By Glenn Todd, Principal, National Tax Leader, Power and Utilities, KPMG US; Jeffrey Dodson, Tax Market Leader, National Tax Industry Leader – Oil & Gas, KPMG LLP; Julie Chapel, Managing Director , Washington National Tax, KPMG US
The recently enacted “One Big, Beautiful Bill Act” will bring about substantial changes to sectors across the economy, particularly the energy industry. As the industry itself continues to evolve, understanding these changes is crucial for companies to navigate the evolving regulatory environment effectively. Here are a few elements of the new bill to pay attention to:
What’s New
A critical aspect of the bill is its provisions related to oil and gas. The law mandates new oil and natural gas lease sales across federal lands and waters. requiring the Bureau of Land Management to hold sales quarterly. It also reinstates royalty rates for production leases on federal lands to 12.5%. These provisions aim to increase domestic oil and gas production.
The bill also introduces “prohibited foreign entity” (PFE) rules, which deny tax credits to certain PFE taxpayers and facilities that receive “material assistance” from PFEs. A PFE includes specified foreign entities, including foreign controlled entities, and foreign influenced entities. These restrictions will likely necessitate enhanced vendor diligence and may disqualify projects unless alternate sourcing arrangements are secured.
What’s Remains Largely Unchanged
The bill mostly retains the structure and rates for the section 45Q credit for carbon capture and storage projects that begin construction prior to 2033, providing long-term certainty and stability in a capital-intensive technology. In addition, the retention of the direct pay rules maintains a useful monetization option for these projects.
What’s Accelerating
Wind and solar facilities must begin construction within 12 months of enactment or be placed in service by December 31, 2027, to be eligible for the clean electricity production or investment tax credits. Additionally, the advanced manufacturing production credit, section 45X, remains available for the production and sale of eligible components, including wind, battery, and solar components, as well as certain critical minerals. However, the phase-out schedule for wind energy components has been accelerated, with no credit available for components sold after 2027.
What’s Going Away
The bill eliminates tax credits for both individual and commercial purchases of electric vehicles (EVs,) as well as for the installation of EV charging stations. For the most part, the bill would be effective for EVs and charging stations placed in service after December 31, 2025.
Additionally, the bill would terminate tax credits for individuals making certain investments in residential energy efficient property and for the construction of certain energy efficient homes.
Conclusion
The “One Big, Beautiful Bill Act” has introduced significant changes to the energy tax credit landscape, presenting opportunities and openings for energy companies. While some credits have been terminated or restricted, others have been extended or modified. As the energy sector continues to evolve, understanding these changes will be crucial for companies to navigate the new regulatory environment effectively and capitalize on emerging opportunities. For a more comprehensive look, you can read a full analysis of the bill here.
