Congress needs to do more to address the IRA energy tax credits

Many of the Inflation Reduction Act (IRA) tax credit reforms that exist in the House version of the One Big Beautiful Bill Act comes through early phaseouts of these credits instead of immediate repeal.

A 2025 study by the Cato Institute found that the IRA energy subsidies could cost up to $4.7 trillion by 2050. Of these provisions, the ones that were likely to cost the most in the long run were the Clean Electricity Investment Tax Credit and Clean Electricity Production Tax Credit. These credits were initially not set to expire until the later of a certain emissions threshold or 2032. As the threshold will not be reached for quite some time, if ever, this is essentially an uncapped subsidy. Under the House version of the reconciliation bill, these credits will begin phasing down in 2029 and phase out by 2032. In 2029, they will be 80 percent of their current level, then 60 percent in 2030, 40 percent in 2031, and 0 percent after December 31, 2032.

The bill also phases out the 45X Manufacturing Credit by December 31, 2031, and restricts it from applying to foreign entities two years after the bill’s enactment.

Phasing out tax credits simply kicks the can down the road, allowing dependency on the credits to grow and market distortions to continue. There is also a risk that these credits will be extended later, as we point out in a recent CEI report:

Further, half-measures like phasing out the subsidies are unacceptable in part because the subsidies may never actually get repealed. They will just stick around until they can be extended. Such an approach also continues and increases the dependency on the subsidies, making it harder to get rid of them due to special interests becoming even more invested in defending them.

A recent piece from the Institute for Energy Research makes a similar argument:

Time and again, subsidy mechanisms like tax credits and production mandates are introduced with specific expiration dates or phase-down schedules, framed as temporary boosts for nascent technologies or short-term solutions to specific problems. Yet, history shows these policies are not temporary, with Congress granting “temporary” extensions year after year after year.

Leaving these credits in place for several more years runs the risk of them never truly going away. Phasing out these credits isn’t undoing the Green New Deal. It may or may not be a small step forward, but regardless, it isn’t nearly what is needed.

The House bill does terminate several IRA energy credits, including some related to cars and homes at the end of this year. The car credits provisions that will be terminated are the: Clean Vehicle Credit, Previously Owned Clean Vehicle Credit, Qualified Commercial Clean Vehicles Credit, Alternative Fuel Vehicle Refueling Property Credit.

The home related credits that will be terminated are the Energy Efficient Home Improvement Credit, Residential Clean Energy Credit, and the Energy Efficient Home Credit.

The House took some first steps in addressing these tax credits, but much more still needs to be done. If Republicans genuinely want to kill off the Green New Deal and advance sound energy policy, the Senate should go much further than the House and terminate these credits as opposed to merely phasing them out.

Ultimately, full repeal of the IRA’s energy provisions will be necessary to repair the damage that’s been done to our energy policy and to stop the costly spending.