The Inflation Reduction Act and Site Selection
Signed into law by President Biden in August 2022, the Inflation Reduction Act of 2022 (IRA) provides over $320 billion new and enhanced incentives designed to increase clean energy production in the United States, support energy innovation, and encourage investing in disadvantaged communities and projects that redevelop fossil fuel infrastructure and employ displaced workers. While the IRA took effect on January 1, 2023, some tax credits are available for use currently while others are not available for use until future years. This resource guide is intended to provide an overview of key tax credit provisions and relevant issues, and particularly geographic factors that could – and likely should – be taken into consideration during a site selection process.
IRA Summary
The IRA includes new and expanded tax credits and grant programs spanning a variety of categories. Following is a list of select programs most relevant to private sector companies and project investors:
The IRA allows taxpayers who don't have enough tax liability to fully benefit from these credits, such as project-specific Special Purpose Entities (SPEs), to transfer most of the credits. This enables them to monetize the credits by selling them to taxpayers who have enough tax liability to make full use of the credits. Governmental entities and tax-exempt organizations may also be eligible to receive a direct payment of the credit.
The IRA’s federal income tax credits for production and investment energy projects have designated “base rates” with the opportunity to earn “bonus” rate increases by meeting additional qualifying criteria, several of which are tied to the geographic location of the project.
“Base rate” means different things for different programs. More details can be found in the chart following, but, as an example, the new investment credits provide a base tax credit rate of 6%of qualified investment. If the project meets the prevailing wage and apprenticeship requirements, the project could receive a credit five times greater than the base, i.e., 30%.
The following chart provides an overview of production and investment credits created or extended by the IRA followed by an explanation of bonus enhancement and related requirements. Additional details on these programs-- as well as information on other fuel, vehicle, carbon management and other credits created by the IRA -- can be found on the BLS & Co. website.
Energy Communities Bonus: As defined in the IRA, the Energy Community Tax Credit Bonus applies a bonus of up to 10% for projects and facilities located in energy communities. The IRA defines energy communities as any one of the following:
There is no current mapping for all qualified brownfield sites; however, the Department of Energy launched a mapping tool that provides geographic eligibility for coal mine closures and unemployment data. (See map below.) The map contains 2022 employment data. The Treasury Department and the IRS will release a listing of MSAs and non-MSAs qualifying by means of their unemployment rate once unemployment data for future years becomes available, expected in May 2024. This listing will apply to the period beginning on January 1, 2023, and will remain effective until the next annual listing.
With regards to brownfield site requirements, the IRS provided additional guidance on June 23, 2023, that provided refined definitional guidance on what qualifies as a brownfield site. Most notably:
While no comprehensive map exists that covers eligible brownfield sites, the US Environmental Protection Agency has launched a mapping tool, “Re-Powering Mapper,” which identifies over190,000 contaminated lands, landfills and mine sites for renewable energy development illustrated here.
Domestic Requirements Bonus: To qualify for the domestic content bonus credit (10%), taxpayers must demonstrate sufficient use of domestic iron, steel, and manufactured components.
Prevailing Wage and Apprentice Bonus: Several tax credits provide enhanced clean energy tax benefits of 5 times the base rate if prevailing wage and apprenticeship requirements are met.
Projects considering utilization of IRA tax credits, including bonus enhancements, should consider the following when engaging in the site selection process:
The IRA has provided significant tax incentives designed to transition the nation’s reliance on fossil fuels to clean energy production and use. BLS & Co. would be pleased to assist you in pursuing IRA benefits and designing a site selection strategy that optimizes IRA eligibility and other important location considerations.
Click here for a full breakdown of the IRA Tax Credits.
Tracey Hyatt Bosman develops and executes incentives and location selection strategies for BLS & Co.'s corporate and institutional clients. She is a certified economic developer with twenty years of professional experience across a wide range of sectors, including data centers, manufacturing, headquarters, back office and contact center operations, and logistics.