Congress Eyes Major Rollback of Clean Energy Tax Credits

By Cameron Weist, The Weist Law Firm

June 3, 2025

On May 22, 2025, the U.S. House of Representatives passed H.R. 1, formally titled the “One Big Beautiful Bill Act” (OBBBA), a reconciliation bill proposing a significant rollback of clean energy tax incentives under the Inflation Reduction Act of 2022 (IRA). Now under Senate review, the bill faces potential amendments before reconciliation and submission to the President for approval or veto. 

For public agencies and other tax-exempt entities relying on IRA’s Direct Pay mechanism to fund clean energy infrastructure, the proposed changes carry immediate and far-reaching implications.

Accelerated Timelines for Clean Electricity Tax Credits

The OBBBA targets the Clean Electricity Production Credit (Section 45Y) and Clean Electricity Investment Credit (Section 48E), currently set to phase out no earlier than 2032, with a gradual phase-downs tied to greenhouse emissions benchmarks. The OBBBA would truncate this timeline dramatically.

To qualify under the new legislation, projects must both begin construction within 60 days of enactment and be placed in service by December 31, 2028. Projects missing either requirement would be entirely excluded from the credits. This two-pronged test—requiring both a construction start and placed-in-service deadline—is a marked shift from prior transition rules, which typically required only one or the other.

Exemptions apply to advanced and expanded nuclear projects, which need only meet the placed-in-service deadline. Additionally, the legislation immediately disqualifies residential wind and solar leasing from credit eligibility upon enactment.

Restrictions Based on Foreign Entities of Concern (FEOCs)

The OBBBA would also significantly tightens restrictions on projects connected to "foreign entities of concern" (FEOCs)—defined to include companies with ownership, control, or material input links to countries such as China, Russia, Iran, and North Korea.

Key provisions include:

• Disqualification from Sections 45, 45Y, 45X, 48, and 48E for any project receiving “material assistance” from a FEOC, such as (i) key components or raw materials, (ii) licensing of intellectual property, or (iii) financing or contractual support.

• Introduction of the new term “foreign-influenced entities,” capturing indirect ownership, joint ventures, and complex financing arrangements.

• Staggered phase-in of restrictions depending on the nature of the entity or relationship.

These rules impose significant diligence burdens on public agencies and developers to verify supply chains, intellectual property origins, and corporate ownership structures.

Curtailment of Credit Transferability

The IRA’s transferability provision under Section 6418—critical to market liquidity and tax credit monetization—would be narrowed under the OBBBA:

• Section 45Q (carbon capture) and geothermal (48) credits would lose transferability for projects beginning construction more than two years after enactment.

• Section 45X (advanced manufacturing) and Section 45Z (clean fuels) would lose transferability for components/fuels sold after December 31, 2027.

While transfers completed before these deadlines remain valid, this change could severely limit the planning horizon for many projects and suppress the tax credit resale market. For public agencies, this may not directly impact Direct Pay eligibility, but it may affect private development partners and deal structuring options in joint ownership models.

Early Phase-Outs for Other IRA Incentives

The bill also proposes early sunsets for several other clean energy incentives:

• Advanced Manufacturing (Section 45X): Phase-out begins in 2029, with wind components disqualified after 2027.

• Zero-Emission Nuclear (Section 45U): Expires after 2031.

• Clean Hydrogen (Section 45V): Ends after 2025, with only a limited grandfathering provision.

• Residential Credits (Sections 25C, 25D, and 45L): All set to expire at the end of 2025.

Implications for Public Agencies

While the Senate may revise or even reject parts of the bill, OBBBA reflects a clear policy shift toward shortening the federal government’s commitment to long-term clean energy tax incentives. For public agencies and infrastructure stakeholders, this creates a narrowing window to act.

If passed in its current form, the legislation would:

• Shrink the eligibility window for municipal energy projects under Sections 45Y or 48E,  threatening solar, storage, and EV infrastructure plans.

• Force accelerated timelines that may not align with CEQA reviews or typical procurement schedules.

• Require rigorous FEOC compliance, increasing costs for supply chain audits and partner diligence.

• Disrupt long-term capital plans structured around IRA incentives.

The OBBBA’s accelerated timelines, FEOC restrictions, and curtailed credit transferability could deter investment and complicate deal structuring for local government agencies. These agencies, which often partner with regional developers, local contractors, or public-private entities to deliver clean energy projects, will face increased compliance costs, supply chain disruptions, and financing uncertainties, particularly for solar, storage, and EV charging initiatives critical to meeting local sustainability goals.

Planning Ahead

Even before it becomes law, the OBBBA presents an urgent call to action. Public agencies considering clean energy upgrades—from solar and storage to EV charging and electrification—should move swiftly to preserve eligibility under the current rules.

Recommended steps include:

• Accelerate project timelines: Initiate construction or secure financing to meet the 60-day post-enactment deadline.

• Complete IRS Pre-Registration: File for Direct Pay tax credit eligibility.

• Audit Supply Chains: Review suppliers for FEOC exposure, focusing on critical minerals, components, and IP licensing.

• Monitor Legislative Updates: Engage with industry coalitions and track Senate amendments to anticipate changes.

Final Thoughts

While the OBBBA is not yet law and faces modification in the Senate, it underscores the importance of acting now. Agencies that are planning clean energy upgrades—including solar, storage, EV charging, and electrification—should consider fast-tracking projects and securing credit eligibility while the current rules remain in effect.

Strategic planning, legal review, and fiscal coordination will be essential to ensure access to federal funding and protect public investments in sustainable infrastructure. The decisions made in the coming months may determine whether today’s infrastructure visions can be realized—or remain on the drawing board.

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This article was written by Cameron Weist of The Weist Law Firm, which serves as legal counsel and financial advisor to public agencies across California. For questions about how these developments could affect your energy project or financing plan, contact Cameron at cameron@weistlaw.com.