Senate Republicans have taken a significant step that may undermine President Biden’s cornerstone climate legislation. On Monday, the Senate Finance Committee released a draft of a comprehensive domestic policy bill that eliminates many tax breaks for the clean energy sector. These tax credits, which benefit wind and solar power, electric vehicles, and other clean energy solutions, were key features of the Biden administration’s climate agenda.
If enacted, this draft legislation will effectively neutralize the 2022 Inflation Reduction Act — the largest federal law aimed at addressing climate change. This development is likely to have far-reaching implications for the United States’ climate policies and its efforts to mitigate the impacts of global warming. The clean energy sector and climate activists have expressed disappointment, emphasizing the critical role these tax credits play in promoting sustainable energy solutions.
The rollback of these incentives may slow down progress toward the nation’s climate goals, raising concerns about the future of the clean energy industry in the U.S.
Observers are now keenly watching to see what comes next in the ongoing political debate over climate policy. The decision by Senate Republicans marks a pivotal moment in the larger discussion on how the U.S. will tackle climate change moving forward. The Senate version of the bill proposes to fully phase out both solar and wind power tax incentives by 2028, although it maintains incentives for nuclear, hydropower, and geothermal energy for a longer period.
In the premarket, solar stocks experienced significant declines, with some companies plummeting more than 17%, 12%, 27%, and even 22%. The renewable energy incentives were key components of former President Joe Biden’s Inflation Reduction Act (IRA). Republicans in the Senate are aiming to pass the bill before the Fourth of July holiday.
Senate’s impact on clean energy policy
The tax legislation also proposes raising the debt limit to $5 trillion from $4 trillion. The future of renewable energy investment remains uncertain as lawmakers deliberate on the final provisions of the tax bill.
While the Senate’s proposal is less drastic, extending tax credits for energy sources like nuclear, geothermal, and battery storage into the 2030s, it maintains a rapid phase-out of support for wind and solar power. The Senate proposal also eliminates generous federal subsidies for adopting energy-efficient technologies, such as heat pumps, rooftop solar panels, and electric vehicles. If the Senate text is passed and signed, the Finance Committee’s cuts — particularly removing hundreds of billions of dollars in tax credits for wind and solar — make it less likely that the U.S. will achieve the emissions reductions forecasted as a result of Biden’s law.
The original legislation aimed to cut U.S. emissions significantly from their 2005 peak by 2035, putting the country within reach of its goals under the 2015 Paris Agreement. Now, Democrats and environmentalists face the possibility that they overestimated the staying power of their climate victory. It remains uncertain if the Senate Finance Committee’s text can secure the 50 Republican votes needed to pass.
Some Republican senators have shown interest in preserving the tax credits, but it remains unclear if the current proposal’s preservation of credits is sufficient. As senators consider the Finance Committee’s text, Majority Leader Thune faces the challenge of balancing the priorities of ultra-conservative and moderate factions. The GOP can only afford three “no” votes.
Any bill the Senate passes must go back to the House for approval, and some House lawmakers have threatened to reject the legislation if the Senate makes significant changes. Despite the House’s nearly unanimous vote to phase out clean energy credits, the chamber remains divided.