President Biden To Sign New Inflation Reduction Act

President Biden will soon sign into law the Inflation Reduction Act (IRA), which provides $750 billion in funding and major federal policy changes impacting the U.S. energy, environment, healthcare and tax sectors. On August 7, 2022, the IRA passed the U.S. Senate by an all-Democrat 50-50 party line vote, with Vice President Harris breaking the tie and ensuring passage. On August 12, 2022, the IRA passed the U.S. House by a vote of 220 to 207. The President's signature, will make the bill law, and allow President Biden, U.S. Senate Majority Leader Chuck Schumer (D-NY), and U.S. House Speaker Nancy Pelosi (D-CA) to claim a major victory while making progress on a portion of the President's Build Back Better agenda just three months before the mid-term elections on November 8, 2022.

The Crowell and Moring LLP and Crowell & Moring International (CMI) teams have put together this Client Alert with two main purposes. The first is to provide a summary of the highlights of the bill, which is included in Section I, and the second is to provide a more detailed section-by-section review of the bill, which is provided in Section II.

I. Summary of the Highlights of the Inflation Reduction Act

The Inflation Reduction Act, or IRA, is the product of approximately two years of attempts by President Biden to pass a major piece of his Build Back Better (BBB) agenda at a total cost of several trillion dollars. The Congressional Democrats wanted to use the budget reconciliation process, which requires only a simple majority, or 50 U.S. Senate votes with the vote of the Vice President, and thus could be passed by all Democratic votes in the U.S. Senate, to pass major components of the BBB agenda including those pertaining to energy, environment, healthcare and tax. The plan stalled in 2021 when Senators Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) would not agree to the broader bill proposed by President Biden and Senate Majority Leader Chuck Schumer (D-NY). But, over time, Senators Schumer and Manchin were able to negotiate and agree upon the legislative framework that soon after developed into the Inflation Reduction Act.

The Inflation Reduction Act is expected to raise $739 billion in revenue to pay for, among other things, $369 billion in investments in energy security and climate change and an additional $64 billion to extend premium subsidies for the Affordable Care Act (ACA) enrollees. The bill generates revenue by imposing a 15 percent alternative minimum tax on certain corporations with income in excess of $1 billion, bolstering Internal Revenue Service (IRS) enforcement, and requiring pharmaceutical drug manufacturers to negotiate prices with the Federal government. The bill also authorizes major policy changes with regard to energy, environment, healthcare and tax issues.

The bill’s healthcare titles will result in significant changes for the sector. For the first time ever, the bill provides authority to the U.S. Secretary of Health and Human Services to negotiate directly with pharmaceutical manufacturers on the price of prescription drugs sold to the Medicare program. In addition to drug price negotiation, the bill’s healthcare provisions include an annual cap of $2,000 for Medicare Part D beneficiary out-of-pocket spending, the extension of premium subsidies for ACA enrollees, a rebate program for Medicare prescription drugs with price increases in excess of inflation rates, and targeted measures to cap the costs to Medicare beneficiaries of insulin products. The main Medicare prescription drug negotiation provisions do not truly get implemented until 2025-2026. Furthermore, the bill requires federal agencies to initiate and complete new rulemaking and there is likely to be a court challenge to these provisions. The results of the Presidential and Congressional elections in 2024 could also affect how and whether these new provisions get fully implemented. But absent a major change between now and 2025, there are going to be significant changes with regard to drug pricing, ACA coverage and the Medicare program which will affect millions of Americans and most of the healthcare industry.

The bill also includes major provisions that will impact energy and environmental policy with a particular focus on addressing climate change. They include the creation of new clean energy tax credits, funding for agricultural production incentives, residential and commercial construction and retrofitting programs, and fees on methane for the oil and gas industry among others. The solar, wind, and electric vehicle industries are expected to be spurred by the new tax provisions and incentives with the U.S. Congress focused on a carrot rather than stick approach to spur the clean energy revolution. The ultimate goal of these provisions is a 50 percent reduction in greenhouse gases by 2030 with a further eye on the goal of net zero emissions by 2050.

