Senate Proposes Repeal of IRA Energy Credits

TL/DR –

The Senate Finance Committee’s draft of the reconciliation legislation calls for a major cutback in energy credits from the 2022 Inflation Reduction Act (IRA), in line with the House of Representatives’ proposal. The Senate’s plan, however, eases some restrictions, making allowances for certain energy sources like nuclear, geothermal, and hydropower. The proposal also maintains provisions for the clean hydrogen production credit and the carbon oxide sequestration credit.

Simplified Senate Proposal on IRA Energy Credits Reform

The Senate Finance Committee’s draft reconciliation legislation keeps majority of the House-passed provisions to modify the 2022 Inflation Reduction Act’s (IRA) energy credits but eases some limitations.

It proposes substantial cutbacks to the IRA energy credits, such as the elimination of clean vehicle and residential clean energy credits, and ceasing clean electricity credits for wind and solar by 2028. However, it encourages baseload energy sources like nuclear, geothermal, and hydropower by granting these easier access to relevant credits.

The American Action Forum’s primer on the IRA energy provisions provides more details.

Key Differences Between House and Senate Proposals

The Senate proposal differs from the House version in several key ways:

• It removes the beginning of construction restrictions for clean electricity credits, planning to phase out these credits by 2036 for technologies other than wind and solar.
• It provides a more lenient approach for certain energy sources like hydropower, nuclear, and geothermal, and prolongs the expiry of related credits.
• The Senate aligns with the House in repealing all clean vehicle-related credits. However, it plans to terminate these credits within 90 to 180 days after the enactment of the law, unlike the House proposal’s post-2025 deadline.
• While the Senate also plans to repeal wind and solar credits, it provides a transitional period, phasing out clean electricity production and investment credits for them by 2028.

What’s Next For the IRA Energy Credits Reform

The final Senate proposal may include changes to the Senate Finance Committee’s proposal in the repeal of IRA’s energy credits pending lawmakers’ further discussions and negotiations. Lawmakers are progressing toward repealing the IRA energy credits and using the raised revenue to fund the reconciliation legislation.

Table 1. Comparison of IRA Energy Credits Repeals in Current Law, House Proposal, and Senate Proposal

For detailed comparisons of the different provisions, see the source at Evaluating the IRA’s Clean Energy Tax Provisions, Holland & Knight, Senate proposal, Tax Foundation, and author’s analysis.

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