The One Big Beautiful Bill: Tax Provisions Impacting the Energy and Climate Solutions Sector

Introduction

On July 4, 2025, President Trump signed H.R. 1, also known as the “One Big Beautiful Bill Act” (OBBB) into law.¹ Initially approved by the U.S. House of Representatives on May 22, 2025, as described in our prior alert here, and amended and passed by the U.S. Senate on July 1, 2025, the OBBB includes a number of changes that significantly impact the Energy and Climate Solutions Sector. First, the OBBB accelerates the termination of or eliminates several renewable energy credits established under the Inflation Reduction Act of 2022 (IRA). The OBBB retains the IRA’s transferability regime for eligible credits, subject to the timing of the underlying credit and limitations on who can purchase such credits. Finally, the OBBB introduces significant restrictions around certain foreign entities, which will not only impact who can invest in renewable energy projects, but also who can supply components and know-how to develop them.

Additionally, on July 7, 2025, President Trump issued an Executive Order (the Order)² which directs the Secretary of the Treasury to terminate the Tech-Neutral Credits (as defined below) for wind and solar by issuing new and/or revised guidance related to established beginning of construction rules. The Order also directs the Secretary to implement the enhanced foreign entity of concern (FEOC) restrictions (discussed further herein) included in the OBBB. Each action is to be taken within 45 days of the Order. Finally, the Order directs the Secretary of the Interior to revise regulations and policies to eliminate preferential treatment for wind and solar facilities over dispatchable energy sources.

The OBBB also includes a number of general tax provisions relevant to domestic and multinational businesses. For more details, please see this Wilson Sonsini alert.

Summary of Substantial Changes

• EV and Residential Credits Termination Accelerated

The OBBB will terminate each of the transportation-related tax credits. The Section 25E³ used EV credit, Section 30D new EV credit, and Section 45W commercial EV credit will terminate on September 30, 2025. The Section 30C alternative fuel vehicle charging station credit will expire on June 30, 2026.

The Section 25C energy efficient home improvement credit and Section 25D residential clean energy credit will expire on December 31, 2025, while the Section 45L new energy efficient home credit will expire on June 30, 2026. Table 1, below, summarizes these changes.

• Tech-Neutral Credits for Wind and Solar Termination Accelerated

The Section 45Y clean electricity production credit (the “Tech-Neutral PTC”) and Section 48E clean electricity investment credit (the “Tech-Neutral ITC” and, together with the Tech-Neutral PTC, the “Tech-Neutral Credits”) will terminate for any qualified facility using wind or solar which begins construction more than one year from enactment of the OBBB and is not placed in service by December 31, 2027. In the case of the Tech-Neutral ITC, the placed-in-service deadline will not apply to energy storage technology.

• FEOC Restrictions Imposed

The OBBB imposes a complex regime of FEOC restrictions (described in detail below) on renewable energy credits, which if violated will cause projects to be ineligible for such credits.

The table below summarizes changes to IRA credit termination dates as well as FEOC restrictions. Additional discussion follows.

FEOC Restrictions

The OBBB imposes multifaceted restrictions around certain “prohibited foreign entities” (PFEs), which include both “specified foreign entities” (SFEs) and “foreign-influenced entities” (FIEs). The restrictions also prohibit material assistance from a PFE with respect to certain credits. Violation of these restrictions will cause credits to be disallowed. Please refer to the table above for a summary of the application of the rules described below.

