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

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

Senate’s Version of Big Beautiful Bill Vastly Improved, Needs Some Clarity

WASHINGTON, DC (6/28/25) – The Senate may begin voting as soon as today on a revised version of H.R.1, the One Big Beautiful Bill Act. In May, the House passed this legislation, prioritizing energy security and affordability by eliminating most of the costly green energy subsidies and wasteful green grants to outside organizations.

American Energy Alliance President Tom Pyle released the following statement:

“The Senate version of the Big Beautiful Bill released today, while falling short of the House-passed bill, is vastly improved from a previously released version. Compared to the House, the Senate version extends the sunset timelines on wind and solar subsidies and leaves some questions with respect to the foreign entity and transferability provisions. These will still need to be answered. Nonetheless, we applaud the Senate for moving in the right direction, especially for terminating the electric vehicle tax credits.

“If, as supporters of the IRA are complaining, repealing these subsidies will ‘kill’ their industry, then maybe it shouldn’t exist in the first place. Extending green giveaways on the backs of American taxpayers is shortsighted and neglectful. It’s time for Congress to deliver both energy reliability and the largest tax cut in history to President Trump and the American people.”

AEA Experts Available for Interview on This Topic:

Additional Background Resources:

For media inquiries please contact:
[email protected]

AEA Launches Six-Figure Advocacy Initiative: End the IRA Credits in the One Big Beautiful Bill

WASHINGTON DC (6/24/25) – Today, the American Energy Alliance launched a six-figure advocacy initiative in Utah, Alaska, Idaho, and the District of Columbia. The ads target key Senators in the debate over eliminating the Inflation Reduction Act’s (IRA) energy subsidies in the reconciliation bill.

In May, the House passed the “Big, Beautiful” reconciliation bill, prioritizing energy security and affordability by eliminating most of the costly green energy subsidies and wasteful green grants to outside organizations. While it falls short of full repeal of the egregious IRA subsidies, it does dismantle numerous Biden-era climate and energy programs. These programs are projected to cost taxpayers between $936 billion and $1.97 trillion over the next decade, with potential liabilities reaching up to $4.7 trillion by 2050.

As the Senate takes up this legislation, Senators John Curtis (R-Utah) and Lisa Murkowski (R-Alaska) are working to maintain these subsidy programs despite their initial opposition to the Inflation Reduction Act in 2022.

Additional ads praise Senator Mike Lee (R-Utah) for his leadership in fully eliminating the subsidies and urge Senator Mike Crapo (R-Idaho), the Chairman of the Senate Finance Committee, to use his leadership role to fight to eliminate these costly subsidy programs.

AEA President Tom Pyle issued the following statement:

“The American people were sold a bill of goods with the Inflation Reduction Act — a trillion-dollar boondoggle of subsidies and handouts for special interests under the guise of climate policy.

“We applaud the House for taking a stand and urge the Senate to finish the job. Lawmakers like Senators Lee and Crapo understand that real energy security means ending reckless spending and restoring market-driven solutions to our nation’s energy challenges.

“Senators Curtis and Murkowski both opposed the original IRA because they knew it would lead to higher energy prices and compromise the reliability of the energy grid in their state. So why are they now working so hard to preserve these costly and unnecessary programs? 

“It’s time for the Senate to put taxpayers first and dismantle the IRA’s green subsidy machine.”



AEA Experts Available For Interview On This Topic:

Additional Background Resources From AEA:

For media inquiries please contact:
[email protected]

Coalition Letter to President Trump: Don’t Let Congress Preserve the Green New Scam

On Monday, June 23rd a coalition of twenty-six individuals and organizations dedicated to preserving free markets and putting taxpayers and consumers first, led by the American Energy Alliance, sent a letter to President Trump urging him to encourage Congress to uphold his 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 and list of signers is available below.


