Treasury Department and IRS Issue Guidance for Bonus Tax Credit for Fossil Fuel Communities

The Biden administration has issued final guidance on the bonus tax credit for American communities dependent on fossil fuels. The Department of the Treasury and the Internal Revenue Service have issued new rules (announced on April 4) that allow “green” energy companies to secure additional tax credits when investing in local communities economically tied to oil and coal extraction.

The Treasury Department is offering the credits under the Inflation Reduction Act (IRA), a law passed by Congress last summer that contained $270 billion in tax breaks for “green” energy. The IRA extended a 30 percent tax credit for wind, solar, and other green energy projects and provided an extra 10 percent investment tax credit to those investing in “energy communities” to end their generational dependence on fossil fuels. A 10 percent production tax credit was also provided for facilities that generate green energy. These additions to the bill helped to secure West Virginia Democrat Sen. Joe Manchin’s essential support to pass it in the Senate.

The tax credits are expected to cover projects in coal-dependent regions like Appalachia, which have been decimated after government policies led to mine and plant closures, putting many out of work. “The Inflation Reduction Act ensures all Americans benefit from the growth of the clean energy economy by driving investment and creating jobs in coal communities,” said Treasury Secretary Janet L. Yellen in a press statement. “Coal communities have the knowledge and resources to play a leading role in the growth of the clean energy economy, and additional public investment will jumpstart the process.”

Biden Administration to Provide Bonuses for Investments in Coal Country

The Treasury Department said it will open the application process for $4 billion worth of new tax credits to build advanced energy manufacturing and decarbonization projects on May 31. However, $1.6 billion is required to be invested in communities hit by coal mine or coal-fired power plant closures. “Communities like coal communities have the knowledge, infrastructure, resources, and know-how to play a leading role in the move to a clean energy economy,” Deputy Treasury Secretary Wally Adeyemo told reporters. The program applies to “energy communities” that are designated areas where coal mines closed after 1999 or where coal-fired electric-generating units were retired after 2009.

The bonus is also available to areas that have significantly depended on fossil fuels for jobs or local tax revenue and that suffer from higher than average unemployment. A metropolitan statistical area or non-metropolitan statistical area must have, or have recently had, at least 0.17 percent direct employment to qualify for the tax bonus, or had at least 25 percent local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas, according to the Treasury’s criteria. Furthermore, the community receiving green investment bonuses must have an unemployment rate at or above the national average unemployment rate for the previous year.

The IRA also specified that