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Memo: Phasing Out Tax Credits Would Devastate Clean Energy Manufacturing

May 5, 2025

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TO: Interested Parties

FROM: Climate Power

DATE: May 5, 2025

RE: Phase-Out Repeal of Clean Energy Tax Credits Would Devastate American Manufacturing And Raise Energy Prices

In just two and a half years, clean energy incentives from the Inflation Reduction Act unleashed more than $422 billion in private-sector investments in clean electricity generation and in clean energy manufacturing — creating more than 400,000 new jobs. 

One key factor getting businesses to make all those investments and create those jobs: Business certainty. 

Before the Inflation Reduction Act, incentives for investing in clean energy expired every few years, creating a boom-bust cycle that left billions of dollars in private investment — and millions of potential jobs — on the sidelines. The Inflation Reduction Act provided an unprecedented ten-plus years of policy certainty, with most clean energy tax incentives, including those for electricity and manufacturing investments, available into the 2030s. That meant businesses could think bigger and plan for the long term.  Indeed, at least 200 clean electricity generation and storage projects have already been announced that will not be placed in service until 2028 or later, based on Energy Information Administration (EIA) data. 

Now, as House Republicans are frantically seeking ways to pay for tax cuts for large corporations and the wealthiest Americans, some are considering phasing out clean energy tax incentives earlier than the law prescribes and companies have planned around — as soon as next year. But that would be a disaster for families and businesses — raising energy costs, killing jobs, and stifling American innovation. 

Key Impacts of a Phase-Out Repeal:

In-Depth Impacts of a Phase-Out Repeal:

Below is a deeper look at what would happen if these incentives are phased out earlier than anticipated under current law.   

Clean Electricity (48E/45Y)

The Inflation Reduction Act replaced technology-specific tax incentives for wind, solar, and other clean electricity generation solutions with new “technology-neutral” credits, and made battery storage eligible for credits for the first time. In other words, any zero-emissions electricity facility — including, but not limited to, wind, solar, hydropower, geothermal, and nuclear — can now claim either a 30 percent investment tax credit or a per-kilowatt-hour production tax credit, depending on what is best for their project financing. What’s more, these tax incentives don’t begin phasing down until at least 2032, with reduced credits available until at least 2036. This flexibility and the expansion of eligibility to technologies that did not previously qualify for tax incentives create new opportunities for companies to invest in bigger, more complex projects.

Now, Republicans in Congress are threatening to cut off the clean electricity credits prematurely by moving up the phase-down date to as soon as next year. That would leave at least 157 gigawatts of clean energy projects already planned to come online in 2026 or later in jeopardy, based on utility-scale projects tracked by the Energy Information Administration. That’s enough to power more than 15 million American homes. That is certainly an undercount of clean energy projects that will actually be built in the back half of the decade, as electricity demand is set to skyrocket from the buildout of data centers.  Utility executives have been increasingly clear that supply chain and other constraints would make it impossible to build more natural gas plants than currently planned through at least 2030. 

The Clean Energy Buyers Association found that cutting off these tech-neutral tax incentives would raise electricity prices by more than $110 for American families starting next year. Another report from the Brattle Group concluded that cutting off access to the tech-neutral credits earlier than envisioned under current law would cut wind and solar deployment in half and raise electricity prices by as much as $152 per year in the states they studied. 

And that doesn’t even include projects that would take longer to plan and permit and aren’t yet reflected in the data — including clean energy technologies that Republicans claim to support. Projects do not report to EIA unless they are expected to be placed in service within the next five years, or 10 years for nuclear plants. Utility-scale solar projects typically take less than two years to be developed and built, so many such projects that will be built in 2027 and beyond are not yet reflected in EIA’s data (Climate Power data show 158 solar investments creating 78,020 jobs have been announced already since passage of the IRA). Compare that to a nuclear power plant, which can take 10 to 15 years or more to build. Utility-scale geothermal projects take 5 to 10 years to plan and build. “Sunsetting” the tech-neutral credits early would functionally eliminate eligibility for nuclear and geothermal — making it harder and more expensive to build those projects at a time of unprecedented increases in demand for electricity. 

