Introduction
On May 22, 2025, the U.S. House of Representatives approved H.R. 1, also known as the “One Big Beautiful Bill Act” (the House Bill).1 The House Bill will next be considered by the U.S. Senate, and the administration has set a goal for President Trump to sign the bill into law on July 4, 2025. The House Bill includes a number of changes that significantly impact the Energy and Climate Solutions Sector. First, the House Bill accelerates the termination of or eliminates several renewable energy credits in P.L. 117-169, more commonly known as the “Inflation Reduction Act” (IRA). The House Bill retains the IRA’s transferability regime for eligible credits, subject to the timing of the underlying credit and, in some cases, earlier termination dates for transferability specifically. Finally, the House Bill introduces significant restrictions beginning in 2026 around certain foreign entities, which will not only impact who can invest in renewable energy projects, but also who can supply components and know-how to develop them.
The House Bill also includes a number of general tax provisions relevant to domestic and multinational businesses. For more details, please see this Wilson Sonsini alert.
- Credits Terminating December 31, 2025
The House Bill would terminate each of the transportation-related tax credits (i.e., the Section 25E2 used EV credit, Section 30C alternative fuel vehicle charging station credit, Section 30D new EV credit (subject to a limited exception described in Table 1, below) and Section 45W commercial EV credit) on December 31, 2025. Additionally, the Section 25C energy efficient home improvement credit, Section 25D residential clean energy credit, Section 45L new energy efficient home credit (subject to a limited exception described in Table 1, below) and Section 45V clean hydrogen production credit would likewise each expire on December 31, 2025. Table 1, below, summarizes these changes.
- Credits Terminating Earlier Than Anticipated
The Section 45Y clean electricity production credit (the Tech-Neutral PTC) and Section 48E clean electricity investment credit (the Tech-Neutral ITC and, together with the Tech-Neutral PTC, the Tech-Neutral Credits) would terminate for any qualified facility or energy storage technology (EST), in the case of the Tech-Neutral ITC, which begins construction more than 60 days after the enactment of the House Bill, and for any qualified facility or EST that is placed in service after 2028.
The House Bill also specifically eliminates the Tech-Neutral Credits for leased residential solar water heaters, solar property, and small wind property if the lessee would qualify for the Section 25D residential clean energy credit if it owned such property. However, given the restriction does not take effect until 2026 and the Section 25D credit terminates on December 31, 2025, it does not appear that this will be operative as a practical matter.
Additionally, the House Bill would terminate the Section 45U zero-emission nuclear production tax credit, the Section 45X advanced manufacturing production tax credit, and the Section 48(a) legacy energy credit for geothermal heat pumps earlier than is provided for under IRA. Please see Table 1, below, for more details.
- Prohibited Foreign Entity Restrictions
The House Bill would impose multifaceted restrictions around certain “prohibited foreign entities” (PFEs), which include both “specified foreign entities” (SFEs) and “foreign-influenced entities” (FIEs).
- SFEs include various foreign entities of concern appearing on certain national security lists, such as the Specially Designated Nationals List and the 1260H List, as well as “foreign-controlled entities,” which are focused on the “covered nations” of China, Iran, North Korea, and Russia. In practice, most entities on the lists—which largely consist of entities that are already located in or organized under covered nations, as well as terrorist organizations, criminal enterprises, and certain violators of law—will already be covered by the foreign-controlled entities portion of the definition.
- “Foreign-controlled entities” include the governments of the covered nations; any citizen, national, or resident of a covered nation (unless such person is a citizen or lawful permanent resident of the U.S.); any entity or business unit incorporated or organized under the laws of, or having its principal place of business in a covered nation; and any entity “controlled” (generally, owning more than 50 percent of the entity) by any of the foregoing.
- FIEs include entities i) with respect to which, during the taxable year, a) an SFE has the direct or indirect authority to appoint a covered officer of such entity (i.e., a member of the board, an executive-level officer or an individual having powers or responsibilities similar to those of the foregoing), b) a single SFE owns at least 10 percent of such entity, c) one or more SFEs own in the aggregate at least 25 percent of such entity, or d) at least 25 percent of the debt of such entity is held in the aggregate by one or more SFEs or ii) which, to the entity’s knowledge during the previous taxable year makes applicable payments (i.e., a payment of dividends, interest, compensation for services, rentals or royalties, guarantees or any other fixed, determinable amount) a) to an SFE in an amount at least equal to 10 percent, or b) to multiple SFEs in an aggregate amount at least equal to 25 percent, of the total of such payments made by such entity during such taxable year.
