Tax and energy policy experts agree that while the One Big Beautiful Bill Act (OBBBA), will slow clean energy deployment, market forces and key remaining incentives will nonetheless contribute to growth in the sector.
Administrative Challenges
The National Tax Association held a panel November 12 analyzing the effects of the OBBBA on clean energy tax policy. The 2025 budget reconciliation law repealed or modified many of the tax credits established by the Inflation Reduction Act (IRA), particularly programs supporting wind and solar projects.
Alex Muresianu, senior policy analyst at the Tax Foundation, clarified that the law not only repealed most consumer-facing credits and curtailed flagship business credits like the Production Tax Credit (PTC) and Investment Tax Credit (ITC) for new wind and solar projects, it also complicated others. The credits “that remain have gotten a lot more complex,” he said.
The most pressing administrative challenge stems from stricter Foreign Entity of Concern (FEOC) rules, which are designed to prevent entities tied to certain countries like China and Russia from reaping the benefits of the federal subsidies. Lesley Hunter, senior vice president of policy and engagement at the American Council on Renewable Energy, explained that these provisions create major hurdles for the industry. The restrictions are multi-layered, applying not only at the taxpayer level, but also down to the “component, subcomponent, and critical minerals levels.”
Consequently, some domestic companies may be “unintentionally classified as foreign or prohibited foreign entities,” Hunter warned. The industry awaits guidance from the Treasury Department to navigate the new FEOC rules, which take effect in 2026. Hunter stressed the need for near-term guidance to provide clarity before the official, and more time-consuming, rulemaking process concludes.
Preservation of Transferability and Direct Pay
The panel highlighted that the preservation of the IRA’s transferability and direct pay mechanisms provides a crucial pillar of support for the market. These features allow developers to sell their tax credits for cash or, for certain tax-exempt entities, receive a direct payment from the government.
As Muresianu explained, without these mechanisms, a company lacking sufficient tax liability to absorb a large credit would see its incentive blunted. The traditional workaround involved “more complex tax equity deals” where developers would partner with large financial institutions.
However, this would also come with high transaction costs. “[Y]ou lose about 20% of the benefits of the credit through having to work through these complex arrangements, whereas with transferability, it’s under 10%,” Muresianu stated. He said that enables companies to “fully realize their full value.”
Hunter described the transferability feature as “really transformative,” noting its rapid adoption since the enactment of the IRA. She explained that in the wind and solar sector, “we’re seeing a lot of hybrid deals … a lot of the traditional tax equity still being involved in the capital stack. But then also the banks are facilitating additional transferability dollars.” She said the “tax credit monetization percentage of the overall capital stack has grown as a result.”
Transferability has also been critical for expanding financing options to new technologies like nuclear and hydrogen, which did not previously have access to tax credits. According to Hunter, Congress preserved transferability in the OBBBA because “they saw the value of just making these tax credits more efficient and really also incentivizing the broader portfolio of technologies that the administration would like to expand.”
‘Carrots’ vs. ‘Sticks’
A key part of the discussion focused on the fundamental effectiveness of tax credits versus other policies. Muresianu framed the debate as a choice between subsidies (“carrots”) and carbon pricing (“sticks”). A carbon tax incentivizes the market to find the most efficient way to reduce emissions, but the argument for subsidies is that they can spur innovation through “learning by doing.”
He questioned, though, whether subsidies offer more political stability than a carbon tax, an argument that “should be taken with some skepticism.”
Nick Buffie, a public finance and energy tax policy analyst currently with the Congressional Research Service, gave a critique of a subsidy-based policy approach. He argued that subsidies are often wasteful because they are paid to “infra-marginal consumers,” meaning those who would have made the purchase anyway. Citing his research on EV credits, he stated, “about seven out of every 10 EV tax credit recipients would have purchased an EV even without a tax credit … the tax credit is simply a windfall financial benefit.”
Looking ahead, the panel agreed that clean energy deployment will continue, driven by strong market fundamentals. “Even without the tax credits, the cheapest form of electricity production at this point is solar, followed by natural gas, and then geothermal and onshore wind,” Buffie stated.
Hunter added that high demand from corporate buyers and hyperscale data centers will also continue to drive projects. Ultimately, she thinks the “core” policy request from taxpayers “right now is just maintaining policy certainty so companies know the rules of the road.”
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