June 23, 2025

The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear President Trump:

As part of your commitment to achieving American energy dominance, you promised to eliminate burdensome regulations and put an end to the Inflation Reduction Act (IRA), which you aptly identified as the “Green New Scam.” While your administration has made significant progress toward this goal, much of the work necessary to fulfill your campaign promise involves eliminating ALL of the Biden-era energy subsidies in the One Big Beautiful Bill.

The House of Representatives has gone a long way. While not completely phasing out the entire IRA, the recently passed H.R. 1 significantly amends most of the credits by accelerating the phase-outs to completely expire before you leave office, places tighter restrictions on prohibited foreign entities, and repeals the transferability of many of the credits. 

Unfortunately, the working draft of the Senate bill falls considerably short. While the overall structure aligns with the House, several energy-related provisions represent notable setbacks. Unlike the House version – which imposed strict deadlines for green energy projects – the Senate draft extends eligibility. Projects that commence construction by 2027 now benefit from a four-year “safe harbor,” making them eligible for tax credits through 2031. Because the Production Tax Credit (PTC) lasts for 10 years, wind and solar projects could receive federal subsidies through 2040 – well beyond your term in office. It also alters the House’s strong definition of prohibited foreign entities, essentially allowing for more foreign ownership by those involved in projects. Finally, it retains the electric vehicle tax credit for certain manufacturers. 

More troublesome, we have seen reports that some senators would like to weaken the House provisions even further than what is already in the working draft.

History shows long phase-outs are really extensions of bad policies that raise electricity prices and threaten to destabilize the grid. Take the wind production tax credit (PTC), for example. Originally set to expire in 1999, it has been extended repeatedly—in 1999, 2002, 2004, 2005, 2006, 2008, 2009, 2012, 2014, 2015, 2016, 2019, and again in 2021. A phase-down was introduced in 2016, reducing the credit’s value gradually over five years, yet the IRA revived and expanded the PTC once more. This clearly demonstrates that phasing down subsidies often leads to repeated extensions rather than true elimination.

We urge you to call on your Republican colleagues in Congress, particularly in the Senate, to repeal all of the IRA’s energy tax credits immediately—not rely on slow and uncertain phase-outs that history shows are unlikely to succeed. At the very least, the Senate should not weaken the strong language that has already passed the House of Representatives. It’s time for Congress to pass the One Big Beautiful bill to create jobs and grow the economy for American families and deliver on your promise to end former President Biden’s Green New Scam.

Sincerely,

Thomas Pyle
President
American Energy Alliance

Phil Kerpen
President
American Commitment

Carla Sands
U.S. Ambassador to the Kingdom of Denmark (ret.)

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

Marlo Lewis
Senior Fellow, Energy and Environmental Policy
Competitive Enterprise Institute

David Stevenson
Director, Center for Energy and Environment
Caesar Rodney Institute

Paul Gessing
President
Rio Grande Foundation

Seton Motley
President
Less Government

Andre Beliveau
Senior Manager of Energy Policy
Commonwealth Foundation

Diana Furchtgott-Roth
Director, Center for Energy, Climate, and Environment
Heritage Foundation

Derrick Max
President and CEO
Thomas Jefferson Institute for Public Policy

Cameron Sholty
Government Relations Director
Heartland Impact

Paul Craney
President
Massachusetts Fiscal Alliance

John Droz
Physicist
Alliance for Wise Energy Decisions

Craig Richardson
President
Energy & Environment Legal Institute

Daniel C. Turner
Founder & Executive Director
Power The Future

Frank Lasee
President
Truth in Energy and Climate

Rea S. Hederman Jr.
Vice President of Policy
Buckeye Institute

James Taylor
President
The Heartland Institute

E. Calvin Beisner, Ph.D.
President
Cornwall Alliance for the Stewardship of Creation

Myron Ebell
Chairman
American Lands Council

Sarah Montalbano
Policy Fellow
Center of the American Experiment

Jenny Beth Martin
Honorary Chairman
Tea Party Patriots Action

Amy O. Cooke
President and Chairman of the Board
Always On Energy Research

Jason Hayes
Director of Energy & Environmental Policy
The Mackinac Center for Public Policy

