Proposed 2021 Tax Law Changes and the Hydrogen and Fuel Cell Industry

Recent Legislative History

The bipartisan Infrastructure Investment and Jobs Act that passed the Senate on August 10, 2021, looked markedly different from the ambitious climate agenda President Biden touted on the campaign trail.  It would increase spending in an effort to build out infrastructure needed for a low-carbon economy — such as a network of electric vehicle charging stations and expanding clean transit options.  However, key provisions in President Biden’s campaign platform and the American Jobs Plan, including investments to spur clean energy development, were all noticeably absent from the deal that emerged from bipartisan negotiations.  While the bipartisan infrastructure package is the Biden administration’s first step to address climate and clean energy goals, advocates are looking ahead to an upcoming $3.5 trillion budget reconciliation package.


On August 10, 2021, Senate Democrats took their first step toward passing a $3.5 trillion reconciliation bill as the party forged ahead with a massive economic agenda.  The measure directs committees to craft a bill that would spend up to $3.5 trillion on, among other things, climate initiatives, expanding green energy and curbing climate change through business tax incentives, consumer rebates and polluter fees.  Reconciliation is a process by which spending and tax legislation can be passed in the Senate with a simple majority. For a reconciliation bill to be considered, both houses of Congress must first adopt a budget resolution that includes reconciliation instructions providing specific budget allocations to certain committees.

On August 24, 2021, the House passed the fiscal year 2022 budget resolution with instructions to draft a $3.5 trillion infrastructure reconciliation. The House also agreed to schedule a Sept. 27 vote on the bipartisan infrastructure bill, now titled the Infrastructure Investment and Jobs Act (IIJA), H.R. 3684, passed Aug. 10 in the Senate.

The IIJA includes many of the “human” infrastructure proposals Democrats and the Biden administration have expressed support for this year as part of the Build Back Better Plan, including a set of community development and clean energy tax incentives.

Legislative Foundation

With the passage of the fiscal year (FY) 2022 budget resolution Aug. 24, Congress is turning to drafting $3.5 trillion infrastructure legislation. A significant portion of the funding will be devoted to renewable and clean energy tax incentives and when drafting the bill, Congress will likely draw inspiration from two major pieces of federal energy tax legislation:

  • S. 1298, the Clean Energy for America Act (CEAA), and
  • R. 848, the Growing Renewable Energy and Efficiency Now Act of 2021 (GREEN Act).

Tax rates on C corporations are likely to increase from 21% to somewhere between 25% and 28%.  Both the CEAA and GREEN Act overlap with the administration’s infrastructure priorities as included in the American Jobs Plan and the Treasury FY 2022 Greenbook of tax proposals.[1]

Clean Energy for America Act

The CEAA would provide an ITC of 30% of qualified facility basis, with an additional 10% available for facilities in disadvantaged communities. Any zero admissions facility would be eligible. Grid improvements, microgrids and stand-alone storage facilities would be eligible property. Phase out of the credit would begin when U.S. greenhouse gas emissions are 75% less than the levels in 2021.

Growing Renewable Energy and Efficiency Now Act

The GREEN Act would extend the 30% ITC for qualifying technologies, such as solar, that begin construction before 2026.  For the ITC, credits for solar and geothermal, and other eligible property would return to 30% for facilities beginning construction between Jan. 1, 2021 and Dec. 31, 2025, with step-downs to 26% during 2026, 22% during 2027, and 10% thereafter.  There has been some discussion that the ITC will be increased to 30%  retroactive to Jan 1, 2020,  however, that is purely speculative at this point.  Additionally, the bill would add stand-alone energy storage, linear generators, and biogas facilities as ITC eligible property. To be eligible for more than 10% credit, these properties would need to be placed in service before Jan. 1, 2031.

Direct Pay Option

The two bills diverge regarding a direct pay option.

In CEAA, taxpayers may elect for a refundable credit equal to the credit amount. The election must be made prior to date construction of the facility begins; this will apply to facilities placed in service after Dec. 31, 2022.

Under the GREEN Act taxpayers could elect to create a refundable credit equal to 85% of the ITC. The option would be applicable to any properties placed in service after the bill is enacted. Taxpayers could opt for all or a portion of credits.

Potential Impact on Lease Financing Renewable Energy Equipment

  • Increase in Federal corporate marginal income tax rate would:
    • increase the amount of tax base available for investment in lease transactions which generate investment tax credits. This will expand the availability of tax equity and should, at the margin, result in slightly more favorable terms and condition for lessee/users of renewable energy equipment.
    • marginally increase the benefit of depreciation (in this case expensing) as the deduction will result in a larger tax shelter.  This should result in slighly lower lease financing rates all things being equal.
  • Direct pay, if implemented, would reduce the incentive for non-taxable users of renewable energy equipment (who are unable to use the investment tax credit to offset taxable income) to enter into leases with tax equity that can monetize the tax benefits for them—if that is the sole motivating factor.
  • However, if financing is also required, then a lessor could pass the investment tax credit to the user/lessee which could make an application for direct pay and the lease structure would just provide conventional true lease financing with the expensing, i.e., depreciation, being the only tax benefit retained by the lessor.
  • Lease rates would again decline to near 2019 levels as the investment tax credit would revert to 30%–the level that it was until January 1, 2020, when it decreased to 26%.

In summary, the proposed legislation would result in reduced all-in cost of financing renewable energy equipment as well as greatly expanding the ability of both users and  lessors of renewable energy equipment to use the available tax credits intended by Congress to act as a catalyst in the decarbonization of the U.S. economy.

Timing (As of 9 Sep 2021)

The House Ways and Means Committee may begin its markup of the reconciliation package as early as today.  As the Senate and House have now both passed identical FY2022 budget resolutions, Congress may now proceed to drafting, marking up and enacting legislation using the budget reconciliation procedures.  While most tax changes have been proposed to take effect in 2022, it is possible that an increased capital gains rate would take effect based on a specified date in 2021.

The budget resolution contains a September 15, 2021 deadline for the House and Senate committees to complete their work. However, this deadline is not binding and Congress can, and historically has, continued to work on and move legislation using the reconciliation process well beyond prescribed dates provided in the budget resolutions.  While the plan is for the House to vote on the reconciliation package by the end of September, that date could conceivably be pushed back given the size and complexity of the measure.



About Fairfield Capital

Fairfield Capital stands on decades of financing experience with major commercial and investment banks, private equipment funds, and commercial finance and leasing companies.

We help public and private companies navigate the complexities involved in the accounting and tax considerations associated with the lease financing of renewable energy equipment.


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