Navigating the One Big Beautiful Bill Act: Critical Updates to Clean Energy Credits
President Donald J. Trump signed H.R. 1, the One Big Beautiful Bill Act (OBBBA), into law on 4 July 2025 in an afternoon signing ceremony at the White House (Pub. L. No. 119-21). Senate Majority Leader John Thune (R-SD) declared it to be a “generational—once in a generation kind of piece of legislation.”1 The legislation makes significant changes to many clean energy tax incentives that were created by the Inflation Reduction Act (IRA). These include accelerating the beginning of construction (BOC) date for hydrogen and certain wind and solar facilities and revising the terms of eligibility for the advanced manufacturing production tax and clean transportation fuels.2 The OBBBA also adds new “prohibited foreign entity” (PFE) rules that will restrict certain foreign entities and their affiliates from claiming tax credits and—perhaps more significantly for US developers—will prohibit energy projects and eligible components that incur too high a percentage of their costs from prohibited foreign entities from eligibility for tax credits.
This alert includes an overview of key changes to clean energy tax policy in the bill, followed by a matrix providing more details about the full array of clean energy credits affected by the OBBBA.
A Quick Overview of Key Changes
Wind and Solar
Wind and solar facilities are particularly impacted by aggressive credit phaseouts in the OBBBA. If construction of a wind or solar facility begins after 4 July 2026, such facility must be placed in service no later than 31 December 2027 to be eligible for production tax credits (the PTC under Section 45Y) or investment tax credits (the ITC under Section 48E). This requirement is expected to cause developers to race to begin construction by the applicable deadline. As discussed below, this BOC deadline is complicated by President Trump’s 7 July 2025 Executive Order (EO) and what appears to be two sets of BOC rules that taxpayers will need to comply with to qualify for wind and solar tax credits.
Wind and solar facilities are also subject to rigorous foreign entity restrictions. PFEs, discussed in more detail below, are prevented from claiming tax credits outright. Further, taxpayers must be able to demonstrate that a certain percentage of direct labor and material costs come from nonprohibited foreign sources for facilities to be credit eligible. Further discussion on this material assistance cost ratio (MACR) computation is included below.
Wind and solar facilities beginning construction before 5 July 2026 generally will be subject to the rules as prescribed in the IRA, subject to applicable foreign entity of concern restrictions.
Hydrogen
Hydrogen production facilities must begin construction no later than 31 December 2027 to be credit eligible, accelerating the termination of the Section 45V credit from the IRA’s original requirement to begin construction before 1 January 2033. Unlike wind and solar, the hydrogen PTC is not subject to enhanced foreign entity rules; like wind and solar, the President’s EO could impact the ability of planned facilities to meet BOC thresholds.
Advanced Manufacturing of Eligible Components
Wind components sold after 31 December 2027 will not qualify for the advanced manufacturing PTC under Section 45X. The bill imposes a phase-out schedule for critical minerals, beginning in 2031, except for metallurgical coal (added to the list of eligible critical minerals), which terminates on 31 December 2029. Critical minerals and the direct material costs of all eligible components are subject to MACR thresholds, with the percentages of non-PFE materials varying depending on the components.
Clean Transportation Fuel
The clean transportation fuels PTC is extended from 31 December 2027 to 31 December 2029. PFEs are ineligible for the credit. The special credit rate for sustainable aviation fuel was eliminated. Feedstocks must be produced in the United States, Mexico, or Canada. Negative emissions rates are generally not allowed to be used to compute the credit, and indirect land use changes are disregarded when determining emissions rates.
Prohibited Foreign Entity Restrictions
Federal policy has increasingly sought to restrict reliance on entities from certain countries, with restrictions included in, for instance, recent defense authorization acts (e.g., Pub. L. No. 116-283), the CHIPS Act (Pub. L. No. 117-167), and the IRA (Pub. L. No. 117-169). The OBBBA expands these evolving rules to prevent most of the available energy tax credits from being claimed by PFEs.
PFEs are defined as one of two primary categories, “specified foreign entities, or SFEs,” and “foreign-influenced entities, or FIEs.” These categories generally target “countries of concern” such as China, Iran, Russia, and North Korea. SFEs are entities specifically noted in the legislative text, such as certain Chinese military companies, companies found to be relying on forced labor from the Xinjiang Uyghur Autonomous Region, or entities controlled by such entities. FIEs are entities subject to a certain level of control by one or more SFEs, or that cede “effective control” over certain aspects of the relevant creditable activity. Publicly traded entities, which may have a more difficult time tracking specific ownership of shares, face different applications of these rules. The rules are written so that certain affiliates and related parties of a PFE may fall within the scope of the restriction. In the legislative text, Congress provided specific direction to the Treasury Secretary for guidance “as may be necessary or appropriate” for these terms, with particular reference to “effective control” and “foreign-influenced entities.”
