The U.S. House of Representatives is working to finalize its version of a massive tax and spending bill that Republicans hope to enact on a party-line vote in the coming months. The tax and energy components of the draft include material changes to energy tax incentives, grant programs, and permitting processes, many of which were enacted or modified by the Inflation Reduction Act (IRA) of 2022 to encourage the expansion of green energy investment and production.

Some energy segments fare better than others in the tax title of the House draft. But overall, the changes (outlined below) will negatively impact the development of renewable energy projects in the U.S. Electric vehicle manufacturers and buyers are hard hit by the early termination of popular consumer credits. The solar energy sector will lose a tax credit incentivizing the purchase of solar panels by homeowners, and both solar and battery manufacturers could lose access to key manufacturing credits well before their termination date if they use components or critical minerals imported from certain foreign countries, including China. Another provision accelerates the phase-out of a tax credit for the production of nuclear power to 2032 – earlier than any new projects are expected to come online. That is bad news for technology companies investing in nuclear plants that could provide clean power to meet the needs of high-energy-demand data centers. Oil and gas companies that have invested in green energy might also be disadvantaged by that change and by early termination of the tax credit for hydrogen production. Utilities developing renewable energy say that proposed limits on the transferability of certain tax credits will result in higher customer bills. And foreign investors in U.S. green energy facilities could be impacted by provisions that restrict access to certain credits by entities from foreign adversary nations.

The energy title of the House draft would rescind over $3 billion in unobligated funds from IRA programs under the Department of Energy’s (DOE) State-Based Energy Efficiency Grants and other DOE offices. But it includes several provisions intended to accelerate the permitting process for energy infrastructure projects in the U.S., including a provision to fast-track permitting for certain fossil fuel and pipeline project applicants for a fee equivalent to the lesser of 1 percent of the expected cost of the applicable construction or $10 million. And it includes a provision to fast track the export of natural gas from the U.S. to non-free trade agreement (FTA) countries or to import natural gas from a non-FTA country for a $1 million application fee.

Another provision in the natural resources title of the bill would attempt to streamline federal permitting for U.S. infrastructure projects, including energy projects. That language would allow entities seeking National Environmental Policy Act (NEPA) review to pay for the cost of the required environmental impact statement (EIS) or environmental assessment (EA) plus an additional 25 percent for a guaranteed completion of the review process within six months (for an EA) or a year (for an EIS). The EIS or EA would not be subject to judicial review under NEPA.

The House will amend the draft, including provisions relating to IRA tax credits, before voting on it. And the Senate almost certainly will make additional changes when the bill goes to that chamber for consideration. Barnes and Thornburg’s Government Relations team can provide regular legislative updates to help guide impacted clients’ business planning and assist with strategic engagement in the legislative process.

Inflation Reduction Act Energy Tax Credits and Changes Incorporated in the House Draft Bill

Among other things, the IRA extended and modified certain previously existing energy tax credits, created new green energy tax credits and incentives, and established funding programs designed to increase the production of clean energy, electric vehicles (EVs), clean buildings, and clean manufacturing.

The House draft bill would change the following green energy tax incentives (for details on the listed tax credits, please see the attached document):