Coal towns in transition tax credit blunted by law definition
Coal communities trying to attract development are likely to face competition from brownfields and areas with fewer fossil fuel jobs under a provision of the new Climate and Taxation Act intended to bring life to areas where energy industries are fading.
U.S. energy officials, private developers and communities eagerly await guidance from the Treasury Department on the scope of the 10% bonus tax credit for projects located in what the Climate and Tax Act describes as “energy communities”. Last week, the Treasury Department opened a public comment period for this and other tax credits, with comments expected Nov. 4.
The benefit, along with other additional appropriations to boost projects that pay prevailing wages and operate apprenticeship programs, is central to the Biden administration’s goal of ensuring that areas that depend long fossil fuels enjoy clean energy. He’ll likely cover projects in Appalachia decimated by mine and mill closures — the places the senator champions.
But the bill’s definition of an “energy community” could cover half the country, according to a recent analysis by environmental research group Resources for the Future.
If the interpretation is correct, “the IRA’s energy communities provision does not target the communities most dependent on fossil fuels very precisely,” said Daniel Raimi, an RFF fellow and director of its Equity in the Energy Initiative. Energy Transition. , who drew up a map with Sophie Pesek, RFF researcher.
“But if the intention is to make many United States eligible for this additional tax credit, then it does,” Raimi said.
The law includes any census tract, or adjacent areas, where a coal-fired power plant closed after 2009 or a coal mine closed after 1999, qualifying a large portion of the region.
But census tracts can cover large areas, Raimi and Pesek noted. The law includes two other categories that may not encompass the most energy-dependent places: brownfields, which total about 25,000 nationwide and cluster in the Great Lakes region, and a threshold employment in fossil fuels which is well below the national average, according to their analysis.
Put together, the RFF map shows places reeling from coal shutdowns competing with places like Denver and surrounding suburbs as well as a wide swath of the West Coast.
“If they expanded it to include all these other things, it could dilute the impact,” said James Van Nostrand, law professor and director of West Virginia University’s Center for Energy and Sustainable Development. “I think the brownfields thing is just too broad. Will it really be the targeted relief it’s designed for? It’s a huge concern. »
An aide to the Senate Energy and Natural Resources Committee who spoke on condition of anonymity called RFF’s analysis “too generous” in its estimates, adding that the law allows coal communities to compete successfully for development.
“Pretty big holes”
Clean energy developers claiming the credit are studying the provision.
The American Clean Power Association released its own map for members that showed more limited areas than the RFF study. In a PowerPoint shared with Bloomberg Law, the group noted seven key issues, such as whether the government would release its own map and how it would partially address projects in an eligible energy community, including offshore wind projects that may interconnect in eligible communities.
Solar and storage projects are moving forward, but “certainly there are companies waiting for guidance before committing to a project site or signing agreements,” said Ben Norris, senior director of regulatory affairs at Solar. Energy Industries Association.
Outside of clearly defined coal communities, Treasury Department guidelines could expand or contract eligible territory based on industry and employment data defining fossil fuel employment, said Harriet Wessel, associate at the office of Norton Rose Fulbright in Houston.
Communities may also be eligible if at least 25% of local tax revenue is related to the extraction, processing, transport or storage of coal, oil or natural gas, but it is not clear how to obtain local tax revenue data with sufficient granularity to target investments, says Wessel.
“People are making decisions to invest, and they’re looking to trade that information in the energy space, and they can’t do that if there’s no certainty,” Wessel said. “I would say there are some really big holes.”
The challenge for agencies will be to draft guidelines “as soon as possible, and hopefully there will be little to no litigation,” said Dan Reicher, senior fellow at Stanford University’s Doerr School of Sustainability. and former Assistant Secretary of Energy for Energy. energy efficiency and renewable energies.
“I don’t think there’s a lot of clarity right now on how this is all going to work out,” Reicher said. “The councils that come in could make or break that for some of these communities.”
Meanwhile, coal communities are working hard to assemble energy transition plans that harness the power of tax credits, said Brian Anderson, executive director of the Biden administration’s interagency task force on coal communities and of power plants and economic revitalization.
Planned projects in West Virginia accounting for tax credits include solar farms on former surface mining sites, an aerospace manufacturing center powered by a renewable energy microgrid and a new natural gas plant with carbon capture systems, said Marc Mignault, partner at Bowles Rice LLP in Charleston, W.Va.
“We think many projects will likely lean toward IRA tax credits and additional incentives applied to energy communities,” Mignault said. “We may also see projects unrelated to clean energy projects seeking to incorporate clean energy to qualify for said tax credits.”