The IRA offers clean-energy projects additional financial incentives if they are located in energy communities. The Energy Community Tax Credit Bonus, for instance, applies a bonus of up to 10 percent for the production tax credit (PTC) and 10 percentage points for the investment tax credit (ITC) for qualifying clean energy products.

Historically, workers and whole regions have too often been left behind during economic transitions. This time, if we build enough power, we have a chance to ensure that both private capital and equitably-harnessed funding from the IRA durably support good jobs, a healthier environment, and a safer climate future. 

But before diving into the nuances of the incentives and their impacts, let’s unpack what exactly the IRA means by an energy community.

What’s an energy community and how is it defined by the IRA? 

Broadly speaking, an energy community is a community that has been historically sited near environmentally harmful industries like coal mining or oil extraction. It also refers to a community where a certain percentage of their tax base is reliant on fossil fuel industries. Critically, the IRA offers a specific legal definition of an energy community for the tax credit bonus, defining it as one of three different geographical categories: 

1. A brownfield site, a term that describes a disused or abandoned land that is polluted from industrial activity. The IRA borrows the definition of a “brownfield site” from certain subparagraphs of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA).
2. A metropolitan statistical area or non-metropolitan statistical area that has disproportionately relied on the fossil fuel economy, specifically defined as:
   1. “Has (or, at any time during the period beginning after December 31, 2009, had) 0.17 percent or greater direct employment or 25 percent or greater local tax revenues related to the extraction, transport, or storage of coal, oil, or natural gas AND
   2. Has an unemployment rate at or above the national average unemployment rate for the previous year.”
3. A census tract (or directly adjoining census tract)
   1. In which a coal mine closed after December 31, 1999
   2. In which a coal-fired electric generating unit has been retired after 2009.

The U.S. Department of Energy (DOE) has put together a helpful mapping tool to show which areas qualify as energy communities under the IRA. 

Energy communities deserve additional investment

Energy communities have paid a hefty price as sacrifice zones for extractive industries. Over the last century, they have disproportionately borne the brunt of pollution, including toxic coal ash exposure and groundwater contamination. Many community members have consequently suffered health problems such as cancer, thyroid issues, and liver damage. 

Fossil fuel industries often sought to politically and economically capture communities and regions to enable themselves to push down labor costs or secure regulatory loopholes. From communities living below leveled mountaintops in Appalachia or surrounded by oil derricks in California, the damage is real. Reversing it requires dedicated federal support; the IRA reflects a real recognition of this fraught history and a path forward.

As we wrote in the Evergreen Action Plan in 2020, it’s only fair that the energy communities that bore the cost of resource extraction should be first in line to get the benefits from new investment in a clean energy economy. And we first had a taste of that back in 2021, when the Biden administration committed to the economic revitalization of hard-hit coal communities. And when Congress passed the IRA in August 2022, it recognized the need to provide additional financial incentives for investment in energy communities.

How can energy communities uniquely access funding in the IRA to fund a just, clean energy transition?

The IRA program offers a raft of funding opportunities that have special carve-outs for energy communities. Let’s take a closer look at two programs that can work together to help deliver jobs, local economic growth, cleaner air, and a safer climate future: 

1. Clean Energy Tax Credit Bonus for Energy Communities

The IRA offers a historic infusion of clean energy tax credits to transform the power sector across the country. The clean energy tax credits come in two forms: 

• The clean electricity investment credit (ITC), which supports new investment in clean energy installations. Project developers can receive a base credit worth 30 percent of the project’s value, provided they meet certain labor standards. 
• The clean electricity production tax credit (PTC), which subsidizes the production of clean energy. This tax credit awards credits to clean energy sources on a per-kilowatt-hour basis. For every kWh of clean energy generated, the producer gets a base credit of 2.6¢/kWh, provided they meet certain labor standards. Historically, that’s been roughly equivalent in value to the 30 percent ITC. It’s worth noting that a given project can only receive the PTC or ITC, not both. 

What projects are eligible?

Here’s the icing on the cake: the Energy Community Tax Credit Bonus. On top of the base tax credit, the Energy Community Tax Credit Bonus provides an additional bonus of 10 percent for production tax credits and 10 percentage points for investment tax credits. Larger projects that don’t meet the labor adder benchmarks, including paying prevailing wages and hiring apprenticies, only receive a 2-percentage point increase in the value of the ITC. This makes sense because a just transition means that workers should receive prevailing wages in a more equitable clean energy economy. 

Now, using DOE’s mapping tool, let’s take a quick look at Pennsylvania, a state with deep ties to fossil fuel production. Here, you can see that the vast majority of the state qualifies for the Energy Community Tax Credit Bonus, particularly around the Pittsburgh Coal Seam—the largest coal bed in the Appalachian Basin. The Energy Community Tax Credit Bonus represents a uniquely exciting opportunity for eligible entities in the western region of PA to spur clean energy projects that can help provide power to the rest of the state. This is especially useful as heavy industry within the region undergoes a broader decarbonization push, while also providing new job opportunities.

2. Powering Affordable Clean Energy (PACE) Program

The U.S. Department of Agriculture’s Rural Utilities Service (RUS) is offering $1 billion in partially forgivable loans for renewable energy projects. The PACE program will support financing for wind, solar, hydropower, geothermal, and biomass projects, as well as renewable energy storage projects.

USDA has designed the PACE program to specifically benefit energy communities. An eligible applicant can apply from a minimum loan of $1 million to the maximum available loan of $100 million for a renewable energy project. And once the project is fully operational, USDA will provide up to 40 percent total loan forgiveness if a project is in, or serves, 50 percent or more of the population of a designated energy community, disadvantaged community, or distressed community. Additionally, projects owned by Tribal communities are eligible for up to 60 percent of loan forgiveness. 

The pool of eligible applicants is broad, spanning corporations, states, territories, municipalities, utility districts, cooperatives, non-profit organizations, Tribes, Alaska Native corporations, and LLCs or for-profit organizations. But time is ticking: The interested applicants must submit a Letter of Interest (LOI) before September 29, 2023. For more information on how to submit an LOI, visit USDA’s website.

Funding opportunities can be used together or “stacked”

Remember, these two IRA programs can be used together. While each program represents a powerful funding opportunity on its own, the breakthrough of the IRA is that many of these programs can be layered on top of each other to cover a large part of a project’s cost (what some economists call “stackable.”) And that includes these two programs. Eligible applicants could use the clean energy ITC or PTC tax credits in conjunction with the PACE program. 

With these funds, communities can increasingly control their own destinies as they work to democratically chart their shifts from reliance on polluting industries to becoming vibrant hubs of the clean energy economy. A further tool, the direct pay (or elective pay) guidance that will soon be finalized by Treasury, will make clear that many governments can directly receive and invest these tax credits even though they are not private tax-paying entities. Government and non-profit applicants that wish to develop public power and other public projects have special opportunities here, even beyond those that are unlocked for the private sector. At the same time, Treasury can do more to finalize direct pay guidance that specifically enables all eligible entities, like rural coops, to access this funding.

Energy communities have a historic chance to reshape their own landscapes, charting the thriving clean power future they deserve.