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State Energy Policy in a Land of New Federal Opportunity

By Jake Glassman, Molly Freed, Wendy Jaglom-Kurtz, and Drew Veysey

Unprecedented new and expanded federal programs have fundamentally shifted the landscape of what’s economically and politically feasible for state policymakers, creating a massive opportunity for states to unlock wide-ranging benefits and attract billions in federal funds and private investment for their residents and businesses.

Today, there are more reasons than ever before for states to proactively drive clean energy policy to reap economic, health, and environmental benefits for their citizens as the unparalleled influx of federal investment suddenly renders once ambitious policies cost-effective.

Contents

Introduction

RMI has identified five targeted policy interventions that can help states to:

  • Secure wide-ranging economic, health, and environmental benefits, including new high-quality jobs, lower energy costs, increased federal and private sector investment, avoided deaths, reduced illness, and cleaner air and water
  • Drive the energy transition in their state, joining the race to the top in a clean energy economy to capture the full opportunity of clean technologies and industries
  • Attract billions in federal and private sector investments in the form of federal grants, rebates, and tax credits that keep investment dollars in-state as well as clean industry investments in new facilities, businesses, and jobs

Dozens of federal funding streams are available to pay for implementing these interventions, making it easier to pass and fund proven policies that generate equitable local economic and health benefits. At the same time, these policies would enable, complement, and support the in-state uptake of federal grants, loans, and tax credits, increasing the flow of federal and private funding to the state.

This document outlines the five high-impact policies and their benefits. It then pairs those policy levers with the federal investment programs that offer the best opportunity (often in combination) to support and pay for them:

Robust federal funding is available to help pay for five key state energy policies.

This table summarizes the different types of federal funding available to support each policy and includes links to view more information about each funding opportunity in AFFORD*.

Clean Electricity Standard

  • Tax credits for clean generation
  • Flexible grants and loans
  • Funding for technical assistance, rural infrastructure, and specific electricity sources

Clean Vehicle Standards

  • Tax credits for clean vehicles and charging infrastructure
  • Grants for charging infrastructure
  • Grants for heavy-duty vehicles and port equipment
  • Flexible funding

Managed Energy Infrastructure Transition

  • Grants and loans for energy communities
  • Workforce development and training
  • Flexible grants and loans

Methane Standards

  • Funding to target oil and gas methane
  • Flexible grants and loans

Whole-Home Energy Retrofit Program

  • Tax credits, deductions, and rebates
  • Assistance for low- and moderate- income households
  • Grants to state and local governments
  • Flexibel grants and loans

See the opportunities in AFFORD *The America’s Federal Funding Opportunities and Resources for Decarbonization (AFFORD) tool houses all funding opportunities listed in this document with the exception of tax credits for homeowners, contractors, and other individuals.

These policies have been implemented across a wide range of states — geographically and politically — and are proven to drive the uptake of clean energy technologies, provide market certainty for clean energy industries, and ensure all communities realize benefits. We also provide alternate approaches for each policy to advance similar outcomes if these specific policies are not immediately feasible in a given state.

This information is intended for those looking to advance state-level energy policy to ensure they capitalize on the opportunity for cleaner communities, locally produced energy, lower air pollution, high-quality jobs, and infrastructure investment in a clean energy economy. For information on how the most impactful policies vary by state, this article outlines the top policies to cut emissions, increase jobs, and reduce pollution in 24 states.

States can use this document to identify the relevant federal funding streams to support each policy. Notably, some funding streams — such as the State Energy Program, Greenhouse Gas Reduction Fund, Climate Pollution Reduction Grants, and Environmental and Climate Justice Block Grant Program — are highly flexible and can be applied in support of many different policies. States should prioritize the use of these flexible funds for policies and projects that lack other robust federal funding streams (e.g., landfill methane reduction), and identify opportunities for flexible funds to fill funding gaps, unlock other funding streams, or kickstart implementation while waiting for new and specialized programs to start up. To maximize the impact of federal funding on states’ efforts, states should consider the provisions within this document as opportunities to augment, rather than replace, state funding.

