester 

Database. Based on data from the 

AgSTAR Digester Database regarding the 

number of livestock (by head) feeding 

anaerobic digesters as of 2024, it is 

estimated that the waste from roughly 8 

percent of dairy cattle and 2 percent of 

swine (by head) is currently sent to 

anaerobic digesters and these numbers 

increase to 10 percent and 3 percent, 

respectively, if digesters currently under 

construction are included.22 The 

percentage of waste being sent to 

anaerobic digesters has been rising 

rapidly since 2019, with 400 operational 

projects and 73 under construction, and 

with the majority of new projects 

upgrading their biogas to RNG, due, in 

part, to incentives provided by the RFS, 

LCFS, and a California grant program. 

The digesters listed as newly 

operational and under construction as of 

2023–2024 in the AgSTAR database 

represent a 28 percent increase in the 

dairy cattle waste and 50 percent 

increase in swine waste (by head) sent 

to anaerobic digesters relative to 2022 

levels. While there has been some 

variation in the profitability of installing 

anaerobic digesters as credit values have 

fluctuated,23 the financial incentives 

provided by the RFS and LCFS 

programs appear to be sufficient to 

incentivize some installations of 

anaerobic digesters at existing lagoons, 

which reduces emissions without any 

additional incentive from the section 

45Y and 48E credits. There are also 

other possible sources of revenue from 

anaerobic digester systems including 

tipping fees from local food production, 

or the sale of secondary products such 

as digestate-based fertilizer or 

phosphorus pellets. 

Complementing these incentives are a 

range of other voluntary programs that 

encourage capture and productive use of 

methane emissions from animal waste. 

For example, USDA is leveraging its 

authority under a variety of existing 

programs to encourage farmers and 

ranchers to install or upgrade 

equipment and adopt new practices that 

improve manure management and can 

substantially reduce methane emissions. 

One such program, AgSTAR, is a 

collaborative program sponsored by the 

EPA and USDA that promotes the use of 

biogas recovery systems, such as 

anaerobic digester systems, to reduce 

methane emissions from animal waste. 

Likewise, USDA Natural Resources 

Conservation Service programs— 

including the Environmental Quality 

Incentives Program (EQIP) and the 

Conservation Stewardship Program 

(CSP)—provide incentives for upgrading 

existing anaerobic lagoons, anaerobic 

digesters, and solid separators and 

covers to collect methane for use or 

destruction; install solid separators that 

reduce methane-producing slurries; and 

providing conservation assistance for 

transitions to alternative manure 

management systems, such as deep pits, 

composting, transitions to pasture, or 

other practices that have a lower GHG 

emissions profile. The Rural Energy for 

America Program (REAP) has offered 

more than $160 million in grants and 

loans to incentivize anaerobic digesters 

and biogas projects to control methane 

and biogas from dairy and other farms. 

Given rapid recent and continuing 

growth and multiple existing incentive 

programs, it is reasonable to assume 

continued growth in the share of large 

dairies and concentrated animal feeding 

operations with anaerobic digesters, 

even absent an additional incentive 

under the section 45Y and 48E credits. 

Redirecting biogas that comes from 

these sources to electricity production 

will mean less displacement of natural 

gas elsewhere in the economy, and 

could therefore result in significant 

indirect emissions that must be taken 

into account under section 45Y(b)(2)(B). 

Third, the magnitude of the incentive 

provided by the section 45Y and 48E 

credits itself creates a significant risk of 

additional waste production in response 

to the credit, with emissions that must 

be accounted for in the LCA. While 

some commenters noted that the EPA 

did not find that its RFS program’s 

incentivization of anaerobic digesters 

had driven a proliferation of 

concentrated animal feeding operations 

or other large-scale animal agriculture, 

other commenters disagreed, stating that 

the availability of these credits may 

incentivize the operation of new or 

larger farming units and the deliberate 

production of methane. Commenters 

noted that, even with use of anaerobic 

digesters, GHG emissions may still 

result from leakage, use of digestate, and 

the need to use venting to accommodate 

fluctuating gas levels. Additional waste 

production could thus result in 

additional emissions; moreover, even if 

emissions from additional production 

are captured, crediting the additional 

waste with avoided emissions would 

result in inaccurate credit 

determinations. 

For biogas produced from animal 

waste, there are several potential routes 

that may increase methane production: 

• Shifting management practices for 

existing quantities of manure from land 

application to lagoon, thereby 

significantly increasing methane 

generation; 

• On the margin, making new or 

expanded concentrated animal feeding 

operations (CAFOs) more profitable 

(whether by increasing the overall 

numbers of animals raised, or by 

consolidating smaller existing 

operations) and thereby inducing 

additional manure and methane 

generation; and 


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24U.S. Department of Energy, ‘‘A Generic 

Counterfactual Greenhouse Gas Emission Factor for 

Life-Cycle Assessment of Manure-Derived Biogas 

and Renewable Natural Gas’’ (2025), available at 

www.energy.gov/45vresources. 25 Id. 

• Using management practices at 

biodigesters to produce more methane 

than would have been produced 

otherwise (for example, increasing the 

temperature at an anaerobic digester). 

To the extent producers adopt these 

practices in response to incentives 

created by the section 45Y and 48E 

credits, failure to take this into account 

could lead to allowing facilities that do 

not meet statutory GHG emissions 

requirements to be treated as qualified 

facilities under section 45Y and 48E. 

This would be a particular concern with 

a venting alternative fate because it 

would result in a significantly negative 

estimated GHG emissions rate, creating 

strong incentives to produce additional 

methane for use by facilities to claim the 

section 45Y and 48E credits 

inappropriately. 

In light of these challenges, the 

Treasury Department and the IRS have 

determined that the most appropriate 

approach to determining the carbon 

intensity of biogas and ensuing RNG 

derived from animal waste is to use an 

alternative fate for the sector as a whole 

that is derived from the national average 

of all animal waste management 

practices. The rule provided in § 1.45Y– 

5(e)(3)(v) requires a best estimate of the 

nationwide average methane emissions 

from manure based on currently 

available data. As detailed in a technical 

analysis from the DOE,24 this results in 

a carbon intensity score of ¥51 gCO2e/ 

MJ, where the MJ basis refers to the 

lower heating value of the methane 

contained in the biogas. This emissions 

attribute for the methane contained in 

biogas from animal waste can be 

subsequently used to calculate the 

carbon intensity of electricity and RNG 

by accounting for the GHG emissions 

associated with onsite electricity 

generation from biogas or for upgrading, 

transportation, and compressing into 

RNG. 

As further explained in the DOE’s 

analysis of animal waste sources, this 

carbon intensity of RNG derived from 

methane contained in biogas from 

animal waste has been calculated using 

a weighted average of U.S. manure 

management practices across manure 

from all types of livestock and poultry. 

Averaging over the full set of animalwaste management practices nationwide 

is an administrable way to take into 

account the range of existing waste 

management practices and represent 

emissions reductions that result from 

additional methane capture and use.25 It 

is a reasonable and administrable 

representation of the carbon intensity of 

biogas from manure-based sources in 

light of the significant limitations of 

available data and verification 

mechanisms, the uncertainties 

associated with estimation of the GHG 

emissions, the benefits of different 

manure management systems, and the 

risks of perverse incentives At the same 

time, it provides taxpayers certainty and 

clarity regarding the carbon intensity of 

methane from certain animal waste 

sources. 

The Treasury Department and the IRS 

considered alternative approaches 

suggested by commenters, in particular 

whether to provide differentiated 

alternative fates, for example based on 

a producer’s prior waste management 

practices and methane production levels 

or the mix of animal types used to 

generate biogas. Differentiated 

alternative fates, however, is not feasible 

because it would not be administrable 

or practicable to set up a reporting and 

verification system to determine the 

prior practices and quantities of manure 

and biogas at each individual 

participating livestock and poultry 

operation that generates biogas. Such an 

approach would be infeasible given the 

large number of such operations and the 

lack of nationally applicable reporting 

requirements regarding numbers of 

animals or manure management 

practices by livestock and poultry 

operation (and wide variation in state 

reporting requirements). Additionally, 

104 of the 473 digesters operational or 

under construction in the AgSTAR 

database report co-digesting their 

primary manure type with one or more 

other wastes, including other types of 

manure, food waste, agricultural 

residues, and dairy/food processor 

waste. These tracking and verification 

challenges are of particular concern 

because differences in waste disposal 

practices or specific waste sources can 

result in large differences in avoided 

emissions, meaning that highly specific 

prior waste management practices 

would need to be consistently reported 

and verified to support accurate 

differentiated alternative fates. In 

addition, as discussed previously, 

differentiated alternative fates that allow 

for highly negative emissions values 

raise concerns about incentives for 

additional waste production that could 

result in inappropriate claims of the 

section 45Y and 48E credits. The 

Treasury Department and the IRS will 

continue to monitor reporting and 

tracking systems and study the 

feasibility of introducing differentiated 

pathways in the future. 

The Treasury Department and the IRS 

also considered whether the emissions 

values for RNG produced from animal 

waste should be adjusted to reflect the 

risk of additional waste production in 

response to the incentives provided by 

the section 45Y and 48E credits. The 

Treasury Department and IRS expect the 

modestly negative emissions values 

established in these rules will provide, 

at most, only modest incentives to 

generate new methane or other GHGs 

from animal waste. However, the 

Treasury Department and the IRS will 

continue to study this issue to 

determine whether adjustments are 

needed in the future. 

E. Alternative Fate Considerations for 

Fugitive Methane From Fossil Fuel 

Activities Other Than Coal Mining 

The Treasury Department and the IRS 

have considered the alternative fate of 

fugitive methane from fossil fuel 

activities other than coal mining, which 

are overwhelmingly comprised of oil 

and gas operations, and determined that 

the generally applicable alternative fate 

for fugitive methane from these 

activities is productive use. 

While some commenters viewed the 

alternative fate of fugitive emissions to 

be venting, others noted the extensive 

existing regulatory requirements and 

additional incentives for avoiding 

fugitive emissions from oil and gas 

operations and argued that productive 

use is the appropriate alternative fate for 

this source of methane. Some 

commenters stated that any program 

that would incentivize the capture of 

fugitive methane from oil and gas 

sources would be ineffective and 

inefficient because of the combination 

of: (i) variable emissions, (ii) the 

technical challenge of measuring 

emissions, and (iii) the 

counterproductive incentives the 

baseline setting process would create. 

Another commenter stated that, to avoid 

double counting methane emissions 

abatement, the final regulations must 

explicitly state that fugitive sources of 

methane arising from oil and gas 

activities are to be treated equivalently 

to fossil methane. 

The Treasury Department and the IRS 

note that EPA regulations under section 

111 of the CAA seek to limit volatile 

organic compound (VOC) and methane 

emissions from oil and gas operations 

through a variety of requirements 

including performance standards as 

well as operational practices and leak 

detection and repair programs. See 40 

CFR part 60, subparts OOOO, OOOOa, 

OOOOb, and OOOOc. For example, 


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26See, for example, Waste Prevention, Production 

Subject to Royalties, and Resource Conservation, 89 

FR 25378 (Apr. 10, 2024). 

EPA’s latest rules for new sources of 

VOC and methane emissions require use 

of zero emitting process controllers in 

most scenarios. EPA’s previous rules 

allowed low bleed and intermittent 

bleed controllers, which emit pollutants 

to the atmosphere by discharging 

natural gas. EPA’s new rules keep that 

gas in the system instead of allowing it 

to be released. EPA’s new rules also 

phase out routine flaring of associated 

gas from most new oil wells, establish 

strong performance standards for 

emissions from storage tanks, include 

requirements for the efficiency of flares, 

and strengthen requirements for regular 

leak monitoring and the deadline for 

repairs at well sites. EPA’s leak 

detection and repair program at well 

sites requires frequent monitoring of oil 

and gas equipment with approved 

technology and methods to look for 

leaks. If a leak is found, then it must be 

repaired quickly so that the equipment 

stops leaking fugitive emissions to the 

atmosphere. This program will reduce 

the amount of emissions coming from 

leaking components. EPA’s rules also 

require owners and operators of new 

wells to use best management practices 

to minimize or eliminate venting of 

emissions from gas well liquids 

unloading. 

As discussed in section VIII.4.c.i.A. of 

this Summary of Comments and 

Explanation of Revisions, while some of 

the compliance deadlines under each of 

the updated regulations under section 

111 and updated reporting requirements 

in 40 CFR part 98, subpart W, have not 

yet passed, operators must plan for 

timely compliance with those 

requirements and must currently 

comply with other requirements such as 

the new source requirements under 

section 111. Thus, operators have 

significant incentives to make certain 

compliance investments now and are 

required to do so well within the period 

of the tax credit. In addition, the Bureau 

of Land Management and most oil and 

gas producing states also regulate the 

‘‘waste’’ of gas through venting and 

flaring, and some, such as New Mexico 

and Colorado, have regulations equally 

or more stringent than EPA 

requirements in many respects.26 As a 

consequence, the majority of the actions 

that an oil or gas operator could take to 

avoid fugitive emissions are already 

required by law or will be during the 

period in which the section 45Y and 

48E credits will be available. 

Given the extensive regulatory 

environment already in place requiring 

oil and gas operators to minimize GHG 

emissions from oil and gas operations, 

and the strong incentive and existing 

infrastructure to sell gas that is not lost 

through venting or flaring, the generally 

applicable alternative fate for fugitive 

emissions from fossil fuel activities 

other than coal mining is productive 

use. Accordingly, § 1.45Y–5(e)(3)(vi) 

provides that for purposes of 

determining the GHG emissions rate of 

a C&G Facility (as defined in § 1.45Y– 

5(b)(4)) that produces electricity through 

combustion or gasification using 

fugitive methane other than coal mine 

methane as a fuel or feedstock, such as 

fugitive methane from oil and gas 

operations, the alternative fate of such 

gas must be productive use, which 

would result in emissions equivalent to 

the carbon intensity of using fossil 

natural gas. For example, the production 

of methane from virgin coal seams, 

which is commonly referred to as ‘‘coal 

bed methane’’ (CBM), may be for the 

purpose of natural gas production or 

may result from pre-mining activities. 

Since it is typically of a comparable 

methane content as other natural gas 

sources, it is commonly sold for use. 

Nationwide, emissions that result from 

CBM extraction are currently reported to 

EPA’s Greenhouse Gas Reporting 

Program under 40 CFR part 98, subpart 

W, which informs background estimates 

of upstream methane emissions for the 

natural gas supply chain. Accordingly, 

GHG emissions analyses conducted for 

purposes of sections 45Y and 48E would 

represent CBM with a carbon intensity 

that is equivalent to that of other 

sources of fossil natural gas. 

d. Book-and-Claim 

Book-and-claim accounting has been 

used in some contexts to track the 

attributes associated with the 

production of a unit of energy in a 

manner that prevents double counting. 

In such a system, producers of energy 

are required to acquire and retire 

corresponding attribute certificates 

through a book-and-claim system that 

can verify, generally in an electronic 

tracking system, that all applicable 

requirements are met. The preamble to 

the proposed regulations requested 

comment on whether book-and-claim 

accounting may be suitable for use in 

substantiating and verifying claims to 

the energy attributes of fuels and 

feedstocks used by a facility to generate 

electricity. Examples of the relevant 

fuels and feedstocks for which bookand-claim accounting may be 

considered include natural gas 

alternatives or other feedstocks such as 

hydrogen. The preamble to the proposed 

regulations further noted that the 

Treasury Department and the IRS are 

considering providing rules that may 

permit the use of book-and-claim 

accounting for the section 45Y and 48E 

credits 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. The preamble to the 

proposed regulations further noted that 

tracking and verification mechanisms 

for natural gas alternatives specific to 

the needs of the section 45Y and 48E 

credits are not yet available, and 

existing systems have limited 

capabilities for tracking and verifying 

pathways for natural gas alternatives, 

especially in the part of the production 

process before the methane has been 

reformed to RNG. 

A wide range of comments arguing in 

favor of and against allowing the use of 

book-and-claim systems for natural gas 

alternatives were received in response 

to the proposed regulations. Several 

commenters discussed how book-andclaim systems were commonplace 

within the RNG industry. In addition, 

several commenters expressed concern 

about the ability of the RNG industry to 

take advantage of the section 45Y and 

48E credits if a book-and-claim 

approach was not adopted. Several 

commenters stated that, because sources 

of natural gas alternatives are unevenly 

distributed throughout the United States 

and may not be located near prospective 

electricity-generating facilities, bookand-claim allows entities that do not 

have access to such sources to be 

eligible for the section 45Y and 48E 

credits. One commenter suggested that a 

mass balance model or an ‘‘identity 

preservation’’ model could be adopted if 

a book-and-claim system was 

disallowed. 

Several commenters suggested that 

existing systems, such as the Midwest 

Renewable Energy Tracking Systems 

(M–RETS), the EPA’s RFS, or the 

California LCFS, might have sufficient 

capabilities to enable book-and-claim 

accounting for purposes of the section 

45Y and 48E credits. Other commenters 

argued that these systems do not have 

sufficient tracking capabilities and that 

the Treasury Department and the IRS 

should disallow book-and-claim given 

these limitations. Several commenters 

recommended that if a book-and-claim 

system were allowed, then such system 

should take measures to avoid doublecounting of the same environmental 

attributes. Several commenters 

suggested that any tracking system 

should be able to allocate emissions 

based on different levels of gas blending 

from different feedstocks and enable the 

differentiation of carbon capture rates to 


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those different feedstock production 

pathways. Several commenters noted 

that any tracking system would not 

address the issue on which proposed 

regulations invited comment, such as 

ensuring that biomethane is not 

produced for the purpose of meeting 

demand for the biomethane market. In 

response to these comments, the 

Treasury Department and the IRS note 

that existing tracking and verification 

systems have limited capabilities for 

tracking and verifying RNG pathways 

and that there is no sufficiently 

accurate, nationally available, auditable 

and reliable third-party tracking system 

(or registry) in place today. 

Several commenters suggested there 

was clear Congressional intent to allow 

book-and-claim. However, other 

commenters suggested that allowing the 

section 45Y and 48E credits solely on 

the basis of RNG certificates would be 

contrary to requirements of the statute. 

These commenters argued that the 

requirement to assess the emissions 

rates of the facility precludes the use of 

book-and-claim in the specific context 

of the section 45Y and 48E credits. 

These commenters asserted that the use 

of a book-and-claim system was not 

statutorily authorized because such use 

would not comply with the requirement 

of section 45Y(b)(2)(A) and (B) and 

section 48E(b)(3)(ii) to assess the 

emissions emitted by a facility in the 

production of electricity. Commenters 

also argued that the result of allowing 

book-and-claim would be to allow 

facilities to claim the credits with no 

meaningful change in operations, 

contrary to the intended purpose of the 

section 45Y and 48E credits. 

In response to these comments, the 

Treasury Department and the IRS have 

examined whether book-and-claim 

accounting is permissible under the 

statutes. As further explained later in 

this section, the final regulations do not 

permit the use of book-and-claim 

accounting for purposes of the section 

45Y and 48E credits because the use of 

book-and-claim accounting would 

conflict with the statutory directive to 

assess the GHG emissions specific to a 

facility. 

Congress set the statutory boundaries 

for determining greenhouse gas 

emissions rates for the section 45Y and 

48E credits in section 45Y(b)(2). Section 

45Y(b)(2)(A) defines ‘‘greenhouse gas 

emissions rate’’ as ‘‘the amount of 

greenhouse gases emitted into the 

atmosphere by a facility in the 

production of electricity, expressed as 

grams of CO2e per kWh.’’ This general 

rule for determining emissions rates 

requires an analysis of the emissions 

associated with a facility’s production of 

electricity. Section 45Y(b)(2)(B) clarifies 

that for facilities that produce electricity 

through combustion or gasification, the 

GHG emissions rate for such facilities 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 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 the rules for 

specifying a GHG emissions rate for a 

particular facility. Section 

45Y(b)(2)(C)(i) requires the Secretary to 

annually publish a table (Annual Table) 

that sets forth the GHG emissions rates 

‘‘for types or categories of facilities.’’ 

Taxpayers must use this Annual Table 

to determine the GHG emissions rate of 

any facility for which the Annual Table 

provides a rate. Section 45Y(b)(2)(C)(ii) 

provides that if the Annual Table does 

not provide a rate for a facility, the 

taxpayer that owns such facility may 

petition the Secretary for a provisional 

emissions rate. Finally, section 

45Y(b)(2)(D) requires the amount of 

GHGs emitted into the atmosphere ‘‘by 

a facility in the production of 

electricity’’ to not include any qualified 

carbon dioxide that is captured by the 

taxpayer and sequestered pursuant to 

certain requirements. Taken together, 

these statutory rules provide the 

framework to assess the GHG emissions 

of a facility based on the facility’s 

operations. 

Sections 45Y(b)(2)(C) and (f) provide 

the Secretary authority to specify and 

clarify how GHG emissions rates are 

determined within this framework. 

Section 45Y(b)(2)(C) directs the 

Secretary to publish an Annual Table or 

consider petitions for provisional 

emissions rates. Section 45Y(f) directs 

the Secretary to ‘‘issue guidance 

regarding implementation of [section 

45Y], including calculation of 

greenhouse gas emission rates for 

qualified facilities and determination of 

clean electricity production credits 

under this [section 45Y].’’ To establish 

the GHG emissions rates as directed by 

the statute, the Secretary must first 

establish a process to calculate these 

rates. Because of this broad statutory 

mandate, the emissions rate 

determination process must account for 

the varied production methods that are 

currently viable or those that may be 

devised in the future, the idiosyncrasies 

of each facility’s electricity-generating 

process, and scientific advancements 

and uncertainty associated with 

lifecycle analysis. 

Upon consideration of the comments 

submitted regarding book-and-claim, the 

Treasury Department and the IRS have 

determined that the statute requires a 

facility’s eligibility for the section 45Y 

and 48E credits to be determined by the 

electricity-generating operations 

undertaken by the facility itself to 

produce electricity and that book-andclaim, by its nature, cannot establish 

what fuel or feedstock is physically 

used within a facility to produce 

electricity or the actual fundamental 

transformations of energy that are used 

to produce a facility’s input energy 

source. Sections 45Y(b)(1)(A) and 

48E(b)(3)(A)(iii) provide that ‘‘qualified 

facility’’ means a facility that is owned 

by the taxpayer and is used for the 

generation of electricity, placed in 

service after December 31, 2024, and for 

which the GHG emissions rate or, for 

purposes of section 48E, the anticipated 

GHG emissions rate, is not greater than 

zero. 

For both the determination of whether 

a facility produces electricity through 

combustion or gasification and the 

determination of the emissions 

associated with a facility’s production of 

electricity, Congress directed the 

Secretary to assess the activities of a 

given facility in the course of electricity 

production, rather than, for example, 

the process used to produce the 

electricity. The use of book-and-claim 

could misrepresent the activities taking 

place in the facility or the actual 

fundamental transformations of energy 

that are used to produce a facility’s 

input energy source, resulting in 

inaccurate determinations both with 

respect to whether the facility is 

producing electricity through 

combustion and gasification and with 

respect to the emissions associated with 

the facility’s production of electricity. 

