The Most Important Clean Energy Policy You’ve Never Heard About
The Inflation Reduction Act includes a little-known provision that reinvests in energy communities while reducing carbon emissions.
The Inflation Reduction Act (IRA) represents the largest single action taken to date by the United States to address the climate crisis. Recent analysis by the Department of Energy (DOE) suggests that the tax and financial mechanisms put in place by the bill will help the US get roughly 80 percent of the way to achieving its goal of 50 percent emissions reduction by 2030. US households will see $5 billion in electricity savings by the end of 2024 due to the clean electricity tax incentives in the IRA alone, according to RMI estimates. Further, the majority of those emissions reductions are expected to be from the transition to a cleaner grid resulting from the long-term extension of clean energy tax incentives.
However, the attractive long-term economics of clean energy are not sufficient to achieve these outcomes on their own. The energy transition remains hindered by significant barriers tied to the regulatory and market structure of the electric power industry. Fortunately, the IRA provides a solution through a little-known provision called the Energy Infrastructure Reinvestment program (EIR).
Legacy Contracts and Communities Left Behind
We currently have a coal transition problem. First, regulated utilities have nearly tripled their investment in fossil plants from 2005 to 2020, leaving customers on the hook for hundreds of billions of dollars over the next two decades. Under the current paradigm, replacing these fossil plants with renewable energy risks exacerbating these capital charges, often leading to higher rates, even as renewables provide lower cost power.
Second, the transition from coal to clean energy risks devastating communities historically reliant on the jobs and economic activity brought by investment and dependence on fossil fuels. Leaving coal miners, plant operators, and their surrounding communities without recourse is unjust and will not lead to a sustainable and equitable transition.
This is where the EIR can help. The EIR will give DOE’s Loan Programs Office (LPO) new authority to provide economic opportunity for fossil-dependent communities while accelerating the clean energy transition.
What is the Energy Infrastructure Reinvestment Program?
The EIR is a new loan program that reinvests in energy communities while reducing carbon emissions. With the $5 billion appropriated for this program, LPO can provide financing for up to $250 billion in loans. This will provide qualified projects with low-cost loans to support the transition to cleaner energy, including the ability to refinance higher-cost debt and equity, saving ratepayers billions of dollars.
The EIR will support the low-carbon transition of a broad range of projects — any type of energy infrastructure related to electricity generation and transmission, as well as all fossil fuels and petrochemicals. To qualify for EIR support, projects must “retool, repower, repurpose, or replace energy infrastructure that has ceased operations,” or must reduce greenhouse gas emissions.
In layman’s terms, this program casts a wide net — an incredible range of projects could qualify. The program has the potential to help decarbonize not just the electricity sector, but the entirety of fossil infrastructure in this country, both through replacing polluting sources with cleaner alternatives, and through reducing pollution in harder-to-abate sectors. The EIR offers a powerful way to invest in energy communities directly, and with robust stakeholder engagement, projects can remediate toxic sites and drive long-term community economic development beyond the energy sector.
Revitalizing Coal Communities
While we must shift away from coal-fired electricity, the closure of coal-fired power plants risks leaving communities and workers behind, especially in rural or isolated places that have few alternatives. These communities depend heavily on the coal industry for jobs, tax revenue for important public services like schools, and economic development, which can all disappear quickly upon a coal plant closure. Although utilities sometimes transfer workers within the company or offer early retirement packages, there is no comprehensive approach to support workers and communities through the transition. The EIR offers a new path forward for these communities by establishing place-based interventions that lower costs, reduce emissions, and provide economic revitalization opportunities.
One potential use of the program involves refinancing a retiring coal plant’s remaining balance, as well as guaranteeing low-cost loans for replacement clean energy, environmental remediation costs, and redevelopment of the site into other productive uses that spur local economic opportunities. In this situation, a utility could apply for a low-interest loan, guaranteed by the LPO, to retire a fossil plant and pay off its plant balance, in a process similar to securitization. This would save customers money, as the loan would be at a much lower interest rate than the utility’s rate of return on the coal plant. It would also free up capital for the utility to reinvest in clean energy and transmission upgrades. Part (or all) of these clean energy and transmission upgrades could even be financed by the program, which would further lower costs.
Importantly, there is specific legislative language that requires utilities to pass on 100 percent of these financial benefits to ratepayers and communities. Lower energy costs would help lower-income households the most, because they spend a disproportionate proportion of their income on energy bills. Refinancing creates a win-win scenario that allows customers to pay lower rates, while also allowing utilities to grow their rate base and profit from clean energy.
