Beginning last week with the House Natural Resources Committee and this week, other committees, particularly Ways and Means and Energy and Commerce, have now released their reconciliation text. With marathon markup sessions in full swing, these draft bills telegraph the direction of the reconciliation process and the negotiating points for the House Republicans. There are significant factions that are militating against many of these provisions, not least the SALT Republicans and the IRA Republicans in the House and the Senate Republicans, whose priorities will dramatically reshape these IRA provisions. 

It is worthwhile to understand the starting point for these negotiations. These bills would restore and make permanent many of the provisions of the Tax Cuts and Jobs Act, Trump’s signature 2017 tax bill. They would also rescind many of the Inflation Reduction Act’s clean energy tax credits. Importantly, and as recommended by C3 Solutions EVP Nick Loris and Abundance Institute Fellow Josh Smith, the bill reinstates immediate expensing for research and development expenses and certain qualifying property expenses, such as factories.

Among the provisions in the Ways and Means bill, the expiration of many of the tax credits for climate and clean energy priorities of the Inflation Reduction Act has been accelerated. Analysis from the American Action Forum indicates that about 60 percent of the IRA energy tax credits are pared back. This notably includes the tax credits for electric vehicles (EVs), which will expire at the end of this year, except for those manufacturers who have sold less than 200,000 EVs. Those auto manufacturers will be eligible for the tax credit until 2026.

Other tax credits that would be repealed include the residential energy efficiency credits and clean hydrogen production credits, but credits for gas, oil, and hydrogen pipelines remain intact. There are also phaseouts for the well-known clean electricity production tax credit and investment tax credit (the PTC and ITC, respectively), the credit for nuclear power production, and the advanced manufacturing tax credit. Additionally, the PTC and the ITC have been modified so that eligibility is based on when a facility enters service, rather than when construction begins. This represents a substantial curtailment of PTC and ITC eligibility and poses a challenge for long construction-time projects such as nuclear power plants. 

Additionally, the bill would make two key changes across these measures. First, it would repeal transferability. Transferability currently allows a party that is eligible for a tax credit but unable to use it, such as a business that has not yet generated taxable income, to transfer the credit to another party. This transfer or sale of the tax credits allows companies, particularly small and innovative companies that have not yet achieved sales, to benefit from the tax credits. 

Second, the bill introduces new restrictions on taxpayers who have ties to foreign entities of concern (FEOC) or do business with FEOC, including some supply chain considerations. These provisions could decrease the utilization of some of these tax credits but could serve to nearshore or friend shore certain critical supply chains.

Though not touching on the tax credits, there are a number of energy and environment-relevant provisions in the Energy and Commerce (E&C) reconciliation bill. The bill includes the rescission and repeal of many IRA programs, notably including unobligated IRA funding for the DOE Loan Program Office, the advanced vehicle manufacturing program, and the energy reinvestment financing program. Additionally, the E&C bill makes changes representing excellent steps in the right direction for permitting certain projects. The bill includes a new fee for natural gas exports, which would deem the export in the public interest. It includes two provisions for a $10 million fee for expedited permitting under the Natural Gas Act and a fee of the same amount for expedited permitting for natural gas, oil, and hydrogen pipelines. The bill also creates a compensation program for federally permitted energy projects called the “De-Risking Compensation Program,” which sponsors can opt into. Fees are 5 percent of the sponsor’s projected share of capital and an annual premium. If the sponsor experiences unrecoverable losses due to federal action, the program can compensate the sponsor for the full amount of the loss from available funds. 

Finally, the bill also makes available a streamlined pathway for cross-border energy infrastructure based on a bill introduced by Rep. Fedorchak (R-ND). In the second title of the E&C bill, a large number of environmental and Clean Air Act regulations enacted in the IRA and under the Biden administration are repealed, and the funds rescinded, including the Greenhouse Gas Fund, which the EPA has sought to claw back in recent months. 

One note about the Natural Resources bill includes a provision to allow for project sponsors to pay 125 percent of the costs associated with preparing and issuing an environmental permit to be guaranteed permitting timelines and, importantly, exemption from litigation under NEPA. These projects would still be eligible for litigation under other environmental laws, such as the Clean Water Act. This is not a panacea for permitting challenges, but it represents a bold step towards a new approach. 

As has been widely reported, these bills are only the first drafts of what will be further negotiated, particularly in the Senate, where each provision will be subject to the Byrd rule. This rule bars any extraneous measures from being included in reconciliation, including those with only “incidental” budgetary provisions. Notwithstanding the Byrd-rule dynamics, there are many different attitudes in the Senate about the House bills, not least being Sen. Cramer’s vocal support for tax credits and Sen Johnson’s prediction that the “One Big Beautiful Bill” is doomed in the Senate. While the fate of House’s reconciliation package remains indeterminate, House Republicans have put forward a bold proposal which takes aim at the signature provisions of the IRA and makes permanent Trump’s signature tax law. 

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.