Projected Impacts of Repealing the Section 45Y and 48E Technology-Neutral Clean Electricity Tax Credits

The Inflation Reduction Act replaced an assortment of technology-specific tax credits for clean electricity with two “technology-neutral” tax credits, the 45Y and 48E tax credits (named after their sections in the tax code). The 45Y tax credit is a “production” tax credit, which pays a set amount for every unit of electricity generated, while the 48E tax credit is an “investment” tax credit that pays a fraction of the capital cost for a qualifying generation or storage technology. Unlike previous iterations, these tax credits apply to any technology that can produce electricity with zero emissions. For more details, see On Deck for Treasury: The Inflation Reduction Act’s New Approach to Clean Electricity Tax Credits and The US Department of the Treasury’s Proposed Guidance for the Tech-Neutral Tax Credits Importantly, the expiration of these tax credits is based on the overall carbon intensity of the electricity sector rather than any specific year.As the new administration and Congress contemplate proposals for the budget reconciliation process, these and other tax credits in the Inflation Reduction Act are on the table for potential repeal. In this issue brief, we explore the consequences of a repeal of these tax credits for retail electricity prices, consumer electricity bills, government expenditures, clean electricity, and emissions.In addition to our reference case, we examine three additional scenarios to assess the impacts of high and low natural gas prices, as well as high electricity demand, on the consequences of a repeal. These scenarios encompass the main parameters known to affect electricity prices. Natural gas prices have displayed wide variation historically, and greater exports of natural gas would put upward pressure on electricity prices. Increased electricity demand, driven by electrification of end-uses or to power data centers and artificial intelligence, would also put upward pressure on electricity prices. We use a high-demand scenario taken from the National Renewable Energy Laboratory’s Electrification Futures Study to account for these factors.We find that repealing these tax credits is modeled to:Increase nationally averaged electricity rates by roughly 5–7 percent across modeled scenarios in 2030, reaching a peak of 6–10 percent higher in 2035. These rate impacts translate into a $75–$100 increase in national average annual electricity bills in 2030, with a peak increase of $100–$150 per year (real 2023 dollars). Rate increases differ significantly by region, with the highest impact seen in the upper plains states ($300–$400 per year increases in the West North Central census region).Reduce tax expenditures by $227–$315 billion dollars over the ten-year budget window (2025–2034, cumulative nominal dollars). After 2035, the annual reduction in tax expenditures is $48–$63 billion per year, declining to $24–$47 billion per year in 2040.Increase power sector carbon dioxide emissions by 350 Mt–400 Mt CO₂ in 2035, with a cumulative increase in power sector emissions of 3,500 Mt–4,500 Mt CO₂ between 2025 and 2040.Reduce wind generation capacity in 2035 by 125 GW–225 GW and solar capacity in 2035 by approximately 175 GW. This is a coincidental convergence in 2035. The range increases to 175–225 GW in 2036 and remains at that level through the end of the projection period.