Personal Income Tax Law and Corporation Tax Law: exclusions: environmental credits.

Senator Padilla's environmental tax reform measure aligns California's tax code with federal clean energy incentives established under the Inflation Reduction Act of 2022, creating new exclusions from gross income for certain environmental credit payments between 2026 and 2031.

The legislation excludes from state taxation any payments received through the federal government's elective payment program for environmental credits, as well as payments received when transferring these credits to other entities. While recipients of transferred credits cannot deduct the purchase costs, the bill maintains parity with federal tax treatment of these transactions. The Franchise Tax Board must report to the Legislature by November 2029 on taxpayer utilization of these provisions to assess their role in advancing clean energy development.

These changes complement California's existing renewable energy requirements, including mandates for 60% renewable electricity by 2030 and 100% zero-emission electricity by 2045. The bill's authors note that meeting these targets will require doubling the state's clean energy capacity within five years, making alignment between state and federal clean energy tax provisions a key consideration for project financing and development.