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What Is the 48C Tax Credit, and How Can Communities Benefit?

$6 billion is on the table to invest in communities, drive industrial decarbonization, and create jobs.

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Climate & Environmental Justice IRA Implementation
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Editor's Note

Passing the Inflation Reduction Act (IRA) ushered in the largest investments in climate and clean energy in our nation’s history. But our work isn’t done yet. Effective and equitable implementation will be key to ensuring we realize our climate goals, cut greenhouse gas pollution, advance environmental justice, and create good-paying jobs that propel the clean energy economy. In order to assist federal agencies, states, local communities, Tribal governments, businesses, and other partners take full advantage of this historic funding, Evergreen Action wrote a series of blogs breaking down several key programs in the IRA.

 

 

The Qualifying Advanced Energy Project Credit (also known as the 48C credit), is a $10 billion tax credit within the Inflation Reduction Act (IRA) that is transforming American industry by investing in decarbonization and building out a thriving and equitable clean energy economy.

Earlier this year, the U.S. Department of Energy (DOE) awarded $4 billion in the first round of the 48C tax credits to over 100 projects across 35 states. Tax credits as high as 30 percent were awarded across three distinct types of projects: clean energy manufacturing, critical mineral recycling, and industrial decarbonization projects.

Now, there’s $6 billion left up for grabs, and manufacturers that missed out on the first round of the 48C tax credit have another bite at the apple. DOE opened a second round of 48C applications on May 22, 2024, where interested manufacturers will first need to file a concept paper, or an initial, big-picture project proposal. Then, applicants who submit successful concept papers will be invited to file an official application. 

President Joe Biden speaks with workers at a semiconductor manufacturing facility in North Carolina.

President Biden speaks with workers at a semiconductor manufacturing facility in North Carolina.

The 48C tax credit offers a historic opportunity to support communities across the country to cut pollution and transform fossil fuel-based industries of the past into local economies powered by clean energy. Crucially, the 48C tax credit carves out a sizable chunk—40 percent of the total 48C tax credits, or $2.5 billion—for projects sited in communities that have historically been sited near polluting industries, what the IRA calls “energy communities.” And to get the full 30 percent tax credit, applicants need to offer prevailing wages and meet apprenticeship requirements standards.

That’s a big deal. Because investing in a clean energy transition isn’t just about counteracting a potential downward spiral of disinvestment, including lost tax revenue and jobs loss in coal country and left-behind energy communities. Done right, an equitable transition means an upward spiral of clean energy investments, prevailing wage jobs, apprenticeship programs, and regional economic diversification. And that’s especially important for communities that have unjustly borne the brunt of the coal, oil, and gas industry’s pollution for far too long.

It’s a perfect time for manufacturers to get up to speed on the 48C tax credit—and get ready to submit ambitious applications. So, let’s dig in: 

 

What’s the 48C Tax Credit? 

The 48C tax credit is a competitive funding opportunity that supports manufacturers to expand advanced energy projects. These projects can include:

  • Clean energy manufacturing and recycling projects that can strengthen supply chains
  • Critical mineral processing, refining, or recycling 
  • Industrial decarbonization projects that help industrial manufacturers stay competitive while cutting climate pollution at their facilities 

The 48C tax credit is a powerful tool, reinvigorated. It was first created through the American Recovery and Reinvestment Act of 2009, providing a significant subsidy for qualifying advanced energy projects. And in 2022, the IRA breathed new life into the 48C tax credit by putting an additional $10 billion on the table for manufacturers and other applicants to transform local industry. 

Close up of technology from a semiconductor manufacturing facility in North Carolina.

The 48C tax credit subsidizes clean energy manufacturing, critical mineral recycling, and industrial decarbonization projects. Pictured: semiconductor technology from a manufacturer in North Carolina.

The extended 48C tax credit came with a few provisions designed to improve working standards and advance environmental justice: 

To receive the full tax credit of 30 percent, applicants must meet the prevailing wage and apprenticeship requirement standards. And that makes total sense—building out an equitable and clean energy economy should mean creating good-paying jobs, adhering to clear labor standards, and training the next generation of workers. 

The 48C tax credit also upheld President Biden’s Justice40 Initiative by committing to channel at least 40 percent of total tax credit allocations to applicants sited in designated energy communities, or communities that have been historically sited near fossil fuel infrastructure. That makes sense, too. As we build out a clean energy economy, we should invest in communities that have disproportionately borne the brunt of the coal and oil industry’s pollution. 

 

How Do Manufacturers Apply?

The Department of Treasury (DOT) and Department of Energy (DOE) have already issued $4 billion of 48C tax credits in Round 1.

  • DOE recently opened the 48C portal for Round 2 concept papers on May 22, 2024.
  • Eligible applicants, including small, medium, and large-sized manufacturers, can submit concept papers on the portal until June 21, 2024.
  • After applicants submit concept papers, DOE will select applicants to submit a formal application.

The takeaway? Now is the perfect time for applicants to get ready with an ambitious application that centers communities and workers.

Remind Me, What Are Energy Communities?

Generally speaking, energy communities are communities that have been historically sited near environmentally harmful industries like coal mining, polluting industry, or oil extraction. The term also refers to a community where a certain percentage of their tax base is reliant on fossil fuel industries. (It’s worth noting the IRA offers a very specific definition of “energy communities.”)

After decades of disinvestment, energy communities deserve to be among the first to benefit from a new clean energy industrial revolution. After all, they’ve been critical in fueling our nation’s energy needs, but at a price—having been forced to live near dirty pollution sources for decades. What does that mean for the 48C tax credit? Well, it means that the benefits of 48C cannot simply begin and end with the manufacturers. The IRA’s benefits need to be tangibly felt by energy communities.

The 48C Tax Credit Must Center Workers and Communities 

Getting the 48C tax credit right means that manufacturers should be ready to submit robust concept papers before June 21, 2024 that include ambitious decarbonization targets (if applying as an industrial decarbonization project) and a commitment to paying prevailing wages with benefits, engaging in extensive public consultation, signing formal partnership agreements with labor and community stakeholders, and remediating local environmental impacts. 

And when it comes to the broader arc of a just energy transition, getting this right means equitable policy planning at the local, state, regional, and Tribal government levels. It means meaningful and extensive public participation of workers, unions, disadvantaged communities, Tribal communities, and more. It means harnessing a full menu of IRA investments to diversify the economic backbone of communities while severing the decades-long pattern of government budget dependence on fossil fuel revenues. It means secure union support and community benefits plans—and much, much more.

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