Major Changes to Clean Energy Tax Provisions Under the “One Big Beautiful Bill Act” (OBBBA)

Esfer John Pamintuan

Esfer John Pamintuan

Senior Manager, Tax

Major Changes to Clean Energy Tax Provisions Under the “One Big Beautiful Bill Act” (OBBBA)
Enacted in 2025, the “One Big Beautiful Bill Act” (OBBBA), brings sweeping changes to federal clean energy tax policy. The law significantly curtails or terminates many of the clean energy tax credits established or expanded by the Inflation Reduction Act (IRA) and introduces new compliance requirements, particularly targeting foreign involvement in U.S. clean energy projects. Below is a summary of the most significant changes, followed by a table organizing the major provisions.

Key Terminations and Restrictions

1. Termination of Clean Energy Credits
  • Clean Electricity Production Credit (Section 45Y): The credit for wind and solar facilities is terminated for facilities placed in service after December 31, 2027. Other clean energy technologies may continue to qualify, but wind and solar are specifically excluded from new projects after this date.
  • Clean Electricity Investment Credit (Section 48E): Similarly, the investment credit for wind and solar facilities is terminated for property placed in service after December 31, 2027. Energy storage technology remains eligible.
  • Clean Vehicle Credits (Sections 25E, 30D, 45W): Credits for new and previously owned clean vehicles, as well as commercial clean vehicles, are terminated for vehicles acquired after September 30, 2025.
  • Alternative Fuel Vehicle Refueling Property Credit (Section 30C): The credit is terminated for property placed in service after June 30, 2026.
  • Residential Clean Energy Credit (Section 25D): The credit is terminated for expenditures made after December 31, 2025.
  • Energy Efficient Home Improvement Credit (Section 25C): The credit is terminated for property placed in service after December 31, 2025.
  • Energy Efficient Commercial Buildings Deduction (Section 179D): The deduction is not available for property construction beginning after June 30, 2026.
  • New Energy Efficient Home Credit (Section 45L): The credit is terminated for homes acquired after June 30, 2026.
  • Cost Recovery for Energy Property: Accelerated depreciation for energy property is terminated for property construction beginning after December 31, 2024.
2. New Restrictions on Foreign Entities
  • Prohibited Foreign Entities: The Act introduces strict rules denying credits to projects with material assistance from “prohibited foreign entities,” which include certain foreign governments, entities controlled by them, or entities with significant foreign ownership or influence.
  • Material Assistance Thresholds: For clean energy facilities and components, the law sets minimum percentages of U.S.-sourced materials and labor. If a project falls below these thresholds due to foreign involvement, it is ineligible for credits.
  • Recapture and Penalties: If a project later receives material assistance from a prohibited foreign entity, credits can be recaptured, and substantial penalties may apply, including excise taxes and accuracy-related penalties for misstatements.
  • Certification Requirements: Suppliers must provide detailed certifications regarding the origin of components and materials, with penalties for substantial misstatements.
3. Additional Compliance and Reporting
  • Expanded Reporting: Qualified opportunity funds, rural opportunity funds, and other clean energy projects face new, detailed annual reporting requirements, including disclosure of ownership, supply chain, and employment data.
  • Domestic Content Rules: The law tightens and phases in higher domestic content requirements for bonus credits, with stricter thresholds for wind, solar, and battery components.
  • Publicly Traded Companies: Special rules apply to publicly traded companies to determine foreign control or influence, with ownership and board composition scrutinized.
4. Other Notable Changes
  • Phase-Outs and Modifications: The advanced manufacturing production credit (Section 45X) is phased out for certain components, and eligibility is restricted for those with foreign material assistance.
  • Clean Fuel Production Credit (Section 45Z): Extended through 2029, but only for fuels derived from feedstocks produced in the U.S., Mexico, or Canada, and with new restrictions on negative emission rates and foreign involvement.
  • Carbon Oxide Sequestration Credit (Section 45Q): Credits are denied to projects owned or influenced by prohibited foreign entities.
Provision/SectionPrevious LawOBBBA ChangeImplications
Clean Electricity Production Credit (45Y)Tech-neutral credit for all zero-emission electricity, including wind and solar, with no near-term sunsetWind and solar facilities ineligible if placed in service after 12/31/2027; new foreign entity restrictionsMajor reduction in future wind/solar project incentives; increased compliance burden
Clean Electricity Investment Credit (48E)Tech-neutral investment credit for clean energy and storage, including wind and solarWind and solar facilities ineligible if placed in service after 12/31/2027; storage remains eligible; new foreign entity restrictionsInvestment in wind/solar curtailed; storage projects still incentivized; foreign supply chain scrutiny
Clean Vehicle Credit (25E, 30D, 45W)Credits for new, used, and commercial clean vehicles through 2032Credits terminated for vehicles acquired after 9/30/2025Reduces incentives for EV adoption; immediate impact on auto industry planning
Alternative Fuel Vehicle Refueling Property (30C)Credit through 2032Terminated for property placed in service after 6/30/2026Fewer incentives for charging/refueling infrastructure
Residential Clean Energy Credit (25D)Credit for solar, wind, geothermal, etc. through 2034Terminated for improvements placed in service after 12/31/2025Homeowners lose incentives for renewable installations
Energy Efficient Home Improvement (25C)Credit through 2032Not available for construction beginning after 6/30/2026Reduces support for energy efficiency upgrades
Energy Efficient Commercial Buildings (179D)Deduction for energy-efficient construction through 2032Not available for construction beginning after 6/30/2026Less incentive for commercial energy efficiency
New Energy Efficient Home Credit (45L)Credit through 2032Terminated for homes acquired after 6/30/2026Homebuilders lose incentive for efficient homes
Cost Recovery for Energy PropertyAccelerated depreciation for energy propertyTerminated for property construction beginning after 12/31/2024Slows investment in energy property
Foreign Entity RestrictionsNo broad restrictionsCredits denied for projects with material assistance from prohibited foreign entities; strict thresholds and definitionsU.S. supply chain favored, foreign investment and sourcing limited; significant compliance requirements
Material Assistance ThresholdsN/AMinimum U.S. content percentages for eligibility; phased increasesProjects must plan for higher domestic sourcing over time
Recapture and PenaltiesN/ARecapture of credits and penalties for later foreign involvement misstatementsHeightened risk for non-compliance; due diligence critical
Certification and ReportingLimitedDetailed supplier certifications and annual project reporting requiredIncreased administrative burden; risk of penalties for errors
Clean Fuel Production Credit (45Z)Credit through 2027; no feedstock origin restrictionExtended to 2029; only for U.S., Mexico, or Canada feedstocks; new foreign entity restrictionsBiofuel and clean fuel projects must source regionally; foreign supply chains excluded
Carbon Oxide Sequestration Credit (45Q)Available regardless of ownershipDenied to projects owned or influenced by prohibited foreign entitiesForeign investment in carbon capture projects restricted
Advanced Manufacturing Production Credit (45X)Credit for eligible components through 2032Phased out for critical minerals after 2030; wind energy component credits end after 2027; foreign entity/material restrictionsDomestic manufacturing favored; foreign supply chain use penalized