Benjamin Zycher
Senior Fellow
American Enterprise Institute
(Affiliation for identification purposes only)


CC:

Senate Majority Leader John Thune
United States Senate SD-511
Washington, DC 20510

Senate Majority Whip John Barrasso
307 Dirksen Senate Office Building
Washington, DC 20510

Chair of the Senate Republican Conference Tom Cotton
326 Russell Senate Office Building
Washington, DC 20510

Chair of the Senate Republican Policy Committee Shelley Moore Capito
170 Russell Senate Office Building
Washington, DC 20510

Speaker Mike Johnson
521 Cannon House Office Building
Washington, DC 20515

House Majority Leader Steve Scalise
266 Cannon HOB
Washington, DC 20515

House Majority Whip Tom Emmer
326 Cannon House Office Building
Washington, DC 20515

Chair of the House Republican Conference Lisa McClain
562 Cannon House Office Building
Washington, DC 20515

Chairman of the House Republican Policy Committee Kevin Hern
171 Cannon HOB
Washington, DC 20515

AEA-Led Coalition to President Trump: Don’t Let Congress Preserve the Green New Scam

WASHINGTON DC (6/23/25) – Today, a coalition of twenty-six individuals and organizations dedicated to preserving free markets and putting taxpayers and consumers first sent a letter to President Trump urging him to encourage Congress to uphold his campaign commitment to eliminate all remaining energy subsidies from the Inflation Reduction Act (IRA), which he aptly has called the “Green New Scam.”

The coalition, led by the American Energy Alliance, commends the progress made by the House of Representatives through the passage of H.R. 1, which significantly curtails many IRA-related tax credits and imposes tighter restrictions on foreign entities. However, the coalition is deeply concerned that the Senate’s working draft falls short, potentially extending key green energy tax credits into the next decade and beyond.

AEA President Tom Pyle issued the following statement:

“We are urging President Trump to ensure Senate Republicans match or exceed the House’s reforms and push for the full elimination of all Biden-era energy subsidies in the One Big Beautiful Bill.”

AEA Experts Available For Interview On This Topic:

Additional Background Resources From AEA:

For media inquiries please contact:
[email protected]

The Unregulated Podcast #234: Two Weeks Notice

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss developments in Iran, plummeting solar stocks, the state of climate alarmism, and take a look at the most tax friendly state in the U.S.

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Subsidies vs. Tax Deductions: What IRA Defenders Get Wrong

The Inflation Reduction Act of 2022 (IRA), President Biden’s signature climate bill, passed solely by Democrats, contains lucrative, essentially uncapped subsidies for wind and solar-generated power. Under current law, the tax credits phase out over four years, starting in either 2032 or when the U.S. power sector’s greenhouse gas emissions fall to a quarter of their 2022 levels — whichever comes later. An essentially uncapped phase-out defies the original purpose of tax credits, which is to spur the advent of young industries. The wind and solar power industries are decades old and should be able to advance without continued support from lawmakers and American taxpayers. These industries supplied 15.6% of the electricity generated by central generating stations in 2024, surpassing coal generation for the first time, which accounted for 15.2% of that power in the same year. As such, solar and wind tax credits should be phased out much earlier, as they are in the House version of the “One Big Beautiful Bill.”

Wind Energy Tax Credits

Wind energy is far from a modern innovation — it has been utilized for hundreds of years. The United States made an early push to establish a wind power sector in the 1970s, starting in places like California’s Altamont Pass. However, those early efforts eventually lost momentum. Today’s wind turbines are significantly more advanced than those of the past, thanks to state requirements and both federal and state-level incentives. These modern turbines are built with better materials, operate more efficiently, and come at a lower cost. Nonetheless, wind energy still faces a major limitation: it’s intermittent. When the wind isn’t blowing, alternative energy sources must step in — either through costly battery storage systems or conventional power plants fueled by coal, natural gas, or nuclear energy. These backup systems must be available nearly all the time and could operate as primary sources on their own, running up to 85% of the time or more.

