Update on federal funding for clean energy tax credits

Last week, on June 16, Senate Republicans released draft finance and tax legislation, their version of the Administration’s One, Big, Beautiful Bill following the House’s release–and initial passage–in May. These include (or eliminate) provisions for clean energy tax credits.

Among the many provisions in the House version was a general gutting of the many clean energy tax credits provided by 2022’s Inflation Reduction Act (IRA). Many had hoped that Senate Republicans would substantially moderate the House bill’s virtual wholesale repeal of the clean energy provisions of the IRA. And while the Senate bill did moderate some of the clean energy reductions, it did not go as far as many clean energy advocates and businesses had hoped.

What is in the House bill?

The House version of the bill phases out nearly all of the IRA’s clean energy tax credits by the end of 2025, including:

• A 30% Investment Tax Credit off of the cost of equipment and installation for solar, wind, geothermal, and battery storage systems
• A $7,500 tax rebate on the purchase of electric vehicles
• Home electrification rebates, such as those for the installation of air source heat pumps

What is in the draft Senate bill language?

The draft Senate language provides a longer runway, but only for certain technologies:

• The EV tax rebate, air source heat pump rebates, and residential rooftop tax credits would phase out within six months of the bill’s passage. 
• Commercial wind and solar tax credits phase out a little more slowly. The tax credit remains 30% for projects commencing construction before the end of 2025, drops to 18% if construction begins by 2026, and drops to 6% if construction begins by the end of 2027 before phasing out completely in 2028. 
• Nuclear reactors, hydropower plants, geothermal plants, and battery storage would maintain a 30% tax credit through 2033 and then start phasing out. 

What is likely to be in the final bill?

While the House has passed its bill, the Senate has only released draft legislation. The bill that ultimately passed the House was worse for clean energy tax credits than the House’s draft legislation.

While there are several Republican Senators that want to see clean energy language strengthened, none have drawn any clear lines to suggest that they would ultimately vote against the bill without those improvements. Several Republicans have indicated that they will not vote for a bill without additional spending cuts.

All that is to say that the bill is not likely to leave the Senate better for clean energy tax credits than its current form. And even if the current bill passes out of the Senate, the two chambers will then have to negotiate between their two versions. Likely, they will meet somewhere in the middle.

Of course, it is also possible that bill negotiations will fall apart and nothing will ultimately get passed, but for now that is looking less likely an outcome, given the political pressure from the President to pass something.

What is unaffected?

The silver lining to the federal backpedal on clean energy goals is that while EVs, solar, and offshore wind are facing increased headwinds from changing federal policies, most building energy efficiency, electrification, and decarbonization measures remain untouched and with strong support.

This is because the policies encouraging building upgrades, such as building reporting (LBER) and performance standards (BERDO, LL97) are at the state and city level, while the incentives are largely being provided by local utility companies.

While some federal incentives for energy efficiency will go away, these are relatively small compared to average utility incentives, which will continue in the states that have robust utility incentive programs.

And of course, the baseline argument for energy efficiency—using less energy saves you money—will always continue independent of any policies or external incentives.

What’s next for institutions and building owners?

With federal uncertainty and economic headwinds, many institutions are unsure how to fund needed upgrades. We can help with that.

GreenerU helps organizations: 

• Plan ahead now for future equipment failures
• Capture all available utility and regional incentives
• Package capital renewal and deferred maintenance projects with energy efficiency opportunities with low or no up-front cost financing
• Capture all of the co-benefits of decarbonization

If you’re considering a path forward and are concerned about financing options, let’s talk. We’ll help you evaluate options and build a roadmap for resilient, low-carbon buildings—whatever the federal landscape looks like.

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