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November 7, 2024
The Section 45X Advanced Manufacturing Production Credit
P.L. 117-169, commonly known as the Inflation Reduction
Act of 2022 (IRA), enacted a new tax credit for the
production of component parts and critical minerals used in
clean energy equipment. The credit is referred to as either
the Advanced Manufacturing Production Credit or the 45X
credit based on the credit's Internal Revenue Code section
(26 U.S.C. §45X). This In Focus summarizes the 45X credit
and policy issues that have arisen following its creation.
Credit Description
The 45X credit subsidizes the production of five types of
goods: solar energy components, wind energy components,
battery components, inverters, and critical minerals.
Businesses may only claim the credit for goods produced in
the United States or its territories. Goods produced from
recycled materials qualify for the credit. While Section 45X
provides credits for many different clean energy goods,
there are three general methods that are used to calculate
the credit values for different goods:
* Goods used to produce, transmit, or store energy
receive credits proportional to their output, transmission,
or energy storage capacities. For example, solar modules
are eligible for a credit equal to 7 cents multiplied by the
module's capacity per direct-current watt; commercial
inverters are eligible for a credit equal to $2 multiplied
by the inverter's alternating-current-watt capacity; and
battery cells are eligible for a credit of $35 multiplied by
the maximum kilowatt-hour capacity of the cell.
* Subcomponent goods are eligible for either flat credits
or credits proportional to the subcomponents' size or
weight. Blades used in wind turbines, for example, are
eligible for a flat credit of 2 cents per blade. Polymeric
backsheets (which insulate the backs of solar panels) are
eligible for a credit of 40 cents per square meter, and
torque tubes (which are used to cojoin and support solar
panels) are eligible for a credit of 87 cents per kilogram.
* Critical minerals and electrode active materials are
eligible for credits equal to 10% of the production costs
of the given mineral or material. According to a final
rule released by the IRS in October 2024, the costs of
extracting, acquiring, processing, purifying, refining,
and converting critical minerals and electrode active
materials are considered qualifying production costs.
One exception to these general rules is that offshore wind
vessels-vessels used to transport and install turbines at
offshore wind farms-are eligible for a credit equal to 10%
of the vessel's sales price. Sales prices are not used to
calculate credit amounts for any other good. A second
exception is that solar-grade polysilicon, which is arguably
more similar to a critical mineral than a subcomponent part,
is eligible for a credit of $3 per kilogram.
To qualify for the credit, goods generally must be sold by
producers to unrelated persons, a term interpreted by the
IRS to mean individuals and organizations not under
common control. However, 26 U.S.C. §45X(a)(3)(B)(i)
states that [a]t the election of the taxpayer ... a sale of
components by such taxpayer to a related person shall be
deemed to have been made to an unrelated person. Based
on its interpretation of this language, the IRS created a
Related Persons Election (RPE) in its final rule. Under the
RPE, a taxpayer may receive the 45X credit if the taxpayer
produces and then sells an eligible component to a related
person, who then integrates, incorporates, or assembles the
taxpayer's eligible component into another complete and
distinct eligible component that is subsequently sold to an
unrelated person. This allows certain intercompany sales
to qualify for the credit, which is consistent with the IRS's
interpretation of Section 45X as contribut[ing] to the
development of secure and resilient supply chains.
Section 45X credits are calculated based on the year a
product is sold, which may differ from the year it is
produced. Businesses may receive full credits for goods
sold from 2023 through 2029, then may receive 75% of
normal credit amounts for goods sold in 2030, 50% for
goods sold in 2031, and 25% for goods sold in 2032. The
credit expires for most 45X credit-eligible products in 2033.
Neither the phaseout nor the expiration apply to the credits
for critical minerals.
Production facilities that have previously been awarded a
qualifying advanced energy project tax credit (26 U.S.C.
§48C) are not eligible for the 45X credit. A facility that has
been awarded a Section 48C credit for some but not all of
its production units may claim the 45X credit for
production units not used to claim the 48C credit.
Budgetary Cost and Economic mp act
According to estimates published by the Joint Committee
on Taxation (JCT) in December 2023, the 45X credit is
projected to reduce federal revenues by $72.7 billion
between FY2023 and FY2027. Of the 41 energy tax
expenditures studied by the JCT, the 45X credit had the
highest projected five-year cost.
The 45X credit could potentially bolster domestic clean
energy supply chains, which could lead to lower
greenhouse gas (GHG) emissions, increased energy
security, and more domestic manufacturing jobs. The
credit's impact on clean energy output and domestic
onshoring depends on its ability to change producers'
behavior. If the credit increases the number of clean energy
manufacturing facilities or the amounts produced at existing
facilities, it could increase domestic manufacturing and
decrease GHG emissions. If the credit is instead claimed by
producers who would have manufactured their products
absent the credit, then Section 45X mainly provides
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