That means one of two things: Either those nuclear and geothermal projects don’t get built at all, or developers pass more of the project building costs onto electricity consumers. Either way, that means higher electricity costs for families and businesses. 

Manufacturing (45X)

Since 2022, at least $422 billion in private sector investments have been announced to produce components for clean energy projects and electric vehicles in the United States — nearly all of which are eligible for support under the Advanced Manufacturing Production Tax Credit, created by the Inflation Reduction Act. That is also likely an underestimate of private-sector investment, as not all companies make their plans public. Private sector interest in this incentive has far outpaced initial estimates. In 2022, the Congressional Budget Office (CBO) estimated companies would claim $30 billion in these tax incentives through 2031. More recent CBO estimates put that at four times as much. That’s a good thing — because that means the private sector is investing even more than that to create jobs and build things in America. 

But if Congress phases out clean energy tax incentives early, much of that private investment is at risk. The 45X credit is largely available on a per-unit basis to companies.  That means if they make more of a qualifying product — be it a solar module, a wind turbine part, or a grid battery — they get more credits. Phasing out 45X early would therefore directly impact the amount of energy-related products manufacturers are likely to produce in the near term. 

You also can’t just make qualifying products — the law requires companies to also sell those products to an unrelated company in order to claim the credit. That’s an important protection to prevent companies from overproducing goods merely to claim tax benefits. It also means that the clean energy manufacturing boom is highly related to clean energy investment overall — because U.S. manufacturers of clean energy technologies overwhelmingly sell to the U.S. market. Without reliable demand from U.S. customers, clean energy manufacturers aren’t going to make as many goods here, period. Cutting off either 45X or the tech-neutral electricity credits earlier than anticipated, therefore, would lead to less private investment, fewer manufacturing jobs, and fewer benefits for communities. 

Uncertainty over the future of the Inflation Reduction Act’s incentives for manufacturing — and the potential for U.S. customers for manufacturers’ products — has already led to at least $56 billion in projects and more than 62,000 jobs being lost, delayed, or threatened across the country. Other companies have said they are pausing on investment decisions because, as one CEO said, “I need to ensure that the rug is not pulled from under my feet.” 

Republican Opposition to Phase-Out Repeal

Some of the strongest supporters of the Inflation Reduction Act’s tax credits, and explicit opponents of phase-out repeal, are Republican  governors and members of Congress. A bulk of the new clean energy projects are located in congressional districts represented by Republican members of the U.S. House of Representatives — totaling 216,322 new jobs and over $204.69 billion in investment across 405 clean energy projects in 152 Republican-held districts.

In March 2025, 21 Republican House members signed onto a letter to the Republican Chairman of the Ways and Means Committee, where they explicitly argued against phase-outs: “Both our constituencies and the energy industry alike remain concerned about disruptive changes to our nation’s energy tax structure. Many credits were enacted over the course of a ten-year period, which allowed energy developers to plan with these tax incentives in mind. These timelines have been relied upon when it comes to capital allocation, planning, and project commitments, all of which would be jeopardized by premature credit phase outs or additional restrictive mechanisms such as limiting transferability.”

Republican governors who have seen significant investment in their states made similar statements opposing phase-outs. In February 2025, Oklahoma Governor Kevin Stitt said, “That [the IRA tax credits] was a deal that was cut. I have the same deal in Oklahoma. We have to live with those deals that a previous Legislature cut, and then we change it going forward. But we’re going to allow that tail to run through the tax credit that was promised to them for whatever period of time would be. I know it’s more complicated than that. Congress has got opine on it, but a deal is a deal, and you can’t back up on some of those things.” 

That same month, the bipartisan National Governors Association unanimously approved their four 2025 federal priorities, which included, “Ensuring the federal government meets its already committed obligations for federally funded projects across states, territories and Commonwealths.”

It is clear from business leaders and Republican elected officials that phase-out repeal of the Inflation Reduction Act’s clean energy tax credits would be detrimental to investment, job growth, and economic development across the country.  The economic benefit of preserving these tax credits would far outweigh the small fraction of the tax cuts, primarily aimed at the wealthiest taxpayers, that they would be used to fund. These impacts would not only undermine future investment, but also jeopardize projects already underway, raise costs for businesses and families, and put America’s energy security at risk for years to come.