Finally, the bill includes a number of tax reform provisions to help pay for the health care, energy, and environmental titles. The bill imposes a new 15 percent alternative minimum tax (AMT) on corporations with average adjusted financial statement income in excess of $1 billion effective for taxable years ending after December 31, 2022. The bill imposes a new excise tax on the repurchase of corporate stock by certain publicly traded corporations occurring after December 31, 2022 with limited exceptions. The bill provides more than $80 billion in new funding to the IRS including more than $3 billion for taxpayer services, more than $45 billion for enforcement activities, more than $25 billion for operations support, and more than $4 billion for maintaining and modernizing the IRS’s business systems. This funding is in addition to the funding already in place for the IRS.

II. Section by Section Summary of the Inflation Reduction Act

The following summary provides of section-by-section analysis of the legislation. The individual groups at Crowell & Moring will be providing more guidance within their relevant sectors over the coming weeks. In the meantime, please reach out to our tax, healthcare, energy and environment colleagues identified with any inquiries below:

Title I – Committee on Finance

Subtitle A – Deficit Reduction

Part 1—Corporate Tax Reform

Sec. 10101—Corporate Alternative Minimum Tax: This section imposes a new 15-percent alternative minimum tax (“AMT”) on corporations (other than S corporations, regulated investment companies, and real estate investment trusts) with average annual adjusted financial statement income in excess of $1 billion effective for taxable years ending after December 31, 2022. Special rules apply for foreign-parented multinational groups and foreign corporations engaged in a U.S. trade or business. A corporation’s tentative minimum tax is equal to 15 percent of the corporation’s adjusted financial statement income minus the corporation’s AMT foreign tax credit. An AMT liability generally arises where the tentative minimum tax exceeds the sum of the corporation’s regular tax liability plus the corporation’s base erosion and anti-abuse tax (“BEAT”) imposed under Section 59A. Applicable financial statement income is generally the net income reported on a corporation’s “applicable financial statement,” subject to various adjustments, such as to account for differences in tax and financial statement consolidation, to adjust for differences between tax and financial statement depreciation, and to allow for financial statement loss carryovers incurred for taxable years ending after December 31, 2019 up to 80 percent of adjusted financial statement income.

Part 2—Excise Tax on the Repurchase of Corporate Stock

Sec. 10201—Excise Tax on Repurchase of Corporate Stock: This section imposes a non-deductible 1-percent excise tax on the fair market value of the stock repurchases (commonly referred to as “stock buybacks”) by certain publicly traded domestic corporations occurring after December 31, 2022. Fair market value of the stock repurchases subject to the excise tax may be reduced by the fair market value of any stock issuances during the relevant taxable year, including stock issued to employees of the corporation or employees of certain affiliates, whether or not issued in connection with the exercise of an option. Special rules apply for stock repurchases by affiliates of domestic corporations subject to the excise tax, and for stock repurchases by certain publicly traded foreign corporations and their affiliates. Exceptions may apply, including for stock repurchases: occurring in connection with certain non-taxable corporate reorganizations; by regulated investment companies and real estate investment trusts; not exceeding $1 million in aggregate during the taxable year; and to the extent treated as a dividend. 

Part 3—Funding the Internal Revenue Service and Improving Taxpayer Compliance

Sec. 10301—Enhancement of Internal Revenue Service Resources: This section provides $80 billion in funding to the Internal Revenue Service (“IRS”), including more than $3 billion for taxpayer services, more than $45 billion for enforcement activities, more than $25 billion for operations support, and more than $4 billion for maintaining and modernizing the IRS’s business systems. This funding is in addition to the funding already in place for the IRS. The funding is in place for ten years, giving the IRS room to plan its programs for enhanced enforcement, operations support enhancements, and modernizing its business systems.

Subtitle B – Prescription Drug Pricing Reform

Part 1—Lowering Prices Through Drug Price Negotiation

Sec. 11001—Providing for Lower Prices for Certain High-Priced Single Source Drugs:This section amends the Social Security Act to allow the Secretary of Health and Human Services to establish a Drug Price Negotiation Program (“The Program”) and directs the Secretary to (1) publish a list of selected drugs, (2) enter into agreements with manufacturers of the selected drugs, (3) negotiate and renegotiate, if needed, maximum fair prices for the selected drugs, and (4) monitor compliance. The bill tasks the Secretary with selecting up to 10 eligible Medicare Part D drugs for price negotiation for 2026, the initial price applicability year. For 2027, the Secretary must select up to 15 Part D drugs and for 2028, the Secretary must select up to 15 Part B or Part D drugs. For 2029 and all subsequent years, the Secretary must select 20 Part B or Part D drugs. The Secretary is required to publish the list of eligible drugs by September 1, 2023. The list of eligible drugs will include the 50 Part B and 50 Part D drugs responsible for the highest program expenditures. The bill carves out exceptions for certain small biotech drugs and orphan drugs. The bill requires the Secretary to enter into agreements with the manufacturers of the selected drugs to determine a maximum fair price for the drug and indicates that negotiated agreements will remain in effect until the Secretary removes the drug as a selection. The Secretary is required to publish the maximum fair price, capped based on how long the drug has been available on the market, for the selected drugs by November 30 each year. Manufacturers of selected drugs in violation of offering the maximum fair price will be subject to civil monetary penalties equal to ten times the amount of the product dispensed or administered during that year and the difference between the price made available and the negotiated price.

