Federal Legislation Changes Energy Landscape

Big changes are coming to the energy landscape with the recent passage of federal legislation that will promote the use of fossil fuels and takes an ax to tax credits and subsidies for renewable energy projects that have been surging.

The One Big Beautiful Bill, recently signed into law, will roll back many of the clean energy initiatives contained in the 2021 Inflation Reduction Act and eliminate credits for residential energy efficiency and electric vehicles.

The bill will eliminate credits of up to $7,500 for the purchase of a new EV effective Sept. 30. The number of EVs on the road has grown steadily in recent years, and was expected to account for between 13% and 29% by 2050 under previous projections. The previous Biden administration had set a goal for 50% of all vehicles sold in the U.S. to be zero-emission by 2050 to help address global warming. EV sales are now likely to slow due to the higher cost of EVs compared to gas-powered vehicles, which cannot be offset with a credit.

In addition, credits for residential energy efficiency projects, including rooftop solar systems and batteries, will also disappear at the end of 2025. That will likely slow the sale of rooftop systems, which have significant upfront costs, but save money and reduce emissions over their life span. Other energy efficiency projects like heating and cooling systems and insulation, will also not receive a credit.

Larger utility-scale wind and solar projects, as well as emerging technologies, are also expected to take a hit as tax credits will disappear in the coming years. Large-scale wind and solar projects must start construction within a year or be operational by the end of 2027 in order to qualify for full tax credits. However, an executive order issued by President Trump several days after the law was signed directed that a strict interpretation of the timeline and language that restrict companies from getting materials from “foreign entities of concern” such as China.

At the same time, the law promotes the use of natural gas and coal through tax credits, to spur production to meet rising energy needs that are predicted to grow even faster through the development of AI data centers. However, building new natural gas plants takes years and is expensive.

The law’s impact on the nation’s energy supply and mix remains to be seen, but a report from the REPEAT project at Princeton University forecasts that it will reduce new solar capacity additions by about 140 gigawatts and new wind capacity by about 160 gigawatts through 2035. Overall, clean electricity generation in 2035 will decrease by more than 820 terawatt-hours, “more than the entire contribution of nuclear or coal to our electricity supply today,” the report states.

That is likely to raise residential electric bills, as demand continues to rise and energy becomes more expensive to produce. The REPEAT report predicts average U.S. household energy costs will increase by roughly $165 per year in 2030 and more than $280 a year by 2035. The legislation will also increase greenhouse gas emissions into the atmosphere as fossil fuel use is encouraged and environmental laws are relaxed.