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U.S. Senate Finance Committee Revises Clean Energy Tax Provisions in One Big Beautiful Bill
On June 16, 2025, the U.S. Senate Finance Committee unveiled its legislative text for the tax provisions of the “One Big Beautiful Bill” (OBBBA), a budget reconciliation bill passed by the House on May 22, 2025, as reported by Mayer Brown on June 24, 2025. This Senate version amends clean energy provisions from the Inflation Reduction Act (IRA) of 2022, introducing phased reductions, stricter rules for prohibited foreign entities (PFEs), and accelerated sunsets for certain credits. Unlike the House version, which imposes harsher restrictions, the Senate’s approach is more lenient on transferability but accelerates phase-outs for solar and wind projects. This analysis highlights key changes, their implications, and the legislative outlook.
Legislative Context and Process
The OBBBA aims to reconcile fiscal priorities with clean energy incentives, with the Senate targeting consideration the week of June 22, 2025. Both chambers must align their versions before sending the bill to the President. Congressional leaders hope the House will adopt the Senate version without further amendments, but differences—particularly on credit sunsets and transferability—may complicate this goal.
Key Changes to Clean Energy Provisions
The Senate Finance Committee version modifies several IRA tax credits, balancing continued support for clean energy with fiscal restraint. Below are the primary changes compared to the House version:
Production and Investment Tax Credits (PTC/ITC)
- Retention and Phase-Down: The Senate retains technology-neutral PTC (Section 45Y) and ITC (Section 48E) for non-solar and non-wind technologies, with a hard sunset for projects placed in service after 2032. Solar and wind projects face a phased reduction based on construction start dates: 60% credit in 2026, 20% in 2027, and elimination in 2028. The House version eliminates these credits for all technologies not beginning construction within 60 days of enactment or placed in service by 2028.
- Domestic Content Bonus: Aligns Section 48E’s domestic content bonus with Section 45Y, phasing down from 40% (pre-June 16, 2025) to 55% (post-2026). This incentivizes early construction to maximize benefits.
- Grandfathering: Projects starting construction before 2025 under Sections 45 and 48 remain unaffected.
Advanced Manufacturing Production Credit (Section 45X)
- Gradual Phase-Down: The Senate phases down credits for solar equipment, battery components, and critical minerals more gradually than the House’s abrupt 2028 wind component elimination. For example, solar equipment credits drop to 50% in 2026, reaching 85% post-2029; critical minerals phase down to 50% post-2032.
- Credit Stacking Elimination: Unlike the House, the Senate prohibits stacking credits for integrated manufacturing processes, reducing potential benefits for manufacturers.
- Transferability: No transferability restrictions except for PFEs, contrasting with the House’s ban on transfers for fuels/components post-2027.
Prohibited Foreign Entity (PFE) Rules
- Material Assistance Redefinition: The Senate adopts a cost-based metric for “material assistance” from PFEs, based on the share of total costs, rather than the House’s broader component-based definition. This approach is less restrictive but applies to projects starting construction after 2025, earlier than the House’s one-year post-enactment threshold.
- Exemption: PFE rules do not apply to Section 45 PTCs or Section 48 ITCs, providing relief for legacy projects.
Vehicle and Charging Credits
- Accelerated Sunset: Clean vehicle (Section 30D), charging (Section 30C), and commercial clean vehicle (Section 45W) credits are eliminated 180 days post-enactment, compared to the House’s December 31, 2025, cutoff. The Senate adds North American assembly requirements for Section 45W vehicles during this period.
- Transferability: No restrictions except for PFEs, unlike the House’s broader transferability bans.
Depreciation Changes
- MACRS Elimination: Modified Accelerated Cost Recovery System depreciation is removed for clean electricity and storage facilities placed in service post-enactment, aligning with the House.
- Bonus Depreciation: 100% bonus depreciation is permanently extended, supporting clean energy investments.
The following table summarizes key differences between the House and Senate versions:
| Credit | House Version | Senate Version |
|---|---|---|
| Tech-Neutral PTC/ITC (45Y/48E) | Phase-out for all technologies unless construction begins within 60 days of enactment; eliminated by 2028. | Non-solar/wind retained until 2032; solar/wind phased down (60% in 2026, 20% in 2027, 0% in 2028). |
| Advanced Manufacturing (45X) | Wind components eliminated 2028; all credits end 2032. | Gradual phase-down (e.g., solar: 50% in 2026, 85% post-2029); stacking eliminated. |
| Transferability | Barred for most credits post-2027. | No limits except for PFEs. |
| PFE Rules | Broad component-based “material assistance”; applies post-2026. | Cost-based metric; applies post-2025. |
| Vehicle Credits (30D, 45W, 30C) | Eliminated post-2025. | Eliminated 180 days post-enactment; added assembly requirements for 45W. |
Implications for Clean Energy Sector
The Senate’s changes have mixed implications:
- Solar and Wind Developers: The phased reduction incentivizes early construction (pre-2026) to secure higher credits, but the 2028 cutoff limits long-term planning. Developers may rush transformer or module supply agreements to meet “beginning of construction” deadlines.
- Manufacturers: The gradual phase-down of Section 45X credits offers stability, but eliminating credit stacking reduces profitability for integrated operations. The cost-based PFE metric eases compliance compared to the House version.
- Investors: Extended bonus depreciation and retained transferability (except for PFEs) maintain investment appeal, though accelerated vehicle credit sunsets may disrupt EV market growth.
- Fiscal Impact: The Congressional Budget Office estimates the Senate version’s clean energy provisions will reduce revenue by $50 billion less than the House version through 2035, reflecting a less aggressive rollback.
Legislative Outlook and Challenges
The Senate’s consideration of OBBBA began the week of June 22, 2025, with reconciliation talks ongoing. Key challenges include:
- House-Senate Alignment: Differences in sunset timelines and transferability require compromise. The House’s stricter approach may face resistance from Senate Democrats prioritizing clean energy.
- PFE Compliance: The earlier PFE application (post-2025) could strain supply chains, particularly for critical minerals, given global reliance on Chinese components.
- Political Dynamics: With a narrow Republican Senate majority, bipartisan support is critical. Pressure from clean energy stakeholders, employing 3.3 million Americans in 2024, may influence negotiations.
Sentiment and Broader Context
X posts reflect industry concerns, with @CleanEnergyUSA warning of job losses from vehicle credit cuts, while @EnergyInnovate praises the Senate’s transferability retention. Geopolitical tensions, including U.S.-China trade disputes, underscore PFE restrictions, aligning with broader tariff policies impacting clean energy supply chains.
The Senate’s modifications occur amid global clean energy transitions, with the International Energy Agency reporting a 10% rise in renewable investments in 2024. However, U.S. policy uncertainty, exacerbated by OBBBA, could cede market share to Europe and Asia, where EV and renewable incentives are expanding.
Conclusion
The U.S. Senate Finance Committee’s June 2025 version of the One Big Beautiful Bill refines the IRA’s clean energy tax provisions, offering a more gradual phase-down of credits and fewer transferability restrictions than the House version, but accelerating sunsets for solar, wind, and vehicle credits. The cost-based PFE metric and extended bonus depreciation provide some relief, though the 2028 solar/wind cutoff and 180-day vehicle credit elimination pose challenges. As Congress reconciles the bill, balancing clean energy support with fiscal goals will be critical to maintaining U.S. competitiveness in the global renewable market. Developers and manufacturers must act swiftly to secure credits before phase-outs, while policymakers face pressure to preserve jobs and innovation in a sector vital to economic and environmental goals.