Democrats Seek to Cement Energy Tax Rules Before 2024 Elections

Democrats eager to protect their wins from the 2022 tax-and-climate law are seeking to ensure the Biden administration cements rules on the law’s energy tax credits in a prompt fashion and in a manner that ensures the credits can be used as envisioned.

Lawmakers in both the House and the Senate have been engaging with the Treasury Department to steer the direction of regulations regarding energy tax credits in the law, known as the Inflation Reduction Act. In some cases, Democrats say the administration’s proposed rules are going down the wrong path and adjustments are critical before the guidance is finalized for the tax credits to be used as intended.

Influencing guidance and regulations may be the best chance Democrats have this year to make their mark on the tax code, as the status of the House-passed $78 billion tax package is unclear and other tax legislation is unlikely to become law in an election year.

There’s a bit of a rush, too. Republicans and former President Donald Trump, the GOP’s likely presidential nominee, have pledged to seek repeal or rollbacks of the energy tax credits if they gain more power next year. A second Trump administration could undo the regulations, and a Republican-controlled Congress could use the Congressional Review Act to overturn federal rules issued shortly before the end of President Joe Biden’s term if he loses reelection.

“It’s a real concern,” said Mary Burke Baker, a government affairs counselor at K&L Gates who worked at the IRS and as an aide to Senate Finance Committee Democrats. “We have to expect that depending on how the election plays out, if we have a Republican in the White House, which appears likely to be the former President, he will try to persuade Congress to legislate or else use executive authority to try to rescind or scale back the statute or some of the regulations.”

A back and forth between lawmakers, Treasury, the IRS, and the Department of Energy is crucial to sorting out the complicated regulations, said Amish Shah, a partner at Holland & Knight.

“There’s a lot still to be worked out,” Shah said. “All of these sorts of discussions are helpful to getting to a place where developers and others can really build the facilities and energy facilities that we’re trying to have developed under the IRA.”

Democrats’ Comments

Sen. Joe Manchin (D-W.Va.) has been one of the most vocal on his concerns about how the administration is carrying out implementation of the electric vehicle credit. He’s taken issue with the regulations for not being stringent enough on disqualifying vehicles with battery ingredients from China, even saying he’d pursue a Congressional Review Act Resolution to reverse the rule.

Additionally, a group of nine Western and mountain state senators asked for revisions to a proposed rule on the 45X advanced manufacturing tax credit. The senators, led by Sens. Catherine Cortez Masto (D-Nev.) and John Hickenlooper (D-Colo.) called for critical mineral mining and processing activities to be eligible for the tax credits established in the 2022 tax-and-climate law.

Rep. Brad Schneider (D-Ill.) said in February he’s continuing to working with the administration on additional guidance regarding the 2022’s law sustainable aviation fuel credit. Schneider praised Treausry’s “thoughtfulness” during the rulemaking process, adding that there’s more to be done.

“It is critically important that we get this right,” Schneider said. “SAF is the only near-term mechanism for decarbonizing aviation, which is why I’m so proud of our work on the IRA SAF credit.”

Members are also increasingly submitting letters and comments on the proposed hydrogen tax credit guidance and other rules that Treasury is aiming to finalize this year. Some of those comments of have been quite critical.

For example, Sens. Sherrod Brown (D-Ohio), Tom Carper (D-Del.), and Bob Casey (D-Pa.) blasted the administration in December for its proposed regulations on the implementation of the IRA’s clean hydrogen tax credit. The senators at the time expressed concern that the guidance fails to reflect Congress’s intent with the law and would jeopardize certain projects.

Carper, in particular, has said he would find it difficult to support the final rule without changes. Natasha Dabrowski, Carper’s communications director, said in an email that the senator and his staff are continuing to discuss the issue with both Treasury and the IRS.

Democrats and Treasury may want to resolve some of these issues sooner rather than later.

The Congressional Review Act allows Congress to review, and in some cases disapprove, major rules issued by federal agencies before they take effect. The CRA’s fast-track process for disapproving of regulations can only be used within a certain time period after rules are received by Congress.

The CRA window will depend on exactly how many legislative days Congress is in session, but the clock on Inflation Reduction Act rules is likely to start sometime in the summer. The question then, is how much guidance will be finalized before then.

“Will Treasury issue final guidance that maybe reserves out certain issues that they haven’t been able to resolve yet, but just try to get as much final guidance out the door as possible before the CRA window opens, which of course we don’t know exactly when that will be?” Baker said. “I do think there is a real sense of urgency to try to finalize as much as possible as soon as possible.”