• SFEs include:
  • entities designated as a foreign terrorist organization by the Secretary of State;
  • entities included on the Specially Designated Nationals List and the 1260H List maintained by the Treasury Department’s Office of Foreign Assets Control;
  • entities alleged by the Attorney General to have engaged in conduct for which a conviction was obtained under certain laws;
  • entities determined by the Secretary of Commerce, in consultation with the Secretary of Defense and the Director of National Intelligence, to be engaged in unauthorized conduct that is detrimental to U.S national security or foreign policy;
  • Chinese military companies operating in the United States;
  • entities listed under the Uyghur Forced Labor Prevention Act;
  • certain battery producing entities specified under Section 154(b) of Public Law 119-31; or
  • entities identified as “foreign-controlled entities” (FCEs) such as i) the governments of the covered nations; ii) an agency or instrumentality of a government of a covered nation; iii) any citizen, national, or resident of a covered nation (unless such person is a citizen or lawful permanent resident of the U.S.); iv) any entity or business unit incorporated or organized under the laws of, or having its principal place of business in a covered nation; and v) any entity “controlled” (generally, owning more than 50 percent of the entity) by any of the foregoing.
  • There is an exception for publicly traded entities, except that i) any exchange or market which is incorporated or organized under the laws of a covered nation or has its principal place of business in a covered nation is excluded from the definition of exchange or market for this purpose, and ii) such entity shall still be deemed to be a FCE if one or more SFE or FCE controls more than 50 percent of such entity.
• FIEs include entities:
  • with respect to which, during the taxable year, a) an SFE has the direct or indirect authority to appoint a covered officer of such entity (i.e., a member of the board, an executive-level officer or an individual having powers or responsibilities similar to those of the foregoing), b) a single SFE owns at least 25 percent of such entity, c) one or more SFEs own in the aggregate at least 40 percent of such entity, or d) at least 15 percent of the debt of such entity is held in the aggregate by one or more SFEs; or
  • which, to the entity’s knowledge during the previous taxable year makes applicable payments (i.e., a payment of dividends, interest, compensation for services, rentals or royalties, guarantees, or any other fixed, determinable amount) to an SFE pursuant to a contract, agreement, or other arrangement under which the SFE (or related person) has effective control over a) any qualified facility or energy storage technology of the taxpayer (or any related person) or b) the extraction, processing, or recycling of any applicable critical mineral or production of an eligible component by the taxpayer (or any related person).
    • The OBBB directs Treasury to issue guidance defining Effective Control but, in the interim, includes the guiding principles outlined below.
    • Effective Control generally means specific authority or exclusivity over key aspects of production of eligible components, energy generation, or energy storage which are not included in the measures of control through authority, ownership, or debt held.
    • Effective Control with respect to a licensing agreement means any such agreement which allows an SFE to i) source components, subcomponents, or applicable critical minerals, ii) direct operations, iii) limit the taxpayer’s utilization of intellectual property, iv) receive royalties or v) direct or otherwise require the taxpayer (or any related party) to enter into an agreement for the provision of services for a duration longer than two years (including any modifications or extensions). In addition, any contract, agreement, or other arrangement which does not provide the licensee with all the technical data, information, and know-how necessary to enable the licensee to produce the eligible component or components subject to the contract, agreement, or other arrangement without further involvement from the contractual counterparty (or related person) or a SFE, or which was entered into or modified after enactment of OBBB, will constitute Effective Control.
      • There is an exception for a bona fide purchase of intellectual property. However, a bona fide purchase or sale would not include any purchase or sale of intellectual property where the agreement provides that ownership of the intellectual property reverts to the contractual counterparty after a period of time.
    • There is an exception for publicly traded entities, however such entity shall still be deemed to be an FIE if i) a SFE has the authority to appoint a covered officer, ii) a single SFE owns more than 25 percent of the publicly traded entity, iii) one or more SFEs own in the aggregate more than 40 percent of the publicly traded entity, or iv) debt in excess of 15 percent of the publicly traded debt of the publicly traded entity has been issued to one or more SFEs.
  • Material Assistance from a PFE:
    • Material Assistance from a PFE applies to Section 45Y, Section 48E, and Section 45X credits and is measured by a “material assistance cost ratio” which determines if the material assistance is less than the applicable “threshold percentage.” The threshold percentages vary as between qualified facilities and energy storage technology, as well as by component type, but generally increase over time.
      • For Section 45Y and Section 48E, for any qualified facility or energy storage technology, the material assistance cost ratio is i) the total direct costs of all manufactured products incorporated into the qualified facility or energy storage technology upon completion of construction minus the total direct costs that are mined, produced, or manufactured by a PFE, divided by ii) the total costs of all manufactured products incorporated into the qualified facility or energy storage technology upon completion of construction.
      • For Section 45X, for any eligible components, the material assistance cost ratio is i) the total direct materials costs that are paid or incurred for production of such eligible components minus the total direct costs that are mined, produced, or manufactured by a PFE, divided by ii) the total direct materials costs that are paid or incurred for production of such eligible components.
      • Treasury is required to issue safe harbor tables by December 31, 2026. Until then, taxpayers may use tables provided in Notice 2025-08 to establish the total direct material cost of any listed eligible component or manufactured product and may rely on supplier certifications that the manufactured product, eligible component, constituent element, material, or subcomponent was not produced or manufactured by a PFE, or setting forth the costs that were not produced or manufactured by a PFE.
      • Costs related to binding written contracts entered into prior to June 16, 2025, may be ignored for this calculation. Additional requirements to do so include that, in the case of a qualified facility or energy storage technology, construction has begun before August 1, 2025, and the asset is placed in service before January 1, 2030 (or January 1, 2028, for wind and solar). For purposes of the Section 45X credit, the constituent element, material or subcomponent must be used in a product sold before January 1, 2030.