Book-and-claim accounting may 

appropriately be used in contexts other 

than the section 45Y and 48E credits to 

substantiate claims to the energy 

attributes of certain fuels and 

feedstocks. However, such claims do not 

necessarily correspond to the actual 

physical use of the relevant fuels and 

feedstocks. For example, where fuel is 

delivered through a common pipeline, 

the acquisition and retirement of 

certificates representing the attributes a 

particular fuel or feedstock may not 

(and are in fact unlikely to) reflect the 

physical delivery of fuel or feedstock 

with those attributes and its use by a 

facility in the production of electricity. 

In addition, the statutory authorization 

for credits other than the section 45Y 

and 48E credits may provide broader 

authority to support the use of a bookand-claim system, but the Treasury 

Department and the IRS agree with the 

commenters that such authority is not 


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4084 Federal Register / Vol. 90, No. 9 / Wednesday, January 15, 2025 / Rules and Regulations 

available with respect to the section 45Y 

and 48E credits. 

Whether a facility produces electricity 

through combustion or gasification is an 

inherently factual question that requires 

an assessment of (i) a facility’s 

operations that produce electricity and 

(ii) the operations that produced the 

fuel, if any, used by that facility in the 

production of electricity. The emissions 

assessment for a facility that produces 

electricity through the combustion of a 

particular set of fuels must be based on 

the fuels in fact used by the facility, as 

well as any emissions from the full 

lifecycle of those fuels through the point 

of electricity production. The 

acquisition and retirement of certificates 

representing the attributes of certain 

types of fuel on behalf of this facility 

would have no bearing on which fuels 

it in fact used to produce electricity or 

the operations or feedstocks used to 

produce such fuel. As a result, 

permitting a facility to use book-andclaim accounting for this purpose could 

result in treating a facility that produced 

electricity through combustion or 

gasification as if it did not do so. For 

example, a hydrogen fuel cell that 

produces electricity using hydrogen 

produced entirely by steam methane 

reforming would be considered under 

the final regulations to have produced 

electricity through combustion or 

gasification. If the fuel or feedstock used 

by such facility were allowed to be 

determined using book-and-claim 

accounting, that facility could acquire 

and retire the attributes of hydrogen 

produced through electrolysis to be 

classified as a facility that did not 

produce electricity through combustion 

or gasification even though its 

operations did not support such a 

determination. This result would be 

inappropriate because section 

45Y(b)(2)(B) requires consideration of 

the actual operations at a facility to 

produce electricity and the actual 

fundamental transformations of energy 

that are used to produce the facility’s 

input energy source. The final 

regulations, therefore, cannot permit 

book-and-claim accounting in 

determining whether a facility produces 

electricity through combustion or 

gasification. 

For the reasons explained previously, 

book-and-claim accounting also cannot 

establish the characteristics of the fuels 

used in a specific facility to produce 

electricity. Both sections 45Y(b)(2)(A) 

and (B) require an assessment of the 

greenhouse gases emitted into the 

atmosphere by the facility. The statute 

thus requires this inquiry to be based on 

the facility’s actual operations and the 

emissions associated with it, both of 

which could be misrepresented by bookand-claim accounting. The final 

regulations, therefore, also cannot 

permit book-and-claim accounting in 

determining the amount of greenhouse 

gases emitted into the atmosphere by a 

facility in the production of electricity. 

Thus, after consideration of the 

comments, §§ 1.45Y–5(e)(4) and 1.48E– 

5(e) of these final regulations do not 

permit the use of a book-and-claim 

accounting system to determine or claim 

the energy attributes of biogas, RNG, 

coal mine methane, any other methane 

used in the production of electricity, or 

any other input or feedstock. A facility 

that produces electricity through the 

combustion of RNG, for example, may 

substantiate its use of RNG by having a 

direct connection to an RNG source or 

records establishing exclusive, physical 

delivery of the RNG from that source to 

the facility for use in generating 

electricity. Because book-and-claim 

accounting of RNG energy attributes is 

not permitted for purposes of section 

48E, such substantiation must address 

the actual anticipated operations of the 

qualified facility. 

F. Carbon Capture and Sequestration 

Section 45Y(b)(2)(D) provides that for 

purposes of section 45Y(b), the amount 

of GHGs emitted into the atmosphere by 

a facility in the production of electricity 

does not include any qualified carbon 

dioxide that is captured by the taxpayer 

and (i) pursuant to any regulations 

established under section 45Q(f)(2), 

disposed of by the taxpayer in secure 

geological storage, or (ii) utilized by the 

taxpayer in a manner described in 

paragraph (5) of such section. The 

Treasury Department and the IRS 

interpret this statutory language to mean 

that, for the calculation of the GHG 

emissions rate, the GHG emissions of a 

qualified facility in the production of 

electricity must be reduced by the 

amount of qualified carbon dioxide that 

is captured by the taxpayer at the 

qualified facility, and disposed of in 

secure geological storage; used in an 

enhanced oil and gas recovery (EOR) 

project and then disposed of in secure 

geological storage; or utilized (as 

defined in section 45Q(f)(5)). 

Proposed § 1.45Y–5(e) provided that 

for purposes of paragraphs (c) and (d) of 

the section, a GHG 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. Several 

commenters requested that the final 

regulations more closely track the 

statutory language with respect to 

treatment of qualified carbon dioxide 

within the meaning of section 45Q by 

changing the language in proposed 

§ 1.45Y–5(e) from ‘‘must exclude’’ to 

‘‘shall not include.’’ The Treasury 

Department and the IRS acknowledge 

that the proposed regulatory text created 

ambiguity and have revised the final 

rule accordingly. 

Additionally, in the preamble to the 

proposed regulations, the Treasury 

Department and the IRS requested 

comments regarding 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 

sequestration, or (b) utilized by the 

taxpayer in a manner described in 

section 45Q(f)(5). Commenters almost 

universally recommended adopting the 

requirements for substantiation and 

verification of CCS provided by 

regulations and Internal Revenue 

Bulletin guidance under section 45Q, 

referred to collectively as ‘‘the section 

45Q rules.’’ The commenters cited 

support for adopting the requirements 

for substantiation and verification 

provided by the section 45Q rules 

because they provide taxpayer certainty, 

particularly as industry has already 

adopted these procedures. Other 

commenters supported adopting the 

rules because these commenters view 

the rules as appropriately stringent. 

Several commenters provided specific 

recommendations regarding the 

adoption of requirements for 

substantiation and verification provided 

by the section 45Q rules. The 

commenters requested that the final 

regulations adopt the requirements for 

secure geological storage provided 

under § 1.45Q–3, which include 

allowing the taxpayer to contract with a 

third party for secure geological storage 

activities consistent with the 

requirements under § 1.45Q–1(h)(2) and 

providing documentation to verify 

secure geological storage in accordance 

with 40 CFR part 98, subparts RR and 

VV (GHGRP), and the CSA/ANSI ISO 

27916:2016 pathway. Several 

commenters also requested that the final 

regulations adopt the utilization 

requirements provided under § 1.45Q–4, 

including providing a written LCA 

report in conformity with ISO 

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independent review, and technical 

review by the DOE. Commenters also 

recommended imposing reporting 

requirements consistent with those 

imposed on taxpayers that claim the 

section 45Q credit on IRS Form 8933. 

Other commenters asserted that 

verification and substantiation 

requirements must include detailed 

records of the CCS process, third-party 

verification, and compliance with 

GHGRP reporting standards. 

Several commenters recommended 

the adoption of a less stringent version 

of the requirements for substantiation 

and verification provided by the section 

45Q rules. A commenter recommended 

that taxpayers not be required to obtain 

pre-approval of LCA reports, which is 

required for utilization under the 

section 45Q regulations and Notice 

2024–60, 2024–34 I.R.B. 515. Instead, 

the commenter suggested that the final 

regulations provide an option for 

taxpayers that claim the section 45Y or 

48E credits for capturing and utilizing 

carbon dioxide to use different LCA 

parameters than currently apply under 

the section 45Q rules. Another 

commenter requested that in addition to 

procedures provided by the section 45Q 

rules, that the final regulation provide 

that taxpayers may use other workable 

methods and protocols for verifying 

secure geological storage. After 

consideration of the comments, the 

Treasury Department and the IRS have 

determined that based on the explicit 

statutory direction in section 

45Y(b)(2)(D) to rely upon the regulations 

established under section 45Q(f)(2) for 

secure geological storage and the 

reference to the requirements for 

utilization provided in section 45Q(f)(5), 

the final regulations adopt the 

requirements for substantiation and 

verification provided by regulations and 

Internal Revenue Bulletin guidance 

under section 45Q. 

The Treasury Department and the IRS 

also asked whether it would be 

appropriate to limit the carbon dioxide 

that may be considered as qualified 

carbon dioxide (as defined under 

section 45Y(e)(3)), and thus excluded 

under section 45Y(b)(2)(D), to carbon 

dioxide that has been reported to the 

EPA’s GHGRP, and if so, which GHGRP 

subpart or subparts should be used. 

Several commenters supported limiting 

the qualified carbon dioxide excluded 

from the GHG emissions of a qualified 

facility based on the amount of qualified 

carbon dioxide reported by the taxpayer 

to the GHGRP. A commenter also 

recommended that 40 CFR part 98, 

subpart RR (GHGRP), be used to verify 

secure geological storage. 

Another commenter asserted that the 

GHGRP procedures are not stringent 

enough to be the basis for excluding 

qualified carbon dioxide from the GHG 

emissions rate of a qualified facility for 

purposes of the section 45Y or 48E 

credits. This commenter noted that the 

current methodology for the GHGRP 

does not accurately track emissions to 

conduct LCAs and determine emissions 

from C&G Facilities. The commenter 

also noted that measurements of carbon 

dioxide that is captured, sequestered, or 

injected into an EOR project are based 

on volumetric and mass flow-related 

mathematical and engineering 

calculations once a quarter, whereas 

calculations within the GHGRP assume 

that operations and measurement are 

consistent, excluding any 

considerations of site-specific 

equipment, operations, or malfunctions. 

The commenter asserted that this 

assumption may lead to inaccurate 

reporting to the GHGRP. 

After consideration of the comments, 

the final regulations at § 1.45Y–5(e)(2) 

provide that the requirements for 

substantiation and verification of carbon 

capture and sequestration provided by 

regulations and Internal Revenue 

Bulletin guidance under section 45Q 

must be satisfied for qualified carbon 

dioxide to be taken into account to 

compute the GHG emissions rate of a 

qualified facility. Further, all taxpayers 

must comply with applicable GHGRP 

requirements under 40 CFR part 98, 

subpart PP (for carbon capture), subpart 

RR (for geological storage), and subpart 

RR or VV (for geological storage through 

enhanced oil recovery). In addition to 

the section 45Q rules, taxpayers using 

the ISO 27916 standard for EOR must 

report information to GHGRP under 40 

CFR part 98, subpart VV. Additionally, 

a taxpayer claiming the section 45Y 

credit while conducting carbon capture 

and sequestration must also include 

their applicable GHGRP ID number(s) 

on any applicable IRS Form when 

claiming the section 45Y credit, with 

the exception of taxpayers claiming the 

section 45Y credit by performing carbon 

capture and utilization. The GHGRP 

does not provide a reporting mechanism 

for utilization. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS provided an example in 

which 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 section 45Y or 48E credit. 

The Treasury Department and the IRS 

asked what enforcement mechanisms or 

regulatory regimes should be used to 

identify when such emissions leakages 

have occurred. The Treasury 

Department and the IRS also requested 

comment regarding how such emissions 

leakages should be taken into account in 

determining compliance with the GHG 

emissions rate requirements under 

sections 45Y and 48E. 

Several commenters endorsed using 

recapture concepts from the section 45Q 

rules to address instances in which 

qualified carbon dioxide taken into 

account for the section 45Y or 48E 

credits later leaks. Other commenters 

recommended that for cases in which 

captured and sequestered carbon 

dioxide subsequently escapes into the 

atmosphere, enforcement mechanisms 

should include regular monitoring and 

reporting requirements outlined in 40 

CFR part 98, subpart RR, or CSA/ANSI 

ISO 27916:2019, as referenced in 

§ 1.45Q–5(c). A commenter noted that 

stricter standards of measurement and 

reporting, and accounting for leakages 

are required to accurately determine if 

a facility’s carbon capture and 

sequestration adequately accounts for 

leaked emissions. Another commenter 

suggested that for purposes of the 

section 45Y and 48E credits, treatment 

of emissions leakages must be adjusted 

from the section 45Q rules to require 

recalculation of the emissions rate of the 

qualified facility if the recalculated GHG 

emissions rate exceeds the required 

threshold. 

After consideration of the comments 

the Treasury Department and the IRS 

have determined that the provisions of 

the section 45Q rules will apply to 

qualified carbon dioxide taken into 

account by a taxpayer for purposes of 

the section 45Y or 48E credits. These 

provisions include rules and standards 

for quantifying, certifying, and verifying 

when metric tons of qualified carbon 

dioxide have leaked into the 

atmosphere. 

Further, the Treasury Department and 

the IRS also asked whether the existing 

recapture provisions under section 45Q 

are sufficient to address emissions 

leakages. Several commenters 

recommended that the final regulations 

incorporate the recapture requirements 

provided under § 1.45Q–5 to address 

captured and sequestered carbon oxide 

that later escapes into the atmosphere 

when a taxpayer has taken that carbon 

dioxide into account for purpose of the 

section 45Y or 48E credits. The section 

45Q rules provide for a 3-year recapture 

period using a LIFO method and 

provide that for each year during the 

recapture period the amount of qualified 

carbon dioxide that is injected into 

secure geological storage is netted 

against the amount of qualified carbon 


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dioxide that may leak from such secure 

geological storage. 

A commenter noted that the 

mechanics of attributing leakage events 

across years must be adapted for the 

section 45Y and 48E credits, with the 

effect of disqualifying a facility for the 

credit in years for which the 

recalculated GHG emissions rate 

exceeds the threshold. While most 

commenters endorsed adopting the 

concepts of the section 45Q recapture 

rule to the section 45Y and 48E credits, 

a commenter requested that the 

recapture rules not apply to taxpayers 

that use carbon capture and utilization 

to claim the section 45Y or 48E credits. 

The Treasury Department and the IRS 

have determined that the provisions of 

the section 45Q rules will apply to 

qualified carbon dioxide taken into 

account by a taxpayer for purposes of 

the section 45Y or 48E credits. These 

provisions include rules and standards 

for quantifying, certifying, and verifying 

when metric tons of qualified carbon 

dioxide have leaked into the 

atmosphere. 

In the preamble to the proposed 

regulations, the Treasury Department 

and the IRS also requested comment 

regarding whether carbon capture and 

sequestration that occurs in the 

production of fuel that is used by a 

facility to produce electricity should be 

taken into account under proposed 

§ 1.45Y–5(e) and section 45Y(e)(3) and, 

if so, how should such use of carbon 

capture and sequestration be assessed in 

an LCA. Several commenters asserted 

that fuel production is within the 

boundaries of an LCA for a C&G Facility 

and the determination of the GHG 

emissions rates for the qualified facility, 

and therefore, emissions captured and 

sequestered in the production of fuel for 

the qualified facility should be taken 

into account. Additionally, several 

commenters recommended that for 

carbon capture and sequestration 

occurring in the production of fuel used 

by a qualified facility to produce 

electricity, the LCA should account for 

emissions from the entire carbon 

capture and sequestration process, 

including capture, purification, 

compression, transportation, and 

injection because these processes all 

require energy input and will 

potentially result in further fugitive 

emissions and leaks. These commenters 

noted that a contrary approach would 

ignore a large portion of GHG emissions 

in the LCA. As a result, the commenters 

assert that the GHG emissions from 

these stages should be included in 

determining the net GHG emissions rate 

of a C&G Facility. 

Other commenters asserted that if 

carbon capture and sequestration occurs 

in the production of a fuel used as a 

feedstock for a qualified facility, such 

emissions should be excluded from the 

GHG emissions of the qualified facility. 

A commenter noted that where fuel is 

produced from a process that involves 

carbon capture and sequestration (such 

as natural gas steam methane reforming, 

or gasification of biomass), the entity 

producing that fuel would claim any 

carbon removal credits. Therefore, the 

commenter asserted that the carbon 

dioxide captured and sequestered from 

the production of the fuel should not be 

accounted for by the qualified facility 

that uses such the fuel to produce 

electricity. 

After consideration of the comments, 

the Treasury Department and the IRS 

have determined that for purposes of 

determining a net GHG emissions rate of 

a qualified facility, the section 45Q rules 

will apply only to qualified carbon 

dioxide subject to CCS at such qualified 

facility during the production of 

electricity. While the section 45Q rules 

are applicable to a taxpayer that uses 

CCS at a qualified facility during the 

production of electricity, there currently 

is no known administrable method to 

apply those provisions to third parties 

that produce fuel used by a qualified 

facility. Accordingly, the final 

regulations do not adopt the 

commenters’ recommendation that CCS 

that occurs in the production of fuel that 

is used by a qualified facility to produce 

electricity should be taken into account 

for purpose of determining the net GHG 

emissions rate of such qualified facility. 

G. Annual Publication of Emissions 

Rates 

Proposed § 1.45Y–5(f)(1) provided 

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 § 1.45Y–5(f)(1) 

further provided that, except as 

provided in proposed § 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 

§ 1.45Y–5(c)(1)(ii), and, for C&G 

Facilities, an LCA that complies with 

proposed § 1.45Y–5(d) and (e). Proposed 

§ 1.45Y–5(f)(2) also provided 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 

Federal 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 

(B) (which refers to the definition of 

lifecycle GHG emissions in 42 U.S.C. 

7545(o)(1)(H)) of the Code and proposed 

§ 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. To provide clarity and 

certainty to taxpayers regarding 

eligibility, the Treasury Department and 

the IRS may also include in the Annual 

Table the types or categories of facilities 

that have a GHG emissions rate that is 

greater than zero and therefore do not 

meet the definition of a qualified 

facility. 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 § 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 

or any changes to emissions 

determinations for any types or 

categories of facilities in the Annual 

Table must be accompanied by the 

publication of an expert analysis of such 


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change as provided in proposed 

§ 1.45Y–5(f)(2). If there are no changes 

to the Annual Table in a given taxable 

year, the Treasury Department and the 

IRS intend to notify taxpayers 

accordingly. 

Commenters provided multiple 

perspectives on the substance and form 

of the Annual Table. Commenters noted 

that the Treasury Department and the 

IRS are required to publish an Annual 

Table that includes ‘‘the GHG emissions 

rates for types or categories of 

facilities.’’ Some commenters stated that 

the Annual Table should include the 

emissions rates of components used in 

different C&G technologies, that would 

be consistent for all facilities under 

specific conditions. Other commenters 

stated that the Treasury Department and 

the IRS should either not list the facility 

type in the Annual Table or should be 

conservative about the criteria listed for 

facilities with zero or negative 

emissions. 

As noted earlier in this section of this 

Summary of Comments and Explanation 

of Revisions, section 45Y(b)(2)(C)(i) 

requires the Secretary to annually 

publish a table that sets forth the GHG 

emissions rates for types or categories of 

facilities. In order to promote taxpayer 

certainty and fulfill the requirements of 

the statute, the Annual Table should 

include sufficient information about 

what types or categories of facilities 

meet the GHG emissions rate 

requirements in sections 45Y and 48E. 

The Treasury Department and the IRS 

therefore do not adopt commenters’ 

suggestions that the Annual Table 

should not include specific facility 

types. 

From a technical perspective, many 

taxpayer situations cannot be covered in 

the Annual Table in a way that would 

be consistent with the statutory 

requirements for determining GHG 

emissions rates, as specific factual 

circumstances will impact the outcomes 

of this analysis. In order to avoid false 

precision, the Treasury Department and 

the IRS have determined that the 

Annual Table should capture whether a 

particular type or category of facility has 

a GHG emissions rate of less than or 

equal to zero or a rate that is greater 

than zero. These determinations will be 

made consistent with the requirements 

of sections 45Y and 48E and these final 

regulations. 

Some commenters requested that the 

publication of the Annual Table be 

expedited to release the first Annual 

Table at the same time as the final 

regulations. Commenters also suggested 

that, for types or categories of facilities 

that are listed as having a GHG 

emissions rate that is less than or equal 

to zero in the final regulations, 

publication of the Annual Table or a 

PER certification is unnecessary for 

those facilities to meet the emissions 

rate requirement. 

Given the time and effort necessary to 

conduct emissions analysis that meets 

the requirements of the statute and these 

final regulations, the Treasury 

Department and the IRS cannot commit 

to a specific timeline for publication of 

the first Annual Table at this time. 

However, as noted earlier in this section 

of this Summary of Comments and 

Explanation of Revisions, taxpayers may 

treat the types or categories of facilities 

that are listed in these final regulations 

as having an emissions rate that is less 

than equal to zero or an emissions rate 

of greater than zero in accordance with 

the rules provided in the final 

regulations. 

Commenters also raised concerns 

regarding consistency between the 

approach to the Annual Table and the 

PER process. Some commenters stated 

that the Treasury Department should 

take a conservative approach to the 

evaluation of any petitions for C&G 

Facility types not listed in the Annual 

Table. The Treasury Department and the 

IRS have adopted an approach that 

harmonizes the technical requirements 

for the Annual Table and the PER 

process. For example, for purposes of 

determining the net GHG emissions rate 

for a C&G Facility under sections 45Y 

and 48E, any LCA must meet the 

requirements of the statutes, including 

taking into account lifecycle GHG 

emissions as described in 42 U.S.C. 

7545(o)(1)(H) and these final 

regulations. 

Commenters supported the proposed 

regulations’ approach to updating the 

Annual Table, including the 

requirement to produce analysis led by 

one or more of the National 

Laboratories, in consultation with other 

Federal agency experts, and the 

requirement to publish that analysis. 

The Treasury Department and the IRS 

agree that such an approach is essential 

to ensuring public accountability and 

adherence to sound scientific principles 

and adopt the approach as proposed in 

the final regulations. 

H. Provisional Emissions Rates 

1. In General 

For purposes of section 45Y, proposed 

§ 1.45Y–5(g) provided the rules 

applicable to provisional emissions 

rates. Proposed § 1.45Y–5(g)(1) provided 

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 

§ 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). 

For purposes of section 48E, proposed 

§ 1.48E–5(g) provided the rules 

applicable to provisional emissions 

rates. Proposed § 1.48E–5(g)(1) provided 

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 

§ 1.48E–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). The proposed rule is adopted 

without change. 

2. Rate Not Established 

Proposed § 1.45Y–5(g)(2) provided 

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. If a taxpayer’s request for 

an emissions value pursuant to 

proposed § 1.45Y–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 will be automatically denied. 

Proposed § 1.48E–5(g)(2) provided 

that 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 proposed § 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 will be 

automatically denied. 

3. Process for Filing a PER Petition 

Proposed § 1.45Y–5(g)(3) provided the 

process for filing a PER petition. 

