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As bad as previous drafts of the reconciliation bill have been, this one is worse.
Senate Republicans are in the final stages of passing their budget reconciliation megabill — which suddenly includes a new tax on solar and wind projects that has sent many in the industry into full-blown crisis mode.
The proposed tax was tucked inside the latest text of the Senate reconciliation bill, released late Friday night, and would levy a first-of-its-kind penalty on all solar and wind projects tied to the quantity of materials they source from companies with ties to China or other countries designated as adversaries by the U.S. government. Industry representatives are still processing the legislative language, but some fear it would kick in for certain developers as soon as the date of its enactment. Taken together with other factors both in the bill and not, including permitting timelines and Trump’s tariffs, this tax could indefinitely undermine renewables development in America.
On Saturday, as legislators began to digest the new text, Senator Brian Schatz declared on X not once, not twice, but three times that with the new penalty, this bill would on its own “kill” the U.S. solar energy industry, leading to energy shortages and raising costs across the board. "I promise you,” he wrote, “this bill is worse than you think.”
Senator Sheldon Whitehouse of Rhode Island, a staunch advocate for climate policy, said in a statement to Heatmap that the tax will help China and hurt American families, “all so Republican oil and gas donors can make even bigger profits. This isn’t policy; it’s pay-off.”
Without this new tax, energy companies might’ve quietly swallowed the bitter pill of losing the incentives established in the Inflation Reduction Act. In the weeks since the first version of this legislation was introduced in the House, I’ve interviewed numerous renewables developers, tax attorneys, and cleantech investors, who have emphasized the resilience of the industry given rising energy demand and explained that there would still be many ways for projects currently under development to qualify for the credits before they’d be phased out. The history of renewable energy tax credits in the U.S. is full of of phase-outs and restarts. The industry’s been at least somewhere like this before.
But the withdrawal of incentives is one thing. A targeted federal tax that could increase development costs by up to 20% that is levied over longstanding supply chain relationships that will take not years but rather decades to rebuild is another.
The American Council on Renewable Energy said in a statement that the latest iteration of the bill “effectively takes both wind and solar electric supply off the table, at a time when there is $300 billion of investments underway, and this generation is among the only source of electricity that will help to reduce costs and keep the lights on through the early 2030s.” The North America’s Building Trades Unions issued a statement after the text’s release calling it the “biggest job-killing bill in the history of this county” and adding that that “simply put, it is the equivalent of terminating more than 1,000 Keystone XL pipeline projects.”
“I think it’s impossible to overstate how this new version of the bill makes the House bill look moderate by comparison,” Andrew Reagan, president of Clean Energy 4 America, told me in an exasperated tone over the phone Saturday afternoon. “The hope as I see it is that as the full impact of how devastating this proposal would be for every state in the country comes into play, as this comes to the floor, Senate Republicans who claim to care about this issue come to [Majority Leader John] Thune and ask to amend this.”
The tax would apply to new solar and wind construction and be calculated based on the degree to which a project exceeds statutory limits for materials sourced from “foreign entities of concern,” i.e. Russia, North Korea, Iran, and most especially China. Solar projects would have to pay a 50% tax on the value of the overage, and wind projects would pay 30%.
Here’s a simplified example to illustrate how it would work: Say you are developing a solar project that will begin operating in 2028, and the total cost of all of your material inputs is $100,000. The new law would require that at least 50% of the value of all of your materials come from entities disconnected from Chinese companies and investment (the statutory limit for 2028), but your project is only able to achieve 40%. The extra $10,000 dollars you paid to companies with ties to China would be subject to the 50% solar tax, adding $5,000 to the total cost of your project. And this doesn’t even touch the new expense of capturing and reporting all of this supply chain data for the federal government.
The rules for how developers would actually calculate the value of their various material inputs will be subject to the Treasury’s interpretation and guidance, so it is impossible to determine how harshly this tax would fall on any individual solar or wind energy facility. Even so, Rhodium Group has estimated that it would increase project costs overall by 10% to 20% — a whopping total to eat on top of losing key tax credits.
This penalty for sourcing linked to China dates back to the IRA’s consumer electric vehicle tax credit. As I was first to report years ago for E&E News, Senator Joe Manchin successfully limited the credit’s scope by requiring qualifying cars to be made with an increasing percentage of materials from the U.S. or a country with a free trade agreement and mandating that materials could not come from a foreign entity of concern. This tactic mostly failed to reshore mineral supply chains as quickly Manchin had hoped it would, but it did ensure that relatively few vehicles qualified.
