On Tuesday, May 13, two prominent committees in the US House of Representatives held markups on legislation that would significantly reduce or repeal incentives for low-carbon energy technologies established or enhanced under the Inflation Reduction Act (IRA). The House Ways & Means Committee, which holds jurisdiction over tax policy, and the Energy & Commerce Committee, which has jurisdiction over energy and environmental regulatory and funding programs, approved their portions of the reconciliation package moving through Congress. Both votes were along party lines. 

The proposed changes would repeal several clean energy tax incentives and eliminate many of the grant and loan programs created or expanded under the IRA. If enacted, households could see meaningful increases in electricity costs, and US decarbonization efforts would likely fall short of projections made under the IRA. 

This legislation is only in an early stage of the process and there are still many hurdles to overcome. The legislation must undergo a full vote by the House, Senate committee markups, and a full vote by the Senate, on top of the additional consideration in the Budget Committee of each chamber as part of the budget reconciliation process. In short, changes are not only likely, they are virtually guaranteed. That said, as these proposals would have wide-reaching implications for the energy sector, it's critical for all stakeholders to understand their potential impact on carbon management technologies. 

Proposed changes to clean energy tax credits

The Ways & Means Committee’s legislative text proposes eliminating or scaling back several clean energy tax credits. These include a full repeal of the 45V Clean Hydrogen Production Credit and the 30D Clean Vehicle Credit, along with early phase-outs of the 45Y Clean Electricity Production Credit, the 48E Clean Electricity Investment Credit, and the 45X Advanced Manufacturing Production Credit. 

Other credits, such as the 45Q Credit For Carbon Oxide Sequestration and the 45Z Clean Fuel Production Credit remain largely intact, or even extended. 

New complications for claiming tax credits

The legislation would also change how companies can claim these credits. Most notably, it would repeal the IRA’s transferability provisions, which allowed project developers with limited tax liability to use or sell tax credits directly to third parties. Without that option, those developers will likely return to complex and expensive tax equity partnerships with large financial institutions. 

The markup also expands the definition of Foreign Entities of Concern (FEOC) to include entities partially owned or influenced by adversarial governments, including China, Russia, Iran, and North Korea. Starting in 2027, tax filers must certify compliance, disclose supply chains, and avoid FEOC-linked components, intellectual property, or any other “material assistance” to remain eligible.

In addition, the legislation shifts the eligibility timeline for when certain projects can qualify for a given credit from a “commence construction” standard to a “placed in service” standard, introducing immense uncertainty for project developers trying to plan around evolving timelines.

One provision that remains largely untouched is direct pay. This feature of the IRA, also known as “elective pay,” allows tax-exempt entities like municipalities, rural electric cooperatives, and Native American Tribes to receive tax credits as cash payments. Its preservation is a welcome relief to cities, counties, and others who advocated vocally for its continuation. 

Clean energy program funding faces major cuts

In the House & Energy and Commerce Committee’s markup, Republicans proposed sweeping rollbacks of clean energy programs established under the IRA. The legislation would claw back billions of dollars in unspent funding from a range of Department of Energy (DOE) and Environmental Protection Agency (EPA) initiatives. This includes unobligated money provided to several programs, including:

• Electric vehicle charging infrastructure initiatives

• Zero-emission port equipment

• Air pollution monitoring programs

• The Loan Programs Office (LPO) 

• The Greenhouse Gas Reduction Fund (GGRF)

Even with this proposal, litigation over the status of obligated GGRF funds will continue. 

At the same time, the legislation seeks to loosen vehicle emissions standards and expedite permitting for fossil fuel projects. It also repeals the authorizing language for 17 different clean energy programs, though that action is likely to face significant procedural hurdles in the Senate.

The road ahead is long and uncertain

This proposed legislation is far from the finish line. The reconciliation package must still be considered before the House Budget Committee and then before the entire House before moving to the Senate where the process starts over. 

The likelihood of this legislation being enacted without changes is extremely low given significant intra-party divisions over energy priorities among Republicans in both the House and the Senate. A faction of House Republicans sent a letter to the Chairman of the Ways & Means Committee in support of preserving clean energy tax credits, and on the other end of the Capitol, senators including John Curtis (R-UT) and Kevin Cramer (R-ND) have been outspoken in support of certain clean energy programs. 

Much of this support stems from the fact that the majority of IRA funding flows to states and districts represented by Republicans. Other considerations, such as the ongoing dispute over the State and Local Tax (SALT) deduction, further complicate the path to agreement and could influence negotiations. 

Finally, the legislation must survive the constraints of Senate procedure. Under the “Byrd Rule,” all provisions in a reconciliation package must have a direct impact on the federal budget. Any provisions deemed to have only a “merely incidental” impact may be deemed out of order and stricken from the legislative text by the Senate Parliamentarian. In sum, while the markups may appear to be catastrophic news for the climate provisions of the IRA, the story is not over yet.