The Inflation Reduction Act introduced a 10 percent bonus credit for clean energy projects located in "energy communities"—areas that have historically depended on fossil fuel industries or that face economic challenges related to the energy transition. In Notice 2023-29, the IRS has provided the first comprehensive guidance on what qualifies as an energy community, defining three distinct categories and providing tools for taxpayers to determine whether a particular project location meets the criteria. For businesses and investors considering clean energy projects in Mississippi and across the Southeast, this guidance has significant implications for project siting and economics.[1]
The Three Categories of Energy Communities
Brownfield Sites
The first category encompasses brownfield sites as defined under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). A brownfield site is a property where the presence or potential presence of a hazardous substance, pollutant, or contaminant complicates the expansion, redevelopment, or reuse of the property. This category is relatively straightforward—if the project is located on a qualifying brownfield site, the energy community bonus applies regardless of the site's geographic location or the surrounding area's economic characteristics.[2]
Statistical Areas with Fossil Fuel Employment
The second category targets metropolitan statistical areas (MSAs) and non-metropolitan statistical areas where fossil fuel employment meets certain thresholds. Specifically, the area must have (or have had at any point after 2009) direct employment or local tax revenue related to the extraction, processing, transport, or storage of coal, oil, or natural gas that represents a significant share of the area's employment or tax base. In addition, the area must have an unemployment rate at or above the national average.
Notice 2023-29 provides that the IRS will publish an annual list of qualifying MSAs and non-MSAs based on data from the Bureau of Labor Statistics and the Census Bureau. The initial list identifies hundreds of qualifying areas across the country. For Mississippi, several areas qualify based on the state's historical involvement in oil and natural gas extraction, particularly in the southern and central portions of the state. Project developers should consult the IRS's published list and the interactive mapping tool to confirm whether a specific project location falls within a qualifying statistical area.
Census Tracts with Retired Coal Facilities
The third category applies to census tracts in which a coal mine has closed after 1999 or a coal-fired electric generating unit has been retired after 2009, as well as any census tract that is directly adjoining such a tract. This category targets the communities most directly affected by coal industry closures and provides a geographically precise qualification standard. The IRS has published a list of qualifying census tracts based on data from the Mine Safety and Health Administration and the Energy Information Administration.[3]
How the Bonus Credit Works
The energy community bonus increases the applicable credit rate by 10 percentage points. For projects that meet the prevailing wage and apprenticeship requirements, this means the investment tax credit under § 48 increases from 30 percent to 40 percent, and the production tax credit under § 45 increases by a corresponding amount. For projects that do not meet the prevailing wage requirements, the bonus is 2 percentage points (increasing the base credit from 6 percent to 8 percent for the ITC). The economic impact of the bonus is substantial—on a $10 million solar installation, the difference between a 30 percent and 40 percent ITC is $1 million in additional credit.
Mississippi Implications
Mississippi has meaningful opportunities under the energy community provisions. The state's historical oil and gas production, particularly in the Yazoo Clay formation and the Mississippi Interior Salt Basin, means that several statistical areas in the state meet the fossil fuel employment threshold. Additionally, the retirement of coal-fired power generation facilities in recent years has created qualifying census tracts in parts of the state.
For Mississippi businesses and landowners considering clean energy investments—whether solar installations, battery storage, or other qualifying technologies—the energy community bonus can meaningfully improve project economics. The bonus is stackable with other IRA incentives, including the domestic content bonus and the low-income community bonus, potentially bringing the total ITC to 50 percent or more for qualifying projects. As we discussed in our earlier overview of IRA energy credits, the combination of these incentives represents a historic opportunity for clean energy investment in Mississippi and similar states.[4]
Businesses considering projects in potentially qualifying areas should work with tax and energy advisors to confirm eligibility, as the determination depends on precise geographic data that may change as the IRS updates its lists annually. The energy community bonus is available for projects that begin construction after the IRA's enactment date, and the IRS's guidance on what constitutes the "beginning of construction" should be carefully followed to ensure eligibility.