Prior to the Inflation Reduction Act (IRA) of 2022, transferability of federal tax credits was limited in scope and fragmented across a small portion of programs. Monetization typically occurred through complex partnership structures or tax equity financing. These structures required specialized investors, longer structuring timelines, and higher transaction costs.
For most corporate taxpayers, direct access to federal tax credits was impractical, constraining the market. The IRA fundamentally altered this dynamic by introducing broad, freely transferable tax credits, enabling a wider demographic of buyers to participate in the market. That history shaped market behavior for a long time, but should it still shape how corporate taxpayers view transferable tax credits today?
New Opportunities for Monetizing Tax Credits
The IRA created certain transferable clean energy tax credits that have evolved from theory to a strategic asset class for finance and taxation experts. Importantly, to make these clean energy tax credits more accessible, the IRA created new opportunities to monetize tax credits. These options have profoundly affected clean energy finance by expanding the ease, accessibility, and availability of capital.1 As this market matures, pricing differences have emerged across credit types, particularly among Sections 45X, 45Y, and 45Z of the Internal Revenue Code, creating a value-add opportunity for corporate buyers.
A market snapshot today shows a clear divergence in pricing. Section 45X advanced manufacturing credits often trade at a premium, commonly around $0.94 to $0.95. Section 45Z clean fuel production credits tend to clear at a discount, frequently closer to $0.92, depending on size. Section 45Y pricing tends to land between the two. Potential investors may question the impact of transferability on the market due to the IRA. Just look at the numbers: transferability more than doubled the tax credit market from $20 billion in traditional tax equity to over $50 billion in 2024.2
Much of the pricing divergence among Section 45X, Section 45Y, and Section 45Z is rooted in differences in regulatory maturity rather than risk attributed to credit substantiation. Credits supported by finalized regulations and established guidance naturally command higher pricing, whereas credits operating under proposed regulations incorporate a discount for uncertainty. This dynamic reflects timing and maturity, rather than risk pertaining to a specific credit type. As guidance develops and markets become more familiar, regulatory pricing gaps are likely to narrow. This narrowing will shift the focus from which credit type carries the least uncertainty to which offers the most compelling value. The key question for buyers is whether those perceptions of risk remain justified.
Section 45X: Greater Predictability Provides Comfort
The premium pricing of Section 45X, the advanced manufacturing production tax credit, is understandable, since production volumes are tangible, inputs and outputs are well documented, and compliance frameworks have become familiar through repetition. Over the past year, underwriting, diligence checklists, and legal structures surrounding Section 45X have become increasingly standardized, creating a strong degree of comfort and predictability for corporate buyers.
Section 45X has consistently commanded premium pricing in the transferable tax credit market, in large part due to finalized regulations that came out in October 2024. The credit is earned on units of eligible manufacturing output, allowing buyers to underwrite against tangible production units. The result is less exposure to regulatory risk than in Section 45Z, which has regulations slated to come out midyear 2026. Buyers often view regulatory risk as an incremental justification for the higher pricing. The final regulations, and the use of observable production metrics to substantiate the credit, provide buyers of Section 45X credits confidence in accounting for credit purchases ahead of funding, reinforcing the credit’s predictability and reliability.
A growing number of repeat buyers and sellers has made execution more predictable, reducing the risks of delayed closing and funding. Many purchasers of Section 45X credits prefer them to other credit types due to the ability to close the transaction efficiently with less overall risk. Higher pricing reflects efficiencies in transaction processes as well as reduced regulatory uncertainty.
Section 45Y: The Middle Ground
Section 45Y, the clean electricity production tax credit, occupies a middle ground in the transferable tax credit landscape. Its reliance on metered electricity production aligns closely with historical production tax credits, giving tax departments, auditors, and risk committees a familiar foundation for underwriting and substantiation. Section 45Y has generally settled into a relatively tight pricing range of between $0.92 and $0.94, between Section 45X and Section 45Z pricing.
Section 45Y pricing positioning reflects benefits from familiarity and repeatable diligence processes but also incorporates newer eligibility and emissions-based considerations that have moderated pricing. For corporate buyers, this dynamic has translated into growing comfort and consistent demand. As transaction volume increases and regulations continue to mature, Section 45Y’s pricing stability underlines its role as a dependable transferable credit option rather than a transitional or opportunistic trade.
Section 45Z: Proposed Regulations May Increase Pricing
Although Section 45X and Section 45Y reflect degrees of corporate comfort, Section 45Z, the clean fuel production tax credit, represents the point in the market where perception and pricing diverge. Unlike credits that benefit from final regulations, Section 45Z sits earlier in the credit life cycle, creating both opportunity and grounds for hesitation. This gap represents the incremental yield that has emerged for buyers willing to underwrite beyond surface-level uncertainty.
Section 45Z continues to trade at a discount compared to Sections 45Y and 45X. The pricing differential has attracted sophisticated corporate buyers who view current spreads as compensation for slightly increased transitional risk.
Regulations proposed by the US Treasury and the Internal Revenue Service are expected as early as May 2026 and will further clarify life cycle emissions modeling, sales requirements, and other items for credit generation. Sophisticated buyers have taken advantage of discount pricing to lock in future years to maximize a nominal discount. The market anticipates Section 45Z pricing to rise to meet the prices of Section 45X and Section 45Y credits more closely upon publication of the proposed regulations.
