The United States has taken several stabs at climate policy over the decades, but only one has had any real staying power.
Until now.
Tax credits for wind and solar helped launch an upheaval in America’s utility sector, reduced the cost of renewables, fueled a surge in wind and solar installations, and drove a sustained decline in climate pollution from U.S. power plants.
Now they’re on the congressional chopping block.
Republican lawmakers are debating a mass repeal of clean energy tax credits that were passed as part of the Inflation Reduction Act. Eliminating the credits would be the most significant climate rollback by President Donald Trump and congressional Republicans, who already have scrapped carbon dioxide limits on power plants, repealed California’s authority to set tailpipe standards, and halted permitting for new wind projects on federal lands or waters.
But in targeting tax credits for wind and solar, Republicans would end one of the few clean energy policies that historically enjoyed bipartisan support.
“There isn’t much that has been consistent or durable beyond those tax credits,” said Barry Rabe, a nonresident senior fellow at the Brookings Institution and longtime scholar of U.S. climate policy.
Initially conceived as a response to the 1970s oil crises, the credits have evolved over the decades from a means of reducing the costs of alternative energy technologies to America’s carbon-cutting tool of choice. They have been effective in transforming wind and solar from bit players into power-sector workhorses.
Wind and solar collectively generated about 16 percent of the country’s electricity last year, exceeding the output from coal for the first time. The rise of renewables has coincided with a sustained drop in American power plants carbon dioxide emissions, which have fallen 38 percent since 2005. Natural gas and improved energy efficiency also have played a key role in reducing coal generation and lowering emissions.
The success of wind and solar tax credits stand in contrast to other U.S. attempts to curtail planet warming pollution. Attempts to establish a national carbon price effectively ended with the demise of a 2009 cap-and-trade bill, which passed the House but failed in the Senate. Efforts to regulate power plant emissions have never been fully implemented. Rules for tailpipe emissions have gotten tougher, but their stringency frequently seesaws between Democratic and Republican presidential administrations.
Republicans have targeted the credits before, arguing they distort markets and drive up energy costs. But those efforts notably encountered resistance from Republicans or were used as a bargaining chip between the two parties. In 2015, Republicans and Democrats struck a deal to lift a decades-old ban on oil exports in exchange for an extension of renewable credits.
When Democrats took power in 2021, they focused on expanding the credits. Part of the reason was simple politics: Democrats at the time held only a narrow majority in the Senate, where a two-thirds vote is needed to pass nonbudgetary bills. But the effort also reflected a belief that tax credits could drive down the cost of clean energy technologies, boost domestic clean energy manufacturing and create jobs.
The Inflation Reduction Act expanded the tax credits from wind and solar to everything from nuclear and geothermal to sustainable aviation fuel and hydrogen. It enhanced existing credits for electric vehicles and carbon capture and sequestration. And it added bonuses for companies that bought American-made components, hired union labor and built in communities with fossil-fuel-based economies.
“Part of the premise of the IRA is politically you couldn’t do a price because public support wasn’t going to be there. You couldn’t do regulation because you couldn’t put it in the reconciliation in the Senate,” Rabe said. “But you could use subsidies and incentives and build a political constituency that would underpin support against any backlash. That so far doesn’t seem to be holding.”
It remains to be seen how far Republicans will go in repealing the credits. There are notable differences between the Senate and House bills thus far. Draft budget language released last week by the Senate Finance Committee would preserve credits for resources such as geothermal and nuclear, which can generate zero-carbon electricity around the clock, as well as subsidies for batteries. The House bill went further in eliminating those subsidies.
The bills also differ in how they would treat wind and solar. The Senate Finance Committee would phase out the credits by the end of 2028. The House version would require projects to begin construction 60 days after the bill’s passage and enter operation by 2028 to receive the money.
Critics of the credits argue they are wasteful, particularly given the precipitous drops in wind and solar prices over recent decades. Renewables are among the most cost-effective sources of new power generation, even without the subsidies.
But supporters maintain the federal assistance is still necessary to drive the rapid deployment of renewables that’s needed to cut emissions in time to avoid the worst impacts of a warming planet. Many advocates have couched their arguments in economic terms at a time when climate has fallen down lawmakers’ list of priorities, saying wind and solar are the best placed to help meet a rapid rise in electricity demand because they can be built faster than other energy resources.
“If you take away the PTC [production tax credit] and the ITC [investment tax credit] on deployment, energy bills will go up because 90 percent of what we built last year was solar and batteries,” said Leah Stokes, a prominent climate activist and professor who studies energy policy at the University of California, Santa Barbara.
The PTC and the ITC are the two primary subsidies enjoyed by renewable projects.
Most analysts agree that renewable development will continue without the subsidies, but at a slower pace. Exactly how much slower remains an open question. A range of government institutions and research organizations have sought to compare the rate of clean energy deployments with and without the Inflation Reduction Act credits. Their findings vary, depending on the assumptions they make about a series of external factors, ranging from interest rates and natural gas prices to trade policy and grid interconnection rules.
A March study by the Electric Power Research Institute, which compared 10 models produced by different organizations, found that the credits remain a cost-effective tool for cutting emissions. It estimated the credits abatement cost at $96 per ton of carbon dioxide, lower than social cost of carbon estimates that range from $100 to $360 per ton of CO2.
“The carbon benefits of tax credits are lower than the cost by quite a large margin,” said John Bistline, a senior program manager at EPRI who authored the study. “What we see is that when you look at the average across models, the Inflation Reduction Act incentives tend to roughly double the amount of clean electricity capacity deployment over the next decade.”
