House GOP’s Approach to the IRA Clean Energy Tax Credits: Five Things to Know

The new Ways and Means bill targets several major provisions of the InflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. Reduction Act (IRA) for repeal or reform. The reforms and repeals would raise around $500 billion in revenue over the next decade.

The bill repeals several provisions, like the credits for electric vehicles (EVs) and residential energy products, that are expensive and ineffective. It also makes significant cuts to electricity-side taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. credits. While shrinking the credits is a good option for revenue, the bill achieves that savings in large part through complex, difficult-to-comply-with regulation, rather than simplification and consolidation.

Table 1. How the Reconciliation Package Changes the IRA Credits

Source: Committee on Ways and Means, “The One Big Beautiful Bill,” https://docs.house.gov/meetings/WM/WM00/20250513/118260/BILLS-119-CommitteePrint-S001195-Amdt-1.pdf.

1. The Bill Prioritizes Eliminating Individual-Side Tax Credits

The bill would eliminate several major credits after the end of 2025. The four credits related to electric vehicles (the clean vehicle credit, the commercial clean vehicle credit, the pre-owned electric vehicle credit, and the credit for refueling property) would be repealed after 2025, although the main clean vehicle credit would remain in limited form for 2026, available for vehicles from manufacturers that have produced under 200,000 EVs. A series of residential energy-focused credits would be repealed after 2025.

These credits have several problems. The EV credits have become much more expensive than projected thanks to EPA tailpipe emissions and the leasing loophole, which allows consumers to benefit from the commercial EV credit even if vehicles do not comply with the main EV credit’s restrictions. From a climate perspective, these credits are among the least effective. The EV credit in particular largely benefits drivers who would have purchased an electric vehicle otherwise.

While the new electric vehicle credit introduced some income limits, they can be circumvented through the leasing loophole, and historically EV credit benefits have also skewed disproportionately to high-income taxpayers. The residential energy credits are one of the few IRA tax credits for which we have relatively comprehensive datasets, and those datasets show that benefits disproportionately accrue to higher-income households.

2. The Bill Phases Out the Major Electricity Generation Credits

The clean electricity production tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income rather than the taxpayer’s tax bill directly. (Section 45Y, also known as the PTC) and the clean electricity investment tax credit (Section 48E, also known as the ITC) are the core of the IRA. These two tech-neutral credits took effect at the beginning of 2025, and they are available to all new zero-emission electricity production. Projects must choose between the use of one or another.

Under current law, the PTC and ITC are scheduled to start phasing out in 2032 or when the US power sector reaches 25 percent of 2022 emissions levels, whichever is later. It is highly unlikely the latter condition will be reached in 2032, so the PTC and ITC would likely continue many years into the future.

The reconciliation bill accelerates the phaseout. The ITC and PTC, along with the nuclear production tax credit (45U), would start phasing out after 2028. Facilities entering service in 2029 would see a 20 percent reduction of credit benefit, facilities entering service in 2030 would see a 40 percent reduction of credit benefit, facilities entering service in 2031 would see a 60 percent reduction in credit benefit, and facilities entering service after 2031 would see no benefit.

This approach comes with trade-offs. From one perspective, ending the subsidy early means not leaving the training wheels on new technologies. On the other hand, the IRA reforms brought some stability, a change from a long history of one-year and retroactive extensions for renewable energy provisions in a practice known as extenders. This practice creates uncertainty, undermining investment incentives, while still costing significant revenue. While current lawmakers may intend for the phaseout to take effect in 2029, lawmakers in 2029 may see things differently.

Additionally, from a climate perspective, the ITC and PTC are the primary emissions reduction policies in the IRA. Meanwhile, the bill actually expands the clean fuels production credit, a provision with dubious merits (climate or otherwise), at a cost of $45 billion over 10 years.

The reform also does not eliminate the series of requirements attached to the ITC and PTC. Under current law, credit benefits are cut by 80 percent if firms do not meet prevailing wage and apprenticeship requirements. That gap in benefits is large enough for most firms to find compliance worthwhile, but the requirements add significant costs. Some analysts consider them more extensive than Davis-Bacon requirements for federal contracts, which raise federal infrastructure project costs by around 10 percent. Further, or alternative, ITC/PTC reform could include reduced credit rates paired with eliminating burdensome requirements.

3. The Bill’s Transition Rules Are Sharp, but Do Not Include Retroactivity

The PTC is awarded for electricity production over 10 years for eligible facilities. How reform would treat facilities already in service, as well as facilities currently under construction, is consequential. The bill shifts eligibility provisions for the ITC and PTC from being based on when facilities began construction to when facilities enter service. This reduces eligibility for the programs by more than just starting the phaseout in 2029 would.

However, the bill does not claw back credits to be paid out under the pre-2025 PTC, and a facility that enters service before 2029 would continue to receive the full benefits of its chosen provision. Put another way, under the Ways and Means package, full-value PTCs would continue to be paid out until 2038, and reduced-value PTCs would continue to be paid out until 2041, even though no new facilities would be eligible for the credit after 2031.

4. The Bill Eliminates Transferability After 2027

The IRA also expanded the use of transferability. Under transferability, companies that stand to benefit from a handful of IRA credits, but lack tax liability to offset, may sell, or transfer, their tax benefits to a third party. The introduction of transferability effectively replaced more complicated tax equity partnerships.

The bill would eliminate transferability for all relevant credits after the end of 2027. Eliminating transferability should raise some revenue. However, if reducing the cost of the credits is the goal, it would make more sense to directly reduce the tax credit rate rather than tinker with which users are able to benefit.

5. Proposed FEOC Restrictions Are Very Strict

The House bill would also tighten restrictions related to the involvement of foreign entities of concern (FEOC). Foreign entities of concern include governments of covered nations (China, Russia, North Korea, and Iran), as well as businesses or individuals associated with covered nations.

The reconciliation bill would introduce FEOC-style restrictions to several credits, and in several cases, dramatically expand them. For the clean electricity ITC, clean electricity PTC, and the advanced manufacturing production credit, the bill prohibits credit eligibility “if the construction of such facility includes any material assistance from a prohibited foreign entity.”

Material assistance is defined as “any component, subcomponent, or applicable critical mineral as defined in Section 45X(c)(6)) included in such property that is extracted, processed, recycled, manufactured, or assembled by a prohibited foreign entity.” A large portion of the energy supply chain runs through China, and the definition of a foreign entity of concern could potentially cover virtually any business in China.

The law does provide an exemption for assembly parts “not uniquely designed for use in the construction of a qualified facility” and “not exclusively or predominantly produced by prohibited foreign entities,” as well as a similar exemption for constituent materials. The exact scope of these categories (both the expanded FEOC rules and the exemptions for them) is unclear. Some have characterized the restrictions as a de facto full repeal of the IRA provisions, but they may end up being “just” strict.

The Big Picture

Tax simplification has two aspects. The first is a code without a mess of targeted provisions for various social policy goals. The second is a code with provisions that are simple and easy to comply with.

The Ways and Means bill succeeds at the first, by eliminating or phasing out several credits, but fails at the second, by not eliminating existing complex rules and instead introducing new ones.

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