The clean energy industry is facing even steeper cuts after the House unveiled eleventh-hour changes to its reconciliation bill and passed it off — by a one-vote margin — to the Senate. And with this stage of the reconciliation process comes even more uncertainty.
The final House version made significant modifications to the partial draft released by the Ways and Means Committee earlier this month, which had proposed eliminating or curtailing most of the tax credits created by the 2022 Inflation Reduction Act.
In addition to the sweeping cuts to wind, solar, hydrogen, and electric vehicle credits outlined in the initial draft, the final version effectively eliminates tax credit eligibility for most new clean power projects; it requires that they start construction within 60 days of the bill’s final passage in order to qualify for both production and investment credits.
As Chris Moyer, a policy expert and former Senate staffer, put it to Latitude Media, the clean energy industry woke up to a “holy shit moment,” watching Republicans who had previously signaled support for the credits agreeing to gut them. “If there’s one lesson for the broader clean energy industry and community, it’s that signing onto a letter does not mean that the member is going to vote a certain way,” Moyer said.
The main indicator of just how much things could change in the Senate version is whether companies themselves start to speak up publicly about the impact of the repeal, said political consultant Jesse Lee.
“The ‘holy shit moment’ should really have been with the Ways and Means text,” Lee added. That was the time for individual companies — not just trade organizations — to make public statements about the reality that specific projects will not move forward under the proposed repeal.
“They were all quiet. Nobody wanted to say [their projects would be shut down] during the House debate, and you can understand why,” Lee explained. “But if they don’t say it during the Senate debate…If these senators do not hear from the major projects in their state that they’re going to have to shut down or lay people off, they’re going to assume this is all overblown.”
The only industry to notch a win overnight in the House was nuclear: Advanced nuclear facilities are exempt from the 60-day construction deadline, and would only have to start construction by 2029 to be eligible for the credits. Existing nuclear plants, for which the initial draft would have started phasing out the production tax credit over three years, got another small win in the final version, which eliminates the phase down and maintains the full credit until 2032. Nuclear plants can also take advantage of tax credit transferability, a provision that was eliminated for most other types of projects.
Senate dynamics
The dynamics of the Senate are fundamentally different from those in the House, said Xan Fishman, a senior managing director of the Bipartisan Policy Center’s energy program.
“The most obvious [difference] is that there are statewide concerns rather than district concerns,” he explained, such as the state and local tax (or SALT) deductions that absorbed so much House discussion time. “If you’re in a state and have a bunch of manufacturing facilities that could be shut down if these tax credits are repealed, that’s a meaningful thing.”
Lee, who previously served as advisor in both the Biden and Obama White Houses as well as Speaker Nancy Pelosi’s office, said another key consideration for Senators is how quickly the impact of IRA cuts would be visible in their states.
Clean energy tax credit repeal hasn’t been as front and center as cuts to Medicaid, for example, but while Medicaid changes are currently slated to take effect after the midterm elections, “this parade of closings and abandoned factories and abandoned projects would start [in] two months.”
Moyer has a more skeptical take. Senators face a similar political dynamic to the one that just caused members of the House who said they supported the credits to vote against them, he explained; while certain GOP Senators — like Ron Johnson of Wisconsin and Michael Lee of North Carolina — are pushing to eliminate the tax credits entirely, others have already indicated they’d like to see changes to the draft.
“It’s a matter of who is going to go for the mat for the changes that they want to see and say ‘I’m not going to vote for it unless those changes are in there,’” Moyer said. And there’s a good chance that nobody steps up to do that — not even the four Republicans who made headlines in April when they signed on to a letter to Senate Majority Leader John Thune, urging leadership against a full-scale repeal of IRA tax credits.
“It’s hard to see how anyone other than Lisa Murkowski would vote against this,” Moyer said, pointing to the Alaska Senator who was among the signatories of the April letter and has been public about her desire for major changes to the House bill. “There’s so many other things in this broader bill that they like…and it’s very hard to go against the president of your own party for his top legislative priority.”
“There’s no question that if this were a standalone vote on just tax credits, they would all vote to keep them,” he added. “But the force of partisan politics is so strong and it’s very hard to go against that.”
Double jeopardy for clean energy
The outlook for wind, solar, and electric vehicles is unlikely to improve in the Senate, Moyer said. But all three experts are closely watching two key restrictions introduced in the final House bill that — especially taken together — would make it almost impossible for most other projects to qualify for their respective credits: the “foreign entity of concern” restrictions, and the bumped-up credit phase-out timelines.
Both the Ways and Means draft and the House’s final bill seek to prevent projects from claiming tax credits if they have involvement with a company or organization with ties to adversarial countries — namely China. That includes projects that use components or materials from China, or that use key Chinese suppliers. Initial committee drafts gave companies a full year after the bill’s enactment before the restrictions would take effect, but the final version headed to the Senate moves that deadline up, to the end of 2025.
There’s no question that if this were a standalone vote on just tax credits, [the senators] would all vote to keep them. But the force of partisan politics is so strong and it’s very hard to go against that.
This is one area the Senate may decide to make significant changes to better enable domestic manufacturing and energy production without ceding ground to China, Fishman said. “There’s bipartisan agreement that we don’t want taxpayer dollars going to Chinese entities, and that we want to make things here domestically,” he added.
The most important change, Fishman said, would be to clarify the eligibility requirements so it’s easier to know for sure whether a project is complying. Unclear guidance could take Treasury multiple years to implement, which “further shrinks the window that the tax credit would be useful.”
The Senate could also seek to protect U.S. companies that are licensing Chinese technology to build domestically. “That’s the kind of thing that we should allow if we want to win and we want to manufacture stuff here,” Fishman added.
Meanwhile, it’s possible that the Senate will revert phase-out timelines to something a little closer to current law, which includes a deadline for projects to start construction that are significantly further out than 60 days. The House’s proposal also requires projects that make that 60-day deadline to be placed into service by the end of 2028, another tall order not in current law.
Both the foreign entity of concern restrictions and the credit phase-out timelines as written by the House could be a death knell for projects across multiple industries, Lee said. To avoid a cascade of cancelled projects, the Senate would essentially need to change both:
“You could have almost a complete victory on either the phase-out section or the FEOC section and it almost wouldn’t matter, because you can only die once.”
That’s because even projects that could “probably” make the construction and service deadlines could face unexpected delays in the form of interconnection or supply chain delays, permitting problems, or an unpredictable federal government.
“Are you going to risk your billion-dollar investment on ‘probably’ when those deadlines won’t even necessarily be under your control?” Lee asked. “Are you going to risk your billion dollars to start building a factory because you ‘probably’ can make those deadlines if everything goes right? I think most people would not try that.”
