US Green Subsidy Schemes: Incentives to Invest in the USA

The United States government is actively encouraging sustainable economic development in an urgent attempt to address climate change. Through the Inflation Reduction Act, the US has pledged over $360 billion in financial incentives for companies making green investments in the USA.

It’s no secret that the financial packages are designed to lure overseas companies to set up or expand operations in the USA. Non-US businesses that bring their expertise, skills and investment to the US can then look to avail of the financial incentives while advancing America’s green agenda.

In this guide, we will explore some of the various green subsidy schemes in the USA designed to facilitate sustainable business practices and how these schemes are making the USA a key destination for foreign ‘clean and green’ companies thinking about relocating or expanding overseas.

 

What are the key green subsidy schemes USA?

One of the most effective methods any government can use to encourage sustainable development is by offering financial incentives to businesses, for example, through beneficial tax and grant initiatives. These types of government sustainable business policies are important in attracting overseas companies to invest in US-based operations that are both eco-friendly and contribute to alleviating the climate crisis, rather than focusing on profit margins alone.

There are a number of green subsidy schemes now available in the USA by way of government tax and grant initiatives for sustainable business practices. These are aimed at encouraging existing US businesses to embrace sustainable development, but also to attract ‘clean and green’ overseas companies to set up business in the States. In this way, it is hoped to transform the industrial sector when it comes to reducing emissions, where businesses of all origins and sizes should start to minimise their environmental impact.

 

The Business Energy Investment Tax Credit

The Business Energy Investment Tax Credit (ITC) is a corporate tax credit extended by the federal government in the USA for certain types of renewable and clean energy purchases and projects. The ITC works by reducing the federal income tax liability for a percentage of the relevant costs incurred during the tax year, up to the qualifying amount, in this way reducing the upfront cost of the investment. This can be broken down as follows:

• Base Credit: 6% to 30%, depending on project status and labour factors
• Domestic Content Bonus: 10% additional credit, for projects in which 100% of any iron or steel that is a component of the facility in question and 40% of the manufactured products that are facility components produced in the United States
• Energy Community Bonus: 10% additional credit, for example, where a facility is located at either a brownfield site or in a community with significant job losses within the fossil fuel economy following the closure of a coal mine or coal-fired power plant
• Low-Income Community Bonus: 10% additional credit, for projects built in either a low-income community or on Indian Land
• Low-income Residential Building or Economic Benefit Bonus: 20% additional credit, for projects associated with a low-income residential building project or a low-income economic benefit project.

Equipment qualifying for the ITC includes solar technologies or equipment used in wind power generation, such as solar panels or wind turbines. It also applies to a number of different industry sectors including commercial, industrial, utility and agricultural sectors.

The federal ITC has been amended a number of times, most recently and significantly by the Inflation Reduction Act (IRA) which was signed into law on 16 August 2022. The most notable changes under the IRA 2022 include expanding the eligible technologies, extending the expiration date, as well as providing for new bonus credits and establishing some new criteria to qualify for the full 30% tax credit, including new prevailing wage and registered apprenticeship requirements to promote strong labour standards at the same time.

The IRA has also created a brand new tax credit, the Clean Electricity Investment Tax Credit, to replace the traditional ITC for systems placed in service on or after 1 January 2025. This will be functionally similar to the ITC, but not technology-specific, applying to all generation facilities and energy storage systems with an anticipated greenhouse gas emissions rate of zero. The credit amount will be broadly calculated in the same manner, but will be phased out as the US meets its greenhouse gas emission reduction targets.

 

The Renewable Electricity Production Tax Credit (PTC)

The Renewable Electricity Production Tax Credit (PTC) is also a corporate tax credit, again extended by the US federal government. This is an inflation-adjusted per kilowatt hour (kWh) tax credit for electricity that is generated by qualified energy resources and sold by the qualifying taxpayer to an unrelated person during the course of the taxable year.

