GCG 2023-08-11
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The Inflation Reduction Act and the Title XVII Clean Energy Financing Program Guidelines

The Inflation Reduction Act and the Title XVII Clean Energy Financing Program Guidelines

Overview of the Inflation Reduction Act

The U.S. President Joe Biden signed the Inflation Reduction Act (the “IRA”) into law on August 16, 2022. The IRA include several key measures, including raising taxes on the wealthy and large corporations, reinforcing tax regulations to increase tax revenue, and allocating funds to energy security and climate change initiatives. According to the U.S. Senate’s budget plan, the U.S. government aims to raise USD 737 billion (approx. KRW 960 trillion) in revenue by implementing a 15% corporate minimum tax and an excise tax on stock buybacks for the next decade. With these funds, USD 437 billion (approx. KRW 570 trillion) will be allocated to energy security and climate change response programs. Notably, the IRA stipulates for an investment of USD 369 billion (approx. KRW 480 trillion) to be made in energy security and climate change response programs to stabilize the U.S. energy supply chain and support the growth of the renewable energy industry.

Specifically, the IRA allocates billions of dollars in funding to strengthen energy security and support U.S. manufacturing: USD 30 billion (approx. KRW 39 trillion) in production tax credits for the onshoring of solar panels, wind turbines, batteries and critical mineral processing; USD 10 billion (approx. KRW 13 trillion) in tax credits for the construction of clean technology manufacturing facilities, such as electric vehicles, wind turbines, and solar panels, etc.; and USD 20 billion (approx. KRW 26 trillion) in loan programs for manufacturing new clean energy vehicles. As for decarbonization policies, the IRA allocates USD 30 billion (approx. KRW 39 trillion) in subsidies for loans for clean energy conversion and USD 27 billion (approx. KRW 35 billion) for deploying clean technology in local communities, and tax credits and subsidies for clean energy storage and clean energy vehicles. Regarding consumer energy, this act aims to invest in tax credits for household heat pumps, solar energy and electric HVAC, tax credits for purchasing U.S. vehicles and improving energy efficiency for low-income households.

The IRA includes tax credits to bolster government spending on climate and energy and boost the electric vehicle (“EV”) industry. In particular, the provisions for the tax credit grant subsidies only for EVs produced in the U.S., which are expected to have a significant impact on the Korean EV industry in the future. Under the IRA, only EVs manufactured in North America will be given differential tax credits based on the percentage of the country of origin of battery components and critical minerals used in such EVs.

Significance of the Title 17 Clean Energy Financing Program

The Title 17 Clean Energy Financing Program is a finance program operated by the U.S. Department of Energy (“DOE”). Established in 2005 under the Energy Policy Act of 2005, this program guarantees loans for the expansion of clean energy deployment and energy infrastructure reinvestment. The DOE can finance projects with a total of USD 6.2 billion (approx. KRW 8 trillion) through the Title 17 Clean Energy Financing Program. 

The Title 17 Clean Energy Financing Program offers loans for projects qualifying under the following four categories.

•    Innovative Energy: Projects that deploy a new or significantly improved technology that is technically proven but not commercialized in the United States;

•    Innovative Supply Chain: Projects that employ a new or significantly improved technology in the manufacturing process for a certain clean energy technology or develop a new or significantly improved technology;

•    State Energy Financing Institution (SEFI) Support: Projects that support clean energy technology development, which receive meaningful financial support from a State agency or financing authority; and

•    Energy Infrastructure Reinvestment (EIR): Projects that retool, repower, repurpose, or replace energy infrastructures that have been decommissioned, or upgrade operating energy infrastructure to avoid, reduce, utilize, or sequester air pollutants or greenhouse gas emissions.

Relation with the Inflation Reduction Act and Key Takeaways of the New Guidelines

The U.S. DOE Loan Programs Office (“LPO”) announced the new guidelines for the Title 17 Clean Energy Financing Program in June 2023. According to these guidelines, the program adds the Energy Infrastructure Reinvestment (“EIR”) program in accordance with the IRA and the Infrastructure Investment and Jobs Act (IIJA). The program also provides loan guarantees for eligible projects to up to USD 250 billion (approx. KRW 325 trillion) until September 30, 2026, leveraging a total of USD 5 billion (approx. KRW 6.5 trillion). 

Under the guidelines, the EIR refers to the reinvestment made into energy infrastructure facilities and equipment associated with (i) the generation and transmission of electric energy, or (ii) the production, processing, and delivery of fossil fuels, fuels derived from petroleum, and petrochemical feedstocks. This infrastructure encompasses power plants, fossil fuel extraction sites, electricity transmission systems, fossil fuel pipelines, refineries, or other energy facilities that are decommissioned or still in operation but can benefit from improvements in greenhouse gas emissions or pollution reduction.

In order for a project to qualify for EIR support under the new guidelines, a project must either (i) retool, repower, repurpose, or replace decommissioned energy infrastructure; or (ii) enable operating energy infrastructure to prevent, reduce, utilize, or sequester air pollutants or anthropogenic greenhouse gas emissions. In addition, for projects falling under category (i), if a project involves electricity generation using fossil fuels, the project shall equip control systems or technologies that can avoid, reduce, utilize, or sequester air pollutants and anthropogenic greenhouse gas emissions.

The most significant change from the existing Title 17 Clean Energy Financing Program is that the "innovative technology" requirement is no longer necessary. However, to qualify as a "decommissioned energy infrastructure," a project shall meet the following conditions: (i) the infrastructure supported under the new guidelines shall be adjacent to the site of the existing energy infrastructure (Proximity Requirement) – in order to demonstrate that the new infrastructure has the technology to avoid, reduce, utilize, or sequester air pollutants and greenhouse gas emissions caused by the existing infrastructure; and (ii) the infrastructure shall meet “Customer and/or Community Benefit Requirement,” to ensure that a portion of the financial benefits provided to projects through the EIR program will go back to customers or the community.

DR & AJU’s Comments

With the newly updated guidelines in the Title 17 Clean Energy Financing Program, the scope of projects that can receive funding has significantly expanded. In comparison with the previous Title 17 Clean Energy Finance Program, companies who do not satisfy the “innovative technology” requirement can still receive various benefits, including loan guarantees, through the Energy Infrastructure Reinvestment (EIR) program. Accordingly, Korean companies who are based in the United States with investments in infrastructures, such as power plants, fossil fuel extraction sites, electricity transmission systems, fossil fuel pipelines, refineries, or other energy facilities, or who have subsidiaries related to these industries, should carefully review the details of the new guidelines of this financing program. 

DR & AJU’s Washington, D.C. Liaison Office and D&A Advisory, Inc. deliver accurate and crucial information to help both domestic and export companies to effectively and promptly respond to changes in local laws and policies and establish tailored strategies to ensure compliance with applicable laws by providing comprehensive advisory on implementing internal control strategies.
DR & AJU will continue to closely monitor updates of the U.S. government policies in order to respond expeditiously through close cooperation with businesses when necessary.

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