With heightened concern regarding the United States’ staggering carbon emissions, the Inflation Reduction Act (IRA) is pushing to reduce the country’s carbon emission output by roughly 40% by 2030. To reach this ambitious climate investment, the IRS has issued a plan to promote development in regions that are or have previously been dependent on the fossil fuel industry, whether through extraction, processing, or steady usage. These areas are known as energy communities.
To entice developers to initiate and construct projects in energy communities, the IRS and the Department of Treasury have issued guidance on how to obtain investment tax credits and production tax credits for renewable energy-specific projects, outlined in Notice 2023-38.
The available tax credits include a 2% energy community bonus, which increases the base investment tax credit (ITC) amount or the production tax credit (PTC) rate. Additionally, if a project satisfies prevailing wage and apprenticeship requirements, a 10% energy community bonus is provided instead.
Notice 2023-38 provides extensive insight into the components that make up energy communities, requirements developers must satisfy to receive bonuses, and applicable project components that will be accepted by the IRS.
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