A pivotal U.S. federal tax policy underpinning clean energy development is now under scrutiny with the incoming Trump administration and Republican-controlled Congress. Here’s what could change—and why strategic clean energy and tax credit buyers should act now.
The Inflation Reduction Act (IRA), signed into law by the Biden administration and Democrat-led Congress in August 2022, unlocked $800 billion to $1.2 trillion in tax credits and incentives for U.S. clean energy and manufacturing projects over the next decade. The law extended expiring tax credits for solar and wind while broadening and introducing new credits for manufacturing and emerging technologies. The IRA’s transferability feature allows project developers to sell tax credits at a discount to corporate taxpayers, enabling financing for developers with limited tax liabilities and tax savings for companies.
Since the IRA’s passage, hundreds of clean energy and tax credit purchase deals have been announced. The American Clean Power Association reports that over half of power purchase agreement (PPA) volumes in 2022–2023 were contracted by corporate buyers, while the National Renewable Energy Laboratory estimates voluntary procurement accounted for 44% of total clean energy procurements in the same period. The market for transferable tax credits has also grown remarkably fast, with estimated $25 billion in transactions for 2024—the first full year of the market.
However, with Republicans now in control of the White House and Congress following the 2024 election, the IRA faces significant scrutiny in 2025. The Trump administration has signaled its intent to prioritize fossil fuel development and extend expiring tax cuts from the Tax Cuts and Jobs Act, placing the IRA at the center of policy debates. In this evolving environment, Coho’s team has assessed potential changes to the IRA and their implications for clean energy and tax credit buyers.
IRA in the Crosshairs
While campaign rhetoric has suggested a full repeal of the IRA, such an outcome faces significant obstacles, given the Republican majority of just a handful of seats in both Congressional chambers and Republican support for several IRA provisions. In August 2024, eighteen House Republicans—thirteen of whom have been reelected or elected to the Senate—publicly urged Speaker Mike Johnson to reconsider a wholesale repeal. In their letter, they warned that “prematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing.”
This concern is rooted in economic realities: according to a recent E2 analysis, 60% of IRA-related projects and 85% of private sector investments are in Republican districts, with 19 of the top 20 districts held by Republicans. Separately, the American Clean Power Association reported $500 billion in announced investments tied to the IRA, $75 billion of which has already been made, creating over 100,000 jobs and supporting 160+ facilities across the U.S.
Despite growing private investments and Republican support, the IRA faces significant risk of revisions. One of the incoming Trump administration’s top priorities is extending the Tax Cuts and Jobs Act of 2017 (TCJA), projected to cost $4.4–5.3 trillion over the next decade. Additional tax breaks could push this to $7.8 trillion, while proposed tariffs, such as a universal 20% import tariff and a 50% tariff on Chinese imports, are expected to raise only $3.8 trillion—creating a substantial funding shortfall.
In pursuit of “pay-fors” to offset these tax measures, Republicans are likely to scrutinize federal spending programs, with the IRA emerging as a primary target due to its high cost and political prominence. The IRA’s reliance on tax incentives, which helped Democrats pass it through budget reconciliation with a slim majority, leaves it vulnerable to changes through the same legislative process during tax deal negotiations.
The IRA also struggles to secure widespread public support, as less than one-fifth of announced investments have progressed to the construction or operational phase, and public awareness of the law remains mixed and limited. While reelected House Republicans against a full repeal of the IRA outnumber the GOP’s projected margin in Congress, creating potential leverage for negotiations, maintaining the IRA in its current form will be politically challenging. Even supportive lawmakers may find direct tax cuts for all constituents more appealing than subsidies for select projects that may or may not reach operation—or resonate with voters—before the next election.
A Scalpel, Not a Sledgehammer
A few weeks after the House Republicans’ letter, Speaker Johnson told CNBC that he planned to “use a scalpel and not a sledgehammer” on the IRA—an approach now anticipated by many Washington insiders. Even the Republican signatories acknowledged the need for reforms, noting that “the partisan process of passing the IRA created a deeply flawed bill.”
