Where Key Clean Energy Tax Credits Stand

The Environmental and Energy Study Institute (EESI) held a briefing on the state of federal clean energy and energy efficiency tax credits. This briefing reviewed how the One Big Beautiful Bill Act (P.L. 119-21) modified or altogether ended 12 key tax credits, including those for electric vehicles, renewables, biofuels, hydrogen, nuclear energy, and energy efficiency. The briefing shared ways companies and consumers are adapting to this new landscape, as well as the short- and long-term implications for the energy industry, developers, and manufacturers. Panelists also explored the outlook for using federal tax policy to reduce greenhouse gas emissions, lower energy bills for households and businesses, and increase resilience to climate impacts while advancing U.S. competitiveness on the global stage.

Highlights

KEY TAKEAWAYS

The 2022 Inflation Reduction Act (P.L. 117-169) created and enhanced tax credits for a variety of clean energy and energy efficiency technologies. The One Big Beautiful Bill Act (OBBBA) (P.L. 119-21), signed into law in July 2025, significantly altered or eliminated many of these credits, while leaving some relatively intact.
OBBBA eliminated the incentives that go directly to consumers. The clean vehicle credits ended in September 2025, the household energy efficiency and clean energy credits expired at the end of 2025, and the home electric vehicle (EV) charging credit will be phased out by mid-2026.
The law also eliminated or phased out some of the incentives for businesses. The commercial clean vehicles credit was phased out in September 2025, the EV charging equipment credit and commercial energy-efficient buildings credit will be phased out by mid-2026, and the wind and solar generation credits and clean hydrogen credit will be phased out by the end of 2027.
OBBBA changed the carbon management tax credit so that operations using captured carbon dioxide get the same credit as facilities that permanently store captured carbon dioxide.
The law extends the biofuels tax credit to 2029, but removed the extra tax credit for producers making sustainable aviation fuel.
OBBBA preserves the nuclear tax credits, but shortens the eligibility window, so the credit will now phase out fully after 2035.
OBBBA introduced a set of complex new restrictions called the prohibited foreign entity rules, which currently lack clear definitions and guidance. There is significant uncertainty about whether companies will be able to receive relevant tax credits to move forward with clean energy projects.

Seth Hanlon, Senior Fellow, Tax Law Center, New York University School of Law

The 2022 Inflation Reduction Act (IRA) (P.L. 117-169) created and enhanced tax credits for a variety of clean energy and energy efficiency technologies—including electric vehicles (EV) and EV charging infrastructure, home energy efficiency, clean energy generation, domestic clean energy manufacturing, clean fuels, and carbon capture.
The IRA also created two mechanisms, direct pay and transferability, that extend the benefits of the tax credits to tax-exempt entities, government entities, and startup companies. Previously, only larger, more established businesses with tax liabilities could benefit from these credits.
The One Big Beautiful Bill Act (OBBBA) (P.L. 119-21), signed into law in July 2025, significantly altered or eliminated many of these credits, while leaving some relatively intact.
OBBBA eliminated the incentives that go directly to consumers. The clean vehicle credits for consumers (30D and 25E) expired in September 2025, the household energy efficiency (25C) and clean energy (25D) credits expired at the end of 2025, and the home EV charging credit (30C) will be phased out by mid-2026.
OBBBA also eliminated or phased out some of the incentives for businesses. The commercial clean vehicles credit (45W) was phased out in September 2025, the EV charging equipment credit (30C) and commercial energy-efficient buildings credit (179D) will be phased out by mid-2026, and the wind and solar generation credits (45Y and 48E) and clean hydrogen credit (45V) will be phased out by the end of 2027.
To get the 45Y or 48E credit for wind and solar generation, entities must break ground on projects by July 4, 2026, or be placed in service by the end of December 2027.
Guidance issued by the Internal Revenue Service (IRS) in August 2025 set a narrow definition of "beginning construction,” making it harder for projects to qualify for the credit.
Other tax credits received longer runways under OBBBA. Businesses have until the end of 2032 to take advantage of the ground-source heat pump credit (48), and until the end of 2033 for clean energy storage projects (48E). Credits for clean energy generation projects outside of wind and solar (i.e., geothermal, hydropower, new nuclear facilities, and fuel cells) (45Y or 48E) also have until the end of 2033 to break ground.
OBBBA left other tax credits—such as for carbon capture (45Q) and existing nuclear facilities (45U)—untouched, and extended the credit for clean transportation fuels (45Z) through the end of 2029.
Direct pay, transferability mechanisms, and credit bonuses under the IRA were all left in place.
OBBBA introduced a set of complex new restrictions called the prohibited foreign entity rules, also referred to as the foreign entity of concern rules, which will impact clean energy projects seeking the 45Y production credit, the 48E investment credit, and the 45X clean energy manufacturing credit.
- Under one restriction, a U.S. entity that has any degree of ownership by or influence from a foreign entity of concern will not be eligible for these credits.
- Another prohibited foreign entity restriction will impact the construction of clean energy facilities, their supply chains, and the manufacturing of clean energy technologies.
- A subset of the rules applies to the carbon capture, existing nuclear, and clean fuels credits.
- None of the foreign entity of concern rules will apply to ground-source heat pumps or to projects that broke ground in 2025.
The foreign entity of concern rules, as introduced, lack clear definitions and guidance, leaving stakeholders unsure about whether they will be impacted and whether they will be able to move forward with clean energy projects.

