What Passage of the “One Big Beautiful Bill” Means for US Energy and the Economy

The fiscal year 2025 budget reconciliation legislation, commonly called the “One Big Beautiful Bill” (OBBB) and signed into law by President Trump last week, will have meaningful reverberations across the US energy sector and economy. We estimate the law will increase national average household energy bills by $78-192 and increase total industrial energy expenditures by $7-11 billion in 2035. The OBBB will cut the build-out of new clean power generating capacity by 53-59% from 2025 through 2035. All told, the law puts more than half a trillion dollars of clean energy and transportation investment at risk of cancellation. It also puts new economic pressure on operating facilities that manufacture clean energy technology—tied to nearly $150 billion of investment—given greatly reduced domestic demand for these products. Though these figures represent substantial changes from the baseline, the impacts could be even more substantial depending on how executive actions shape the law’s implementation.

Congress finalizes energy tax code changes and other policy priorities

After months of contentious debate and dealmaking, congressional Republicans gathered enough votes to pass their fiscal year 2025 budget reconciliation legislation, the “One Big Beautiful Bill” (OBBB). The law includes a host of policy provisions making substantial changes to Medicaid, food aid programs, immigration, and energy-related tax provisions while extending tax code modifications made initially in the Tax Cuts and Jobs Act during President Trump’s first term. The Congressional Budget Office estimates the law will add $3.4 trillion to the national debt over the next decade.

We’ve tracked the energy and climate-related provisions of the legislation as it evolved and discussed the impacts of the earlier House version of the bill when it was passed out of the Ways and Means committee and on final passage in the House. The final Senate version, which went on to become law, is quite similar to the House-passed version, as we outlined immediately after its passage. The biggest difference is relatively modest changes to the clean electricity production and investment tax credits. Among key energy and climate provisions, the final law:

• 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 technology-neutral 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 by July 4, 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 original House-passed bill.
• Requires any clean electricity facilities that commence construction from January 1, 2026 onward to meet strict restrictions on the source of manufactured products used in those facilities to claim the credit, and prohibits payment of the credit to specified foreign entities and foreign-influenced entities.
• Requires any clean energy technology manufacturing facilities claiming the advanced manufacturing production tax credit from January 1, 2026 onward to also meet these material sourcing requirements.
• Cuts credits for clean hydrogen at the end of 2027 (two extra years from the House version) and alternative 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 earlier House-passed bill, the final law does not repeal Environmental Protection Agency (EPA) vehicle standards (an action ruled out of order by the Senate parliamentarian), nor institute registration fees for electric vehicles. The final law takes a different tack in dismantling vehicle Corporate Average Fuel Standards by removing the penalty for non-compliance instead of explicitly repealing them, though to a similar effect. The final law also contains substantial rescissions to climate and clean energy grant funding and Loan Programs Office credit subsidies enacted as part of the Inflation Reduction Act (IRA).

Estimating the impacts

To assess its energy, economic, and climate impacts, we modeled all major energy and climate-related provisions of the OBBB as adopted by both chambers of Congress and signed into law by President Trump. We compare the impact of the changes made by the final law to existing policy (labeled “baseline”). In both the baseline and final law cases, we assume the removal of major energy regulations, notably EPA standards for power plants, vehicles, and oil and gas operations. EPA Administrator Lee Zeldin identified these regulations as targets for repeal, in addition to many others. EPA has already proposed repeal of greenhouse gas (GHG) emissions standards on power plants, and changes to vehicle and oil and gas rules are currently under review at the Office of Management and Budget. To understand the range of potential impacts, we use three main emissions scenarios as reported in Taking Stock 2024: a low-emissions scenario that pairs cheap clean energy technologies with more expensive future fossil fuel prices and slightly slower GDP growth; a high-emissions scenario that pairs more expensive clean technologies with cheap fossil fuels and as-anticipated GDP growth; and a mid-emissions scenario that cuts the difference between the two.

The final law makes major changes to the energy sector and the economy

The changes to the tax code and other energy and climate provisions in the final law put the US on a meaningfully different trajectory compared to a baseline that maintains current policy. In this section, we detail energy expenditure impacts for consumers and industry, reduced deployment of clean energy technologies on the grid and on the road, the potential magnitude of foregone investment, and increases in GHG emissions from these policy changes.

Energy spending increases for households and industry

We estimate national average household energy expenditures will increase by $78-192 in 2035 with the final law in place compared to the baseline, representing a 2-4% increase (Figure 1). Half to two-thirds of this increase is driven by higher spending on mobility fuels, including motor gasoline, diesel, and electricity for electric vehicle (EV) charging. Because there are fewer EVs on the road, motor gasoline consumption increases by 4-11% in 2035, driving up gasoline prices by 1-3%. Another 25-50% of the increase in spending comes from higher electricity bills owing to average household electricity rates increasing by 2-4% in 2035.

There is considerable regional variation in the energy bill impacts of the law. The 10 states with the largest bill increase see average household energy expenditures rise by $115-314, or 48-64% higher than the national average. We’ve updated our state-by-state household energy expenditure dashboard on ClimateDeck with results from this latest round of modeling to facilitate deeper exploration of state and regional impacts.

Total industrial energy expenditures also increase under the final law, driven by higher prices and greater consumption. In total, we estimate industry will spend $7-11 billion more per year on energy in 2035 under the final law compared to the baseline, a 3-4% increase (Figure 2). Around half of this increase comes from paying higher rates for purchased electricity, and another quarter to one-third of the increase comes from higher natural gas consumption and retail gas prices.

