Over 50 U.S. mayors signed on to a letter expressing appreciation and laying out a set of recommendations to the Department of the Treasury and the Internal Revenue Service regarding a game-changing new program that will allow cities to benefit from clean energy tax credits in unprecedented ways. Elective pay (or direct pay) is a critical mechanism for expanding the clean energy economy, made available by President Biden’s Clean Energy Plan. This new program will allow tax-exempt entities — like non-profit organizations, state, local and Tribal governments and rural electric cooperatives — to gain access to credits, which corporations have long benefitted from, for the first time. This offers cities an incredible opportunity to turbocharge local climate action.
Climate Mayors, a bipartisan organization of over 350 mayors, is excited about the opportunity to accelerate local climate ambition and transition to clean energy that this transformative direct pay program presents. This will be the first time these credits are available for city-owned clean energy projects, making projects more affordable for local governments and leveling the playing field between local governments and the private sector. Cities already have ambitious plans for the newly available credits such as: retrofitting for energy efficiency, rooftop solar installation, construction of community resilience hubs in disadvantaged neighborhoods, purchasing and deploying electric vehicles and charging infrastructure and deploying renewable energy systems like geothermal.
Making it possible for cities to access certain clean energy tax credits will be sure to move us toward a net-zero economy and help the U.S. meet its Paris Agreement climate goals. However, more clarification is needed before mayors can confidently take advantage of this critical IRA provision. In the comment letter to Treasury, Climate Mayors expressed the need for the agencies to work together to ensure localities understand the full extent that they can access the clean energy credits without being penalized. The reality for many localities is that they are constrained by limited staff capacity and financial resources. The Treasury and Administration must work together to ensure localities don’t miss out on these credits.
Over the last year, cities have already been taking concrete action to fight the climate crisis and build community resilience, but with these supportive elective pay provisions in place, this is just the beginning.
“Allowing cities to utilize elective pay credits can catalyze local climate projects and turbo-charge the clean energy economy at a scale that was previously unimaginable,” said Kate Wright, Climate Mayors’ executive director. “We thank the Biden-Harris administration for the inclusion of cities in their plans and we hope that further clarifications of the rules will allow local leaders to fully leverage their climate investments.”
Climate Mayors feedback and recommendations to Treasury on direct pay includes:
- clarifying the timeline between the pre-filing registration process, elective payment election and when an eligible entity would receive an elective payment;
- clarifying eligible entities as it relates to certain agencies and instrumentalities within political subdivisions, such as housing and transit authorities and/or publicly owned utilities;
- clarifying eligible projects with the potential for a “pre-approval” process in future iterations of the pre-filing registration process;
- clarifying conditions that Treasury would consider a reasonable cause where an entity receives a penalty for excessive payment; and,
- recommending that Treasury work across agencies to support eligible entities in taking advantage of elective payments.
News item from Climate Mayors