Sec. 11002—Special Rule to Delay Selection and Negotiation of Biologics for Biosimilar Market Entry: This section amends the Social Security Act to allow the Secretary of Health and Human Services to exclude certain biologic or biosimilar drugs from its selection for negotiation if the Secretary determines that there is a high likelihood that the product will face biosimilar competition within two years after the selected drug publication date. The bill requires that the manufacturer of the product request for delay of applicability and provide information and documentation necessary for the Secretary to make the determination. The determination will account for whether a biosimilar application has been submitted for review or approval by the Food and Drug Administration and whether or not the requesting manufacturer presents “clear and convincing evidence” that a biosimilar will come to market within the defined period.

Sec. 11003—Excise Tax Imposed on Drug Manufacturers During Noncompliance Periods: This section amends Subtitle D of the Internal Revenue Code of 1986 to impose an excise tax on the sale of drugs selected by the Secretary during periods of noncompliance. The graduated excise tax during the first 90 days is 65 percent, for the 91^st through the 180^th day – 75 percent, for the 181^st through the 270^th day – 85 percent, and 95 percent thereafter.

Sec. 11004—Funding: Appropriates $3 billion to the Centers for Medicare and Medicaid Services from a balance of funds unused in the 2022 fiscal year.

Part 2—Prescription Drug Inflation Rebates

Sec. 11101—Medicare Part B Rebate by Manufacturers: This section amends the Social Security Act to require that manufacturers for single source and biologic drugs in the Medicare Part B program pay rebates when prices increase faster than inflation. Starting in 2023, the bill requires the Secretary of Health and Human Services to report to those manufacturers the total number of units subject to the rebate, the amount of the excess average sales price increase, and the rebate amount. The bill provides the Secretary discretion to delay the timeframe for reporting for 2023 and 2024. The bill likewise offers the Secretary discretion to impose civil monetary penalties of at least 125 percent of the applicable rebate on manufacturers that fail to comply with the rebate requirements. The bill appropriates $80 million to the Centers for Medicare and Medicaid Services for fiscal year 2022 and $7.5 million for fiscal years 2023 through 2031 to implement the rebate program.

Sec. 11102—Medicare Part D Rebate by Manufacturers: This section amends the Social Security Act to require that manufacturers for selected drugs in the Medicare Part D program pay rebates when prices increase faster than inflation. Starting in 2023, the bill requires the Secretary of Health and Human Services to report to those manufacturers the information needed to determine the rebate amount and the manufacturer is then required to provide the rebate within 30 days of receiving the Secretary’s report. The bill provides the Secretary discretion to delay the timeframe for reporting the information and the rebate amount through a transition period that will last until 2025. Implementation of the rebate program, however, is not left up to the discretion of the Secretary. Manufacturers that are found to be noncompliant are subject to civil monetary penalties equal to 125 percent of the rebate amount.

Part 3—Part D Improvements and Maximum Out-of-Pocket Cap for Medicare Beneficiaries

