In a recent blog post, we described how the clean investment spurred by the Inflation Reduction Act (IRA) is going to disadvantaged communities, including areas with low income, low educational attainment, high unemployment rates, and so-called “power communities”— areas with local economies historically reliant on fossil fuels for employment, wages and tax revenue. Since we published this blog, MIT and the Rhodium Group Clean Investment Monitor (CIM) have published additional data, adding investments announced between July and December 2023. This post updates our previous analysis using the latest data, confirming that investments are continuing to be concentrated in disadvantaged communities.
ACCELERATING CLEAN ENERGY COMMUNITY GROWTH
The IRA defines energy communities as areas historically dependent on fossil fuels for employment, wages or tax revenue. The Energy Community Bonus offers an additional tax credit for investment and production of clean electricity in these locations.[1] Prior to the IRA’s passage in August 2022, an average of $2 billion per month in clean electricity investment was announced in areas eligible for the Energy Community Bonus and $2.5 billion per month in the rest of the US (dark blue bars in Figure 1).[2] After IRA enactment, these numbers increased to nearly $4.5 billion per month in energy communities and to $3.5 billion in the rest of the U.S. (light blue bars in Figure 1), representing an increase of $2.4 billion per month in energy communities and $1 billion per month in the rest of the US Clean investment announcements are growing in the US, with particularly strong growth in the energy communities.
Source: Rhodium Group and MIT Center for Energy and Environmental Policy Research (CEEPR) Clean Investment Monitor, accessed February 2024. Pre-IRA data dates to 2018. Post-IRA data covers August 2022 to December 2023. Energy Communities of DOE Energy Community Tax Credit Bonus Card (accessed October 2023), with 2020 census map boundaries, 2010 MSAs, and 2020 non-MSA county definitions following Treasury and IRS Notice 2023-29 and Annex A to the Notice.
INVESTMENT IN RECENT COMMUNITIES
Net IRA investments flow not only to power communities, but also to disadvantaged communities, defined more broadly. Figure 2 compares the pre- and post-IRA median income distributions in counties with net investment announcements.[3] The dashed line shows the aggregate US median income. Prior to the IRA, 68% of announced cleantech investments were in counties with median incomes below the overall US median income. After the IRA, 75% of reported net investments were in counties with median incomes below the aggregate US median income.
Source: Clean Investment Monitor; Census Bureau; US Treasury calculations. Median household income is the 2021 value.
Figure 3 describes a similar analysis based on education rather than income. Prior to IRA adoption, 79% of reported net investments were in counties with college graduation rates below the overall U.S. rate. Since the adoption of the IRA, 84% of reported net investments have been in counties with college graduation rates below the overall US rate.
Net investment has historically been concentrated in places with low income and education, and this has been especially true since the IRA passed.
Source: Clean Investment Monitor; Census Bureau; US Treasury calculations. The percentage of college graduates is the 2021 value.
[1] See our previous blog post for more details.
[2] We filter the messages to include only solar, wind and electric energy because these technologies are eligible for Energy Community bonus credits. Pre-IRA data covers the period from January 2018 to July 2022 and post-IRA data from August 2022 to December 2023. Limit pre-IRA dates to the same time range as post-IRA dates (ie. June 2021 to July 2022 ) gives similar results.
[3] Demographics are from the 2021 American Community Survey. Figures 2 and 3 include all investment announcements, not just those eligible for the Community Energy Bonus as in Figure 1. Pre-IRA data is from 2018.