Proposed § 1.45Y–5(g)(3) provided 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. A PER 

petition must contain an emissions 

value and, if provided by DOE, the 

associated DOE letter. An emissions 

value may be obtained from DOE or by 

using the LCA model designated in 

proposed § 1.45Y–5(g)(6). 

An emissions value obtained from 

DOE will be based on an analytical 


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assessment of the emissions rate 

associated with the facility, performed 

by one or more National Laboratories, in 

consultation with Federal agency and 

other experts as appropriate, consistent 

with proposed § 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 

§ 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 § 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. See § 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 proposed § 1.45Y– 

5(g)(6). 

Proposed § 1.48E–5(g)(3) provided the 

process for filing a PER petition. 

Proposed § 1.48E–5(g)(3) provided 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 

48E credit with respect to the facility to 

which the PER petition applies. A PER 

petition must contain an emissions 

value and, if provided by DOE, the 

associated DOE letter. An emissions 

value may be obtained from DOE or by 

using the LCA model designated in 

proposed § 1.48E–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 Federal agency 

experts as appropriate, consistent with 

proposed § 1.48E–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 

§ 1.48E–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 § 1.48E–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. See § 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 proposed § 1.48E– 

5(g)(6). 

A commenter supported the process 

provided in the proposed regulations for 

filing a PER petition and for permitting 

taxpayers to determine an emissions 

value during the PER process based on 

the most recent approved LCA model. 

However, the commenter cautioned that 

a self-certification option would be 

effective only to the extent that LCA 

models are approved for cleanelectricity technologies for which an 

emissions rate is not available in the 

Annual Table. This commenter 

recommended that the Treasury 

Department and the IRS approve LCA 

models expeditiously and ensure that 

the LCA models take avoided emissions 

into account based on technologies like 

fuel cells. Another commenter suggested 

clarifying whether facilities with 

standardized configurations and 

equipment could rely upon a single 

PER, rather than having to 

independently apply for a PER. The 

commenter emphasized that a single 

PER could just as easily be applied to 

separate facilities, provided that 

material characteristics are sufficiently 

similar. 

The Treasury Department and the IRS 

developed the PER process in 

consultation with the DOE and other 

agencies. The procedures developed for 

the PER process will designate an LCA 

model or models that are consistent 

with the requirements of sections 45Y 

and 48E and these regulations for use 

under § 1.45Y–5(g)(6). The Treasury 

Department and the IRS decline to 

permit taxpayers to rely upon a single 

PER for separate facilities, because, as a 

commenter recognized, whether a single 

PER could be applicable to separate 

facilities would depend on the facts and 

circumstances. Accordingly, to ensure 

that the taxpayer has a PER 

determination applicable to each 

qualified facility, the taxpayer must 

submit a request for a PER 

determination for each separate facility. 

With respect to the Annual Table and 

the PER process, a commenter requested 

that the Treasury Department develop or 

design an incentive for those investors 

willing to invest in technological 

innovations that could improve on 

average results likely set forth in the 

Annual Table. The Treasury Department 

and the IRS decline to address this 

request because the addition of extrastatutory incentives is outside the scope 

of these final regulations. 

4. PER Determination 

Proposed § 1.45Y–5(g)(4) provided 

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. Such 

PER petition must be submitted to the 

IRS in the first taxable year in which the 

taxpayer claims the section 45Y credit 

with respect to the facility to which the 

PER petition applies. 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 accurately reflect the 

facility’s operations in each year the 

taxpayer seeks to rely on that emissions 

value. 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 § 1.45Y– 

5(g)(6), provided that any information, 

representations, or other data used to 

obtain such emissions value remain 

accurate. The IRS’s deemed acceptance 

of an emissions value is the Secretary’s 

determination of the PER. 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 § 1.48E–5(g)(4) provided 

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. A 

taxpayer would be able to rely upon an 

emissions value provided by DOE for 

purposes of calculating and claiming a 


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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 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 § 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 is the 

Secretary’s determination of the PER. 

The taxpayer must still 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. 

A commenter suggested permitting 

joint evaluations of similar PER 

requests, as well as leveraging 

information submitted under prior 

evaluations, to promote a more 

streamlined process. The commenter 

requested that the Treasury Department 

and the IRS prioritize certainty and 

expediency and clarify the timing by 

which taxpayers can expect to receive 

an official assessment from the National 

Laboratories and other involved experts. 

An additional commenter stated that a 

delay in PER determinations would be 

hugely detrimental and disadvantage 

early entrants and innovative 

technologies. This commenter suggested 

that the Treasury Department, the IRS, 

and the DOE assess their collective 

capacities and resource needs to 

conduct analytical assessments for PER 

applications efficiently and 

expeditiously. The commenter also 

recommended that the Treasury 

Department direct the DOE to assess 

applications and determine a facility’s 

emissions rate within six months of a 

taxpayer’s submission of a PER 

application. 

The Treasury Department and the IRS 

recognize the importance of certainty 

and expediency in evaluating PER 

requests and have consulted with DOE 

to develop the PER application process. 

These agencies expect to review PER 

applications within an appropriate 

timeframe. Therefore, the changes 

suggested by the comments are not 

adopted. The Treasury Department and 

the IRS will continue to consult with 

the DOE as appropriate to assist in the 

administration of these final regulations. 

5. Emissions Value Request Process 

Proposed § 1.45Y–5(g)(5) provided the 

rules applicable to the emissions value 

request process. Proposed § 1.45Y– 

5(g)(5) provided 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 

§ 1.45Y–5. 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. 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 § 1.45Y–5(g)(2)) or a facility 

that can determine an emissions value 

using a designated LCA model under 

proposed § 1.45Y–5(g)(6) (consistent 

with proposed § 1.45Y–5(g)(3)), or 

applications that are incomplete. 

Proposed § 1.45Y–5(g)(5) also 

provided 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 § 1.48E–5(g)(5) provided the 

rules applicable to the emissions value 

request process. Proposed § 1.48E– 

5(g)(5) provided 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 

§ 1.48E–5. An applicant may request an 

emissions value from DOE only after a 

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 

non-responsive and those applications 

that relate to a facility that is described 

in the Annual Table (consistent with 

proposed § 1.48E–5(g)(2)) or a facility 

that can determine an emissions value 

using a designated LCA model under 

proposed § 1.48E–5(g)(6) (consistent 

with proposed § 1.48E–5(g)(3)), or 

applications that are incomplete. 

Proposed § 1.48E–5(g)(5) also 

provided 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. 

A commenter requested that the 

Treasury Department conservatively 

evaluate any petitions to assign an 

emissions rate for C&G facility types not 

listed in the Annual Table and to strive 

to be fully confident that operation of 

the facility would not lead to net 

lifecycle emissions. 

The Treasury Department and the IRS 

have adopted an approach that 

harmonizes the technical requirements 

for the Annual Table and the PER 

process. For example, for purposes of 

determining the GHG emissions rate for 

a C&G Facility under sections 45Y and 

48E, any LCA must meet the 

requirements of the statutes, including 

taking into account lifecycle GHG 

emissions as described in 42 U.S.C. 

7545(o)(1)(H) and these final 

regulations. 

Another commenter contended that 

completion of a FEED study is an 

inappropriate indicator of project 

maturity to request a PER. The 

commenter asserted that such a 

requirement could substantially delay 

projects and that a more logical 

approach would be for the DOE to 

determine a PER using a pre-FEED or 

feasibility study as a demonstration of 

project maturity. An additional 

commenter claimed that the cost and 

related timing of a FEED study may be 

prohibitive for distributed or small-scale 

facilities. The commenter asserted that 

in order to access project financing, 

project developers must know early in 

the development process that a facility 

will be eligible for the section 45Y or 

48E credit. However, the commenter 

stated that, a FEED study cannot 

typically be completed until well after 

a project developer will need to have 

provided prospective financiers with 


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27FEL–2, also known as the conceptual design or 

feasibility design phase of a project, may typically 

result in deliverables which include project 

schedule, preliminary design report, site layout, 

and similar. See Stage Gate Project Management, 

Mark Ludwigson, PDH Academy, https://

pdhacademy.com/wp-content/uploads/2024/01/ 

524-Stage_Gate_Project_Management.pdf. 

certainty about credit eligibility. The 

commenter noted that this disconnect 

could effectively prevent the 

development of clean energy production 

facilities that utilize pathways not 

already identified in the Annual Table. 

As an alternative to requiring a FEED 

study, a commenter suggested accepting 

an LCA performed by a third-party, 

DOE-certified provider, conducted using 

the most current, approved GREET 

model, provided that the following 

criteria are satisfied: (i) the system is UL 

or CE certified, (ii) the total landed bill 

of materials (BOM) cost of the system is 

less than $20 million, and (iii) the 

system has less than 10 MW energy 

equivalent (thermal, total gas flow, or 

total electricity) in it. Similarly, a 

commenter asserted that FEED studies 

can cost up to $50 million and delay 

project development by 6–8 months and 

recommended considering projects at 

FEL–2 27 of the project for PER 

applications. 

Proposed § 1.45Y–5(g)(5) provided 

flexibility to taxpayers by permitting a 

taxpayer to request an emissions value 

from DOE after an indication of project 

maturity, as determined by DOE, such 

as a FEED study or the completion of a 

project specification and cost estimation 

sufficient to inform a final investment 

decision for the facility. As proposed, 

DOE has some discretion to determine 

appropriate project maturity indicators, 

if not a FEED study. However, a preFEED or feasibility study are not 

adequate indicators of project maturity 

as there exists too high of a likelihood 

that the final design of the qualified 

facility will differ from the pre-FEED or 

feasibility study and therefore would 

undermine the implementation of the 

statutory definition of a qualified 

facility. Accordingly, the proposed rule 

is adopted without change. 

An applicant can request an 

emissions value from DOE only after a 

front-end 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. The DOE will publish more 

information about the process to receive 

an emissions value in forthcoming 

guidance. 

6. LCA Model for Determining an 

Emissions Value for C&G Facilities 

Proposed § 1.45Y–5(g)(6) provided 

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. A model may only be 

designated if it complies with section 

45Y(b)(2)(B) and proposed § 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 is 

required to publish an accompanying 

expert analysis of the model prepared 

by one or more of the National 

Laboratories, in consultation with other 

Federal agency experts as appropriate. 

Such analysis must address the model’s 

compliance with section 45Y(b)(2)(B) 

and proposed § 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 also ensures that the 

Secretary has a robust record to inform 

any designations or revocations of an 

LCA model or models. 

The rules provided in proposed 

§ 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 proposed § 1.48E– 

5(g)(6). 

7. Effect of PER 

Proposed § 1.45Y–5(g)(7) provided 

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. The Secretary’s 

determination of a PER 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. A PER determination does not 

signify that the IRS has determined that 

the requirements of section 45Y have 

been satisfied for any taxable year. 

Proposed § 1.48E–5(g)(7) provided 

that a taxpayer may use a PER 

determined by the Secretary to 

determine the section 48E credit for the 

facility to which the PER applies, 

provided all other requirements of 

section 48E are met. The Secretary’s 

determination of a PER 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. A PER determination does not 

signify that the IRS has determined that 

the requirements of section 48E have 

been satisfied for any taxable year. 

8. Reliance on Annual Table or 

Provisional Emissions Rate 

Proposed § 1.45Y–5(h) provided 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 § 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. 

A commenter requested a safe harbor 

for taxpayers with ongoing transactions 

in the event of any changes to categories 

of facilities and corresponding GHG 

emissions rates listed on the Annual 

Table, with a clearly advertised cutoff 

date for the applicability of the prior 

iteration. 

The proposed regulations provided a 

rule allowing for reliance on the Annual 

Table in effect as of the date a facility 

began construction in order to give 

sufficient taxpayer certainty for projects 

in development. Specifying that reliance 

on the Annual Table in effect based on 

the beginning of construction date 

provides a clear point in time that is 

already well understood for tax 

purposes. The commenter’s 

recommendation requires a fact 

intensive analysis of an event or series 

of events that lack a definitive date 

certain for when a transaction becomes 

‘‘ongoing.’’ Such a rule is not 

administrable for taxpayers and the IRS. 

Therefore, the proposed rule is adopted 

without change. 

I. Determining Anticipated Greenhouse 

Gas Emissions Rate 

Consistent with section 

48E(b)(3)(A)(iii), proposed § 1.48E–5(h) 


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provided rules to determine an 

anticipated GHG emissions rate. As 

explained in the preamble to the 

proposed regulations, 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 qualified 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. Certain 

Non-C&G Facilities, such as the 

facilities described in § 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 fuel sources, which may 

vary, or carbon capture and 

sequestration, to generate electricity 

with a greenhouse gas emissions rate 

that is not greater than zero, objective 

indicia that such facilities will use such 

fuel sources or operate such carbon 

capture equipment, as applicable, in a 

manner that results in 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 a reasonable 

expectation that the combination of fuel, 

type of facility, and practice will result 

in a greenhouse gas emissions rate that 

is not greater than zero. 

The proposed regulations provided a 

non-exhaustive list of examples of 

objective indicia that may establish a 

reasonable expectation that a qualified 

facility will operate with an anticipated 

GHG emissions rate that is not greater 

than zero, including 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. These examples are 

adopted in the final regulations in 

§ 1.48E–5(h)(2) with minor changes to 

clarify that such contracts must be 

binding written contracts and to more 

closely align the language used in the 

example pertaining to carbon capture 

and sequestration at proposed § 1.48E– 

5(h)(2)(iv) with that used for purposes of 

section 45Q and referenced in section 

45Y(b)(2)(D). 

The Treasury Department and the IRS 

requested comment on what evidence or 

substantiation taxpayers should be 

required to maintain to be able to 

establish an anticipated GHG emissions 

rate for a qualified facility. Two 

commenters recommended requiring 

that objective indicia take the form of 

physical features that make it more 

likely that the qualified facility will 

operate with a GHG emissions rate that 

is not greater than zero. In these 

commenters’ view, if the objective 

indicia do not relate to physical features 

of the qualified facility, the qualified 

facility could be too easily repurposed 

in a way that results in a positive GHG 

emissions rate. Commenters provided 

examples of physical features such as 

evidence of carbon capture and 

sequestration equipment incorporated 

into the qualified facility or a direct 

pipeline connection from the qualified 

facility to a waste fuel or feedstock, as 

appropriate. 

The Treasury Department and the IRS 

have determined that objective indicia 

need not always take the form of 

physical features. While in some cases 

physical features may provide objective 

indicia that a qualified facility will 

operate with a GHG emissions rate that 

is not greater than zero, such features 

are not relevant and therefore not 

required in all cases. Some qualified 

facilities may not have a physical 

feature that differentiates a facility with 

a GHG emissions rate that is not greater 

than zero from a comparable facility 

with a GHG emissions rate that is 

greater than zero. In such cases, the 

taxpayer must find another method of 

documenting its anticipated GHG 

emissions rate that is not greater than 

zero that provides a comparable level of 

substantiation as a physical feature. 

This could take the form of a long-term 

contract for fuel that would enable the 

facility to attain a GHG emissions rate 

that is not greater than zero, provided 

the contract imposes a binding 

obligation on the purchaser to 

compensate the seller for a sufficient 

volume of fuel to operate the entire 

facility for a substantial portion of the 

facility’s lifetime, such as ten years. The 

Treasury Department and the IRS have 

determined that in some cases nonphysical features that involve 

commitment to a third party, such as the 

aforementioned contract, can provide 

substantiation that a facility is 

reasonably expected to operate with a 

GHG emissions rate that is not greater 

than zero that is equivalent to the 

substantiation provided by a physical 

feature and relevant for a facts and 

circumstances analysis. Accordingly, 

the final regulations do not adopt the 

suggestion that objective indicia must 

take the form of physical features. 

The Treasury Department and the IRS 

also recognize that in some cases, a 

facility may seek to establish that it will 

operate with a GHG emissions rate that 

is not greater than zero on the basis that 

it will continuously operate carbon 

capture and sequestration equipment 

during electricity production. The 

physical presence of the carbon capture 

equipment would not generally be 

sufficient objective indicia to 

substantiate that the facility will operate 

using that equipment. The final 

regulations therefore provide at § 1.48E– 

5(h)(2)(iv) that one form of objective 

indicia substantiating operation of such 

equipment may include a 10-year 

binding written contract for the 

permanent geological storage (including 

after injection into an EOR project) 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 final regulations 

further provide an additional example 

of such objective indicia substantiating 

the operation of this equipment at 

§ 1.48E–5(h)(2)(v). Such objective 

indicia may include a legally binding 

Federal or State air permit which 

requires, as a condition of the permit, 

that the facility operates in a manner 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 and that any captured carbon 

dioxide is permanently geologically 

stored and subjects the holder to civil or 

criminal penalties in the event the 

relevant permit requirements are 

breached. In the case of a facility which 

requires the operation of carbon capture 

and sequestration equipment to achieve 

a qualifying GHG emissions rate of not 

greater than zero, the Treasury 

Department and the IRS have currently 

identified that such a permit 

requirement would provide sufficient 

assurance that the objective indicia 

requirement is met with respect to the 

operation of the carbon capture and 

sequestration and expect that taxpayers 

seeking to substantiate in other ways 


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would need to substantiate with 

substantially similar objective indicia. 

The preamble to the proposed 

regulations also requested comment on 

the appropriate period of time for which 

taxpayers should be required to be able 

to demonstrate that there is a reasonable 

expectation that a qualified facility will 

operate with a GHG emissions rate that 

is not greater than zero. Commenters 

provided a range of views on this topic. 

Several commenters suggested that 

taxpayers be required to demonstrate 

objective indicia that a qualified facility 

will operate with a GHG emissions rate 

that is not greater than zero for the 

lifetime of the qualified facility. Several 

other commenters recommended that 

this period be shorter, asserting that 

longer timelines, such as those beyond 

ten years, could prove burdensome, in 

part due to greater uncertainty over such 

time periods. 

Because the Treasury Department and 

the IRS have determined that the 

examples of objective indicia that 

account for a GHG emissions rate over 

ten years are sufficient to show that the 

operation of a qualified facility could 

reasonably be expected to result in a 

GHG emissions rate that is not greater 

than zero, these final regulations will 

not adopt the suggestion that the 

lifetime of the facility is the appropriate 

period of time for which a taxpayer is 

required to be able to demonstrate such 

expectation. The Treasury Department 

and the IRS have determined that 

demonstrating a reasonable expectation 

that a qualified facility will operate with 

a GHG emissions rate that is not greater 

than zero for the lifetime of a qualified 

facility would, for some long-lived 

facilities, be extremely challenging, if 

not impossible. However, these final 

regulations require taxpayers claiming 

the section 48E credit to attest under 

penalty of perjury in a manner 

prescribed by the IRS in forms or 

instructions that the anticipated GHG 

emissions rate as determined under the 

statute and these final regulations is not 

greater than zero. A facility subject to 

legally binding State or Federal permit 

conditions requiring that the facility 

operate in a manner that would be 

incompatible with a greenhouse gas 

emissions rate of not greater than zero 

is not a facility for which the 

anticipated greenhouse gas emissions 

rate is not greater than zero. 

J. Substantiation 

Upon consideration of the comments 

and consultation with other Federal 

agency experts, the Treasury 

Department and the IRS have also 

determined that the proposed 

regulations would benefit from 

additional clarity regarding 

substantiation requirements. In 

particular, the Treasury Department and 

the IRS acknowledge commenters’ 

concerns about verifying and 

substantiating the key characteristics 

that ensure a qualified facility has a 

GHG emissions rate not greater than 

zero. Accordingly, the final regulations 

make clear that substantiation 

requirements prescribed by the 

Secretary must include substantiation of 

the key parameters that would 

contribute to or impact the GHG 

emissions rates based on analytical 

assessments conducted by the National 

Laboratories, in consultation with other 

Federal agency experts as appropriate. 

The Treasury Department and the IRS 

will describe specific substantiation 

requirements for such facilities, 

including requirements for preparation 

or verification by an unrelated third 

party as appropriate, in future guidance. 

The Treasury Department and the IRS 

will require taxpayers to substantiate 

that the full electricity production 

process—including specific fuels or 

feedstocks used—is consistent with the 

taxpayer’s claims and meets the specific 

criteria that the analytical assessment 

has found are necessary for it to meet 

the statutory requirement of a GHG 

emissions rate not greater than zero. 

Given feedback provided by 

commenters on biomass discussed in 

section VIII.E. of this Summary of 

Comments and Explanation of 

Revisions, the final regulations also 

specify that for C&G Facilities utilizing 

biomass feedstocks, taxpayers must 

substantiate that the source of such fuels 

or feedstocks used are consistent with 

the taxpayer’s claims. Moreover, in 

response to comments and as discussed 

in section VIII.D. of this Summary of 

Comments and Explanation of 

Revisions, if a qualified facility uses 

feedstocks that do not have 

marketability, but which are 

indistinguishable from marketable 

feedstocks (for instance, after 

processing), the taxpayer will be 

required to maintain documentation 

substantiating the origin and original 

form of the feedstock. To ensure that 

C&G Facilities that utilize biomass 

feedstocks meet the statutory 

requirement of a net GHG emissions rate 

not greater than zero, the Treasury 

Department and the IRS anticipate that 

it may be appropriate to require or 

encourage taxpayers to maintain thirdparty certification that verifies that these 

facilities meet the criteria that the LCA 

has found are necessary for a facility to 

meet this statutory requirement. 

Severability 

If any provision in this rulemaking is 

held to be invalid or unenforceable 

facially, or as applied to any person or 

circumstance, it shall be severable from 

the remainder of this rulemaking, and 

shall not affect the remainder thereof, or 

the application of the provision to other 

persons not similarly situated or to 

other dissimilar circumstances. 

Applicability Dates 

These regulations apply to qualified 

facilities (and for §§ 1.48E–1 through 

1.48E–4, ESTs) placed in service after 

December 31, 2024, and during taxable 

years ending on or after January 15, 

2025. 

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. An agency 

may not conduct or sponsor and a 

person is not required to respond to a 

collection of information unless it 

displays a valid OMB control number. 

The collections of information in 

these final 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 

final regulations are considered general 

tax records under § 1.6001–1(e). 

The recordkeeping requirements in 

these final regulations with respect to 

section 45Y include the requirement in 

§ 1.45Y–5(h)(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 


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had a GHG emissions rate that is not 

greater than zero for the taxable year. 

Included in § 1.45Y–5(h)(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 

§ 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 

§ 1.45Y–5(c)(2). Section 1.45Y–5(h)(2) 

provides that for other types of facilities 

not described in § 1.45Y–5(c)(2), the 

taxpayer must demonstrate that the 

qualified facility meets the specific 

criteria that the analytical assessment 

prepared by the National Laboratories, 

in consultation with other Federal 

agency experts as appropriate, has 

found are necessary for a facility to meet 

the statutory requirement of a 

greenhouse gas emissions rate not 

greater than zero. Section 1.45Y–5(j)(2) 

provides that for C&G Facilities that 

utilize biomass feedstocks, the taxpayer 

must substantiate that the source of 

such fuels or feedstocks used are 

consistent with the taxpayer’s claims. 