Roughly half of U.S. states have laws mandating that a specific portion of their electricity come from renewable sources, such as wind and solar. On top of that, the federal government has provided substantial financial support to these industries. The U.S. Energy Information Administration (EIA) reported that federal subsidies for wind power increased tenfold between fiscal years 2007 and 2010. During that same period, wind power production jumped by 175%, growing from just 0.8% of the national electricity mix in 2007 to 2.3% in 2010. However, achieving that growth required a significant investment — $5 billion in subsidies in fiscal year 2010 alone. That year, taxpayers spent $56 in subsidies for every megawatt hour of wind energy produced, compared to just 64 cents for electricity from coal or natural gas. According to the EIA, 97% of those wind subsidies came from the American Recovery and Reinvestment Act of 2009.

From FY 2010 to FY 2013, wind subsidies climbed another 8%, and wind’s share of electricity generation rose to 4.1%. By FY 2016, wind energy received $1.27 billion in subsidies (adjusted to 2016 dollars), with most of that aid delivered through tax incentives. Even so, wind generated only 5.6% of the nation’s electricity, while coal and natural gas together provided 64%. The EIA’s most recent report shows that federal subsidies for wind energy more than quadrupled between FY 2016 and FY 2022, rising from $846 million to $3.59 billion (both figures in 2022 dollars).

Wind power comes with notable limitations. As previously noted, it only generates electricity when wind conditions are favorable, regardless of the current demand for electricity. This variability means wind has limited capacity value — it can’t be called upon reliably like coal or natural gas plants, which can be dispatched on demand. Despite this, wind energy often receives preferential grid access when available. This helps utilities meet state renewable mandates and allows wind operators to claim the federal Production Tax Credit (PTC), which compensates them simply for generating power, regardless of whether it’s needed at the time.

The PTC was first introduced in 1992 under the Energy Policy Act, offering a tax credit of 2.3 cents per kilowatt-hour of electricity produced from wind for the first ten years of a facility’s operation. Though it was originally designed as a temporary support to help the industry grow, the credit has now been in place for over three decades. Since 1999, it has been extended more than a dozen times. According to estimates from the U.S. Treasury, the current form of the PTC will cost taxpayers $289.63 billion between fiscal years 2025 and 2034, making it the most costly energy subsidy currently in the tax code.

Although wind advocates claim that the technology is now competitive with conventional power sources, the industry continues to push for continued support through the IRA’s credits. However, these incentives have unintended consequences. One major issue is their impact on electricity markets. The PTC can cause wholesale electricity prices to fall below zero, forcing other generators to accept negative prices. Because taxpayers pay wind operators, they can still turn a profit even if they must pay the grid to accept their electricity. Negative pricing means that power producers are actually paying to stay online.

Negative wholesale prices typically signal oversupply, warning the market that generation exceeds demand and urging producers to scale back. But wind facilities are insulated from these signals because of government subsidies that reward them for producing energy no matter what. In effect, the federal government is tipping the scales, incentivizing electricity production whether it’s needed or not, distorting market dynamics and undermining more flexible and responsive power sources.

The PTC also distorts the true cost of electricity generation by shifting a significant portion of the financial burden onto taxpayers. Because wind is an intermittent resource — it doesn’t generate power continuously—it needs to be backed up by more reliable sources, typically coal or natural gas plants that can be ramped up when electricity demand rises and wind output falls. This redundancy means consumers effectively pay twice: once for the wind infrastructure and again for the conventional backup power that ensures the lights stay on when wind conditions aren’t favorable.

