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How are transferable tax credits good for the environment?

Section Section 6418(a)(1)(f) of the Inflation Reduction Act (IRA) lists a number of activities that can generate transferable tax credits. By generating tax credits for investing in renewable energy projects, the act incentivizes individuals and businesses to switch to cleaner energy sources, which can help to reduce overall carbon emissions and combat climate change.


There are a variety of environmentally friendly activities that are supported by the transferable tax credits . For example, the activities that are eligible for these transferable tax credits include installing EV charging stations in certain areas, investing in renewable energy (such as solar and wind power), producing renewable energy and building facilities that generate energy with low emissions. These activities will limit the use of fossil fuels and the emission of greenhouse gases which will have a positive impact on the environment

Allowing people to sell tax credits that they cannot use is good for the environment as it increases the capital available for financing these clean energy projects. Those parties that engage in these environmentally beneficial activities that have a tax bill can take the tax credit and reduce their own tax bill. This incentivizes them to invest in these activities because it increases the amount of cash that they keep at the end of the day. 

With the changes in the IRA, even those that don’t have a tax liability can easily benefit from the environmentally beneficial activities that they are engaging in. Now that they can sell their tax credit to those that have a tax liability they can benefit from government incentives to engage in more clean energy activities.

On the other side of the coin, anyone with a tax liability can now help incentivize the environmentally beneficial activities by purchasing the credit, which helps incentivize the seller to engage in those activities. So, buyers can help incentivize the environmentally beneficial activities while reducing their tax bill at the same time.

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