Last year, House Speaker Mike Johnson promised Congress would employ “a scalpel and not a sledgehammer” to change tax incentives under the Inflation Reduction Act. With President Trump promising to kill the landmark law on the campaign trail, that sentiment became a way for the clean energy industry to self-soothe through the election, the lame duck period, and the arrival of the new GOP majority in Congress.
That metaphor, however, is less useful now that two key House committees have released drafts of their contributions to the budget reconciliation debate.
As anticipated, the Ways and Means committee proposed early terminations for energy efficiency credits and the alternative fuel infrastructure credit, as well as a repeal of the clean vehicle credit.
But the draft goes far beyond what many in the energy sectors were expecting. As one clean energy tax credit expert who spoke to Latitude Media on background explained, that may be because clean energy is just one of many moving pieces that House Republicans are trying to fit together. It’s possible, he added, that they were worried they would come up short on spending cuts elsewhere, like in Medicaid.
“Ways and Means may have taken it upon themselves to go trying to find above and beyond cuts,” he said. “I think it’s close to $570 billion worth of IRA tax credit changes, which is well above what we had anticipated…and I think part of that could have been to make up for a shortfall in cuts elsewhere.”
There may also be some “political gamesmanship,” he added, in coming out strong with a near-repeal to satisfy IRA hard-liners, while still leaving room to make changes, either in the House or down the road in the Senate. This early iteration will inevitably go through significant edits in the coming weeks, and may be vastly different from the final bill that Congress eventually sends to the president.
In the meantime, however, there are a handful of sectors that had been counting on Republican support — including from within the Trump administration itself — that were unpleasantly surprised by just how deep the proposed cuts went.
Nuclear
One such unexpected target is the nuclear sector, which has enjoyed vocal support from the Trump administration and which has already seen the benefits of that support. The Vogtle nuclear plant was among the first DOE-backed projects to receive disbursements of its funding after the new administration took office.
But nuclear power is “by far the most disadvantaged” by the cuts as proposed by Ways and Means, the tax expert said. The draft proposes phasing out the 45U nuclear power credit starting in 2029, with full elimination by 2031 — three years early.
It also eliminates transferability for electricity generated beyond 2027, which could make it significantly harder for projects to get financed. It could also hamper the still-nascent clean energy tax credit market, whose growth has largely depended on the transfer of credits for technologies like nuclear, critical minerals, and advanced manufacturing.
The timing of the proposed changes is problematic, because most nuclear facilities aren’t expected to come online until after the credits have phased out. “Phasing out the production and investment tax credits by 2031 will mean that the majority of new nuclear projects will not benefit because they are projected to be placed in service after 2031,” the Nuclear Innovation Alliance told Latitude in a statement.
“Repealing transferability two years after the bill is passed will also disadvantage nuclear projects because developers likely will not have the tax liability to absorb the credits,” the alliance said. “Without the ability to transfer them, the credits become much less valuable to the nuclear project stakeholders.”
Nuclear is facing reconciliation challenges beyond 45U too. New nuclear projects would have been eligible for 48E and 45Y, the tech neutral tax credits, but those too are being phased out and will have transferability limited before projects are likely to come online.
The House Energy and Commerce committee also took a whack at nuclear’s existing federal support. The committee proposed rescinding the majority of the billions of dollars slated for the Loan Programs Office — funding the nuclear industry was hoping it could benefit from.
Clean hydrogen
After more than a year of debate and concern over how the Treasury Department under the Biden administration would define the 45V tax credit for clean hydrogen, the initial draft out of the House Ways and Means committee has the potential to nullify the credit altogether — a mere five months after final guidance was released.
The committee essentially proposes giving hydrogen the same treatment as electric vehicles and residential home efficiency, terminating the tax credit for any hydrogen facility that isn’t already under construction by the end of this year. That’s a timeline that effectively eliminates DOE’s $7 billion program to build hydrogen hubs, none of which have yet started construction.