Sec. 11201—Medicare Part D Benefit Redesign: This section amends the Social Security act to adjust the out-of-pocket threshold, establishing an annual cap of $2,000 beginning in 2025 to be increased in subsequent years. Establishes reimbursements for individuals through insurance, group health plans, or other third-party payment arrangements, not including coverage provided by a prescription drug plan or an MA-PD plan or any payments by a manufacturer under the manufacturer discount program. The bill also establishes a 20 percent reinsurance of the gross covered prescription drug costs for applicable part D drugs for 2025 and after. Establishes a 40 percent reinsurance of the gross prescription drug costs for non-applicable part D drugs for 2025 and after. Defines allowable reinsurance costs as including the portion of the negotiated price of an applicable drug that was paid by a manufacturer under the manufacturer discount program. It also directs the Secretary to establish and administer a manufacturer discount program to last no less than 12 months, and to be automatically renewed unless terminated, in which the manufacturer is required to provide discounted prices dispensed to applicable beneficiaries on or after January 1, 2025. The bill establishes that this program will not affect coinsurance or copayment described. It also establishes a formula for determining drug cap in subsequent years, including monitoring compliance and data collection from prescription drug plans and MA-PD plans. And establishes a penalty for manufacturers that fail to provide discounted prices for applicable drugs as the sum of the amount the manufacturer would have paid under the agreement or 25 percent of such amount. The bill clarifies that nothing in this section would prevent an applicable beneficiary from purchasing a covered part D drug that is not an applicable drug. The program will not apply with respect to applicable drugs dispensed on or after January 1, 2025. This section also directs the Secretary to provide a subsidy to a PDP sponsor or the MA organization equal to 10 percent of the negotiated price of a drug and establishes a formula for computing the base beneficiary premium for a prescription drug plan for a month in 2024 through 2029. To carry out the provisions of this section, the bill appropriates $341,000,000 for fiscal year 2022, including $20,000,000 and $65,000,000 and $32,000,000 to carry out the provisions of this section in each of fiscal years 2024 through 2031.

Sec. 11202—Maximum Monthly Cap on Cost-Sharing Payments under Prescription Drug Plans and MA-PD Plans: This section amends the Social Security Act to establish a maximum monthly cap on cost-sharing payments on or after January 1, 2025. It directs PDP sponsors and MA organizations to provide the option to pay in monthly installments and appropriates $10 million to the Centers for Medicare and Medicaid Services.

Part 4—Continued Delay of Implementation of Prescription Drug Rebate Rule

Sec. 11301—Extension of Moratorium on Implementation of Rule Relating to Eliminating the Anti-Kickback Statute Safe Harbor Protection for Prescription Drug Rebates: This section prohibits the Secretary of Health and Human Services from administering, implementing, or enforcing the final rule published on November 30, 2020 entitled “Fraud and Abuse; Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees” until January 1, 2032.

Part 5—Miscellaneous

Sec. 11401—Coverage of Adult Vaccines Recommended by the Advisory Committee on Immunization Practices Under Medicare Part D: This section ensures treatment of cost-sharing and deductible is consistent with treatment of vaccines under Medicare Part B. For plans beginning on or after January 1, 2023, the bill eliminates deductibles, coinsurance, and cost-sharing for a vaccine recommended by the Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices for Medicare Part D beneficiaries and authorizes a temporary retrospective subsidy for reduction in cost-sharing and deductible for low-income communities.

Sec. 11402—Payment for Biosimilar Biological Products During Initial Period: This section amends the Social Security Act to establish an amount payable to for biosimilar products furnished on or after July 1, 2024, as the lesser of the following: (a) The amount determined under clause (ii) of such subparagraph for the biosimilar biological product, or (b) The amount determined under subsection (b)(1)(B) for the reference biological product.

Sec. 11403—Temporary Increase in Medicare Part B Payment for Certain Biosimilar Biological Products: This section amends the Social Security Act to establish a temporary payment increase for qualifying biosimilar biological products furnished in the period from 2022 through 2027 from 6 percent of the reference product average sales price to 8 percent.

Sec. 11404—Expanding Eligibility for Low-Income Subsidies Under Part D of the Medicare Program: This section amends the Social Security Act to increase the threshold for subsidies for low-income individuals from below 135 percent the federal poverty line to below 150 percent.

Sec. 11405—Improving Access to Adult Vaccines under Medicare and CHIP: This section requires Medicaid to cover adult vaccinations and eliminates some cost sharing for vaccinations and increases Federal medical assistance percentage by 1 percentage point. The bill also requires CHIP to include vaccination coverage for individuals 19 years of age or older and eliminates cost sharing.

Sec. 11406—Appropriate Cost-Sharing for Covered Insulin Products under Medicare Part D: This section amends the Social Security Act to remove application of deductibles for any covered insulin products. For plan years 2023 and 2024, the bill establishes coverage benefits for any covered part D insulin product with cost-sharing for a month’s supply not to exceed the applicable copayment amount, regardless of whether the individual has reached the initial coverage limit or the out-of-pocket threshold. For plan years on or after January 1, 2025, the bill establishes coverage benefits before an individual reaches the out-of-pocket threshold for any covered insulin product with cost-sharing for a month’s supply not to exceed the applicable copayment amount. The bill appropriates $1.5 million for the Centers for Medicare and Medicaid services to carry out the provisions of this section.