To focus attention, this document narrows down the available federal funding resources to highlight only the most directly useful grants, tax credits, and loan programs that support each policy. Some opportunities are omitted because they provide relatively limited funding, are expired and not expected to renew soon, or are eligible only for a narrow use case. In other words, even more federal funding is available than this document presents. Users can explore the AFFORD tool and other items, such as the IRA Program and Incentive Summary and Decarbonizing Industry Resource Tool (DIRT), to learn about additional opportunities.

Clean electricity standard

Benefits: Improved local air quality, reduced electricity fuel costs, energy affordability, reduced energy price volatility, energy independence, job creation, clean technology growth, diversification of energy supply

A clean electricity standard (CES) is a market-based, resource-neutral standard that requires electric providers to sell an increasing fraction of electricity from clean sources like wind, solar, storage, and demand flexibility. Standards typically require the amount of clean electricity to hit annual percentage targets, such as 80% clean generation by 2030, and can be flexible in defining which sources qualify. Most states have implemented some sort of clean or alternative electricity standard. Some examples include Minnesota, Montana, North Carolina, Texas, and most recently Michigan. Targets vary substantially and range from 10% to 100%. States with an existing CES on the books, or one with a deadline that passed or ends soon, can consider increasing the ambition of their CES by adding additional targets or increasing existing ones.

Even without accounting for recent federal incentives, clean, renewable energy portfolios out-compete over two-thirds of new natural gas plants on cost, while providing the same grid reliability services, reducing air pollution, and reducing price volatility for household energy costs. When taking full advantage of IRA tax credits, clean electricity portfolios will be cheaper than 99% of proposed gas plants, saving Americans money. A clean electricity standard is critical for ensuring that clean technology adoption in other sectors, such as electric vehicles and heat pumps in buildings, have the intended environmental, economic, and health benefits. While standards do not have to be set to hit 100%, a complete or near-complete transition to clean, affordable, local electricity becomes highly achievable when supplemented with policies and funding streams that support clean electricity, energy storage, transmission build-out, and demand flexibility.

Fortunately, federal funding for clean electricity has increased substantially in the past few years to support adoption of this key policy, including funding for rural communities and small utilities. Federal incentives support the build-out of critical transmission, new generation facilities, residential solar installations, the continued operation of existing clean power, and the economic transition of fossil infrastructure to clean. As an example, the more generous clean electricity tax credits (the production tax credit [45] and the investment tax credit [48]) can make renewable energy deployment cheaper than continuing to run many of a state’s existing fossil plants; Transmission Siting and Economic Development Grants can speed the deployment of transmission that moves new renewable power to demand centers; and grants from the GRIP program can help strengthen the electricity grid and ensure reliability and resilience during the transition to cleaner sources.

If a clean electricity standard is not immediately possible in a particular state, states can pursue other tactics to advance similar results. For example, state regulators can ensure utilities are accounting for all IRA incentives in regulatory processes such as resource planning, states can work with utilities to develop projects that take advantage of the Energy Infrastructure Reinvestment program to refinance fossil debt and invest in clean energy, and states can collaborate regionally to streamline interconnection and build out transmission infrastructure.

See below for a list of federal funding streams that can be used to support Clean Electricity Standards. For full details, including information on deadlines, funding availability, and eligibility requirements, see this list in RMI and WRI’s AFFORD tool.

Tax Credits for Clean Generation

Tax credits lower the cost of clean electricity generation investments and are uncapped overall, providing critical funding that helps make it more affordable to install clean energy and achieve CES targets.

  • Clean Energy Production Tax Credit (45) and Investment Tax Credit (48) for large clean electricity facilities. Credits cover up to 70% of construction cost for the ITC and up to $33/MWh for the PTC. This amount of funding will be available through 2032 and phased out incrementally after.
  • Residential Clean Energy Credit (25D) for residents to deploy clean electricity at home. Homeowners can get a credit for up to 30% of the cost of clean energy equipment, including battery storage, with the full credit lasting through 2032.

Flexible Grants and Loans

Some of the biggest federal funding sources can be used for many purposes — the uses noted below to support clean electricity deployment are just some key illustrative examples. Flexible funds that are designed to make sure local communities benefit from clean energy investments are listed first.

Technical Assistance

Some funding sources provide planning, analysis, and technical assistance to support governments and other stakeholders with clean electricity deployment as part of a CES.

Rural Communities

A number of funding sources are designed to make renewable energy investments more affordable in rural communities, allowing rural areas to be key players in the achievement of CES targets.

