Federal EV tax credit: unnecessary, inefficient, unpopular, costly, and unfair

In April, Senator Debbie Stabenow (D-MI) introduced the Drive America Forward Act, a bill that would expand the tax credit for new plug-in electric vehicles (EVs) by allowing an additional 400,000 vehicles per manufacturer to be eligible for a credit of up to $7,000. Currently, the tax credit is worth up to$7,500 until a manufacturer sells more than 200,000 vehicles. In late September, groups that stand to benefit from the extension of the federal tax credits wrote to Senator McConnell and other leaders in Congress, encouraging them to support on the Drive America Forward Act. As IER has documented in the past, lawmakers should not extend the EV tax credit as the policy is unnecessary, inefficient, unpopular, costly, and unfair.

Unnecessary and inefficient

The EV tax credit is not necessary to support an electric vehicle market in the U.S. as one group estimates that 70 percent of EV owners would have purchased their vehicle without receiving a subsidy, which is reasonable seeing as 78 percent of credits go to households making more than $100,000 a year.  Furthermore, the federal tax credit overlaps with a number of other government privileges for EVs, including:

  • State rebates and/or other favors (reduced registration fees, carpool-lane access, etc.) in California, as well as in 44 other states and the District of Columbia.
  • Tax credits for infrastructure investment, a federal program that began in 2005 and, after six extensions, expired in 2017.
  • Federal R&D for “sustainable transportation,” mainly to reduce battery costs, averaging almost $700 million per year.
  • Credit for EV sales for automakers to meet their corporate fuel economy (CAFE) obligations.
  • Mandates in California and a dozen other states for automakers to sell Zero-Emission Vehicles—a quota in addition to subsidies.

Even if the federal tax credits were needed to support demand for EVs, the extension of the tax credit would be an absurdly inefficient means of achieving the stated goal of the policy, which is ostensibly to lower carbon emissions. The Manhattan Institute found that electric vehicles will reduce energy-related U.S. carbon dioxide emissions by less than 1 percent by 2050.

Unpopular

Lawmakers should be aware that the vast majority of people do not support subsidizing electric vehicle purchases. The American Energy Alliance recently released the results of surveys that examine the sentiments of likely voters about tax credits for electric vehicles. The surveys were administered to 800 likely voters statewide in each of three states (ME, MI and ND). The margin of error for the results in each state is 3.5 percent.

The findings include:

  • Voters don’t think they should pay for other people’s car purchases. In every state, overwhelming majorities (70 percent or more) said that while electric cars might be a good choice for some, those purchases should not be paid for by other consumers.
  • As always, few voters (less than 1/5 in all three states) trust the federal government to make decisions about what kinds of cars should be subsidized or mandated.
  • Voters’ sentiments about paying for others’ electric vehicles are especially sharp when they learn that those who purchase electric vehicles are, for the most part, wealthy and/or from California.
  • There is almost no willingness to pay for electric vehicle car purchases. When asked how much they would be willing to pay each year to support the purchase of electric vehicles by other consumers, the most popular answer in each state (by 70 percent or more) was “nothing.”

The full details of the survey can be found here.

Costly and unfair

Most importantly, an extension of the federal EV tax credit is unfair as the policy concentrates and directs benefits to wealthy individuals that are predominantly located in one geographic area, namely California. A breakdown of each state’s share of the EV tax credit is displayed in the map below:

In 2018, over 46 percent of new electric vehicle sales were made in California alone. Given that California represents only about 12 percent of the U.S. car market, this disparity means that the other 49 states are subsidizing expensive cars for Californians.  However, in order to understand the full extent of the benefits that people in California are receiving, some further explanation is in order.

When governments enact tax credit programs that favor special businesses without reducing spending, the overall impact is parallel to a direct subsidy as the costs of covering the tax liability shift to the American taxpayer or are subsumed in the national debt (future taxpayers). California offers a number of additional incentives on top of the federal tax credit for electric vehicles that are also driving demand for EVs in the state. These incentives include an additional purchase rebate of up to $7,000 through the Clean Vehicle Rebate Project, privileged access to high-occupancy vehicle lanes, and significant public spending on the infrastructure needed to support EVs. Therefore, the additional incentives that California (and other states) offer to promote EVs have broader impacts as these policies incentivize more people to make use of the federal tax credit, passing their costs on to American taxpayers. In other words, you’re not avoiding the costs of California’s EV policies by not living in California.

This problem is made even worse when we consider the impact of zero-emission vehicle (ZEV) regulations, which require manufacturers to offer for sale specific numbers of zero-emission vehicles. As recently as 2017, auto producers have been producing EVs at a loss in order to meet these standards, and they have been passing the costs on to their other consumers. This was made apparent in 2015 by Bob Lutz, the former Executive Vice President of Chrysler and former Vice-Chairman of GM, said:

“I don’t know if anybody noticed, but full-size sport-utilities used to be — just a few years ago used to be $42,000, all in, fully equipped. You can’t touch a Chevy Tahoe for under about $65,000 now. Yukons are in the $70,000. The Escalade comfortably hits $100,000. Three or four years ago they were about $60,000. What this is, is companies trying to recover what they’re losing at the other end with what I call compliance vehicles, which are Chevy Volts, Bolts, plug-in Cadillacs and fuel cell vehicles.”

