Enacted in August 2022, the Inflation Reduction Act (the “IRA”) expanded energy tax credits by increasing credit amounts across the board and broadening eligibility criteria to include new technologies.

Notably, the IRA allows firms to develop and sell energy tax credits, as outlined here, to advance its goals of reducing emissions while also boosting domestic manufacturing and innovation.

Now, nearly two years later, the fate of these credits remains uncertain as both the House and Senate have proposed sweeping tax changes in the budget reconciliation process that would significantly scale back the IRA’s clean energy incentives.

In our last update, available here, we summarized the House budget bill, which proposed dramatic cuts to these credits across the board despite their popularity in many Republican-led districts. The budget is now under review in the Senate, with the stated (and ambitious) goal of finalizing a tax package by July 4.

On June 16, the Senate released its draft budget bill. While still aimed at ending what it calls “Green New Deal spending,” the Senate takes a more measured approach than the House. Both chambers propose eliminating consumer-facing credits for electric vehicles and home efficiency upgrades. However, the Senate notably relaxes the eligibility timeline for the tech-neutral investment tax credit (“ITC”) and production tax credit (“PTC”), opting instead to phase out wind and solar projects that begin construction in 2026. By contrast, the House would require projects to begin construction within 60 days of the bill’s enactment—a tight timeline that drew backlash from investors who had expected these credits to be available much longer.

Because many of the proposed changes wouldn’t take effect until after 2025, credit sales will likely continue through the end of the year, especially as buyers gain a clearer picture of their tax positions. The recent slowdown appears driven by uncertainty over potential cuts, so greater clarity alone may be enough to restore confidence in the market, at least for now.

The Senate draft is expected to undergo further revisions in the coming weeks, with the goal of finalizing the budget in July. Still, it remains to be seen how far a Republican Congress is willing to go in dialing back provisions that remain broadly popular with constituents, especially given the billions of dollars already invested in these clean energy projects.

We will continue to monitor developments and provide updates in Brass Tax as the landscape continues to evolve.