Renewal of the 25C and 45L tax credits — named for their respective sections in the Internal Revenue Code of 1986 — were part of President Joe Biden’s $2 trillion Build Back Better plan, which was approved by the House of Representatives but died in the Senate late last year when Sen. Joe Manchin, D-West Virginia, said he would not vote for it. Since Democrats have only a narrow majority in the Senate and no Republican senators supported Build Back Better, every Democratic vote was needed to pass it.
But the legislation is still alive in the Congressional budget-reconciliation process that’s expected to take place later this year and, essentially, result in passage of a slimmed-down Build Back Better.
Interest groups are keeping an eye on the credits’ fate.
“They’ve been bumped to the wayside given the geopolitical state of the world, but EE tax credits have not been completely forgotten about,” said Chris Czarnecki, government relations manager at the Air Conditioning Contractors of America (ACCA).
“Every indication is that over the next two or three months we should see some movement,” said Vincent Barnes, senior vice president of policy and research at the Alliance to Save Energy (ASE).
The 25C credits are for homeowners who install HVAC equipment, water heaters, and/or doors and windows that meets defined energy efficiency standards; homeowners could also get a credit for an energy audit of their homes. Current legislation from both the House and the Senate would cap a total 25C credit at $1,200 per year, but electric heat pumps, electric heat-pump water heaters, and biomass stoves with an efficiency rating of 75% or more that are used to heat dwellings would be exempt from the cap and eligible for a credit of 30% of their cost.
The 45L credits are for builders of single- and multifamily dwellings that meet energy-efficiency standards. The legislation being considered would offer a credit of up to $5,000 for a single-family home and up to $1,000 per unit for a multifamily dwelling.
Czarnecki recently wrote letters to the House and Senate leadership to encourage passage of the credits.
“These important programs have a proven record of reducing carbon emissions, lowering demands on the power grid, promoting energy independence, and creating jobs,” Czarnecki wrote. “Moreover, they have historically received bipartisan support.”
In both the House and Senate versions, however, eligibility for the 45L credits would be subject to prevailing wage requirements, meaning a builder would have to pay workers the prevailing wage for a specific type of work, in the region where a home is built, as determined by the Department of Labor, in order to be approved for a credit for that home.
ACCA has taken a stand against that requirement; Czarnecki’s letter to Congressional leaders says it would create an “unnecessary barrier” that would discourage builders from using the credits for increasing energy efficiency.
“Attaching an onerous prevailing wage requirement would severely detract from that aim,” Czarnecki said.
Barnes is optimistic about the credits’ chances, saying that incentivizing energy efficiency will lead to lower energy costs, greater energy security, and reduced carbon emissions.
“We believe energy efficiency tax credits should be maximized to the extent possible,” he said.
The current proposals would extend both the 25C and 45L credits through 2031.