Report, States Should Spur Use of “Direct Pay” Tax Credits to Advance Clean Energy in Low-Income Communities

Seventy percent of the IRA’s $400 billion in climate investments is in the form of uncapped, direct pay tax credits, which are available through at least 2032. Beyond its scale, direct pay is unique in its availability to tax-exempt and public entities — nonprofits, state and local governments, economic development agencies, and the like — which can receive a cash refund for a portion of the cost of clean energy projects and electric vehicle purchases. These entities are well positioned to partner with low-income communities to ensure they can access the credits’ benefits, instead of being passed over for investment.

This report from the Center on Budget and Policy Priorities provides guidance for policymakers on how to create awareness, capacity, and financing opportunities to access the IRA’s tax credits. It suggests helping communities understand the range of investments that can receive support through direct pay and the process for securing clean energy project financing, increasing access to that financing, creating incentives to site clean energy projects in low-income communities, and ensuring that related jobs offer opportunities and living wages for community residents.