Grid Infrastructure

Since poor electricity infrastructure can serve as a bottleneck for deploying clean energy at scale, these funding sources can support clean electricity deployment at the level needed to achieve CES targets.

Specific Electricity Sources

Some funding is available to support specific sources of clean power that could qualify under a CES.

In the list above, we omitted funding for pilot projects, funding available only in a particular region or regions, and funding opportunities with less than $50 million available in total. For more detail on the above programs and to see opportunities not included above, see the AFFORD tool, the IRA Program and Incentive Summary, and grants.gov.

Clean vehicle standards

Benefits: Fuel savings, improved local air quality, job creation, increased consumer choice, clean technology innovation and growth

Clean vehicle standards require automakers to sell increasing numbers of both zero- and low-emissions cars and trucks. Federal standards set a national baseline for vehicle emissions, and states can adopt clean vehicle standards for cars and trucks through Advanced Clean Cars II (ACC II) and Advanced Clean Trucks (ACT), which complement and go beyond those federal regulations. ACC II and ACT require an increasing percentage of zero-emissions vehicle sales each year up to 2035, in the range of 40% to 100% depending on vehicle type. If choosing to pursue clean vehicle standards, states can stop short of requiring the highest sale percentages in the latter years — for example, Colorado recently adopted ACC II through 2032. In total, 11 states have adopted new clean vehicle standards, and more are in the process of adopting ACC II and ACT regulations.

Under this system, states with clean vehicle standards represent a priority market for automakers because they will get “credit” under the rules. Consequently, adopting clean vehicle standards is the primary way for a state to ensure that a diverse range of vehicles, including those eligible for federal tax credits, will be made available by automakers for their residents. Increasing in-state electric vehicles will also increase the demand for charging infrastructure and related private sector investment. States with existing clean vehicle standards and supportive policies have been shown to adopt electric vehicles sooner than other states, and automakers tend to offer more electric models in states with standards.

The federal government provides numerous incentives to enable cost-effective deployment of light, medium, and heavy-duty electric vehicles and supporting infrastructure, such as chargers. Tax credits (30D, 45W, and 25E) make electric vehicles cheaper for residents and businesses; grants (e.g., NEVI, Ride and Drive Electric) and tax credits (30C) can be used to install public and private charging stations; and targeted programs (e.g., Clean Ports Program, Clean Heavy-Duty Vehicle Program) are available to promote electrification of heavy-duty equipment.

If clean vehicle standards are not immediately possible in a particular state, states can pursue other tactics to advance similar results. States can work with public and private entities to replace vehicle fleets with clean, efficient alternatives. States can provide state-level tax credits for vehicles to complement federal tax credits. And states can develop and implement comprehensive charging infrastructure plans to ensure charging infrastructure is equitably available across the state.

See below for a list of federal funding streams that can be used to support Clean Vehicle Standards. For full details, including information on deadlines, funding availability, and eligibility requirements, see this list in RMI and WRI’s AFFORD tool.

Tax Credits for Clean Vehicles and Charging Infrastructure

Tax credits help meet clean vehicle standard targets by lowering the cost of clean vehicles and the installation of associated charging infrastructure.

  • Clean Vehicle Credit (30D) is available to individuals upon the purchase of a new light-duty electric vehicle. The credit is available through 2032 and is worth up to $7,500 per vehicle with vehicle eligibility based on manufacturing specifications.
  • Credit for Qualified Commercial Clean Vehicles (45W) is available to businesses and tax-exempt organizations for the purchase of light-, medium-, and heavy-duty electric vehicles for commercial use through 2032.
  • Credit for Previously Owned Clean Vehicles (25E) is available to individuals upon the purchase of a used light-duty electric vehicle. The credit is available through 2032 and worth up to $4,000 per vehicle
  • Alternative Fuel Vehicle Refueling Property Credit (30C) is available to businesses that install electric vehicle supply equipment (EVSE) in census-designated low-income or non-urban areas, covering 30% of eligible costs up to $100,000 per charger. For homeowners that install EVSE at their primary residence, the credit covers 30% of eligible costs up to $1,000.

