Place-based policies in the United States aim to provide support to specific locations. Unfortunately, major energy and environmental policies fail to target the places with the most need, diluting the intended benefits and suggesting the need for reform.
In recent years, policymakers in the United States increasingly have turned to place-based policies to address critical societal issues, such as rural poverty, environmental injustice, the effects of deindustrialization, the decline of coal, and other challenges that disproportionately affect specific geographic regions. Although economists historically have been wary of such place-based approaches, an increasing focus on equity, justice, and the political ramifications of economic insecurity have motivated this raft of new policies.
Place-based policies are not new in the United States. These types of policies have ebbed and flowed between periods when more federal funds seek to address specific issues in specific places (typically relying on mathematical formulas to determine need) and periods when more grants are awarded in large blocks, allowing states and localities to prioritize spending. In recent years, the pendulum has swung decidedly in the direction of place-based approaches, with federal policymakers determining which places are eligible for which programs, tax credits, and other resources.
This trend is best demonstrated by a series of recent laws (namely the American Rescue Plan, Infrastructure Investment and Jobs Act, the Creating Helpful Incentives to Produce Semiconductors and Science Act, and the Inflation Reduction Act) that use place-based policies to address long-standing environmental justice issues, build clean energy projects in low-income communities, drive manufacturing investment in coal-dependent regions, and achieve other goals. These laws also earmark tens of billions of dollars for hand-picked projects that will manufacture semiconductors, produce hydrogen, capture carbon dioxide, and more. At the same time, the Biden administration is implementing its Justice40 initiative, which seeks to ensure that at least 40 percent of the benefits of major federal programs go to disadvantaged communities. Top economic advisors to the president highlight such place-based approaches as a cornerstone of federal economic policy.
Although it is too early to evaluate the ultimate effectiveness of these place-based approaches, it is not too soon to assess whether the policies target the places that need the programs the most. We did so by selecting and mapping four major energy and environmental place-based programs, three of which were congressionally mandated under the Inflation Reduction Act, and one that stems from an executive order issued under the Biden administration:
- the Justice40 Initiative (executive order)
- the Environmental and Climate Justice Program, which funds projects and provides technical assistance in disadvantaged communities (congressionally mandated)
- the Low-Income Communities Bonus Credit Program, which provides a bonus tax credit of 10–20 percent for small-scale renewable energy and energy-efficiency projects in low-income communities or on “Indian land” (as defined in 25 US Code § 2703) (congressionally mandated)
- the Energy Community Tax Credit Bonus, which provides a bonus tax credit of up to 10 percent for clean energy projects on brownfield sites, in coal communities, or in regions with higher-than-average unemployment and at least 0.17 percent of employment in coal, oil, and gas industries (congressionally mandated)
Although these four programs represent just a portion of federal place-based initiatives, they collectively cover 79 percent of the US land mass (Figure 1), 64 percent of the US population, and 57 percent of the national income (Table 1). Because resources are limited, making so much of the nation eligible for these programs means that the benefits of the policies will be spread a mile wide and an inch deep. In other words, the bulk of the benefits are unlikely to reach the people and places that face the greatest environmental and socioeconomic burdens.
Figure 1. US Areas Covered by Four Major Place-Based Policies
Table 1. Proportion of Land Mass, Population, and Income Covered by Four Major Place-Based Policies
Notes: “Combined Total” does not sum to 100 because eligible regions overlap. “US Household Income” refers to the US Census Bureau’s estimated share of US household income for households living within eligible geographies for each program. Figure 1 and Table 1 calculations were completed by the authors based on mapping data provided by the US Environmental Protection Agency, the US Department of Energy, the National Renewable Energy Laboratory, and the Council on Environmental Quality.
Getting into the Weeds
Why do these programs cover such vast swaths of the nation? The only way to answer that question is by digging into the weeds of how policymakers have determined which places would be eligible for each place-based policy.
To begin, the Justice40 Initiative makes census tracts eligible if their average household income is in the bottom 35 percent of all US tracts and they exceed the 90th percentile across more than two dozen environmental, health, housing, socioeconomic, and other burdens. In addition, all Federally Recognized Tribes and Alaska Native Villages are eligible. The Environmental and Climate Justice Program uses similar criteria but adds certain census block groups with high environmental burdens according to the US Environmental Protection Agency’s EJScreen tool.
The Low-Income Communities Bonus Credit Program is available to census tracts that are defined as low income under another federal tax credit (the New Markets Tax Credit Program), census tracts with high energy costs relative to household income, counties with high rates of persistent poverty, census tracts on “Indian land” (as defined in 25 US Code § 2703), and certain low-income housing projects.
The Energy Community Tax Credit Bonus is available to census tracts (and their neighboring tracts) where coal mines or coal-fired power generators have closed, brownfield sites, and metropolitan or nonmetropolitan statistical areas where fossil fuel employment exceeds 0.17 percent of the total and where unemployment is higher than the national average relative to the previous year.