This anti-foreigner approach to energy policy has now been taken up by Republicans in Congress to erode the IRA overall. As my colleagues Emily Pontecorvo and Matthew Zeitlin have explained, the Senate legislation would deny tax credits to companies that have supply chains with any ties to China, which many say would effectively stop them from qualifying for the credits.
This specific policy approach is something I’ve previously dubbed the GOP’s “anti-China trap” for renewable energy. Now, on top of cutting off companies from tax credits, this trap will catch them for failing to reinvent their supply chains overnight with little if any warning. Of course, reshoring these supply chains will also be more difficult because of other provisions in the bill that would erode and eliminate advanced manufacturing tax incentives originally designed to encourage companies to make more of these components at home.
The only silver lining here is that the fight isn’t over. It wouldn’t surprise me to see a senator try to get rid of this tax as the bill moves through the amendment process on the Senate floor.
I expect some sort of intervention here because there appears to be momentum from powerful entities outside of Congress to get rid of this tax. Reviews of this piece of the bill are so bad, it has put the American Clean Power and the U.S. Chamber of Commerce on the same side as pro-fossil “philosopher” Alex Epstein, who is also calling on senators to oppose the tax.
“I just learned about the excise tax and it’s definitely not something I would support,” he posted to X yesterday, adding he’d rather they focus on removing the tax credits instead of creating a new cost. “I stand for energy freedom, always, in every situation,” he added in a separate post defending his opposition.
Elsewhere on X yesterday, Elon Musk spent hours (on his birthday, no less) going after the Senate bill, reposting energy wonks’ rants about the bill and its tax on renewables, including from Jesse Jenkins, the host of Heatmap’s very own Shift Key podcast.
So, okay, but will Musk, Epstein or any of these other critics convince at least one senator to force a successful vote on getting rid of the tax? That’s really the only way it can go away, because it’s very likely the Senate will force the House to pass whatever it passes.
I talked to Jenkins hours after Musk reposted him and filled up his replies. Like the iconoclastic billionaire, he told me he thinks this legislation is worse than anything congressional Republicans had released before it. A big reason for that is indeed the excise tax, a completely new idea that hadn’t been in any other previous draft of the bill or debated in committee, which he sees as a “obviously, deliberatively punitive attack on the wind and solar industry for what appears to be purely ideological reasons.”
“It’s going to kill hundreds of billions of dollars in investment and hundreds of gigawatts of new supply that would otherwise help us meet rapidly growing electricity demand. So, yeah, higher energy prices, less jobs, less investment in American energy production, and less confidence in the American business environment,” Jenkins said. “No one is asking for this.”
Debate on the bill is expected to begin later today, and the amendment process will stretch into Monday morning at least.
Additional reporting by Emily Pontecorvo
Editor’s note: This story has been updated to include a statement from Senator Sheldon Whitehouse.
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Congressional Democrats will have to trust the administration to allow renewables projects through. That may be too big an ask.
How do you do a bipartisan permitting deal if the Republicans running the government don’t want to permit anything Democrats like?
The typical model for a run at permitting reform is that a handful of Republicans and Democrats come together and draw up a plan that would benefit renewable developers, transmission developers, and the fossil fuel industry by placing some kind of limit on the scope and extent of federally-mandated environmental reviews. Last year’s Energy Permitting Reform Act, for instance, co-sponsored by Republican John Barrasso and Independent Joe Manchin, included time limits on environmental reviews, mandatory oil and gas lease sales, siting authority for interstate transmission, and legal clarity for mining projects. That passed through the Senate Energy and Natural Resources Committee but got no further.
During a House hearing in July, California Representative Scott Peters, a Democrat, bragged that a bill he’d introduced with Republican Dusty Johnson to help digitize permitting had won support from both the Natural Resources Defense Council and the American Petroleum Institute — two advocacy groups not typically speaking in harmony. (He’s not the only one taking a crack at permitting reform, though: Another bipartisan House effort sponsored by House Natural Resources Committee chairman Bruce Westerman and moderate Maine Democrat Jared Golden would limit when National Environmental Policy Act-mandated reviews happen, install time limits for making claims, and restrict judicial oversight of the NEPA process.)
