Corporate tax opportunities with clean energy credits: A primer

Clean energy credits can help certain companies reduce both their tax and their environmental footprint. Who can benefit? How does it work?

Many corporations have made commitments to reduce and/or eliminate their environmental footprint. Although many aspects of this strategy can come at a cost, there are also opportunities for profitably acquiring tax credits to reduce a corporation’s federal tax liability. These credits can not only help companies achieve their sustainability goals, but also provide a return on investment and have favorable financial statement impacts.

Read on for an overview of who can benefit from clean energy credits, how to access them, and other key basics.

Plus: Join us May 8 for a webinar discussion of these opportunities and how to mitigate risk while pursuing them.

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Tax reduction with clean energy credits: Opportunities and risks

Who can benefit

Corporations that can benefit from acquiring tax credits include:

  1. A corporation that ideally has a federal tax liability of $5 million or more
  2. A corporation that either is not subject to the passive rules or has a substantial amount of passive income 
  3. A corporation that can confidently predict its future federal tax payments


The primary ways that corporations can access renewable energy tax credits:

  • Transfer (purchase) of renewable energy credits
    • Credits are purchased at a discount, which allows the corporation to make a profit on the purchase.
    • No partnership investment is required, a simplifying distinction from traditional tax equity partnership structures. Documentation is limited to a purchase and sale agreement for the tax credits and avoids complex partnership agreements. 
    • Does not allow for returns to be based on operating cash flow or depreciation.
    • Provides for limited exposure to asset underperforming.
  • Equity investments in partnerships (often referred to as “tax equity partnerships”) 
    • The tax equity partnership owns energy property, and a corporate investor owns an interest in this partnership in which credits and tax deductions are allocated.
    • Allows for some operating cash flow and depreciation deductions to be allocated to the corporation, enhancing return on investment.
    • Some view this option as having a greater sustainability impact than a transfer because the corporate investor owns a portion of the energy property.

What does CohnReznick think?

The above methods of accessing renewable energy tax credits typically provide a return on investment of 5%-20%. Companies interested in purchasing renewable energy certificates (RECs) to offset their carbon footprint can also acquire tax credits at the same time. Additionally, there are opportunities for corporations to further assist disadvantaged communities in connection with these transactions, by directing investments to specific locations or specifying the users of the electricity.

However, accessing renewable energy tax credits does not come without risk. Corporations looking to pursue these strategies should make sure that they are educated on the risks and have due diligence performed prior to entering any transactions. 

CohnReznick has a highly qualified team of professionals with extensive experience in assisting corporations in the educational, underwriting, and ongoing accounting phases of these transactions. Contact us to learn more.


Subject matter expertise

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Kayla Schultz

Kayla Schultz

CPA, Partner

Joel Cohn

CPA, Partner, Project Finance & Consulting

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Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.