The One Big Beautiful Bill Act (the “OBBBA”) limits future opportunities for some of the clean energy tax credits previously enacted under the Inflation Reduction Act of 2022 (the “IRA”). During the election campaign President Trump expressed a strong interest for a complete repeal of the IRA credit provisions. Many pundits expressed their belief that any changes to the IRA would be more reflective of a scalpel than a sledgehammer. The final legislation lands somewhere in between, but with a preference for those technologies that can provide continuous power (e.g., nuclear and geothermal) over the intermittent power technologies (e.g., wind and solar).
Below are some of the key changes applicable to renewable energy investors and developers made in the OBBBA:
Wind and Solar
Wind and solar projects under Code Sections 45Y and 48E were particularly impacted by the OBBBA. Such projects must be placed in service by December 31, 2027, in order to remain eligible for the production or investment tax credits. A safe harbor is available for wind and solar projects that “begin construction” on or before July 4, 2026, however.
Notably, an Executive Order was issued on July 7, 2025, directing the Department of the Treasury to, within 45 days following the enactment of the OBBBA, “strictly enforce the termination of the clean electricity production and investment tax credits under sections 45Y and 48E of the Internal Revenue Code for wind and solar facilities.” Such action includes issuing guidance relating to the “beginning of construction” standard to limit the existing safe harbors with respect to the beginning of construction. Such guidance may not be in line with previously issued notices and may make the requirements for the beginning of construction much stricter.
Other Technology Neutral Clean Energy Credits
The technology neutral credits received a slightly shortened timeline for new clean energy projects, with the credit eligibility phaseout beginning after 2032 (other than for wind and solar).
Certain domestic content requirements for clean energy facilities were introduced in the OBBBA, raising the domestic content minimums from 40% to 45% for projects beginning construction after June 12, 2025, and incrementally thereafter up to 55% starting in 2027.
Carbon Sequestration
The credit for the sequestration of carbon oxides received a surprising benefit in bringing long sought after parity within the 45Q credit. As a result of the OBBBA, the $85 per metric ton credit ($180 for direct air capture) previously only available for carbon oxides permanently sequestered, and not used in enhanced oil or natural gas recovery projects, will also apply to projects placed in service after July 4, 2025, that (i) use the permanently sequestered carbon oxides in EOR projects or (ii) utilize carbon oxides in other permitted forms. This represents an increase from the prior $60 per ton credit for such uses.
Clean Transportation Fuel Production
Code Sections 45Z and 40A (relating to small agri-biodiesel producers) received a much-needed extension, permitting such fuel producers to receive credits for sales taking place on or prior to December 31, 2026, in the case of small agri-biodiesel producers and December 31, 2029, for transportation fuel producers. The credit is limited, however, to fuels produced from feedstocks derived in the US, Canada, and Mexico.
Limitation of Covered Nation Influence
The OBBBA takes a strong stance against the ownership, control, and influence of clean energy projects by North Korea, China, Russia, and Iran. Specifically, tax credits will be prohibited for “specified foreign entities” and “foreign-influenced entities,” such as entities owned or controlled by foreign entities of concern, terroristic organizations, and entities controlled by governments, agencies, or citizens of North Korea, China, Russia, or Iran. The application of these limitations are phased in differently among the credits.
The production tax credit and investment tax credit are saddled with a limitation on components used to construct facilities and equipment in addition to the domestic content rules. Such facilities will be subject to increasing limitations with respect to materials acquired from specified foreign entities, with more stringent limits applied to energy storage. This “material assistance” limitation provides for a safe harbor for facilities that begin construction before January 1, 2026.
Additionally, no longer will transfers of tax credits to specified foreign entities be permitted under Code Section 6418.
The Executive Order issued on July 7, 2025, also directed the Department of the Treasury to, within 45 days following the enactment of the OBBBA, “take prompt action” to implement the “Foreign Entity of Concern” restrictions in the OBBBA.
Other Reduced Credits Include:
- The credit for alternative fuel vehicle refueling property (e.g., biofuel refueling property as well as charging stations for electric vehicles) will now only be available for property placed in service by June 30, 2026.
- The deduction for energy efficient commercial buildings will now only be available for property for which construction has begun by June 30, 2026.
- The clean hydrogen production credit will now only be available for any facility that begins construction before January 2, 2028.