Section 1.45Y–5(j)(2) further provides 

that for the qualified facilities not 

described in § 1.45Y–5(c)(2), the 

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, instructions, or publications, or 

guidance published in the Internal 

Revenue Bulletin. For facilities that 

utilize unmarketable feedstocks that are 

indistinguishable from marketable 

feedstocks (for instance, after 

processing), the taxpayer will be 

required to maintain documentation 

substantiating the origin and original 

form of the feedstock. 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 taxexempt organizations. 

The recordkeeping requirements in 

these final regulations with respect to 

section 48E would include the 

requirement in § 1.48E–5(k)(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 per 

kWh during each year of the recapture 

period that applies for purposes of 

section 48E(g). Included in § 1.48E– 

5(k)(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 § 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 § 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, 

instructions, or publications, or in 

guidance published in the Internal 

Revenue Bulletin. For such other types 

of facilities that utilize biomass 

feedstocks, the taxpayer must 

substantiate that the source of such fuels 

or feedstocks used are consistent with 

the taxpayer’s claims. For all facilities 

that utilize unmarketable feedstocks that 

are indistinguishable from marketable 

feedstocks (for instance, after 

processing), the taxpayer will be 

required to maintain documentation 

substantiating the origin and original 

form of the feedstock. 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 taxexempt organizations. 

The reporting requirements in these 

final regulations are in §§ 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. 

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, instructions, or 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 taxexempt 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 604 of the RFA requires the 

agency to present a final regulatory 

flexibility analysis (FRFA) of the final 

regulations. 

The Treasury Department and the IRS 

have not determined whether the final 

rule will likely have a significant 

economic impact on a substantial 

number of small entities. This 


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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 final 

regulations affected and the economic 

impact on small entities. 

In addition, pursuant to section 

7805(f), the proposed regulations 

preceding these final regulations were 

submitted to the Chief Counsel for the 

Office of Advocacy of the Small 

Business Administration for comment 

on its impact on small business, and no 

comments were received from the Chief 

Counsel for the Office of Advocacy of 

the Small Business Administration. 

However, the Small Business 

Administration’s Office of Advocacy 

provided comments in response to the 

PWA proposed regulations, including 

proposed § 1.48E–3, which is finalized 

as modified by this Treasury decision. 

See section III.B. of the Special Analysis 

of the PWA final regulations for a 

discussion of those comments. 

A. Need for and Objectives of the Rule 

The final regulations provide greater 

clarity to taxpayers for purposes of 

claiming the section 45Y credit and 

section 48E credit. The final regulations 

provide necessary definitions rules 

regarding the determination of credit 

amounts and the procedure for 

requesting a provisional emissions rate. 

The final regulations 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 facilities and 

ESTs. Thus, the Treasury Department 

and the IRS intend and expect that the 

final regulations 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 final 

regulations. 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 final 

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 final 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 facilities and 

energy storage facilities. Because the 

potential credit claimants can vary 

widely, it is difficult to estimate at this 

time the impact of these final 

regulations, if any, on small businesses. 

The Treasury Department and the IRS 

expect to receive more information on 

the impact on small businesses once 

taxpayers start to claim the section 45Y 

credit or the section 48E credit using the 

guidance and procedures provided in 

these final regulations. 

C. Impact of the Rules 

The final 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 

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 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 section 48E credit, 

taxpayers will need to continue 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 final 

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 

final 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 

final regulations require 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 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 sections 45Y and 48E, 

was a qualified facility due to an 

increase in capacity. The final 

regulations were designed to provide a 

rule that was administrable for the IRS 

and taxpayers. The final regulations 

offer taxpayers the following options for 

measuring capacity increases: use of 

capacity measures from modified or 

amended facility operating licenses 

from FERC or NRC, or related reports 

prepared by FERC or NRC as part of the 

licensing process; measurement of 

nameplate capacity of the facility 

consistent with the definition of 

nameplate capacity provided in 40 CFR 

96.202; or a measurement standard 

prescribed by the Secretary in guidance 

published in the Internal Revenue 

Bulletin. 

E. Duplicative, Overlapping, or 

Conflicting Federal Rules 

The final rules would not duplicate, 

overlap, or conflict with any relevant 

Federal rules. As discussed earlier, the 

regulations provide guidance relating to 

the section 45Y tax credit and the 

section 48E tax credit. The Treasury 

Department and the IRS invited input 

from interested members of the public 

about identifying and avoiding 

overlapping, duplicative, or conflicting 

requirements. 

IV. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs has 

determined that this rule meets the 

criteria set forth in 5 U.S.C. 804(2). 

V. Immediate Effective Date 

These final regulations have an 

effective date of January 15, 2025. To 

the extent that a good cause statement 

is necessary under any provision of law, 

the Treasury Department and the IRS 

find that there would be good cause to 

make this rule immediately effective 

upon publication in the Federal 

Register. 


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The IRA added the section 45Y and 

48E credits to the Code, and provided 

that the section 45Y credit applies to 

facilities placed in service after 

December 31, 2024, and that the section 

48E credit applies to property placed in 

service after December 31, 2024. 

Following the enactment of the IRA 

and the addition of sections 45Y and 

48E to the Code, the Treasury 

Department and the IRS published 

proposed regulations to provide 

certainty to taxpayers. In particular, as 

demonstrated by the wide variety of 

public comments in response to the 

proposed regulations, taxpayers and 

other stakeholders continue to express 

uncertainty regarding the proper 

application of the statutory rules under 

sections 45Y and 48E, and the need for 

timely final regulations, because the 

credits apply to facilities and property 

placed in service after December 31, 

2024. Taxpayers have requested the 

certainty that these final regulations 

provide prior to making investment 

decisions that will affect such facilities 

and property. In addition, this 

uncertainty extends to the application of 

a number of important provisions in 

sections 45Y and 48E that require 

determinations to be made by the 

Secretary, in consultation with other 

Federal agency experts, that are 

intended to provide certainty for 

taxpayers embarking on highly capital 

intensive projects intended to qualify 

for the section 45Y and 48E credits. 

Certainty with respect to these 

provisions is essential given the January 

1, 2025 statutory effective date, and so 

that taxpayers can accurately predict the 

economic return from making particular 

investments and make informed 

business decisions. In addition, while 

taxpayers have requested clarity 

regarding the specific requirements of 

these rules, the public already has been 

provided notice of the general contents 

of these rules and their proposed 

applicability to qualified facilities and 

energy storage technologies placed in 

service after December 31, 2024, and 

during taxable years ending on or after 

the date of publication of these final 

regulations. As provided in the IRA, 

sections 45Y and 48E replace existing 

production and investment tax credits 

for facilities placed in service after 

December 31, 2024. The statute and 

proposed rules, therefore, provide 

notice that the rules will apply to 

qualified facilities and energy storage 

technologies placed in service beginning 

in 2025, and provide notice of the 

qualification requirements being 

promulgated in this final rule. 

Moreover, section 45Y(f) directs the 

Secretary to issue guidance regarding 

the implementation of section 45Y not 

later than January 1, 2025. Section 

48E(i) similarly directs the Secretary to 

issue guidance regarding 

implementation of section 48E not later 

than January 1, 2025. 

Consistent with Executive Order 

14008 (January 27, 2021) and 

commenters’ request for finalized rules, 

the Treasury Department and the IRS 

have determined that an effective date 

of the final regulations as soon in time 

after the 45Y and 48E credits go into 

effect on January 1, 2025 as possible is 

appropriate to provide certainty to 

taxpayers seeking to place facilities and 

property in service after December 31, 

2024, in order to claim the section 45Y 

and 48E credits. The final regulations 

provide needed rules on what the law 

requires for taxpayers to claim these 

credits. Accordingly, to the extent that 

a finding of good cause is necessary, the 

Treasury Department and the IRS have 

found good cause for the rules in this 

Treasury decision to take effect on 

January 15, 2025. 

VI. 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 final 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. 

VII. 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 final 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. 

VIII. 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 

final 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. 

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 authors of these final 

regulations are Maksim Berger, John M. 

Deininger, Martha M. Garcia, Boris 

Kukso, Nathaniel Kupferman, and 

Alexander Scott (Passthroughs and 

Special Industries). Other personnel 

from the Treasury Department, the DOE, 

the EPA, the USDA, and the IRS 

participated in the development of the 

final regulations. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, the Treasury Department 

and the IRS amend 26 CFR part 1 as 

follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by: 

■ a. Adding entries in numerical order 

for §§ 1.45Y–1 and 1.45Y–2; 

■ b. Revising the entry for § 1.45Y–3; 

and 

■ c. Adding entries in numerical order 

for §§ 1.45Y–4 and 1.45Y–5 and 1.48E– 

1 through 1.48E–5. 

The revision and additions read in 

part as follows: 

Authority: 26 U.S.C. 7805 * * * 

* * * * * 


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Section 1.45Y–1 also issued under 26 

U.S.C. 45Y(f). 

Section 1.45Y–2 also issued under 26 

U.S.C. 45Y(f). 

Section 1.45Y–3 also issued under 26 

U.S.C. 45Y(f). 

Section 1.45Y–4 also issued under 26 

U.S.C. 45Y(f). 

Section 1.45Y–5 also issued under 26 

U.S.C. 45Y(b) and (f). 

* * * * * 

Section 1.48E–1 also issued under 26 

U.S.C. 48E(i). 

Section 1.48E–2 also issued under 26 

U.S.C. 48E(i). 

Section 1.48E–3 also issued under 26 

U.S.C. 48E(i). 

Section 1.48E–4 also issued under 26 

U.S.C. 48E(i). 

Section 1.48E–5 also issued under 26 

U.S.C. 48E(i). 

* * * * * 

■ Par. 2. Add an undesignated center 

heading immediately following § 1.37–3 

to read as follows: 

General Business Credits 

* * * * * 

■ Par. 3. Sections 1.45Y–0 through 

1.45Y–2 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–0 Table of contents. 

This section lists the captions 

contained in §§ 1.45Y–1 through 1.45Y– 

5. 

§ 1.45Y–1 Clean electricity production 

credit. 

(a) Overview. 

(1) In general. 

(2) CHP property. 

(i) In general. 

(ii) Components excluded. 

(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. 

(12) Waste energy recovery property 

(WERP). 

(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. 

(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. 

§ 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. 

§ 1.45Y–3 Rules relating to the increased 

credit amount for prevailing wage and 

apprenticeship. 

(a) In general. 

(b) Qualified facility requirements. 

(c) Nameplate capacity for purposes of the 

One Megawatt Exception. 

(1) In general. 

(2) Nameplate capacity for qualified 

facilities that generate in direct current for 

purposes of the One Megawatt Exception. 

(3) Integrated operations. 

(4) Related taxpayers. 

(i) Definition. 

(ii) Related taxpayer rule. 

(d) Applicability date. 

§ 1.45Y–4 Rules of general application. 

(a) Only production in the United States 

taken into account for purposes of section 

45Y. 

(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 (Incremental Production Rule). 

(1) In general. 

(2) Measurement standard. 

(3) Special rule for restarted facilities. 

(4) Computation of increased amount of 

electricity produced. 

(5) 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. 

§ 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 (C&G 

Facility). 

(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. 

(10) Market-mediated effects. 

(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. 

(viii) Temporal scales. 

(ix) Spatial scales. 

(x) Categorization of products. 

(e) Use of methane from certain sources to 

produce electricity. 

(1) In general. 

(2) Definitions. 

(i) Biogas. 

(ii) Coal mine methane. 

(iii) Fugitive methane. 

(iv) Renewable natural gas. 

(3) Considerations regarding the lifecycle 

greenhouse gas emissions associated with the 

production of electricity using methane from 

certain sources. 

(i) In general. 

(ii) Methane from landfill sources. 

(iii) Methane from wastewater sources. 

(iv) Coal mine methane. 

(v) Methane from animal waste. 

(vi) Fugitive methane other than coal mine 

methane. 

(4) Book and claim. 

(f) Carbon capture and sequestration. 

(1) In general. 

(2) Substantiation. 

(g) Annual publication of emissions rates. 

(1) In general. 

(2) Publication of analysis required for 

changes to the Annual Table. 


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(h) 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. 

(i) Reliance on Annual Table or Provisional 

Emissions Rate. 

(j) Substantiation. 

(1) In general. 

(2) Sufficient substantiation. 

(k) Applicability date. 

§ 1.45Y–1 Clean electricity production 

credit. 

(a) Overview—(1) In general. For 

purposes of section 38 of the Internal 

Revenue Code (Code), the section 45Y 

credit (defined in paragraph (a)(9) of 

this section) is determined under 

section 45Y of the Code and the section 

45Y regulations (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 § 1.45Y–2 for rules 

relating to qualified facilities for 

purposes of the section 45Y credit. See 

§ 1.45Y–4 for rules of general 

application for the section 45Y credit. 

See § 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. 

(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— 

(A) Be maintained in proper working 

order in accordance with the 

instructions of its manufacturer; 

(B) Be certified as meeting generally 

accepted industry performance 

standards, such as the American 

National Standards Institute C12.1–2022 

standard, or subsequent revisions; 

(C) Be revenue grade with a +/¥0.5 

percent accuracy; and 

(D) 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 may colocate network equipment in the 

taxpayer’s facilities. 

(iv) Examples. This paragraph 

(a)(5)(iv) provides examples illustrating 

the application of paragraph (a)(5) of 

this section. 

(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) of 

this section. X sells electricity produced 

at the qualified facility to Z, a related 

person during the taxable year. Because 

the 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) of 

this section. Because the qualified 

facility is equipped with a metering 

device that is owned and operated by an 

unrelated person and the metering 

device 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 energy 

storage technology 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 measured by the 

metering device 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 § 1.45Y–2(a). 

(7) Related person—(i) In general. 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 § 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 

their 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 §§ 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 at 26 CFR 1.52–1 

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 


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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. 

(12) Waste energy recovery property 

(WERP). 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, 

and associated equipment. 

(b) Credit amount—(1) In general. 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 (as defined in 

paragraph (a)(5) of this section) 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, as measured by the metering 

device, at such 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. The credit amount may also be 

increased as provided in section 

45Y(g)(11) and paragraph (b)(5) of this 

section in the case of a qualified facility 

that satisfies the domestic content 

requirements of section 45Y(g)(11)(B). 

(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. Under section 

45Y(a)(2)(A), in the case of any qualified 

facility that does not satisfy the 

requirements provided in section 

45Y(a)(2)(B), the applicable amount is 

the base amount, which is 0.3 cents. 

(iii) Alternative amount. Under 

section 45Y(a)(2)(B), in the case of any 

qualified facility that satisfies the 

prevailing wage and apprenticeship 

requirements provided in section 

45Y(a)(2)(B), the applicable amount is 

the alternative amount, which is 1.5 

cents. 

(3) Inflation adjustment—(i) In 

general. Pursuant to section 45Y(c)(1), 

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. Pursuant to 

section 45Y(c)(2), 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. 

Under section 45Y(c)(3), 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. Under 

section 45Y(c)(3), 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 that would otherwise 

be in effect before application of this 

paragraph (b)(4). 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 

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 phaseout 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 


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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 

data sources described in paragraphs 

(c)(4)(i) and (ii) of this section: 

(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 powerrelated 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 of 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. In the case of a qualified facility 

using nuclear energy, which does not 

involve combustion, the denominator is 

the reactor’s maximum power level in 

megawatts thermal listed on the Nuclear 

Regulatory Commission (NRC) operating 

license, converted to Btus using 

3,412,140 Btus per hour per megawatt. 

For other qualified facilities not using 

combustion, additional methodologies 

may be prescribed by the Secretary in 

guidance published in the Internal 

Revenue Bulletin (see § 601.601 of this 

chapter). 

(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. In the case of 

a qualified facility using nuclear energy, 

which does not involve combustion, the 

facility’s reactor’s total annual thermal 

output (in Btus, using a conversion rate 

of 3,412,140 Btus per megawatt hour 

thermal) shall be used in place of the 

total annual fuel consumption of the 

CHP property. For other qualified 

facilities not using combustion, 

additional methodologies may be 

prescribed by the Secretary in guidance 

published in the Internal Revenue 

Bulletin (see § 601.601 of this chapter). 

(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 

January 15, 2025. 

§ 1.45Y–2 Qualified facility for purposes of 

section 45Y. 

(a) Qualified facility. For purposes of 

the section 45Y credit (defined in 

§ 1.45Y–1(a)(9)), the term qualified 

facility means a facility owned by the 

taxpayer that meets the requirements of 

paragraphs (a)(1) through (3) of this 

section: 

(1) The facility is used for the 

generation of electricity, meaning that it 

is a net generator of electricity taking 

into account any electricity consumed 

by the facility; 

(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 

(as determined under rules provided in 

§ 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). A qualified facility 

also includes 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 § 1.45Y– 

4(c) for rules regarding the Incremental 

Production Rule and § 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 


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other property to produce electricity, or, 

in the case of CHP property, useful 

thermal energy and electricity. No 

provision of this section, § 1.45Y–1, or 

§§ 1.45Y–3 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 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 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, but is not limited to, 

transformers, inverters, and converters, 

which modify the characteristics of 

electricity or thermal energy 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 

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 used to 

monitor, operate, and protect transfer 

equipment. 

(iii) Roads. Roads that are integral to 

the intended function of the qualified 

facility such as onsite roads that are 

used to operate and maintain the 

qualified facility are integral parts of a 

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 structures 

described in paragraphs (b)(3)(v)(A) and 

(B) of this section are not treated as 

buildings for this purpose and are an 

integral part of a qualified facility: 

(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 

components of property housed 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 

(defined in § 1.48E–1(a)(10)). 

(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 and owns a solar facility 

(Solar Facility) and nearby also 

constructs and owns a wind facility 

(Wind Facility) that are each a qualified 

facility. The Solar Facility and Wind 

Facility each connect to a shared 

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 

Facility and Wind 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 and owns a solar facility 

(Solar Facility), and nearby Y constructs 

and owns a wind facility (Wind Facility) 

that are each a qualified facility. X’s 

Solar Facility and Y’s Wind Facility 

each connect to a shared 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 Facility and Wind 

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 

(EST) owned by the same taxpayer that 

share integral property. X constructs 

and owns a wind facility that is a 

qualified facility (Wind Facility) that is 

co-located with an EST (as defined in 

§ 1.48E–2(g)) that X also constructed 

and owns. The Wind Facility and EST 

share transfer equipment that is integral 

to both. The fact that the Wind Facility 

and EST 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 

Facility or to claim a section 48E credit 

for the EST. 

(D) Example 4. Co-located wind 

qualified facility and Energy Storage 

Technology owned by different 

taxpayers that share integral property. X 

constructs and owns a solar facility that 

is a qualified facility (Solar Facility) that 

is co-located with an EST (as defined in 

§ 1.48E–2(g)) constructed and owned by 

Y. The Wind Facility and EST share 

transfer equipment that is integral to 

both. The fact that the Wind Facility 

and EST 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 

Facility or the ability of Y to claim a 

section 48E credit for the EST. 

(E) Example 5. Qualified facility with 

integral property owned by a different 

taxpayer. X constructs and owns a 

hydropower production facility that is a 

qualified facility (Hydropower Facility). 

The Hydropower Facility connects to a 

dam owned by Y, a government entity, 

that is an integral part of the 

Hydropower Facility. The fact that X 

does not own the dam does not impact 

the ability of X to claim a section 45Y 


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credit for the production of electricity 

by the Hydropower Facility. 

(c) Coordination with other credits— 

(1) In general. The term qualified facility 

(as defined in section 45Y(b) and 

paragraph (a) of this section) 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 a credit determined under 

one of section 45, 45J, 45Q, 45U, 48, 

48A, or 48E is eligible for the section 

45Y credit only if such 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 colocated 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 a 

taxpayer has 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 (Solar Qualified Facility), and X 

owns a co-located EST (as defined in 

§ 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 a section 45Y credit for a solar 

farm and a section 48E credit for colocated Energy Storage Technology. X 

owns a solar farm that is a qualifying 

facility (Solar Qualified Facility), and Y 

owns a co-located EST (as defined in 

§ 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 

another credit is not allowed a section 

45Y credit. X owns a wind facility that 

satisfies the requirements of a qualified 

facility as well as the requirements of a 

qualified facility as defined in § 1.48E– 

2(a). 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 has already claimed a section 

48E credit with respect to the wind 

facility, a section 45Y credit is not 

allowed. 

(iv) Example 4. Interaction of section 

45Y and section 45Q credits for single 

qualified facility. X owns a qualified 

facility (Facility A) that includes carbon 

capture equipment, which is needed for 

the facility to meet the zero greenhouse 

gas requirement, so it is functionally 

interdependent to the production of 

electricity by Facility A. 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 Facility A because a 

qualified facility does not include a 

facility for which a credit determined 

under section 45Q is allowed. 

(v) Example 5. Interaction of section 

45Y and section 45Q credits for colocated qualified facilities. Assume the 

same facts as in paragraph (c)(3)(iv) of 

this section (Example 4), except that X 

owns a co-located qualified facility 

(Facility B) that also includes carbon 

capture equipment, which is needed for 

the facility to meet the zero greenhouse 

gas requirement, so it is functionally 

interdependent to the production of 

electricity by Facility B. X used the 

carbon capture equipment to capture 

and utilize (as described in section 

45Q(f)(5)) qualified carbon dioxide, but 

has not claimed a section 45Q credit 

with respect to Facility B. While X 

claimed a section 45Q credit in a prior 

taxable year for Facility A (see 

paragraph (c)(3)(iv) of this section 

(Example 4)), Facility B is not part of 

Facility A, and, therefore, X may claim 

the section 45Y credit for Facility B. 

(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 

January 15, 2025. 

■ Par. 4. Section 1.45Y–3 is revised to 

read as follows: 

§ 1.45Y–3 Rules relating to the increased 

credit amount for prevailing wage and 

apprenticeship. 

(a) In general. If any qualified facility 

satisfies the requirements in paragraph 

(b) of this section, the applicable 

amount used for calculating the amount 

of the credit for producing clean 

electricity determined under section 

45Y(a) of the Internal Revenue Code is 

the alternative applicable amount 

described in section 45Y(a)(2)(B), 

subject to adjustment provided by 

section 45Y(c). 

(b) Qualified facility requirements. A 

qualified facility satisfies the 

requirements of this paragraph (b), if it 

is described in paragraph (b)(1), (2), or 

(3) of this section: 

(1) A qualified facility with a 

maximum net output of less than one 

megawatt (as measured in alternating 

current) determined based on the 

nameplate capacity as provided in 

paragraph (c) of this section (One 

Megawatt Exception); 

(2) A qualified facility the 

construction of which began prior to 

January 29, 2023; or 

(3) A qualified facility that meets the 

prevailing wage requirements of section 

45(b)(7) and § 1.45–7, the 

apprenticeship requirements of section 

45(b)(8) and § 1.45–8, and the 

recordkeeping and reporting 

requirements of § 1.45–12 with respect 

to the construction, alteration, or repair 

of a qualified facility within the 

meaning of section 45Y. 

