Reform Green Energy Tax Credits

The Inflation Reduction Act of 2022 introduced or expanded numerous tax credits for green energy technology. The One Big Beautiful Bill Act repealed many of the individual-side tax credits and imposed limits or sharper phaseouts for many of the business-side credits.

This option further rolls back some of the remaining tax credits, all of which are scheduled to be temporary under current law. It repeals the clean fuel production credit and the carbon sequestration credit. It halves the clean electricity investment tax credit (from 30 to 15 percent), clean electricity production credit, and zero-emission nuclear electricity production credit. It also, where applicable, eliminates the prevailing wage and apprenticeship requirements and location-related bonuses.

Because the credits are temporary, repealing them does not raise the cost of capital in the long run, and so does not alter long-run investment incentives or output. The revenue raised from repeal reduces the budget deficit and federal government borrowing, which reduces interest payments to foreigners and raises American incomes as measured by GNP.

On a conventional basis, this option would decrease the primary deficit by $123.7 billion over the budget window. Long-run GDP would be unchanged, while long-run GNP would rise slightly. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 175.1 percent by 2056.

On average, in 2036, taxpayers would see decreases in their after-tax incomes of less than 0.05 percent.