Higher Costs and Hampered Progress: What the House’s Reconciliation Bill Means for U.S. “Energy Dominance”

The full House just passed their cut at the budget reconciliation bill this morning which now heads to the Senate. While framed as a way to offset the cost of extending Trump’s 2017 tax cuts, analysis suggests rolling back energy tax credits, as outlined in the House’s bill, has the effect of increasing costs for American households and businesses, essentially acting as an energy tax increase. This approach threatens to increase energy costs for American households and businesses, stifle economic growth, and impede efforts to reduce emissions, according to multiple recent studies.

Moreover, analysis from researchers at Johns Hopkins suggests that such a repeal of energy tax provisions would harm US manufacturing and trade by leading to lost factories, jobs, tax revenue, and billions in lost exports. Conversely, this retreat would create significant investment opportunities for other countries, including major competitors like China, allowing them to capture market share in the booming clean energy sector. Despite the potential for political opposition to a repeal due to the economic benefits seen in many districts, ceding leadership in clean technology manufacturing would weaken the US position in the future global energy economy.

The Proposed Changes: An Effective Repeal?

The House targets a range of energy-related tax credits. Notably, it includes provisions that would lead to the termination of credits for clean vehicles and residential clean energy improvements as early as the end of 2025, effectively repealing these provisions. For the crucial technology-neutral clean electricity production (§45Y) and investment (§48E) tax credits, the language effectively terminates them sometime in the fall of 2025.

Moreover, the language includes highly restrictive and complex requirements, such as stringent sourcing limits for components and materials. Experts argue that these restrictions and administrative complexities could make the credits practically unworkable or significantly limit their availability. Given these factors, the practical effect is similar to an outright repeal of these credits. Rhodium Group’s analysis indicates that their prior modeling of a full repeal starting in 2025 provides useful insights into the expected direction and magnitude of the impacts of the bill as passed by the House.

Impact on Energy Prices: Higher Bills for All

One of the most direct consequences highlighted by multiple sources is an increase in electricity prices for consumers and businesses. Without the incentives provided by the tax credits, building new clean energy capacity becomes more expensive, and these higher costs are passed on to customers.

Nationally, average retail electricity prices are projected to rise. Studies estimate increases ranging from roughly 5-7% in 2030 across different scenarios, reaching a peak of 6-10% higher in 2035. NERA’s analysis projected U.S. residential prices to be 6.7% higher in 2026 and 7.3% higher in 2029 without the technology-neutral credits. For commercial and industrial (C&I) customers, the impact is even higher, projected at 9.7% higher in 2026 and 10.6% higher in 2029. Aurora Energy Research estimates that without the credits, average retail rates would be 3% higher in 2030 and rise to 10% higher by 2040.

These rate increases translate directly into higher household electricity bills. Nationally averaged annual residential bills could increase by roughly $75-$100 in 2030, with a peak increase of $100-$160 per year around 2035. Brattle estimates an average annual residential bill increase of $83 per year by 2035. Aurora projects annual power bills to increase by $142 per year for consumers by 2040 on average. Rhodium Group estimates a $95-$290 increase in national average annual household energy costs (including electricity, home energy, and mobility) in 2035 due to repeal.

Beyond electricity, repealing the credits also contributes to higher costs for other energy sources. Increased demand for gasoline and natural gas, partly driven by less clean energy and fewer electric vehicles, can lead to higher prices for these fuels.

Impact on Economic Growth and Jobs: Stifled Investment and Job Losses

The rollback of clean energy tax credits would have significant negative effects on the U.S. economy.

Investment in American energy infrastructure would dramatically decrease. Solar and wind investment through 2035 could be 50% lower. Aurora estimates that in competitive markets, the removal of wind, solar, and battery tax credits could result in at least $336 billion less investment and 237 GW less clean energy deployed over the next 15 years. This translates to a loss of about $22 billion per year in clean power investment across competitive markets. States like New York and Texas could lose $4.4 billion/year and $3.3 billion/year on average through 2040, respectively.

Overall capital investment would decrease. This reduction in investment, coupled with higher electricity rates impacting consumer spending, would lead to decreases in GDP and eliminate jobs. Cumulative economic impacts from 2025 through 2035 could include a $510 billion decrease in GDP and $270 billion decrease in household consumption.

Job creation would be significantly affected. An estimated 3.8 million job-years could be lost cumulatively throughout the economy through 2035. Aurora estimates a net loss of 97,000 American jobs in construction, maintenance, and operations of power generation facilities by 2040. While there might be a partial offset from an increase of about 6,000 jobs in the fossil fuel sector, it would not compensate for the estimated 103,000 full-time clean energy jobs lost by 2040.

The bill as written puts a meaningful portion of outstanding clean energy manufacturing and project investments at risk. Recent reports indicate cancellations of manufacturing facilities. Steep reductions in clean energy deployment and restrictive sourcing constraints could threaten the scaling up of domestic manufacturing for components like solar modules, battery cells, and EVs.

Higher energy costs also create headwinds for industrial competitiveness, increasing energy expenditures for American manufacturers.

Impact on Emissions: Retreating from Decarbonization

Repealing or effectively eliminating clean energy tax credits would significantly slow the transition to cleaner energy sources and lead to higher greenhouse gas emissions.

Less clean energy generation would be built. By 2035, solar and wind capacity could be reduced by approximately 175 GW and 125-225 GW, respectively. Aurora projects a total reduction of 168 GW of solar and wind capacity additions by 2029 without tax incentives, leading to 237 GW less clean energy deployed by 2040 across competitive markets.

To meet growing electricity demand, the decrease in clean energy build would necessitate greater reliance on other generation sources. Some sources project limited additional gas-fired generation availability until the early 2030s under a repeal scenario, potentially creating supply shortfalls. Other sources find an increase in new natural gas capacity additions (23 GW by 2029), increased operation of existing fossil fuel plants, and potentially delaying retirements of coal plants. This leads to a substantial reduction in renewable generation, primarily solar and wind.

The net effect is a significant increase in power sector carbon dioxide emissions. RFF estimates an increase of 350 Mt–400 Mt CO2 in 2035, with a cumulative increase of 3,500 Mt–4,500 Mt CO2 between 2025 and 2040. Rhodium Group finds that repealing tax credits increases emissions by 500-730 million metric tons in 2035 relative to a baseline scenario that assumes the continuation of IRA policies. This would mean emissions in 2035 are only modestly lower than 2005 levels, representing effectively no progress on decarbonization in some scenarios.

In Sum: A Costly Path Forward

The analysis across multiple independent sources paints a clear picture: rolling back clean energy tax credits would likely function like a full repeal with negative consequences. This would result in higher electricity and overall energy bills for households and businesses, undermine significant investment in American energy infrastructure and manufacturing, lead to substantial job losses, and increase greenhouse gas emissions. As the Senate now debates the future of these credits, the research suggests that moving forward with rollbacks would be a costly decision for consumers, the economy, and the environment.