How Trump’s Budget Bill is Slashing Green Energy Incentives

The signing of the “One Big Beautiful Bill Act” (OBBB Act) by President Donald Trump on 4 July marks a pivotal shift in the United States’ climate and energy trajectory. 

The sweeping legislation dismantles much of the clean energy incentives established under the Inflation Reduction Act (IRA), while expanding support for fossil fuel activities. 

The act radically alters tax credit timelines and access, setting off a rush among developers to start construction before new deadlines in 2025 and 2026. 

As the US exits international climate commitments and rolls back green energy support, local governments, clean tech firms and sustainability advocates face heightened uncertainty.

Stepping back from clean energy commitments

Under the new legislation, technology-neutral tax credits for power and storage projects are set to decline steeply. 

Solar and wind projects that begin construction by 31 December 2025 can avoid new restrictions, such as those targeting Chinese equipment under the Foreign Entity of Concern (FEOC) rules. 

Projects that start by 4 July 2026 are exempt from a hard deadline to be in service by the end of 2027, but any that fail to start by then must be operational by 2027 to qualify for tax credits.

The tax credit phase-outs are stark: after 2027, wind and solar projects lose access to both the Production Tax Credit (PTC) and Investment Tax Credit (ITC) unless they meet stringent conditions. 

According to Princeton University, this rollback could reduce new wind and solar capacity by 70 GW by 2030, raising household energy costs by US$165 per year and slashing emissions reductions from a target of 40% to just 3%.

Charging infrastructure at risk

The EV sector is hit particularly hard.

The Commercial Clean Vehicle Tax Credit (Section 45W), which provided US$7,500 to US$40,000 per vehicle, is repealed for vehicles acquired after 30 September 2025. 

This change affects electrification efforts across municipal fleets, including school buses, public works vehicles and police cars.

Similarly, the Alternative Fuel Infrastructure Tax Credit, supporting EV and hydrogen charging stations, is phased out for installations not in service by 30 June 2026. 

This undermines efforts to build out the charging networks necessary to support growing electric mobility.

On the consumer side, incentives like the Section 30D Clean Vehicle Tax Credit and Section 25E Used Clean Vehicle Credit will also expire in September 2025. 

Princeton analysis estimates this could result in eight million fewer EVs sold this decade.

Hydrogen and fuel cells

Hydrogen sees its own deadline advance. 

Projects must now be under construction by the end of 2027 to qualify for the Section 45V hydrogen production credit of up to US$3/kg – five years earlier than under the IRA. 

Fuel cell projects, however, gain an exemption from emissions tests and labour requirements to qualify for a 30% ITC, but only if construction begins after 2025. 

Unfortunately, those starting in 2025 fall into a legislative gap, qualifying for neither legacy nor new credits.

Energy storage and geothermal

Battery storage and geothermal projects retain tax credit access at full value through 2033, phasing down in 2034 and 2035. 

However, like solar and wind, these technologies face compliance with FEOC rules from January 2026. 

Given China’s dominance in battery supply chains, navigating these restrictions will be challenging. 

Geothermal may fare better due to a more domestic supply base, making it a more viable option for municipalities looking to deploy low-carbon heating and cooling systems.

Legal complexity

FEOC provisions bar projects and companies from claiming tax credits if they rely heavily on Chinese equipment, financing or technology agreements that amount to “effective control” by foreign entities of concern (including China, Russia, Iran and North Korea). 

While the rules officially take effect in 2026, their lack of clarity is already causing anxiety among developers. 

Taxpayers and local governments alike must now trace supply chains more rigorously than ever, or risk losing tax credit eligibility.

Carbon capture and clean fuels

The bill tightens conditions for Section 45Q tax credits for carbon capture. 

Projects must now meet narrower definitions and avoid ties to foreign entities. 

Credit values remain at US$85 per tonne for permanent sequestration and US$60 for reuse, but scope is limited.

Section 45Z clean fuel tax credits for sustainable aviation fuel (SAF) and renewable fuels are extended through 2029, though SAF credits drop to US$1/gal from 2026. 

Fuel feedstocks must come exclusively from North America, and complex accounting rules block credits for fuels already benefiting from other tax incentives.

Residential and community impact

The OBBB Act repeals several residential clean energy incentives, including:

• Section 25D rooftop solar credits, ending 31 December 2025
   
• Section 25C home energy efficiency credits, ending 31 December 2025
   
• Section 179D commercial efficiency deductions, ending 30 June 2026
   
• Section 45L new energy-efficient home credits, also ending 30 June 2026.

Without these, local homeowners and businesses lose incentives to invest in decarbonisation. 

“President Trump’s One Big, Beautiful Bill delivers on the commonsense agenda that nearly 80 million Americans voted for – the largest middle-class tax cut in history, permanent border security, massive military funding and restoring fiscal sanity,” comments Karoline Leavitt, Press Secretary for The White House.

“The pro-growth policies within this historic legislation are going to fuel an economic boom like we’ve never seen before. 

“President Trump looks forward to signing the One Big, Beautiful Bill into law to officially usher in the Golden Age of America.”

Combined with the repeal of grant programmes like the EPA’s GHG Reduction Fund and Climate Pollution Reduction Grants, the landscape for local clean energy investment darkens.

The road ahead

Local governments still have options. 

Projects that begin construction before end-2025 can still access tax credits under previous rules, and non-taxable entities can claim credit value as cash via elective pay mechanisms.

Municipalities should expedite construction timelines, especially for EV infrastructure, geothermal systems and battery storage, and intensify outreach to residents on ending tax credit opportunities.

While the OBBB Act represents a major setback for climate policy, it also reinforces the importance of local and state-level leadership in advancing sustainability, equity and resilience. 

With the federal framework weakened, community-led decarbonisation is more essential than ever.

President Trump’s sweeping rollback of clean energy support rewrites the future of sustainability in the US. 

The cancellation of EV, wind and solar incentives will reshape investment, alter job markets and drive emissions higher. 

Yet, windows of opportunity remain – especially for storage, geothermal and hydrogen projects that can navigate complex tax guidance and tight deadlines. 

For cities, developers and clean tech innovators, now is the time to move swiftly, adapt boldly and continue pushing for a more sustainable energy future.