Jillian Blanchard, Vice President of Climate Change & Environmental Justice, Lawyers for Good Government (L4GG)

L4GG provides technical assistance to more than 800 municipalities, local governments, states, and schools on clean energy funding and the clean energy tax credits.
OBBBA’s passage has created market and supply chain uncertainty, leading to project delays, cancellations, and reduced investments.
About 266 gigawatts of proposed generation capacity was canceled in 2025—equal to 25% of current U.S. electricity generation—including more than 86,000 megawatts of solar capacity, more than 54,000 megawatts of wind capacity, and more than 79,000 megawatts of storage capacity. Clean energy projects made up 93% of canceled projects.
OBBBA most significantly impacts wind and solar generation, commercial EVs and EV charging, and energy efficiency.
Uncertainty stemming from the foreign entity of concern rules has led to a pause or reduction in some utility-scale solar and wind generation projects.
Some larger solar and wind facilities are buying up available supply chain components as quickly as possible in order to start construction by July 4, 2026, leading to supply chain bottlenecks for smaller facilities.
The loss of the EV credit has been a big hit to states, municipalities, and schools that have already begun implementing a fleet transition away from gas-powered vehicles. These transitions have since stalled or become vastly more expensive.
Religious institutions and other nonprofit organizations had already begun implementing community solar projects after the IRA’s passage. While these groups are still able to leverage the IRA’s direct pay mechanism, which allows tax-exempt entities to receive direct payments from the federal government equal to the value of a tax credit, the phaseout of solar incentives has made these projects less financially viable.
The foreign entity of concern rules do not just impact businesses. Universities, school districts, and municipalities have debt that could be held by a foreign entity and are seeking additional guidance and clarification from the U.S. Treasury.
Many state energy efficiency rebate programs have stalled in response to the phaseout of energy efficiency tax credits, and states are now navigating the resulting financial burden.

Katelyn Dean, Research Specialist, EFI Foundation

The hydrogen industry faces setbacks with the tax credit changes made by OBBBA, and there has been a cooling effect.
OBBBA changed the 45V production tax credit date of eligibility from 2033 to 2027. This means that a project needs to begin construction by 2027 in order to claim the credit.
With eligibility through 2033, the low-carbon hydrogen industry would have had a stronger potential to be cost competitive with traditional fossil fuel-derived hydrogen before the credit ran out. The shortened runway reduces this potential.
This policy uncertainty has led companies to cancel more than 50 low-carbon hydrogen projects as of June 2025. More cancellations may come as companies realize they will not be able to meet the 2027 deadline.
In general, OBBBA’s changes have benefited the nascent carbon management industry.
OBBBA changed the carbon management tax credit (45Q) so that operations using captured carbon dioxide get the same credit as facilities that permanently store the carbon dioxide. Under the IRA, companies planning to utilize the carbon dioxide saw a reduced credit.
Captured carbon dioxide can be used in a number of ways, including in enhanced oil recovery, beverages, food preservation, metal manufacturing, and medicine. These applications can be profitable so more companies are likely to use, rather than store, carbon dioxide under the new rules, especially since storage is expensive.
OBBBA extends the biofuels tax credit (45Z) to 2029. It was scheduled to end in 2027 under the IRA.
The new law also specifies that biofuel produced in 2026 and beyond must be derived from North American feed stocks.
OBBBA removes the extra tax credit for producers making sustainable aviation fuel (SAF). The new rules could end up incentivizing SAF production that does not meet carbon rules in other countries, which would make it challenging for U.S. companies to compete in the global market.
The airline industry has thin profit margins, and SAF is between two to 10 times more expensive than fossil-derived jet fuel. Reducing the extra tax credit for SAF hinders the industry’s ability to reach cost parity.
Facilities are always deciding between producing renewable diesel and SAF. Without the extra tax credit for SAF, more facilities will likely produce renewable diesel, making SAF less available for the aviation industry.
OBBBA preserves the nuclear tax credits, but shortens their eligibility windows. Under the IRA, the phaseout of the zero-emission nuclear power production credit (45U) was tied to emissions targets (the credit would remain until electricity emissions fell 75% below 2022 levels), but under OBBBA the credit will phase out fully after 2035. Because nuclear projects require long-term investments, this could impact deployment.
For all technologies impacted by OBBBA’s foreign entity of concern provisions, there will be uncertainty until the rules are clarified.

