Canary Media reports on the proposed restrictions in the House Republicans' tax bill that could gut clean energy tax credits and put hundreds of billions of dollars in investment at risk. United's Harry Godfrey cautioned that the bill's "fundamentally unworkable" rules would create uncertainty, deterring investors, halting projects, and derailing domestic clean energy growth.
Tucked into the House Republicans’ 389-page tax bill released on Monday is a poison pill for U.S. clean energy developers and manufacturers, one that energy and tax policy experts say would essentially repeal the hundreds of billions of dollars of tax credits now flowing to energy projects and solar, battery, and EV factories across the country.
The provision at issue prohibits tax credits for any project associated with “foreign entities of concern,” a category that includes companies and individuals linked to China as well as any “material assistance” from Chinese companies, their subsidiaries, or even non-Chinese companies that happen to have executives who are Chinese citizens. Its scope is so sweeping, and China’s dominance of clean-energy supply chains so vast, that virtually all clean power projects or factories being built today could be implicated.
If passed into law, this piece of the House Ways and Means Committee proposal would undermine investor confidence in financing the buildout of new clean-energy projects and factories, experts say. It could also erode the tax-credit eligibility of solar, wind, battery, geothermal, nuclear, and other zero-carbon energy developments under construction, and the eligibility of factories that are already online and churning out batteries, solar panels, and other clean energy products.
The finer points of foreign entities of concern
The combined effects will be to choke off investment in new electricity generation capacity that the U.S. desperately needs to meet growing demand for power, while simultaneously undermining efforts to build up a domestic supply chain for industries now dominated by China, said Harry Godfrey, head of the federal investment and manufacturing working group of trade organization Advanced Energy United.
“The industry has shown over the past couple of years that there’s a real dedication to making as much of this content as possible in America, all the way down the supply chain,” he said.
But the FEOC rules in the bill are “fundamentally unworkable,” he said. “What you will get as a result of this is not just folks who fall out of compliance, but folks who look at it and say, ‘I don’t want to approach it for the downside risk of unwittingly falling out of compliance, given the complexity of it.’ It just serves to chill investment.”
An economic and climate wrecking ball
The combination of FEOC restrictions, accelerated cutoffs for claiming tax credits, and other changes proposed by the House Ways and Means bill — including ending tax-credit transferability rules that have expanded investment in clean energy — will equate to a full repeal of the Inflation Reduction Act tax credits, according to a Tuesday report from research firm Rhodium Group.
In December, the firm modeled the effect of a full repeal, and the results were stark.
Doing away with the climate law would raise energy costs for American households by as much as 7% in 2035, “stifle energy technology innovation,” increase greenhouse gas emissions — and potentially put “half a trillion dollars of new manufacturing, industrial, and clean electricity investments across the country at risk,” Rhodium researchers wrote in this week’s report.
In fact, the profound uncertainty introduced by the FEOC restrictions could do more harm than simply putting tax credits out of reach of future projects, said Ben King, an associate director at Rhodium Group. The firm’s December forecasts presumed that already-announced projects set for completion in the next two years or so would get built.
But the FEOC rules are so aggressive they “may bring to a screeching halt what’s already been announced,” King said.
That would not only result in lost investment dollars and jobs but also make it harder for utilities nationwide to meet surging power demand.
Energy industry analysts, energy project developers, and major manufacturers of gas turbines agree that renewables and batteries are the only additional energy projects that will be able to get built over the coming years. Manufacturing capacity for new gas turbines is maxed out with orders from projects that are already on the books.
“For the next five years or so, the only thing you can build that’s not already contracted is wind, solar, and batteries,” King said. “Certainly there are places where wind and solar pencil out independent of the tax credit. Even in our modeling, with full repeal, you still see hundreds of gigawatts of wind, solar, and batteries. But that level of growth is neither sufficient for meeting the near-term demand growth we’re seeing on the grid, or for the energy transition that folks still may be thinking about.”
Advanced geothermal and nuclear power plants, which have greater support from the Trump administration and Republicans but which are further out in terms of readiness to be built at large scale, may also be threatened. These zero-carbon energy resources are eligible alongside solar and wind power for the “technology-neutral” 45Y and 48E tax credits, which replaced longstanding technology-specific tax credits at the start of this year and which are subject to some of the stricter FEOC restrictions proposed in the tax bill, Lee said.
“Given the difficulty of even building a geothermal plant without using a single Chinese-made part, I feel like FEOC criteria this strict are essentially just repealing the 45Y/48Ecredits in full,” Seaver Wang, director of climate and energy at The Breakthrough Institute, a think tank that supports nuclear and geothermal power, wrote in a Monday X post.
Jigar Shah, a clean energy investor and former head of the Biden administration’s clean energy Loan Programs Office, weighed in with a Thursday X post that “[t]here are a lot of ways to implement a phase out to maintain affordability, electricity abundance to power AI, and achieve budget savings. None of that nuance is in the House Bill draft.”
The Ways and Means Committee bill is one of a number of legislative proposals being worked out by House committees this week in advance of plans to introduce a budget reconciliation bill this month. Republicans have proposed deep cuts in Medicaid and food assistance programs in order to extend tax cuts that will primarily benefit wealthy individuals and corporations and add trillions of dollars in federal deficits. That makes the tax credits a tempting target since repealing them could reduce federal spending by hundreds of billions of dollars.
“This is of course just the opening salvo for negotiations,” Wang wrote on X. “I can already imagine these Foreign Entity of Concern rules will rightly get a lot of pushback. Hard to see how they could even be effectively enforced.”
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