What Is An “Energy Community”? Alternative Approaches for Geographically Targeted Energy Policy

The Inflation Reduction Act of 2022 seeks to dramatically increase clean energy innovation, manufacturing, and deployment in the United States. Unlike most previous federal energy policy, it ties many incentives to labor requirements, domestic manufacturing, and project location. We examine a provision of the law that offers additional financial incentives for projects to locate within “energy communities.” Our analysis indicates that the law’s definition of energy communities could vary widely depending on interpretation of key phrases. In addition, we find that the law, as written, is unlikely to steer investment specifically toward those communities that will be most heavily affected by a transition away from fossil energy. We illustrate these findings through three interpretations of the energy communities definition and show that it does not specifically target fossil energy–dependent local economies, but instead is likely to cover between 42 and 50 percent of US land area. We then offer our own definition of “energy communities,” which more narrowly targets locations that have been or are heavily dependent on fossil fuels as a driver of local economic activity, employment, and government revenue.