Sec. 11407—Limitation on Monthly Coinsurance and Adjustments to Supplier Payment under Medicare Part B for Insulin Furnished through Durable Medical Equipment: This section amends the Social Security Act to waive deductibles with respect to insulin furnished on or after July 1, 2023. It also establishes the amount paid as 80 percent of the payment amount for insulin furnished through an item of durable medical equipment and establishes a $35 monthly cap on insulin coinsurance.

Sec. 11408—Safe Harbor for Absence of Deductible for Insulin: This section establishes that failing to have a deductible for selected insulin products still qualifies as a high deductible health plan.

Sec. 12001—Improve Affordability and Reduce Premium Costs of Health Insurance for Consumers: This section extends through 2025 the Affordable Care Act to allow credits to taxpayers whose household income exceeds 400 percent of the poverty line.

Subtitle C – ACA Subsidies

Sec. 12001—Improve Affordability and Reduce Premium Costs of Health Insurance for Consumers: This section amends the Internal Revenue Code of 1986 to extend enhanced premium tax credits offered through the Affordable Care Act to the end of 2025.

Subtitle D – Energy Security

Part 1— Clean Electricity and Reducing Carbon Emissions

Sec. 13101—Extension and Modification of Credit for Electricity Produced from Certain Renewable Resources: This section extends the Internal Revenue Code Section 45 production tax credit (“PTC”) for facilities that begin construction before January 1, 2025, including for solar energy facilities for which the PTC previously sunset in 2006. The PTC provides a tax credit for each kilowatt of electricity produced from qualifying facilities and sold to an unrelated party. The credit rate is 0.5 cents per kilowatt hour, and can increase to 2.5 cents per kilowatt hour if certain wage and apprenticeship requirements are met. For wind facilities, the current credit reduction and phaseout is eliminated for facilities placed in service after December 31, 2021, and these facilities are eligible to receive the full value of the tax credits. The applicable credit rate may be increased by 10 percent if the facility meets certain domestic content requirements, and by a further 10 percent for any facility placed in service in an energy community. An “energy community” is generally defined as a brownfield site, an area with employment significantly related to the fossil fuel industry, or a census tract (or an immediately adjacent census tract) in which a coal mine has closed or a coal-fired electric generating unit has been retired. For facilities that do not meet the domestic content requirements, the amount of the credit that is eligible for a direct pay election under new IRC Section 6417 (added by section 13801 of Title I, Subtitle D of the [Inflation Reduction Act]) is reduced.

Sec. 13102—Extension and Modification of Energy Credit: This section extends the Internal Revenue Code Section 48 energy investment tax credit (“ITC”) for property for which construction begins, in most cases, before January 1, 2025. The ITC generally allows taxpayers to claim a tax credit for the cost of energy property. Depending on the type of energy property, the credit rate is 2 or 6 percent of the basis of energy property. The credit rate may be increased by 10 or 30 percent of the basis of energy property if certain wage and apprenticeship requirements are met. Special rules apply geothermal property that begins construction before January 1, 2035 and for microturbine property for property that begins construction before January 1, 2025. The ITC is also expanded to include energy storage technology, biogas property, microgrid controllers, dynamic glass, and linear generators. These technologies are eligible for the 6 percent credit rate and additional 30 percent increase for property that begins construction before January 1, 2025.

The credit rate may be increased by 2 percentage points (or 10 percentage points if the taxpayer meets certain wage and apprenticeship requirements) for energy property placed into service after December 31, 2022, if such property meets certain domestic content requirements. For facilities that do not meet the domestic content requirements, the amount of the credit that is eligible for direct pay is reduced (similar to under the PTC discussed above). For energy property that is placed in service within an energy community, the credit percentage is increased by 2 percentage points (or 10 percentage points if the taxpayer meets certain wage and apprenticeship requirements). As under the PTC (discussed above), an “energy community” is generally defined as a brownfield site, an area with employment significantly related to the fossil fuel industry, or a census tract (or an immediately adjacent census tract) in which a coal mine has closed or a coal-fired electric generating unit has been retired.