Less clean technology on the grid and the roads

The final law provides slightly more flexibility for new clean generating technology claiming the technology-neutral clean electricity tax credits compared to what originally passed the House, as we outline above. We project that new clean capacity additions to the grid will shrink by 57-62% from 2025 through 2035 relative to the baseline (Figure 3). This represents a smaller magnitude of impact than the earlier House bill, though it still represents a massive change to the makeup of the grid in 2035. Keeping tax credits in place for non-wind and solar clean resources through the mid-2030s (subject to prohibited foreign entity restrictions) leads to modest increases in other types of clean generation, particularly a 2-3 gigawatt (GW) increase in new enhanced geothermal additions in all emissions scenarios by 2035 and the potential for as much as 5 GW of new nuclear added to the grid in the low-emissions scenario, which includes substantial cost declines for nuclear as well as high-price natural gas.

The early termination of electric vehicle tax credits included in the final law, and throughout the legislative process, results in meaningfully lower levels of EVs on the road. The loss of tax credits alone results in 27-41 million fewer EVs in the light-duty vehicle stock in 2035, a 20-34% reduction from baseline (Figure 4). Importantly, that baseline already includes rollback of EPA vehicle standards and Congress nullifying EPA’s waiver to California, enabling the state to establish its own vehicle standards. Taken as a whole, the combination of legislative and anticipated executive action reduces the number of EVs on the road by 34-70 million light-duty vehicles in 2035 (a 37-65% reduction).

Clean energy investments at risk

In our note Three Key Outcomes of the “One Big Beautiful Bill Act” on US Manufacturing and Innovation, drafted after passage of the earlier House version, we unpacked the potential impacts on clean energy investment and clean energy manufacturing growth. Given the broad similarities between the original House OBBBA and the language that became the final law, our findings from that analysis largely hold. In short, a meaningful portion of $522 billion worth of outstanding clean energy investments remains at risk given a lack of policy support. This figure represents announced investment in clean electricity generating facilities, clean industrial facilities, and new manufacturing plants building clean energy technologies that are not yet online, as tracked by the Clean Investment Monitor, a joint effort between Rhodium Group and MIT’s Center for Energy and Environmental Policy Research (CEEPR).

More than $263 billion of this outstanding investment is comprised of wind, solar, and storage clean electricity facilities. Nearly all of this outstanding investment (84%, $222 billion) is tied to facilities that have not yet broken ground. These announced projects face the greatest risk of cancellation given the deadline for commencing construction (for wind and solar) and foreign entity material assistance changes to the law. Commencing construction has a well-documented meaning in the context of tax credits and is different from the “broken ground” figures we report here, but we still believe this is useful to understand the rough scale of investment that could be at risk. Project developers will rush to begin construction on these facilities before July 4, 2026, to qualify for the longer runway to come online. Implementing guidance from the Treasury Department could add more requirements for these facilities, as we unpack further below. Facilities that miss that date must be placed in service no later than the end of 2027.

While wind and solar deployment was already accelerating before the IRA, clean energy manufacturing has only begun to scale in earnest since passage of the law. Investment in facilities that manufacture clean energy technologies like solar modules, battery cells, and electric vehicles averaged around $9 billion per year in the two years leading up to the passage of the IRA. Since the enactment of the IRA through Q1 of 2025, that amount has increased by 4.5x to nearly $42 billion annually on average—representing $146 billion in total manufacturing investment. This equates to a $115 billion increase in manufacturing investment above what was happening pre-IRA.

A nearly equivalent amount—$110 billion—of announced manufacturing investment has yet to come online. This $110 billion represents a highly conservative estimate of the remaining investment that the IRA and other climate policies could have driven if they had remained intact. As we previously examined, there was considerable headroom to expand some domestic clean energy manufacturing capacity to meet domestic demand for clean technologies at levels driven by tax credits and regulatory policy, especially for solar and electric vehicles.

It’s unclear how much of this investment will be lost given changes to the advanced manufacturing production tax credit, clean electricity credits, and clean vehicle credits. But we expect a meaningful share of outstanding clean technology manufacturing investment could be shrunk, delayed, or canceled outright. Most at risk is roughly $60 billion of announced facilities that have not yet broken ground. Another $50 billion of facilities are under construction but not yet complete. Given projected deployment levels for these technologies, even already operating facilities could substantially reduce output or be fully idled.

Slower clean tech deployment, higher emissions

The net result of these changes to the energy system is a higher level of GHG emissions. We estimate the final enacted law will result in GHG emissions that are 27-44% below 2005 levels in 2035, a 315-574 million metric ton increase in emissions that year compared to the baseline (Figure 5). Most of these emissions increases are concentrated in the power sector, where emissions are 19-79% higher under the final law than the baseline. But the transportation, industrial, and carbon removal sectors also see notable emissions increases under the final law.

What to watch now

With legislative activity wrapped up, the executive branch now has to implement the law passed by Congress. Several portions of the law will require new guidance from the Department of the Treasury, the most complex of which relate to new limits on prohibited foreign entities written into most of the tax credits that remain in place. Treasury will need to issue guidance on how project owners can show they aren’t contravening prohibitions on certain foreign entities claiming the credits. Similarly, clean energy developers and manufacturers who want to claim clean electricity and advanced manufacturing credits will need to know the rules of the road for demonstrating compliance with material assistance restrictions for prohibited foreign entities.

Early signs point to the Trump White House seeking to use these administrative touchpoints to further advance their policy agenda beyond what was already enshrined in law by Congress. Earlier this week, President Trump issued an executive order directing the Secretary of the Treasury to “strictly enforce the termination” of the clean electricity tax credits by potentially issuing new or revised guidance on the definition of the beginning of construction. Though there is long-established administrative guidance on what constitutes commencing construction, Treasury may try to take a more restrictive posture to further advance Trump administration goals. If so, we’d expect lower investment levels and higher bill impacts than we’ve reported in this note, which has assumed solar and wind developers can generally claim the credit under a similar commence construction approach as is used today.