The preamble writers at Treasury and the IRS are in a bit of a quandary after the Supreme Court’s decision in Loper Bright Enterprises Inc. v. Raimondo, 144 S. Ct. 2244 (2024), which renders policy decisions — or any rules that might be characterized as such — by executive agencies potentially treacherous terrain.
The comments on the tech-neutral energy tax credits contained numerous pleas for policy-based changes to the proposed regulations (REG-119283-23) under sections 45Y and 48E. Some commentators also wielded the end of Chevron as a cudgel.
The degree of deference owed to an agency decision, even one made under an express delegation of authority, is still not entirely clear after Loper Bright, but the Court said the agency had a “degree of discretion” commensurate only with the language of the statute. The tech-neutral production tax credit in section 45Y defines the greenhouse gas emissions rate as the amount of greenhouse gas “emitted into the atmosphere by a facility in the production of electricity, expressed as grams of CO2e per KWh.”
Under section 45Y(b)(2)(C), Treasury is required to publish annually a table setting out the greenhouse gas emissions rates for types or categories of facilities. Section 48E(b)(3)(B)(ii) adopts the greenhouse gas emissions rate determined using rules similar to section 45Y(b)(2). Section 45Y(f) includes a delegation: “Not later than January 1, 2025, the Secretary shall issue guidance regarding implementation of this section, including calculation of greenhouse gas emission rates for qualified facilities and determination of clean electricity production credits under this section.”
Some facilities that have been categorized in the proposed regulations as combustion or gasification facilities contest this interpretation of section 45Y(b)(2). Commentators pointed to Loper Bright’s “best reading” language to support their positions.
At the August 13 hearing on the proposed tech-neutral energy credit regulations, James Chenoweth of Alliant Insurance Services said Loper Bright didn’t “cast us into some uncertain Skidmore wasteland, but rather simply removed a thumb that had previously been on the scale for government in interpreting statutes,” with the result that the right approach now is to apply “good old-fashioned statutory interpretation principles.”
Accordingly, Chenoweth said that “while the statute refers to the Clean Air Act’s understanding of greenhouse and life cycle gas emissions, the statute clearly limits the former, and common law will limit the latter to those understandings as of the date of” the Inflation Reduction Act. He noted that a commercially reasonable standard enforced as of the date of enactment is a workable approach and urged Treasury and the IRS to look to the Fifth Circuit’s precedent because Texas and Louisiana will have “a disproportionately large share of these projects.”
Book and Claim
Book and claim for indirect use of low-carbon fuels in a combustion and gasification facility via a pipeline has a statutory problem in the tech-neutral context that is likely exacerbated by the end of Chevron deference. The point of section 45Y(b)(2)(B) is to ensure that the combustion facility uses net-zero technology. The statute doesn’t mention or imply that market instruments can be considered in calculating the net rate of the facility’s greenhouse gas emissions.
Nevertheless, the proposed rules state that Treasury and the IRS “are considering providing rules that may permit the use of book and claim accounting 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 further indicated that energy attribute certificates might be an acceptable system for tracking the attributes associated with the production of a unit of energy.
The government asked for comments on whether and how it may be appropriate for book-and-claim systems to be used in determining greenhouse gas emissions rates. The proposal to allow taxpayers to purchase market instruments to reach net zero encountered resistance.
The Tax Law Center at NYU Law wrote that the final rules should not allow consideration of indirect use of low-carbon fuels through common carrier pipelines or other means when calculating a facility’s greenhouse gas emissions rate, on the ground that the phrase “by a facility” in section 45Y(b)(2)…
Read More: Loper Bright Puts Writers Of Tech-Neutral Energy Tax Credit Regs In A Tough Spot