The Inflation Reduction Act (IRA), signed into law by US President Joe Biden, represents the single largest investment in clean energy, GHG emissions reduction, and climate resilience in the country’s history by providing around US$370 billion for green energy tax credits and other incentives to spur large-scale development of solar energy technologies to electrify the US’s digitization.
The Production Tax Credit (PTC) has been reinstated for solar projects under the IRA. This allows solar projects to choose between the PTC and the Investment Tax Credit (ITC) to maximize their economics. The IRA also introduces a new “technology neutral” PTC and ITC for solar projects that generate electricity and yield zero greenhouse emissions by types of facilities that are defined as causing zero greenhouse emissions. The tax credit is expected to accelerate solar generation over the next decade with facilities placed in service after December 31, 2024, and phasing down by 2032, or when the US’s electricity sector emissions are 75% below 2022 levels.
The IRA generally allows for the transfer of solar tax credits between taxpayers, provided, for example, the tax credits are paid for in cash and provided the amount paid is neither calculated as income by the seller nor deducted by the buyer. There are limited exceptions to this ability to transfer tax credits, including in the case of, for example, certain tax-exempt transferors and government entities that can take advantage of direct pay – a refund from the Treasury for the amount of tax credit claimed.
The IRA is expected to increase solar capacity installation by 67% over 10 years, which stood at approximately 2.5% of US electricity generation in 2021 according to Wood Mackenzie. The long-life span of these tax credits are expected to improve cash flow visibility for solar projects and the development of new technologies as laid out in a series of federal reports commissioned by the Biden Administration on Mar. 9, 2022 executive order 14067: “Ensuring Responsible Development of Digital Assets,” that support responsible digital asset development, in line with the country’s climate change objectives.
The report by the Technology Policy (OSTP) examines the connections between distributed ledger technologies (DLT) and energy transitions, the potential for these technologies to impede or advance efforts to tackle climate change at home and abroad, and the impacts these technologies have on the environment. Blockchain technology has the potential to transform the solar energy sector, which has been consistently catalyzed by innovations including rooftop solar, solar electric vehicles, and smart grid metering, and the US government has a responsibility to “protect” people from pollution and climate change caused by energy intensive blockchain technologies.
The OSTP Report and a study on layout blockchain technology applications in electricity smart microgrids look at promoting techno-socio-economic innovations for the restructuring of the sustainable energy supply chain by potentially enabling distributed energy resource coordination, as well as broader supply chain management. For example, the OSTP Report points out that “DLT-supported innovation could help digitize, automate, and decentralize the operation of the electricity grid.”
“The emerging uses of blockchain technologies for energy management include enabling California’s Flex Alert system. This system enables the electricity grid operator to push out requests for energy conservation during a grid emergency, securely interact with customers, and understand participation rates while maintaining customer anonymity,” wrote the authors.
They continue, “They could also enable community-created microgrids where resources are shared peer-to-peer (P2P) within the community. DLT could be helpful in managing the P2P relationships on these microgrids. These microgrids are typically virtual grids, in which electricity is traded across the grid operator-owned network. In addition to satisfying customers’ preference to produce and consume within their community, localizing the generation and consumption of electricity could reduce grid congestion, which benefits users inside and outside of the community. P2P energy trading requires some of the same enabling technologies as crypto-assets, namely cryptography-based user authentication, a market-making mechanism and payment system via smart contracts, a tamper-resistant ledger of transactions, and complete auditability. P2P energy trading on networks could use low-energy consumption consensus mechanisms, such as Proof-of-Stake (PoS).”
Ethereum, the world’s most popular crypto platform, recently switched to a more eco-friendly processing technique called PoS which is being welcomed by US lawmakers. “The Merge” made fundamental changes to the Ethereum network such as improving sustainability and security, setting it up for scalability, and offering an attractive real yield on staking.
A new report from Crypto Carbon Ratings Institute, commissioned by ConsenSys, a New York and Ethereum based blockchain company, revealed that Ethereum’s transition from Proof of Work to PoS has reduced the electricity consumption and carbon footprint of the network by over 99.988 % and 99.992%, respectively. This is expected to “help the US meet its climate objectives of a 50% to 52% reduction in GHG emissions by 2030, a carbon pollution-free electricity system by 2035, and a net-zero emissions economy no later than 2050.”
Another low-energy blockchain platform “Rubix, backed by a $100 million investment from US-based venture firm, LDA Capital, is a global blockchain platform powered by a breakthrough green technology” that the founder and Chief Architect KC Reddy said he developed. “Rubix establishes a low carbon, high-efficiency architecture based on a Proof-of-Pledge protocol which has zero transaction fees and one of the lowest energy consumption rates among all computing networks at less than 1 kWh per transaction,” he said.
Undoubtedly there is potential for blockchain and DLT to facilitate the development of solar energy markets, distributed energy resource coordination, and general supply chain management. With the IRA the US government is supporting and facilitating innovation in blockchain technology solutions that aligns with environmental and equity objectives.
About the author
Selva Ozelli, Esq., CPA, is an international tax attorney and certified public accountant who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD. She is the author of Sustainably Investing in Digital Assets Globally (Wiley, 2022).
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