Measuring the Economic Benefits of the Build Back Better Agenda’s Direct Pay Provisions

By Matt Mazewski and Christian Flores

Introduction and Summary of Findings

Federal clean energy tax credits are a critical tool for routing investments into projects that promote environmental sustainability and a robust domestic supply of renewable energy. Absent substantial increases in these investments in the near future, the U.S. will most likely fail to achieve the level of renewable generation needed to prevent the worst consequences of climate change. Moreover, our economy will remain exposed to inflation risks stemming from the volatility of fossil fuel prices.

Administrative and bureaucratic barriers, however, often make it difficult for individuals and firms to fully take advantage of these incentives. The Build Back Better (BBB) agenda not only includes expansions and extensions of existing green tax credits, but also seeks to increase their use by reviving a mechanism known as Direct Pay. 

Direct Pay, which is modeled on an earlier initiative under the 2009 American Recovery and Reinvestment Act (ARRA), would allow tax credits to be paid out as cash rather than simply as reductions in incurred tax liability. This would represent an important step in limiting administrative hurdles in the claiming of clean energy credits and would allow their benefits to be more fully realized.

In this memo, we employ the Data for Progress Jobs Model to provide an estimate of the impact that a Direct Pay option would have on jobs and economic output relative to that which would otherwise result from the expansion of credits contemplated by the BBB agenda.