The U.S. Treasury Department’s Internal Revenue Service today released a proposed rule and FAQs on provisions of the ABC-opposed Inflation Reduction Act, which will affect the developers, contractors and workers that are building clean energy projects eligible for more than $270 billion in federal tax credits.
The Treasury’s Notice of Proposed Rulemaking, Increased Credit or Deduction Amounts for Satisfying Certain Prevailing Wage and Apprenticeship Requirements, proposes regulations clarifying the applicability of tax credits for the construction of private clean energy projects funded by the IRA––including solar, wind, hydrogen, carbon sequestration, electric vehicle charging stations and more––conditioned on compliance with controversial prevailing wage and government-registered apprenticeship requirements. Effective Jan. 30, 2023, project developers who satisfy these regulations are eligible for a 500% increase in tax credits compared to baseline tax credits offered to developers under previous regulations.
“As is typical in the federal government’s ‘ready, fire, aim’ approach to issuing regulations, the initial IRS guidance and FAQs on the IRA’s prevailing wage and apprenticeship requirements left many unanswered questions and created confusion that has needlessly stalled the groundbreaking of clean energy projects this year,” said Ben Brubeck, ABC vice president of regulatory, labor and state affairs. “This NPRM is a key step, welcomed by developers, taxpayers, contractors and subcontractors, who for months have been asking for clear and specific guidance on how these new provisions will be implemented. Developers can then decide whether the tax credits are worth the new and significant risks and penalties, and large and small-business contractors and subcontractors can decide whether to bid on and perform such work.”
“ABC is pleased the Biden administration recognized our legitimate concerns and directed the Treasury to conduct a formal rulemaking, which they should have started prior to the policy going into effect on Jan. 23, 2023,” said Brubeck. “Unfortunately, we are months away from a final rule and the industry is unlikely to receive the clarity and confidence it needs to fully leverage the tax credits to break ground on clean energy construction projects until then.
“ABC is still conducting a thorough review of the NPRM’s 129 pages, but, at first impression, the rule could benefit from additional improvements,” said Brubeck. “For example, in 2024 the IRA requires that 15% of all construction labor hours on a qualifying project must be performed by apprentices enrolled in government-registered apprenticeship programs. ABC expects that, in some markets, many apprenticeship programs in certain trades will not be able to meet industry demand and developers are counting on regulatory clarity for the proposal’s good-faith exception policy to assess the financial feasibility of the tax credits.
“In addition, the proposal appears to needlessly incentivize the use of anti-competitive and inflationary union-favoring project labor agreements by exempting developers from willful penalties for noncompliance with potentially confusing and half-baked rules,” said Brubeck. “To be clear, developers are not required to mandate the use of PLAs in order to receive enhanced tax credits.”
“ABC plans to address these concerns and other deficiencies in the NPRM in our formal comments to the IRS/Treasury by the Oct. 30 deadline,” said Brubeck. “We plan to encourage ABC members to participate in this rulemaking, connect them with more than 300 government-registered apprenticeship programs offered by ABC chapters, help them win IRA-funded construction contracts and build projects for clean energy developers safely, on time and on budget.”
“The bottom line is that this Biden administration policy and related regulatory delay and uncertainty are the result of yet another attempt by President Biden to ensure more taxpayer-funded construction contracts are won by unionized contractors and performed by union labor, even though less than 12% of the U.S. construction industry is unionized. This politically motivated policy will inflate the cost of clean energy projects, reduce competition from small businesses and artificially exacerbate the construction industry’s skilled labor shortage of more than 500,000 people in 2023,” said Brubeck. “The Biden administration’s favoritism toward unions through this misguided policy will ultimately undermine taxpayer investments made in clean energy construction projects.”
Background
ABC submitted comments on Nov. 4, 2022, to the Treasury in response to its request for comments on future initial guidance implementing these tax credits. ABC outlined concerns with the IRA’s unprecedented expansion of inflationary prevailing wage and apprenticeship requirements and the lack of clear guidance from Treasury as a result of it failing to issue regulations through a traditional notice-and-comment rulemaking.
ABC issued a Nov. 29, 2022, statement on the IRS/Treasury’s inadequate initial guidance.
Following extensive feedback from ABC and industry stakeholders on the November 2022 guidance, this summer the Biden administration announced a formal rulemaking on the matter.
ABC is encouraging members to participate in the Treasury’s 60-day comment period, which closes on Oct. 30.
Stakeholders can review ABC and government resources on the IRA tax credits for clean energy projects at abc.org/ira.
Of note, on Aug. 8, 2022, the Biden administration’s U.S. Department of Labor released an ABC-opposed final rule making radical changes to prevailing wage regulations implementing the Davis-Bacon Act. On July 31, 2023, the DOL’s Office of Apprenticeship sent a proposed rule, National Apprenticeship System Enhancements, to the White House Office of Management and Budget’s Office of Information and Regulatory Affairs for review, which is expected to be issued this fall.
It is unclear how the Treasury final rule will reflect the DOL’s significant changes to prevailing wage and apprenticeship regulations, which are likely to disrupt construction industry regulatory compliance, risk management, compensation and workforce development practices