(c) Nameplate capacity for purposes 

of the One Megawatt Exception—(1) In 

general. For purposes of paragraph 

(b)(1) of this section, the determination 

of whether a qualified facility has a 

maximum net output of less than 1 

megawatt (MW) of electrical energy (as 

measured in alternating current) is 

determined based on the nameplate 

capacity of the qualified facility. If a 

qualified facility has integrated 

operations with one or more other 

qualified facilities, then the aggregate 

nameplate capacity of the qualified 

facilities is used for the purposes of 

determining if the qualified facility 

meets the requirements of paragraph 

(b)(1) of this section. The nameplate 

capacity for purposes of the One 

Megawatt Exception is the maximum 

electrical generating output in 

megawatts that a 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, the International Standard 

Organization conditions should be used 


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to measure the maximum electrical 

generating output. 

(2) Nameplate capacity for qualified 

facilities that generate in direct current 

for purposes of the One Megawatt 

Exception. For qualified facilities that 

generate electricity in direct current, the 

taxpayer determines the maximum net 

output (in alternating current) of each 

qualified facility by using the lesser of: 

(i) The sum of the nameplate 

generating capacities within the unit of 

qualified facility in direct current, 

which is deemed the nameplate 

generating capacity of the unit of 

qualified facility in alternating current; 

or 

(ii) The nameplate capacity of the first 

component of property that inverts the 

direct current electricity into alternating 

current. 

(3) Integrated operations. Solely for 

the purposes of the One Megawatt 

Exception, a qualified facility is treated 

as having integrated operations with 

any other qualified facility of the same 

technology type if the facilities are 

owned by the same or related taxpayers, 

placed in service in the same taxable 

year; and transmit electricity generated 

by the facilities through the same point 

of interconnection or, if the facilities are 

not grid-connected or are delivering 

electricity directly to an end user 

behind a utility meter, are able to 

support the same end user. 

(4) Related taxpayers—(i) Definition. 

For purposes of this section, the term 

related taxpayers means members of a 

group of trades or businesses that are 

under common control (as defined in 

§ 1.52–1(b)). 

(ii) Related taxpayer rule. For 

purposes of this section, related 

taxpayers are treated as one taxpayer in 

determining whether a qualified facility 

has integrated operations. 

(d) Applicability date—(1) In general. 

Except as provided in paragraph (d)(2) 

of this section, this section applies to 

qualified facilities placed in service in 

taxable years ending after January 15, 

2025, and the construction of which 

begins after January 15, 2025. Taxpayers 

may apply this section to qualified 

facilities placed in service in taxable 

years ending on or before January 15, 

2025, and qualified facilities placed in 

service in taxable years ending after 

January 15, 2025, the construction of 

which begins before January 15, 2025, 

provided that taxpayers follow this 

section in its entirety and in a consistent 

manner. 

(2) Paragraph (b)(1) of this section. 

Paragraph (b)(1) of this section applies 

to qualified facilities placed in service 

in taxable years ending after January 15, 

2025, and the construction of which 

begins after March 17, 2025. Taxpayers 

may apply this section to qualified 

facilities placed in service in taxable 

years ending on or before January 15, 

2025, the construction of which begins 

before January 15, 2025, provided that 

taxpayers follow this section in its 

entirety and in a consistent manner. 

■ Par. 5. Sections 1.45Y–4 and 1.45Y– 

5 are added to read as follows: 

* * * * * 

Sec. 

1.45Y–4 Rules of general application. 

1.45Y–5 Greenhouse gas emissions rates for 

qualified facilities under section 45Y. 

* * * * * 

§ 1.45Y–4 Rules of general application. 

(a) Only production in the United 

States is taken into account for purposes 

of section 45Y. Consumption, sales, or 

storage are taken into account for 

purposes of the section 45Y credit 

(defined in § 1.45Y–2(a)) only with 

respect to electricity the production of 

which is within the United States 

(within the meaning of section 638(1) of 

the Internal Revenue Code (Code)), or a 

United States territory, which for 

purposes of section 45Y and the section 

45Y regulations (defined in § 1.45Y– 

2(a)) 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 a solar facility which is a 

qualified facility (as defined in § 1.45Y– 

2(a)) (Solar Facility). A owns 45 percent, 

B owns 35 percent, and C owns 20 

percent, and each are allocated gross 

sales from the Solar Facility in 

proportion to their ownership interest. 

The Solar 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 § 1.45Y–1(b) based 

on their allocable share of the gross 

sales from the 1000 kWh of electricity 

produced at the Solar 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 (Incremental Production 

Rule)—(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 

section 45Y(b)(1)(A)(ii)) that 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. This rule is only 

applicable to an addition of capacity or 

new unit that would not otherwise 

qualify as a separate qualified facility as 

defined in section 45Y(b)(1)(A). A new 

unit or an addition of capacity that 

meets the requirements of this 

paragraph (c) will be treated as a 

separate qualified facility. For purposes 

of this paragraph (c), a new unit 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. 

For purposes of assessing the One 

Megawatt Exception provided in section 

45Y(a)(2)(B)(i), the maximum net output 

for a new unit or an addition of capacity 

is the sum of the capacity of the added 

qualified facility and the capacity of the 

facility to which the qualified facility 

was added, as determined under 

§ 1.45Y–3(c) and paragraph (c)(2) of this 

section. 

(2) Measurement standard. For 

purposes of this paragraph (c), taxpayers 

must use one of the measurement 

standards described in paragraph 

(c)(2)(i), (ii), or (iii) of this section to 

measure the capacity and change in 

capacity of a facility, except a taxpayer 

cannot use the measurement standard 

described in paragraph (c)(2)(ii) of this 

section if they are able to use the 

measurement standard described in 

paragraph (c)(2)(i) of this section: 

(i) Modified or amended facility 

operating licenses from the Federal 

Energy Regulatory Commission (FERC) 

or the Nuclear Regulatory Commission 

(NRC), or related reports prepared by 

FERC or NRC as part of the licensing 

process; 

(ii) Nameplate capacity certified 

consistent with generally accepted 


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industry standards, such as the 

International Standard Organization 

(ISO) conditions to measure the 

nameplate capacity of the facility 

consistent with the definition of 

nameplate capacity provided in 40 CFR 

96.202; or 

(iii) A measurement standard 

prescribed by the Secretary in guidance 

published in the Internal Revenue 

Bulletin (see § 601.601 of this chapter). 

(3) 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 from a base of zero 

if the conditions described in each of 

paragraphs (c)(3)(i) through (iv) of this 

section 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 was not 

authorized to operate by its respective 

Federal regulatory authority (that is, 

FERC or NRC); 

(iii) The restarted facility must be 

eligible to restart based on an operating 

license issued by either FERC or NRC; 

and 

(iv) The existing facility may not have 

ceased operations for the purpose of 

qualifying for the special rule for 

restarted facilities in this paragraph 

(c)(3). 

(4) Computation of increased amount 

of electricity produced. To determine 

the increased amount of electricity 

produced by a facility in a taxable year 

by reason of a new unit or an addition 

of capacity, a taxpayer must multiply 

the amount of electricity that the facility 

produces during that taxable year after 

the new unit or addition of capacity is 

placed in service by a fraction, the 

numerator of which is the added 

capacity that results from the new unit 

or addition of capacity, and the 

denominator of which is the total 

capacity of the facility with the new 

unit or addition of capacity added, 

provided the added capacity and 

resulting total capacity are measured 

using a measurement standard 

identified in paragraph (c)(2) of this 

section. 

(5) Examples. This paragraph (c)(5) 

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 FERC license authorizing an 

installed capacity of 60 megawatts. 

During taxable years 2020 through 2024, 

X claimed a section 45 credit for the 

electricity produced by Facility H. On 

July 1, 2025, as allowed by a FERC 

license amendment, X places in service 

components of property comprising a 

new unit that results in Facility H 

having an increased authorized installed 

capacity of 90 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 with Facility J by one-third 

(equal to the 30-megawatt increase in 

capacity that results from the addition 

of Facility J divided by the 90 megawatt 

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. Y claimed a section 

45U credit in taxable years 2024 and 

2025 for the electricity generated by 

Facility N. On January 15, 2026, Y 

completed and placed in service an 

investment associated with a power 

uprate approved by an NRC license 

amendment that involved the removal 

and replacement of components of 

property and placing in service 

additional components of property. NRC 

reports associated with the license 

amendment describe the uprate as 

increasing the nuclear facility’s 

electrical capacity by 100 MW to 900 

MW. 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 with Facility P by 1⁄9 (equal 

to the 100-megawatt increase in capacity 

divided by Facility N’s new total 

capacity of 900 megawatts with Facility 

P, as described in NRC reports 

associated with the license amendment). 

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 for electricity 

generated by Facility N (excluding the 

incremental electricity generation 

related to Facility P). 

(iii) Example 3. Geothermal Turbine 

and Generator Additions of Capacity. X 

owns a geothermal power plant (Facility 

G) with a 24 MW nameplate capacity, 

which is placed in service in 2007. Over 

the subsequent years, the plant’s 

generating capability declines because 

of physical degradation of the turbine 

and generator. On March 1, 2027, X 

places in service components of 

property at Facility G that increase its 

capacity. The turbine rotor is removed, 

and the eroded blades are replaced with 

new blades. The generator is refurbished 

by removing old subcomponents of the 

generator and replacing those with new 

subcomponents, as well as replacing the 

old copper windings with new windings 

in concert with new insulation. After 

the upgrade, the plant increases its 

nameplate capacity to 26 MW, an 

increase of 2 MW over the previous 

nameplate capacity. For purposes of this 

paragraph (c), the addition of capacity to 

Facility G is treated as a new separate 

qualified facility placed in service on 

March 1, 2027 (Facility N). X may claim 

a section 45Y credit during the 10-year 

credit period starting on March 1, 2027, 

based on the amount of electricity 

produced by Facility N, which is 

determined by multiplying the aggregate 

amount of electricity that Facility G 

produces with Facility N by 1/13 (that 

is, the fraction equal to the 2-megawatt 

increase in nameplate capacity 

attributable to Facility N divided by the 

new total aggregate 26 megawatt 

nameplate capacity of Facility G with 

Facility N). 

(iv) Example 4. Hydropower Addition 

of Capacity. X owns a hydropower plant 

(Facility H) that was placed in service 

in 1960. Facility H has become less 

efficient since it was placed in service 

with attendant reductions in its 

generating capacity. As approved by a 

FERC license amendment, X increases 

Facility H’s capacity by installing new 

headcovers, new turbines with 

integrated dissolved oxygen injection, 

and a new high pressure digital 

governor system. The new turbines are 

more efficient and are capable of more 

power output than the original design. 

Improvements to the generators involve 

removing the old asphalt coated copper 

windings and purchasing and then 

installing new epoxy coated double 

wound windings. X adds digital 


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controls to effectively utilize new digital 

governors while simultaneously 

investing in cybersecurity protection. As 

set forth in the FERC order amending its 

license, these investments, which are 

placed in service on April 15, 2026, 

increase Facility H’s authorized 

installed capacity from 180 MW to 190 

MW, an increase of 10 MW. For 

purposes of this paragraph (c), Facility 

H’s addition of capacity is treated as a 

new separate qualified facility placed in 

service on April 16, 2026 (Facility A). X 

may claim a section 45Y credit during 

the 10-year credit period starting on 

April 16, 2026, based on the amount of 

electricity produced by Facility A, 

which is determined by multiplying the 

aggregate amount of electricity that 

Facility H produces with Facility A by 

1/19 (equal to the 10-megawatt increase 

in capacity attributable to Facility A 

divided by the new total aggregate 190 

MW capacity of Facility H with Facility 

A). 

(v) Example 5. Nonoperational 

Nuclear Facility that Satisfies Restart 

Rule. T owns a nuclear facility (Facility 

N) that was originally placed in service 

in 1982. In 2020, Facility N ceased 

operations, began decommissioning, 

and the NRC no longer authorized the 

operation of Facility N. T did not cease 

operations at Facility N for the purpose 

of qualifying for the special rule for 

restarted facilities under section 45Y. In 

2028, the NRC authorized Facility N to 

restart and, on October 1, 2028, Facility 

N placed in service components of 

property and restarted and resumed 

operations, with an electrical capacity of 

800 MW, as indicated in NRC 

documents related to the authorization 

to restart. For purposes of this paragraph 

(c), the restart of Facility N is 

considered to have increased capacity 

from a base of zero, and Facility N is 

treated as having an addition of capacity 

equal to 800 MW. For purposes of this 

paragraph (c), Facility N’s 800 MW 

addition of capacity is treated as a new 

qualified facility placed in service on 

October 1, 2028 (Facility P). T may 

claim a section 45Y credit during the 

10-year period starting on October 1, 

2028, based on the increased amount of 

electricity produced at Facility N that is 

attributable to that addition of capacity 

(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. A qualified facility 

that meets the 80/20 Rule may claim the 

section 45Y credit without regard to any 

addition of capacity to the qualified 

facility. 

(2) Cost of new components of 

property. For purposes of the 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 

meets the 80/20 Rule. A owns an 

existing wind facility. On February 1, 

2026, A replaces used components of 

the unit of qualified facility of a wind 

facility with new components at a cost 

of $2 million. The fair market value of 

the remaining original components of 

the unit of qualified facility is $400,000, 

which is not more than 20 percent of the 

retrofitted unit of qualified 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 of the 

unit of qualified facility ($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 § 1.45Y–2(a)) when it was placed in 

service because it did not meet the 

greenhouse gas emissions rate 

requirements (as determined under 

rules provided in § 1.45Y–5). On 

January 1, 2027, Facility Z was 

retrofitted and now meets the 

requirements to be a qualified facility 

under § 1.45Y–2(a). After the retrofit, 

the cost of the new property included in 

the unit of qualified facility of Facility 

Z is greater than 80 percent of the unit 

of qualified facility 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. T replaces used 

components of property of unit of 

qualified facility of Facility N with new 

components at a cost of $200 million, 

placing in service the components of 

property on July 15, 2026. The fair 

market value of the remaining original 

components of the unit of qualified 

facility of Facility N, prior to the retrofit, 

is $30 million, which is less than 20 

percent of the unit of qualified facility 

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 of the unit of qualified 

facility ($30 million)) ($30 million/$230 

million = 13%). 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 to the unit of qualified 

facility of Facility C is $500,000 and the 

fair market value of the unit of qualified 

facility of Facility C after the 

improvements is $2 million. The value 

of the old components of property of the 

unit of qualified facility is $1,500,000 

out of $2.0 million, or 75 percent 

($500,000/$2,000,000) of the total fair 

market value of the unit of qualified 

facility after the improvements. Because 

the fair market value of the new 

property included in the unit of 

qualified facility is less than 80 percent 

of the total fair market value of the unit 

of qualified facility, Facility C does not 

meet the 80/20 Rule. Facility C will not 

be considered a qualified facility (as 

defined in § 1.45Y–2(a)) eligible for the 

section 45Y credit. If the capital 


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improvements to Facility C increase its 

nameplate capacity, the determination 

that it does not meet the 80/20 Rule 

does not prevent X from claiming a 

section 45Y credit if the requirements 

under paragraph (c)(1) of this section are 

met. 

(v) Example 5. Upgrades to a 

hydropower qualified facility that 

satisfies the 80/20 Rule: Y owns a 

hydropower qualified facility 

(hydropower facility) and no taxpayer, 

including Y, has ever claimed a section 

45 credit for the hydropower facility. 

The hydropower facility consists of a 

unit of qualified facility including water 

intake, water isolation mechanisms, 

turbine, pump, motor, and generator. 

The associated impoundment (dam) and 

power conditioning equipment are 

integral parts of the unit of qualified 

facility. Y makes upgrades to the unit of 

qualified facility by replacing the 

turbine, pump, motor, and generator 

with new components at a cost of $1.5 

million. Y does not make any upgrades 

to the property that is an integral part 

of the unit of qualified facility. The 

remaining original components of the 

unit of qualified facility have a fair 

market value of $100,000, which is not 

more than 20 percent of the retrofitted 

hydropower facility’s total value of $1.6 

million (that is, the cost of the new 

components ($1.5 million) + the value 

of the remaining original components 

($100,000)). Thus, the retrofitted 

hydropower facility will be considered 

newly placed in service for purposes of 

section 45Y, and Y will be able to claim 

a section 45Y credit based on the cost 

of the new components ($1.5 million). 

(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 

January 15, 2025. 

§ 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 of the Internal Revenue Code 

(Code). Paragraph (b)(4) of this section 

provides a definition for a facility that 

produces electricity through combustion 

or gasification and paragraph (b)(7) of 

this section defines a facility that does 

not produce electricity through 

combustion or gasification. Paragraphs 

(c) through (e) provide rules for 

determining the greenhouse gas 

emissions rates for facilities for 

purposes of section 45Y. Paragraph (f) of 

this section provides rules for the 

annual publication of emissions rates. 

Paragraph (g) of this section provides 

rules related to provisional emissions 

rates. Paragraph (h) of this section 

provides rules regarding reliance on the 

annual publication of emissions rates 

and provisional emissions rates. Finally, 

paragraph (i) of this section provides 

rules regarding substantiation 

requirements. 

(b) Definitions. The definitions in this 

paragraph (b) 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 paragraph (b)(1), the GWP–100 

from AR5 (as shown in table 1 to this 

paragraph (b)(1)) excludes climatecarbon feedbacks. Table 1 to this 

paragraph (b)(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 

(C&G Facility). Consistent with section 

45Y(b)(2)(B), 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 

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 processes that transform 

the input energy source into electricity 

but excludes emissions described in 

paragraphs (b)(6)(i) through (vi) of this 

section. 

(i) Emissions from electricity 

production by back-up or auxiliary 

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 

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 NonC&G Facility means a facility that 

produces electricity and is not described 

in paragraph (b)(4) of this section. 

(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 


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finished fuel used for electricity 

generation. 

(10) Market-mediated effects. The 

term market-mediated effects means 

effects resulting from policy 

interventions and other factors (for 

example, technological advances) that 

alter the availability of and demand for 

marketed goods and activities and their 

related greenhouse gas (GHG) emissions 

profiles. These effects are driven by and 

result in changes in absolute and 

relative prices which can occur at local, 

national, and global boundaries. 

Examples of market-mediated effects 

include direct and significant indirect 

emissions, such as land use changes or 

land use management changes that 

result from the production of fuels 

derived from biomass and shifts in total 

market demand and supply for input 

fuels, feedstocks and related 

commodities, and other materials, as a 

result of changes associated with the 

policy intervention. 

(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 

paragraphs (c) and (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: 

(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 offsite, 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 paragraphs (b)(6) and (c)(1) of 

this section, 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 NonC&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 

paragraph (c)(1)(ii) of this section, 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 types or 

categories of facilities described in 

paragraphs (c)(2)(i) through (viii) of this 

section are Non-C&G Facilities with a 

greenhouse gas emissions rate that is not 

greater than zero and may be treated as 

listed in the Annual Table (see 

paragraph (g) of this section) with an 

emissions rate that is not greater than 

zero: 

(i) Wind (including small wind 

properties); 

(ii) Hydropower (including retrofits 

that add electricity production to nonpowered 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) Fusion energy; 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. The greenhouse gas emissions 

rate for a C&G Facility— 

(i) Must be determined by a lifecycle 

analysis (LCA) that complies with the 

requirements of paragraphs (d) and (e) 

of this section; and 

(ii) Equals the net rate of greenhouse 

gases emitted into the atmosphere by 

such facility (taking into account 

lifecycle greenhouse gas emissions, as 

described in 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 requirements of paragraphs 

(d)(2)(i) through (x) of this section: 

(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 and 

inputs 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, 

but is not limited to, the emissions 

effects, including associated direct and 

indirect greenhouse gas emissions, of 

relevant land management activities or 

changes related to or associated with the 


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extraction or production of raw 

feedstock materials or fuel. 

(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 section 45Y and 

48E credits (taking into account 

anticipated changes in technology, 

policies, practices, and environmental 

and other socioeconomic conditions). 

The future anticipated baseline must be 

updated as necessary to capture material 

regulatory, economic, supply chain, or 

environmental changes. The baseline 

must be updated at least every ten years, 

but not more often than every five years. 

(iv) Offsets and offsetting activities. 

Offsets and offsetting activities may not 

be taken into account in the LCA. 

(v) Principles for included emissions. 

The LCA must take into account direct 

emissions and significant indirect 

emissions. Sources of direct emissions 

include those associated with feedstock 

production or extraction, including 

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. 

Sources of significant indirect emissions 

include emissions in the United States 

and other countries associated with 

market-mediated changes in related 

commodity markets, such as emission 

from indirect land use change and 

emissions consequences of commodity 

production. These included emissions 

are within the system boundary of the 

LCA. 

(A) Direct emissions. For purposes of 

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/pretreatment 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 

types of emissions described in 

paragraphs (d)(2)(vi)(A) through (D) of 

this section: 

(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, including for the fuels and 

feedstocks consumed in the fuel and 

feedstock supply chain and at the 

electricity generating facility. The term 

alternative fate means a set of informed 

assumptions (for example, production 

processes, material outcomes, and 

market-mediated effects) used to 

estimate the emissions from the use or 

disposal of each feedstock were it not 

for the feedstock’s new use due to the 

implementation of policy (that is, to 

produce electricity). The term avoided 

emissions means the estimated 

emissions associated with the feedstock, 

including the feedstock’s production 

and use or disposal, 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. 

(viii) Temporal scales. The LCA 

should evaluate the emissions over a 

time horizon of 30 years from the year 

in which a qualified facility first 

qualifies for the credit (or, for purposes 

of the section 48E credit, the year in 

which a qualified facility was placed in 

service). 

(ix) Spatial scales. To determine the 

initial spatial scope of the LCA, the 

initial qualitative assessment should 

analyze whether the feedstock has been 

or is anticipated: to be used or sold on 

the market in the absence of the section 

45Y and 48E credits; to be used directly 

in or as an input to an activity or good 

in local markets; to be transported for 

use in domestic markets elsewhere; to 

be traded for use in international 

markets; and to be used in a manner that 

has significant ramifications on other 

markets. If this assessment concludes 

that the feedstock does not meet one or 

more of the criteria in this paragraph 

(d)(2)(ix), then the market-mediated 

effects analysis would not be necessary 

beyond the relevant spatial scale(s) (for 

example, if the feedstock is not traded 

or not anticipated to be traded for use 

in international markets and increased 

use in the United States is not 

anticipated to have significant market 

ramifications abroad, international 

market-mediated effects analysis would 

not be necessary). Based on the results 

of the assessment, the LCA should 

evaluate the emissions on a subregional, regional, national, or 

international scale as appropriate. The 

evaluation of emissions should include 

the market and emissions implications 

of sourcing new or additional material 

for electricity generation across the 

applicable market and spatial scales. 

(x) Categorization of products. As 

appropriate, the LCA should distinguish 

between primary products, co-products, 

byproducts, and waste products. 

(A) Products should be categorized 

based on the definitions in paragraphs 

(d)(2)(x)(A)(1) through (4) of this 

section. 

