Unlocking Clean Energy Projects Using Tax Chaining: A Primer
Abstract
Chaining is an emerging concept that marries two highly consequential provisions of the tax code established by the passage of the 2022 Inflation Reduction Act (IRA): Transferability of tax credits and direct (also known as elective) pay to nonprofit or public entities in lieu of tax credits.
Chaining links transferability and direct pay together by allowing those who earn a tax credit to sell the credit not to an entity with tax liability, but instead to an entity that can convert the tax credit into a cash payment.
This policy brief provides a high-level overview of chaining, describes its necessity to raising the capital needed to meet climate goals and other benefits intended by the IRA, outlines specific examples of how chaining would work in practice, provides recommendations for addressing potential abuses, and delves into the additional benefits related to enabling local communities’ access to clean technology and affordable low-carbon energy resources to the extent the IRA intended.
Besides unlocking additional capital, chaining could reduce the cost of capital, ease cash flow, and allow for different parties to share risk. The US Department of the Treasury is actively accepting comments on chaining until December 1, 2024. Through those comments, Treasury is seeking to ascertain, in part, how much more capital chaining can enable and how chaining would be executed.
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Britt, Clinton, Eric Fins, Tatjana Vujic and Timothy Profeta (2024). Unlocking Clean Energy Projects Using Tax Chaining: A Primer. Retrieved from https://hdl.handle.net/10161/31681.
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Timothy H Profeta
Tim Profeta is a senior fellow at Duke University’s Nicholas Institute for Energy, Environment & Sustainability and associate professor of the practice at Duke’s Sanford School of Public Policy.
In 2023, Profeta returned to Duke from two years of service at the U.S. Environmental Protection Agency, where he served as the special counsel for the power sector and a senior advisor. At the Agency, Profeta had a lead role in the development of the regulatory strategy affecting the power sector, including the recent proposed greenhouse gas regulations, served as a liaison between the Agency and other federal departments and agencies regarding power sector policies, and took an instrumental role in the design of several Agency programs that were authorized in the 2022 Inflation Reduction Act.
Prior to leaving for EPA, Profeta was the founding director of the Nicholas Institute for Environmental Policy Solutions, which merged with the Duke University Energy Initiative in 2021 to create the Nicholas Institute for Energy, Environment & Sustainability. Since its creation in 2005, the Nicholas Institute has grown into a major nonpartisan player in key environmental debates, serving both the public and private sectors with sound understanding of complex environmental issues.
Profeta’s areas of expertise include climate change and energy policy, the Clean Air Act, and adaptive use of current environmental laws to address evolving environmental challenges. His work at the Nicholas Institute has included numerous legislative and executive branch proposals to mitigate climate change, including providing Congressional testimony several times on his work at Duke University, developing multiple legislative proposals for cost containment and economic efficiency in greenhouse gas mitigation programs, and facilitating climate and energy policy design processes for several U.S. states.
Prior to his arrival at Duke, Profeta served as counsel for the environment to Sen. Joseph Lieberman. As Lieberman’s counsel, he was a principal architect of the Lieberman-McCain Climate Stewardship Act of 2003. He also represented Lieberman in legislative negotiations pertaining to environmental and energy issues, as well as coordinating the senator’s energy and environmental portfolio during his runs for national office. Profeta has continued to build on his Washington experience to engage in the most pertinent debates surrounding climate change and energy.
Profeta is a member of the Climate Action Reserve Board of Directors, and is a member of The American Law Institute.
Profeta earned a J.D., magna cum laude, and a master's in environmental management in resource ecology from Duke in 1997 and a Bachelor's degree in political science from Yale University in 1992.
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