Grants for Charging Infrastructure

The federal government is encouraging the deployment of electric vehicles by providing generous grants to states, localities, and the private sector to deploy electric vehicle charging stations, which in turn makes electric vehicles more practical thus helping to meet clean vehicle standard targets.

Grants for Heavy Duty Vehicles and Port Equipment

Pollution from heavy-duty vehicles and ports can be particularly harmful to nearby communities, and therefore dedicated federal funding is available to reduce pollution through electrification, which will also help meet clean vehicle standard targets for large vehicles.

  • Clean Ports Program funds port authorities and their partners to reduce air pollution through the deployment of zero emissions technologies, such as electric class 6 and 7 heavy-duty vehicles.
  • Clean Heavy-Duty Vehicle Program funds the replacement of existing heavy-duty vehicles with zero-emissions vehicles, and related infrastructure, workforce development, and planning.

Flexible Funding

Some funding that could be used to deploy electric vehicles and related infrastructure could also be used for other transportation purposes and to reduce air pollution in other ways. Also, some general transportation funding could in theory be flexed toward clean vehicle deployment and electric vehicle charging.

 

In the list above, we omitted funding for pilot projects, funding available only in a particular region or regions, and funding opportunities with less than $50 million available in total. For more detail on the above programs and to see opportunities not included above, see the AFFORD tool, the IRA Program and Incentive Summary, and grants.gov.

Managed energy infrastructure transition

Benefits: Job creation; land and water clean-up/revitalization; economic development; local power, improved local air quality, clean technology innovation and growth, energy affordability

For nearly 300 years, fossil fuel industries created jobs and built wealth in energy communities across the country. Today, these residents suffer from private disinvestment, planned closures, and legacy negative health impacts.

Fortunately, affordable clean energy and massive federal investments are creating a significant new economic opportunity for shifting investments to clean technology and turning economic and environmental challenges into prosperity. There are dozens of examples of coal plants successfully repurposed into clean energy projects around the country, including in Arizona, Pennsylvania, Idaho, Kentucky, New Mexico, and beyond. However, these projects do not happen by accident, and energy communities benefit most with strategic state-level intervention to manage the transition to new, clean industries. Colorado’s Just Transition Support for Coal-Related Jobs and New Mexico’s Energy Transition Act serve as leading examples of state-led support for a managed transition.

Strategic transition policies, including providing advance notice of closures, assessing local assets, and de-risking private investment can be leveraged with hundreds of billions of dollars in federal funding opportunities to effectively clean up the land, train the workforce, and reboot the economy in these communities. Most notably, the Inflation Reduction Act recently allocated $250 billion in funding through the Energy Infrastructure Reinvestment program specifically to retool these fossil assets. In combination with other federal opportunities, states with fossil fuel infrastructure have a massive opportunity to encourage local utilities to build new local wealth and create healthy homegrown power.

As an example, a state economic development office could commission a task force to investigate which of its state’s refineries are the worst polluters and collaborate with the utility of the largest refinery on an EIR application to convert that refinery to a combination of solar and storage, taking advantage of the investment or production tax credit to reduce costs and reducing time in interconnection queues given the existing interconnection infrastructure. Recent RMI analysis revealed 250 GW of potential that could benefit from this opportunity, which we’re calling “clean repowering.” At the smaller scale, a state’s rural development office could invest in a technical outreach and support position that specifically works with small rural co-ops to identify priority fossil assets within their portfolio and support their applications for various federal funding opportunities. These could include using Environmental Protection Agency (EPA) Brownfields grants to fund soil remediation, REAP funds to install solar on the site, and RISE funds to train community members to participate in future clean economy jobs.

See below for a list of federal funding streams that can be used to support equitable fossil asset transition. For full details, including information on deadlines, funding availability, and eligibility requirements, see this list in RMI and WRI’s AFFORD tool.

Loans and Grants for Energy Communities

Funding options available specifically for clean energy reinvestment projects that take place in energy communities.

Workforce Development and Training

Some funding sources provide funding specifically for training a new or existing workforce, bringing much needed jobs to local community-members.

Flexible Grants and Loans

Some of the biggest federal funding sources can be used for many purposes, and retooling fossil fuel assets in energy communities may be especially competitive in their application.

