The One, Big, Beautiful Bill: Impact on Clean Energy Tax Credits
The One, Big, Beautiful Bill would significantly limit tax credits for clean energy and manufacturing introduced or expanded under the Inflation Reduction Act of 2022.
The Inflation Reduction Act of 2022 (the "IRA") sought to encourage investment in clean energy by introducing new, and expanding existing, energy tax credits. It also sought to encourage financing of clean energy projects by creating a market for taxpayers to buy and sell certain credits for cash.
On May 12, the House Ways and Means Committee released a copy of "The One, Big, Beautiful Bill" (the "Bill"). The Bill proposes significant changes to the IRA tax credits which, if enacted, would: (i) impact how long these credits are available; (ii) restrict credits for projects with certain connections to specified countries (including China and Russia); and (iii) after two years, eliminate the ability for taxpayers to buy and sell credits for cash.
The proposed changes include:
- Phase Out. The Section 45V clean hydrogen production credit would no longer be available for facilities beginning construction after 2025, and the electric vehicle, or EV, tax credits (Sections 25E, 30D, 30C, and 45W) would generally expire at the end of 2025. The Section 48E clean electricity investment credit and Section 45Y clean electricity production credit fare a bit better—the credits would be phased out by 20% each year starting in 2029 and fully phased out after 2031 (depending on when the project is placed in service). The Section 45X advanced manufacturing production credit for the manufacturing and sale of solar panels and batteries (and mining of critical minerals) would also expire for sales after 2031 (for wind energy components after 2027). The Section 45Z clean fuel production credit would actually be extended by 3 years (through 2031), but would only be available to fuel produced from feedstocks that are produced or grown in the United States, Mexico, or Canada.
- Foreign Entities and Assets. The Bill would impose restrictions on IRA tax credit projects owned by, or significantly influenced by, entities organized or located in specific countries (including China and Russia) or using components, minerals, or intellectual property sourced from such countries. If adopted, developers would need to carefully assess their legal and beneficial ownership structures, supply chains, and other relationships to ensure continued eligibility.
- Transferability. The Bill proposes eliminating the ability to sell energy tax credits beginning two years after the enactment of the Bill (based on beginning of construction date, for Section 48E, 45Y, 45Q, and 45U, based on production date for Section 45Z, and based on sale date, for Section 45X).
As the Bill proceeds through the legislative process, it is expected to undergo numerous revisions and amendments, reflecting input from various stakeholders and lawmakers.