Adding to the challenge, wind output is often highest during times of low electricity demand, such as late at night or in the early morning hours. Yet, cost estimates for wind energy often exclude the expense of maintaining backup power sources or deploying large-scale battery systems — another costly solution made necessary by the inconsistent nature of wind and solar energy. Utility-scale batteries, while seen as a potential fix, are extremely expensive and wouldn’t be required if not for policies that subsidize and mandate intermittent renewables.

Wind power also faces other significant drawbacks beyond cost and reliability. Wind turbines generate noise, require vast areas of land, and pose a serious threat to wildlife, particularly birds of prey and bats that are killed by spinning blades. Moreover, the best wind resources are usually located in remote regions, far from population centers. Transmitting power from these distant sites to where it’s actually needed requires building out costly new infrastructure — transmission lines that ultimately show up on consumers’ utility bills.

The lifespan of a wind turbine is typically between 20 and 25 years, considerably shorter than fossil fuel or nuclear power plants, which can operate efficiently for 40 to 50 years. Decommissioning wind turbines presents its own environmental challenge, especially the disposal of their massive blades. These components are difficult to recycle and often end up in landfills, creating a growing waste management issue.

Solar Investment Tax Credit

The Investment Tax Credit (ITC) for solar energy provides a 30% tax credit on the investment in a qualifying solar facility, meaning that taxpayers literally purchase 30% of the capital cost of every solar array on roofs or in industrial solar farms. Because about 80% of U.S. solar panels originate overseas, U.S. taxpayers are contributing 24% of the cost of manufacturing solar panels overseas. The Solar ITC, initially introduced in 1978, was significantly enhanced in 2005 with an expiration date of 2007, which was later extended to 2016, accompanied by a clear phase-down path. It underwent 15 extensions, culminating in the IRA.

The EIA found that solar subsidies were $3.036 billion in FY 2016,doubling to $7.522 billion in fiscal year 2022, representing 33% of total renewable subsidies. The EIA found that federal subsidies and incentives to support renewable energy in FY 2022 totaled $15.6 billion — almost five times higher than those for fossil energy, which totaled $3.2 billion in subsidies. The subsidies in the EIA’s reports do not include state and local subsidies, mandates, or incentives that, in many cases, are quite substantial, especially for renewable energy sources. The EIA also did not include the massive subsidies authorized in the IRA.

In 2024, the Treasury estimated that the ITC would cost taxpayers $24.2 billion in FY 2024 and $131.44 billion between FY 2025 and FY 2034. As mentioned above, the IRA sunsets the ITC only after the U.S. electricity sector achieves a 75% reduction in greenhouse gas emissions from the 2022 baseline, which is unlikely to be achievable. Therefore, there is essentially no cap on the credits awarded for solar energy through the IRA. Solar energy has not benefited the U.S. power system because it has led to increased reliability problems and added costs, causing issues for the electric grid and threatening blackouts, as recently occurred in Spain when two large solar farms went offline.

Oil and Gas Tax Deductions

When discussions arise about whether to extend tax credits for wind and solar energy, environmentalists and some lawmakers often respond by citing “taxpayer subsidies to big oil companies” as justification. However, what is commonly referred to as subsidies for the oil industry are actually tax deductions — not credits — and they primarily benefit small, independent oil and natural gas producers, not the large, multinational firms typically labeled as “big oil.”

One of these deductions is available to all domestic manufacturers, not just those in the fossil fuel sector. The remaining deductions are standard business write-offs, similar to tax breaks for research and development that apply across various industries.

Two specific deductions that mainly support small producers are the percentage depletion allowance and the ability to expense intangible drilling costs. The percentage depletion allowance permits small oil and gas operators to deduct a portion of the value of extracted resources as the well is depleted. While this may sound complex, it functions similarly to asset depreciation in other industries, comparable to how a manufacturing facility’s value is gradually written down over time. This provision dates back to 1926 and was intended to reflect the diminishing value of a finite resource. Importantly, it has not applied to major oil companies since it was removed for them in 1975. This tax deduction was estimated to save independent oil and gas producers about $0.7 billion in fiscal year 2024.

