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Within the Inflation Reduction Act (IRA), Congress acknowledged the critical role that biogas systems play in our society by recycling organic waste into renewable energy and biofertilizer. The focus on clean energy has prompted the introduction of tax incentives aimed at bolstering the U.S. bioenergy market, thereby reducing the cost of acquiring anaerobic digesters by as much as 30-50%.
Chomp’s community-scale systems transform food waste into renewable energy or renewable natural gas, and, as a result of their size, actually qualify for a bonus incentive rate that has material reduction in cost to the owner. Learn more about our solutions.
Several of these incentives are set to expire by the end of 2024, and their extension beyond that time is uncertain, so the time to act is now. If you'd like to learn more about the incentives now available for a Chomp installation, contact us.
Investment Tax Credit (IRC § 48)
Under the Inflation Reduction Act, companies that use anaerobic digestion to convert food waste into renewable energy can receive a tax credit of up to 30% of the eligible costs (with an additional 10% bonus if in an energy community- learn more). This credit can be applied to the year the system is placed in service, providing significant savings for qualifying companies.
The eligible costs include the cost of the equipment, installation, and other related expenses. The ITC is a credit against federal income tax liability. If you do not have sufficient federal income tax liability to utilize the full amount of the credit, the unused portion can be carried forward to subsequent years. It may also be possible to sell some or all of the ITC to an unrelated person for cash or, in the case of a tax-exempt entity, receive a cash payment.
Energy Production Tax Credit ( IRC § 45)
Companies that use anaerobic digestion to produce renewable energy may also qualify for the energy production tax credit (PTC). The PTC is a per-kilowatt hour tax credit that is based on the amount of electricity produced using renewable energy sources.
Under the Inflation Reduction Act, the PTC for anaerobic digestion is up to 1.25 cents per-kilowatt hour (adjusted each year for inflation) for the first ten years of operation. This tax credit is based on the electricity produced using biogas generated from the anaerobic digestion process. The PTC can be applied to the company's tax liability or sold to a third party.
Clean Fuel Production Tax Credit (IRC § 45Z)
If you produce transportation fuel with your Anaerobic Digester System and the fuel meets certain emissions rate standards and other requirements, you may qualify for a federal income tax credit equal to up to $1.00 per gallon (or equivalent) of fuel.
To qualify for this credit, among other requirements, you must sell the fuel to an unrelated third party. This credit applies only to transportation fuel produced during the years 2025 through 2027. The amount of the credit is adjusted for inflation annually. The clean fuel production tax credit is a credit against federal income tax liability. Like the ITC, it may be possible to sell some or all of the clean fuel production tax credit to an unrelated person for cash or, in the case of a tax-exempt entity, receive a cash payment.
Accelerated Depreciation Deductions
In addition to the tax credit, companies that install anaerobic digesters can also benefit from accelerated depreciation. This accelerated depreciation allows companies to recover their investment in a shorter time period, reducing their taxable income. For example, an Anaerobic Digester System that is placed in service in 2023 may qualify for 80% bonus depreciation in addition to normal MACRS depreciation for federal income tax purposes. Future years’ bonus depreciation amounts are currently set to ramp down to zero by 2027.
Tax Incentives Encourage Organizations to Use Anaerobic Digestion to Recycle Food Waste
The Inflation Reduction Act can provide significant tax incentives for companies that use anaerobic digestion to convert food waste into renewable energy. Companies that adopt this technology can not only reduce waste and their carbon footprint but also benefit from financial incentives that can reduce their tax liability and provide additional cash flow. You can read more about available tax incentives in this document.
If you are interested in learning more about the tax incentives you may be eligible for, contact us today.
Sources: "Inflation Reduction Act Guidebook" whitehouse.gov, "Renewable Electricity Production Tax Credit Information" epa.gov, "IRS issues guidance on eligibility requirement for energy communities for the bonus credit program under the Inflation Reduction Act" irs.gov