(1) A primary product is an input or 

an output with marketability and is the 

main driver of the process from which 

it is produced. 


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(2) A co-product is an input or an 

output with marketability that is 

produced together with another 

product, both of which are economic 

drivers of the process from which they 

are produced. 

(3) A byproduct is an input or an 

output that is produced together with 

another product, and which has a 

market recognized economic value of 

zero or greater, but the output is not an 

economic driver of the process from 

which it is produced. 

(4) A waste product is an input or an 

output with negative economic value, 

demonstrated by— 

(i) The absence of a market in which 

the product is purchased and sold; and 

(ii) The existence of a market in which 

producers pay for the collection and 

removal or disposal of the input or 

output material or the existence of a 

predominant operational practice in 

which producers themselves collect and 

remove, give away, or dispose of the 

input or output material as part of 

operational processes. 

(B) The LCA should adopt the 

principles in paragraphs (d)(2)(x)(B)(1) 

through (6) of this section for 

categorizing and assessing the emissions 

outcomes for different types of products 

if such categorization is relevant to the 

LCA model or models used. 

(1) All classification of materials and 

LCAs should take into account relevant 

geospatial variations in supply and 

demand (that is, differences across local, 

sub-regional, and larger regions), as well 

as variations across specific product 

types and characteristics, and producer 

types as relevant. 

(2) The LCA should assess whether 

there are market-mediated effects and, if 

so, take these into account as part of the 

GHG analysis. 

(3) Regardless of how a material is 

categorized, the LCA should consider 

whether the availability of the section 

45Y and 48E credits is expected to 

result in additional production of that 

material or in material changes in the 

supply chain, and, if so, should take 

into account the direct and indirect 

emissions impact of the additional 

production or changes in the supply 

chain. 

(4) Policy and other interventions (for 

example, technological advances) can 

alter the availability and demand for 

marketed goods and services, which can 

alter the treatment of materials once 

disposed of. Therefore, reevaluation of 

material categorization should occur at 

least every ten years, but not more often 

than every five years. 

(5) All determinations of 

marketability, market-mediated effects, 

and behavioral changes must be 

supported by an analytical assessment 

performed by one or more National 

Laboratories, in consultation with other 

Federal agency experts as appropriate. 

(6) A material should be considered to 

have a market recognized economic 

value and an established market if one 

existed within the last five years as of 

the date of the analysis. 

(e) Use of methane from certain 

sources to produce electricity—(1) In 

general. The requirements provided by 

this paragraph (e) apply to C&G 

Facilities (as defined in paragraph (b)(4) 

of this section) that produce electricity 

through combustion or gasification 

using methane derived from biogas, 

renewable natural gas (RNG) derived 

from biogas, or fugitive sources of 

methane (or any hydrogen derived from 

methane from these sources) as a fuel or 

feedstock. 

(2) Definitions. The following 

definitions apply for purposes of 

paragraph (e) of this section: 

(i) Biogas. The term biogas means gas 

containing methane that results from the 

decomposition of organic matter under 

anaerobic conditions. 

(ii) Coal mine methane. The term coal 

mine methane means methane that is 

stored within coal seams and is 

liberated as a result of current or past 

mining activities. Liberated coal mine 

methane can be released intentionally 

by the mine for safety purposes, such as 

through mine degasification boreholes 

or underground mine ventilation 

systems, or it may leak out of the mine 

through vents, fissures, or boreholes. 

The term coal mine methane does not 

include methane removed from virgin 

coal seams (for example, coal bed 

methane). 

(iii) Fugitive methane. The term 

fugitive methane means methane 

released from equipment leaks or 

venting during the extraction, 

processing, transformation, or delivery 

of fossil fuels and other gaseous fuels to 

the point of final use. 

(iv) Renewable natural gas. The term 

renewable natural gas (RNG) means 

biogas that has been upgraded to remove 

water, CO2, and other impurities such 

that it is interchangeable with fossil 

natural gas. 

(3) Considerations regarding the 

lifecycle greenhouse gas emissions 

associated with the production of 

electricity using methane from certain 

sources—(i) In general. For purposes of 

determining the GHG emissions rate of 

a C&G Facility (as provided in 

paragraph (d)(1) of this section) that 

produces electricity through combustion 

or gasification using methane derived 

from biogas, RNG derived from biogas, 

or fugitive sources of methane (or any 

hydrogen derived from methane from 

these sources) as a fuel or feedstock, 

measurements of lifecycle GHG 

emissions must consider all the direct 

and significant indirect emissions 

associated with a C&G Facility’s 

production of electricity. For purposes 

of determining the alternative fates and 

avoided emissions under paragraph 

(d)(2)(vii) of this section, such 

determinations must consider the 

alternative fates of that methane, 

including avoided emissions and 

alternative productive uses of that 

methane; the risk that the availability of 

tax credits creates incentives resulting 

in the production of additional methane 

or otherwise induces additional 

emissions; and observable trends and 

anticipated changes in waste 

management and disposal practices over 

time as they are applicable to methane 

generation and uses. 

(ii) Methane from landfill sources. For 

purposes of determining the GHG 

emissions rate of a C&G Facility (as 

provided in paragraph (d)(1) of this 

section) that produces electricity 

through combustion or gasification 

using methane derived from landfill 

sources as a fuel or feedstock, the 

alternative fate of such gas must be 

flaring. 

(iii) Methane from wastewater 

sources. For purposes of determining 

the GHG emissions rate of a C&G 

Facility (as provided in paragraph (d)(1) 

of this section) that produces electricity 

through combustion or gasification 

using methane derived from wastewater 

sources as a fuel or feedstock, the 

alternative fate of such gas must be 

flaring of gas not used to heat the 

anaerobic digester. 

(iv) Coal mine methane. For purposes 

of determining the GHG emissions rate 

of a C&G Facility (as provided in 

paragraph (d)(1) of this section) that 

produces electricity through combustion 

or gasification using coal mine methane 

that is drainage gas as a fuel or 

feedstock, the alternative fate of such 

gas must be flaring. 

(v) Methane from animal waste. For 

purposes of determining the GHG 

emissions rate of a C&G Facility (as 

provided in paragraph (d)(1) of this 

section) that produces electricity 

through combustion or gasification 

using methane derived from animal 

waste as a fuel or feedstock, the 

emissions associated with producing 

and transporting such biogas must use 

an alternative fate derived from the 

national average of all animal waste 

management practices, which results in 

a carbon intensity score of –51 gCO2e/ 

megajoule (MJ), where the MJ basis 

refers to the lower heating value of the 


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methane contained in the biogas prior to 

upgrading. 

(vi) Fugitive methane other than coal 

mine methane. For purposes of 

determining the GHG emissions rate of 

a C&G Facility (as provided in 

paragraph (d)(1) of this section) that 

produces electricity through combustion 

or gasification using fugitive methane 

other than coal mine methane as a fuel 

or feedstock, such as fugitive methane 

from oil and gas operations, the 

alternative fate of such gas must be 

productive use, resulting in emissions 

equivalent to the carbon intensity of 

using fossil natural gas. 

(4) Book-and-claim. For purposes of 

determining a GHG emissions rate of a 

facility under section 45Y or 48E, a 

book-and-claim accounting system may 

not be used to establish or claim the 

energy attributes of biogas, RNG, coal 

mine methane, or any other methane 

described in this paragraph (e), or any 

other input or feedstock. 

(f) Carbon capture and 

sequestration—(1) In general. For 

purposes of determining a greenhouse 

gas emissions rate for a Non-C&G 

Facility or C&G Facility, the greenhouse 

gas emissions rate must not include any 

qualified carbon dioxide (as defined in 

section 45Y(c)(3)) that is produced in 

such facility’s production of electricity, 

that is captured by the taxpayer, and 

pursuant section 45Q(f)(2) and 26 CFR 

1.45Q–3, disposed of by the taxpayer in 

secure geological storage, or utilized by 

the taxpayer in a manner described in 

section 45Q(f)(5) and 26 CFR 1. 45Q–4. 

(2) Substantiation. The requirements 

for substantiation and verification of 

carbon capture and sequestration 

provided by regulations and guidance 

published in the Internal Revenue 

Bulletin (see § 601.601 of this chapter) 

under section 45Q (section 45Q 

requirements) must be satisfied for 

qualified carbon dioxide to be taken into 

account under paragraph (e)(1) of this 

section. A taxpayer that uses carbon 

capture and sequestration at a qualified 

facility for which a section 45Y credit is 

claimed must comply with applicable 

requirements of the U.S. Environmental 

Protection Agency’s Greenhouse Gas 

Reporting Program (GHGRP) under 40 

CFR part 98, subpart PP (for carbon 

capture), subpart RR (for geological 

storage), and subpart RR or VV (for 

storage through enhanced oil recovery). 

In addition to the section 45Q 

requirements, taxpayers using the ISO 

27916 standard for enhanced oil 

recovery must report information to 

GHGRP under 40 CFR part 98, subpart 

VV. Furthermore, the taxpayer must also 

include their applicable GHGRP ID 

number(s) on the IRS Form used to 

claim the section 45Y or section 48E 

credit, with the exception of taxpayers 

claiming the credits by performing 

carbon capture and utilization. The 

GHGRP does not provide a reporting 

mechanism for utilization. 

(g) 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, as well as any 

changes to emissions determinations for 

any types or categories of facilities in 

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 

(f) of this section. Such expert analysis 

must be prepared by one or more of the 

National Laboratories, in consultation 

with other Federal 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. 

(h) 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 paragraph (g) of 

this section, 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 (h)(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 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 the 

Department of Energy (DOE). An 

emissions value may be obtained from 

DOE or by using the designated LCA 

model in accordance with paragraph 

(h)(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 

Federal 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 

and any information provided by the 

taxpayer to DOE pursuant to the 

emissions value request process 

provided in paragraph (h)(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 (h)(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 § 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 (h)(6) of 

this section. 

(4) PER determination. Upon the IRS’s 

acceptance of the taxpayer’s Federal 

income tax return or Federal return, as 


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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 (h)(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 (h)(2) of this 

section) or a facility for which an 

emissions value can be determined by 

an LCA model designated under 

paragraph (h)(6) of this section 

(consistent with paragraph (h)(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 (h)(6) if the 

model complies with section 

45Y(b)(2)(B) and paragraphs (d) and (f) 

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 Federal 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 (f) 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. 

(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 (h)(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. 

(j) 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. For a facility 

described in paragraph (c)(2) of this 

section, the taxpayer 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). For 

qualified facilities not described in 

paragraph (c)(2), the taxpayer must 

demonstrate that the qualified facility 

meets the specific criteria that the 

analytical assessment prepared by the 

National Laboratories, in consultation 

with other Federal agency experts as 

appropriate, has found are necessary for 

a facility to meet the statutory 

requirement of a greenhouse gas 

emissions rate not greater than zero. For 

C&G Facilities that utilize biomass 

feedstocks, the taxpayer must 

substantiate that the source of such fuels 

or feedstocks used are consistent with 

the taxpayer’s claims. The Secretary 

may determine that qualified facilities 

not described in paragraph (c)(2) 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 § 601.601 of this 

chapter. For facilities that utilize 

unmarketable feedstocks that are 

indistinguishable from marketable 

feedstocks (for instance, after 

processing), the taxpayer will be 

required to maintain documentation 

substantiating the origin and original 

form of the feedstock. 

(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 

January 15, 2025. 

■ Par. 6. Sections 1.48E–0 through 

1.48E–5 are added to read as follows: 

Sec. 

* * * * * 

1.48E–0 Table of contents. 

1.48E–1 Clean electricity investment credit. 

1.48E–2 Qualified investments in qualified 

facilities and EST for purposes of section 

48E. 


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1.48E–3 Rules relating to the increased 

credit for prevailing wage and 

apprenticeship. 

1.48E–4 Rules of general application. 

1.48E–5 Greenhouse gas emissions rates for 

qualified facilities under section 48E. 

* * * * * 

§ 1.48E–0 Table of contents. 

This section lists the captions 

contained in §§ 1.48E–1 through 1.48E– 

5. 

§ 1.48E–1 Clean electricity investment 

credit. 

(a) Overview. 

(1) In general. 

(2) Claim. 

(3) Code. 

(4) EST. 

(5) kWh. 

(6) Qualified facility. 

(7) Qualified investment with respect to a 

qualified facility. 

(8) Qualified investment with respect to 

EST. 

(9) Secretary. 

(10) Section 48E credit. 

(11) Section 48E regulations. 

(12) Waste energy recovery property 

(WERP). 

(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) Related taxpayers. 

(1) Definition. 

(2) Related taxpayer rule. 

(e) Applicability date. 

§ 1.48E–2 Qualified investments in 

qualified facilities and EST for purposes 

of section 48E. 

(a) Qualified investment with respect to a 

qualified facility. 

(1) In general. 

(2) Total basis amount. 

(b) Qualified facility. 

(1) In general. 

(2) Placed in service. 

(i) In general. 

(ii) Qualified facility subject to § 1.48–4 

election to treat lessee as purchaser. 

(c) Qualified property. 

(1) In general. 

(2) Location of property. 

(d) Property included in qualified facility. 

(1) In general. 

(2) Unit of a 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. 

(e) Definitions related to requirements for 

qualified property. 

(1) Tangible personal property. 

(2) Other tangible property. 

(3) Depreciation allowable. 

(i) In general. 

(ii) Exclusions from allowable. 

(4) Construction, reconstruction, or 

erection of the property. 

(5) Acquisition of qualified property. 

(6) Original use of the property. 

(7) Retrofitted qualified facility. 

(f) Coordination with other credits. 

(1) In general. 

(2) Allowed. 

(3) Examples. 

(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 § 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. 

(h) Applicability date. 

§ 1.48E–3 Rules relating to the increased 

credit for prevailing wage and 

apprenticeship. 

(a) In general. 

(b) Qualified facility or EST requirements. 

(c) Nameplate capacity for purposes of the 

One Megawatt Exception. 

(1) Qualified facilities. 

(2) Nameplate capacity for qualified 

facilities that generate in direct current for 

purposes of the One Megawatt Exception. 

(3) EST. 

(i) In general. 

(ii) Electrical energy storage property. 

(iii) Thermal energy storage property. 

(iv) Hydrogen energy storage property. 

(4) Integrated operations. 

(i) One Megawatt Exception. 

(ii) EST One Megawatt Exception. 

(d) Transition waiver of penalty for 

prevailing wage requirements. 

(e) No alteration or repair during recapture 

period described in § 1.48–13(c)(3). 

(f) Applicability date. 

§ 1.48E–4 Rules of general application. 

(a) Qualified interconnection costs 

included in certain lower-output qualified 

facilities. 

(1) In general. 

(2) Qualified interconnection property. 

(3) Five-Megawatt Limitation. 

(i) In general. 

(ii) Nameplate capacity for purposes of the 

Five-Megawatt Limitation. 

(iii) Nameplate capacity for qualified 

facilities that generate in direct current 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 (Incremental Production Rule). 

(1) In general. 

(2) Measurement standard. 

(3) Special rule for restarted facilities. 

(4) Computation of qualified investment for 

a new unit or an addition of capacity. 

(i) New unit. 

(ii) Addition of capacity. 

(5) 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) 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) Qualified progress expenditure election. 

(h) Incremental cost. 

(i) Cross references. 

(j) Applicability date. 

§ 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) Use of methane from certain sources to 

produce electricity. 

(f) Carbon capture and sequestration. 

(g) Annual publication of emissions rates. 

(h) 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. 

(i) Determining anticipated greenhouse gas 

emissions rate. 

(1) In general. 

(2) Examples of objective indicia. 

(j) Reliance on Annual Table or Provisional 

Emissions Rate. 

(k) Substantiation. 

(1) In general. 

(2) Sufficient substantiation. 


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4112 Federal Register / Vol. 90, No. 9 / Wednesday, January 15, 2025 / Rules and Regulations 

(l) Applicability date. 

§ 1.48E–1 Clean electricity investment 

credit. 

(a) Overview—(1) In general. For 

purposes of section 46 of the Internal 

Revenue Code (Code), the section 48E 

credit (defined in paragraph (a)(10) of 

this section) is determined under 

section 48E of the Code and the section 

48E regulations (defined in paragraph 

(a)(11) 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 § 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 § 1.48E–4 for 

rules of general application for the 

section 48E credit. See § 1.48E–5 for 

rules to determine greenhouse gas 

emissions rates for qualified facilities 

under section 48E. 

(2) Claim. For purposes of 

determining a taxpayer’s section 48E 

credit with respect to a qualified facility 

or EST or a credit described in section 

48E(b)(3)(C), the term claim means filing 

a completed Form 3468, Investment 

Credit, or any successor form(s), or other 

relevant form as it relates to the credits 

described in section 48E(b)(3)(C), 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 or EST is placed in service, and 

for the taxable year in which the facility 

for which the credit described in section 

48E(b)(3)(C) is placed in service. It 

includes making an election under 

section 6417 or 6418 of the Code and 26 

CFR 1.6417–1 and 1.6418–1, 

respectfully, with respect to such 

section 48E credit on the taxpayer’s 

filed return. 

(3) Code. The term Code means the 

Internal Revenue Code. 

(4) EST. The term EST for purposes of 

the section 48E credit means energy 

storage technology as defined in 

§ 1.48E–2(g). 

(5) kWh. The term kWh means 

kilowatt hours. 

(6) Qualified facility. The term 

qualified facility for purposes of the 

section 48E credit has the meaning 

provided in § 1.48E–2(b). 

(7) 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 

§ 1.48E–2(a). 

(8) 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 § 1.48E–2(g)(4). 

(9) Secretary. The term Secretary 

means the Secretary of the Treasury or 

their delegate. 

(10) 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. 

(11) Section 48E regulations. The term 

section 48E regulations means this 

section and §§ 1.48E–2 through 1.48E–5. 

(12) Waste energy recovery property 

(WERP). 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, 

and associated equipment. 

(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. Under section 

48E(a)(2)(A)(i) and (B)(i), 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 

applicable percentage is the base rate, 

which is 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 applicable 

percentage is the alternative rate, which 

is 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 phaseout 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; 


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(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 § 1.45Y–1(c)(3). 

(d) Related taxpayers—(1) 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 § 1.52–1(b)). 

(2) 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. 

(e) 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 January 15, 2025. 

§ 1.48E–2 Qualified investments in 

qualified facilities and EST for purposes of 

section 48E. 

(a) Qualified investment with respect 

to a qualified facility—(1) In general. A 

qualified investment of a taxpayer for a 

taxable year with respect to a qualified 

facility is the total basis amount for the 

taxable year with respect to the 

qualified facility. 

(2) Total basis amount. The total basis 

amount is the sum of: 

(i) The basis of any qualified property 

that is a part of the qualified facility and 

that is placed in service by the taxpayer 

during the taxable year; plus 

(ii) The amount of any expenditures 

paid or incurred by the taxpayer for 

qualified interconnection property (as 

defined in section § 1.48E–4(a)(2)) in 

connection with a qualified facility 

which has a maximum net output of not 

greater than five megawatts (as 

measured in alternating current), that 

was placed in service during the taxable 

year of the taxpayer, and that are 

properly chargeable to the capital 

account. 

(b) Qualified facility—(1) In general. 

A qualified facility is a facility that: 

(i) Is used for the generation of 

electricity, meaning that it is a net 

generator of electricity taking into 

account any electricity consumed by the 

facility; 

(ii) Is placed in service by the 

taxpayer after December 31, 2024; and 

(iii) Has an anticipated greenhouse 

gas emissions rate of not greater than 

zero (as determined under the rules 

provided in § 1.48E–5). 

(2) 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 § 1.48– 

4 election to treat lessee as purchaser. 

Notwithstanding paragraph (b)(2)(i) of 

this section, a qualified facility with 

respect to which an election is made 

under section 50(d)(5) of the Code and 

§ 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. 

(c) Qualified property—(1) In general. 

For purposes of this paragraph (c), the 

term qualified property means all 

property owned by the taxpayer that 

meets all of the requirements of 

paragraphs (c)(1)(i) through (iii) of this 

section: 

(i) The property is tangible personal 

property (as defined in paragraph (e)(1) 

of this section) or other tangible 

property (as defined in paragraph (e)(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 in paragraph (e)(3) 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 

(e)(4) of this section) with respect to the 

property; or 

(B) The taxpayer acquires the property 

(as defined in paragraph (e)(5) of this 

section) and the original use of the 

property (as defined in paragraph (e)(6) 

of this section) commences with the 

taxpayer. 

(2) Location of property. Any 

component of qualified property that 

otherwise satisfies the requirements of 

this paragraph (c) is part of a qualified 

facility regardless of where such 

component is located. 

(d) Property included in qualified 

facility—(1) In general. A qualified 

facility includes a unit of a qualified 

facility (as defined in paragraph (d)(2) of 

this section) owned by the taxpayer. A 

qualified facility also includes 

components of qualified property 

owned by the taxpayer that are an 

integral part (as defined in paragraph 

(d)(3) of this section) of the qualified 

facility. Any component of qualified 

property that meets the requirements of 

this paragraph (d) is part of a qualified 

facility regardless of where such 

component of qualified property is 

located. A qualified facility does not 

include any electrical transmission 

equipment, such as electrical 

transmission lines and towers, or any 

equipment beyond the electrical 

transmission stage. See § 1.48E–4(b) 

regarding the Incremental Production 

Rule and § 1.48E–4(c) for rules regarding 

a retrofitted qualified facility (80/20 

rule). 

(2) Unit of a qualified facility—(i) In 

general. For purposes of the section 48E 

credit, a unit of a qualified facility 

includes all functionally interdependent 

components of property (as defined in 

paragraph (d)(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, § 1.48E–1, or 

§§ 1.48E–3 through 1.48E–5 uses the 

term unit in respect of a qualified 

facility with any meaning other than 

that provided in this paragraph (d)(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 the other 

components to generate electricity. 

(3) Integral part—(i) In general. For 

purposes of the section 48E credit, a 


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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 not owned 

by the taxpayer that is an integral part 

of the qualified facility 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, but is not limited to, 

transformers, inverters and converters, 

which modify 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 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 used to 

monitor, operate, and protect transfer 

equipment. 

(iii) Roads. Roads that are integral to 

the intended function of the qualified 

facility such as onsite roads that are 

used to operate and maintain the 

qualified facility are an integral part of 

a qualified facility. Roads used 

primarily to access 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. For purposes of section 48E, a 

structure that is essentially an item of 

machinery or equipment is not 

considered a building. In addition, a 

structure is not a building if it houses 

components of property that are integral 

to the intended function of the qualified 

facility and 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 for the section 48E 

credit or the 45Y Qualified Facility for 

the section 45Y credit. 

(vii) Examples. This paragraph 

(d)(3)(vii) provides examples illustrating 

the rules of this paragraph (d). 

