Taking advantage of IRA tax credits in energy communities   

Many communities have a longstanding history with the energy industry. These communities have supplied the energy we’ve depended on for decades, and their economies have historically relied on the production of oil, gas and coal to drive jobs and local tax revenue. Today, as the nation’s energy supply begins to transition from fossil fuels toward cleaner forms of energy, the residents of these communities are facing challenges as the demand for traditional fuels wanes and production needs decline.

A transition toward cleaner energy benefits the nation and the world as we try to reduce greenhouse gas emissions and face the challenges of coal mines closing, coal-fired power plants closing, and oil and gas production demand declining. Unfortunately, this can negatively impact the job market and the economy of these important communities. Recognizing the longstanding contributions that these communities have made (and can still make) to the energy economy, the federal government acknowledged the benefit to build new energy resources in these communities, so that they can benefit from the explosive growth of industries like solar, wind, biogas and other renewables.

The Inflation Reduction Act of 2022 (IRA) recognized this need and included a tax credit incentive program – the Energy Community Bonus Credit provision – focused on attracting clean energy development to communities that have historically had a lot of oil, gas and coal production. Designating such as “energy communities,” the IRA created significant tax credit opportunities to help fund the construction of qualified clean energy facilities within their boundaries. This presents an opportunity for energy communities to take advantage and get more involved in the clean energy economy.

What do you need to know about energy communities? 

Within the IRA, an energy community is defined as a location meeting certain geographic criteria that enables it to receive support and additional financial incentives for building qualified clean energy facilities in its location. This is meant to provide financial support for transitioning from traditional fossil fuel-based energy production to renewable energy production in these communities, which may have a larger-than-average concentration of energy industry workers, energy industry assets and perhaps industrial related brownfields.

The IRA defines an energy community as a location that meets one of the following definitions: