What Counties Need to Know About Direct Pay in the Inflation Reduction Act

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