Clean energy sector debates impact of GOP efforts to repeal tax credits

Republican attacks on the Inflation Reduction Act’s clean energy tax credits may be negatively impacting the sector, some industry players and experts say. 

They say the GOP’s efforts to eliminate the subsides risks creating uncertainty for investments — especially with potential financial backers nervously looking ahead to next year’s elections.

“It definitely creates uncertainty in the market and is bad for both Democratic and Republican jurisdictions around the U.S.,” said Christopher Knittel, a professor of applied economics at MIT.

The broader clean energy sector has touted the credits included in the Democrats’ climate, tax and health care bill as transformative, saying they are piquing new investments.

“They are spurring new investment and growth at a very high level, new manufacturing in the United States, really at a level that we have not seen in many years,” said Gregory Wetstone, president and CEO of the American Council on Renewable Energy.

Just last week, a new GOP tax bill to eliminate the credits was advanced by the Ways and Means Committee in the House.

GOP efforts to repeal the tax credits are going nowhere for now, with President Biden in the White House and a Democratic majority in the Senate.

But with Biden suffering from lower approval ratings and races for majorities in the House and Senate expected to be highly competitive next fall, the sector is worried they could be repealed in the future if the political winds blow in the Republicans’ direction.

And some analysts and industry players say this potential for repeal could be preventing the credits from reaching their full potential today. 

An industry source told The Hill that the uncertainty about the future “doesn’t help” but said they wouldn’t go as far as to say that it’s killing activity. 

“It kind of creates doubt,” the source said, noting that it could ultimately slow some processes down as projects seek funding. 

Knittel said that the impacts could also vary based on the type of tax credit. The bill’s Investment Tax Credit would subsidize the construction of clean energy facilities, while the Production Tax Credit gives them out based on how much electricity is produced. 

If there’s fear that the investment credit could go away, it could create a scramble to invest quickly while investors can still take advantage, Knittel said. On the other hand, if a tax credit for energy production could go away, that may stifle investment since it could take years for a project to come online. 

Ultimately, he said, the impacts of this are likely to be limited to projects that are “on the margin” — the kind that would only be profitable with the subsidies.

“For developments that are kind of on the margin, you could certainly see it having an impact,” he said. 

Wetstone said that the Republicans’ efforts could be something of a deterrent to international investors in particular, as they may not follow U.S. politics as closely. 

“It makes it a little bit harder and has the potential to reduce foreign investment in the U.S. … which has been very substantial under the [Inflation Reduction Act],” he said.

But he was skeptical of the idea that the potential for repeal was inhibiting the credits overall. 

“Broadly speaking, those who follow the policy world closely … recognize that this is not likely to move forward, that these are not efforts that are going to deter investment,” Wetstone said.

Chris Seiple, vice chairman at research firm Wood Mackenzie for the energy transition and power and renewables, said the potential GOP elimination of the credits may be creating a degree of “nervousness” but also said he doesn’t believe there are significant practical impacts because historically, tax law changes have not impacted deals that have already been made. 

“If you deal next year, for instance, … there’s been a history of legislative change that might change what somebody can get in the future but it’s never taken away the tax credits of a deal that’s already been done,” Seiple said. 

Republicans have clamored to eliminate a great deal of the tax credits that were included in the Democratic climate, tax and health care bill. They pitched doing so earlier this year in their original proposal to lift the debt limit. 

They took a narrower approach in the Ways and Means bill advanced last week, looking to get rid of the production tax credit, investment tax credit and credits for pre-owned and commercial vehicles. Their bill also included caps on the consumer tax credit for new electric vehicles.