Decarbonization in the USA

Progress, Challenges, and the Impact of the Big Beautiful Bill

(Aug 2, 2025)

The United States has made significant strides in decarbonizing its economy, driven by federal initiatives, state-level policies, and private sector innovation. However, the recent passage of the “One Big Beautiful Bill Act” (OBBBA) on July 4, 2025, marks a major turning point in the clean energy landscape. While the U.S. remains committed to reducing carbon emissions, the new legislation introduces sweeping changes that could reshape the trajectory of renewable energy development.

Federal and State Progress on Decarbonization

Before the OBBBA, the U.S. was on a promising path toward decarbonization:

• Federal Programs: The Department of Energy launched initiatives like Drive Electric, Better Buildings, and the Industrial Decarbonization Roadmap to reduce emissions across transportation, buildings, and industry.
• State Leadership: States like Minnesota and New Jersey set ambitious goals for 100% carbon-free electricity by 2040 and 2035, respectively. Nearly all states acted on clean energy in early 2023.
• Energy Mix Shift: Renewables such as wind and solar were gaining ground, supported by tax credits and declining costs.

These efforts were bolstered by the Inflation Reduction Act (IRA) of 2022, which introduced generous tax incentives for clean energy projects, spurring investment and innovation.

The One Big Beautiful Bill Act: A Game-Changer

The OBBBA significantly alters the clean energy policy landscape. While it does not repeal all IRA-era incentives, it accelerates their phase-out and imposes new restrictions that could slow progress.

Key Impacts:

Provision	Effect on Clean Energy
Accelerated Phase-Out of Tax Credits	Wind and solar projects must begin construction by end of 2026 to qualify for full credits.
Foreign Entity of Concern (FEOC) Rules	Projects linked to Chinese-owned or influenced entities lose eligibility for credits.
Compressed Timelines	Developers must fast-track projects or risk losing incentives.
Transferability Preserved	Tax credits can still be sold or transferred, aiding project financing.
Grandfathering Provisions	Projects started before 2025 may retain full credit eligibility.

While some technologies like battery storage and carbon capture retain support, traditional renewables face tighter deadlines and sourcing constraints.

Industry Response and Strategic Shifts

Clean energy developers and investors are now recalibrating their strategies:

• Fast-Tracking Projects: Many are rushing to begin construction before the 2026 deadline to lock in full-value credits.
• Supply Chain Overhaul: Companies are seeking alternatives to Chinese components to comply with FEOC rules.
• Focus on Emerging Tech: Investment may shift toward technologies with longer-term support, such as hydrogen and advanced nuclear.

Despite the disruption, experts note that the bill provides clarity and a stable—if evolving—policy landscape for the next few years.

Sector-by-Sector Impact

Power Generation

Wind and solar face the most immediate challenges due to shortened credit timelines and sourcing restrictions. Grid modernization and battery storage remain viable, but developers must navigate new compliance hurdles.

 

Transportation

EV incentives are less affected, but domestic manufacturing requirements may tighten. Electrification remains a priority, especially as data centers and AI applications drive up energy demand.

Industrial Decarbonization

Carbon capture and clean hydrogen retain support, offering pathways for hard-to-abate sectors. However, foreign sourcing rules may complicate deployment.

Broader Economic and Environmental Implications

The OBBBA could have ripple effects across the economy:

• Investment Slowdown: States like Iowa, which attracted billions in data center investments due to cheap renewable energy, may see reduced growth.
• Housing Market: The bill ends several energy efficiency credits, potentially raising construction costs and home prices.
• Environmental Justice: Communities reliant on clean energy jobs and affordable energy may face setbacks.

Still, the global transition to clean energy is expected to continue, with the U.S. playing a key role—albeit under new constraints.

The Road Ahead

The U.S. decarbonization journey is entering a new phase. While the OBBBA introduces significant challenges, it also offers opportunities for innovation and adaptation.

Priorities Moving Forward:

• Accelerate Project Timelines: Developers must act quickly to qualify for remaining incentives.
• Diversify Supply Chains: Reducing reliance on foreign entities is now a strategic imperative.
• Leverage Grandfathering: Projects already underway can still benefit from favorable terms.
• Engage Policymakers: Industry voices will be crucial in shaping future legislation and guidance.

With coordinated action and strategic planning, the U.S. can continue to lead in clean energy, even under a more constrained policy environment.