None of the credits listed in Table 1 that survive into 2026 may be claimed by an SFE in any taxable year beginning after the enactment of the new law. In addition, in any taxable year beginning after the second anniversary of the enactment of the new law, no such credits may be claimed by an FIE (and, with respect to the Tech-Neutral Credits and the Section 45X advanced manufacturing production credit, if applicable payments to an FIE in a taxable year are at least five percent of payments made with respect to the production of electricity, storage of energy, or the manufacture of eligible components (by category), as applicable, or at least 15 percent in the aggregate to multiple FIEs). In addition to the foregoing prohibition of applicable payments, a new recapture provision is added with respect to the Tech-Neutral ITC if any such payments are made in the 10-year period following the date on which the relevant property is placed in service. Unlike the traditional recapture provisions, this new provision would recapture 100 percent of the credit regardless of when (or how often) in the 10-year period such a payment occurred.
Furthermore, with respect to the Tech-Neutral Credits, for any property which begins construction after December 31, 2025, no credit may be claimed with respect to a facility (or EST, in the case of Section 48E) if the construction of such facility or EST includes “material assistance” from a PFE. The Section 45X advanced manufacturing credit has a similar prohibition, but its implementation begins on the second anniversary of enactment.
- Material assistance, with respect to any property, means any component, subcomponent, or applicable critical mineral (as defined in Section 45X) included in such property that is extracted, processed, recycled, or assembled by a PFE, or any design of such property which is based on any intellectual property, know-how, or trade secret provided by a PFE.
- Assembly parts and constituent materials are excluded from material assistance, unless acquired directly from a PFE.
- An assembly part is a subcomponent (or collection thereof) which is not uniquely designed for use in the construction of a qualified facility (Section 45Y/48E) or eligible component (Section 45X) and which is not exclusively or predominantly produced by PFEs.
- A constituent material is any material which is not uniquely formulated for use in in qualified facility (Section 45Y/48E) or eligible component (Section 45X) and which is not exclusively or predominantly produced, processed, or extracted by PFEs by prohibited foreign entities.
- For purposes of the Section 45X advanced manufacturing credit, material assistance includes any property which is produced subject to a licensing agreement with a PFE if the value of such agreement exceeds $1 million.
Except for the foreign entity restrictions discussed above, the House Bill would not affect the Section 45Q carbon sequestration tax credit. The Section 45Z clean fuels tax credit would be extended under the House Bill, by adding four years to its original proposed termination date to a new proposed termination date of December 31, 2031. In addition to the prohibited foreign entity restrictions discussed above, the House Bill requires that to qualify for the Section 45Z credit, the fuel produced must be exclusively derived from a feedstock produced or grown in the U.S., Mexico, or Canada. The House Bill also requires that any emissions attributed to indirect land use change must be ignored for purposes of calculating lifecycle greenhouse gas emissions and, for fuel derived from animal manure, it requires the Treasury Secretary to derive distinct emissions rates with respect to each of the specified feedstocks used to produce such fuel (i.e., dairy manure, swine manure, poultry manure, and other appropriate sources).
Table 1: House Bill Changes to IRA Tax Credit Termination Dates
[1] Text - H.R.1 - 119th Congress (2025-2026): One Big Beautiful Bill Act, H.R.1, 119th Cong. (2025), https://www.congress.gov/bill/119th-congress/house-bill/1/text, as amended by the Amendment to Rules Committee Print 119-3.
[2] All Section references are to the Internal Revenue Code of 1986, as amended.
[3] The House Bill creates a limited exception to this expiration date, under which vehicles produced by manufacturers that have not sold over 200,000 “covered vehicles” (i.e., any vehicles that would have qualified for the Section 30C credit) for use in the U.S. between December 31, 2009, and December 31, 2025, may qualify for the credit, if they are placed in service in calendar year 2026.
[4] Homes that have commenced construction by May 12, 2025, are eligible for the credit if they are acquired by December 31, 2026.
[5] Under the termination dates provided by both IRA and the House Bill, hydrogen facilities must have begun construction on or prior to the relevant termination date to be eligible for the 10-year production-based credit.
[6] Under IRA, the Section 45X credit begins to phase out in 2030 when the credit is worth 75 percent, and steps down in 25 percent increments until full termination in 2033; this phase-out schedule only applies to eligible components and not critical minerals.
[7] The House Bill does not change the existing phase-out schedule, meaning the credit would be worth 75 percent in 2030 and 50 percent in 2031, and also imposes this schedule (and termination) on critical minerals.
[8] Under the House Bill, the legacy ITC for geothermal heat pumps would phase out as follows: for property beginning construction in 2030, the base credit would be 5.2 percent (26 percent with prevailing wage and apprenticeship multiplier) and for property beginning construction in 2031, the base credit would be 4.4 percent (22 percent with prevailing wage and apprenticeship multiplier).
