The Senate Finance Committee released its draft legislation of the reconciliation bill on Monday and, although the main structure of the bill remains the same as the house version, there are some notable differences in some of its energy provisions. Unfortunately, some of these differences are steps backward in that they replace the House bill’s strict repeals with softer language that allows companies to keep receiving tax credits past the end of President Trump’s time in office. Preventing these draft changes from being included in the final version of the bill will be crucial for ending the threat these green energy tax credits pose to grid reliability.
While the House version of the bill imposed strict deadlines for when green energy projects had to “commence construction” (within 60 days of the bill’s enactment) and be placed in service (by the end of 2028) to receive tax credits, the Senate’s version allows wind and solar firms to remain eligible for tax credits until 2031 if they begin construction before 2027, thanks to a four-year safe harbor for construction. Since the production tax credit (PTC) allows firms to continue receiving subsidies for 10 years after being placed in service, wind and solar projects can collect subsidies from 2030-2040, over a decade after President Trump’s term ends.
Allowing companies to continue utilizing the PTC for solar and wind projects threatens grid stability by keeping solar and wind in business despite their inferiority to reliable sources. With more funds available to these projects, they can spend more on lobbying efforts to convince Congress to extend the tax credits, continuing the cycle of expiration and reinstatement that have made the so-called “phase-out” of subsidies nothing more than a fallacy.
Furthermore, the Senate bill also maintains tax credits for “clean” energy sources besides wind and solar — such as geothermal, hydro, nuclear, and battery storage — based on the phase-out structure of the IRA. In contrast, the House version treated all of these sources (besides nuclear) the same. Even though these sources do not have the same intermittency problem as wind and solar, giving taxpayer dollars to sources that are unproven at scale keeps the government in the business of picking winners and losers while crowding out private investment.
Another questionable change in the bill is the loosening of the definition of what it means for a company to be foreign-influenced, increasing the threshold for foreign ownership to 25% of an individual company from 10% in the House bill. This change could increase the number of energy projects that receive subsidies as the bill prohibits facilities that receive “material assistance from a prohibited foreign entity” from taking advantage of the tax credits. For instance, a facility that received material assistance from a company that is 15% foreign-owned could qualify for tax credits under the Senate bill, but not the House version.
When considering China’s outsized share of production for the technology needed for green energy, this distinction could have consequences for national security as fewer companies will be designated as Chinese-influenced — especially given recent reports about rogue communication devices in Chinese solar power inverters.
Although there are some improvements in the Senate bill — notably, the Senate version ends tax credits for electric vehicles 180 days after the bill’s passage, while the House version extended the program by one year for automakers that have sold under 200,000 eligible vehicles — the continuation of Inflation Reduction Act (IRA) tax credits past the end of President Trump’s term should be a redline that Republicans refuse to cross. Fortunately, the Senate’s version will not garner the approval of fiscal hawks; Sen. Ron Johnson (R-WI) has criticized the bill for failing to address the deficit and Rep. Chip Roy (R-TX) stated explicitly that he would not vote for the bill because of the tax credits’ extension.
As Congress makes crucial decisions about what to include in the final bill over the next few days, Republicans need to remember that fully slashing IRA subsidies provides the most reasonable path forward to enacting President Trump’s tax cuts without ballooning the deficit. Failure to do so will delay the bill past the July 4 deadline, further pushing back the day that the IRA’s grid-destroying subsidies are eliminated.