House GOP proposes early phaseout of IRA clean energy tax credits

• Federal tax credits that benefit energy developers, manufacturers and utilities face an early phaseout in a budget proposal released Monday by a key GOP-controlled House committee.
• The House Ways and Means Committee’s draft reconciliation package steps down the investment and production tax credits for nuclear power, wind, solar, batteries, geothermal and other clean energy technologies after 2028, and eliminates them completely after 2031. It preserves a comparatively generous credit for carbon sequestration and extends the clean fuels production credit.
• Energy industry groups and customers slammed the proposal, saying it would raise electricity prices, quash a manufacturing boom spurred by the Inflation Reduction Act and erode the United States’ competitive advantage on artificial intelligence.

The Ways and Means budget gives clean energy developers and producers until 2028 to claim the full 45Y and 48E tax credits for clean energy investment and production. The credit values step down to 80% in 2029, 60% in 2030 and 40% in 2031 before zeroing out in 2032. A separate credit for nuclear power production would phase out on the same schedule.

As originally passed, the Inflation Reduction Act of 2022 allowed taxpayers to claim the full value of all three credits into 2032.

“While our industry is ready to engage constructively and find a workable path forward, the Committee’s approach simply goes too far too fast,” American Clean Power Association CEO Jason Grumet said in a statement. “With energy demand surging, this is not the time for disruption.”

The Ways and Means proposal also tightens eligibility for 45Y and 48E by requiring projects to be “placed in service” to qualify for the credit. The Inflation Reduction Act based eligibility on the year projects began construction, a more generous framework in a world where the timeline for grid interconnection and long-lead electrical equipment can stretch for years.

The placed-in-service requirement “severely crimps utility scale renewables” to the point that “the only projects that will get the full ITC and PTC are those already in the queue,” Advait Arun, senior associate for energy finance at the Center for Public Enterprise, said in an interview.

Clean energy advocates warned that the Ways and Means budget could disproportionately harm the “clean firm” technologies President Trump and House Republicans seem to favor, like advanced nuclear and geothermal.

“Some of America’s largest companies are attempting to advance critical new technologies like geothermal and advanced nuclear energy, but those technologies will not move forward if these tax credits are phased out,” Clean Energy Buyers Association CEO Rich Powell said in a statement. Powell’s organization represents major technology and industrial firms driving demand for clean electricity, such as Microsoft and Amazon.

A key nuclear power trade group whose April 30 plea to preserve key IRA tax credits attracted more than 100 signatories earlier this month said the Ways and Means budget would set back an industry critical to U.S. national security.

“Underlying conditions in the market have not changed and nuclear energy is not appropriately valued for its ability to provide reliable, secure, and affordable energy to an increasingly clean electric grid,” Michael Flannigan, vice president of governmental affairs at the Nuclear Energy Institute, said in a statement.

An early end to clean energy tax credits would compound the impacts of downsizing at the Department of Energy, particularly in the DOE Loan Programs Office and Office of Clean Energy Demonstrations, Arun said.

“If those [programs] are all going in the can, it will have just as much of an impact on the emerging technology landscape” as any changes to the tax code, he said.

A proposed two-year sunset of the IRA’s tax credit transferability mechanism could further curtail clean energy investment, Arun said. The IRA created a new pathway for project developers and asset owners with limited tax liability to raise capital by transferring tax credits — at a discount dependent in part on the deal’s perceived risk — to third-party buyers with greater tax liability.

The change would affect small and midsize clean energy developers the most, putting them at a disadvantage to incumbents closer to the big banks that dominate the more complex, gated world of traditional tax equity finance and have limited capacity to take on new clients, Arun said.

“Transferability is the biggest new development in clean energy markets … to shut that down will dry up a lot of the liquidity clean energy developers have been counting on,” he said.

On an earnings call last week, before Ways and Means released its draft budget, Sunrun Chief Financial Officer Danny Abajian said his distributed energy company would have to temporarily “[shift] how we source capital” were transferability repealed. But he said Sunrun could eventually benefit from a “flight to quality” in a tighter tax credit market.

Crux, an energy capital markets platform that has emerged as a key player in the nascent transferability industry, said in a subscriber email Monday that the Ways and Means proposal “is just the starting point and we anticipate that the final bill will take a more favorable stance on transferability and tax credits.”

Though both are subject to new restrictions on transferability and foreign ownership, the Ways and Means proposal treats the 45Q tax credit for carbon capture and sequestration and the 45Z credit for clean fuels production more favorably than the technology-neutral credits. The proposal maintains 45Q through 2032 and extends the 45Z credit through 2031, giving producers of biofuels like ethanol and sustainable aviation fuel four more years to claim it.

Hydrogen producers are not so lucky. The Ways and Means proposal eliminates the 45V credit for clean hydrogen production after this year, less than 12 months after the Treasury Department released final guidance.

Most of the popular consumer and builder tax credits for efficient home appliances, solar panels, electric vehicles and EV chargers are also set to wind down this year. Credits for electric and other clean-fuel fleet vehicles end after this year as well, with a seven-year grace period for orders covered by existing contracts.