But unless Democrats trust the Trump administration to actually allow renewables projects to go forward, his proposal could be dead on arrival. Since the signing of the One Big Beautiful Bill Act on July 4, the executive branch has been on the warpath against renewables, especially wind. With the Trump administration’s blessing, OBBBA restricted tax credits for renewable projects, both by accelerating the phaseout timeline for the credits (projects have until July of next year to start construction, or until the end of 2027 to be placed in service) and by imposing harsh new restrictions on developers’ business relationships with China or Chinese companies. Mere days after he signed the final bill into law, Trump directed the Internal Revenue Service to write tougher guidance governing what it means to start construction, potentially narrowing the window to qualify still further.
“I think all of this fuzz coming out of the Trump administration makes trust among Democrats a lot harder to achieve,” Peters told me this week.
In recent weeks, Trump’s Department of the Interior has issued memos calling for political reviews of effectively all new renewables permits and instituting strict new land use requirements that will be all but impossible for wind developments to meet. His Department of Transportation, meanwhile, insinuated that the department under the previous administration had ignored safety concerns related to radio frequencies while instituting onerous new setback requirements for renewables development near roadways.
Peters acknowledged that bipartisan permitting reform may be a heavy lift for his fellow Democrats — “a lot of Democrats didn’t come to Congress to make permitting oil and gas easier,” he told me — but that considering the high proportion of planned projects that are non-emitting, it would still be worth it to make all projects move faster.
That said, he conceded that his argument “loses a lot of force” if none of those planned non-emitting projects that happen to be solar or wind can get their federal permits approved. “How can I even make a deal on energy unless I get some assurance that will be honored by the President?” Peters told me.
Other energy and climate experts broadly supportive of investment-led approaches to combatting climate change still think that Democrats should push on with a permitting deal.
“All of this raises the importance of a bipartisan Congressional permitting reform bill that contains executive branch discretion to deny routine permits for American energy resources,” Princeton professor and Heatmap contributor Jesse Jenkins posted on X. “Seems like there's a lot of reasons for both sides to ensure America's approach to siting energy resources doesn't keep ping-ponging back and forth every four years.”
But permitting reform supporters are aware of the awkward situation the president’s unilateral actions against renewables puts the whole enterprise in.
“The administration’s recent measures are suboptimal policy and no doubt worsen the odds of enacting a technology-neutral permitting reform deal,” Pavan Venkatakrishnan, an infrastructure fellow at the Institute for Progress, told me.
At the same time, he argued that Democrats should still try to seek a deal, pointing to the high demand for electrons of any type. Not even the Trump administration can entirely choke off demand for renewables, so permitting reform could still be worth doing to ensure that as much as can evade the administration’s booby traps can eventually get built.
“Projects remain at the mercy of a burdensome regulatory regime,” Venkatakrishnan said. “Democrats should remain committed to an ambitious permitting deal — the best way to reduce deployment timelines and costs for all technologies, including solar-and-storage.”
Venkatakrishnan also suggested that Democrats could, in a bipartisan deal, seek to roll back some of the executive branch actions, including the Interior memo subjecting wind and solar to heightened review or the executive order on the definition of “begin construction.” There would be a precedent for such an action — the 2024 Manchin-Barrasso permitting reform bill attempted to scrap the pause on liquified natural gas approvals that the Biden administration had implemented. But then of course, that didn’t ever become law. (Manchin and congressional Republicans were able to clear the way to permitting a specific project, the Mountain Valley Pipeline in a larger bipartisan deal.)
What could unlock a deal, Yogin Kothari, a former congressional staffer and the chief strategy officer of the SEMA Coalition, a domestic solar manufacturing group, told me, would be the Trump administration getting actively involved. “The administration is probably going to have to lead,” Kothari said. “It’s going to be up to folks in the administration to go to the Hill and say, We do need this, and this is what it’s going to mean, and we’re going to implement this in good faith.”
This would require a delicate balancing act — the Trump administration would have to think there’s enough in a deal for their favored energy and infrastructure projects to make it worth perhaps rolling back some of their anti-renewables campaign.
“The administration is going to have to convince Democrats that it’s not permitting reform just for a subset of industries,” i.e. oil, gas, and coal, “but it is really technology neutral permanent reform,” Kothari said. “On the Senate side, it comes down to whether seven Senate Democrats feel like they can trust the admin to actually implement things in a way that is helpful across the board for energy dominance.”
One reason the administration itself may have to make commitments is because Congressional Democrats may not trust Republicans to stand behind legislation they support and vote for, Peters told me.
