The U.S. Treasury Department and IRS issued updated guidance regarding tax credits that are part of the Inflation Reduction Act and are geared toward clean energy projects, which could make it financially easier to get programs off the ground, especially in areas that are considered hard to abate.
The tax credits are now available to developers looking to locate projects in communities historically dependent on fossil fuel energy, including areas with closed coal mines or coal-fired power plants. Areas and regions that include coal mines that closed after 1999 or coal-fired electric facilities that closed after 2009 now qualify as an energy community.
The bonus is also available to areas that have significant employment or local tax revenues from fossil fuels and higher-than-average unemployment. To qualify for the tax credit, these areas must have at least a quarter of local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas. The unemployment rate also has to be at or above the national average for the previous year.
Additionally, the credit is available to developers looking to locate projects on brownfield sites. Those sites include the expansion or redevelopment of property which might be complicated by the presence of hazardous substances, pollutants, or contaminants, including mine-scarred lands.
“The Inflation Reduction Act is designed not just to lower energy costs and combat climate change, but to promote broad-based economic opportunity and create jobs in communities that have been at the forefront of energy production, especially coal communities,” said Deputy Secretary of the Treasury Wally Adeyemo.
The updated rules are for tax years following 2022. Developers can receive a bonus of up to 10 percentage points on top of the Investment Tax Credit and an increase of 10% for the Production Tax Credit.
The Inflation Reduction Act was passed in the summer of 2022 and includes nearly $370 billion in energy programs and incentives to encourage the domestic production of and transition to clean energy. It includes promoting renewable energy production, manufacturing, carbon sequestration, and more.
Updating the rules to include areas that have been dependent on fossil fuel energy production should enhance development in these areas, according to the federal government. That includes installing solar energy systems or communities seeking to implement clean school buses.
“This provision of the Inflation Reduction Act will make it easier for local governments, tribes, territories, nonprofits, schools, houses of worship, and more to invest in clean energy, allowing them to save money, improve public health, and better serve their communities,” said John Podesta, a clean energy advisor to President Biden.
