US House panel advances Republican bill to narrow, wind down climate law credits

The US House Ways and Means Committee advanced a Republican tax package that would raise an estimated $515 billion in revenue for a broader budget reconciliation bill by accelerating the phaseout of the Inflation Reduction Act's clean energy and electric vehicle tax credits.

The tax-writing panel passed the draft bill along party lines early May 14 following a marathon committee markup where members debated an amendment that would have entirely struck the measure's energy-related section.

"This bill makes the 2017 tax cuts permanent, locking in lower tax rates for workers, small businesses and farmers," said Representative Jason Smith, Republican-Missouri and the committee's chair. "These provisions offer the certainty and support small businesses and manufacturers need to invest in America and bring back the economic prosperity of President Trump's first term."

Representative Don Beyer, Democrat-Virginia, called the energy-related amendment to the tax package, offered by fellow Democrat Mike Thompson of California, "perhaps the most important amendment of the markup."

"The energy provisions of this bill are catastrophic," Beyer said. "You can't reasonably look at the changes made to these tax credits and think they support energy markets in the US."

Democrats decry early credit phaseouts

The Ways and Means proposal would phase down technology-neutral 45Y production and investment tax credits, as well as a nuclear production credit, from 2029 through 2032.

Under Democrats' 2022 energy climate law, the 45Y production credit and 48E investment credit are subject to a four-year phasedown period that starts in 2032 or when the US power sector's emissions fall to 25% below 2022 levels – whichever comes later. The full value of the 45U nuclear credit is also available until 2033.

Notably, the Ways and Means proposal would narrow eligibility for the 45Y and 48E credits by tying the phasedowns to when a project is placed in service, as opposed to the IRA's commencement-of-construction standard.

One of the few surviving credits in the reconciliation package, the clean fuel production credit (45Z), was also subject to new two-year transferability rules, but was otherwise extended and made slightly easier for biofuels and sustainable aviation fuels producers to qualify for. It would also require feedstocks to originate from the US, Mexico and Canada, preventing the use of used Chinese cooking oil in blending.

The Republican package would repeal transferability for a range of clean energy credits – including the 45Y, 48E, and 45U credits – after two years, thereby preventing them from being sold or transferred to third parties. The bill would also add new restrictions for projects receiving "material assistance" from foreign entities of concern.

"Between the [foreign entity of concern] provisions being unworkable and functionally killing credits, creating placed-in-service deadlines – which means no project underway can guarantee it will be done in time – and eliminating transferability, you've killed financing in the energy market," Beyer said during the markup. "That's the opposite of an all-of-the-above or an energy dominance agenda."

Representative Rudy Yakym, Republican-Indiana, however, contended that loopholes in the IRA allowed foreign actors such as the Chinese government to take advantage of the law's tax credits for electric vehicles and battery storage.

"We shouldn't allow that," he said.

Thompson responded by arguing that "by not passing this amendment, you're doing exactly what you've warned against. We are acquiescing to the Chinese.

In addition to the early phaseouts for clean energy credits, the Ways and Means bill would largely end the IRA's $7,500 tax credit for new electric vehicles after 2025, along with credits for used EVs and clean commercial vehicles.

Thompson's amendment ultimately failed on a 19-25 vote.

Senate expected to soften approach

The Ways and Means bill's advance to the House floor hardly guarantees the committee's framework will survive.

In 2024, 38 House Republicans signed letters urging Republican leadership to preserve IRA tax credits that have spurred development in their districts. None of those members sit on the Ways and Means committee, however, and their objections to phase-outs could require revisions before full passage on the House floor.

Even if those objections could be overcome, several key Republican Senators have said the credits will likely receive different treatment in the Senate Republicans' own reconciliation proposals.

On May 13, Senator Kevin Cramer, Republican-North Dakota, an influential Senate energy policy voice, expressed public disagreement with the Ways and Means committee's aggressive phaseouts of clean electricity and nuclear credits, telling Politico that Republicans should favor incentives for advanced nuclear reactors and geothermal projects in earlier stages of market development.

"They definitely need more time than that," Cramer said. "It's too short for truly new technologies. We'll have to change that. I don't think it's fair to treat an emerging technology the same as a 30-year-old technology."

Cramer's own public proposal would merely phase out wind and solar tax credits, older technologies he believes no longer need subsidies to come online.

Senator Shelley Moore Capito, Republican-West Virginia, also said the Senate would likely take a more targeted approach.

"I would expect that to change," Capito told Politico. "There has been job creation around these tax credits."