Executive Summary

• The House Ways and Means Committee’s draft of its reconciliation legislation proposes a significant paring back of about 60 percent of the Inflation Reduction Act energy tax credits, which would raise about $515 billion in revenue from 2025–2034.
• The proposal would repeal some energy credits immediately, including all clean vehicle credits, the alternative fuel vehicle refueling property credit, all residential energy efficiency credits, and the clean hydrogen production credit, which would raise approximately $306 billion from 2025–2034.
• It would also add phaseouts and restrictions to several credits, including the clean electricity production and investment credits, the clean fuel production credit, carbon sequestration credit, nuclear power production credit, advanced manufacturing production credit, and the credit for certain energy property, which would raise about $210 billion from 2025–2034.

Introduction

The House Ways and Means Committee released a draft of its reconciliation legislation yesterday, which proposes a significant paring back of about 60 percent of the Inflation Reduction Act (IRA) energy credits, which would raise about $515 billion in revenue from 2025–2034, according to the Joint Committee on Taxation (JCT).

The committee’s proposal would repeal some energy credits immediately, including all clean vehicle credits, the alternative fuel vehicle refueling property credit, all residential energy efficiency credits, and the clean hydrogen production credit, which would raise approximately $306 billion from 2025–2034.

The bill would add phaseouts and restrictions to several credits, including the clean electricity production and investment credits, the clean fuel production credit, carbon sequestration credit, nuclear power production credit, advanced manufacturing production credit, and the credit for certain energy property, which would raise about $210 billion from 2025–2034.

The American Action Forum’s (AAF) previous analysis establishes an evaluation framework of simplicity, efficiency, and fiscal sustainability to examine all the IRA energy provisions. Detailed information on the descriptions and special features of all the IRA energy credits is included in the previous analysis.

This analysis provides a quick overview of what is included in the House proposal, the revenue it would raise, and compares the new proposed expiration date to what is included in current law.

Analysis

The Ways and Means Committee proposes a significant paring down of the IRA energy credits, which would raise about $515 billion in revenue from 2025–2034 according to the Joint Committee on Taxation (JCT). This accounts for about 60 percent of the revenue raised through a total repeal of all the IRA energy provisions at about $852 billion.

As shown in Table 1, the proposal would terminate several energy credits including all the clean vehicle credits (new, used, and commercial credits), the alternative fuel vehicle refueling property credit, all residential energy efficiency credits, and the clean hydrogen production credit. JCT estimates that eliminating these credits would raise approximately $306 billion from 2025–2034.

Most of these credits would be repealed immediately, effective after December 31, 2025, which is at least seven years earlier than the expiration date for most credits in current law, on December 31, 2032. (Table 2) The used clean vehicle credit and the new energy efficient home credit would be repealed after December 31, 2026.

The Ways and Means bill also proposes adding phaseouts and restrictions to some other energy credits to make them much less generous. These credits include the clean electricity production and investment credits, clean fuel production credit, carbon sequestration credit, the nuclear power production credit, advanced manufacturing production credit, and credit for certain energy property. JCT estimates that shrinking these credits would raise about $210 billion from 2025–2034 (Table 1).

There are two major ways the Ways and Means bill proposes to reduce the cost of the credits: phasing out transferability and adding restrictions related to foreign entities of concern (Table 2). Transferability is an efficiency-enhancing feature that allows energy developers with little or no tax liability to sell their credits to investors directly for cash, allowing more taxpayers to access energy credits. The proposal would retain the transferability feature for two more years and repeal it after 2027.

Additionally, the legislation would add significant restrictions related to foreign entities of concern to limit taxpayers’ access to energy credits. For example, taxpayers who are considered foreign entities of concern (FEOC), or engage in economic activities with FEOC, would not be eligible to claim the credits.

The Ways and Means bill would mostly shrink the energy credits, except for the clean fuel production credit. It would extend the credit from December 31, 2027, to December 31, 2031. It would also retain the transferability feature until the end of 2027 and require the fuel feedstock to be produced in the United States, Mexico, or Canada (Table 2). JCT estimates that modifying the clean fuel production credit would cost $45 billion from 2025–2034 (Table 1).

The Ways and Means proposal seems to be balancing between cost saving and maintaining some investment incentives for certain clean energy technologies. AAF’s previous analysis establishes an evaluation framework of simplicity, efficiency, and fiscal sustainability to examine all the IRA energy provisions. The analysis concludes that the clean vehicle credits are complex, inefficient, and costly. The committee proposes repealing all the clean vehicle credits after 2025 for used and commercial ones, and after 2026 for new ones, which would raise close to $200 billion from 2025–2034.

The committee’s proposal for overhauling the IRA energy credits is far from what final legislation would look like. But it gives investors and energy developers an important starting point for which energy tax credits lawmakers are considering modifying.

Table 2. Proposed Repeal of IRA Energy Credits by the House Ways and Means Committee

Source: Joint Committee on Taxation, Evaluating the IRA’s Clean Energy Tax Provisions, author’s analysis.