Senate Reconciliation Bill Keeps Cuts to Clean Energy

The Senate’s version of the “One Big Beautiful Bill Act” (OBBBA), which passed yesterday with Vice President J.D. Vance breaking a 50-50 tie, largely maintains cuts to energy-related tax credits and other climate and clean energy programs that have been under consideration by both the House and Senate for the past few months.

The most notable change in the version that passed is removal of a new excise tax on new wind and solar facilities that could not meet aggressive material sourcing limits, which had been a surprise addition to the bill over the weekend. The tax would have raised the price of electricity from wind and solar facilities, compounding economic challenges accompanying the loss of tax credits, which would ultimately flow through to electricity rates.

What’s the same, what’s different?

Beyond the removal of the excise tax, the Senate bill largely follows the House-passed OBBBA blueprint. Among key energy and climate provisions, the Senate bill:

• Maintains the rapid acceleration of numerous consumer clean energy credits for clean vehicles and home efficiency and energy property, all of which sunset over the next 6-12 months
• Institutes a placed-in-service deadline for wind and solar in the clean electricity tax credits, requiring facilities to come online by the end of 2027—one year earlier than the House—to claim the credit (though it provides an exception for facilities that commence construction through about June 2026)
• Keeps the clean electricity tax credits for other types of qualifying facilities until a phaseout begins at the end of 2032, a longer runway than the House-passed bill
• Requires any clean electricity facilities wanting to claim the credit that commence construction from January 1, 2026 onward to meet strict restrictions on the source of manufactured products used in those facilities
• Requires any clean manufacturing facilities looking to claim the advanced manufacturing production tax credit from January 1, 2026 onward to also meet these material sourcing requirements
• Cuts credits early for clean hydrogen at the end of 2027 (two extra years from the House version) and alternate vehicle refueling property in June 2026
• Maintains credits for carbon capture (which see credit values equalized for sequestration and utilization) and existing nuclear plants, and extends tax credits for clean fuel production

Unlike the House bill, the Senate bill does not repeal EPA vehicle standards (an action which was ruled out of order by the Senate Parliamentarian), nor does it institute registration fees for electric vehicles. The Senate bill takes a different tack in dismantling vehicle Corporate Average Fuel Standards—removing the penalty for non-compliance instead of explicitly repealing them—though to a similar effect. Both House and Senate bills contain substantial rescissions to climate and clean energy grant funding enacted as part of the Inflation Reduction Act.

What does it do?

We plan to release a full rundown of the impacts of these provisions once we’ve updated our energy system modeling in the coming days. Based on our preliminary analysis of the updated language, we expect roughly similar levels of household bill impacts as in previous work— a $94-290 national average increase in energy bills in 2035 owing to these legislative provisions. Most of this increase is driven by fewer electric vehicles on the road, leading to higher motor gasoline consumption and prices. The tax provisions affecting vehicle uptake are largely untouched from what we’ve analyzed in the past, so bill impacts should also be similar.

We also previously found that full-scale repeal of these energy tax credits reduced new additions of clean technologies to the grid by 57-72% in 2035. We expect similar results with this updated text, though the magnitude of impact could be slightly reduced by the extra year of commence-construction eligibility. The impact of that additional eligibility may be somewhat blunted by the continued material sourcing requirements, which would apply to wind and solar facilities racing to commence construction during 2026 to claim the credit. The Senate bill makes very few changes to improve the administrative burden that demonstrating compliance with these limits will put in place—important for wind and solar given the ticking clock to claim the credit, but also important for emerging technologies like advanced nuclear and geothermal, where supply chains are still relatively nascent.

Given that we expect far fewer EVs on the road and a meaningful reduction in clean energy deployment on the grid, there are also still considerable questions around the viability of new clean energy manufacturing in the US. As we outlined last month, lower levels of domestic demand for batteries, solar panels, wind turbines, and electric vehicles could threaten the economic case for a number of manufacturing facilities that have been announced or, in some cases, that are already operating.

We’ll publish more detailed results, including impacts on investment, fuel prices, and emissions in the coming days, with data available on the ClimateDeck. In the meantime, we’ll be closely monitoring action as it moves back to the House.