By: Katie Tich, LEED AP BD+C, GGP
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4th, 2025 and overhauls federal policy across a swath of sectors, including taxes, spending, defense, healthcare, education, and – you guessed it – sustainability. Legislation like this can be difficult to digest, so this post will provide a bite-sized rundown of the bill’s impact on renewable energy and sustainable development.
Tax Reform
The OBBBA rapidly phases out consumer-facing and tech-neutral tax credits introduced and expanded by the 2022 Inflation Reduction Act (IRA) to promote renewable energy, electrification, and emission reductions [1]. The phaseout of these credits will largely affect electric vehicles and charging infrastructure, energy efficiency upgrades and improvements for residential and commercial properties, and wind and solar development projects. The administration has indicated an intention to strictly enforce the termination of these tax credits per the schedule in the OBBBA.
Some of the notable changes to tax credits for commercial development projects include:
- All credits are now subject to new Prohibited Foreign Entity (PFE) provisions. These provisions expand on, and are more stringent than, the original Foreign Entity of Concern (FEOC) provisions in the IRA [2], limiting tax credit eligibility for projects supported by entities, components, and/or technology from China, Russia, Iran, and North Korea) [3].
- Section 45Y Clean Electricity Production Credit terminated for wind and solar projects placed in service after 2027 [3].
- Section 48E Clean Electricity Investment Credit terminated for wind and solar projects placed in service after 2027 [3].
Additional changes to consumer-facing tax credits include:
- Section 25E Previously Owned Clean Vehicles terminated for vehicles purchased after September 30th, 2025 [4].
- Section 30D Clean Vehicle Credit terminated for vehicles purchased after September 30th, 2025 [4].
- Section 25C Energy Efficient Home Improvement Credit terminated for properties placed in service after December 31st, 2025 [4].
- Section 25D Residential Clean Energy Credit terminated for expenses incurred after December 31st, 2025 [4].
In contrast to these removals and the setbacks they pose to EV adoption and the clean energy transition, the OBBBA does leave in place a few programs that benefit climate change mitigation, including the continuation of tax credits for investment in commercial energy storage systems and the restoration of tax deductions for domestic research and development costs.
General Impacts
One clear impact of the tax credit phaseout for renewables is decreased investment in solar and wind. Without these credits, there will be a greater barrier to entry for new commercial systems, which will hinder national clean energy goals incentivized by the IRA. New PFE provisions may also disrupt the supply chain for domestic solar projects, since many U.S. solar companies rely on products from foreign entities (particularly China). Further, the phaseout of solar tax credits may have the unintended effect of decreasing U.S. influence on and participation in the global solar industry. China controls a significant portion of the global supply chain for solar energy, and the United States’ solar research programs have historically been deeply intertwined with China’s [5]; the stringent PFE provisions and accelerated phaseout of tax credits for renewables gives China the opportunity to further monopolize solar energy technology and attempt to “box out” U.S. innovation and influence.
Decreased tax incentives for electric vehicle (EV) adoption will also throw a wrench into the nationwide effort to transition to low- or zero-emission vehicles. The up-front cost of EVs is a critical barrier to adoption, and tax credits go a long way towards mitigating this cost for the average American family or business. Without EV tax credits, it is likely that fewer people will decide to transition to lower emission vehicles, which threatens overall emission reduction goals nationwide.
If you’re interested in learning more about the tax credit changes in the OBBBA, the Clean Energy Business Network (CEBN) has released a nifty one-pager summarizing them, available here.
Other Sustainability Impacts
In addition to phasing out tax credits, the OBBBA cuts federal funding to programs that support sustainability efforts nationwide. For instance, it rescinds unobligated funds from emission reduction grant programs, sustainable affordable housing programs, and public transit programs. With these cuts, there will be greater financial barriers across the U.S. to reducing emissions and developing more sustainable communities. New buildings will face greater challenges when pursuing energy efficiency retrofits, electrification, equipment upgrades, and code compliance. It will likely become more expensive for projects to achieve LEED certification, particularly with the recent LEED v5 system update that intensifies the very energy and carbon reduction requirements for which the OBBBA is removing financial support.
Changes in the OBBBA will also impact the environmental review process required by the National Environmental Policy Act (NEPA) for federal projects. Notably, the OBBBA adds a provision to NEPA allowing projects to pay for an expedited environmental review process. While this may have positive impacts on project timelines, efficiency, and infrastructure development, it raises concerns about:
- Diminished opportunities for stakeholders and the public to provide input and comment on the environmental implications of projects [6].
- Reduced comprehensiveness of environmental assessments, especially given the recent Supreme Court decision in Seven County Infrastructure Coalition v. Eagle County, which limits environmental review considerations to direct impacts [7].
Changes to NEPA requirements and implementing regulations are still in flux due to the uncertain impact of the OBBBA, recent court rulings, and recent executive orders. If you would like to learn more about how we got to this point, you can check out two informative blog posts on Straughan’s website by Andrew Der here and here.
Takeaways
While the OBBBA certainly dealt more than a few blows to sustainability across the U.S., the long-term impacts are still very much up in the air. It will likely take years for many of the downstream effects of this legislation to take shape. And, if you’re reading this from the state of Maryland, there is a silver lining – our state climate goals and priorities are still in place. Our community and state government will continue our ongoing efforts to protect the environment and promote a sustainable world – we will just need to rely less on federal funding to do so.
Citations
[5] https://doi.org/10.1016/j.enpol.2017.02.044
[7] https://www.supremecourt.gov/opinions/24pdf/23-975_m648.pdf