“I see one-third of a nation ill-housed, ill-clad, ill-nourished . . . . The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”[1]

– President Franklin Delano Roosevelt, January 20, 1937

The United States has a rural poverty problem. Over the last 30 years, 19.4 million people lived in counties identified as being persistently in poverty. While definitions vary, persistent poverty counties (PPCs) largely have maintained poverty rates of 20 percent or more for the past 30 years.[2] Research shows that those living in these areas suffer systemic problems and lower quality of life, including lack of access to medical services, healthy food, and quality education. As of 2019, 85 percent of these persistent poverty counties were rural.[3] Many of these communities can attribute their status as PPCs to coal plant closures. First caused by new Clean Air Act standards, plant shutdowns in recent years have resulted mostly from the flood of cheap natural gas made available by hydraulic fracturing[4] and increased use of renewable and zero-carbon emission electric power generation.[5]

However, an under-discussed Inflation Reduction Act program called the New Empowering Rural America (New ERA) program, along with tax and labor incentives, presents an opportunity for rural electric cooperatives (RECs) to build clean energy infrastructure, revitalize communities, and fight persistent rural poverty.

Despite some technical limitations,[6] there is still a great abundance of renewable energy resources and opportunities for a high percentage of clean energy generation in persistent poverty counties in the United States.[7] Rural electric cooperatives (RECs) should utilize the IRA’s New ERA program by collecting clean energy tax incentives up front through their “direct pay” option.

The $9.7 billion New ERA program is exclusively available to RECs.[8] Funds can be used to purchase, deploy, or improve renewable energy systems, zero-emission systems, and energy efficiency projects.[9] Since subsidized solar and wind energy are cheaper than coal, these investments can lower electricity costs while generating revenue through net metering, royalties, and land leases for clean energy projects.

A significant obstacle for RECs transitioning from coal has been the debt incurred from plant construction and operation—so-called “stranded debt.”[10] The New ERA program offers low-interest loans (as low as 0%) with terms up to 35 years, allowing RECs to refinance debt tied to stranded assets if they replace those assets with clean energy projects.

No IRA provision offers greater potential for the purposes of rural electric cooperatives ability to immediately begin injecting new capital into poor communities than that of the “elective pay” option, more commonly known as direct pay.[11] Direct pay enables nonprofit entities, such as RECs, to claim certain credits that they previously could not due to their exemption from federal income tax.[12] More importantly, it allows entities to receive the full value of a tax credit upfront and even transfer its value in the process of financing ineligible clean energy projects. This tax credit for non-taxpayers, such as nonprofits, is crucial. Because nonprofits are owned by members, RECs always have to balance rate affordability, energy reliability, paying capital credits back to their members, and the larger economic impact of their operation. Just as stranded debt financing will allow cooperatives to get out from under their existing debt, direct pay allows them to make large-scale investments that will lead to more jobs and affordable electricity for its members, as well as providing the capability for economic diversification in rural communities.

Of the twelve tax credits made available to be paid for with direct pay, rural electric cooperatives are able to take advantage of all of them.[13] There are several key energy generation and carbon capture credits that RECs need to engage with to maximize the value they bring back to their communities. The Production Tax Credit (§ 45, pre-2025) offers incentives for electricity generation from various renewable sources, which is pivotal for RECs looking to expand into new energy sources, such as biomass, wind, or geothermal.[14] Similarly, the Clean Electricity Production Tax Credit (§ 45Y, post-2024) and the Investment Tax Credit (§ 48, pre-2025), along with its successor, the Clean Electricity Investment Tax Credit (§ 48E, post-2024), provide substantial financial benefits for investments in clean energy technologies. Furthermore, the Credit for Carbon Oxide Sequestration (§ 45Q) opens up avenues for RECs to invest in carbon capture, utilizing environmental initiatives to their fiscal advantage while also likely improving the health of local populations with less pollutants being released from coal plants.[15]

Despite the exponential benefits to our poorest communities and to the economy at large, these policies are not immune to today’s rampant politicization surrounding clean energy and climate change. The New ERA program enjoys substantial bipartisan support with Republicans and Democrats on the Agriculture Committees of both chambers of Congress showing support for unique energy programs that improve energy security, the environment, and the public health of rural communities.[16]

Rural electric cooperatives should seize this unparalleled opportunity to address the fundamental causes of persistent rural poverty by investing in and leading the charge for community revitalization. By strategically reinvesting revenues into programs and infrastructure with the potential for significant community benefit, rural electric cooperatives can become the architects of a new, sustainable, and prosperous rural America.

