Tax Credits Fueling U.S. Manufacturing Growth

How clean fuel and advanced manufacturing incentives are reshaping expansion decisions

Something has shifted in manufacturing over the last couple of years. Conversations that used to center on labor, logistics, and cost now include another variable that is harder to quantify but just as important. Tax policy is starting to influence real operating decisions.

Tax credits tied to clean fuel and advanced manufacturing, especially Internal Revenue Code (“IRC”) Sections 45X and 45Z, are no longer viewed as incremental benefits. They are showing up in underwriting models, board discussions, and capital allocation decisions. In some cases, they are the factor that determines whether a project moves forward.

That is a meaningful change from where things stood even a few years ago, when most incentives were evaluated after the fact rather than built into the front end decision making of a project.

What has actually changed

The biggest shift is that energy-related incentives and manufacturing incentives are now part of the same conversation. Historically, these lived in different buckets. Manufacturing decisions were driven by cost, labor, and proximity to customers. Energy incentives were more situational and often tied to specific projects.

That line has blurred.

Section 45X, enacted as part of the Inflation Reduction Act, provides a production-based credit for the domestic manufacture of certain clean energy components. This includes items like battery cells, battery modules, inverters, wind components, and certain critical minerals. The credit is calculated on a per-unit basis, which means the benefit scales directly with production volume.

Section 45Z introduces a clean fuel production credit that is based on lifecycle greenhouse gas emissions. Unlike some earlier fuel credits, the value is not fixed. It varies depending on how clean the production process is, which ties operational decisions directly to financial outcomes.

Both provisions were designed with a clear policy objective. Encourage domestic manufacturing, reduce reliance on foreign supply chains, and accelerate the transition to lower-emission production. What is different now is how directly those policy goals are influencing business strategy.

These credits are not simply claimed at year end. They require companies to think through production methods, sourcing, facility location, and documentation well in advance.

Why this is coming up more now

There are a few reasons why these credits are getting more attention in 2026 than they did even a year or two ago.

First, manufacturing economics have become tighter and more complex. Supply chain disruptions forced many companies to reconsider where they produce goods and how they source inputs. Labor constraints have not fully eased, and cost volatility continues to affect planning. When margins are under pressure, any lever that can materially improve return becomes more important.

Second, these credits are large enough to matter. Section 45X, for example, can provide meaningful per-unit incentives that directly reduce production costs. For high-volume manufacturers, that can translate into millions of dollars annually. When those amounts are modeled upfront, they can change the viability of a domestic production strategy.

Third, the structure of these credits requires early decisions. Section 45Z ties value to emissions intensity. That means the way a facility is designed, the inputs it uses, and the processes it follows can all affect the ultimate credit. Those are not decisions that can be retroactively adjusted.

Finally, there is still uncertainty. Treasury guidance continues to evolve, particularly around definitions, eligibility thresholds, and substantiation requirements. That uncertainty is pushing companies to engage earlier so they do not lock themselves into a structure that limits eligibility later.

How companies are using these credits

The companies that are getting the most value out of these incentives are not looking at them in isolation. They are building them into a broader strategy.

In practice, that often starts with Section 45X. A manufacturer considering a new facility or expanding an existing one will evaluate whether production can qualify for the credit. That evaluation can influence where the facility is located, what components are produced domestically, and how supply chains are structured.

From there, companies look at how other incentives layer in. State and local programs often provide additional support tied to job creation, capital investment, or facility location. Federal provisions such as bonus depreciation or investment credits can further improve project economics.

Section 45Z comes into play for companies with fuel production or energy-intensive operations. Here, the focus shifts to emissions intensity. Companies are evaluating whether operational changes, sourcing decisions, or technology investments can reduce emissions enough to increase the credit value.

What is notable is that these conversations are happening early. Instead of asking what qualifies after a project is complete, companies are asking how to structure the project to qualify in the first place.

Where things tend to break down

Even with the increased attention, there are still common areas where companies fall short.

Timing is the most frequent issue. Decisions around facility location, production processes, and sourcing are often made before a full analysis of credit eligibility is completed. Once those decisions are set, there is limited flexibility to adjust.

Documentation is another challenge. Sections 45X and 45Z both require detailed support. For 45X, that includes production volumes and qualification of components. For 45Z, it involves lifecycle emissions data, which can require coordination across engineering, operations, and third-party analysis.

There is also often a disconnect between internal teams. Tax, finance, and operations may each have part of the information needed to support a credit, but they are not always aligned on requirements, timing or the complete financial or tax picture. That lack of coordination can lead to incomplete claims or missed opportunities.

None of these issues are unusual. They are a natural result of how organizations are structured. But they do have real financial consequences.

The shift

The broader change is not about any one credit. It is about how credits and incentives are being used.

Historically, tax credits were treated as compliance items. They were identified after the fact and claimed based on what had already occurred. That approach still exists, but it is becoming less effective in a landscape where credits are tied to how decisions are made.

What is emerging instead is a more integrated approach. Credits are being considered alongside operational and financial decisions. They are influencing where companies invest, how they structure projects, and what types of initiatives they prioritize.

This shift is subtle but important. It moves credits from being a retrospective benefit to a forward-looking tool.

What this means for manufacturers

For manufacturers evaluating growth, expansion, or new investment, the practical implications are straightforward but important.

Credits need to be part of the conversation earlier than they have been historically. That means including them in financial models alongside base assumptions, not layering them in later. It means involving the right stakeholders early so that tax, finance, and operations are aligned on both opportunity and requirements.

It also means staying current with guidance. As Treasury and the IRS continue to release additional rules and clarification, those updates can affect how credits are calculated and what qualifies.

None of this requires a fundamental change in how companies operate. It requires a shift in when and how these considerations are brought into the process.

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There is a real opportunity in the current environment, but it is not automatic.

Sections 45X and 45Z were designed to drive investment into domestic manufacturing and cleaner production. They are doing that. The companies seeing the most benefit are the ones that are thinking about these credits early and using them to inform decisions.

Start a conversation with our team today.