Fiat Chrysler paid $600 million for ZEV compliance credits in 2015 (plus an unknown amount of losses on their EV sales), and sold 2.2 million vehicles, indicating Fiat Chrysler internal combustion engine (ICE) buyers paid a hidden tax of approximately $272 per vehicle to subsidize wealthy EV byers. ICE buyers were 99.3 percent of U.S. vehicle purchases in 2015. So, even if half the credits purchased were for hybrids, each EV sold in 2015 was subsidized by more than $13,000 in ZEV credit sales, in addition to all of the other federal, state, and local subsidies.

As is typical with most policies that benefit a politically privileged group, the plan to extend the federal tax credit program comes with tremendous costs, which are likely being compounded by people abusing the policy.  One estimate found that the overall costs of the Drive America Forward Act would be roughly $15.7 billion over 10 years and would range from $23,000 to $33,900 for each additional EV purchase under the expanded tax credit. Seeing as the costs of monitoring and enforcing the eligibility requirements of the EV tax credit program are not zero, it should surprise no one that the program has been abused as it has recently come to light that thousands of auto buyers may have improperly claimed more than $70 million in tax credits for purchases of new plug-in EVs. Finally, additional concerns arise over the equity of the federal EV tax credit due to the fact that half of EV tax credits are claimed by corporations, not individuals

End this charade

When the tax credit was first adopted, politicians assured us that the purpose of the program was to help launch the EV market in the U.S. and that the tax credit would remain capped at the current limit of 200,000 vehicles. At that time, we warned that once this program was in place, politicians would continue to extend the cap in order to appease the demands of manufacturers and other political constituencies that were created by the program. A decade later, we find ourselves in that exact situation. At this point, it should be clear that Congress should not expand the federal EV tax credit as the program is nothing more than an extension of special privileges to wealthy individuals and corporations that are mostly located in California. If Congress can’t find the courage to put an end to such an unfair and inefficient policy, President Trump should not hesitate to veto any legislation that extends the federal EV tax credit, as doing so would be consistent with his approach to other energy issues such as CAFE reform.


AEA to Senate: Highway Bill is Highway Robbery

WASHINGTON DC (July 30, 2019) – Today, Thomas Pyle, President of the American Energy Alliance, issued a letter to Senate Environment and Public Works Committee Chairman John Barrasso highlighting concerns about the recently introduced America’s Transportation Infrastructure Act. Included in the legislation is an unjustified, $1 billion handout to special interests in the form of charging stations for electric vehicles.  AEA maintains that provisions like this are nearly impossible to reverse in the future and create a regressive, unnecessary, and duplicative giveaway program to the wealthiest vehicle owners in the United States. 
 
Read the text of the letter below:
 

Chairman Barrasso,

The Senate Committee on Environment and Public Works is scheduled to consider the reauthorization of the highway bill and the Highway Trust Fund today.  At least some part of this consideration will include provisions that provide for $1 billion in federal grants for electric vehicle charging infrastructure.  This is among $10 billion in new spending included in a “climate change” subtitle.  All of this new spending is to be siphoned away from the Highway Trust Fund (HTF), meant to provide funding for the construction and maintenance of our nation’s roads and bridges.  The HTF already consistently runs out of money, a situation that will only be exacerbated by these new spending programs.

We oppose this new federal program for EV infrastructure for a number of reasons, including, but not limited to the following:

  • The grant program, once established in the HTF, will never be removed.  Our experience with other, non-highway spending in the trust fund (transit, bicycles, etc.) is that once it is given access to the trust fund, the access is never revoked.  Our nation’s highway infrastructure already rates poorly in significant part due to the diversion of highway funds to non-highway spending.
  • As we have noted elsewhere, federal support for electric vehicles provides economic advantages to upper income individuals at the expense of those in middle and lower income quintiles.  This grant program would exacerbate that problem.
  • This program will result in taxpayers in States with few electric vehicles or little desire for electric vehicles having their tax dollars redirected from the roads they actually use to subsidize electric vehicle owners in States like California and New York.
  • This program is duplicative.  There is already a loan program within DOE that allows companies and States to get taxpayer dollars to subsidize wealthy electric vehicle owners.

For these and other reasons, we oppose the provisions that would create a regressive, unnecessary, and duplicative giveaway program to wealthy, mostly coastal electric vehicle owners.  This giveaway not only redirects taxpayer money from the many States to the few, in looting the Highway Trust Fund it also leaves those many States, including Wyoming, with less money to maintain their own extensive road networks.


Sincerely,

Thomas J. Pyle

Congress Finalizes Passage of Rescission Package

WASHINGTON DC (07/18/2025) – Late last night, the U.S. House finalized passage of President Trump’s proposal to rescind $9.4 billion in budget authority, H.R. 4, which includes the full $125 million appropriated for FY 2025 to the Clean Technology Fund (CTF). This legislation now heads to the President’s desk for signature.

American Energy Alliance President Tom Pyle released the following statement:

“Congratulations to President Trump and to the American taxpayers for yet another legislative win that reduces wasteful government spending. As we’ve said repeatedly, this is how government is supposed to work – the days of writing blank checks to pet projects with no accountability are over.

“While this package contains many necessary clawbacks, we are especially pleased to see the Clean Technology Fund (CTF) cut. The CTF, launched during the first Obama administration, has received over $3 billion from the United States since its inception, making the U.S. the largest donor to the fund by far. It has been sold as an ‘investment fund’ for clean technology, when in reality it is nothing more than a slush fund to subsidize the world’s energy experiments on the back of the American people.

