Peace Department Reflections: On the Future of Clean Energy Incentives

Clean energy is on the chopping block in ongoing federal budgetary talks, but rolling back key policies may not be a foregone conclusion for the openly climate-hostile Trump administration. Trump’s new legislation, coined the One Big Beautiful Bill Act (OBBBA), involves the accelerated phasing out of tax credits associated with the development of renewable energy technology. OBBBA proposes ending wind and solar incentives years ahead of schedule and shutting down massive infrastructure projects at a time when energy demands are projected to exponentially grow by a staggering 78% by 2050.  

These tax credits, established by the Inflation Reduction Act (IRA) – former President Joe Biden’s cornerstone climate law – have catalyzed $600 billion in novel private investments in addition to over 400,000 new jobs via the development of 751 clean energy projects between the law’s enactment in 2022 and the start of 2025. The IRA made ambitious commitments to modernize the nation’s energy sources, boost competitiveness in new energy innovation, increase American manufacturing jobs, and reduce climate-warming pollution – allocating at least $369 billion to energy and climate programs to be distributed through multiple programs and agencies over ten years. These clean energy tax credits have allowed state and local governments, churches, hospitals, and schools to significantly lower their operating costs while making critical infrastructure upgrades. Any repeal would hit local governments and community-based organizations the hardest, and the loss of access to credits could threaten transformative projects nationwide. Over 1,200 organizations, including over 500 state and local governments, have been able to avail themselves of clean energy tax credits to support local projects, while reducing costs to families and businesses and lowering pollution. Since January of this year, over $14 billion in clean energy projects have been cancelled or delayed, with $4.5 billion scrapped in April alone. You can track what’s at stake here.   

According to a report by the Center for Global Sustainability at University of Maryland, the rolling back of IRA commitments, in addition to programs under the Bipartisan Infrastructure Law and EPA regulations on power plants and tailpipe emissions, will lead to a $1.1 trillion reduction in U.S. GDP by 2035, a $160 billion cumulative income loss, and at least 22,800 additional deaths of Americans over the next decade. The US’s clean energy transition, which seemed not only realizable but even aspirationally just, is certainly under threat. Though the House has approved OBBBA, the Senate must pass its own version, which will then need to be reconciled with the House text before going before the president for signature. But, as Trump’s July 4 deadline to sign OBBBA into law approaches, much remains up in the air. 

Last week, the Senate Finance committee published a version of the bill maintaining most of the House version’s cuts. One caveat: the Senate panel’s iteration is a bit more lenient than the House's. But while the upper chamber’s draft extends existing tax credits for energy sources like nuclear, geothermal, and battery storage beyond the parameters of the House’s adopted text, it maintains a rapid winding down of federal support to the two main categories of the energy transition likely to have the greatest impact on reducing emissions – wind and solar. Yet, there are indicators that negotiations on key points are far from over, and diverse stakeholders are rallying to preserve climate-friendly policies, including some unlikely allies.  

For one thing, a large swath of the public supports green energy incentives. In a December 2024 survey, the Yale Program on Climate Change Communication found that 91% of liberal Democrats, 70% of moderate or conservative Democrats, 42% of liberal or moderate Republicans, and 28% of conservative Republicans support tax rebates for electric vehicles. Furthermore, many red states have been reaping tremendous benefits from IRA tax cuts and infrastructure programs. According to nonpartisan think tank, Energy Innovation, Republican-led states have captured 75% of manufacturing investments supported by the Inflation Reduction Act (IRA). And, a Yale Climate Connections analysis found that red states stood to benefit the most from the law’s incentives. This has not stopped House Republicans – even those representing districts receiving the vast majority of the IRA’s clean energy benefits – from voting to effectively repeal the legislation. Will Senate Republicans hold their ground, recognizing the enormous benefits flowing to their constituents?

In April, Republican Senators Lisa Murkowski of Alaska, John Curtis of Utah, Thom Tillis of North Carolina, and Jerry Moran of Kansas drafted an open letter to Senate Majority Leader and Finance committee member John Thune warning him that undoing the IRA tax credits would destabilize critical investments already underway in their states. And, despite the fact that House Republicans voted almost unanimously in favor of the IRA phase-out embedded in the megabill, thirteen House Republicans have since tried to persuade the Senate to claw back clean energy credits and undo the damage the House did. They sent a letter urging the Senate to seize a “critical opportunity to restore common sense” and “substantially and strategically improve [the House bill’s] clean energy tax credit provisions.” This may indicate chinks in the armor, spelling opportunity for tax credit preservation, or serve as a harbinger of OBBBA’s inability to maintain the delicate balance of support that enabled GOP leaders to push the bill through last month. The Senate Parliamentarian’s pushback, including on a number of climate-related provisions, in the Senate Finance draft provides additional cause for cautious optimism.   

It’s important to note that even in the face of federal disarray, vital work on climate continues on the subnational level. Climate-friendly mayors, council members, and county officials representing over 31 million Americans across the country are making their resolute commitment to green transition heard. In the same vein, the wave of community solar persists undeterred in places like Delaware, Connecticut, New Jersey, and Minnesota, where the preservation of a community solar program will live on as a pillar of recently assassinated Rep. Melissa Hortman’s lasting legacy on clean energy. According to America Is All In, strong non-federal leadership has the potential to counteract some of the deleterious effects of federal inaction or rollbacks on climate. Place-based initiatives led by philanthropy and cross-sector collaboratives, like The Peace Department’s PDPX, are also gaining traction, demonstrating a robust array of stakeholders committed to maintaining positive momentum on climate in the face of federal-level uncertainty.