The Inflation Reduction Act (IRA) expands, extends and establishes new tax incentives in order to advance the development and deployment of clean energy. Notably, the IRA also establishes a new mechanism called direct pay for tax-exempt entities, including counties, to be able to directly access many of these incentives.

What Is Direct Pay?

The direct pay option provides a new pathway for counties to access the clean energy tax incentives in the IRA that previously would have only been available to tax-paying entities. Instead of receiving a tax credit, counties will be able to apply for and receive a refund equal to the amount of the credit.

The direct pay option will allow local governments, public utilities and entities like rural electric cooperatives to pursue renewable energy projects on their own without having to rely on outside financing, putting them on an even playing field with the private sector. This provides an opportunity to increase access to clean energy and reduce emissions in a cost-effective manner.

How Can Counties Use Direct Pay?

Counties can utilize the direct pay option to finance multiple projects, including:

  • Installing energy facilities such as solar, wind and microgrid facilities
  • Converting county vehicle fleets, including police cars, school buses, and garbage trucks, to zero- or low-emission
  • Installing electric vehicle (EV) charging stations

Available Clean Energy Tax Credits

The IRA makes several clean energy tax credits available to counties under a direct pay option. These include:

Clean Electricity and Reducing Carbon Emissions

Renewable Energy Production Tax Credit

Renewable Energy Property Investment Tax Credit

Zero-Emission Nuclear Power Production Credit *NEW*

Clean Electricity Production Tax Credit *NEW*

Clean Electricity Investment Tax Credit *NEW*

Credit for Carbon Oxide Sequestration

Clean Fuels

Clean Fuel Production Credit *NEW*

Clean Hydrogen Production Tax Credit *NEW*

Clean Vehicles

Alternative Fuel Vehicle Refueling Property Credit

Credit for Qualified Commercial Clean Vehicles *NEW*

Clean Energy Manufacturing

Advanced Energy Project Credit

Advanced Manufacturing Production Credit *NEW*

*The U.S. Department of the Treasury, which is responsible for implementing the tax provisions of the IRA, is expected to publish guidance on the direct pay election process, including how counties and other tax exempt entities can claim the option, in the near future.

How Can Counties Maximize the Direct Pay Amount Available?

In order to claim the full direct pay amount available, certain apprenticeship and prevailing wage requirements must be met. The apprenticeship and prevailing wage requirements will apply to qualifying facilities, projects, property or equipment that begins construction on or after January 29, 2023.

The IRA also sets forth other criteria that could increase the value of the direct payment by 10 to 30 percent. These criteria revolve around meeting certain domestic content requirements and placing projects in ‘energy communities’ or low-income communities.

Related News

Airport
Advocacy

U.S. Department of Transportation warns that funding for Essential Air Service (EAS) program may soon lapse amid ongoing federal government shutdown

On October 7, Secretary of Transportation Sean Duffy announced that, due to the ongoing government shutdown, funding for the Essential Air Service (EAS) program would lapse on October 12.

Safe Streets
Advocacy

U.S. House of Representatives introduce bipartisan legislation to reauthorize and improve road safety program

On September 18, U.S. Reps. Steve Cohen (D-Tenn.-09), Brian Fitzpatrick (R-Pa.-01) and Robert Garcia (D-Calif.-42) introduced the Safe Streets for All Reauthorization and Improvement Act (H.R. 5452).

Alaska Public Lands
Advocacy

NACo WIR submits recommendations for public lands transportation needs

On September 8, NACo’s Western Interstate Region (WIR) submitted comments and recommendations for the U.S. Department of Transportation (USDOT)’s Request for Information to as the agency develops its priorities for the upcoming surface transportation reauthorization bill.

THE_County Countdown_working_image-4.png
Advocacy

County Countdown – October 6, 2025

Every other week, NACo's County Countdown reviews top federal policy advocacy items with an eye towards counties and the intergovernmental partnership. This week features a federal shutdown FAQ, overdose prevention funding and more.

Thermal power plant burning coal fossil fuel for production of electrical energy. Kingston power station in Roane County, Tennessee
Advocacy

DOI, DOE and the EPA announce new funding and regulatory measures to support U.S. coal industry

On September 29, the U.S. Departments of the Interior (DOI), Energy (DOE) and the Environmental Protection Agency (EPA) announced coordinated actions to expand domestic coal production and coal-fired energy generation. 

Personal perspective of man filling a glass of filtered water right from the tap in the kitchen at home
Advocacy

U.S. Environmental Protection Agency announces it will uphold 2024 PFAS CERCLA rule

On September 17, the EPA announced that the agency will uphold the 2024 rule designating two types of PFAS as hazardous under the Comprehensive Environmental Response, Compensation, and Liability Act.