Analysis by Energy Workforce President Tim Tarpley
The House is moving forward on its reconciliation package, which will likely be the most impactful piece of legislation for our members this year, as it will include significant changes to tax and energy policy. The first step, the budget blueprint, has already narrowly passed the chamber, but the road will get much more difficult moving forward. The balance that Speaker Johnson is going to have to achieve is how to reach $1.5 trillion in spending cuts that were included in the blueprint and offset the cost of extending the 2017 tax cuts. Johnson’s goal is to get the bill through the House and to the Senate by Memorial Day, with the goal of having it on President Trump’s desk by July 4th. This is an aggressive timeline. However, the real deadline may be more likely to be mid-July when Treasury Secretary Scott Bessent says Congress needs to increase the country’s borrowing authority for the debt limit.
Relevant committees of jurisdiction have begun releasing their drafts to prepare for markups this week, and several significant energy tax credits have been proposed by the House Ways and Means Committee. Of note, the House Ways and Means draft moves the end date for the 45Y and 48E tax credits for nuclear power, wind, solar, batteries, geothermal and other technologies from 2032 to 2028. The credit values step down to 80% in 2029, 60% in 2030 and 40% in 2031 and fully zero out in 2032. Additionally, the draft tightens the eligibility requirement and now mandates that projects be “placed in service” to qualify for the credit. This change is significant because it means in practice that only projects that are currently “in the queue” will receive the full credit.
The proposed text creates a new two-year sunset on the IRA’s tax credit transferability mechanism, which was used by some developers with limited tax liability to raise capital. The language also expands the prohibitions on foreign ownership of entities that claim the credit. The 45Q tax credit for carbon capture and sequestration and the 45Z credit for fuel production have survived intact so far. The proposal maintains 45Q through 2032 and extends the 45Z credit through 2031, allowing biofuel and ethanol manufacturers more years to claim the credit. In contrast, 45V, the hydrogen production tax credit, is eliminated after 2025, effectively zeroing out the program.
Big changes for energy are also likely to emerge from the House Energy and Commerce Committee. The committee began markup of its portion of the reconciliation package this week, aiming to find $6.5 billion in cost savings. Notably, the language would end the IRA funding for the Loans Program office and the dedicated transmission projects. The LPO has received over $35 billion to distribute from the IRA. If this provision is passed, it would mean that any unobligated funds that have not already been distributed would be halted.
There are a number of provisions to expedite permitting for energy infrastructure projects, which has long been a goal of the industry. The legislation creates a process where DOE will automatically deem a potential LNG export facility to be in the “public interest” if the applicant pays a one-time fee of $1 million. This DOE permitting step is required for facilities that plan to export to non-FTA countries. This public interest permit is on top of the construction permit required by FERC and has long been a regulatory bottleneck for project approvals. Another provision would allow natural gas infrastructure developers to receive expedited permitting from FERC if a developer pays a one-time fee of $10 million or 1% of the project’s projected cost. The text would also dedicate $2 billion for the department to refill the Strategic Petroleum Reserve, which has long been requested by industry. If passed, this large amount will help to generate additional demand for US production.
The draft also takes a positive step by delaying the start of the “methane fee” or Waste Emissions Charge, which was implemented under the Inflation Reduction Act. Although Congress had already prohibited funds from being used for implementation, this additional step further makes the imposition of a methane fee anytime soon highly unlikely. This is a welcome step that EWTC has been advocating for since the passage of the IRA, and it is a welcome move by the committee. While the fee still technically exists, this move is likely a budgeting strategy; in a practical sense, it is essentially dead. This will bring certainty to US producers and ensure that we do not raise the cost of production in the United States.
Whether or not all of these provisions make it to final passage remains to be seen. After the committee’s markup of their portions of the bill, Speaker Johnson will have to ensure adequate support for the entire package on the floor. This is not yet certain. Should support be adequate, the House package still has to be ruled in order in the Senate, and the two bodies will have to work on a single version that can pass both chambers. There is still much more work to be done to get to that point.
Some Cooling of the US-China Trade War Following Meeting in Geneva This Past Weekend After meeting in Geneva over the weekend, the US and China have agreed to a dramatic lowering of the “reciprocal” tariffs that had been in place between the two countries since Liberation Day. These tariffs had effectively brought trade between the two countries to a standstill and threatened to disrupt the worldwide supply chain. The agreement lowers the reciprocal rate from 125% to 10%. Although the US will maintain the 20% tariff due to fentanyl, in practice, the tariffs on Chinese imports to the US will remain at 30%. This pause began on Wednesday of this week. This is a significant development, but many details are still to be determined as negotiations continue. A 90-day pause may not be long enough to resume US LNG exports to China, which have been halted since the trade dispute began. It is also still to be determined if the two parties can agree upon a larger, more long-term deal.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.
