Protecting Energy Tax Credits from U.S. Adversaries: Six Key Principles

The Inflation Reduction Act’s (IRA) energy tax credits spurred a $493 billion surge in U.S. private sector energy and manufacturing investments between the second half of 2022 and the first half of 2024—a 71% jump compared to the two years prior to the law’s passage. These tax credits advance key bipartisan objectives, including revitalizing domestic manufacturing, strengthening U.S. energy supply chains, boosting energy abundance, reducing emissions, and enhancing the U.S. economy’s competitiveness.

With increasing bipartisan concern over U.S. reliance on Chinese-dominated supply chains, Congress is now examining whether to change energy tax credits to prevent adversaries from benefiting from them. Most of the energy tax credits lack restrictions on Foreign Entities of Concern (FEOCs). Consequently, projects tied to U.S. adversaries are eligible for energy tax credits like the Advanced Manufacturing Credit (45X), Clean Energy Investment Credit (48E) and Production Credit (45Y), and the Clean Hydrogen Credit (45V).

With growing congressional interest in adding FEOC restrictions to the energy tax credits, the Bipartisan Policy Center convened a series of private workshops in the second half of 2024 with representatives from the energy and manufacturing sectors and bipartisan experts to discuss this issue. The workshops explored approaches for addressing concerns about taxpayer money going to U.S. adversaries through energy tax credits. The goal was to strengthen bipartisan support for these credits while maintaining incentives for domestic clean energy and manufacturing investments. Informed by the workshops, BPC developed six principles for Congress to consider should it choose to add new restrictions to the energy tax credits.

Download the issue brief to learn more and read the six principles that can help protect energy tax credits from U.S. adversaries.