Implications

The OBBBA marks a decisive shift in U.S. clean energy tax policy, moving away from broad-based, technology-neutral incentives and toward a more restrictive, domestically focused framework. The law not only ends or phases out many of the most significant clean energy tax credits but also imposes rigorous new requirements to ensure that U.S. taxpayer dollars do not subsidize projects with substantial foreign involvement, particularly from countries deemed adversarial or of concern.
Project developers, manufacturers, and investors must now navigate a complex web of domestic content rules, supply chain certifications, and reporting obligations to remain eligible for any remaining incentives. The result is a landscape that strongly favors U.S.-based production and supply chains, while reducing the overall scope and duration of federal clean energy tax support.

Feel free to reach out to our team to help you navigate these new changes and determine how they can support your clean energy objectives. To learn more about OBBBA, you can view the full bill here.

How can Scrubbed help?

The information presented in this article is for general informational purposes only and does not constitute legal, accounting, investment, tax, or professional advice. For guidance tailored to your specific circumstances, please consult your advisors.

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Beginning of Construction Requirements:The Physical Work Test and Five Percent Safe Harbor: To establish the beginning of construction, businesses can either begin physical work of a significant nature or pay/incur 5% or more of the total project cost.Action:Document Construction Activities: Maintain detailed records, including contracts, physical work certificates, photographic evidence, and engineering reports to substantiate the beginning of construction before the deadline.Meet Continuity Requirements: Ensure continuous efforts or progress towards completion once construction has begun. Projects must be placed in service by the end of the year that includes the fourth anniversary of the construction start date.3. 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Section 45Y(b)(2)(D) specifies that GHG emissions do not include any qualified carbon dioxide that is captured and disposed of in secure geological storage or utilized in a manner described in section 45Q.Lifecycle Emissions: For facilities producing electricity through combustion or gasification, the GHG emissions rate must account for lifecycle emissions, which include emissions from feedstock generation or extraction through the point of production.Electric Vehicle (EV) ManufacturingSupply Chain and Critical Minerals: EV manufacturers are impacted by the requirements for critical minerals in battery production. 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The ability to transfer credits or receive direct payments provides additional flexibility for project financing.Increased Investment in Clean Technologies: The broad applicability of the credits to various clean technologies can drive increased investment and innovation in the sector, providing opportunities for businesses to develop and deploy new clean energy solutions.Expansion and Retrofitting of Existing Facilities: The credits allow for expanding and retrofitting existing facilities to increase electricity production, which can be a cost-effective way for businesses to enhance their clean energy output.Leveraging Bonus Credits: Projects located in energy communities, low-income communities, or on tribal land and those meeting domestic content requirements can benefit from additional credit amounts, making these projects more financially attractive.: Projects located in energy communities, low-income communities, or on tribal land and those meeting domestic content requirements can benefit from additional credit amounts, making these projects more financially attractive. Looking Ahead How The phaseout of these credits is scheduled for 2032 or when U.S. electricity sector emissions fall by 75% from 2022 levels, whichever occurs later. Companies should plan their project timelines accordingly to maximize available benefits.The transformation of clean energy tax credits represents a significant shift toward technology-neutral, emissions-based incentives. Success in this new framework requires careful planning, thorough documentation, and strategic positioning of clean energy projects.Scrubbed Can HelpThis article outlines the changes and potential opportunities brought about by the new framework, but it isn’t comprehensive, and each business will have to evaluate its own eligibility for the revised credit. At Scrubbed, we have deep experience in the cleantech and renewable energy industries, as well as offering specialized biotech accounting services and fractional CFO services, and have helped clients establish a firm financial foundation and maximize credits and incentives.Contact us to discuss how we can help your cleantech business prepare for the changes to the ITC with our SaaS accounting expertise.Key TakeawaysInvestment Tax Credits (ITC) are Changing: Starting January 1, 2025, the traditional ITC will be replaced by the Clean Electricity Investment Tax Credit (§13702) and the Clean Energy Production Tax Credit (§13701). These new credits are technology-neutral and include additional provisions for clean energy investments.Significant Changes and Extensions:Extension of Transition Processes: The transition process for claiming statutory exceptions to the elective payment phaseouts for projects that fail to satisfy domestic content requirements has been extended. 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