TL/DR –
President Trump’s “big, beautiful” law repeals many clean-energy tax credits in the US but leaves behind a prohibitive complexity that may render them useless for energy project developers and manufacturers. A provision in the law aims to prevent Chinese companies and individuals from benefiting from these tax credits, but this could ironically undermine US efforts to compete with China in industries that will be most affected by these requirements. The law preserved tax credits for developers of grid-scale battery, geothermal, and nuclear energy projects as well as companies manufacturing batteries, solar panels, and critical minerals in the US until the 2030s, subject to provision compliance.
Trump’s “Big, Beautiful” Law Threatens Clean Energy Tax Credits
President Trump’s new law revokes several US clean-energy tax credits, leaving those that remain troublesome for developers and manufacturers due to complexity.
Impact of the Provision on Foreign Entities of Concern (FEOC)
The law contains a provision aimed at restricting Chinese beneficiaries from these tax credits. The complex FEOC provisions could ironically undermine USA’s competition with China in many industries which are profoundly affected by the requirements.
FEOC Provisions Could Prove Burdensome
The impact of FEOC rules will notably affect grid-scale battery, geothermal, nuclear energy developers as well as companies involved in the production of batteries, solar panels, and crucial minerals in the US.
Complexity and Timing of FEOC Provisions
FEOC provisions in the bill passed are less stringent than the House version. But the complexity creates fear that the Treasury Department will take long to finalize compliance rules, with a deadline set for the end of 2026.
FEOC Restrictions for Electric Vehicle Batteries
During Biden’s term, the department took a year and a half to create rules for a narrower set of FEOC restrictions for electric vehicle batteries under the Inflation Reduction Act. It’s unlikely that the department will finalize rules for these broad restrictions promptly.
Industry Risks and Challenges
Without clear guidance, it becomes risky for companies to claim tax credits, posing greater risk for investors financing clean-energy projects and factories by purchasing these credits to offset their tax bills. They face the risk of having their tax credits revoked if found violating the upcoming rules.
Bill’s Impact on Clean Energy Projects and Factories
The uncertainty threatens to freeze investment plans in clean-energy projects and factories worth hundreds of billions of dollars. It could also cause chaos for existing projects built under the assumption they could access Inflation Reduction Act tax incentives.
Compliance Challenges with FEOC Rules
It’s unclear whether every company will find alternative suppliers complying with FEOC rules. Some energy developments and factories may still make economic sense without tax credits, but many won’t.
Impact of “Material Assistance” Rules
The “material assistance” rules effective next year pose a challenge for firms. Under these rules, projects claiming tax credits must have an increasing proportion of materials from companies and sources not linked to FEOC.
Challenges for Manufacturers Seeking Credits
For manufacturers seeking credits under the Inflation Reduction Act’s 45X program, proving they’ve met thresholds will be difficult. Manufacturers of lithium-ion batteries, for instance, need to rise their proportions from 60% in 2026 to 85% in 2030.
Understanding the Bill’s Calculations
The high-level description of how to go through the calculation is unclear, with only a passing reference to existing domestic-content “safe harbor” guidance for solar, wind, and battery projects.
Industry’s Preparations for New Rules
Spencer Pederson, senior vice president of public affairs for the National Electrical Manufacturers Association (NEMA), highlighted the work that the organization and its members have taken to comply with existing “Build America, Buy America” rules set by the 2021 Infrastructure Investment and Jobs Act, which could help companies prepare to comply with the FEOC rules set to emerge from the Treasury Department.
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