Republican Congress proposes near-full repeal of clean energy tax credits

Congressional Republicans are moving forward with a sweeping tax cut package that could result in the dismantling of the 2022 Inflation Reduction Act (IRA), the signature climate and renewable energy law passed during the Biden era. If they are successful, the U.S. will be left with no discernable climate strategy, and Republicans will be condemning the country to a future in which the economy is dirtier, more costly, and less competitive, critics say.

The legislative bill under consideration, clumsily dubbed “The One, Big, Beautiful Bill,” would decimate the suite of tax credits from the IRA aimed at accelerating the U.S. energy transition and the build-up of clean energy manufacturing.

The main impetus for the Republican legislation is to extend and deepen tax cuts, which will mostly benefit the wealthy, while also dramatically expanding Trump’s deportation machine by funnelling hundreds of billions of dollars towards expanding the wall on the U.S.-Mexico border and beefing up the army of security agents scouring the country looking for migrants to expel.

But to pay for some of those extraordinary costs, which could reach nearly $5 trillion over a ten-year period, the Republicans are taking a sledgehammer to the safety net and climate programmes. The cuts are broad, deep, and comprehensive, at least in the initial proposal laid out this week by House Republicans.

On Monday, two different congressional panels — the House Energy and Commerce Committee and the Ways and Means Committee — unveiled sections of the bill.

The cuts include eliminating the $7,500 tax credit for electric vehicles at the end of 2025 (companies that sold less than 200,000 EVs will have until the end of 2026); a phase out of clean electricity tax credits over several years; the ending of a tax credit for clean energy manufacturing facilities; the elimination of new fuel economy standards for cars and trucks that were to be implemented in 2027; and the repeal of “transferability,” which allows clean energy developers to sell their tax credits to more quickly monetise the benefits.

The Ways and Means bill would “be similar to the impact of a full repeal” of the IRA tax credits, according to a preliminary analysis by Rhodium Group, an independent research firm.

“This will raise energy costs for American households by as much as 7% in 2035, stifle energy technology innovation, increase pollution, and could put a meaningful portion of half a trillion dollars of new manufacturing, industrial, and clean electricity investments across the country at risk,” Rhodium Group said.

Emissions could also rise by as much as 500 to 730 million metric tons in 2035 compared to the current baseline, Rhodium Group estimates, leading to emissions reductions of just 4 percent compared to 2024 levels. That would mean “effectively no progress on decarbonization” over the next decade.

The phaseout of a tax credit for nuclear power would all but kill the growth prospects of new nuclear plants, which need upwards of a decade to build. A tax credit for hydrogen production would also be eliminated at the end of 2025, which would be a huge setback to the future of both green and blue hydrogen.

The bill did not touch the tax credit for carbon capture and sequestration, a priority for the oil industry.

While the legislation entails deep cuts to renewable energy programmes, it also contained benefits to oil and gas, including expedited permitting for LNG facilities and pipelines. If passed into law, LNG developers would basically be allowed to pay for their permit — a provision in the bill would allow LNG companies to pay a $1 million “fee” and in exchange their project will be automatically deemed to be “in the public interest” and their authorisation swiftly approved.

“House Republicans are bending over backwards to give handouts to big polluters while their constituents pay the price of worse pollution and higher energy bills,” Mahyar Sorour, Sierra Club Director of Beyond Fossil Fuels Policy, said in a statement. “Vital services and protections are being cut to pay for tax cuts for billionaires. The idea that corporate polluters can pay a fee to freely pollute our communities is beyond the pale.”

Methane emissions

For oil and gas drillers, there are even more benefits. The fee that was supposed to be imposed on oil and gas drillers for their excess methane emissions would be delayed by ten years. New leases for drilling will be offered in the Gulf of Mexico and in Alaska.

A coalition of nearly 40 environmental NGOs signed a letter to the leadership on the House Energy and Commerce Committee, blasting the legislation as “unacceptable.”

There are a few other provisions contained in the Republican bill that, while not directly related to the IRA, are alarming civil society organisations. Those include the “nonprofit killer” provision that would allow the Department of Treasury to revoke the non-profit status of NGOs the government considers to be “supporting” terrorist organisations. Experts widely see this as a danger to free speech and would allow the Trump administration to persecute its political opponents, potentially even environmental groups.

Additionally, the legislation would prohibit state and local governments from regulating AI technology for ten years, a period of time when the U.S. is expected to see dramatic growth in electricity demand for new data centres.

However, electricity demand cannot be met with natural gas-fired power plants alone. As Gas Outlook previously reported, there are bottlenecks for gas turbines, as well as rising labour costs. The cost of building new gas plants is three times higher today compared to just a few years ago.

As a result, gutting support for renewable energy will merely translate into more strain on the grid, pushing up electricity prices and potentially even leading to shortages. If the clean energy tax credits are repealed, the U.S. could see $336 billion in investment in wind, solar, and battery projects over the next 15 years fail to move forward. An analysis from the think tank Energy Innovation finds that electricity bills in some states could rise by $500 per year for the average American household.

The bulk of the investment in new clean energy projects stemming from the IRA have occurred in Republican-led states.

“This isn’t fiscal responsibility. It’s economic sabotage,” Lena Moffitt, executive director of Evergreen Action, a climate advocacy group, said in a statement. “Despite broad bipartisan support for clean energy, Republicans are siding with fossil fuel CEOs to jeopardize billions of dollars of investments that are creating jobs in their own districts.”

However, while the bill aims to make savage cuts to U.S. clean energy policy, the story is not over.

The bill cleared the Ways and Means committee last week, but ran into a roadblock on Friday. A separate House panel blocked passage of the bill, with hardliners objecting to the enormous budget deficits that the bill would create. Moody’s downgraded the U.S. credit rating on Friday, in part because the Republican plans could add trillions of dollars to the national debt.

The predicament facing Republican leadership is that deficit hardliners want deeper cuts to IRA programmes and the safety net. But on the other end of the spectrum are a group of more center-right Republicans that want to soften the blows to both. In early May, 26 Republicans signed a letter making the case to preserve clean energy tax credits. The Senate is also likely to water down the clean tech cuts.

As a result, as “the legislative process widens to encompass the remainder of the House GOP conference and, ultimately, the Senate, we continue to expect a moderation of the proposed language,” ClearView Energy Partners, a Washington-based consulting firm, said in a note to clients.

“How much moderation may depend on pressure from President Donald Trump.”

There is already some signs that a handful of Senate Republicans are not comfortable with the extreme cuts contained in the House bill.

West Virginia Senator Shelley Moore Capito said the House legislation would amount to a “blanket” repeal of the IRA tax credits. “I would expect that to change,” said Senator Capito, chair of the Environment and Public Works Committee, according to Politico. “There has been job creation around these tax credits.” Other senators have voiced similar hesitations and concerns about cutting too much.

North Carolina Republican Senator Thom Tillis said the House plan “needs refinement” and “needs more transitions.”

The House is hoping to pass its bill later this month, but it could take several more months for the Senate to pass its own version.

“When Congress play Red Light / Green Light with domestic energy production, American companies lose billions of dollars, investment stalls, and our economy suffers,” Jason Grumet, CEO of the American Clean Power Association, a Washington-based clean tech trade association, said in a statement.

“Over 90% of the electricity added to the grid last year came from the clean sources threatened by this legislation. Now is not the time for disruptive policy that will reduce American energy production and threaten our security,” he added.

(Writing by Nick Cunningham; editing by Sophie Davies)