Rather than pursuing a full-scale dismantling of the IRA, Republicans are expected to focus on selective repeal and modification of its provisions. While there is no clear consensus on which components will be targeted or how steadfast IRA advocates will remain under leadership pressure during broader tax negotiations, decisions are likely to depend on each credit’s cost and level of Republican support.
The most vulnerable provisions could be electric vehicle (EV) and energy efficiency incentives. These incentives, which rank among the costliest in the IRA, have faced strong opposition from Republicans in Congress and President-elect Trump, making them prime candidates for repeal. However, their limited relevance to clean energy generation and lack of transferability may reduce their overall impact on clean energy and tax credit buyers.
Investment tax credits (ITC) and production tax credits (PTC) for clean electricity are also at risk but less vulnerable than EV credits, given their deep-rooted precedents dating back to 1978 and the scale of business investments that has been made. These credits, which account for the largest portion of IRA spending and are primarily claimed by solar, wind, and energy storage projects, could face more moderate changes such as sunsets beginning earlier than 2033 or later, elimination of bonus adders tied to labor and location, and rollback of zero emissions requirements starting in 2025.
In contrast, provisions aligning more closely with Republican priorities are expected to remain largely intact. The domestic content adder for clean electricity tax credits and the advanced manufacturing PTC, which bolster U.S. manufacturing and supply chain resilience, align with key GOP campaign promises and are likely to face minimal changes—potentially adopting measures like the EV credits’ exclusion for certain foreign entities. Similarly, credits for hydrogen, nuclear, carbon capture, and alternative fuels, which enjoy strong Republican backing and come with significantly lower costs than other provisions, are strong candidates for preservation or even extension.
Some suggest Republicans might repeal the IRA’s transferability provision to limit tax credit monetization for clean energy projects. While a potential risk, transferability has become essential, especially for credits and emerging technologies favored by Republicans lacking access to traditional tax equity investments requiring sophisticated investors. Crux Climate’s Q3 2024 report highlights advanced manufacturing PTC, alternative fuels, and nuclear tax credits now comprise nearly half of all deals, with transferability transactions projected at $22–25 billion of $40 billion total credit activity in 2024. By broadening private sector participation, particularly among Republican-supported sectors, and avoiding direct payments and administrative burdens, transferability remains well-positioned for preservation.
The Trump administration and Republicans may also implement indirect changes to the IRA through the Department of Treasury, which oversees tax law rulemaking and implementation. Many tax credits still lack finalized Treasury regulations, leaving developers and investors reliant on proposed regulations and sub-regulatory guidance for clarity. The agency, soon to be led by Scott Bessent, who described the IRA as a “Doomsday machine for the deficit” and a key area for budget cuts, may delay, modify, or revoke unfinished guidance. Additionally, Republicans in Congress could leverage the Congressional Review Act (CRA) to repeal finalized regulations, such as those for clean electricity ITC and advanced manufacturing PTC issued in late 2024.
That said, Treasury is likely to wait for legislative direction before initiating significant changes that could disrupt business investments and face court challenges, especially given the Supreme Court’s overturning of the Chevron doctrine, which reduced deference to agency rulemaking. Meanwhile, Republican lawmakers have only 60 legislative days under the CRA to act on over 874 Biden-era rules and are likely to center on dismantling environmental regulations. Transferability guidance remains relatively secure in the near term, as reversing finalized rules issued earlier in 2024 would require lengthy formal processes spanning several years.
IRA is Not a Day-One Task
Each IRA provision carries unique political considerations for Republicans, leading to varying risk levels and opportunities for repeal or modification. However, even for the most vulnerable provisions, changes are unlikely to take effect right away. As previewed, adjustments to the IRA are expected to unfold within broader tax and budget discussions, which will compete with other day-one priorities. Aligning on these priorities and converting them into actionable legislation could take months or longer for the incoming administration and congressional Republicans.