“Through all of the debate in both the House and Senate on the rescission package, the cuts to CTF funding have remained, meaning the majority of Members in both Chambers recognize it for the boondoggle that it is. Enough is enough – the American people, and citizens around the world, deserve access to affordable, reliable energy, and the responsible stewardship of their hard-earned tax dollars, not ideologically driven schemes.”

AEA Experts Available For Interview On This Topic:

Additional Background Resources From AEA:

For media inquiries please contact:
[email protected]

What The One Big Beautiful Bill Means for American Energy

The “One Big Beautiful Bill Act” represents a sweeping overhaul of U.S. energy policy, aimed at reshaping the federal government’s role in energy markets and reversing key provisions of the Inflation Reduction Act. With a clear emphasis on fossil fuel production and energy independence, the legislation mandates new oil and gas lease sales across federal lands and offshore areas, revives tax advantages for producers, and loosens regulatory burdens that had previously constrained the industry. These changes signal a strategic pivot away from the Biden-era approach. The bill reflects a renewed focus on maximizing domestic energy output and scaling back federal support for clean energy technologies — all under the banner of strengthening U.S. economic and energy security. We examine how the legislation reshapes oil and gas production policy and the broader implications for energy markets and environmental goals.

Oil and Gas Production

The newly enacted One Big Beautiful Bill Act benefits the oil and gas industry by mandating new oil and natural gas lease sales across federal lands and waters, unlinking them from renewables leasing and restoring royalty rates to pre-Inflation Reduction Act (IRA) levels. The law also reinstates full deductions for intangible drilling costs, delays the methane emissions fee until 2035 — providing the industry with more time to prepare — and increases the carbon capture tax credit for producers that utilize carbon dioxide to increase oil recovery. Carbon capture and storage (CCS) diverts massive financial and energy resources to a strategy with uncertain storage integrity. Despite decades of investment and subsidies, current CCS projects capture only a tiny fraction of global CO₂, with high costs, major infrastructure demands, and strong public resistance to pipelines and storage, scaling CCS to meet carbon reduction goals is not economically efficient. 

President Biden’s signature climate bill, the Democrat-passed IRA, linked offshore oil and gas lease sales to those of offshore wind, and Biden’s five-year offshore lease plan for oil and gas called for only three offshore lease sales — the fewest offshore oil and gas leases in the industry’s history and far fewer than the 47 sales proposed by President Trump in his first term. Trump’s bill requires the federal government to augment that historically low number of sales under Biden’s 2024-29 leasing program for the U.S. Gulf of America (Mexico) with 30 additional offerings across the Gulf region over 15 years. One lease sale is required to take place by the end of the year, and Interior Secretary Doug Burgum has it planned for December 10, 2025. In fiscal year 2024, production from offshore leases accounted for approximately 14% of domestic oil production and 2% of domestic natural gas production, yielding $7 billion in federal revenues.

Nine U.S. states with material onshore federal acreage must hold over 30 quarterly lease sales every year, and lease sales are also mandated in Alaska’s National Petroleum Reserve. Mandated lease sales in Alaska’s Arctic National Wildlife Refuge, however, did not make it into the final bill. The bill reinstates royalty rates to their pre-IRA rate of 12.5%-16.7% and allows non-competitive bids, which the IRA had ended. The bill also allows producers to fully deduct intangible drilling costs, which encompass roughly 60%-80% of well costs. The IRA only allowed a portion of these costs to be deducted.

The law sunsets the hydrogen tax credit in 2028, later than previous versions of the bill. Chevron, Exxon, and others are investing in projects to produce hydrogen fuel.

Energy Intel has provided a useful chart of the key oil and gas provisions in the One Big Beautiful Bill Act:

Source: Energy Intelligence

Coal Industry 

The coal industry also benefits from the bill, which mandates that at least four million additional acres of federal land be made available for mining. The law also cuts the royalties that coal companies pay the government for mining on federal land, and allows the use of an advanced manufacturing tax credit for mining metallurgical coal used to make steel.

Renewable Energy Tax Credits

The law phases out clean electricity investment and production tax credits for wind and solar after decades of coverage. Originally intended for nascent industries, the investment credit was significantly enhanced in 2005, having been initially introduced in 1978 and having been extended 15 times. The production credit has been in place since 1992 and has been extended more than a dozen times. The IRA essentially made these credits unlimited since the requirement for sunsetting was based on heavy reductions of carbon dioxide emissions in the generation sector. The One Big, Beautiful Bill Act makes solar and wind projects that enter service after 2027 no longer eligible for the credits unless they start construction within 12 months of the bill becoming law.

Unfortunately, the bill includes a loophole as projects committing 5% of costs within 12 months qualify as “under construction” and get a four-year extension. This enables projects started by July 2026 to receive subsidies through July 2030, which in the case of the production tax credit would last for an additional 10 years. The Treasury Department could limit this loophole by tightening the “start construction” definition — shortening the safe harbor and requiring continuous construction, not just initial construction. The phaseout in the final bill is more gradual than previous versions of the legislation, which had a hard deadline of December 31, 2027, meaning solar and wind projects had to be producing power in 2.5 years to be eligible for the credits. A related tax credit for using U.S.-made components in solar and wind facilities ends for projects that enter service after 2027. A carveout allows projects that start construction within one year of the law’s enactment to claim the credit.