  • National Clean Investment Fund, part of the Greenhouse Gas Reduction Fund (GGRF), offers loans for clean energy, training and workforce development, and remediation and reduction of legacy pollution (among others). Notably, qualified projects are those that “may not have otherwise been financed” — a clear fit for fossil assets like these.
  • Climate Pollution Reduction Grants funds projects that maximize benefits for low-income and disadvantaged populations, prioritizing those that can be scaled across jurisdictions. CPRG funding could, for example, help transition polluting electricity generation to a clean alternative.

In the list above, we omitted funding for more general grid upgrades and high-level state support. For more detail on the above programs and to see opportunities not included above, see the AFFORD tool, the IRA Program and Incentive Summary, and grants.gov.

[1] Only Kentucky, Pennsylvania, West Virginia, Alabama, Ohio, and Virginia are eligible states. The Hopi Tribe, Crow Tribe, and Navajo Nation are also eligible.

[2] Only states in the Appalachian region are eligible.

[3] Only states in the Appalachian, Delta, or Northern Border regions are eligible.

Methane standards

Benefits: improved local air quality, clean technology innovation and growth, land and water clean-up/revitalization

Methane has a shorter lifetime in the atmosphere than carbon dioxide but is much more potent at warming the atmosphere — contributing over 80 times as much warming as carbon dioxide over a 20-year timeframe. Methane is commonly emitted from oil and gas systems, landfills, wastewater operations, agriculture, and coal mining. States can implement a statewide overarching standard for methane pollution reduction coupled with targeted regulations on these specific methane sources. Several states, including notably New Mexico and Colorado, have pursued policies to regulate methane pollution from the oil and gas industry. California, Oregon, and Maryland have set more ambitious standards than federal regulations to control landfill methane pollution.

Reducing methane has many benefits. Since methane remains in the atmosphere for only about 12 years, near-term actions to avoid and eliminate even small amounts can greatly reduce warming immediately. Cutting methane pollution improves air quality since the gas leads to ground-level ozone, a dangerous air pollutant. And addressing methane leaks decreases explosion hazards.

Several federal funding streams are available to lower methane pollution. The IRA’s Methane Emissions Reduction Program specifically focuses on reducing methane from oil and gas with financial and technical assistance for public and private entities, and fees for high-emitting facilities. Flexible funding like CPRG and GGRF can be deployed as well — there is a particularly ripe opportunity to use CPRG funds to lower landfill methane emissions. Additional programs target specific methane sources like orphaned wells and solid waste infrastructure. This resource does not include funding programs focused only on upstream interventions in the food system though some flexible funding sources may be used for this purpose. Upstream strategies like waste prevention, food donation, and organics recycling can avoid locking in future landfill methane emissions by ensuring organic materials are put to their highest and best use. Additional information on these waste-specific programs, such as the  Solid Waste Infrastructure for Recycling Grant Program, is available in the Waste and Materials Management section of EPA’s funding resource guide.

If methane standards are not immediately possible in a particular state, other tactics can be pursued to advance similar results. States can work with heavy emitters to implement voluntary programs to reduce methane pollution. For example, programs like MiQ certify low-emissions gas to lower methane pollution in the oil and gas sector and can serve as a first step toward or complement to a robust regulatory approach. Several programs can be used to divert organic waste from landfills and implement waste best management practices to minimize fugitive emissions at landfills. Advanced monitoring to identify and address methane leaks is another critical component of effective methane mitigation.

See below for a list of federal funding streams that can be used to support methane standards. For full details, including information on deadlines, funding availability, and eligibility requirements, see this list in RMI and WRI’s AFFORD tool.

Funding to Target Oil and Gas Methane

Key programs in the IRA and IIJA provide funding that states can use to support methane standard implementation for oil and gas systems.

Flexible Grants and Loans

Several flexible funding streams could be used to target methane emissions from oil and gas, landfills, and other sources, bringing benefits to disproportionally impacted communities.

In the list above, we omitted funding opportunities with less than $50 million available in total. For more detail on the above programs and to see opportunities not included above, see the AFFORD tool, the IRA Program and Incentive Summary, and grants.gov.