The PTC has been renewed and expanded a number of times, most recently by the IRA 2022 which established new prevailing wage and apprenticeship requirements so as to qualify for the full value of the tax credit of 2.6 cents per(kWh) for either wind, closed-loop biomass and geothermal energy; and 1.3 cents per kWh for open-loop biomass facilities, small irrigation power facilities, landfill gas facilities and trash facilities.

As with the ITC, there is also credit for different project types, as well as available bonus credits. These bonus credits include a Domestic Content Bonus of an additional 10% for projects meeting the qualifying criteria, such as components being manufactured in the USA. There is also an additional 10% Energy Community Bonus for qualifying sites.

The PTC will be phased out at the end of 2024 under the provisions of the IRA, but to be replaced with a new technology-neutral tax credit known as the Clean Energy Production Tax Credit. This new tax credit will be functionally similar to the PTC, but will not be technology-specific, where it will apply to all generation facilities in the US that have an anticipated greenhouse gas emissions rate of zero. The credit amount will be broadly calculated in the same way as for PTCs, and all technologies that satisfy the labour requirements will be eligible for the full tax credit value as adjusted for inflation. The credit will then be phased out as the US meets its’ greenhouse gas emission reduction targets.

 

Plug-in Electric Drive Vehicle Tax Credit

The Plug-in Electric Drive Vehicle Tax Credit is a personal tax credit as a financial incentive from the federal government for the purchase of a new all electric or plug-in electric hybrid vehicle. Qualifying electric vehicles can receive a total tax credit of $7,500 if certain component sourcing requirements are met. These include $3,750 for critical minerals and $3,750 for battery components. Additionally, the final assembly of vehicles must take place in a location based in North America to be eligible for this credit.

Qualifying electric vehicles can receive a tax credit of $3,750 if their batteries meet the percentages specified below for 1) critical minerals being extracted and processed in the USA or another country with which the US has a free trade agreement, or 2) for being recycled in North America:

• 2023: 40%
• 2024: 50%
• 2025: 60%
• 2026: 70%
• 2027-2032: 80%

Qualifying electric vehicles can receive an additional tax credit of $3,750, so a maximum of $7,500, for meeting the percentages specified below for battery components being manufactured and assembled in North America.

• 2023: 50%
• 2024-2025: 60%
• 2026: 70%
• 2027: 80%
• 2028: 90%
• 2028-2032: 100%

 

Energy Efficient Commercial Buildings Tax Deduction

The Energy-Efficient Commercial Buildings Tax Deduction is to incentivise owners and long-term lessees of commercial buildings, as well as designers, such as architects and engineers, to meet or exceed the energy reduction requirements for new and existing buildings. This incentive applies to various energy efficiency improvements to commercial buildings, including to interior lighting, heating, cooling, ventilation and hot water systems.

This tax deduction has been recently expanded under the IRA 2022, where the revised base rate for commercial building efficiency improvements is $0.50-$1 per square foot, depending on increase in efficiency, with a deduction over 4 year periods capped at $1 per square foot. Alternatively, taxpayers can deduct adjusted basis in “qualified retrofit plans” that reduce a building’s energy use intensity by at least 25%. This means that buildings that increase their energy efficiency by 25% or more will be able to claim this tax deduction, with bonuses for higher efficiency improvements. The bonus credit is 5 times the base amount if the project meets prevailing wage and registered apprenticeship requirements.

Unlike other incentives, this tax deduction has no fixed expiration date and will adjust annually for inflation, although the deduction comes with the same strong labour standards associated with ITCs, including the prevailing wage and apprenticeship requirements.

When it comes to the buildings sector in the USA, the IRA also includes other targeted provisions designed to improve the energy efficiency of both commercial and residential premises, helping to incentivise the production and installation of energy efficient products.

 

Business Research and Development Grants

If a business deals with research and development (R&D), it may be eligible for a federal grant. The federal government offers grants to organisations involved in research on sustainable development to incentivise them to conduct more research that meets federal R&D goals. Several federal agencies regulate and award sustainable business grants, including the United States Environmental Protection Agency (EPA).

