Senate Draft Reveals Changes to IRA Tax Benefits in 2025 Bill
TL/DR –
The draft Reconciliation Bill is expected to undergo further modifications by the Senate to ensure compliance with the Byrd Rule for the reconciliation process and to gain enough support for passage in the Senate. The Senate also aims to include any additional modifications required for majority support in the House to avoid repeated voting. Some notable changes in the Bill relate to technology-neutral tax credits, which will start phasing down for any facility beginning construction in the next calendar year, and the credit for carbon oxide sequestration, which will rise from $60 to $85 per metric ton under certain conditions.
The draft Reconciliation Bill is bound for Senate modification to meet the “Byrd Rule” and ensure Senate passage via a simple majority. The Senate aims to include any further changes required for House majority support, thus avoiding repeated voting. Over the coming weeks, negotiations and revisions to the Reconciliation Bill are anticipated. The clean energy industry is urged to engage with legislators and convey their views on this proposed legislation and the resulting economic impact.
A detailed summary of the Senate version of the Reconciliation Bill is not provided here, but some notable changes regarding IRA tax benefits in comparison to the House version are highlighted. These changes are discussed in greater detail here and here.
Senate’s Improvements and Changes
The SFC draft significantly revises technology neutral tax credits phase down (Sections 45Y and 48E). It retains a “beginning of construction” threshold and starts the phase down in 2032. This excludes wind and solar projects, which will start phasing down for facilities beginning construction next year.
Section 45Q, the carbon oxide sequestration credit, sees credit value parity for CO2 captured and used for commercial purposes or in oil or gas recovery projects, provided certain wage and apprenticeship requirements are met.
Mixed Bag – “Prohibited Foreign Entities” / “FEOCs”
The SFC draft adds updates and clarifications to the House’s “prohibited foreign entity” rules. However, the effectiveness of these changes is uncertain. Despite improvements, these provisions are likely to increase work for energy industry tax lawyers and create administrative challenges.
The SFC proposal also retains the denial of credits for facilities or components receiving “material assistance from a prohibited foreign entity.” It modifies the definition of material assistance to be tied to a cost ratio.
The SFC proposal also prohibits “specified foreign entities” from acquiring certain IRA tax benefits under Section 6418.
Senate Changes in Comparison to House
The SFC draft introduces new penalties and extends the statute of limitations for renewable energy credits. Furthermore, it corrects a technical error found in the technology neutral investment tax credit (Section 48E) related to the domestic content bonus credit’s adjusted percentage for manufactured products.
Mostly Status Quo as Compared to the House
Like the House draft, the SFC draft terminates tax credits for residential solar, energy efficiency, electric vehicles, and charging equipment in the near term. Similarly, the hydrogen tax credit under Section 45V would end for facilities beginning construction after December 31, 2025.
Under the SFC draft, the Section 45U zero-emission nuclear power production credit now expires after 2032 but includes prohibitions on feedstock produced in a “covered nation” or by a “covered entity” for any taxable year beginning after December 31, 2027.
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