Whole-home energy retrofit program

Benefits: energy affordability, improved indoor and outdoor air quality, job creation, reduction of energy price volatility

Holistic, whole-home retrofit programs for low- and moderate-income households deliver energy efficiency upgrades, appliance electrification, health and safety investments, and energy assistance to households in both single-family and multifamily buildings. To facilitate whole-home retrofits, states can direct existing home retrofit programs to collaborate on a one-stop-shop access point for consumers that stacks and braids existing funds together, states can reform electric and gas utility regulation to make it easier for homes and business to save energy and money, and states can pursue all avenues for federal funding. States can also identify and address retrofit needs that are often under-funded from federal sources, including but not limited to health and safety upgrades and interventions, energy infrastructure such as electric panel upgrades, and energy bill assistance.

Holistic, whole-home retrofit programs and supporting policy can take many forms. Pennsylvania has examples of state and local one-stop-shop programs with Philadelphia’s Built to Last program and the Whole Home Repairs program, and California’s Low-Income Weatherization Program offers another positive example of a program that has formed one-stop-shop models to deliver whole-home retrofits, including to multifamily buildings.

By working and collaborating across decision makers, agencies, and stakeholders, states can help provide maximum incentive support for a whole-home energy retrofit. Low- and moderate-income consumers will benefit from homes that are more affordable to operate, more resilient to extreme weather, more energy efficient so create less of a burden on the electricity grid, and healthier to inhabit because of reduced indoor air pollution. Results from existing programs have proven that whole-home energy retrofits benefit low-income households.

There are numerous federal funding opportunities that will make it easier to provide whole-home retrofits, including historic funding from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. Through a well-designed whole-home energy retrofit program, IIJA incentives, IRA incentives, and state and local incentives can be “stacked” in ways to greatly decrease the cost of a retrofit project. These could include rebates, tax credits, grants, loans, and direct services.

See below for a list of federal funding streams that can be used to support a whole-home energy retrofit program. For full details, including information on deadlines, funding availability, and eligibility requirements, see this list in RMI and WRI’s AFFORD tool.

Tax Credits, Deductions, and Rebates

Federal incentives for homeowners, homebuilders, and commercial buildings owners make whole-home energy retrofits more affordable and lessen the cost of a state’s whole home energy retrofit program.

  • Energy Efficient Home Improvement Credit (25C) supports homeowners making energy efficiency improvements (e.g., better doors, windows, insulation), receiving a home energy audit, and/or installing a heat pump. The credit is available through 2032. It is worth up to $2,000 per year for heat pumps.
  • New Energy Efficient Homes Credit (45L) provides a tax credit for contractors building new homes that meet an Energy Star or Zero Energy Ready Home certification. The credit is available through 2032 and is worth up to $5,000 per home.
  • Energy Efficient Commercial Buildings Deduction (179D) supports commercial building owners that install qualifying lighting systems; heating, ventilation, and air conditioning systems; hot water; or building envelope improvements.

Assistance for Low- and Moderate-Income Households

Federal funding to reduce energy burdens on low- and moderate-income households has a long history. These programs work by improving the overall energy efficiency of homes but are generally not available to households above average income levels. These programs can stack well with other federal and state incentives as part of a whole-home energy retrofit program.

  • Home Efficiency Rebates through state energy offices discount the price of energy-saving retrofits in single-family and multifamily buildings. Forty percent of funding must go to low-income households.
  • Home Electrification and Appliance Rebates through state energy offices provide point-of-sale rebates for high-efficiency electric home appliances and equipment in low- and moderate-income households.
  • Low Income Home Energy Assistance Program (LIHEAP) funds state-administered assistance to families with low incomes in order to reduce the costs associated with home energy bills, energy crises, weatherization, and minor energy-related home repairs.
  • Weatherization Assistance Program (WAP) funds the state to provide weatherization services to households at or below 200% of the poverty income guideline.
  • Green and Resilient Retrofit Program makes grants and loans to improve the energy and environmental sustainability of HUD-assisted multifamily properties.

Grants to State and Local Governments

Subnational governments also have federal funds available to them that make whole home energy retrofits more feasible in some indirect ways, like through better building codes and new dedicated loan funds.

Flexible Grants and Loans

Flexible funding sources can support projects across multiple sectors, with some well-suited for buildings.

In the list above, we omitted funding for pilot projects, funding available only in a particular region or regions, and funding opportunities with less than $50 million available in total. For more detail on the above programs and to see opportunities not included above, see the AFFORD tool, the IRA Program and Incentive Summary, and grants.gov.

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