In response to the bill, on July 7, 2025, President Trump signed an executive order ending market-distorting subsidies for wind and solar energy, labeling them unreliable and overly dependent on foreign-controlled supply chains. The order directs the Treasury Department to revoke clean energy tax credits (sections 45Y and 48E), tighten eligibility rules, and implement stricter restrictions on foreign entities of concern — all within 45 days. Simultaneously, the Department of the Interior must review and revise any policies that give preferential treatment to renewables over more reliable, dispatchable energy sources like nuclear and fossil fuels. This action aligns with the administration’s broader goals of enhancing U.S. energy dominance, economic growth, and national security by prioritizing domestically controlled, dependable energy production.

Proponents of wind and solar subsidies often argue that these energy sources are inexpensive. They typically cite studies based on Levelized Cost of Electricity (LCOE), a metric that consolidates fixed and variable costs into a single figure. While LCOE is a useful tool for estimating generation costs, it has been widely criticized for overlooking the challenges of intermittency and non-dispatchability — factors that significantly affect the reliability and overall cost of renewable energy. Intermittency complicates cost comparisons between technologies, and LCOE fails to account for the expenses associated with delivering consistent, on-demand electricity. Once the cost of ensuring reliability is factored in — such as backup systems, storage, and grid integration — the price skyrockets. One peer-reviewed study estimates that incorporating reliability costs can increase the effective price of solar energy by 11 to 42 times, making it the most expensive source of electricity, followed by wind.

As others have pointed out, further evidence from the International Energy Agency (IEA) supports this concern. Data from nearly 70 countries reveal a strong correlation between higher shares of wind and solar in the energy mix and elevated electricity prices for both households and businesses. In countries with little or no wind and solar, electricity averages around 16 cents per kilowatt-hour (in 2024 Canadian dollars). For every 10% increase in wind and solar’s share, electricity prices rise by approximately eight cents per kWh.

The 2023 update of IEA’s Government Energy Spending Tracker shows that since 2020, governments have committed USD 1.34 trillion to clean energy investments. In the United States alone, Treasury data reveals that wind and solar subsidies dominate energy-related tax provisions. These subsidies cost taxpayers $31.4 billion in 2024 and were projected to total another $421 billion between 2025 and 2034, largely driven by the IRA. Since 2015, the 10-year cost of federal tax expenditures for wind and solar has increased twenty-one-fold. The investment tax credit (ITC) and production tax credit (PTC) — key drivers of wind and solar deployment — was expected to account for over half of all energy-related federal tax expenditures from 2025 to 2034. Notably, these figures exclude electric vehicle tax credits, which added another $14 billion in 2024 and were expected to reach $105.7 billion by 2034.

Despite massive public spending, the shift to wind and solar energy is driving up energy prices and contributing to accelerating deindustrialization, most notably in parts of Europe that have aggressively pursued these sources through extensive subsidy programs. Ultimately, if wind and solar were genuinely cost-effective and reliable alternatives to traditional energy sources, such extensive and sustained government support would be unnecessary. By slashing this government support, this legislation promotes a sensible approach to energy policy — one that carefully weighs costs, reliability, and economic impacts alongside environmental goals.

Electric Vehicle Tax Credits

The bill eliminates the $7,500 federal tax credit for new electric vehicle (EV) purchases and leases, as well as the $4,000 credit for used EVs, effective September 30. In our recent report, When Government Chooses Your Car, we argued that federal efforts to mandate a transition to EVs carry significant hidden costs and unintended consequences. These tax credits were part of a broader strategy to push EV adoption through policy rather than market demand.

EVs continue to be considerably more expensive than gasoline-powered vehicles, not only in terms of upfront cost but also insurance, maintenance, and the infrastructure required to support them. Meanwhile, consumer demand remains well below government adoption targets, as practical limitations like reduced range in cold weather and slow charging persist. With the pace and direction of technological innovation still uncertain, public policy should instead prioritize consumer sovereignty as the guiding principle in shaping the automobile market. Consumers have diverse needs and preferences and should be free to choose the vehicle — internal combustion, hybrid, electric, or future alternatives — that best meets their circumstances. Market forces, not government mandates, should determine the composition of the vehicle fleet.

Consumer choice sends critical signals to producers: strong demand drives innovation and supply, while weak demand encourages reassessment and improvement. When businesses must respond to consumer preferences, they compete on quality, price, and innovation, leading to better products and greater accountability. A market driven by consumer decisions ensures broad access to mobility, a hallmark of American life and economic strength for over a century. In this context, ending the EV tax credit marks a meaningful step toward restoring consumer choice and reinforcing the market’s role in determining the future of transportation.

Conclusion

The One Big Beautiful Bill Act marks a significant shift in U.S. energy policy, scaling back long-standing federal support for renewable energy and electric vehicles. By mandating new oil and gas lease sales onshore and offshore, delinking them from renewable lease requirements, restoring pre-IRA royalty rates, and reviving full deductions for intangible drilling costs, the legislation reorients energy policy away from net-zero goals. It also delays the methane emissions fee until 2035 and increases carbon capture tax credits, particularly for enhanced oil recovery applications.

The coal industry similarly gains from expanded access to federal land, reduced royalty payments, and access to tax credits intended for advanced manufacturing, including the production of metallurgical coal. Meanwhile, support for wind and solar is phased out, with key investment and production tax credits sunsetting after 2027, though a loophole could extend eligibility through 2030 for projects that commit early funds.

The repeal of EV tax credits further signals a policy pivot away from government-directed energy transitions toward a market-driven approach emphasizing consumer choice and economic competitiveness. Taken together, the bill reflects a broader priority shift: one that prioritizes energy reliability, domestic production, and government restraint over federally subsidized green energy expansion and net-zero targets.


