Landfills
Federal Funding Resources: Department of the Treasury
Through the approximately 550 operational landfill gas (LFG) energy projects, communities, landfill owners and operators, and state officials across the United States have learned that LFG is an important local and regional resource. To develop LFG energy projects, landfill owners and operators capture LFG and convert it into renewable energy. Converting LFG into energy reduces odors and hazards associated with LFG emissions and helps reduce reliance on fossil fuel—based energy. Landfill gas is also a valuable renewable resource that, when used, helps prevent landfill methane from migrating into the atmosphere and contributing to local smog and global climate change.
While LFG recovery offers significant environmental, energy, and economic benefits to the public and private sector, there are still barriers to project development. Below are some federal funding resources to consider.
Renewable Electricity Production Credit
Legislation in 2009 extended the in-service date for landfill gas energy projects to December 31, 2013 in order to qualify for PTC. The renewable electricity production tax credit (PTC) is a per kilowatt-hour (kWh) federal tax credit included under Section 45 of the U.S. tax code for electricity generated by qualified energy resources. The PTC provides a corporate tax credit of 1.1 cents/kWh for landfill gas, open-loop biomass, municipal solid waste resources, qualified hydropower, and marine and hydrokinetic (150 kW or larger). Electricity from wind, closed-loop biomass, and geothermal resources receive 2.2 cents/kWh. Projects that receive other government grants or subsidies receive a discounted tax credit.
Initially enacted as part of the Energy Policy Act of 1992, the credit has expired and been renewed on a number of occasions, most recently with the passage of the American Recovery and Reinvestment Act of 2009. The legislation extended the in-service deadlines for qualifying renewable technologies. For landfill gas energy projects, the placed-in-service date is December 31, 2013. This requirement has generally been interpreted to mean that, by this date, the facility must have generators installed and working or be in a condition that is ready to generate electricity. The credit can be claimed, however, only when electricity is produced and sold to an unrelated third party. Landfill gas energy project owners can claim the PTC for the first 10 years of operation.
There is no maximum limit for credits claimed through the PTC. To apply for the tax credit, a business must complete Form 8835, “Renewable Electricity Production Credit,” and Form 3800, “General Business Credit.” Form 8835 is available at www.irs.gov/pub/irs-pdf/f8835.pdf (PDF) form 3800 is available at www.irs.gov/pub/irs-pdf/f3800.pdf (PDF).
For more information, contact Philip Tiegerman, Internal Revenue Service, at (202) 622-3110.
Business Energy Investment Tax Credit
A taxpayer can receive only one of the incentives—the PTC, ITC, or renewable energy grant. The American Recovery and Reinvestment Act of 2009 modified Section 48 of the U.S. tax code to allow owners of PTC-eligible renewable projects, such as landfill gas energy projects, to make an irrevocable election to earn a one-time corporate investment tax credit (ITC) in lieu of claiming the PTC. The ITC is equal to 30 percent of the costs attributable to the facility, which typically excludes other project costs, such as transmission equipment or ancillary site improvements. The ITC does not impose the third party power sale requirement that the PTC does. To apply for the tax credit, a business must complete Form 3468, “Investment Credit,” which is available at www.irs.gov/pub/irs-pdf/f3468.pdf (PDF).
For more information, contact Public Information Specialist, Internal Revenue Service, at (202) 622-3110.
Section 1603 Cash Grant for Renewable Energy
Administered by the U.S. Department of Treasury, Section 1603 of the American Recovery and Reinvestment Act of 2009 created a new grant program for taxpayers eligible for the Business Energy ITC. A facility owner can choose to receive a one-time grant equal to 30 percent of the construction and installation costs for the facility, as long as the facility is depreciable or amortizable. To be eligible, the facility must be placed in service in 2009, 2010, or 2011 or construction must begin in any of those years and be completed prior to the end of 2013. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the grant application deadline of Section 1603 one year to October 1, 2012.
For more information, contact Public Information Specialist, Internal Revenue Service at (202) 622-3110 or visit www.treas.gov/recovery/1603.shtml.
Clean Renewable Energy Bonds
The 2005 Energy Policy Act created Clean Renewable Energy Bonds (CREBs) within Section 54 of the U.S. tax code. Unlike traditional bonds that pay interest, tax credit bonds pay the bondholders by providing a credit against their federal income tax. In effect, CREBs provide interest-free financing for clean energy projects. The types of projects for which bonds can be issued include renewable energy projects using landfill gas, wind, biomass, geothermal, solar, municipal solid waste, small hydroelectric, marine, and hydrokinetic. The Internal Revenue Service (IRS) has determined that facilities “functionally related and subordinate” to the generation facility itself are also eligible for CREB financing. Examples of these auxiliary components include transmission lines and interconnection upgrades.
The Energy Improvement and Extension Act of 2008 directs the IRS to allocate the bonding authority equally among electric cooperatives, government entities, and public power producers. Other changes for “new” CREBs are as follows:
The federal tax credit is reduced to 70 percent of the interest payment
The bond holder can transfer the tax credit to another party
Taxpayers can carry forward unused credits into future years
Bond proceeds must be used within three years or a request for an extension must be made
Each year, the IRS solicits applications and releases guidance on how the program will operate (e.g., criteria for determining allocations).
For more information, contact Zoran Stojanovic, Internal Revenue Service, at (202) 622-3980.
Qualified Energy Conservation Bonds
In 2008, Congress created Qualified Energy Conservation Bonds, a financing program similar to CREBs. The Energy Improvement and Extension Act of 2008 created a new funding mechanism similar to the CREB model in which a bondholder receives tax credits in lieu of interest. The act authorizes state, local, and tribal governments to issue energy conservation bonds to finance qualified projects. The bond proceeds can be used to finance capital expenditures that achieve one of the following goals:
Reduction of energy consumption by at least 20 percent
Implementation of a green community program
Electricity generation from renewable resources in rural areas
For more information, contact Zoran Stojanovic, Internal Revenue Service, at (202) 622-3980 or visitwww.irs.gov/pub/irs-drop/n-09-29.pdf (PDF).
Advanced Energy Manufacturing Tax Credit
The American Recovery and Reinvestment Act of 2009 established the advanced energy manufacturing tax credit to encourage the development of a U.S.-based renewable energy manufacturing sector. The American Recovery and Reinvestment Act of 2009 authorizes the Department of the Treasury to issue $2.3 billion of credits under the program. In any taxable year, the investment tax credit is equal to 30 percent of the qualified investment required for an advanced energy project that establishes, re-equips, or expands a manufacturing facility that produces any of the following:
Equipment and/or technologies used to produce energy from solar, wind, geothermal, or other renewable resources
Fuel cells, microturbines, or energy-storage systems for use with electric or hybrid-electric motor vehicles
Equipment used to refine or blend renewable fuels
Equipment and/or technologies to produce energy-conservation technologies (including energy-conserving lighting technologies and smart grid technologies)
Manufacturing facilities that develop equipment for landfill gas energy projects can presumably qualify under the first bullet above. Qualified investments generally include personal tangible property that is depreciable and required for the production process. Other tangible property may be considered a qualified investment only if it is an essential part of the facility, excluding buildings and structural components.
To be eligible for the tax credit, a project must be certified by the Department of the Treasury. In determining which projects to certify, the American Recovery and Reinvestment Act of 2009 directs the Department of the Treasury to consider those projects that most likely will:
Be commercially viable
Provide the greatest domestic job creation
Provide the greatest net reduction of air pollution and/or greenhouse gases
Have the greatest potential for technological innovation and commercial deployment
Have the lowest levelized cost of generated (or stored) energy or the lowest levelized cost of reduction in energy consumption or greenhouse gas emissions
Have the shortest project time from certification to completion
After certification is granted, the taxpayer has up to one year to provide additional evidence that the requirements of the certification have been met and three years to put the project in service. The Department of the Treasury is no longer accepting applications. It is believed that the current backlog of applications will exhaust the $2.3 billion authorization.
For more information, contact the U.S. Department of Treasury at (202) 622-2000 or visit www.energy.gov/recovery/48C.htm.