 

 

[1] Franklin D. Roosevelt, Second Inaugural Address (Jan. 20, 1937), https://historymatters.gmu.edu/d/5105/.

[2] U.S. Census Bureau, ACS-51, Persistent Poverty in the United States 1 (2023), https://www.census.gov/content/dam/Census/library/publications/2023/acs/acs-51%20persistent%20poverty.pdf.

[3] U.S. Dep’t of Agriculture, Economic Research Service, Rural Poverty & Well-Being (last visited Dec. 10, 2023), https://www.ers.usda.gov/topics/rural-economy-population/rural-poverty-well-being/#historic.

[4] U.S. Energy Information Administration, International Energy Outlook (last visited Dec. 10, 2023), https://www.eia.gov/outlooks/aeo/IIF_LNG/.

[5] See generally Brady Dennis and Steven Mufson, That’s What Happens When a Big Plant Shuts Down in a Small Town, Wash. Post (Mar. 28, 2019), https://www.washingtonpost.com/national/health-science/thats-what-happens-when-a-big-plant-shuts-down-in-a-small-town/2019/03/28/57d62700-4a57-11e9-9663-00ac73f49662_story.html.

[6] Christopher T. Clack et al., Evaluation of a Proposal for Reliable Low-cost Grid Power with 100% Wind, Water, and Solar, 114 Proc. Nat’l Acad. Sci. 6722 (2017), https://doi.org/10.1073/pnas.1610381114.

[7] U.S. Dep’t of Energy, Office of Energy Efficiency & Renewable Energy, Renewable Energy Resource Assessment Information for the United States (March 2022). https://www.energy.gov/sites/default/files/2022-03/Renewable%20Energy%20Resource%20Assessment%20Information%20for%20the%20United%20States.pdf ; NRECA, Electric Cooperatives and Persistent Poverty Counties, Business & Technology Advisory, https://www.cooperative.com/programs-services/bts/Documents/Advisories/Member-Advisory-on-Persistent-Poverty-Counties-June-2018.pdf.

[8] U.S. Dep’t of Agriculture, Rural Development, Empowering Rural America Program (New ERA) Fact Sheet (May 2023), https://www.rd.usda.gov/sites/default/files/RD-FS-RUS-NewERA-FINAL508.pdf.

[9] Id.; see also 7 U.S.C.A. § 8103(j)(1) (West).

[10] Christopher T. Clack et al., Evaluation of a Proposal for Reliable Low-cost Grid Power with 100% Wind, Water, and Solar, 114 Proc. Nat’l Acad. Sci. 6722 (2017), https://doi.org/10.1073/pnas.1610381114.

[11] U.S. Dep’t of the Treasury, Internal Revenue Serv., Pub. No. 5817, Elective Pay Overview (June 2023), https://www.irs.gov/pub/irs-pdf/p5817.pdf; U.S. Dep’t of the Treasury, Internal Revenue Serv., Pub. No. 5817-A, Rural – Electric Cooperatives (June 2023), https://www.irs.gov/pub/irs-pdf/p5817a.pdf.

[12] U.S. Dep’t of Agriculture, Rural Development, Inflation Reduction Act – PACE and New ERA Program FAQ (Sept. 13, 2023), https://www.rd.usda.gov/media/file/download/new-era-faqs-v8-09132023.pdf.

[13] U.S. Dep’t of the Treasury, Internal Revenue Serv., Pub. No. 5817-G, Clean Energy Tax Incentives: Elective Pay Eligible Tax Credits (June 2023), https://www.irs.gov/pub/irs-pdf/p5817g.pdf.

[14] 1.3 cents/kWh for electricity generated from landfill gas (LFG), open-loop biomass, municipal solid waste resources, and small irrigation power facilities, or up to 2.6 cents/kWh for electricity generated from wind, closed-loop biomass, and geothermal resources.

[15] U.S. Dep’t of the Treasury, Internal Revenue Serv., Pub. No. 5817-G, Clean Energy Tax Incentives: Elective Pay Eligible Tax Credits (June 2023), https://www.irs.gov/pub/irs-pdf/p5817g.pdf.

[16] Letter from Various Organizations, incl. Natural Resources Defense Council, Union of Concerned Scientists, National Rural Electric Cooperative Association, et al., to Debbie Stabenow, Chairwoman, U.S. Senate Agriculture Committee et al. (Mar. 8, 2023), https://drive.google.com/file/d/1sDm28rkHv5VzTqWriiaLv2HMcJIRg1rj/view (accessed Dec. 12, 2023).