The bill also imposes a MACR test for wind, solar, and other clean electricity credits, and the advanced manufacturing PTC. The MACR requires a certain percentage of direct labor and materials costs (in the case of facilities) and the direct materials costs (in the case of eligible components) to be from a non-PFE source. If the MACR falls below the prescribed percentages for facilities, battery storage, and the various eligible components, the facility, storage, or component is not eligible for the relevant credit. Taxpayers may use Internal Revenue Service (IRS) Notice 2025-08 (originally released to provide a safe harbor for taxpayers claiming the domestic content bonus credit) and a certification from suppliers attesting to non-PFE costs as safe harbors to determine percentages of costs until the Secretary of the Treasury releases his own safe harbor table and related guidance no later than 31 December 2026. The domestic content bonus criteria and the MACR criteria are not the same, so use of the notice may be a bit like fitting a square peg into a round hole.
Applicability of the MACR is applicable for facilities beginning construction after 31 December 2025. The OBBBA codifies IRS Notices 2013-29 and 2018-59 to define BOC for this purpose. As discussed in the following section, codifying these notices for purposes of the MACR and not for other purposes is expected to create additional complexities and challenges for taxpayers trying to comply with already complicated rules.
Beginning of Construction
The BOC concept has been important to the development of renewable energy facilities for many years, integrated into the Section 1603 grant program (part of the American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5), which allowed projects to qualify for the grants for an extensive period so long as the project was under construction in 2009 or 2010 (and other relevant grant requirements had been met). The extension of the PTC and ITC under the American Taxpayer Relief Act of 2012 (Pub. L. No. 112-240) extended the commence construction language to the PTC and, subsequently, the Protecting Americans from Tax Hikes of 2015 (included in the Consolidated Appropriations Act, 2016, Pub. L. No 114-113) extended the commence construction rules to the ITC in the context of short-term extensions of the credits.
BOC dates are critical to determine eligibility for several of the tax credits. During the development of the OBBBA, Congressional Republicans were at odds over the use of BOC and whether a placed-in-service date was more appropriate (which would generally have the effect of a shorter timeline to qualify for the tax credits). While a BOC date approach ultimately prevailed, and taxpayers expected they could rely on the long-established notices to substantiate BOC, on 7 July 2025—only three days after signing the legislation—President Trump issued EO 14315, “Ending Market Distorting Subsidies for Unreliable, Foreign-Controlled Energy Sources,” directing the Secretary of the Treasury to take action no later than 18 August 2025 to:
“Strictly enforce the termination of the clean electricity production and investment tax credits under sections 45Y and 48E of the Internal Revenue Code for wind and solar facilities. This includes issuing new and revised guidance as the Secretary of the Treasury deems appropriate and consistent with applicable law to ensure that policies concerning the “beginning of construction” are not circumvented, including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built.”
EO 14315 has introduced considerable concern for investors and facilities who thought they could rely on the IRS BOC notices but are now concerned that the rules, including several safe harbors, could change, rendering their projects ineligible for the tax credits. Guidance pursuant to the EO is expected to be issued in sub-regulatory form, meaning there will not be a public notice and comment period to allow stakeholders the opportunity to provide meaningful input or to receive much (if any) advance notice of relevant changes.
The EO appears to apply only to non-PFE BOC criteria because the codification of the IRS notices is included in the PFE section of the OBBBA. This could have the practical effect that taxpayers claiming wind and solar credits will need to take two separate BOC tests into account: one for the MACR and another for determining whether BOC occurs prior to 5 July 2026. Due to these complexities, taxpayers may have questions if and when any additional BOC guidance is released, including as it relates to the enforceability of such guidance.
A Quick Reference Guide
The following matrix is intended to be a handy guide to quickly identify many of the changes to the clean energy tax credits in the OBBBA. Note that this alert does not address every revision to IRA tax credits in the bill and is meant only as a general reference.
What’s Next?