Other Notable Changes and Observations

• FEOC Restrictions—Beginning of Construction
  • The OBBB codifies that for purposes of imposing the FEOC restrictions, “Beginning of Construction” for tax purposes is determined pursuant to rules under IRS Notices 2013-29 and 2018-59 (as well as any subsequently issued guidance clarifying, modifying, or updating either Notice), as in effect on January 1, 2025.
• Section 48—Legacy Investment Tax Credit
  • “Energy Property” under Section 48 removed from five-year MACRS depreciation, effective for property beginning construction after December 31, 2024. Legacy energy property definitions survive and qualified facilities/energy storage technology under Sections 45Y and 48E continue to qualify for such treatment, however, so this is unlikely to have significant practical impacts.
  • Terminates perpetual two percent base credit for solar property.
• Section 48E—Clean Electricity Investment Credit
  • Fixes drafting error in IRA—the “applicable percentage” for the domestic content adder is 45 percent for property beginning construction on or after June 16, 2025, 50 percent for property beginning construction in 2026, and 55 percent for property beginning construction in 2027 or later.
  • Adds qualified fuel cell property (regardless of greenhouse gas emissions rate) at flat 30 percent credit for property beginning construction after December 31, 2025. Prevailing wage and apprenticeship rules do not apply.
  • Geothermal heat pumps qualify for credits even if they would otherwise be deemed “limited use property” under true lease rules. This will allow for third party ownership, which to date has been limited due to concerns around eligibility due to the limited use nature of such property.
  • Repeals credit for leased small wind energy property and solar water heating property that would otherwise qualify for the residential credit under Section 25D; leased solar electric property and fuel cells are not subject to this restriction.
  • A new recapture provision is added where 100 percent of the credit is subject to recapture if an “applicable payment” is made to an SFE in the 10-year period following the date on which the relevant property is placed in service.
• Section 45Y—Clean Electricity Production Credit
  • Adds a new category of energy community for advanced nuclear facilities placed in service in metropolitan statistical areas which has (or at any time beginning after December 31, 2009, had) 0.17 percent or greater direct employment related to the advancement of nuclear power.
  • Same restrictions for leasing described above.
• Section 45X—Advanced Manufacturing Production Credit
  • No credit for wind components sold after December 31, 2027.
  • New rules for integrated components sold after December 31, 2026: both the primary (that component which is integrated into another eligible component) and secondary components must be produced within the same manufacturing facility, at least 65 percent of the total direct material costs of the secondary component must be attributable to primary components which are domestically produced and the secondary component must be sold to a third party.
  • Credit for critical minerals, which was previously perpetual, now subject to phasedown schedule. Credit for metallurgical coal added through December 31, 2029.
  • The definition of battery module is modified to require that it include all essential functional equipment, such as current collector assemblies and voltage sense harnesses.
• Section 45Z—Clean Fuel Production Credit
  • Fuel produced must be exclusively derived from a feedstock produced or grown in the U.S., Mexico, or Canada.
  • Any emissions attributed to indirect land use change must be ignored for purposes of calculating lifecycle greenhouse gas emissions and, for fuel derived from animal manure, the Treasury Secretary will derive distinct emissions rates with respect to each of the specified feedstocks used to produce such fuel (i.e., dairy manure, swine manure, poultry manure, and other appropriate sources).
• Section 45Q—Credit for Carbon Oxide Sequestration
  • Modifies the credit value so that all uses of sequestered carbon qualify for an equivalent credit amount.
• Section 6418—Transferability
  • The OBBB does not impose a deadline or expiration with respect to the transfer of credits beyond credit termination; however, credits cannot be transferred to SFEs.
• Section 179D—Energy Efficient Commercial Buildings Deduction
  • Terminates for property beginning construction after June 30, 2026.
• Section 7704—Publicly Traded Partnerships
  • Expands the types of qualifying income for publicly traded partnerships to include income from hydrogen storage, carbon capture (including electricity generation and storage if adequate carbon capture is occurring), the transportation and storage of sustainable aviation fuel, and the operation of advanced nuclear, geothermal and hydropower facilities.

[1] Text - H.R.1 - 119th Congress (2025-2026): One Big Beautiful Bill Act, H.R.1, 119th Cong. (2025), https://www.congress.gov/bill/119th-congress/house-bill/1/text.

[2] Executive Order: Ending Market Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources, July 7, 2025.

[3] All Section references are to the Internal Revenue Code of 1986, as amended.

[4] Under IRA, the Section 45X credit begins to phase out in 2030 when the credit is worth 75 percent, and steps down in 25 percent increments until full termination in 2033; this phase-out schedule only applied to eligible components and not critical minerals.