Unique Incentive for Brownfields Under the Inflation Reduction Act

A facility^[1] that is located on a brownfield site^[2], meaning real property that (i) the expansion, redevelopment, or reuse of may be complicated by the presence or potential presence of a hazardous substance^[3], pollutant, or contaminant, or (ii) is a mine-scarred land, has the ability to take advantage of a unique incentive that exists under the Inflation Reduction Act (IRA).

Under the IRA, there are investment tax credits (ITC) available to incentivize the construction and operation of certain types of clean energy-generating assets and clean energy storage systems.^[4] The base amount of an ITC equals 6% of the upfront eligible costs of the energy property that is constructed and placed into service. That base is increased by 5x (to 30%) of the upfront eligible costs of the energy property if the project meets certain size requirements or satisfies the applicable prevailing wage and apprenticeship requirements (as defined in 26 U.S.C. 45 and 26 U.S.C. 48).

The amount of ITC that a project can generate can be increased further by meeting certain bonus incentives – the Energy Community bonus, the Low-Income Community bonus, or the Domestic Content bonus. A project is eligible for the Energy Community bonus if it is placed into service in an area that is designated as an “Energy Community.” An Energy Community is real property that comprises (i) a brownfield site as defined above, (ii) a statistical area meeting certain unemployment metrics, or (ii) a coal closure census tract.

The Energy Community bonus increases the amount of ITC for a project by either an additional 2% or 10% of the upfront eligible costs of the project, depending on if the project satisfies the aforementioned size and labor requirements. An ITC-eligible project that satisfies the size or labor requirements and is located in an energy community can anticipate being eligible for an ITC in the amount of 40% of the upfront eligible costs of its energy property. ITC eligible projects that are placed into service in an Energy Community can take steps to further increase the value of the ITC for their project up to 50%-70% of the eligible up-front costs by satisfying the requirements underlying the Domestic Content bonus or applying for and receiving an allocation of the Low-Income Communities bonus.

[1] Facility is defined as “(A) any building, structure, installation, equipment, pipe or pipeline (including any pipe into a sewer or publicly owned treatment works), well, pit, pond, lagoon, impoundment, ditch, landfill, storage container, motor vehicle, rolling stock, or aircraft, or (B) any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located; but does not include any consumer product in consumer use or any vessel.” 42 U.S.C. 9601(9).

[2] There are nine enumerated exceptions that are excluded from the definition of the term “brownfield site.” See 42 U.S.C. 9601(39)(B).

[3] Hazardous substance is defined as “(A) any substance designated pursuant to section 311(b)(2)(A) of the Federal Water Pollution Control Act, (B) any element, compound, mixture, solution, or substance designated pursuant to section 9602 of this title, (C) any hazardous waste having the characteristics identified under or listed pursuant to section 3001 of the Solid Waste Disposal Act (but not including any waste the regulation of which under the Solid Waste Disposal Act has been suspended by Act of Congress), (D) any toxic pollutant listed under section 307(a) of the Federal Water Pollution Control Act, (E) any hazardous air pollutant listed under section 112 of the Clean Air Act, and (F) any imminently hazardous chemical substance or mixture with respect to which the Administrator has taken action pursuant to section 7 of the Toxic Substances Control Act. The term does not include petroleum, including crude oil or any fraction thereof which is not otherwise specifically listed or designated as a hazardous substance under subparagraphs (A) through (F) of this paragraph, and the term does not include natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas).” 42 U.S.C. 9601(14).

[4] See 26 U.S.C. 48(a)(3) for the current definition of energy property effective for projects that begin construction before January 1, 2025. See 26 U.S.C. 48E for the definitions of energy property effective for projects that begin construction on or after January 1, 2025.