The EO is likely only the beginning of guidance that will be developed to implement the OBBBA changes to clean energy tax credits. New and reopened regulatory projects, notices, and other sub-regulatory guidance, as well as IRS forms and procedures, are expected. Please contact any of the authors of this alert with questions about the bill and to discuss how to engage in the forthcoming guidance process.
Category of Change |
New Provisions |
| 45Y – Clean Electricity Production Tax Credit | |
| Duration |
For wind and solar facilities that begin construction after 4 July 2026: the credit is prohibited for projects that are placed in service after 31 December 2027. For all other qualified facilities that begin construction after 4 July 2026: beginning in 2034, the credit is phased down for qualifying facilities that begin construction through 2035. The phase-out percentages are3:
For all qualified facilities that begin construction on or before 4 July 2026: the credit begins to phase down for facilities beginning construction after the later of 2032 or the first calendar year when the United States achieves a 25% reduction in greenhouse gas (GHG) emissions compared to 2022 (applicable year). The phase-out percentages are:
|
| PFE Restrictions |
For a facility that begins construction after 31 December 2025, no credit is allowed for a project that includes any material assistance from a prohibited foreign entity. The bill introduces MACRs, safe harbors, and other thresholds to determine whether this provision is violated.i New supplier and penalty rules related to material assistance are also established. See Appendix A for applicable MACRs.
An entity is an FIE if an SFE exercises influence through any of the following:
For the purpose of determining whether the PFE rules apply to a project based on the date it begins construction, the OBBBA codifies IRS notices defining the BOC.4 |
| Transferability | Prohibits the transfer of any portion of the credit to an SFE, effective for taxable years beginning after 4 July 2025. |
| Other Provisions |
Creates a new subsection prohibiting a taxpayer from claiming the credit for investments with respect to qualifying property5 that is rented or leased to a third party. For the purposes of qualifying advanced nuclear facilities, a new category of “energy community” is added to include areas with high rates of employment related to the advancement of nuclear power. |
| 48E – Clean Electricity Investment Tax Credit | |
| Duration |
For wind and solar facilities that begin construction after 4 July 2026, the credit is prohibited for projects that are placed in service after 31 December 2027. For all other qualified facilities and energy-storage technologies that begin construction after 4 July 2026: beginning in 2034, the credit is phased down for qualifying facilities that begin construction through 2035. The phase-out percentages are:
For all qualified facilities and energy-storage technologies that begin construction on or before 4 July 2026, the credit begins to phase down for facilities beginning construction after the later of 2032 or the first calendar year when the United States achieves a 25% reduction in GHG emissions compared to 2022. The phase-out percentages are:
|
| PFE Restrictions |
For a facility or energy-storage technology that begins construction after 31 December 2025, no credit is allowed for a project that includes any material assistance from a prohibited foreign entity.6 The bill introduces MACRs, safe harbors, and other thresholds to determine whether this provision is violated. New supplier and penalty
rules related to material assistance are also established. See Appendix A for applicable MACRs. No credit is allowed for taxable years beginning after 4 July 2025 if the taxpayer is an SFE or an FIE. If, within 10 years of placing in service property eligible for the section 48E credit, a taxpayer makes an “applicable payment”iv to a PFE, then 100% of the section 48E credit for that property is recaptured during the taxable year in which the applicable payment occurs. |
| Transferability | Prohibits the transfer of any portion of the credit to an SFE, effective for taxable years beginning7 after 4 July 2025. |
| Other Provisions |
Creates a new subsection prohibiting a taxpayer from claiming the credit for investments with respect to qualifying property8 that is rented or leased to a third party. Removes the 2% Section 48 ITC for other energy property effective for property beginning construction on or after 16 June 2025. Allows fuel cell projects that begin construction after 2025 to qualify for a 30% credit under section 48E. Revises Section 48E(a)(3)(B) to align domestic content bonus credit percentages to 45Y, effective on or after 16 June 2025.9 The language applies to new facilities and energy-storage technology. |
| 45X – Advanced Manufacturing Production Credit | |
| Duration |
Beginning in 2031, the credit begins phasing out for the production of critical minerals as follows:
Eliminates the credit for wind energy components produced and sold after 31 December 2027. Integrated components can continue to qualify for the credit if they are produced in the same facility. The bill also adds a requirement that the secondary component sold to an unrelated person must have at least 65% US content based on total direct material costs. These restrictions are effective for components sold after 31 December 2026. |
| PFE Restrictions |
In general, for taxable years beginning after the date of enactment, components including any material assistance from a PFE are ineligible for the credit, with an exception for certain property sold before 1 January 2027. The bill introduces MACRs, safe harbors, and other thresholds to determine whether this provision is violated. New supplier and penalty rules related to material assistance are also established. See Appendix A for applicable MACRs. No credit is allowed for taxable years beginning after 4 July 2025 if the taxpayer is an SFE or an FIE.10 |
| Transferability | Prohibits the transfer of any portion of the credit to an SFE, effective for taxable years beginning after 4 July 2025. |
| Other Provisions |
Metallurgical coal is added as an applicable critical mineral for purposes of 45X, effective for metallurgical coal produced before 1 January 2030. The definition of a battery module is modified. |
| 45V – Clean Hydrogen Production Credit | |
| Duration | Repealed for facilities that begin construction after 31 December 2027. |
| 45Z – Clean Fuel Production Credit | |
| Duration | Extended for fuel sold through 31 December 2029 (from 2027). |
| PFE Restrictions |
No credit is allowed for taxable years beginning after 4 July 2025 if the taxpayer is an SFE. No credit is allowed for taxable years that begin two years after 4 July 2025 if the taxpayer is an FIE. |
| Transferability | Prohibits the transfer of any portion of the credit to an SFE, effective for taxable years beginning after 4 July 2025. |
| Other Provisions |
Includes a prohibition on feedstocks produced or grown outside of the United States, Mexico, and Canada, effective for transportation fuel sold for taxable years beginning after 31 December 2025. Multiple changes are made to how emission rates are calculated, including:
Language is added authorizing the Treasury Secretary to provide rules addressing certain related-party sales. Language is added seeking to prevent a taxpayer from claiming the credit twice, requiring that a qualifying fuel “is not produced from a fuel for which a credit under this section is allowable.” The special rate for SAF is eliminated for fuel produced after 31 December 2025. The Section 6426(k) SAF credit is terminated, effective for SAF sold or used after 30 September 2025. Extends through 31 December 2026 the 40A Small Agri-Biodiesel Producer Credit. This credit is also increased from US$0.10/gallon to US$0.20/gallon and is allowed to be transferred, effective for fuel sold or used after 30 June 2025. |
| 45Q – Carbon Oxide Sequestration Credit | |
| Transferability | Prohibits the transfer of any portion of the credit to an SFE, effective for taxable years beginning after 4 July 2025. |
| PFE Restrictions |
No credit is allowed for taxable years beginning after 4 July 2025 if the taxpayer is an SFE or an FIE. |
| Other Provisions | Modifications are made to provide parity of credit values for captured carbon oxide that is secured and carbon oxide that is used first and then sequestered, effective for equipment or facilities placed in service after 4 July 2025. |
| 45U – Zero-Emission Nuclear Power Production Credit | |
| Transferability | Prohibits the transfer of any portion of the credit to an SFE, effective for taxable years beginning after 4 July 2025. |
| PFE Restrictions |
No credit is allowed for taxable years beginning after 4 July 2025 if the taxpayer is an SFE. No credit is allowed for taxable years that begin two years after 4 July 2025 if the taxpayer is an FIE. |
| 45W – Qualified Commercial Clean Vehicles Credit | |
| Duration | Terminated for vehicles acquired after 30 September 2025. |
| 30D – Clean Vehicle Credit | |
| Duration | Terminated for vehicles acquired after 30 September 2025. |
| 25E – Previously Owned Clean Vehicle Credit | |
| Duration | Terminated for vehicles acquired after 30 September 2025. |
| 30C – Alternative Fuel Vehicle Refueling Property Credit | |
| Duration | Repealed for property placed in service after 30 June 2026. |
| 25C – Energy Efficient Home Improvement Credit | |
| Duration | Repealed for property placed in service after 31 December 2025. |
| 25D – Residential Clean Energy Credit | |
| Duration | Repealed with respect to any expenditures made after 31 December 2025. |
| 45L – New Energy Efficient Home Credit | |
| Duration | Repealed for any qualified new energy-efficient home acquired after 30 June 2026. |
| 179D – Energy Efficient Building Deduction | |
| Duration | Terminated for property beginning construction after 30 June 2026. |
| 168(e) – Special Cost Recovery for Clean Energy Property | |
| Duration | Repeals the accelerated five-year recovery period for certain clean-energy property. |
| 48C – Qualifying Advanced Energy Project Credit | |
| Duration | Restricts funds returned to the Secretary from being reissued, effective on 4 July 2025. |
This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm's clients.
