Opportunity Zones: a $100 billion investment for the clean economy?
On Friday, the U.S. Treasury Department issued proposed guidance related to the new Opportunity Zone tax incentive. The tax benefit, created by the 2017 Tax Cuts and Jobs Act, is designed to spur economic development and job creation by encouraging long-term investments in economically distressed communities nationwide.
It could have significant impact for accelerating the clean economy.
"We anticipate that $100 billion in private capital will be dedicated towards creating jobs and economic development in Opportunity Zones," said Treasury Secretary Steven Mnuchin. "This incentive will foster economic revitalization and promote sustainable economic growth, which was a major goal of the Tax Cuts and Jobs Act."
Opportunity Zones offer capital gains tax relief to investors for new investment in designated areas. Investment benefits include deferral of tax on prior gains as late as 2026 if the amount of the gain is invested in an Opportunity Fund. The benefits also include tax forgiveness on gains on that investment if the investor holds the investment for at least 10 years. Opportunity Zones retain their designation for 10 years, but under the proposed regulations, investors can hold onto their investments in Qualified Opportunity Funds through 2047 without losing tax benefits.
Working with state and local governments earlier this year, Treasury certified 8,761 communities in all 50 states, the District of Columbia and five U.S. territories. Nearly 35 million Americans live in areas designated as Opportunity Zones. These communities present both the need for investment and significant investment opportunities.
Based on data from the 2011-15 American Community Survey, the designated regions had an average poverty rate of over 32 percent, compared with the 17 percent national average.
What is the potential for clean economy investments in the Opportunity Zones? Will investors seek out vacant buildings (think abandoned shopping malls, old manufacturing plants, unused warehousing facilities) to invest in rooftop solar, storage and deep energy retrofits to repurpose buildings for new uses? Will investors develop brownfields to become community solar brightfields? What about rural Opportunity Zones for clean economy investments, including solar and wind projects?
These questions and many more need the active attention and industry engagement and leadership from the clean economy community, including many readers who attended VERGE last week or the recent Global Climate Action Summit.
Here are some action steps to consider.
- Seek understanding of the potential for Opportunity Zone investments in your community. Interactive online resources and maps include state portals such as the California Opportunity Zones website.
- Become familiar with the proposed regulations and comment on provisions that would help promote clean economy investments.
- Urge clean energy trade associations — including Advanced Energy Economy, American Wind Energy Association, Solar Energy Industries Association and the Alliance to Save Energy — to engage their members and create awareness of the Opportunity Zone potential for clean energy investments.
- Encourage newly elected public officials, including governors, to prioritize attracting clean economy investments to the Opportunity Zones. For instance, the incoming governor of California next year will have 879 Opportunity Zones and could create policy priorities using existing state programs and incentives to leverage clean economy investments to improve air quality, affordable housing, sustainability, environmental justice and climate change, and to create jobs.
I believe the Opportunity Zone federal tax incentive provides great potential for accelerating the clean economy and creating jobs in underserved communities. But this will happen only if our industry provides leadership by engaging at the state and local level in deep and impactful new ways.