Report Suggest Better Definition of IRA Energy Communities to Provide Most Benefit

Energy Communities

(Credit: Resources for the Future)

by | Nov 1, 2022

Energy Communities

(Credit: Resources for the Future)

An incentive of the Inflation Reduction Act is tax benefits for clean energy projects within a so-called energy community, but a paper by Resources for the Future finds that the definitions of those areas are too broad and that the benefits may not reach those that need them the most.

The Resources for the Future (RFF) report looks at interpretations of the energy communities provision of the legislation, which aims to address the negative economic impacts of a decline in fossil fuel use. The report finds that the definition of energy communities in the Inflation Reduction Act (IRA) covers between 42% and 50% of land area in the United States, limiting its ability to target areas that need the benefits the most.

To combat that, the report suggests targeting counties instead of large geographic areas, cutting an unemployment requirement, and including areas with operational coal production. It also recommends scaling financial incentives to better reflect the fossil fuel activity in each county.

The result of those changes lowers the land area covered by energy communities to 39% with about 10% of that eligible for the full tax credit.

“Even if communities are thriving now under a fossil fuel-based economy, these conditions are likely to change in the future,” says Daniel Raimi, one of the paper’s authors and a fellow at RFF. “Ensuring an equitable energy transition means that we need to enhance economic resilience in fossil fuel communities, and that will take time. That includes parts of the country that are struggling today, but also regions where the economy is strong because of coal, oil, and natural gas production.”

The IRA was passed in August 2022 and includes nearly $370 billion in energy program incentives. They are intended to boost renewable energy manufacturing even as prices increase, building efficiency, and significantly cut the country’s total emissions.

The RFF report looks at three areas that are considered to be energy communities – brownfields, coal, and fossil fuels. RFF says the Inflation Reduction Act will channel financial benefits to areas that need them, but regions especially with a high dependence on fossil fuels for their economy will miss out.

An example the research gives is that the energy communities provision says that an area has a higher-than-average unemployment rate, which would exclude large areas with a significant fossil fuel industry presence, such as Louisiana, Montana, North Dakota, Oklahoma, and Texas. Yet areas that don’t rely on fossil fuels like Maine, Michigan, and Oregon are included.

What are the energy community areas?

Brownfields are sites impacted by past pollution but are considered good locations and sizes for energy projects. Those include community solar developments, energy storage, or manufacturing facilities. The EPA estimates there are 450,000 brownfield sites in the US.

An issue with brownfields in the provision, RFF says, is that many of the sites were not impacted by fossil fuel economies, but rather by other pollution like industrial waste.

As for coal, closed mines since 2000 are eligible for incentives. The areas can often be quite large, especially in rural regions, which could provide the opportunity for large renewable energy or manufacturing sites.

The RFF analysis finds that nearly 15% of the US land area, representing almost 3% of the population, could qualify for the IRA tax benefit from closed coal mines. Additionally, the IRA could give benefits to coal-fired power generators that closed since 2010. This adds 7% of the US land area and 2% of the population eligible for incentives.

Areas dependent on fossil fuels require a certain level of unemployment rate to receive benefits. Factoring that in, significantly increases the land area that is covered.

The RFF report says defining the energy community is not straightforward and should be adjusted to cover areas that need the IRA benefits the most. It says by doing so it targets areas most likely to be dependent on fossil fuels for economic success.

“Policies can evolve, and it’s important to look at this issue from multiple angles and perspectives to provide some avenues for future policy evolution,” says Sophie Pesek, another author of the paper and an RFF research analyst. “Supporting fossil fuel communities as the United States decarbonizes is incredibly important; taking extra care to make sure that decision-makers approach it with all available options will help ensure that no community gets left behind.”

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