What Counties Need to Know About Direct Pay in the Inflation Reduction Act
Author
Upcoming Events
Related News
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.
Resource
Legislative Analysis for Counties: The Inflation Reduction Act
House Natural Resources Committee advances Standardizing Permitting and Expediting Economic Development (SPEED) Act
On November 20, the U.S. House Committee on Natural Resources advanced the Standardizing Permitting and Expediting Economic Development (SPEED) Act (H.R. 4776), which would make important changes to streamline federal permitting and strengthen county involvement in decision-making by amending the National Environmental Policy Act. Counties support commonsense permitting reforms, and NACo secured provisions in the SPEED Act that would guarantee counties a seat at the table during federal environmental reviews.
U.S. Environmental Protection Agency releases new definition of the “waters of the United States”
On November 17, the U.S. Environmental Protection Agency and U.S. Army Corps of Engineers released a proposed rule defining what constitute the “waters of the United States” and are subject to federal regulation under the Clean Water Act. The new definition is narrower than previous rules and codifies the decision of U.S. Supreme Court in the 2023 case Sackett v. EPA.
Federal district court issues ruling preventing the federal government from imposing immigration compliance mandates on grant recipients
On November 4, a federal judge in Rhode Island ruled that the U.S. Department of Transportation cannot condition federal grant funding on a recipient’s cooperation with federal immigration enforcement efforts.
County Countdown – Nov. 17, 2025
Every other week, NACo's County Countdown reviews top federal policy advocacy items with an eye towards counties and the intergovernmental partnership.
Restoration efforts turn former Texas oil field into flood buffer and wildlife sanctuary
Harris County, Texas helped purchase the land to restore a former oilfield, creating a buffer for flooding.
Congress votes to end longest federal government shutdown in history
On November 12, the U.S. House of Representatives voted to pass a Continuing Resolution and funding package (CR) to end the shutdown of the federal government that began October 1.