“Obviously we’d have to get some face-to-face understanding that if we make a deal, they’re going to live by the deal,” he said.
Peters pointed to the handful of Republicans who successfully negotiated for a longer runway for renewable tax credits, only to see Trump move almost immediately to tighten up eligibility for those tax credits as reason enough for skepticism. He also cited the cuts to previously agreed-upon spending that the Trump administration pushed through Congress on a party line vote as evidence that existing law and deals aren’t necessarily stable in Trump’s Washington.
“If we do a deal — Republicans and Democrats in Congress, the House and Senate, get together and make an agreement — we have to have assurance that the President will back us,” Peters told me.
No bipartisan deal is ever easy to come by, but then historically, “everybody lives by it,” he said. “I think that may be changing under this administration, and I think it makes everything tougher.”
And more of the week’s most important conflicts around renewable energy.
1. Sussex County, Delaware – The Trump administration has confirmed it will revisit permitting decisions for the MarWin offshore wind project off the coast of Maryland, potentially putting the proposal in jeopardy unless blue states and the courts intervene.
2. Northwest Iowa – Locals fighting a wind project spanning multiple counties in northern Iowa are opposing legislation that purports to make renewable development easier in the state.
3. Pima County, Arizona – Down goes another solar-powered data center, this time in Arizona.
4. San Diego County, California – A battery storage developer has withdrawn plans to build in the southern California city of La Mesa amidst a broadening post-Moss Landing backlash over fire concerns.
5. Logan and McIntosh Counties, North Dakota – These days, it’s worth noting when a wind project even gets approved.
6. Hamilton County, Indiana – This county is now denying an Aypa battery storage facility north of Indianapolis despite growing power concerns in the region.
They don’t have much to lose, Heiko Burow, an attorney at Baker & Mackenzie, tells me.
This week, since this edition of The Fight was so heavy, I tried something a little different: I interviewed one of my readers, Heiko Burow, an attorney with Baker & Mackenzie based in Dallas, Texas. Burow doesn’t work in energy specifically – he’s an intellectual property lawyer – but he’s read many of my scoops over the past few weeks about attacks on renewable energy and had legitimate criticism! Namely, as a lawyer who is passionate about the rule of law, he wanted to send a message to any developers and energy wonks reading me to use the legal system more often as a tool against attacks on their field.
The following conversation has been abridged for clarity. Let’s dive in.
So Heiko, you reached out to me after my latest scoop about how the Trump administration is now trying to create national land use restrictions on wind projects through the Department of Transportation. In your email, you said the Trump administration “cannot invent a setback requirement by executive fiat.” What does this mean?
Something you need to understand from my point of view is, there’s all these things coming out of the White House, the executive. Like the setback requirement: If the law says they have the right to do that, then okay. But the viewpoints of the administration do not replace the law.
There’s no requirement in the law that the Secretary of Transportation can require a setback. He can’t just come in and say here’s a required setback. The government can only do what the law allows a government to do.
For example, a CEO can’t come into a company and say all the contracts are null and void. The president, in the same way, can’t say everything that’s legally binding is no longer legally binding. There are two ways that creates a problem: one is that it is a breach of contract, and the courts will say there’s a different remedy for that. But there’s also a constitutional problem with that.
Why did you reach out to me about this story, in particular?
I’m just concerned about the environment, and our country, and our democracy.
As someone who works with corporations navigating the legal system under Trump, why do you think companies – like renewable developers – aren’t suing left and right in this moment?
I think they’re timid.
It’s not just companies – it’s stakeholders in general. In 2017, there was pushback on Trump. That is missing. Look at the tech industry – and a lot of investments in renewable energy come from the tech area – and how they lined up with Trump on Inauguration Day.
That is fear. I’d say other stakeholders too are now ruled by fear.
As someone who advises companies in other areas of law, what posture do you think renewable energy companies should take?
Band together. Renewable energy companies, you don’t have much to lose. He’s persecuting you.
I know people stay under the radar, like community solar entities that he could have forgotten about. But he didn’t forget about them. So they need to band together and fight.
Everybody’s just lying low and being afraid. But how much more can renewable energy companies lose? Right now they’re still surviving, because the business case for renewable energy works and states are supporting it. But they’re quiet about it on the national level.
If people start believing what Trump says is the force of law, then it’ll just be that way. And I don’t see a coordinated response to that.