(A) Example 1. Co-located qualified 

facilities owned by the same taxpayer 

that share integral property. X 

constructs and owns a solar facility 

(Solar Facility) and nearby also 

constructs and owns a wind facility 

(Wind Facility) that are each a qualified 

facility. The Solar Facility and Wind 

Facility each connect to a shared 

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 

Facility and the Wind Facility, 

respectively. The fact that the Solar 

Facility and Wind 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 and owns a solar facility 

(Solar Facility), and nearby Y constructs 

and owns a wind facility (Wind Facility) 

that are each a qualified facility. The 

Solar Facility and the Wind Facility 

both connect to a shared 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 shared 

transformer. The fact that the Solar 

Facility and Wind 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 

(EST) owned by the same taxpayer. X 

constructs and owns a wind facility 

(Wind Facility) that is co-located with 

an EST that X also constructs and owns. 

The Wind Facility and EST share 

transfer equipment that is integral to 

both. X assigns 50% of the cost of the 

shared transfer equipment to the Wind 

Facility and 50% of the cost to the EST. 

The fact that the Wind Facility and EST 

share property that is integral to both 

does not impact the ability of X to claim 

a section 48E credit for the Wind 

Facility and the EST. X may include 

50% of the cost of the transfer 

equipment in its basis to determine a 

section 48E credit for the Wind Facility 

and the EST. 

(D) Example 4. Co-located qualified 

facility and Energy Storage Technology 

owned by different taxpayers. X 

constructs and owns a solar facility that 

is a qualified facility (Solar Facility) and 

is co-located with an EST constructed 

and owned by Y. The Solar Facility and 

EST 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 

Facility and EST share property that is 

integral to both does not impact the 


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ability of X to claim a section 48E credit 

for the Solar Facility or Y to claim a 

section 48E credit for the EST. When X 

and Y place in service the Solar Facility 

and EST, 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 Facility and 50% 

of the cost is included in Y’s basis in the 

EST. 

(E) Example 5. Qualified facility with 

integral property owned by a different 

taxpayer. X constructs and owns a 

hydropower production facility that is a 

qualified facility (Hydropower Facility). 

The Hydropower Facility connects to a 

dam owned by Y, a government entity, 

that is an integral part of the 

Hydropower Facility. X pays for upkeep 

of the dam. The fact that X does not own 

the dam does not impact the ability of 

X to claim a section 48E credit for the 

Hydropower Facility. When X places in 

service the Hydropower Facility, for 

purposes of computing the section 48E 

credit, the cost incurred by X related to 

the dam would not be included in X’s 

basis in the Qualified Facility because X 

does not own the dam. 

(e) Definitions related to requirements 

for qualified property—(1) Tangible 

personal property. The term tangible 

personal property means any tangible 

property except land or 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. 

Machinery located outside of a building 

is qualified property if it is used for the 

generation of electricity and the 

components of machinery are 

functionally interdependent. Local law 

does not control whether property is 

tangible property or is tangible personal 

property for purposes of the section 48E 

credit. Thus, tangible property may be 

tangible personal property for purposes 

of the section 48E credit even though 

under local law the property is 

considered a fixture and therefore is real 

property under local law. 

(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. Other tangible property may be 

tangible property for purposes of the 

section 48E credit even though under 

local law the property is considered a 

fixture and is therefore real property 

under local law. 

(3) Depreciation allowable—(i) In 

general. For purposes of applying 

paragraph (c) of this section, 

depreciation (or amortization in lieu of 

depreciation) (collectively, 

depreciation) is allowable with respect 

to the 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). 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 (c) 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). 

(4) Construction, reconstruction, or 

erection of the property. The term 

construction, reconstruction, or erection 

of the property means work performed 

to construct, reconstruct, or erect 

property either by the taxpayer or for 

the taxpayer in accordance with the 

taxpayer’s specifications. 

(5) Acquisition of qualified property. 

The term acquisition of qualified 

property means a transaction by which 

a taxpayer acquires the rights and 

obligations to establish tax ownership of 

the property for Federal tax purposes. 

(6) Original use of the property. The 

term original use of the property means 

the first use to which the unit of 

property is put, whether or not such use 

is by the taxpayer. 

(7) 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 § 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. 

(f) Coordination with other credits— 

(1) In general. The term qualified facility 

(as defined in section 48E(b)(3)) and 

paragraph (b) 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)) 

for which the taxpayer 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 to the taxpayer with respect to 

the qualified facility. Nothing in this 

paragraph (f) 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 this 

paragraph (f), 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 (f)(3) 

provides examples illustrating the rules 

provided in this paragraph (f). 

(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 § 1.45Y–2(a)) (Solar Qualified 

Facility), and a co-located EST (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 a 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 

§ 1.45Y–2(a)) (Solar Qualified Facility), 

and Y owns a co-located EST (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 


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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 under section 48E as well as the 

requirements of a qualified facility as 

defined in § 1.45Y–2(a) under section 

45Y. 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 already claimed a section 

45Y credit with respect to the wind 

facility, a section 48E credit is not 

allowed. 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. 

(iv) Example 4. Interaction of section 

48E and section 45Q credits for single 

qualified facility. X owns a qualified 

facility (Facility A) that includes carbon 

capture equipment, which is needed for 

the facility to meet the zero greenhouse 

gas requirement, so it is functionally 

interdependent to the production of 

electricity by the Facility A. X uses 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 the 

current taxable year. As a result, X 

cannot claim a section 48E credit for its 

48E Facility A because a qualified 

facility does not include a facility for 

which a credit determined under 

section 45Q is allowed. 

(v) Example 5. Interaction of section 

48E and section 45Q credits for colocated qualified facilities. Assume the 

same facts as in paragraph (f)(3)(iv) of 

this section (Example 4), except that X 

owns a co-located qualified facility 

(Facility B) that also includes carbon 

capture equipment, which is needed for 

the facility to meet the zero greenhouse 

gas requirement, so it is functionally 

interdependent to the production of 

electricity by the Facility B. X uses the 

carbon capture equipment to capture 

and utilize (as described in section 

45Q(f)(5)) qualified carbon dioxide, but 

does not claim a section 45Q credit with 

respect to the Facility B. While X 

claimed a section 45Q credit in the 

current taxable year for the Facility A 

(see Example 4), the Facility B is not 

part of the Facility A, and, therefore, X 

may claim the section 48E credit for its 

Facility B. 

(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 

provision of this section, § 1.48E–1, or 

§§ 1.48E–3 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 that 

EST. A taxpayer may not claim the 

section 48E credit for any property not 

owned by the taxpayer that is an 

integral part of EST 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 § 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 § 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 leadacid); ultracapacitors; physical storage 

such as pumped storage hydropower, 

compressed air storage, flywheels; and 

reversible fuel cells. 

(ii) Thermal energy storage property— 

(A) In general. 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 


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include property that transforms other 

forms of energy into heat in the first 

instance. Property that ‘‘removes heat 

from, or adds heat to, a storage medium 

for subsequent use’’ is property that is 

designed with the particular purpose of 

substantially altering the time profile of 

when heat added to or removed from 

the thermal storage medium can be used 

for heating or cooling of the interior of 

a residential or commercial building. 

Paragraph (g)(6)(ii)(B) of this section 

provides a safe harbor for determining 

whether a thermal energy storage 

property has such a purpose. Thermal 

energy storage property 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 

property includes, but is not limited to, 

a system that adds heat to bricks heated 

to high temperatures that later use this 

stored energy to heat a building through 

the HVAC system; 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, an artificial pit, an 

aqueous solution, a borehole field, or a 

solid-liquid phase change material to be 

extracted for later use for heating and/ 

or cooling; and air-to-water heat pump 

systems with a water storage tank. 

However, consistent with § 1.48–14(d), 

if thermal energy storage property, such 

as a heat pump system, includes 

equipment, such as a heat pump, that 

also serves a purpose in an HVAC 

system that is installed in connection 

with the thermal energy storage 

property, the taxpayer’s qualified 

investment with respect to the thermal 

energy storage property includes the 

total cost of the thermal energy storage 

property and HVAC system less the cost 

of an HVAC system without thermal 

storage capacity that would meet the 

same functional heating or cooling 

needs as the heat pump system with a 

storage medium, other than time 

shifting of heating or cooling. See 

§ 1.48–14(h) for application of the 

Incremental Cost Rule. 

(B) Safe harbor. A thermal energy 

storage property will be deemed to have 

the purpose of substantially altering the 

time profile of when heat added to or 

removed from the thermal storage 

medium can be used to heat or cool the 

interior of a residential or commercial 

building if that thermal energy storage 

property is capable of storing energy 

that is sufficient to provide heating or 

cooling of the interior of a residential or 

commercial building for a minimum of 

one hour. 

(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 includes, but is not limited to, 

above ground storage tanks, 

underground storage facilities, and 

associated compressors. Property that is 

an integral part of hydrogen energy 

storage property includes, but is not 

limited to, hydrogen liquefaction 

equipment and gathering and 

distribution lines within a hydrogen 

energy storage property. 

(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 

nameplate 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. The increase in nameplate 

capacity is equal to the difference 

between nameplate capacity 

immediately after the modification and 

nameplate capacity immediately prior to 

the modification. 

(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 January 15, 2025. 

§ 1.48E–3 Rules relating to the increased 

credit for prevailing wage and 

apprenticeship. 

(a) In general. If any qualified facility 

or EST satisfies the requirements in 

paragraph (b) of this section, the 

applicable percentage used for 

calculating the amount of the credit for 

a qualified investment determined 

under section 48E(a) for the taxable year 

equals 30 percent. 

(b) Qualified facility or EST 

requirements. A qualified facility or EST 

satisfies the requirements of this 

paragraph (b) if it is a facility described 

in one of paragraphs (b)(1) through (6) 

of this section: 

(1) A qualified facility with a 

maximum net output of less than one 

megawatt of electrical energy (as 

measured in alternating current) based 

on the nameplate capacity as provided 

in paragraph (c) of this section (One 

Megawatt Exception); 

(2) A qualified facility the 

construction of which began prior to 

January 29, 2023; 

(3) A qualified facility that meets the 

prevailing wage requirements of section 

48E(d)(3) and §§ 1.45–7(a)(2) and (3) 

and (b) through (d) and 1.48–13(c), the 

apprenticeship requirements of section 

45(b)(8) and § 1.45–8, and the 

recordkeeping and reporting 

requirements of § 1.45–12; 

(4) An EST with a capacity of less 

than one megawatt based on the 

nameplate capacity as provided in 

paragraph (c) of this section (EST One 

Megawatt Exception); 

(5) An EST the construction of which 

began prior to January 29, 2023; or 

(6) An EST that satisfies the 

prevailing wage requirements of section 

48E(d)(3) and §§ 1.45–7(a)(2) and (3) 

and (b) through (d) and 1.48–13(c), the 

apprenticeship requirements of section 

45(b)(8) and § 1.45–8, and the 

recordkeeping and reporting 

requirements of § 1.45–12. 

(c) Nameplate capacity for purposes 

of the One Megawatt Exception—(1) 

Qualified facilities. For purposes of 

paragraph (b)(1) of this section, whether 

a qualified facility has a maximum net 

output of less than 1 megawatt (MW) of 

electrical energy (as measured in 

alternating current) is determined based 

on the nameplate capacity of the 

facility. If a qualified facility has 

integrated operations (as defined in 

paragraph (c)(4)(i) of this section) with 

one or more other qualified facilities, 

then the aggregate nameplate capacity of 

the qualified facilities is used for the 

purposes of determining if the qualified 

facilities satisfy the One Megawatt 

Exception. If applicable, taxpayers 

should use the International Standard 


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Organization (ISO) conditions to 

measure the maximum electrical 

generating output of a facility. 

(2) Nameplate capacity for qualified 

facilities that generate in direct current 

for purposes of the One Megawatt 

Exception. For qualified facilities that 

generate electricity in direct current, the 

taxpayer determines the maximum net 

output (in alternating current) of each 

unit of qualified facility by using the 

lesser of: 

(i) The sum of the nameplate 

generating capacities within the unit of 

qualified facility in direct current, 

which is deemed the nameplate 

generating capacity of the unit of 

qualified facility in alternating current; 

or 

(ii) The nameplate capacity of the first 

component of property that inverts the 

direct current electricity into alternating 

current. 

(3) EST—(i) In general. Paragraphs 

(c)(3)(ii) through (iv) of this section 

provide rules for applying the EST One 

Megawatt Exception described in 

paragraph (b)(4) of this section to 

different types of energy storage 

properties. If the EST has integrated 

operations (as defined in paragraph 

(c)(4)(ii) of this section) with one or 

more other ESTs, then the aggregate 

nameplate capacity of the ESTs is used 

for the purposes of the EST One 

Megawatt Exception. If applicable, 

taxpayers should use the ISO conditions 

to measure the maximum net output of 

an EST. 

(ii) Electrical energy storage property. 

In the case of electrical energy storage 

property (as defined in § 1.48E– 

2(g)(6)(i)), the EST One Megawatt 

Exception is determined by using the 

storage device’s maximum net output. If 

the output of electrical energy storage 

property is in direct current, taxpayer 

should apply the rules of paragraph 

(c)(2) of this section. 

(iii) Thermal energy storage property. 

In the case of thermal energy storage 

property (as defined in § 1.48E– 

2(g)(6)(ii)), the EST One Megawatt 

Exception is determined by using the 

property’s maximum net output. The 

maximum net output in MW is 

calculated by using a conversion 

whereby one MW is equal to 3.4 million 

British Thermal Units per hour (mmBtu/ 

hour) for heating and 284 tons for 

cooling (Btu per hour/3,412,140 = MW). 

The maximum net output is the 

maximum instantaneous rate of 

discharge and is determined based on 

the nameplate capacity of the 

equipment that generates or distributes 

thermal energy for productive use 

(including distributing the thermal 

energy from the storage medium). For 

purposes of determining the maximum 

net output of thermal energy storage 

property, if the nameplate capacity of 

the thermal energy storage is not 

available, the nameplate capacity of the 

equipment delivering thermal energy to 

the thermal energy storage may be used. 

For thermal energy storage property 

distributing thermal energy to a building 

or buildings, the nameplate capacity can 

be assessed as either the aggregate 

maximum thermal capacity of all 

individual heating or cooling elements 

within the building or buildings, or as 

the maximum thermal output that the 

thermal energy storage property is 

capable of delivering to a building or 

buildings at any given moment. The 

maximum thermal capacity of an entire 

thermal energy storage property is 

capable of delivering at any given 

moment does not take into account the 

capacity of redundant equipment if such 

equipment is not operated when the 

system is at maximum output during 

normal operation. For thermal energy 

storage property and other energy 

property that generates or distributes 

thermal energy for a productive use, the 

maximum thermal capacity that the 

entire system is capable of delivering is 

considered to be the greater of the rate 

of cooling or the rate of heating of the 

aggregate of the nameplate capacity of 

the equipment distributing energy for 

productive use, including distributing 

the thermal energy from the thermal 

energy storage medium to the building 

or buildings. If such nameplate capacity 

is unavailable, in the case of thermal 

energy storage property only, the 

maximum thermal capacity may instead 

be considered to be the greater of the 

rate of cooling or the rate of heating of 

the aggregate of the nameplate capacity 

of all the equipment delivering energy 

to the thermal energy storage property 

in the project. 

(iv) Hydrogen energy storage property. 

In the case of a hydrogen energy storage 

property (as defined in § 1.48E– 

2(g)(6)(iii)), the EST One Megawatt 

Exception is determined by using the 

property’s maximum net output. The 

maximum net output in MW is 

calculated by using a conversion 

whereby one MW is equal to 3.4 

mmBtu/hour of hydrogen or 

equivalently 10,500 standard cubic feet 

(scf) per hour of hydrogen. 

(4) Integrated operations—(i) One 

Megawatt Exception. Solely for the 

purposes of the One Megawatt 

Exception described in paragraph (b)(1) 

of this section, a qualified facility is 

treated as having integrated operations 

with any other qualified facility of the 

same technology type if the facilities 

are: 

(A) Owned by the same or related 

taxpayers; 

(B) Placed in service in the same 

taxable year; and 

(C) Transmit electricity generated by 

the facilities through the same point of 

interconnection or, if the facilities are 

not grid-connected or are delivering 

electricity directly to an end user 

behind a utility meter, are able to 

support the same end user. 

(ii) EST One Megawatt Exception. 

Solely for the purposes of the EST One 

Megawatt Exception described in 

paragraph (b)(4) of this section, an EST 

is treated as having integrated 

operations with any other EST of the 

same technology type if the ESTs are: 

(A) Owned by the same or related 

taxpayers; 

(B) Placed in service in the same 

taxable year; and 

(C) Transmit energy through the same 

point of interconnection or, if the ESTs 

are not grid-connected or are providing 

storage directly to an end user behind a 

utility meter, are able to support the 

same end user. In the case of EST 

described in paragraphs (c)(3)(iii) and 

(iv) of this section, which use the same 

piping and distribution systems for the 

respective type of EST. 

(d) Transition waiver of penalty for 

prevailing wage requirements. For 

purposes of the transition waiver 

described in § 1.48–13(c)(2) (by 

reference to § 1.45–7(c)(6)(iii)), the 

penalty payment required by § 1.45– 

7(c)(1)(ii) to cure a failure to satisfy the 

prevailing wage requirements in 

paragraph (b)(3) or (6) of this section is 

waived with respect to a laborer or 

mechanic who performed work in the 

construction, alteration, or repair of an 

energy project on or after January 29, 

2023, and prior to January 15, 2025, if 

the taxpayer relied upon Notice 2022– 

61, 2022–52 I.R.B. 560, or the PWA 

proposed regulations (REG–100908–23) 

(88 FR 60018), corrected in 88 FR 73807 

(Oct. 27, 2023), corrected in 89 FR 

25550 (April 11, 2024), to determine 

when the activities of any laborer or 

mechanic became subject to the 

prevailing wage requirements, and the 

taxpayer makes the correction payments 

required by § 1.45–7(c)(1)(i) with respect 

to such laborer and mechanics within 

180 days of January 15, 2025. 

(e) No alteration or repair during 

recapture period described in § 1.48– 

13(c)(3). If no alteration or repair work 

occurs during the five-year recapture 

period, the taxpayer is deemed to satisfy 

the prevailing wage requirements 

described in paragraph (b)(3) or (6) of 

this section with respect to such taxable 

year. 


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(f) Applicability date. This section 

applies to qualified facilities and 

qualified ESTs placed in service in 

taxable years ending after January 15, 

2025, and the construction of which 

begins after March 17, 2025. Taxpayers 

may apply this section to qualified 

facilities and qualified ESTs placed in 

service in taxable years ending on or 

after January 15, 2025, the construction 

of which begins before January 15, 2025, 

provided that taxpayers follow this 

section in its entirety and in a consistent 

manner. 

§ 1.48E–4 Rules of general application. 

(a) Qualified interconnection costs 

included in certain lower-output 

qualified facilities—(1) In general. For 

purposes of determining the section 48E 

credit (as defined in § 1.48E–1(a)), the 

qualified investment with respect to a 

qualified facility (as defined in § 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 § 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. If the costs borne by the 

taxpayer are reduced by utility or nonutility payments, Federal income tax 

principles may require the taxpayer to 

reduce the amounts of costs treated as 

paid or incurred for qualified 

interconnection property to determine a 

section 48E credit. 

(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 § 1.48E–2(e)(4)), 

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 § 1.48E–2(e)(6)) 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). For purposes of 

determining the original use of 

interconnection property in the context 

of a sale-leaseback or lease transaction, 

the principles of section 50(d)(4) of the 

Internal Revenue Code (Code) must be 

taken into account, as applicable, with 

such original use determined on the 

date of the sale-leaseback or lease. 

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) of the Code, the increase in 

credit rate for domestic content 

referenced in section 48E(a)(3)(B) (by 

reference to the rules of section 

48(a)(12)) or the increase in credit rate 

for prevailing wage requirements 

referenced in section 48E(d)(3) and 

apprenticeship requirements referenced 

in section 48E(d)(4). 

(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 (in 

alternating current) 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. For 

purposes of paragraph (a)(1) of this 

section, 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. 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. 

(iii) Nameplate capacity for qualified 

facilities that generate in direct current 

for purposes of the Five-Megawatt 

Limitation. For qualified facilities that 

generate electricity in direct current, a 

taxpayer determines whether a qualified 

facility has a maximum net output of 

not greater than five MW (in alternating 

current) by using the lesser of: 

(A) The sum of the nameplate 

generating capacities within the unit of 

qualified facility property in direct 

current, which is deemed the nameplate 

generating capacity of the unit of 

qualified facility property in alternating 

current; or 

(B) The nameplate capacity of the first 

component of the qualified facility that 

inverts the direct current electricity into 

alternating current. 

(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. In the 

case of the election provided under 

section 50(d)(5) (relating to certain 

leased property), the term includes an 

agreement regarding a qualified facility 

leased by such taxpayer. 

(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. In the case of costs 

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 costs must be 

reduced under rules of section 50(c) 

(including section 50(c)(3)). 

(7) Examples. This paragraph (a)(7) 

provides examples illustrating the 

application of the general rules 

provided in paragraph (a)(1) of this 

section and Five-Megawatt Limitation 

provided in this paragraph (a). 

(i) Example 1. Application of FiveMegawatt 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 


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alternating current by using the 

nameplate capacity of an inverter, 

which is the first component of property 

attached to each of the 48E Facilities 

that inverts the direct current electricity 

into 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 to X 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 

(alternating current). 

(ii) Example 2. Application of FiveMegawatt 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 

§ 1.48E–2(a)) (Solar Qualified Facility) 

with a maximum net output of 5 MW (as 

measured in alternating current by using 

the nameplate capacity of the first 

component of property attached to the 

Solar Qualified Facility that inverts the 

direct current electricity into alternating 

current). The Solar Qualified Facility 

includes an inverter, which is integral 

property. Y places in service a wind 

facility (as defined in § 1.48E–2(a)) 

(Wind Qualified Facility), with a 

maximum net output of 5 MW (as 

measured in alternating current by using 

the nameplate capacity of the first 

component of property attached to the 

Wind Qualified Facility that inverts the 

direct current electricity into 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 

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 to X and Y. 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 (alternating current). 

(iii) Example 3. Application of FiveMegawatt Limitation to an 

interconnection agreement for a single 

qualified facility. X develops three solar 

farms (Solar Qualified Facilities) located 

in close proximity. Each of the Solar 

Qualified Facilities is a unit of qualified 

facility that has a maximum net output 

of 4 MW. The nameplate capacity of 

each Solar Qualified Facility is 

determined by using the sum of the 

nameplate generating capacities within 

the unit of each Solar Qualified Facility 

in direct current, which is deemed the 

nameplate generating capacity of each 

Solar Qualified Facility in alternating 

current. Electricity from the three Solar 

Qualified Facilities feeds into a single 

gen-tie line and a common point of 

interconnection with the transmission 

system. X is party to a separate 

interconnection agreement with the 

utility for each of the Solar Qualified 

Facilities and each interconnection 

agreement allows for a maximum output 

of 10 MW (as measured in alternating 

current). X may include the costs it paid 

or incurred for qualified interconnection 

property for each of the Solar Qualified 

Facilities to calculate its section 48E 

credit for each of the Solar Qualified 

Facilities, subject to the terms of each 

interconnection agreement, because 

each of the Solar Qualified Facilities has 

a maximum net output of not greater 

than 5 MW (in alternating current). X 

cannot include more than the total costs 

X paid or incurred for the qualified 

interconnection property in calculating 

the aggregate section 48E credit amount 

for the Solar Qualified Facilities. 