*This article was adapted from content originally published by the Institute for Energy Research.

AEA’s Kenny Stein On Energy Provisions of The One Big Beautiful Bill Act

Currents is a weekly podcast produced by our sister organization the Institute for Energy Research (IER) that recaps the latest news from the world of energy and research from IER. Last week AEA’s Vice-President of Policy Kenny Stein, joined the show for a special episode reviewing the energy provisions of the recently passed One Big Beautiful Bill Act.

The Unregulated Podcast #237: Christmas in July

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna review the Trump administration’s early Christmas presents to the American People.

Links:

Stay Connected With The Show:

What The One Big Beautiful Bill Means for American Energy

The “One Big Beautiful Bill Act” represents a sweeping overhaul of U.S. energy policy, aimed at reshaping the federal government’s role in energy markets and reversing key provisions of the Inflation Reduction Act. With a clear emphasis on fossil fuel production and energy independence, the legislation mandates new oil and gas lease sales across federal lands and offshore areas, revives tax advantages for producers, and loosens regulatory burdens that had previously constrained the industry. These changes signal a strategic pivot away from the Biden-era approach. The bill reflects a renewed focus on maximizing domestic energy output and scaling back federal support for clean energy technologies — all under the banner of strengthening U.S. economic and energy security. We examine how the legislation reshapes oil and gas production policy and the broader implications for energy markets and environmental goals.

Oil and Gas Production

The newly enacted One Big Beautiful Bill Act benefits the oil and gas industry by mandating new oil and natural gas lease sales across federal lands and waters, unlinking them from renewables leasing and restoring royalty rates to pre-Inflation Reduction Act (IRA) levels. The law also reinstates full deductions for intangible drilling costs, delays the methane emissions fee until 2035 — providing the industry with more time to prepare — and increases the carbon capture tax credit for producers that utilize carbon dioxide to increase oil recovery. Carbon capture and storage (CCS) diverts massive financial and energy resources to a strategy with uncertain storage integrity. Despite decades of investment and subsidies, current CCS projects capture only a tiny fraction of global CO₂, with high costs, major infrastructure demands, and strong public resistance to pipelines and storage, scaling CCS to meet carbon reduction goals is not economically efficient. 

President Biden’s signature climate bill, the Democrat-passed IRA, linked offshore oil and gas lease sales to those of offshore wind, and Biden’s five-year offshore lease plan for oil and gas called for only three offshore lease sales — the fewest offshore oil and gas leases in the industry’s history and far fewer than the 47 sales proposed by President Trump in his first term. Trump’s bill requires the federal government to augment that historically low number of sales under Biden’s 2024-29 leasing program for the U.S. Gulf of America (Mexico) with 30 additional offerings across the Gulf region over 15 years. One lease sale is required to take place by the end of the year, and Interior Secretary Doug Burgum has it planned for December 10, 2025. In fiscal year 2024, production from offshore leases accounted for approximately 14% of domestic oil production and 2% of domestic natural gas production, yielding $7 billion in federal revenues.

Nine U.S. states with material onshore federal acreage must hold over 30 quarterly lease sales every year, and lease sales are also mandated in Alaska’s National Petroleum Reserve. Mandated lease sales in Alaska’s Arctic National Wildlife Refuge, however, did not make it into the final bill. The bill reinstates royalty rates to their pre-IRA rate of 12.5%-16.7% and allows non-competitive bids, which the IRA had ended. The bill also allows producers to fully deduct intangible drilling costs, which encompass roughly 60%-80% of well costs. The IRA only allowed a portion of these costs to be deducted.

The law sunsets the hydrogen tax credit in 2028, later than previous versions of the bill. Chevron, Exxon, and others are investing in projects to produce hydrogen fuel.

Energy Intel has provided a useful chart of the key oil and gas provisions in the One Big Beautiful Bill Act:

Source: Energy Intelligence

Coal Industry 

The coal industry also benefits from the bill, which mandates that at least four million additional acres of federal land be made available for mining. The law also cuts the royalties that coal companies pay the government for mining on federal land, and allows the use of an advanced manufacturing tax credit for mining metallurgical coal used to make steel.

Renewable Energy Tax Credits

The law phases out clean electricity investment and production tax credits for wind and solar after decades of coverage. Originally intended for nascent industries, the investment credit was significantly enhanced in 2005, having been initially introduced in 1978 and having been extended 15 times. The production credit has been in place since 1992 and has been extended more than a dozen times. The IRA essentially made these credits unlimited since the requirement for sunsetting was based on heavy reductions of carbon dioxide emissions in the generation sector. The One Big, Beautiful Bill Act makes solar and wind projects that enter service after 2027 no longer eligible for the credits unless they start construction within 12 months of the bill becoming law.

Unfortunately, the bill includes a loophole as projects committing 5% of costs within 12 months qualify as “under construction” and get a four-year extension. This enables projects started by July 2026 to receive subsidies through July 2030, which in the case of the production tax credit would last for an additional 10 years. The Treasury Department could limit this loophole by tightening the “start construction” definition — shortening the safe harbor and requiring continuous construction, not just initial construction. The phaseout in the final bill is more gradual than previous versions of the legislation, which had a hard deadline of December 31, 2027, meaning solar and wind projects had to be producing power in 2.5 years to be eligible for the credits. A related tax credit for using U.S.-made components in solar and wind facilities ends for projects that enter service after 2027. A carveout allows projects that start construction within one year of the law’s enactment to claim the credit.