Research grants from the EPA can cover various different areas such as climate change, ecosystems, sustainability, health, safer chemicals, air quality and water. For example, the research funding opportunities opening soon through the EPA include:

Nanotechnology: for research to develop and demonstrate nanosensor technology with functionalised catalysts that have the potential to degrade selected contaminants in addition to detecting and monitoring pollutants
Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS) pollution in agriculture: for research to better understand PFAS uptake in plants and animals to mitigate exposure in the food supply, as well as agronomic research on the management of PFAS’ impact in agricultural settings and rural communities
Resilience of Coastal Ecosystems: for research on how increasing stressors impact coastal ecological resilience, the effectiveness of management strategies on resilience and the socio-economic drivers for motivating coastal ecological protection and restoration
Sustainable Green Chemistry: research to address knowledge gaps in the cumulative impact of pollutants/contaminants, and non-chemical stressors affecting human health.

The US National Science Foundation also offers hundreds of funding opportunities, including grants, that support research and education across science and engineering, while the National Oceanic and Atmospheric Administration (NOAA) also offers a number of different high-priority climate programme grants.

 

Benefits of being clean and green in the USA?

While setting up an eco-friendly venture in the US may seem daunting, there are so many financial incentives to do so, where the savings made available by the latest ‘green subsidy schemes USA’ are not only encouraging more and more established US businesses to become ‘clean and green’, but for overseas businesses to take advantage of these offers.

Having made the initial investment in green energy options or set up a brand new eco-friendly venture in the States, businesses are also reaping additional economic benefits from doing so. The most obvious economic benefits of embracing sustainable business practices include lowering utility and fuel bills, where even simple eco-upgrades, like switching to solar energy and electric vehicles, can make a real difference in the outgoings of a business. For the business owner who invests in and uses clean energy equipment manufactured in America, the additional financial benefits can be far more significant.

However, other valuable economic benefits from being a more sustainable business include attracting climate change-conscious customers, where many US customers prefer spending their money in an establishment that stands for what they believe in. It is also worth remembering that sustainable development regulation is constantly changing, where what was a standard 10 years ago is not a standard today and may keep changing as need demands. This means that by embracing the highest level of sustainable business practices now, if and when policies change again, complying with these changes will be far easier.

Importantly, for any entrepreneurs thinking of relocating to the USA, it is best to start as sustainably as possible to avoid the challenges of making it sustainable later. The is because transitioning from one model to another is not always easy. Still, with the green subsidy schemes currently available in the USA, advantage can be taken of the benefits on offer. Given the potential economic benefits that can be derived from being in business in the US right now, any initial investment costs are likely to pay dividends in the long run.

For the latest state and federal incentives and rebates, business owners should visit the Database of State Incentives for Renewables & Efficiency website.

 

Need assistance?

NNU Immigration are specialist US immigration attorneys based in London. Our experts provide guidance and advice on US visa options to entrepreneurs, investors and business owners looking to start up, invest in or expand US-based enterprises.

For help meeting your US ambitions, contact us.

 

Green subsidies USA FAQs

What are US green subsidies?

There are various new subsidies available in the US, not least under the Inflation Reduction Act 2022, which provides billions of dollars in federal spending, by way of both green subsidies and tax credits, aimed at drastically reducing carbon emissions.

 

How much does the US subsidize green energy?

The new Inflation Reduction Act claims to direct as much as $400 billion in federal funding by way of a new green energy subsidy package in the US, offering tax breaks for the use of clean technology across industry sectors.

 

Does the US government subsidize renewable energy?

With incidents of natural disasters becoming increasingly common in the US, not to mention heat waves and high pollution levels, the United States government is heavily subsidising renewable energy across different industry sectors in an attempt to address climate change.

This article does not constitute direct legal advice and is for informational purposes only.