In a review of the draft reconciliation text proposed yesterday by the House Ways and Means Committee, the modelers at the nonpartisan Rhodium Group found that the bill would have a disastrous impact on the American economy “similar to the impact of a full repeal” of the Inflation Reduction Act’s clean energy tax credits. Their modeling demonstrates that the elimination of clean energy tax credits “effectively acts as an energy tax increase,” raising costs for consumers, increasing pollution, and putting hundreds of billions of dollars of private investment into American energy and domestic manufacturing capacity at risk. 

ICYMI: Rhodium Group: Ways and Means Brings the Hammer Down on Energy Credits

By: Ben King, Hannah Kolus, Michael Gaffney, Anna Van Brummen and John Larsen
May 13, 2025

Key Points:

• While we are still analyzing the package, our preliminary analysis shows that the impact of the proposal is likely to be similar to the impact of a full repeal of the energy tax credits initially extended and expanded in 2022. 

• This will raise energy costs for American households by as much as 7% in 2035, stifle energy technology innovation, increase pollution, and could put a meaningful portion of half a trillion dollars of new manufacturing, industrial, and clean electricity investments across the country at risk.

• Last year, House Speaker Mike Johnson argued that his members should use “a scalpel and not a sledgehammer” to make changes to energy-related tax credits. In recent months, he’s walked that back to “somewhere between a scalpel and a sledgehammer.” In fact, as a starting point, Ways and Means committee chair Jason Smith (R-MO) and other bill drafters have come down firmly on the sledgehammer end of the spectrum, targeting cuts to a host of provisions, including many that have attracted Republican support in recent weeks and months and historically have enjoyed bipartisan backing.

• Beyond the specific policy changes, the proposal will also require a hollowed-out federal bureaucracy to propose and finalize extremely complicated and unprecedented implementation rules before investors and developers will have the certainty they need to make investment decisions. It took the first Trump administration nearly three years to finalize regulations for implementing the 45Q tax credits for carbon capture, rules which pale in comparison to the complexity of what will be required to implement key portions of the Ways and Means proposal.

• An often-stated goal of these changes is to bring costs down for American households. We find that repealing the energy tax credits has the opposite effect, increasing household energy costs by $95-290 in 2035—a 2-7% increase in costs that year. Repealing tax credits effectively acts as an energy tax increase.

• An outright repeal of the energy tax credits similar to the Ways and Means proposal reduces the amount of new clean capacity installed on the grid from 2025 through 2035 by 57-72% (Figure 4). The lion’s share of the decline in capacity comes from lower growth of renewables and storage, and there is no meaningful uptick in non-renewable clean capacity.

• The near full repeal of energy tax credits in the Ways and Means language have an outsized effect on innovative emerging clean technologies like enhanced geothermal, advanced nuclear, long duration storage, and fusion. 

• Developers of these technologies are counting on the long-term availability of the tax credits in current law to support initial projects that are unlikely to be placed in service before 2028. The FEOC constraints on clean electric credits and manufacturing tax credits will make it harder to develop and scale supply chains to accelerate technology deployment and drive down costs.

• The Ways and Means proposal will stifle innovation at a time when the US needs all the power it can get to meet surging electric demand.

• Between investments in these manufacturing facilities as well as investment dollars flowing from installing clean electricity and industrial facilities, $321 billion was invested from mid-2022 through the first quarter of 2025—but a total of $522 billion in investment remained outstanding as of Q1. Steep reductions in clean energy technology deployment plus the proposed material sourcing constraints on clean manufacturing tax credit eligibility could put a meaningful amount of that $522 billion in outstanding investment at risk.

• The net result of proposed tax policy changes on the energy system leads to a meaningful reduction in the pace of decarbonization. Repealing the energy tax credits increases emissions by 500-730 million metric tons in 2035 relative to the baseline and more than a gigaton compared to Taking Stock 2024.

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