In response to the bill, on July 7, 2025, President Trump signed an executive order ending market-distorting subsidies for wind and solar energy, labeling them unreliable and overly dependent on foreign-controlled supply chains. The order directs the Treasury Department to revoke clean energy tax credits (sections 45Y and 48E), tighten eligibility rules, and implement stricter restrictions on foreign entities of concern — all within 45 days. Simultaneously, the Department of the Interior must review and revise any policies that give preferential treatment to renewables over more reliable, dispatchable energy sources like nuclear and fossil fuels. This action aligns with the administration’s broader goals of enhancing U.S. energy dominance, economic growth, and national security by prioritizing domestically controlled, dependable energy production.

Proponents of wind and solar subsidies often argue that these energy sources are inexpensive. They typically cite studies based on Levelized Cost of Electricity (LCOE), a metric that consolidates fixed and variable costs into a single figure. While LCOE is a useful tool for estimating generation costs, it has been widely criticized for overlooking the challenges of intermittency and non-dispatchability — factors that significantly affect the reliability and overall cost of renewable energy. Intermittency complicates cost comparisons between technologies, and LCOE fails to account for the expenses associated with delivering consistent, on-demand electricity. Once the cost of ensuring reliability is factored in — such as backup systems, storage, and grid integration — the price skyrockets. One peer-reviewed study estimates that incorporating reliability costs can increase the effective price of solar energy by 11 to 42 times, making it the most expensive source of electricity, followed by wind.

As others have pointed out, further evidence from the International Energy Agency (IEA) supports this concern. Data from nearly 70 countries reveal a strong correlation between higher shares of wind and solar in the energy mix and elevated electricity prices for both households and businesses. In countries with little or no wind and solar, electricity averages around 16 cents per kilowatt-hour (in 2024 Canadian dollars). For every 10% increase in wind and solar’s share, electricity prices rise by approximately eight cents per kWh.

The 2023 update of IEA’s Government Energy Spending Tracker shows that since 2020, governments have committed USD 1.34 trillion to clean energy investments. In the United States alone, Treasury data reveals that wind and solar subsidies dominate energy-related tax provisions. These subsidies cost taxpayers $31.4 billion in 2024 and were projected to total another $421 billion between 2025 and 2034, largely driven by the IRA. Since 2015, the 10-year cost of federal tax expenditures for wind and solar has increased twenty-one-fold. The investment tax credit (ITC) and production tax credit (PTC) — key drivers of wind and solar deployment — was expected to account for over half of all energy-related federal tax expenditures from 2025 to 2034. Notably, these figures exclude electric vehicle tax credits, which added another $14 billion in 2024 and were expected to reach $105.7 billion by 2034.

Despite massive public spending, the shift to wind and solar energy is driving up energy prices and contributing to accelerating deindustrialization, most notably in parts of Europe that have aggressively pursued these sources through extensive subsidy programs. Ultimately, if wind and solar were genuinely cost-effective and reliable alternatives to traditional energy sources, such extensive and sustained government support would be unnecessary. By slashing this government support, this legislation promotes a sensible approach to energy policy — one that carefully weighs costs, reliability, and economic impacts alongside environmental goals.

Electric Vehicle Tax Credits

The bill eliminates the $7,500 federal tax credit for new electric vehicle (EV) purchases and leases, as well as the $4,000 credit for used EVs, effective September 30. In our recent report, When Government Chooses Your Car, we argued that federal efforts to mandate a transition to EVs carry significant hidden costs and unintended consequences. These tax credits were part of a broader strategy to push EV adoption through policy rather than market demand.

EVs continue to be considerably more expensive than gasoline-powered vehicles, not only in terms of upfront cost but also insurance, maintenance, and the infrastructure required to support them. Meanwhile, consumer demand remains well below government adoption targets, as practical limitations like reduced range in cold weather and slow charging persist. With the pace and direction of technological innovation still uncertain, public policy should instead prioritize consumer sovereignty as the guiding principle in shaping the automobile market. Consumers have diverse needs and preferences and should be free to choose the vehicle — internal combustion, hybrid, electric, or future alternatives — that best meets their circumstances. Market forces, not government mandates, should determine the composition of the vehicle fleet.

Consumer choice sends critical signals to producers: strong demand drives innovation and supply, while weak demand encourages reassessment and improvement. When businesses must respond to consumer preferences, they compete on quality, price, and innovation, leading to better products and greater accountability. A market driven by consumer decisions ensures broad access to mobility, a hallmark of American life and economic strength for over a century. In this context, ending the EV tax credit marks a meaningful step toward restoring consumer choice and reinforcing the market’s role in determining the future of transportation.

Conclusion

The One Big Beautiful Bill Act marks a significant shift in U.S. energy policy, scaling back long-standing federal support for renewable energy and electric vehicles. By mandating new oil and gas lease sales onshore and offshore, delinking them from renewable lease requirements, restoring pre-IRA royalty rates, and reviving full deductions for intangible drilling costs, the legislation reorients energy policy away from net-zero goals. It also delays the methane emissions fee until 2035 and increases carbon capture tax credits, particularly for enhanced oil recovery applications.

The coal industry similarly gains from expanded access to federal land, reduced royalty payments, and access to tax credits intended for advanced manufacturing, including the production of metallurgical coal. Meanwhile, support for wind and solar is phased out, with key investment and production tax credits sunsetting after 2027, though a loophole could extend eligibility through 2030 for projects that commit early funds.