Q&A

Q: What are some ways in which the changes to the tax incentives impact other energy-related topics that Congressional staff are thinking about right now?

Hanlon

Electricity prices are rising and projected to continue to rise as demand for electricity increases due, in part, to data centers powering artificial intelligence. This has sparked a lot of discussion about affordability.
OBBBA has eliminated the financial incentives for the new sources of electricity that are best positioned to add capacity and supply in the short and medium term (namely, solar and wind). These same industries are also facing increased regulatory roadblocks under the Trump Administration. This does not help with affordability.
Clean energy is going to continue to grow as a share of the energy mix, despite the headwinds. But without the financial incentives, its growth will slow.
The IRA created a lot of momentum for domestic manufacturing of clean energy technologies. Without the tax credits, support for this domestic manufacturing is also reduced. The prohibited foreign entity rules may inadvertently also make it more challenging to manufacture in the United States.

Blanchard

On the prohibited foreign entity rules, right now, there is not a great energy storage battery made in the United States. They are in development, but they do not exist right now. There is a danger that preventing U.S. companies from using batteries from China will actually hurt U.S. competitiveness with China.
The tax incentive changes also impact climate resilience. L4GG works with churches across the Southeast and Texas that want to build resilience hubs with backup batteries and solar to guard against the impacts of grid outages. With increasing climate impacts and less access to federal support to bolster these centers, communities will be more negatively impacted.
The tax incentive changes also tie in to permitting conversations. To get projects placed in service, you have to complete interconnection. This is where many projects get held up. The earlier phaseout deadlines are even more onerous when a company is waiting on a utility to give them permission to operate and the process is stalled.
The terminated and stalled federal clean energy-related grants also come into play here. Grants are an important part of any project’s capital stack, and there is ongoing litigation to see whether entities will be able to access rescinded federal funding.

Dean

Tax credits—even small modifications to them—are directly impacting the mixture of energy generation coming onto the grid.
Having clean, firm, and affordable power for data centers is directly related to how different energy sources are incentivized or not.
The private sector likes certainty. Long-term planning and investment are inhibited when policy keeps changing.
The tax credits directly impact the industrial sector, especially as it relates to hydrogen production and use and carbon management, and they are important for maintaining U.S. competitiveness in terms of carbon intensity and cost.

Q: Are different parts of the country impacted differently by these changes to the tax credits?

Blanchard

There was a lot of movement in the South to establish resilience with backup electricity generation via solar and storage. That is slowing down now with the changes to the tax credits.

Hanlon

The IRA created a bonus credit for locating projects in energy communities, which are communities that were historically reliant on fossil fuels, including now-closed coal mines and coal plants. A 2024 study by the U.S. Treasury Office of Economic Policy showed that investment in those communities was increasing at a higher rate than investment elsewhere. As the wind and solar tax credits are dismantled, this incentive to invest in energy communities also goes away.

Dean

OBBBA expanded the term “energy communities” to include communities with closed nuclear facilities.

Q: What guidance, steps, or other activities are on the horizon related to these tax incentive changes?

Dean

The timeliness of guidance on credits is crucial.

Blanchard

There are rumors that there will be “skinny guidance” on the prohibited foreign entity rules by the end of 2025.
The key will be how much of this guidance clears things up, including by providing information on municipal debt and safe harbor tables.
Long term, L4GG is awaiting the outcomes of several ongoing court cases to understand what the overall finance picture will look like for projects.

Hanlon

The main area where guidance is needed is on prohibited foreign entity rules. There is no doubt there will still be many questions because this topic is so complex.
Proposed regulations on the clean fuels credit (45Z) are also expected.
The U.S. Treasury says it will release new guidance on the carbon capture credit (45Q), since current compliance with the credit is largely dependent on the U.S. Environmental Protection Agency’s Greenhouse Gas Reporting Program. This program is set to be eliminated, complicating how companies comply with 45Q.

Q: How much certainty can we realistically expect from skinny guidance? Is this enough to give entities the confidence to make investments?

Hanlon

To the extent that it clearly addresses questions, it can be very impactful. If you look back at the clean energy tax guidance in the past, it has been in the form of IRS notices, and not necessarily finalized regulations.
There are so many unanswered questions right now that there is no way any guidance, in this timeframe, can answer all of them.

Blanchard