The U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) have allocated $6 billion in tax credits for the second round of the Inflation Reduction Act’s (IRA) 48C Qualifying Advanced Energy Project Tax Credit program. These allocations will support over 140 projects across more than 30 states, focusing on clean energy manufacturing, critical materials processing, and industrial decarbonization.

The second round allocated $6 billion in tax credits to clean energy manufacturing, materials recycling, and industrial decarbonization projects. Highlights of this round include:

• Clean Energy Manufacturing and Recycling: $3.8 billion (63% of Round 2 allocations) will fund projects manufacturing energy-intensive materials at reduced carbon intensities. This includes facilities for hydrogen technologies, grid components, electric vehicle parts, batteries, solar, wind energy, and more.
• Critical Materials Recycling and Processing: $1.5 billion (25%) will be invested in facilities to process and recycle essential materials such as lithium, copper, rare earth elements, and lithium-ion batteries.
• Industrial Decarbonization: $700 million (12%) will support technologies like heat pumps, electric boilers, and thermal storage in sectors such as chemicals, food and beverage, aluminum, ceramics, and building materials. These projects are projected to eliminate 2.8 million tons of CO₂ emissions annually.

The 48C program, initially established in 2009 under the American Recovery and Reinvestment Act, was expanded under the IRA with a $10 billion investment. The program aims to expand U.S. clean energy manufacturing and recycling capabilities, boost domestic critical materials processing and refining, enhance industrial efficiency, and reduce greenhouse gas emissions.

Of the $10 billion allocated under the IRA, 40% is earmarked for projects located in designated  48C energy communities—regions economically impacted by the closure of coal mines or plants. The competitive program awards investment tax credits to infrastructure projects demonstrating exceptional potential to advance these goals.

Demand and Impact

The demand for 48C tax credits in Round 2 significantly exceeded availability, with over 800 concept papers submitted, representing $40 billion in tax credit requests. The Department of Energy (DOE) received over 350 applications by October 2024 for a cumulative $16 billion.

Rounds 1 and 2 have allocated $10 billion in tax credits to approximately 250 projects across more than 40 states, leveraging over $44 billion in infrastructure investments. The second round alone is expected to generate 30,000 construction jobs over four years, with 10,000 of these in energy communities.

To claim the 48C tax credit, selected projects must meet certification and operational milestones. Projects must notify DOE within two years of receiving their Allocation Letter that certification requirements have been met. DOE will then notify the IRS, which will issue a Certification Letter. Projects must be operational within two years of certification.

The 48C program will publicly share details about certified projects once they meet statutory requirements. Recipients can voluntarily announce their allocations earlier in collaboration with DOE.

The Treasury department and IRS recently released final rules for the clean electricity investment and production tax credits (technology-neutral credits). These rules are detailed in the tax code’s sections 45Y, which establishes a ‘clean electricity production tax credit,’ and 48E, which incentivize investments in facilities that generate clean electricity.

Treasury and IRS also released final rules and procedural guidance for the Section 48E(h) Clean Electricity Low-Income Communities Bonus Credit Amount Program. This program expands the first-of-its-kind 48(e) bonus credit, designed to lower home energy costs, spur clean energy investments in low-income communities, and benefit low-income households.