A large portion of the perceived risk embedded in Section 45Z pricing relates to the substantiation of the credit and, more important, the verification of the carbon intensity score (CI). Although CI modeling is new to many corporate buyers, similar life cycle analysis and verification standards have existed for years under California’s Low Carbon Fuel Standard (LCFS) program. As a result, the underlying analytical work supporting CI scores is not new to the industry. Section 45Z builds on an established ecosystem of life cycle modeling, documentation standards, and independent verification that are the hallmarks of a mature compliance market. For buyers, the risk should be less about whether CI modeling is performed reliably and more about Treasury guidance and credit specifics. As the Section 45Z market matures, the perceived complexity surrounding CI verification will diminish, supporting an anticipated pricing convergence across credit markets.
The market is beginning to see the maturation of the relevant contractual processes and insurance markets to align with processes inherent in more established credit markets. As regulatory clarity improves, Section 45Z’s combination of enhanced buyer comfort and discounted pricing positions this credit as a compelling value opportunity.
For corporate buyers, this convergence has meaningful implications. Current discounts in Section 45Z offer incremental yields for buyers with disciplined underwriting, strong internal governance, and access to experienced advisors. For buyers capable of modeling projected tax liabilities for future years, the risk-adjusted return profile of Section 45Z is more attractive than that of higher-priced alternatives, especially at current market pricing.
What Drives Pricing Convergence?
As tax departments gain experience across transferable credit types, internal approval processes become less about the specific credit and more about the framework. With tax credit markets maturing, pricing across credit types will converge, if they haven’t already started. A major driver of convergence is the standardization of diligence, documentation, and transaction structures. As more buyers underwrite these transactions, become familiar with third-party verification, and familiarize themselves with contractual provisions, the transaction process risk will balance among these types of credits. In turn, buyers will become more willing to evaluate credits on comparable terms, reducing the premium or discount pricing applied to certain credit categories.
Large corporate taxpayers with sound liability estimates are starting to look at transferable tax credit purchases from a portfolio-based strategy rather than evaluating credits in isolation. As transactions and performance data become more widespread, buyers can better assess risk across credits, allowing pricing to reflect value, rather than uncertainty, in the credits. As risk across various transferable credits becomes better understood, spreads will compress and be more efficiently priced.
Across all transferable credits, experienced advisors and legal counsel function as risk management and provide superior due diligence and documentation. As documentation, diligence, and contractual frameworks standardize, quality execution often falls on advisors who understand both the technical requirements and current market dynamics of each credit. Experienced advisors help ensure credits are properly substantiated, representations and indemnities are appropriate, and transactions align with internal governance and audit expectations. In a marketplace where spreads are narrowing, disciplined advisory support can make the difference between efficient deployment and unintended exposure.
Transaction volume itself is a powerful catalyst for convergence. As newer credits such as Section 45Z continue to be transacted, each completed deal adds to the market’s collective understanding. This includes underwriting standards, diligence processes, and execution risk. Over time, the growth of transaction history reduces uncertainty, replaces assumptions with data, and builds institutional confidence across buyers, advisors, and insurers. As deal volume increases, pricing becomes less driven by unfamiliarity and more by fundamentals, which will add to the price convergence across credit types.
Maturing Market Calls for Internal Assessment
The current credit marketplace rewards engagement rather than caution. Transferable credits are no longer a niche instrument, and the ability to distinguish between transitional uncertainty and structural risk, particularly within Section 45Z, has become a source of competitive advantage. As markets mature, value-driven decision-making, not headline pricing, will increasingly define successful participation in transferable tax credits.
Nominal discounts in an evolving credit landscape also matter more than they may initially appear to. A two- to three-cent difference in purchase price can seem modest, but at scale, it translates into meaningful economic impact. For buyers deploying tens of millions of dollars annually, small pricing differentials can ultimately represent millions of dollars in incremental value and cash savings.
Tax and finance leaders who proactively revisit underwriting assumptions and align them with current market conditions are better positioned to capture these opportunities. Rather than signaling the end of opportunity, convergence rewards buyers who can distinguish between perceived risk and actual risk and deploy resources accordingly.
Narrowing spreads are a sign of a maturing market. For tax and finance leaders, this moment calls for an internal reassessment of risk tolerance and return objectives. Pricing convergence does not necessarily imply compression of returns but instead reflects the emergence of potential arbitrage. As transferable tax credit markets continue to mature, Section 45Z may not represent added risk, but rather added value for buyers.
Max Burchill is an analyst, and Nick Scott is a vice president, both at Mickelson & Company.
Endnotes
- Rachel Chang, “Understanding Direct Pay and Transferability for Tax Credits in the Inflation Reduction Act,” Center for American Progress, June 5, 2023, https://www.americanprogress.org/article/understanding-direct-pay-and-transferability-for-tax-credits-in-the-inflation-reduction-act/.
- Leslie Abrahams, Ray Cai, and Joseph Majkut, “Killing Tax Credit Transferability Harms US Strategic Interests,” RealClear Energy, May 21, 2025, https://www.realclearenergy.org/articles/2025/05/21/killing_tax_credit_transferability_harms_us_strategic_interests_1111723.html.