To be sure, policymaking is an imprecise art, and many factors make it difficult to craft an “optimal” policy on any issue. In the context of place-based efforts, federal policymakers have imperfect information (e.g., data limitations) that come with trade-offs requiring them to choose whether to err on the side of over- or under-covering potential beneficiaries. What’s more, political factors incentivize lawmakers to ensure that as many of their constituents as possible are covered, which will tend to inflate geographic and demographic coverage.
But these well-understood factors fail to explain the extraordinarily broad extent of program coverage. For example, the Energy Community Tax Credit Bonus determines which places qualify by setting a threshold of 0.17 percent fossil fuel employment, which is well below the national average (regardless of how one defines “fossil fuel” employment), suggesting that a miscalculation may have occurred during the legislative drafting process. And Justice40 is based on an executive order, which means that it is not subject to the same political pressures that incentivize the lawmakers from 50 states and 435 congressional districts to ensure that their constituents are covered.
Because qualifying for these place-based energy and environmental policies can happen in so many different ways, and because some geographic groupings (such as nonmetropolitan statistical areas, Native American reservations, and others) can each cover thousands of square miles, these four policies end up covering most places (and people) in the United States.
Absurd Outcomes
Proponents might argue that the extensive geographic and demographic coverage of these policies are needed to address a long legacy of disinvestment across rural and low-income parts of the United States. But a close look at the maps reveals that these four programs frequently cover places they probably shouldn’t, fail to cover places they probably should, and do not match the most pressing local needs with the right federal resources.
For example, Manhattan’s Times Square qualifies as a “disadvantaged community” under Justice40 and the Environmental and Climate Justice Program due to several factors, including a lack of green space and high housing costs. Most of Orange County, California—including Disneyland—qualifies as an “energy community,” as do San Francisco, San Diego, and Chicago, although most of West Texas, home to the nation’s largest oil field, does not. (The unemployment rate in West Texas is below last year’s national average.) Much of Ann Arbor, Michigan, and Berkeley, California—affluent cities with a large college-age population—qualify as low-income communities due to low income levels, likely because most students earn little or no income.
Along with imprecise geographic targeting, some programs do not address the most pressing environmental or socioeconomic needs of eligible locations. For example, a census tract that qualifies for Justice40 because it has high rates of heart disease and low household incomes does not automatically receive benefits related to public health or income, but instead is prioritized under a set of Justice40 “covered programs.” This includes hundreds of programs, among them carbon capture demonstration projects, recreation investments, and ecosystem restoration. Similarly, the Energy Community Tax Credit Bonus subsidizes clean energy deployment in places where coal mines or power plants have shuttered, but those places may have much more pressing issues with related needs, such as plunging tax revenues or substandard housing.
Another major issue with some place-based policies, particularly the Energy Community Tax Credit Bonus, is that eligibility varies from year to year, creating uncertainty and deterring investment. Political scientists have pointed out that policy durability, which the Energy Community Tax Credit Bonus clearly lacks, is a prerequisite to policy success. But because eligibility is determined based on employment and unemployment data that change each year, the share of the US population that’s covered grew from 19 percent in 2023 to 32 percent in 2024 and could easily grow or contract in the future as national unemployment rates swing up or down.
Looking forward, as the impacts of climate change and the effects of the energy transition accumulate, policymakers will need to think about not only today, but also tomorrow. Taking this perspective means looking out over the coming decades to determine which communities need investment today that can help them weather the impacts of climate damages (risks that are incorporated into Justice40 to some extent); declines in fossil fuel–related tax revenue; and other impacts that require years, if not decades, of planning. As the need for these types of place-based efforts expands, targeting resources appropriately will become that much more important.
Improving the Targeting of Place-Based Policies
Place-based policies are not inherently flawed. Evidence shows that, if designed well, these types of policies can boost socioeconomic and environmental outcomes in targeted communities. But because they are often designed poorly, the track record for place-based policies is decidedly mixed. If policymakers intend to use these tools to bolster disadvantaged communities, address environmental injustices, and ensure an equitable transition to a net-zero economy, they will need to target the right resources to the right places. The current crop of place-based policies does not do this.
Scholars and policymakers can improve geographic targeting by defining more precise locations for policy support. Instead of relying on vast regions such as nonmetropolitan statistical areas (as the energy community provision does), policymakers can focus on finer geographic scales. In addition, they can tighten the eligibility requirements by raising quantitative thresholds or scaling back the dozens of routes by which communities can qualify (as Justice40 does). They also can adjust criteria to ensure that communities are eligible when they face significant cumulative burdens (a long-running theme of environmental justice advocates), rather than qualifying based on one or two metrics of interest. Finally, they could do more to match federal programs and resources with the most important needs facing each community.
To summarize: Details matter. While it may be unsurprising that existing policies imperfectly target their intended beneficiaries, the degree of imprecision in these four policies alone suggests that tens of billions of dollars, if not more, will flow to places that don’t need the money. If policymakers want to support the people and places that face the greatest environmental and socioeconomic burdens, they need to refine eligibility criteria and the targeting of relevant programs. Not only would these changes make place-based policies easier to understand, they would improve the likelihood that well-intentioned federal programs actually reach the places that need those policies the most.
