House-passed “One Big Beautiful Bill Act” Deepens Cuts to Clean Energy

Yesterday, the House of Representatives voted to pass HR 1, the “One Big Beautiful Bill Act,” by a margin of one vote. Two conservative Republicans joined all Democrats in voting no on the bill. We previously discussed the impacts of the Ways and Means Committee’s proposed portion of the bill, which makes major changes to energy-related tax credits. Nearly all those changes remain in place, and the vote of the full House codified more aggressive cuts in several places.

We detail changes in the final bill below, but they do not meaningfully alter our previous findings. If enacted into law, these policy changes represent effective repeal of the most impactful energy tax credits. This will increase energy costs for American households, slash deployment of clean energy technologies, hold back energy innovation, and threaten a meaningful amount of more than half a trillion dollars in outstanding clean investment.

What changed?

We outlined the contents of the Ways and Means proposal last week; much of what was there remains intact in the version the House passed. This includes early termination of consumer vehicle and efficiency credits, clean hydrogen credits, and the advanced manufacturing production tax credits. The final House bill also maintains energy-related provisions from other committees, including rescission of large chunks of Inflation Reduction Act grants, implementation of a $250-per-year registration fee for electric vehicles, legislative rollback of EPA vehicle tailpipe standards, increases in the number of required oil and gas lease sales on federal lands, and reduction in royalty rates paid for oil and gas production on federal lands.

Late on Wednesday, the House Rules Committee released additional changes to the bill that were incorporated into the House-passed version:

• Clean electricity production and investment tax credits sunset dates: The final version of the bill accelerates the statutory sunset of the 45Y and 48E clean electricity credits, with nearly all qualifying facilities needing to commence construction within 60 days of bill enactment and come online no later than December 31, 2028. The phasedown of credit levels post-2028 included as part of the Ways and Means text was removed. New advanced nuclear facilities and nuclear uprates need to commence construction by December 31, 2028 in order to qualify.
• Material sourcing requirements: The final bill accelerates the deadline for meeting highly restrictive and administratively onerous material sourcing limitations for the clean electricity tax credits to the end of 2025 and maintains a 2027 deadline for meeting these limitations while claiming the advanced manufacturing tax credit. Given the severity of these limitations as well as the complex rulemakings that will be required to develop implementing regulations, these sourcing requirements accelerate the practical sunsetting of the clean electricity and advanced manufacturing credits to whenever date the limits take effect.
• Existing nuclear credit: The zero-emission nuclear power production tax credit maintains its full value through 2031, subject to certain limits on participation by foreign entities. The Ways and Means bill previously phased out the credit alongside the clean electricity credits beginning after 2028.
• Transferability: The final House bill restores transferability for the clean electricity tax credits, though to very limited effect given the other limitations discussed above. It also restores transferability for the existing nuclear credit. The final bill maintains cuts to transferability for the clean fuels production credit as well as the carbon oxide sequestration credit adopted in the Ways and Means proposal.
• Review of agency rulemaking: The final House bill removed disruptive deregulatory measures that would have put in place a process for legislative review and approval of major new regulations and possible sunset of all federal rules on the books.

Action shifts to the Senate

Now that the House has made its initial foray into the budget reconciliation debate, all eyes will turn to the Senate to see what pieces of the House bill it takes up and what pieces it discards. Both bodies of Congress need to pass identical language, which then needs to be signed by the President, in order for it to become law. The Senate’s initial reaction to the House’s deep cuts to the energy-related tax credits was skeptical, noting that the House’s “blanket” repeal of the credits may not stand up in the Senate, so there’s a long way to go before a bill is celebrating on the steps of Capitol Hill Schoolhouse Rock-style.

Individual Senators have explicitly identified early sunsetting of the bill’s clean electricity tax credits as problematic for new technologies like advanced nuclear and geothermal. Investors and developers of the next generation of technologies need longer development runways to have the certainty they need to build. Beyond simply changing dates, there are several other modifications to the House approach that could lessen the impact to investment and consumer energy expenditures.

The Senate could make a very impactful change by adopting a more practical approach to material sourcing requirements and limits on foreign participation for the clean electricity and advanced manufacturing tax credits. The Senate could consider a more targeted approach to these limits, focused on specific portions of the supply chain or more realistic thresholds of participation for foreign entities of concern. Even with a more administrable approach, we expect that final implementing guidance would take several years to develop, so the Senate could consider a longer timeline for meeting these requirements.

Also importantly, the Senate could consider returning to the current “commence construction” approach to credit expiration rather than the newly adopted “placed-in-service” approach, providing developers more flexibility in case circumstances outside their control (like a global pandemic) disrupt their operations. Similarly, the Senate could restore transferability to key tax credits, especially for the parts of the clean economy that benefit most from such access, including advanced manufacturing, clean fuels, carbon management, and next-generation power sector technologies.

Such changes would have a meaningful impact on the cost of electricity, natural gas, motor gasoline, and other fuels to American consumers and businesses. Alongside other changes, like restoring consumer and commercial vehicle credits, they could also support continued growth of the clean manufacturing economy.

Once legislating resumes post-Memorial Day, we’ll closely track debate in the Senate and expect to model any major Senate action.