With the enactment of the One Big Beautiful Bill Act (the "OBBBA"), the energy tax credit landscape looks different in 2026—but far from dismantled.
Energy tax credits feature prominently in the 2025-2026 Priority Guidance Plan, signaling that implementation of the OBBBA's revisions is a central focus for Treasury. With the uncertainty of 2025 behind us, it is worth stepping back to consider how we got here and what the clean energy market looks like today.
2025 Recap
The Trump administration made little effort to disguise its intention to pare back clean energy incentives, despite the traction the market for sales of tax credits had gained under the prior administration. Early 2025 brought final rules on several key provisions, including the tech-neutral credits that replaced the legacy investment tax credit ("ITC") and production tax credit ("PTC"), offering reassurance to stakeholders concerned about the future of energy tax credits under the new administration, which we covered here. Any optimism, however, quickly faded. Following the administration's withdrawal from global climate agreements, it became clear that significant changes were inevitable, as we noted here.
Things came to a head during budget negotiations, culminating in the enactment of the OBBBA in July 2025. The House bill initially proposed significant rollbacks, while the Senate version took a more measured approach, as discussed here and here. As enacted, the OBBBA eliminated several consumer-facing credits, terminated wind and solar projects that are not placed in service before 2028 (with a safe harbor for projects that begin construction within 12 months of enactment), and introduced sweeping foreign entity of concern ("FEOC") limitations that now attach to most credits. Under the new restrictions, a developer cannot claim a credit if a project has impermissible ties to China, Iran, North Korea, or Russia. Those ties go beyond where an entity is organized and disqualify any project that has received "material assistance" from a prohibited foreign entity during construction.
Because of the 12-month safe harbor, and because some of the more onerous FEOC material assistance limitations would not apply until 2026, developers rushed to begin construction in July 2025 to preserve their eligibility for credits.
On July 7, as discussed here, Trump issued an executive order directing Treasury to issue guidance on both the FEOC rules and what it means to "begin construction" for purposes of the safe harbor. Although guidance promptly followed on the latter point (as discussed here, adopting a narrow interpretation that could make it harder to qualify), Treasury issued no guidance on the FEOC rules during 2025. This left developers without clarity on the scope of these potentially expansive limitations or how to plan around them, as noted here in our latest update.
Recent Developments
Finally, Treasury began delivering long-overdue FEOC guidance by issuing Notice 2026-15 on February 12. The Notice provides a de minimis rule and two interim safe harbors for calculating the material assistance cost ratio. That ratio compares the direct labor and material costs attributable to products manufactured by a prohibited foreign entity to the project's total direct labor and material costs. If the ratio meets or exceeds the applicable statutory threshold (currently 40%), the project is ineligible for the credit. Comments are due March 30.
Separately, on February 3, Treasury and the IRS released proposed regulations under the clean fuel production credit, one of the few credits extended under the OBBBA. The credit operates as a PTC and applies to sales of clean transportation fuel based on lifecycle emissions performance. The proposed regulations have thus far been well received, confirming that certain sales to resellers may qualify, establishing a process for requesting a provisional emissions rate, and clarifying how to prevent double crediting. Comments are due April 6.
The clean fuel production credit guidance is an encouraging sign that clean energy remains on Treasury's agenda, as Treasury and the IRS tick off a key item on the 2025-2026 Priority Guidance Plan. Additional guidance on the PTCs for carbon oxide sequestration, nuclear power, and advanced manufacturing is expected in the months ahead.
Looking Ahead
Overall, the early 2026 guidance suggests that Treasury and the IRS are engaging with industry to craft workable rules. Additional guidance is expected to emerge in stages, allowing Treasury to address key issues before formalizing more comprehensive rules.
Clean energy credits also continue to intersect with broader tax and trade policy considerations. The Supreme Court recently struck down the administration's use of tariffs as an exercise of taxing power requiring congressional authorization (discussed here). In that context, the new FEOC limitations—enacted by Congress under the OBBBA—represent the sole means of implementing the administration's broader effort to align energy tax incentives with trade, supply chain, and national security objectives.
We will continue to monitor developments and provide updates in BrassTax as the landscape evolves.
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