Wealthy cities and towns across the country are benefiting from a tax incentive meant to help areas struggling from the move away from coal and fossil fuels.
Some of the wealthiest coastal cities and towns in the United States — with sizable tax bases, good schools and robust job opportunities — are getting a special tax incentive intended for communities left behind.
The federal government is currently labeling cities like Alexandria, Virginia, Greenwich, Connecticut, and Cape Cod, Massachusetts, as “energy communities” — areas considered to be struggling from the move away from coal and other fossil fuels to clean sources of energy.
“Energy communities” qualify for an extra incentive for clean energy development, a bonus provided by the Inflation Reduction Act intended to ensure that the places most hurt by the decline in fossil fuels are given the most help in the clean energy transition.
Before the Inflation Reduction Act, there were no “place-based” federal policies devoted to ensuring these gutted communities had a chance at new and diversified economies, said Brian Anderson, the director of the Biden administration’s interagency working group for energy communities.
Making wealthy communities eligible for these financial incentives is not a mistake in the federal government’s implementation of the policy — but it is perhaps an error by design, policy experts say.
“It really does seem like they just designed it in a way that very poorly targets fossil fuel communities,” said Noah Kaufman, now a climate economist at Columbia University who served in both the Biden and Obama administrations. “These regions need targeted support, but the support is a mile wide and an inch deep.”
About half of the country, geographically, qualifies for the IRA’s energy community tax credit bonus. If the wealthiest communities in the country are pulling from a pot of money meant to even the playing field during a clean energy transition, then the policy is not working — and runs the risk of wasting taxpayer dollars, he said.
Making matters worse, the tax credit bonus excludes parts of southern and eastern Pennsylvania, large swathes of Oklahoma, and chunks of North Dakota — areas experts and lawmakers consider to be some of the most important traditional energy communities. These problems play out in the data: More than 100 counties with very high fossil fuel dependence aren’t qualifying as “energy communities,” and about 80 counties with very low fossil fuel importance are qualifying, according to a peer-reviewed February study from researchers at the Massachusetts Institute of Technology.
“It was very obvious to me that that number was much too low, and anyone who works extensively in the world of energy-related employment would see quickly that it is too low,” Raimi said.
Adjusting that threshold would require Congress to amend the law, an unlikely outcome in the current political environment. Neither Casey’s office nor Raimi has heard any interest in such a move, which would likely open the door to a wider congressional debate on the IRA’s future that no Senate Democrat wants to have.
“The criteria for the energy communities’ bonus are defined in statute and the Department of Energy has been working with our colleagues at Treasury and the IRS to implement the legislation based on these definitions,” the DOE said in a statement to NOTUS.
Place-based policies have become increasingly popular federal policy as more and more Americans move less and less, even when it makes economic sense for them to relocate, according to Kaufman.
“For a long time, economists had this attitude that we don’t care about places, we care about people,” Kaufman said. That logic changed as the decline in manufacturing hollowed out economic opportunities in the United States — and yet people stayed, defying economists’ expectations.
Democrats and Biden are not the first to try place-based policies. Former President Donald Trump’s administration pushed for “opportunity zones,” which created tax incentives intended to spur investment in low-income areas.
While it succeeded in some locations, the flaws in its structure left large swathes of targeted communities without investment — and, in some cases, worse off than before.
