The following commentary was written by Daksh Arora, a project engineer at GameChange Solar, content director for the MIT Energy Conference 2025, and a fellow at the Clean Energy Leadership Institute. See our commentary guidelines for more information.

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States like Massachusetts must take the lead in advancing the United States’ climate goals, especially under the incoming Trump administration. While the Biden Administration’s landmark Inflation Reduction Act (IRA) of 2022 made significant strides, the U.S. is still on track to achieve only 66% of its greenhouse gas reduction targets by 2030.

With the potential for further setbacks, such as a possible second withdrawal from the Paris Agreement, states like Massachusetts must step up to drive the deployment of clean energy and climate solutions.

The “Direct Pay” provision in the Inflation Reduction Act (IRA) is a game-changer for municipalities, state and local governments, and other tax-exempt entities to access federal clean energy tax credits. This provision allows entities such as nonprofits, schools, tribal governments, and municipal utilities to receive tax credits directly from the IRS, rather than relying on tax liability to claim them.

Before the IRA, only private entities could benefit from these credits, putting public entities at a disadvantage in developing clean energy projects. The Direct Pay provision has no cap on government spending through 2032, offering new opportunities for public sector investment in clean energy. Furthermore, IRA also increases the maximum available tax credit for certain clean energy projects, from 30% to 50%, with the potential for up to 70% or more for projects in energy or low-income communities, or those using American-made materials, helping overcome financial barriers that previously slowed public clean energy development.

To claim direct pay, eligible entities must complete their energy projects before receiving payment from the federal government, which will occur the following year. While the tax credits will lower overall project costs, upfront capital is still needed to finance projects before the refund arrives.

To help address this, the Greenhouse Gas Reduction Fund (GGRF), a $27 billion program established by another IRA provision, provides increased green bank financing, supporting an equitable green financing ecosystem across the U.S. The IRS just finalized the direct pay rules and it would be really difficult for the next administration to repeal it. 

City governments like in Somerville and Cambridge can use direct pay to supplement the costs of deploying renewable energy infrastructure such as solar panels and storage technologies on public lands and buildings; electrifying vehicle fleets; and building out electric vehicle charging infrastructure.

The cities can also establish their own municipal clean energy utility. In 2024, voters in Ann Arbor approved the creation of a “Sustainable Energy Utility” (SEU) with 79% support. The SEU is designed to supplement the existing energy grid and help residents transition to cleaner, more reliable energy sources. The SEU plans to initially secure 20 megawatts of demand, using that to finance and install solar panels, batteries, and energy-efficiency upgrades for customers. The utility will own and maintain the solar systems, providing power to customers at cost, with no markup, allowing residents to access solar and backup power without upfront costs or debt.

Direct Pay is also a significant shift that allows public power entities, like the New York Power Authority (NYPA), to directly own renewable energy projects instead of relying on complex public-private partnerships. This makes it easier for NYPA to scale up clean energy projects by bypassing the need for third-party ownership structures that were previously required.

While there is an urgent need for funding in renewable energy, infrastructure, and other green initiatives, challenges like high capital costs and slow land acquisition complicate the transition. Some critics argue that financial de-risking may lead to the privatization of public goods and place the private sector in control of the green transition, raising concerns about the fairness of these arrangements. Despite these challenges, the question remains whether private investors can truly finance the world’s vast unmet green infrastructure needs and whether it’s technically possible to overcome the barriers in place. 

Regardless of this question, investing in public capacity is a net win for the environment as direct pay not only levels the playing field between for-profit and tax-exempt entities but also shifts energy generation ownership from private to public and nonprofit sectors, enabling more consumer-focused management of energy assets. States like Massachusetts should ensure that benefits from the IRA reach low-income and marginalized communities.

Massachusetts just streamlined the process for building solar and wind farms, transmission lines, and other energy infrastructure to help meet its climate goals by 2050. The state can do more by working to help communities understand the types of investments eligible for direct pay and how to secure financing for clean energy projects, making access to this funding easier and more efficient. The state can also lead by setting an example by deploying climate solutions at scale and ensuring utilities maximize the federal clean energy tax credits by regulatory oversight.

At the moment, when the state is experiencing a historic drought fueled by climate change, the inaction to expand clean energy infrastructure and advance environmental justice is no longer an option.

Commentary: Trump may struggle to repeal this IRA provision; Massachusetts should use it is an article from Energy News Network, a nonprofit news service covering the clean energy transition. If you would like to support us please make a donation.