Independent oil producers can also deduct certain expenses related to drilling and developing wells as part of their regular business operations. Specifically, the tax code allows these smaller producers to fully write off what’s known as intangible drilling costs — such as labor, site preparation, and survey work — each year. This provision is designed to incentivize continued exploration of new oil resources. Larger, integrated oil companies are treated differently under the tax code. While they are still allowed to deduct intangible drilling costs, they can only expense about one-third immediately and are required to spread the remaining deductions evenly over five years. This approach mirrors how other industries treat similar investments, like research and development, by allowing businesses to recover costs over time. This tax deduction was estimated to save independent oil and gas producers about $0.6 billion in fiscal year 2024.

Another tax deduction is the Domestic Manufacturing tax deduction, which allows all industries and businesses (not just oil companies) to deduct a certain percentage of their profits — it is 6% for the oil and gas industry and 9% for all other industries (software developers, video game developers, the motion picture industry, and green energy producers, among others).

Comparison of Major Tax Incentives

According to the Joint Committee on Taxation, the production tax credit for wind was estimated to cost taxpayers $3.4 billion in FY 2024, the investment tax credit for solar was estimated to cost $15.9 billion, and the three tax deductions for oil and gas listed below combined were estimated to cost $1.3 billion. According to these numbers, the wind and solar tax credits outweighed the tax deductions of oil and gas companies by a factor of 15 in FY 2024. Furthermore, this comparison does not include the tax deductions that the wind and solar industries receive for depreciation and manufacturing, nor the benefits they derive from state mandates and subsidies.

When compared to the relative amounts of energy produced by each source, taxpayers are receiving little benefit from wind and solar energy, and a significant benefit from oil and natural gas. Almost all of our transportation is fueled by oil, and natural gas is the largest source for both heating homes and making the electricity that cools our homes, fuels our factories, schools, and hospitals, making modern life possible.

Source: Joint Committee on Taxation

Conclusion

The House has passed a bill that essentially phases out the IRA tax credits for wind and solar power over a short period. The Senate is now debating the issue. The wind and solar industries want to keep the tax credits that were in the Democrat-passed IRA. The small tax benefits available to oil and gas producers pale in comparison to the vast sums of taxpayer money being handed to wind and solar generators. While the wind and solar industries receive lucrative subsidies from the IRA, the oil and gas industry receives tax deductions estimated to total approximately 6% of what wind and solar would receive. Yet, these energy forms provide very different benefits to Americans, including revenue to the government, employment opportunities, and energy contributions. Even after investing billions, the U.S. economy obtains less than 3% of its primary energy from wind and solar, compared to 74% from natural gas and oil. However you slice it, the wind and solar tax credits are a bad deal for taxpayers and consumers, as they have only escalated the cost of electricity, which increased for residential homeowners by 25% during the Biden administration.


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

AEA to the Senate: Absolutely No Backsliding on IRA Subsidies

WASHINGTON DC (6/18/25) – The Senate Finance Committee released its draft text for the budget reconciliation bill this week, notably preserving many of the “clean energy” tax incentives that House Republicans have dramatically scaled back.

American Energy Alliance President Thomas Pyle issued the following statement:

“The Senate Finance proposal extends subsidies for solar and wind energy through at least 2030 — with some subsidy provisions lasting until 2040. This directly contradicts President Trump’s campaign pledge to ‘terminate the Green New Scam.’

“The Senate should not water down the House’s plan to quickly repeal the Biden-era green giveaways, which – if not repealed – would add trillions to the deficit and increase the cost of energy for hard-working families. Americans should urge their Senators to – at the very least – stick to the House’s plan to quickly repeal the IRA. There is nothing beautiful about a Big Beautiful Bill that is loaded with special interest corporate welfare.”