Those projects were selected with 45V in mind, said Jason Munster, a green hydrogen consultant who led the 45V analysis for DOE’s Office of Clean Energy Demonstrations. Without the tax credit, the hubs likely won’t pencil out.
As written, the cuts also have implications for the broader hydrogen marker, he added: “Fundamentally, it’s likely that we are ceding all renewable hydrogen supply chains to the EU and China — leaving us without a say in [hydrogen],” he said. “This has serious energy security implications given that many countries will be producing their own renewable hydrogen as they move away from fossil fuels.”
The fact that hydrogen can be made with natural gas and is a molecule that moves through a pipeline made some in the industry more optimistic about the fate of 4V, the tax expert said. But it was the framing of the credit, and its preference for renewable energy, that likely became a sticking point.
“The reality is that the highest value of the credit was going towards hydrogen produced with wind and solar,” he explained.
And the hydrogen industry is being targeted in other ways; as Latitude Media has reported, the agency is already mulling canceling at least four of the hydrogen hubs.
But the proposed cuts aren’t necessarily the end of clean hydrogen, Munster added. Because 45Q, the credit for carbon capture, is still in place, “clean” hydrogen in the U.S. will likely be blue — produced by extracting hydrogen from fossil fuel sources while capturing and storing the resulting emissions.
Meanwhile, the growth of domestic green hydrogen made using electrolysis powered by renewable energy will likely drop significantly in the near term, until other countries bring the process down the cost curve, he said: “Once they have, renewable H2 could start to be competitive in some locations in the U.S. — using foreign equipment.”
The industry is already pushing back. Dozens of companies and organizations signed a letter addressed to Speaker Johnson and House Chairman Jason Smith arguing that “the Section 45V credit — and the industrial development and manufacturing capacity this incentive will spur — is poised to deliver major advantages to global competitiveness, national security, and economic impact to the United States.” That group includes the American Petroleum Institute, the oil and gas industry’s biggest trade group.
Geothermal
There was the assumption when Energy Secretary Chris Wright was nominated that the geothermal industry would actually be favored in this second Trump era, given that the fracking CEO has spoken favorably of geothermal; in fact, his company has invested in enhanced geothermal company Fervo.
However, though not quite as hard hit as others, the geothermal industry is also up against some unexpected setbacks in the initial Ways and Means draft. The geothermal credit under Section 48 would be phased out and eliminated three years early. Projects that start construction after 2027 wouldn’t be eligible for transferability. However, the tech neutral credits currently have a longer phase-out timeline than many expected, and geothermal could qualify for those credits.
But it’s the “foreign entity of concern” restrictions that may be the biggest cause for concern for geothermal, the tax credit expert said, as well as for countless other industries that rely on equipment from abroad. Starting next year, the draft would prevent projects that purchase components from places like China from receiving the tech neutral tax credits. That provision would, in effect, cut off the credits in the middle of 2026, given that some power components are still largely sourced abroad.
Unexpected bright spots
While renewable energy, hydrogen, and nuclear may feel like Republicans took a sledgehammer to the IRA, the biofuels industry likely feels more like it got the scalpel treatment.
The proposed changes extend 45Z, the credit for clean fuels, for four extra years, though with some restrictions related to transferability and feedstock source. That’s the only credit that was extended in the draft, and the only net cost increase to the government stemming from its energy section. The draft also seeks to make it easier to qualify for the credit, preventing regulators from considering “indirect land use change” emissions.
“It’s surprising that [45Z] was the lucky one that got some version of preferential treatment,” the tax expert said. Even 45Q, the carbon capture credit, had more restrictions placed on it than 45Z, and it wasn’t extended.
Thanks to the “scalpel versus sledgehammer” metaphor introduced last year by Speaker Johnson, he added, people were “indexing their expectations around very extreme scenarios.” But what they got instead was “more of a mixed bag.”
