Enacted in August 2022, the Inflation Reduction Act (the "IRA") expanded energy tax credits by increasing credit amounts across the board and broadening eligibility criteria to include new technologies.
Notably, the IRA allows firms to develop and sell energy tax credits, as outlined here, to advance its goals of reducing emissions while also boosting domestic manufacturing and innovation.
In our last update, available here, we discussed how Trump's withdrawal from global climate agreements and open disdain for the "Green New Deal" signaled a deliberate shift away from clean energy, making a reversal of the IRA seem inevitable.
That reversal is now underway. As many feared, the House advanced its budget on May 22 summarized here, which would significantly pare back the IRA's clean energy initiatives to help offset the cost of other items, such as the anticipated extension of the Tax Cuts and Jobs Act ("TCJA") provisions.
Released under the banner of "Working Families Over Elites," the bill would eliminate several consumer-facing tax credits, including credits for purchasing electric vehicles, installing charging infrastructure, and making home energy efficiency upgrades. Some limited exceptions would extend the ability to claim a credit through 2026.
The bill would also eliminate the credit for clean hydrogen production, widely viewed as one of the more innovative (if often misunderstood) technologies sanctioned by the IRA.
Most significantly, the bill would gut the technology-neutral investment tax credit ("ITC") and production tax credit ("PTC")—two of the cornerstones of the IRA, as we introduced here—by eliminating the credit for projects that have not begun construction within 60 days after the bill's enactment or are not placed in service before the end of 2028 (with an exception for qualifying nuclear facilities). The bill would also disallow the credit for residential wind and solar property that is leased to a third party.
Additionally, the bill would eliminate the ability to sell the clean fuel production credit and the advanced manufacturing production credit after 2027, the latter of which was on track to become one of the most widely claimed credits under the IRA. The bill would also eliminate transferability for the carbon sequestration credit two years after its enactment, along with the investment credit for certain energy property.
Although the IRA tax credits were structured as 10-year incentives set to expire after 2032, with some credits subject to phase-outs, the bill would shorten that timeline by terminating the nuclear power production credit and the advanced manufacturing production credit after 2031. It's possible that future revisions could further accelerate the phase-out of these credits, as proposed in the initial House draft.
Beyond these timing restrictions, the bill would impose "foreign entity of concern" limitations across several provisions—which we anticipated here—amid growing concerns over China's dominance in critical supply chains like solar panels, batteries and critical minerals.
But even as those restrictions gain political traction, the popularity of the credits has prompted a more cautious tone from some policymakers. Earlier in May, a group of House Republicans wrote a letter urging their colleagues in the Ways and Means Committee to preserve the IRA credits, citing both the need to position the U.S. as a global energy leader and concerns over rising energy costs. That warning, however, may have fallen on deaf ears.
The Tax Foundation estimates here that fully repealing the IRA's clean energy incentives would raise $851 billion. By contrast, the scaled-back proposal currently on the table would raise only about a third of that amount—leading some Republicans to argue that it doesn't go far enough.
Uncertainty persists, but as the IRA approaches its third anniversary, one thing is clear: the market for credit transfers is huge, with market analysts estimating that total volume exceeded $24 billion in 2024.
We will continue to monitor developments and provide updates in Brass Tax as the landscape continues to evolve.
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