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The Senate Finance Committee’s Reconciliation Draft Is a Step in the Wrong Direction

The Senate Finance Committee released its draft legislation of the reconciliation bill on Monday and, although the main structure of the bill remains the same as the house version, there are some notable differences in some of its energy provisions. Unfortunately, some of these differences are steps backward in that they replace the House bill’s strict repeals with softer language that allows companies to keep receiving tax credits past the end of President Trump’s time in office. Preventing these draft changes from being included in the final version of the bill will be crucial for ending the threat these green energy tax credits pose to grid reliability.

While the House version of the bill imposed strict deadlines for when green energy projects had to “commence construction” (within 60 days of the bill’s enactment) and be placed in service (by the end of 2028) to receive tax credits, the Senate’s version allows wind and solar firms to remain eligible for tax credits until 2031 if they begin construction before 2027, thanks to a four-year safe harbor for construction. Since the production tax credit (PTC) allows firms to continue receiving subsidies for 10 years after being placed in service, wind and solar projects can collect subsidies from 2030-2040, over a decade after President Trump’s term ends.

Allowing companies to continue utilizing the PTC for solar and wind projects threatens grid stability by keeping solar and wind in business despite their inferiority to reliable sources. With more funds available to these projects, they can spend more on lobbying efforts to convince Congress to extend the tax credits, continuing the cycle of expiration and reinstatement that have made the so-called “phase-out” of subsidies nothing more than a fallacy.

Furthermore, the Senate bill also maintains tax credits for “clean” energy sources besides wind and solar — such as geothermal, hydro, nuclear, and battery storage — based on the phase-out structure of the IRA. In contrast, the House version treated all of these sources (besides nuclear) the same. Even though these sources do not have the same intermittency problem as wind and solar, giving taxpayer dollars to sources that are unproven at scale keeps the government in the business of picking winners and losers while crowding out private investment. 

Another questionable change in the bill is the loosening of the definition of what it means for a company to be foreign-influenced, increasing the threshold for foreign ownership to 25% of an individual company from 10% in the House bill. This change could increase the number of energy projects that receive subsidies as the bill prohibits facilities that receive “material assistance from a prohibited foreign entity” from taking advantage of the tax credits. For instance, a facility that received material assistance from a company that is 15% foreign-owned could qualify for tax credits under the Senate bill, but not the House version. 

When considering China’s outsized share of production for the technology needed for green energy, this distinction could have consequences for national security as fewer companies will be designated as Chinese-influenced — especially given recent reports about rogue communication devices in Chinese solar power inverters.

Although there are some improvements in the Senate bill — notably, the Senate version ends tax credits for electric vehicles 180 days after the bill’s passage, while the House version extended the program by one year for automakers that have sold under 200,000 eligible vehicles — the continuation of Inflation Reduction Act (IRA) tax credits past the end of President Trump’s term should be a redline that Republicans refuse to cross. Fortunately, the Senate’s version will not garner the approval of fiscal hawks; Sen. Ron Johnson (R-WI) has criticized the bill for failing to address the deficit and Rep. Chip Roy (R-TX) stated explicitly that he would not vote for the bill because of the tax credits’ extension.


As Congress makes crucial decisions about what to include in the final bill over the next few days, Republicans need to remember that fully slashing IRA subsidies provides the most reasonable path forward to enacting President Trump’s tax cuts without ballooning the deficit. Failure to do so will delay the bill past the July 4 deadline, further pushing back the day that the IRA’s grid-destroying subsidies are eliminated.


Senator Crapo, who chairs the Senate Finance Committee, has the opportunity to stand and deliver on President Trump’s energy agenda by ensuring this bill puts a swift end to green energy subsidies that distort the market, raise costs, and undermine grid reliability. Continuing to funnel taxpayer dollars to intermittent energy sources not only jeopardizes President Trump’s energy abundance agenda, it empowers the very Senators who are bought and paid for by the wind and solar lobby. Senator Crapo has the opportunity — and responsibility — to lead the charge in cutting these wasteful handouts.