Furthermore, the EIR includes remediation of environmental damages. Coal plants in particular leave behind toxic coal ash, which is often stored in ponds or landfills that can contaminate nearby groundwater and waterways. These sites are disproportionately located in disadvantaged communities. The EIR would provide low-cost financing to clean up these sites, and because these coal ash ponds are located near coal plants, this would exponentially improve the health outcomes of local communities and offer short-term employment opportunities in cleaning up the site.
Finally, the EIR could be used for the economic revitalization of these coal communities where plants are retired. Coal plants can be successfully redeveloped into thriving sites that bring an abundance of economic opportunities. One example is the Ottawa Street Power Station, a retired coal plant in downtown Lansing, which was converted to an office building for the insurance company Accident Fund. With this new office space, Accident Fund was able to retain 600 jobs and bring in another 500 new jobs. This gave the city a huge economic boom, through property tax revenues and the economic activity of all the employees. But the path toward redevelopment was not easy — it required a strong commitment from the developers, as well as tens of millions of dollars in government incentives. The EIR could provide low-cost financing for projects like these, removing one critical barrier in the redevelopment process.
Over the next decade, government spending on climate and clean energy policy will more than triple historical levels, as well as spur additional private spending. And IRA provisions like the domestic manufacturing requirements for clean electricity and electric vehicle tax credits will likely bring about a renewal in American manufacturing. This would not only meet EIR requirements, but also lead to high-paying, skilled clean energy jobs that would be ideally suited for former coal communities.
Saving Customers Money in Georgia — A Case Study
Georgia Power, which serves over 2.5 million customers, provides one potential use case for the EIR. The utility has already retired 35 fossil generating units over the past decade and plans to retire 12 more over the next six years. The most recent retirement, in August 2022, was the Wansley coal plant that had nearly 2 GW of capacity and $860 million remaining on its balance sheet. Furthermore, Georgia Power has nearly $9 billion in remediation costs for its toxic coal ash ponds, which have been poisoning nearby communities for decades.
Normally, these costs would be recovered over decades at the utility’s rate of return, around 7.7 percent, allowing Georgia Power to profit from plants no longer in operation, and for cleanup costs that could have been avoided with stricter pollution control measures. However, through refinancing these costs, either with the EIR or state-level securitization, our analysis shows that ratepayers could save over $2.1 billion from 2023–2031. (State-level securitization would likely see slightly lower savings due to higher interest rates and transaction fees.) Some of these savings (and additional low-cost loans guaranteed by the EIR) could be used by Georgia Power to build cheap replacement clean energy, allowing the utility to make up for lost profits. And our estimates do not include the impact of additional EIR loan guarantees for economic development projects, which would provide new economic opportunities and growth for communities once dependent on this coal plant.
Beyond the Electricity Sector
This key new DOE program is also poised to transition fossil infrastructure far beyond the electric sector. It also includes retrofitting natural gas delivery infrastructure for electric-ready buildings or hydrogen delivery pipelines, converting gas stations to EV charging stations surrounded by commercial hubs, building heavy industrial manufacturing facilities for steel or ammonia produced by green hydrogen, and much more.
Any infrastructure related to fossil or petrochemical production or delivery can qualify to be replaced or repurposed in a way that lowers emissions. And the program is not just limited to replacing this fossil infrastructure with clean infrastructure; under the first definition of qualifying projects, fossil infrastructure can also be “repurposed” into new industries that take advantage of the existing infrastructure and create new forms of economic growth and diversify local economies away from a singular industry. Pairing this with project labor agreements and community benefit agreements can help ensure that communities once dependent on fossil infrastructure will maximize local benefits and ensure an inclusive clean energy transition.
The EIR is a much-needed solution for energy communities and ratepayers, but there is a catch: the program’s loan authority currently expires in 2026. Unless Congress provides an extension, the Loan Programs Office has a nearly four-year window to issue $250 billion in transition financing. This game-changing tool to decarbonize not only the power sector, but also other hard-to-abate industries, without leaving communities and workers that rely on these facilities behind, should ignite a fire within every utility, business, community, labor, and policy leader seeking an equitable, reliable, and successful transition.
Making the most of EIR solutions requires that transition projects engage with DOE as soon as possible. Now is the time for utilities, regulators, owners, and operators of fossil infrastructure; community and labor leaders; and consumer advocates to come together, recognize how the EIR can enable win-win-win solutions, and move quickly to make a low-cost, high-growth, and equitable transition a reality.