Sec. 13103—Increase in Energy Credit for Solar and Wind Facilities Placed in Service in Connection with Low-Income Communities: This section increases the Internal Revenue Code Section 48 Energy Credit rate by 10 percentage points to 20 percentage points for certain qualified solar or wind facilities for which the IRS makes an allocation of “environmental justice solar and wind capacity.” The IRS may make allocations for calendar years 2023 and 2024. The facility must be located in a low-income community or on Indian land, or be part of a qualified low-income residential building project or a qualified low-income economic benefit project. 

Sec. 13104—Extension and Modification of Credit for Carbon Oxide Sequestration: This section extends and expands the Internal Revenue Code Section 45Q credit for carbon capture and sequestration (the “45Q Credit”) for industrial or direct air capture facilities that begin construction before January 1, 2033. The annual carbon oxide capture requirements are reduced to at least 1,000 metric tons of carbon oxide per taxable year for direct air capture facilities, at least 18,750 metric tons of carbon oxide for electricity generating facilities, and at least 12,500 metric tons of carbon oxide per taxable year for all other facilities. With respect to electricity generating facilities, the carbon capture equipment for the applicable electric generating unit within such facility is required to have a capture design capacity of at least 75% of the baseline carbon oxide production of such electric generating unit. 

The amount of the credit depends on the type of facility at which the qualified carbon oxide is captured. For carbon oxide captured at a direct air capture facility placed in service after December 31, 2022, the credit rate is (i) $36 per metric ton of carbon oxide captured and disposed of in secure geological storage, and (ii) $26 per metric ton of carbon oxide captured and used as a tertiary injectant in an enhanced oil or natural gas recovery project or otherwise utilized. For carbon oxide captured at a qualified facility other than a direct air capture facility, the credit rate is (i) $17 per metric ton of carbon oxide captured and disposed of in secure geological storage, and (ii) $12 per metric ton of carbon oxide captured and used as a tertiary injectant in an enhanced oil or natural gas recovery project or otherwise utilized. The amount of the credit, in each case, is increased five times per metric ton if certain wage and apprenticeship requirements are met.

Sec. 13105—Zero-Emission Nuclear Power Production Credit: This section provides a new credit for electricity produced by a qualified nuclear power facility. A qualified nuclear power facility is one that is owned by the taxpayer, is not an advanced nuclear power facility under IRC Section 45J, and was placed in service before the date of enactment of the [Inflation Reduction Act]. The credit amount generally is 0.3 cents per kilowatt hour of electricity produced, subject to a “reduction amount” based on the price of electricity. The credit amount may increase to 1.5 cents per kilowatt hour of electricity produced if certain prevailing wage requirements are met. The credit applies to electricity produced and sold after December 31, 2023, in taxable years beginning after such date. The credit does not apply to taxable years beginning after December 31, 2032. 

Part 2 – Clean Fuels

Sec. 13201—Extension of Incentives for Biodiesel, Renewable Diesel and Alternative Fuels: This section extends the biodiesel mixture credit, the alternative fuel credit, the alternative fuel mixture credit and the payments for alternative fuels covered in Internal Revenue Code Section 6426 through December 31, 2024.

Sec. 13202—Extension of Second General Biofuel Incentives: This section extends the second-generation biofuel producer credit available under Section 40 through December 31, 2024.

Sec. 13203—Sustainable Aviation Fuel Credit: This section introduces a new tax credit for sustainable aviation fuels sold or used between January 1, 2022 and until December 31, 2024. The credit applies to sustainable aviation fuels certified as having reduced lifecycle greenhouse gas emissions by 50 percent as compared to petroleum-based aviation fuel. The base credit is $1.25 per gallon of fuel, and a supplemental credit of $0.01 applies for each percentage reduction of the lifecycle greenhouse gas emissions below 50 percent. . The new credit is codified at Section 40B of the Internal Revenue Code.

Sec. 13204—Clean Hydrogen: This section introduces a new production tax credit to incentivize clean hydrogen production in the United States by adding a new Internal Revenue Code Section 45V. Together with the monetary incentives introduced in the Infrastructure Development and Jobs Act of 2021 this is a welcome development for sponsors of the highly costly hydrogen projects.

The new credit will apply to hydrogen produced after December 31, 2022. To be clean hydrogen, the lifecycle greenhouse gas emissions rate may not exceed 4 kilograms of carbon dioxide equivalent per kilogram of hydrogen produced. The credit increases as the clean h