The Tax Cuts and Jobs Act of 2017 remains one of the signature achievements of Republican lawmakers in Congress and the Trump Administration. We have frequently discussed how these tax cuts have benefitted the clean energy sector and energy consumers, especially in lowering overall costs. But it turns out the legislation also established a new source of funding for clean energy development: Opportunity Zones.
The tax cuts signed into law included a provision to incentivize investors to hold their capital gains in Opportunity Funds in order to directly benefit economically distressed areas (Opportunity Zones) across the country by encouraging investment. Once an investor chooses to hold their assets in an Opportunity Fund, developers can find projects within each zone and are eligible to receive funding from the investment. The program is inherently local, flexible, and scalable, with no cap on investors or restriction on eligible investments.
It’s clear that investment in the Opportunity Zones will increase income, create new jobs, and promote innovation in the market. An estimated $6.1 trillion of unrealized capital gains were available in the United States in 2017—so even a small percentage could make an incredible difference for the clean energy sector and the communities it supports.
Treasury Secretary Steve Mnuchin said he actually anticipates that $100 billion in private capital will be dedicated towards creating jobs and economic development in Opportunity Zones. And in their testimony before the U.S. Congress, the Economic Innovation Group (EIG) presented data showing 27 million Americans live within these zones, with an average unemployment rate of 38 percent.
The selling points for investors? By holding the investment for five to seven years, the investor can reduce the tax on their capital gains by 10 and 15 percent, respectively. After ten years, the investor would not pay any tax on the profits they create within the Opportunity Zone.
Opportunity zones are located throughout urban and rural regions of the U.S. clean energy developers have a lot of options for creating and innovating projects, including revitalizing abandoned buildings for solar energy or using spacious rural land for solar and wind solutions.
As a free-market, low-tax solution, the Opportunity Zone provision has drawn support by Republican and Democrats alike, and Republican Senator Tim Scott (R-SC) and Representative Pat Tiberi (R-OH) co-authored the original legislation that became the foundation for the Opportunity Zone program.
The Treasury recently released a Notice of Proposed Rulemaking to begin implementation, and Republican Members of both the House and Senate recently signed onto a letter seeking to clarify several aspects of the program in order to finalize regulations so the program can move forward.
In the meantime, anticipation about Opportunity Funds is already helping clean energy businesses. For example, an investor in Portland, Oregon, Obsidian Opportunity Fund, is currently developing a solar energy project in a rural zone. Developer David Brown believes that the nature of renewable energy projects should make them popular for the fund, especially solar.
It certainly seems like 2019 could be a good year for such projects thanks to the Opportunity Funds.