Renewables see relief as GOP tax cuts arrive slower than expected

Wind and solar incentives face rollback under GOP proposal. (Photo: iStock)

House Republicans introduced a tax reform proposal that would reduce tax incentives for low-carbon industries such as wind, solar, hydrogen, and electric vehicles (EVs) on May 13. However, the cuts are set to be phased in gradually—less aggressively than markets had anticipated—prompting a surge in renewable energy stocks in both the U.S. and Europe.

Gradual phase-out of clean energy tax breaks

According to the draft plan, the current federal tax credit of up to $7,500 for EV buyers will be fully eliminated by the end of 2026. Tax breaks for commercial EVs and used EVs would also be scrapped. These changes are expected to impact not only EV demand but also battery manufacturing and lithium supply chains.

Tax credits for clean energy production and investment—particularly for wind and solar—would end by 2031 under the proposal. New restrictions would also ban the use of certain foreign materials in eligible projects, effectively raising the threshold for qualifying for subsidies. Tax incentives for hydrogen fuel, nuclear power, and geothermal energy are also set to be reduced or eliminated.

To cover the budget gap created by the Trump administration’s tax cuts, Republicans have targeted the Inflation Reduction Act (IRA) in their new proposal, aiming to scale back federal spending on clean energy. Still, the pace of these proposed rollbacks is slower than anticipated, softening the blow to the market. This surprise has driven gains in clean energy stocks, with U.S. solar giant First Solar closing up more than 20%.

A longtime supporter of the fossil fuel industry, Trump has reversed key Biden-era policies by cancelling federal tax credits for solar and wind projects and expanding oil and gas drilling rights on federal lands.  (Photo: White House)

Internal GOP disagreements and industry pushback

Despite cuts to wind and solar incentives, the GOP plan retains tax credits for biofuels and other clean transportation fuels. The tax credit for carbon capture technology—$85 per metric ton—would also remain intact.

The House Ways and Means Committee is expected to debate the proposal this week and vote by May 26. However, some Republican lawmakers, particularly those from districts benefiting from IRA-funded clean energy projects, have already voiced opposition to the cuts, concerned about the potential impact on local industry growth.

Meanwhile, the clean energy sector is ramping up its efforts to resist the changes. Advanced Energy United, a coalition of companies in clean power and transmission, has launched a nationwide advertising campaign urging lawmakers to preserve the subsidies and protect the future of the industry.

Source: Bloomberg, NYT, Barron’s, Reuters