Tax Bill Would Repeal Energy Tax Credits
On May 14, 2025, the House Committee on Ways and Means advanced its budget reconciliation bill that repeals, accelerate the phase out, and imposes restrictions on certain energy tax credits enacted under the Inflation Reduction Act. Included in these restrictions is the limit on the transferability of certain tax credits. While the bill is unlikely to pass as it currently stands, these initial proposals serve as a basis from which changes could come in a final bill.
Key changes in the bill
Repeal credits after 2025 and 2026
Clean vehicle tax credits: The bill would repeal the “clean vehicle” tax credits for electric vehicles (EVs), currently scheduled to expire at the end of 2032. Under the proposed legislation, the §25E used vehicle credit, the §30C clean vehicle credit, 2025, and the §45W commercial clean vehicle credit would expire at the end of 2025. The §30D new clean vehicle credit would expire at the end of 2026.
§25D Residential clean energy credit: The bill would accelerate the expiration of the §25D residential clean energy credit to the end of 2025 from the end of 2034.
§45L – Energy efficient home credit: The bill would accelerate the expiration of the §45L energy efficient home credit to the end of 2025 or the end of 2026 for home for which construction began before May 12, 25 2025.
§45V – Clean hydrogen production credit: The bill would end the §45V clean hydrogen production credit on January 1, 2026 rather than on the current schedule of January 1, 2033.
Impose restrictions on foreign entities from “countries of concern”
A key proposal in the bill is to apply the foreign entity restrictions to the energy tax credits. This would disallow credits to a specified foreign entity, as defined in §7701(a)(51)(B), for any tax year beginning after the date of the bill’s enactment. It would also deny the credit to a “foreign-influenced entity,” as defined in §7701(a)(51)(D), for any tax year beginning two years after the date of the bill’s enactment. These foreign entities are companies connected to “countries of concern,” which are China, Russia, Iran, and North Korea.
Implement foreign entity rules for §45Q carbon oxide sequestration credit
The bill would implement the foreign entity rules for the §45Q carbon oxide sequestration credit. It would also repeal transferability for facilities that begin construction two years from the bill’s enactment.
Phase out §45Y and §48E clean electricity production and investment credits
The bill would phase out the §45Y clean electricity production credit and the §48E clean electricity investment credit beginning in 2029. Under current law, both the tax credits phase out beginning the later of 2032 or when U.S. greenhouse gas emissions from electricity are 25% of 2022 emissions or lower.
The credit rate would phase out along the follow schedule:
100% for projects placed in service on or before December 31, 2028;
80% for projects placed in service beginning in calendar year 2029;
60% for projects placed in service beginning in calendar year 2030;
40% for projects placed in service beginning in calendar year 2031;
0% for projects placed in service beginning after December 31, 2031.
The bill would also apply the foreign entity restrictions to the credit and repeal transferability for projects that begin construction after two years from when the bill is enacted.
Phase out §48 energy credit
The bill would phase out the §48 energy credit beginning in 2032. Under current law, the credit phases out in 2035. The credit rate for ground or groundwater as a thermal energy source would phase out along the following schedule:
6% for property that begins construction before January 1, 2030 and is placed in service after December 31, 2021;
5.2% for property that begins construction after January 1, 2029 and before January 1, 2031;
4.4% for property that begins construction after December 31, 2030 and before January 1, 2032;
0% for property that begins construction after December 31, 2031;
The bill would also apply the foreign entity restrictions to the credit and repeal transferability for projects that begin construction after two years from when the bill is enacted.
Phase out §45U production credit for zero-emissions nuclear facilities
The bill would phase out the §45U production credit for nuclear energy from 2029 to 2032. Under current law, the credit phases out in 2033.
The credit rate would phase out along the following schedule:
100% for projects placed in service on or before December 31, 2028;
80% for projects placed in service beginning in calendar year 2029;
60% for projects placed in service beginning in calendar year 2030;
40% for projects placed in service beginning in calendar year 2031;
0% for projects placed in service beginning after December 31, 2031.
The bill would also apply the foreign entity restrictions to the credit and repeal transferability for energy produced after 2027.
Exclude wind components from §45X advanced manufacturing production credit
The bill would eliminate the §45X advanced manufacturing production credit for wind energy components sold after December 31, 2027 and eliminate the credit for all other components sold after 2031. It would also implement the foreign entity rules and repeal transferability for components sold after 2027.
Extend and limit §45Z clean fuel production credit
The bill would extend the §45Z clean fuel production credit until December 31, 2031 from the current expiration at the end of 2027. Fuel sold after December 31, 2025, would be required to be “exclusively derived” from feedstock produced or grown in the United States, Mexico, or Canada.
Lifecycle greenhouse gas emissions would exclude any emissions attributed to indirect land use changes. Also, a distinct emissions rates would be provided for transportation fuels derived from animal manure, including dairy, swine, and poultry.
The bill would also apply the foreign entity restrictions to the credit and repeal transferability for fuel produced after 2027.
Republican factions
The proposed changes to the energy tax credits received pushback from within the Republican Party with different factions forming. Rep. Jen Kiggans of Virginia asked House leadership to “consider three thoughtful changes” to the legislation. First, she stated that the foreign entity restrictions are “overly prescriptive” and should be revised to allow companies additional time to reorganize their supply chains. Second, she requested that the “placed in service” standard be replaced with a “start construction” standard. Third, she requested that the transferability of the credits remain through the entire phase-out period.
Additionally, 21 House Republicans asked in a letter to Rep. Jason Smith, chair of the House Ways and Means Committee, that “any proposed changes to the tax code be conducted in a targeted and pragmatic fashion that promotes conference priorities without undoing current and future private sector investments which will continue to increase domestic manufacturing, promote energy innovation, and keep utility costs down.”
In a competing faction, 38 Republicans asked in a letter to Smith for a “full repeal” of the tax credits. "We are deeply concerned that President Trump’s commitment to restoring American energy dominance and ending what he calls the ‘green new scam’ is being undermined by parochial interests and short-sighted political calculations,” they wrote.
In April, four Senate Republicans warned against a “full-scale” repeal of energy tax credits. “While we support fiscal responsibility and prudent efforts to streamline the tax code, we caution against the full-scale repeal of current credits, which could lead to significant disruptions for the American people and weaken our position as a global energy leader,” wrote senators Lisa Murkowski of Alaska, John Curtis of Utah, Thom Tillis or North Caroline, and Jerry Moran of Kansas.
Competing Legislation
A group of Republicans introduced the “Certainty for Our Energy Future Act,” which would repeal clean energy production and investment tax credits for solar and wind projects.
Another group of Senate and House Republicans introduced the Energy Freedom Act, which would eliminate each energy tax credit created or expanded by the IRA for tax years beginning after December 31, 2025.