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Initial Guidance for Allocation of Environmental Justice Bonus Tax Credits

February 27, 2023
3 minute read

Initial Guidance for Allocation of Environmental Justice Bonus Tax Credits

February 27, 2023
3 minute read

Authored By

Mark Bender

Mark C. Bender

Special Counsel

John Clancy

John L. Clancy


Timothy Smith

Timothy C. Smith



The Department of Treasury and IRS released their initial guidance (Notice 2023-17) establishing the program to allocate the “environmental justice solar and wind capacity limitation” for purposes of the investment tax credit under the Internal Revenue Code (IRC) Section 48(e). This program provides valuable bonus credits in addition to the investment tax credit generally available for solar and wind projects and can include the energy storage installed in connection with eligible solar and wind projects.

Unlike the other bonus credits applicable to energy communities or applicable to projects that meet domestic content requirements, these environmental justice bonus credits are subject to an application and allocation process under this newly established program. Moreover, the overall amount of credits that can be awarded is generally limited to 1,800 megawatts (MW) direct current (DC) for each of 2023 and 2024.

For 2023, the program will allocate the 1,800 MW DC pool among four categories of projects as follows:


 Required Facility Location

Potential Bonus Credit



Category 1

Low-Income Community


700 MW

Category 2

On Indian Land


200 MW

Category 3

Qualified Low-Income Residential Building Project


200 MW

Category 4

Qualified Low-Income Economic Benefit Project


700 MW


To qualify for any category, the solar or wind facility must have a maximum net output of less than 5 MW AC and cannot have been placed into service before receiving the allocation.

If selected applications for any category exceed the allocation limit for that category, the program may use a lottery or other process among those participants.

In the event one of the four categories has unused MW capacity for 2023, that excess capacity may be reallocated among the other categories to maximize the 2023 allocation.

To further the program goals, the program will incorporate additional criteria in determining how to allocate the bonus credits reserved for each facility category among eligible applicants. These criteria, which will be detailed further in forthcoming guidance, may include a focus on facilities that are:

  • owned or developed by community-based organizations and mission-driven entities
  • have an impact on encouraging new market participants
  • provide substantial benefits to low-income communities and individuals marginalized from economic opportunities, and
  • have a higher degree of commercial readiness.

Applications will be accepted in a phased approach with 60-day application windows, with facilities in Categories 3 and 4 being accepted first, and facilities in Categories 1 and 2 being accepted later. More guidance on this phased approach is to follow.

The Department of Energy (DOE) will administer the program and review applications. DOE will then make recommendations to the IRS regarding selection of applications. IRS is expected to make the final determination for approving these bonus credits.

Further guidance on this program is expected to follow before the application process opens. 

Godfrey & Kahn Assistance

Godfrey & Kahn has assisted with the financing and development of renewable energy projects, including combining tax credit financing, grant funding and other funding sources, for energy users, developers and investors. We have also assisted numerous organizations, municipalities, and tribes in packaging federal grants with other state and/or utility grants and tax incentives, investment tax credits, new market tax credits, or other private funding to drive down the cost of energy-related projects, often resulting in the construction of projects with no upfront capital costs. Now, with the Inflation Reduction Act providing numerous expanded funding opportunities, we can work with you to help fully fund numerous clean energy projects.

The bonus credits under this newly established program can be a valuable financing source for qualifying projects. In particular, many projects may be eligible solely based on their location in a qualifying census tract. Attorneys in our Energy Practice Group would be happy to assist with reviewing eligibility for these bonus credits and assisting with the application process.

For more information about strategies to utilize the allocation amounts to meet your organization’s energy goals, please contact a member of our Energy Practice Group

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