Market participants broadly agree that legislative changes to tax laws like the IRA are expected to include “transition rules,” a standard approach to minimize disruptions to planned investments and ongoing projects. Historically, these rules have phased in or out adjustments over three to five years, gradually reduced credit values, and avoided retroactive changes or clawbacks of previously claimed tax benefits, which, if implemented by Congress, would be virtually unprecedented.
Furthermore, the Treasury has, for over a decade, relied on “safe harbor” provisions tied to the “beginning of construction (BOC)” dates. These mechanisms—requiring either incurring 5% of project costs or commencing major construction activities, with completion within four years of establishing BOC—have ensured projects retain eligibility for tax credits under existing statutes and guidance, offering both economic and regulatory certainty to developers and investors.
The Bottom Line: Start Today
Despite significant uncertainty, even if Republicans successfully repeal or modify the IRA in 2025, any resulting changes are unlikely to take effect before 2026 at the earliest. Developers relying on at-risk clean electricity ITC and PTC are already accelerating efforts to place projects in service or begin construction by the end of 2025 to secure eligibility for full credits under existing laws and regulations and expected transition rules and safe harbors. For projects that miss these deadlines, gradually reduced credit opportunities may be available, potentially extending through 2029.
For clean energy buyers seeking to meet targets within budget—particularly with new projects—this underscores the urgency to accelerate procurement now and contract currently marketed projects already underway or slated for completion within the next few years, with a high likelihood of full tax credit eligibility. Rising costs, driven by supply chain constraints and inelastic demand, have already significantly impacted the market. Coho’s Market Pulse shows that the lowest quantile Power Purchase Agreement prices have doubled from around $30/MWh in 2020 to $60/MWh in Q4 2024. The potential reduction or loss of clean electricity tax credits, valued at $10–$27/MWh according to Lazard’s levelized cost analysis, could further elevate prices by as much as 45%.
Procurement urgency is further amplified by the incoming Trump administration’s proposed trade policies, including double-digit tariffs on imports from China and other nations. The ultimate impact will depend on existing tariffs and restrictions, alternative supply sources, and the authority of Executive Orders and the rulemaking process. However, the globalized nature of clean energy supply chains means key materials such as steel for wind turbines, solar modules, and batteries could face additional price increases in the U.S., which will likely be passed on to clean energy buyers.
For transferable tax credit buyers looking for cash savings and funding for sustainability, there are compelling 2024 and 2025 opportunities largely insulated from potential changes to the IRA in 2026 and beyond. These credits offer attractive discounts ranging from 5% to 15%, payment in arrears, and opportunities to enable projects from utility-scale and community solar, wind, and storage to manufacturing, nuclear, and alternative fuels that will likely continue to come to market. Companies can buy 2024 credits through the extended filing deadline in 2025, and strategic buyers can also lock in 2025 credits early, enjoying less competition and higher returns.
Political and regulatory risks, including potential IRA changes, are carefully addressed in tax credit purchase agreements, which include seller indemnifications for key development and performance risks. “Change in law” clauses in particular can shield buyers from IRA and Treasury regulation changes, whether proposed or final. These clauses function as conditions precedent to signing and payment, giving buyers flexibility to reassess, defer, or terminate transactions if needed. Additionally, most active opportunities are backed by high-quality parent guarantees or A-rated tax insurance, providing further protection for cautious buyers.
Despite headwinds to the IRA and clean energy, there are near-term, de-risked opportunities for clients ready to act. Coho’s team works with clean energy and tax credit buyers across industries, sizes, and priorities, leveraging a network of hundreds of sellers and leading marketplaces to align and enable procurement with clients’ goals. Contact us to learn more and get started with a dedicated team experienced in strategic and contract advisory.
