Energy Community Bonus Credits Bolster Clean Energy Jobs and Profits

Economic research has continually concluded that people in underemployed areas do not move for new employment—even if industry has moved to another region within national borders (i.e., no immigration barriers to movement). Moving is expensive and requires workers to exit their community support networks, and new jobs may not match exactly with workers’ current training. Even within regions, workers find it difficult to follow jobs from one area to another. When an industry leaves a local area, economists have found that shocks are triggered beyond the industry. (This has been studied extensively with the China shock to trade in the US.) Wages and employment drop throughout the region.

With the energy transition, the US government is aiming to lessen those negative economic impacts on traditional energy communities—and hopefully bring economic growth. On April 4, 2023, the Treasury Department and the Internal Revenue Service released guidance around the Energy Community Tax Credit Bonus, a component of the Inflation Reduction Act (IRA) that seeks to bring industry development to these areas of the country. The bonus adds 10% to the IRA’s Production Tax Credits and 10 percentage points to its Investment Tax Credits for relevant projects in energy communities.

Energy Community Definition

The three types of energy communities included in the bonus are defined by the Interagency Working Group on Coal and Power Plant Communities and Economic Revitalization as follows:

1. Brownfield sites
2. Metropolitan statistical areas (MSAs) or non-MSAs that have, at any point after 2009, gained a significant portion of employment or tax revenue from energy and that now have an unemployment rate above the national average
3. Census tracts (or directly adjoining census tracts) in which a coal mine has closed after 1999, or in which a coal-fired electric generating unit has been retired after 2009

Who This Affects

The Energy Community Tax Credit Bonus incentivizes the construction of plants in traditional energy communities—concentrated primarily in Appalachia, Northern Michigan, Wisconsin, Minnesota, and the Rocky Mountain West. These regions are likely to see an influx of investment. Interestingly, many tribal communities are found in these regions, offering an outsized positive impact for Native Americans that have historically faced negative health and economic effects from the traditional energy industry.

The bonus, of course, also affects companies with relevant clean energy projects in said energy communities—allowing for larger ROIs.

Why It Matters

The Energy Community Tax Credit Bonus seeks to lessen the negative impacts of traditional industry leaving a region. The IRA already includes guidelines around a Registered Apprenticeship program, which allows workers to be trained in a newer clean energy sector and creates a pipeline of new American workers. This additional bonus, with its injection of investment and employment in areas with higher rates of unemployment, could further help in two ways. First, it could create more opportunities for employment near where workers are already located. Second, investment in these regions could allow for greater infrastructure development—leading to a second employment wave and increased transportation options for workers.

Overall, this government incentive will potentially enable regions that have become economically disadvantaged to resurge, skill up American workers, and lead to increased profitability of clean energy projects for companies.