The $10 Billion Section 48C Comeback: How to Position for an Advanced Energy Project Credit Allocation

What the Inflation Reduction Act actually did here

The §48C credit is not new. Congress first enacted it in 2009. What is new is its scale and its design. Section 13501 of the Inflation Reduction Act (IRA), Pub. L. 117-169, added IRC § 48C(e) and authorized $10 billion of additional credit allocations, with the expanded program effective January 1, 2023.

On February 13, 2023, the Treasury Department and the IRS issued Notice 2023-18 to establish the §48C(e) allocation program. The structure matters because it determines who captures the credit and who does not.

Three figures define the opportunity. The total allocation is $10 billion. By statute, at least $4 billion of that total must go to projects located in designated energy-community census tracts. And the IRS announced that Round 1 would target approximately $4 billion in credits — roughly $1.6 billion of it reserved for projects in those energy communities.

A credit worth up to 30 percent — if the conditions are met

The credit rate follows the now-familiar IRA two-tier structure. The base rate is 6 percent of qualified investment. The full rate of 30 percent applies only when the prevailing-wage and apprenticeship requirements are satisfied.

For a capital-intensive manufacturing or industrial project, the difference between 6 percent and 30 percent is the difference between a marginal incentive and a material one. The wage-and-apprenticeship analysis is therefore not a compliance afterthought. It is a structural input that should be modeled into the project before construction begins, not reconstructed after the fact.

The three project categories

Notice 2023-18 organizes qualifying projects into three categories. A taxpayer needs to know which one its project occupies, because the technical review criteria are applied through that lens.

• Clean Energy Manufacturing and Recycling Projects — facilities that manufacture or recycle specified clean-energy equipment and components.
• Greenhouse Gas Emission Reduction Projects — industrial facilities that re-equip to reduce greenhouse gas emissions by a specified threshold, often described as industrial decarbonization.
• Critical Material Projects — facilities that process, refine, or recycle critical materials.

The process is the product: how an allocation is actually won

This is where the §48C credit diverges most sharply from a standard tax incentive, and where the planning value lives.

Under Notice 2023-44, the application runs through a two-stage process administered jointly by the Department of Energy (DOE) and the IRS. A taxpayer first submits a concept paper through the DOE eXCHANGE portal. DOE reviews the concept paper and responds with a letter that either encourages or discourages a full application.

That letter is informative, not dispositive. A taxpayer that receives a discouraging letter may still submit a full application. DOE then reviews full applications against its technical criteria — commercial viability, greenhouse gas impact, strengthening of domestic supply chains, and workforce and community engagement — and provides a ranking and recommendation to the IRS. The IRS makes the final allocation decision.

For Round 1, concept papers were due by noon Eastern time on July 31, 2023. The clock, in other words, started early in the year for a deadline in the summer. A project sponsor who waited for full guidance before beginning to assemble a concept paper was already behind.

What this means in practice

The defensible move is to treat the §48C allocation as a competitive grant process that happens to be administered through the tax code. Three implications follow.

First, eligibility and category selection should be settled early. The technical review is substantive, and a concept paper that misframes the project against the wrong category wastes the firm's strongest argument.

Second, the prevailing-wage and apprenticeship pathway to the 30 percent rate should be designed into the project's labor and procurement plans from the outset. Retrofitting compliance onto a project already under construction is the most common way a 30 percent credit quietly becomes a 6 percent credit.

Third, the competitive reality should temper expectations. Demand for these allocations will exceed supply. A strong application is necessary but not sufficient, and project economics should not be built on the assumption of an award that has not been granted.

What is not yet known

As of this writing, no Round 1 allocations have been made. Notice 2023-44 states that the IRS will make Round 1 allocation decisions by March 31, 2024. Until then, the program is a process to prepare for, not a result to count on. We will revisit the program as allocation outcomes and any subsequent rounds are announced.

Key takeaways

• The Inflation Reduction Act (§ 13501) revived the IRC § 48C credit with $10 billion in new allocation authority, at least $4 billion of it reserved for projects in designated energy communities.
• Notice 2023-18 (February 13, 2023) launched the program; Round 1 targeted roughly $4 billion in credits, about $1.6 billion for energy communities.
• The credit is worth 6 percent of qualified investment at the base rate and 30 percent when prevailing-wage and apprenticeship requirements are met.
• The credit is allocated competitively, not claimed automatically: a concept paper goes to the Department of Energy through its eXCHANGE portal, DOE ranks and recommends, and the IRS makes the final award.
• Round 1 concept papers were due by noon Eastern on July 31, 2023; allocation decisions were scheduled for no later than March 31, 2024.

Frequently asked questions

Is the Section 48C credit something a company can simply claim on its tax return?

No. Unlike most clean-energy credits, § 48C(e) requires a taxpayer to apply for and receive an allocation before any credit is available. The process begins with a concept paper submitted to the Department of Energy and ends with an allocation decision by the IRS.

How large is the credit?

The credit is 6 percent of the project's qualified investment at the base rate, increasing to 30 percent when the prevailing-wage and apprenticeship requirements are satisfied.

Who decides which projects receive an allocation?

The Department of Energy reviews applications against technical criteria and provides a ranking and recommendation, but the IRS makes the final allocation decision under Notice 2023-18 and Notice 2023-44.

What are the three categories of qualifying projects?

Clean energy manufacturing and recycling projects, greenhouse gas emission reduction (industrial decarbonization) projects, and critical material projects.