The repeal of EV tax credits further signals a policy pivot away from government-directed energy transitions toward a market-driven approach emphasizing consumer choice and economic competitiveness. Taken together, the bill reflects a broader priority shift: one that prioritizes energy reliability, domestic production, and government restraint over federally subsidized green energy expansion and net-zero targets.


*This article was adapted from content originally published by the Institute for Energy Research.

What’s In The Senate Version Of The Big Beautiful Bill?

The Senate has passed its version of President Trump’s big beautiful bill (BBB), which maintains tax credits for hydrogen, carbon capture, nuclear energy, and geothermal, boosts onshore and offshore drilling, weakens fuel economy regulations, delays a methane emissions fee, and speeds up environmental reviews for paying companies, but makes less funds available for refilling the Strategic Petroleum Reserve than the House version. The Senate removed a proposed excise tax on wind and solar projects, which was to be levied based on their compliance with strict sourcing requirements. It also phases out wind and solar tax credits that the Inflation Reduction Act of 2022 (IRA) had expanded. Wind and solar projects would still be eligible for tax credits as long as they begin construction by June 2026 or are placed in service by the end of 2027. The “start construction” language was added when it passed on July 1 and provides the subsidy to projects that have gone through planning, finance or other early “construction” steps, but may not be ready to produce power by the end of 2027.

The House provision that requires energy facilities to be placed in service by 2027 to qualify for wind and solar subsidies would have meant the end of Biden’s Green New Scam during Trump’s term, but the “start construction” clause that was added allows any facility that meets the lax “in construction” standard to receive an extra four years to qualify for 10 years of subsidies. If the Senate version passes, the Treasury Department could provide language that reduces the four-year safe harbor and makes the “in construction” requirement stricter by, for instance, requiring continuous construction rather than just beginning construction.

Other Energy Provisions in the Senate Version of the BBB

Electric vehicle tax credits would end at the end of September, which would have allowed car owners to lower the purchase price of electric vehicles by as much as $7,500. Credits for charging infrastructure would end in June 2026. A tax incentive for metallurgical coal and a credit for nuclear energy facilities built in areas with large nuclear power employment would be created. The Senate legislation would also mandate more onshore and offshore drilling, zero out penalties for fuel economy standards, and delay the fee on methane leaks from oil and gas production that was in Biden’s IRA for 10 years. It would also accelerate National Environmental Policy Act reviews for companies that pay a fee, but other permitting provisions in the House version were cut from the bill.

The Senate bill cut the amount of money for oil purchases to replenish the Strategic Petroleum Reserve (SPR) to $171 million from $1.3 billion in the House bill, which is only enough to buy about 3 million barrels instead of 20 million barrels at today’s prices. Former President Joe Biden conducted several sales from the SPR, including 180 million barrels, the most ever, to keep oil and thus gasoline prices low during the mid-term election in 2022. Those sales left the SPR at its lowest level in 40 years. Biden had scheduled 15.8 million barrels of deliveries to the SPR from January through May, but only 8.8 million of that has been delivered due to maintenance on the reserve that the Biden administration knew was needed. The Senate kept a House measure to cancel seven million barrels in congressionally-mandated SPR sales. The SPR has almost 403 million barrels, 45% less than the 727 million barrels it held in 2009.

One of the Senate’s versions of the BBB would have imposed an excise tax on wind and solar projects completed after December 31, 2027, if they could not prove that they do not contain any Chinese components. It targeted projects that use rare earth minerals from “Foreign Entities of Concern” — countries or companies deemed problematic. This provision primarily affects rare earths from China, which has a near monopoly on these minerals. Global supply chains for wind and solar components rely almost entirely on Chinese rare earth minerals. Thus, to avoid the tax, developers would have had to demonstrate that their solar and wind projects do not violate material assistance rules, which is likely to have been impossible to demonstrate.

An amendment to the bill was offered by Iowa Senator Joni Ernst that would allow projects that begin construction over the next few years to receive at least a partial tax credit, rather than allowing the credit for only projects that begin producing electricity in the next few years. The Ernst amendment also removed the excise tax on future solar and wind projects if they contain Chinese components. According to the Energy Information Administration, Iowa ranks first in generating the largest share of power from wind among U.S. states.

Conclusion

The Senate has passed a version of the Big Beautiful Bill that maintains tax credits for hydrogen, carbon capture, nuclear energy, and geothermal, boosts onshore and offshore drilling, weakens fuel economy regulations, delays a methane emissions fee, and speeds up environmental reviews for paying companies, but makes less funds available for refilling the Strategic Petroleum Reserve than the House version. The Senate bill phases out wind and solar tax credits that had been broadened by Biden’s Inflation Reduction Act of 2022, but it is less stringent than the House bill. Wind and solar projects would still be able to get tax credits as long as they start construction by June 2026 or are placed in service by the end of 2027. The Senate bill removed a proposed excise tax on wind and solar projects, which was to be levied based on their compliance with strict sourcing requirements, affecting rare earths obtained from “Foreign Entities of Concern,” such as China.


*This article was adapted from content originally published by the Institute for Energy Research.

Big Beautiful Bill Headed to President’s Desk

WASHINGTON DC (7/3/25) – The U.S. House of Representatives gave final passage to H.R.1, the One Big Beautiful Bill Act, today. This legislation now heads to the President’s desk for his signature.