(iv) Example 4. Utility payment 

reducing costs borne by taxpayer. In 

year 1, X places in service a solar 

facility (Solar Qualified Facility) with a 

maximum net output of 3 MW (as 

measured in alternating current) by 

using the nameplate capacity of the 

inverter attached to the solar facility, 

which is the first component of the 

qualified facility that inverts the direct 

current electricity into alternating 

current. X is party to an interconnection 

agreement with a utility for the purpose 

of connecting the Solar Qualified 

Facility to the transmission or 

distribution system of the utility. 

Pursuant to the interconnection 

agreement, X pays $1 million to the 

utility, and the utility places in service 

qualified interconnection property. In 

year 1, X had no reasonable expectation 

of any payment from the utility or other 

parties with respect to the qualified 

interconnection property. The $1 

million is properly chargeable to the 

capital account of X, subject to 

paragraph (a)(6) of this section. X 

properly includes the $1 million paid to 

the utility in determining its credit 

under section 48E for Year 1. In Year 4, 

taxpayer Y enters into an agreement 

with the utility under which Y pays the 

utility $100,000 for the use of qualified 

interconnection property placed in 

service by the utility pursuant to the 

interconnection agreement between X 

and the utility. The utility pays 

$100,000 to X. Under these 

circumstances, the payment from the 

utility in year 4 would not require X to 

reduce the amount treated as paid or 

incurred for the qualified 

interconnection property for the 

purpose of determining the section 48E 

credit in year 1; instead X would treat 

the payment as income. 

(v) Example 5. Non-utility payment 

reducing costs borne by taxpayer. The 

facts in year 1 are the same as in 

paragraph (a)(7)(iii) of this section 

(Example 3). In Year 4, taxpayer Y 

enters into an agreement with the utility 

under which Y pays X $100,000 for the 

use of qualified interconnection 

property placed in service by the utility 

pursuant to the interconnection 

agreement between X and the utility. Y 

pays $100,000 to X. In year 1, X had no 

reasonable expectation of any payment 

from Y for subsequent agreements with 

Y or other parties with respect to the 

qualified interconnection property. 

Under these circumstances, the payment 

from Y in year 4 would not require X 

to reduce the amount treated as paid or 

incurred for the qualified 

interconnection property for the 

purpose of determining the section 48E 

credit in year 1; instead X would treat 

the payment as income. 

(b) Expansion of facility; Incremental 

production (Incremental Production 

Rule)—(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 


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section 48E(b)(3)(A)(ii)), 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. This paragraph (b) 

is only applicable to an addition of 

capacity or new unit that would not 

otherwise qualify as a separate qualified 

facility as defined in section 48E(b)(3). 

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 § 1.48E–2(e)), 

including any new or replacement 

integral property, added to a facility 

necessary to increase capacity. For 

purposes of assessing the One Megawatt 

Exception provided in section 

48E(a)(2)(A)(ii)(I), the maximum net 

output for a new unit or an addition of 

capacity is the sum of the capacity of 

the added qualified facility and the 

capacity of the facility to which the 

qualified facility was added, as 

determined under § 1.48E–3(c) and 

paragraph (b)(2) of this section. 

(2) Measurement standard. For 

purposes of this paragraph (b), taxpayers 

must use one of the measurement 

standards described in paragraph 

(b)(2)(i), (ii), or (iii) of this section to 

measure the capacity and change in 

capacity of a facility, except a taxpayer 

cannot use the measurement standard 

described in paragraph (b)(2)(ii) of this 

section if the taxpayer is able to use the 

measurement standard described in 

paragraph (b)(2)(i) of this section: 

(i) Modified or amended facility 

operating licenses from the Federal 

Energy Regulatory Commission (FERC) 

or the Nuclear Regulatory Commission 

(NRC), or related reports prepared by 

FERC or NRC as part of the licensing 

process; 

(ii) Nameplate capacity certified 

consistent with generally accepted 

industry standards, such as the 

International Standard Organization 

(ISO) conditions to measure the 

nameplate capacity of the facility 

consistent with the definition of 

nameplate capacity provided in 40 CFR 

96.202; or 

(iii) A measurement standard 

prescribed by the Secretary in guidance 

published in the Internal Revenue 

Bulletin (see § 601.601 of this chapter). 

(3) 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 from a base of zero 

if the conditions described in each of 

paragraphs (b)(3)(i) through (iv) of this 

section 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 was not 

authorized to operate by its respective 

Federal regulatory authority (that is, 

FERC or NRC); 

(iii) The restarted facility must be 

eligible to restart based on an operating 

license issued by either FERC or NRC; 

and 

(iv) The existing facility may not have 

ceased operations for the purpose of 

qualifying for the special rule for 

restarted facilities. 

(4) Computation of qualified 

investment for a new unit or an addition 

of capacity. For purposes of this 

paragraph (b), a new unit or an addition 

of capacity requires the addition or 

replacement of components of qualified 

property, including any new or 

replacement integral property, added to 

a facility necessary to increase capacity. 

The taxpayer’s qualified investment 

during the taxable year that resulted in 

an increased capacity of a facility by 

reason of a new unit or addition of 

capacity is its total qualified investment 

associated with the components of 

property that result in the new unit or 

addition of capacity. 

(5) Examples. This paragraph (b)(5) 

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 FERC license authorizing an 

installed capacity of 60 megawatts. 

During taxable years 2020 through 2024, 

X claimed a section 45 credit for the 

electricity produced by Facility H. On 

July 1, 2025, as allowed by a FERC 

license amendment, X places in service 

components of property comprising a 

new unit that results in Facility H 

having an increased authorized installed 

capacity of 90 megawatts in 2025. These 

components of property meet the 

requirements of qualified property (as 

defined in § 1.48E–2(e)). 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 

electricity produced by 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. Y claimed a section 

45U credit in taxable years 2024 and 

2025 for the electricity generated by 

Facility N. On January 15, 2026, Y 

completed and placed in service an 

investment associated with a power 

uprate approved by an NRC license 

amendment that involved the removal 

and replacement of components of 

property and placing in service 

additional components of property. 

Both of these replacement and 

additional components of property meet 

the requirements of qualified property 

(as defined in § 1.48E–2(c)). NRC reports 

associated with the license amendment 

describe the uprate as increasing the 

nuclear facility’s electrical capacity by 

100 MW to 900 MW. For purposes of 

this paragraph (b), Facility N’s addition 

of capacity equal to 100 MW 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 entire 

amount of its qualified investment on 

January 15, 2026. 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 

components of property needed to 

support the increase in capacity. Y may 

also continue to claim the section 45U 

credit for electricity generated by 

Facility N (excluding the incremental 

electricity generation related to Facility 

P). 

(iii) Example 3. Geothermal Turbine 

and Generator Additions of Capacity. X 

owns a geothermal power plant (Facility 

G) with a 24 MW nameplate capacity, 

which is placed in service in 2007. Over 

the subsequent years, the plant’s 

generating capability declines because 

of physical degradation of the turbine 

and generator. On March 1, 2027, X 

places in service components of 

property at Facility G that increase its 

capacity. The turbine rotor is removed, 

and the eroded blades are replaced with 

new blades, with associated capital 

expenditures. The generator is 

refurbished by removing old 

subcomponents of the generator and 

replacing those with new 

subcomponents, as well as replacing the 

old copper windings with new windings 

in concert with new insulation. These 

components of property meet the 

requirements of qualified property (as 

defined in § 1.48E–2(c)). After the 

upgrade, the plant increases its 

nameplate capacity to 26 MW, an 


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increase of 2 MW over the previous 

nameplate capacity. For purposes of this 

paragraph (b), the addition of capacity 

to Facility G is treated as a new separate 

qualified facility placed in service on 

March 1, 2027 (Facility N). X 

determines the amount of its section 

48E credit based on the amount of its 

qualified investment in qualified 

property needed to increase the capacity 

of the facility. 

(iv) Example 4. Hydropower Addition 

of Capacity. X owns a hydropower plant 

(Facility H) placed in service in 1960. 

Facility H has become less efficient 

since it was placed in service with 

attendant reductions in its generating 

capacity. As approved by a FERC 

license amendment, X increases Facility 

H’s capacity by installing new 

headcovers, new turbines with 

integrated dissolved oxygen injection, 

and a new high pressure digital 

governor system. All of the existing 

turbine systems are replaced with new 

turbine and governor systems. The new 

turbines are more efficient, and are 

capable of more power output, than the 

original design installed in 1960. 

Improvements to the generators involve 

removing the old asphalt coated copper 

windings and purchasing and then 

installing new epoxy coated double 

wound windings. X adds digital 

controls to effectively utilize new digital 

governors. These components of 

property meet the requirements of 

qualified property (as defined in 

§ 1.48E–2(c)). X simultaneously invests 

in cybersecurity protection. As set forth 

in the FERC order amending its license, 

these investments, which are placed in 

service on April 15, 2026, increase 

Facility H’s authorized installed 

nameplate capacity from 180 MW to 190 

MW, an increase of 10 MW over the 

previous nameplate capacity. For 

purposes of this paragraph (b), Facility 

H’s addition of capacity is treated as a 

new separate qualified facility placed in 

service on April 16, 2026 (Facility A). X 

determines the amount of its section 

48E credit based on the amount of its 

qualified investment in qualified 

property needed in Facility A to result 

in the final 190 MW capacity, which 

would not include any investments in 

intangible property, such as those that 

might be associated with cybersecurity 

protection. 

(v) Example 5. Nonoperational 

Nuclear Facility that Satisfies Restart 

Rule. T owns a nuclear facility (Facility 

N) that was originally placed in service 

in 1982. In 2020, Facility N ceased 

operations, began decommissioning, 

and the NRC no longer authorized the 

operation of Facility N. T did not cease 

operations at Facility N for the purpose 

of qualifying for the special rule for 

restarted facilities under section 48E. In 

2028, the NRC authorized Facility N to 

restart, and, on October 1, 2028, Facility 

N placed in service qualified property 

that enabled Facility N to restart and 

resume operations, with an electrical 

capacity of 800 MW, as indicated in 

NRC documents related to the 

authorization to restart. For purposes of 

this paragraph (b), the restart of Facility 

N is considered to have increased 

capacity from a base of zero, and 

Facility N is treated as having an 

addition of capacity equal to 800 MW. 

For purposes of this paragraph (b), 

Facility N’s 800 MW addition of 

capacity is treated as a new qualified 

facility placed in service on October 1, 

2028 (Facility P). T determines the 

amount of its section 48E credit based 

on the amount of its qualified 

investment in qualified property needed 

to restart the facility. 

(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 or an energy storage 

technology (EST) may qualify as 

originally placed in service even if it 

contains some used components of 

property within the unit of qualified 

facility or unit of EST, provided that the 

fair market value of the used 

components of the unit of qualified 

facility or unit of EST is not more than 

20 percent of the total value of the unit 

of qualified facility or unit of EST (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 or unit of EST) (80/ 

20 Rule). A qualified facility or EST that 

meets the 80/20 Rule may claim the 

section 48E credit without regard to any 

addition of capacity to the qualified 

facility or EST. 

(2) Expenditures taken into account. 

Notwithstanding the rule provided in 

paragraph (c)(1) of this section, only the 

cost of new components of the unit of 

qualified facility or unit of EST are 

taken into account for purposes of 

computing the credit determined under 

section 48E with respect to the qualified 

facility or EST. 

(3) Cost of new components. For 

purposes of this 80/20 Rule, the cost of 

new components of the unit of qualified 

facility or unit of EST 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 or unit of EST and 

the taxpayer pays or incurs new costs 

for property that is an integral part of 

the qualified facility (as defined in 

§ 1.48E–2(a)) or the EST (as defined in 

§ 1.48E–2(g)), the taxpayer may include 

these new costs paid or incurred for 

property that is an integral part of the 

qualified facility or EST in the basis of 

the qualified facility or EST 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 or unit of EST 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 or unit of EST 

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 or unit 

of EST taking into account the cost of 

the new components of property plus 

the value of the used components of 

property. 

(6) Examples. This paragraph (c)(6) 

provides examples illustrating 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 

unit of qualified facility of the wind 

facility with new components at a cost 

of $2 million. The fair market value of 

the remaining original components of 

the unit of qualified facility is $400,000, 

which is not more than 20 percent of the 

retrofitted unit of qualified 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 of the 

unit of qualified facility ($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 § 1.48E–2(a)) when it was placed in 

service because it did not meet the 

greenhouse gas emissions rate 

requirements (as determined under 

rules provided in § 1.48E–5). On January 

1, 2027, Facility Z was retrofitted and 

now meets the requirements to be a 

qualified facility (as defined in § 1.48E– 

2(a)). After the retrofit, the cost of the 

new property included in the unit of 

qualified facility of Facility Z is greater 

than 80 percent of unit of qualified 

facility’s total fair market value. Because 

Facility Z meets the 80/20 Rule, Facility 

Z is deemed to be originally placed in 


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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. T replaces used 

components of property of the unit of 

qualified facility of 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 

the unit of qualified facility, prior to the 

retrofit, is $30 million, which is not 

more than 20 percent of the unit of 

qualified facility’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 of the unit of 

qualified facility ($30 million)) ($30 

million/$230 million = 13%). 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 to the unit of qualified 

facility of Facility C total $500,000 and 

the fair market value of the unit of 

qualified facility after the improvements 

is $2 million. The fair market value of 

the old components of the unit of 

qualified facility 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 the unit of 

qualified facility is less than 80 percent 

of the unit of qualified facility’s total 

fair market value, Facility C does not 

meet the 80/20 Rule. 

(v) Example 5. Upgrades to a 

hydropower qualified facility that 

satisfies the 80/20 Rule: Y owns a 

hydropower qualified facility 

(hydropower facility) and no taxpayer, 

including Y, has ever claimed a section 

45 credit for the hydropower facility. 

The hydropower facility consists of a 

unit of qualified facility including water 

intake, water isolation mechanisms, 

turbine, pump, motor, and generator. 

The associated impoundment (dam) and 

power conditioning equipment are 

integral parts of the unit of qualified 

facility. Y makes upgrades to the unit of 

qualified facility by replacing the 

turbine, pump, motor, and generator 

with new components at a cost of $1.5 

million. Y does not make any upgrades 

to the property that is an integral part 

of the unit of qualified facility. The 

remaining original components of the 

unit of qualified facility have a fair 

market value of $100,000, which is not 

more than 20 percent of the retrofitted 

hydropower facility’s total value of $1.6 

million (that is, the cost of the new 

components ($1.5 million) + the value 

of the remaining original components 

($100,000)). Thus, the retrofitted 

hydropower facility will be considered 

newly placed in service for purposes of 

section 48E, and Y will be able to claim 

a section 48E credit based on the cost of 

the new components ($1.5 million). 

(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 basis 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 

basis 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 § 1.48E–2(b)(2)) or unit of 

EST (as defined in § 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 § 1.48E– 

2(b)(2)) or unit of EST (as defined in 

§ 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 (though neither 

taxpayer would be eligible for a section 

48E credit with respect to the first 

taxpayer’s property). See § 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) 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 § 1.48E–2(b)) 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 § 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 § 1.48E–2(b)) (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 

§ 1.48E–2(b)) (Wind Qualified Facility) 

that connects to X’s transformer. X and 

Y are not related persons within the 

meaning of paragraph (d)(4)(i) of this 

section. 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. 

(iv) Example 4. Related taxpayers and 

property that is an integral part. X owns 

a wind facility that is a unit of qualified 

facility and a solar facility that is a unit 

of qualified facility. Both the wind 

facility and the solar facility are 

connected to a transformer where the 


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electricity is stepped up to electrical 

grid voltage before being transmitted to 

the electrical grid through an intertie. 

The transformer is an integral part of 

both the wind facility and the solar 

facility (within the meaning of § 1.48E– 

2(d)(3)(i)) and is owned by Y. X and Y 

are related persons within the meaning 

of paragraph (d)(4)(i) of this section. X 

and Y are treated as one taxpayer under 

paragraph (d)(4)(ii) of this section. X 

may include the basis of the transformer 

in computing its section 48E credit with 

respect to the wind facility and the solar 

facility (but may not include more than 

100% of that basis in the aggregate). 

(e) Coordination rule for section 42 

credits and section 48E credits. As 

provided under section 50(c)(3)(C) of 

the Code, in 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 § 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 § 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 § 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 § 1.48E–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 this 

paragraph (f)(2) 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 § 1.48E–1(b), 

including a taxpayer that has 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 § 601.601 of this 

chapter. 

(iv) Carryback and carryforward 

adjustments. In the case of any 

recapture event described in this 

paragraph (f)(2), 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 § 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; and 

(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 § 1.48E–1(b) occurs in the year of 

the recapture event. 

(g) Qualified progress expenditure 

election. A taxpayer may elect, as 

provided in § 1.46–5, to increase the 

qualified investment with respect to any 

qualified facility or EST of an eligible 

taxpayer for the taxable year, by any 

qualified progress expenditures made 

after August 16, 2022. 

(h) Incremental cost—(1) In general. 

For purposes of section 48E, if a 

component of qualified property of a 

qualified facility or component of 

property of an EST is also used for a 

purpose other than the intended 

function of the qualified facility or EST, 

only the incremental cost of such 

component is included in the basis of 

the qualified facility or EST. The term 

incremental cost means the excess of the 

total cost of a component over the 

amount that would have been expended 

for the component if that component 

were used for a non-qualifying purpose. 

(2) Example. A installs a solar 

qualified facility above the surface of an 

existing roof of a building that A owns. 

The solar qualified facility uses bifacial 

panels that convert to energy the light 

that strikes both the front and back of 

the panels. Therefore, along with 

installing the bifacial panels, A is 

reroofing their building with a reflective 

roof that has a highly reflective surface. 

Because the reflective roof enables the 

panels’ generation of significant 

amounts of electricity from reflected 

sunlight, when installed in connection 

with the solar qualified facility, it 

constitutes part of that solar qualified 

facility to the extent that the cost of the 

reflective roof exceeds the cost of 

reroofing A’s building with a nonreflective roof. The cost of reroofing 

with the reflective roof is $15,000 

whereas the cost of a reroofing with a 

standard roof for the building would be 

$10,000. The incremental cost of the 

reflective roof is $5,000, and that 

amount is included in A’s basis in the 

solar qualified facility for purposes of 

the section 48E credit. 


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Federal Register / Vol. 90, No. 9 / Wednesday, January 15, 2025 / Rules and Regulations 4125 

(i) 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 the rule in section 50(b)(3) 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 

the election not to apply the 

normalization rules to EST (as defined 

in section 48(c)(6) of the Code without 

regard to section 48(c)(6)(D) 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. 

(j) 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 January 15, 2025. 

§ 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 emissions rate 

requirements (as determined under 

rules provided in § 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 regarding substantiation 

requirements. 

(b) Definitions. The definitions 

provided in § 1.45Y–5(b) apply for 

purposes of section 48E and this 

section. 

(c) Non-C&G Facilities. The rules 

provided in § 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 § 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) Use of methane from certain 

sources to produce electricity. The rules 

provided in § 1.45Y–5(e) regarding the 

use of methane from certain sources to 

produce electricity apply for purposes 

of section 48E and this section. 

(f) Carbon capture and sequestration. 

The rules provided in § 1.45Y–5(f) 

regarding carbon capture and 

sequestration apply for purposes of 

section 48E and this section. 

(g) Annual publication of emissions 

rates. The rules provided in § 1.45Y– 

5(g) 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. 

(h) 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 (h)(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 

(h)(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 Federal 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 

and any information provided by the 

taxpayer to DOE pursuant to the 

emissions value request process 

provided in paragraph (h)(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 (h)(6) of this section. If 

an emissions value is determined using 

the designated LCA model under 

paragraph (h)(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 § 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 

(h)(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 

(h)(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. 


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4126 Federal Register / Vol. 90, No. 9 / Wednesday, January 15, 2025 / Rules and Regulations 

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 (h)(2) of this 

section) or a facility for which an 

emissions value can be determined by 

an LCA model under paragraph (h)(6) of 

this section (consistent with paragraph 

(h)(3) of this section), or applications 

that are incomplete. Applicants must 

follow DOE’s guidance and procedures 

for requesting and obtaining an 

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 § 1.45Y–5(h)(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. 

(i) 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 § 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 

fuel sources, which may vary, or carbon 

capture and sequestration, to generate 

electricity with a greenhouse gas 

emissions rate that is not greater than 

zero, objective indicia that such 

facilities will use such fuel sources or 

operate such carbon capture equipment, 

as applicable, in a manner that results 

in 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 a reasonable expectation 

that the combination of fuel, type of 

facility, and practice will result in a 

greenhouse gas emissions rate that is not 

greater than zero. Taxpayers must attest 

under penalty of perjury that the 

anticipated greenhouse gas emissions 

rate as determined under the statute and 

these final regulations is not greater 

than zero. A facility subject to legally 

binding Federal or State permit 

conditions requiring that the facility 

operate in a manner that would be 

incompatible with a greenhouse gas 

emissions rate of not greater than zero 

is not a facility for which the 

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 for specific elements of the type of 

facility, fuel source, or practice include, 

but are not limited to: 

(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 binding written 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; 

(iv) A 10-year binding written 

contract for the permanent geological 

storage (including after injection into an 

enhanced oil and gas recovery (EOR) 

project) or utilization of qualified 

carbon dioxide from the facility for 

which the combination of fuel, type of 

facility, and capture and practice is 

reasonably expected to result in a 

greenhouse gas emissions rate that is not 

greater than zero; or 

(v) A legally binding Federal or State 

air permit which requires, as a 

condition of the permit, that the facility 

operates in a manner 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 and that any 

captured carbon dioxide is permanently 

geologically stored and subjects the 

holder to civil or criminal penalties in 

the event the relevant permit 

requirements are breached. 

(j) 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 (h)(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. 

(k) 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 § 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 

§ 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 


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Federal Register / Vol. 90, No. 9 / Wednesday, January 15, 2025 / Rules and Regulations 4127 

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 § 601.601 of this 

chapter. For such other types of 

facilities that utilize biomass feedstocks, 

the taxpayer must substantiate that the 

source of such fuels or feedstocks used 

are consistent with the taxpayer’s 

claims. For all facilities that utilize 

unmarketable feedstocks that are 

indistinguishable from marketable 

feedstocks (for instance, after 

processing), the taxpayer will be 

required to maintain documentation 

substantiating the origin and original 

form of the feedstock. 

(l) Applicability date. This section 

applies to qualified facilities placed in 

service after December 31, 2024, and 

during a taxable year ending on or after 

January 15, 2025. 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: December 31, 2024. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2025–00196 Filed 1–7–25; 4:15 pm] 

BILLING CODE 4830–01–P 


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