A Republican tax plan seeking to cut clean-energy subsidies includes provisions that threaten to cripple the incentives before they even end.
Little-noticed restrictions in the legislation would disqualify companies from claiming key tax credits if they use components, “subcomponents” or critical minerals imported from nations including China, Russia and North Korea.
Because much of the U.S. solar and battery industry relies on materials from China, critical manufacturing credits would be unusable well before their official sunset date. The new rules also apply to credits for nuclear, carbon capture, geothermal, heat pumps and biofuels.
The move would constitute “a complete death” for energy projects that rely on complex, global supply chains for solar cells, magnets, batteries and other materials, said Sandhya Ganapathy, chief executive officer for EDP Renewables North America.
The legislation seeks to fund an extension of President Donald Trump’s tax cuts by rolling back $560 billion in spending on energy tax credits from President Joe Biden’s climate law. It’s slated for a vote before the Memorial Day recess at the end of next week. If passed, the legislation would head to the Senate, where Republicans plan to amend it.
At a minimum, the foreign-entity rules “could create a cloud of uncertainty around project supply chains until the IRS issues clarifying guidance and could slow new project development,” Evercore Group L.L.C wrote in a research note Tuesday.
The foreign-entity restrictions along with two other tweaks limiting the energy tax credits drew a rebuke from a group of 13 moderate House Republicans, who said they wanted leaders in the chamber to make changes to the bill. They stopped short, however, of saying they wouldn’t support the measure.
“While many of these provisions reflect a commitment to American energy dominance through an all-of-the-above energy strategy, we must ensure certainty for current and future energy investments to meet the nation’s growing power demand and protect our constituents from higher energy costs,” the group said in a statement, led by Representative Jen Kiggans from Virginia.
The lawmakers also called for changes in the GOP tax plan to shift when the credits begin to phase down, using a “placed in service” standard instead of the start of construction. Analysts say the latter would limit the number of projects that could qualify and could amount to a retroactive tax for some projects that are already being built.
The lawmakers also said the bill should be amended to give sponsors of clean-energy projects longer than two years to sell the tax credits.
The Internal Revenue Service, under the Trump administration, may not be in a hurry to issue rules explaining how to comply with the law, said Jesse Jenkins, an assistant professor at Princeton University who specializes in energy and environmental issues.
“That alone could be the kiss of death for these projects,” Jenkins said in an interview. “It would be pretty devastating for the manufacturing renaissance we are seeing.”