Significant provisions of the bill include:

  • Permanently extends the Tax Cuts and Jobs Act
  • Repeals the electric vehicle tax credit
  • Places significant restrictions on the energy subsidies embedded in the Inflation Reduction Act
  • Rescinds unobligated Inflation Reduction Act funds
  • Repeals the Greenhouse Gas Reduction Fund
  • Pauses the IRA natural gas tax for a decade
  • Requires the Bureau of Land Management to hold quarterly leases
  • Reduces royalty rates to pre-Inflation Reduction Act levels

American Energy Alliance President Tom Pyle released the following statement:

“We commend Congress for passing this legislation and look forward to President Trump’s signature. With this bill’s passage, Congress is delivering much-needed tax relief to millions of working families and goes a long way towards putting an end to the misguided Biden-era IRA, which has made our energy more expensive and less reliable.  

“Eliminating the EV tax credit marks a major win for those of us who have been advocating for years that consumer choice—not government mandates—should shape the American auto market. Congress deserves praise for ending these subsidies, which were largely out of step with the priorities of the American people. The measure also creates new opportunities for energy production on federal lands and stops the flow of federal dollars to green special interest groups.  

“And while the bill fell short of fully repealing the IRA, it does end solar and wind subsidies after a 2027 ‘placed in service’ cutoff. Unfortunately, the bill includes a loophole as projects committing 5% of costs within 12 months qualify as ‘under construction’ and get a 4-year extension. This enables projects started by July 2026 to receive subsidies through July 2030, and many lasting an additional 10 years. The Trump administration should limit this by tightening Treasury rules—shortening the safe harbor and requiring continuous construction, not just initial construction–to ensure the solar and wind lobby don’t continue to game the system at taxpayer expense.”

AEA Experts Available For Interview On This Topic:

Additional Background Resources From AEA:

For media inquiries please contact:
[email protected]

The Unregulated Podcast #236: I’ll Handle the Finances

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna cover the latest news from President Trump’s One Big Beautiful Bill and what it means for the future of Biden’s Green New Scam.

Links:

Stay Connected With The Show:

AEA Calls on House of Representatives to Remain Firm on Ending the Green New Deal

WASHINGTON DC (07/01/2025) – This morning, the U.S. Senate passed H.R.1, the One Big Beautiful Bill Act. The vote was 51-50, with Vice President J.D. Vance casting the tie-breaking vote. The bill will now return to the House of Representatives where a vote is expected on Wednesday.

Notably, the final Senate version of the bill grants a full tax credit to wind and solar projects that start construction within one year of the law’s enactment, without setting a deadline for when they must be connected to the grid. Projects that begin construction after that one-year window must be placed in service by the end of 2027 to qualify for the credit.

American Energy Alliance President Tom Pyle released the following statement:

“We recognize and commend Congress for taking the initial steps to scale back excessive government support for costly and unreliable energy sources. The Senate’s version of H.R. 1 reins in some of the more damaging energy provisions from the Inflation Reduction Act (IRA). However, serious concerns remain about the bill’s structure—especially the risk of loopholes that could undermine the promised phaseout of wind and solar subsidy programs.

“We urge the House not to rush this process to meet an arbitrary July 4th deadline as lawmakers have a crucial opportunity to reinforce America’s commitment to free markets and dependable energy. Before this bill reaches the president’s desk, it must fully dismantle the framework of the Green New Deal.”

AEA Experts Available For Interview On This Topic:

Additional Background Resources From AEA:

For media inquiries please contact:
[email protected]

AEA and CEI Joint Letter to the Senate on Passing IRA Subsidy Reform Through the One Big Beautiful Bill

On Monday, June 30th the American Energy Alliance, along with the Competitive Enterprise Institute, sent a joint letter to the Senate urging senators to uphold President Trump’s campaign commitment to eliminate all remaining energy subsidies from the Inflation Reduction Act (IRA), which he aptly has called the “Green New Scam.” The text of the letter is available below.


Dear Senator:

In 2022, Democrats passed a radical plan to change how Americans use and consume energy. This plan was contained in the Inflation Reduction Act (IRA), a reconciliation bill that did not get a single Republican vote in the House or Senate.

Republicans and other lawmakers concerned about energy affordability and reliability now have a chance to undo the numerous IRA provisions that advance this radical Green New Deal agenda. Quite simply, the only way to undo the Green New Deal is to dismantle the “green” subsidies within the IRA.

Our organizations sought stronger language to undo the IRA subsidies than what is in the current Senate reconciliation bill (H.R. 1). However, we recognize that the existing language reflects compromise to get the One Big Beautiful Bill across the finish line. It may not be ideal, but the language is a strong effort to undo what President Trump rightly calls the “Green New Scam,” and for that, lawmakers should be commended.

Unfortunately, some Senators want to weaken the text in the Senate bill by undermining efforts to dismantle the IRA subsidies such as the requirement that projects be “placed in service” by the end of 2027 in order to qualify for certain tax credits. This is unacceptable and we strongly encourage you to reject any amendment that weakens the existing IRA related language in the most recent Senate draft.

These subsidies, among other problems, would continue to force our country towards a mix of unreliable sources of electricity (e.g. wind and solar) that would severely threaten our nation’s electricity grid. Americans need reliable and affordable electricity, not handouts to special interests at the expense of the electricity needs of Americans.

For once, the interests of Americans appear to be taking priority over the interests of the swamp. We encourage you to ensure that this does not change. This can only happen if Senators reject amendments that weaken the current language in H.R. 1.

Sincerely,

Daren Bakst
Director, Center for Energy and Environment
Competitive Enterprise Institute

Thomas Pyle
President
American Energy Alliance