Congress broke for summer recess last week, but not before sending the long awaited, hotly debated One Big Beautiful Bill Act (OBBB Act or the Act), or H.R. 1, to President Trump’s desk for a July 4th signing. The budget measure extends tax cuts for the wealthy, slashes Medicaid and – more to the point for this writing – almost completely eliminates or renders unworkable many of the clean energy tax credits established or expanded by the Inflation Reduction Act (IRA) and guts many of the IRA’s grant and loan programs. The OBBB Act ushers in a consequential shift for local governments and community groups building clean energy projects, investing in electric vehicles (EVs) and, in some instances, navigating IRA grant programs. The new law is sprawling, at more than 800 pages. This post focuses on developments and considerations specific to local governments and community partners.

Repeal of, and restrictions on, tax credits eligible for elective pay

Since the passage of the IRA, local governments, nonprofits, and other eligible entities have been able to claim the value of certain clean vehicle and clean energy tax credits in cash, through a mechanism referred to as elective pay. Elective pay itself is untouched in the OBBB Act, but the aggressive phase-out of and additional restrictions imposed upon the underlying tax credits severely impact eligible entities’ ability to claim them via elective pay. (It’s also worth noting that local businesses use these tax credits for projects and investments that lessen greenhouse gas emissions and improve public health at the local level, and they now face the same restrictions and termination dates.) 

Commercial EVs. The OBBB Act eliminates the Commercial Clean Vehicle Tax Credit under Section 45W of the Internal Revenue Code (IRC) for all vehicles acquired after September 30, 2025. This tax credit, which provides $7,500 back for qualified vehicles under 14,000 pounds and $40,000 back for vehicles over 14,000 pounds, has been used by cities across the country to support the electrification of their municipal fleets, from electric police cars to school buses to public works vehicles. Cities can still file for elective pay to offset the costs of commercial clean vehicles acquired before the September 30, 2025 cut-off; after that, the tax credit is repealed.   

EV charging. The Alternative Fuel Infrastructure Tax Credit under Section 30D of the IRC receives a marginally more generous phase-out than the EV tax credits. The 30D credits covers up to 30 percent of the costs of EV charging, hydrogen fueling, and other low-emissions fueling installations in low-income areas and non-urban census tracts. Cities must place EV charging infrastructure in service before June 30, 2026 in order to claim the credit.

Solar and wind. The OBBB Act phases out the applicability of the clean energy investment tax credit (ITC) and production tax credit (PTC) to wind and solar projects over the coming two and a half years, but for reasons discussed below, cities should consider “commencing construction” on these projects by December 31, 2025 (with a four-year window following such date to place those projects in service) if they wish to file for the ITC or PTC under the supply chain rules as originally enacted in the IRA. (As a reminder, the ITC covers between 6 and 70 percent of eligible project costs for qualifying clean electricity projects, while the PTC pays out over ten years based on the amount of electricity produced.)

Starting January 1, 2026, the OBBB Act imposes additional restrictions that disqualify solar, wind, and other projects that receive “material assistance” from foreign entities of concern (FEOC) connected to China, Iran, Russia, and North Korea. The determination of what qualifies as material assistance is broadly based on the components that go into a project and the countries from which those components are sourced. The lack of clarity and definition in the Act’s FEOC provisions makes it difficult for project owners – particularly cities, who will generally have a harder time than private sector developers in tracking down granular supply chain information – to determine whether a project remains eligible for the tax credits. The Act directs the Treasury Department to issue further rules and guidance with respect to the new FEOC rules, but these will almost certainly not be completed by the end of 2025, and could take much longer than that. In the coming weeks, we expect that we’ll see tax experts issue analyses and explainers about these rules; cities and others with questions about their projects’ ability to comply should confer with a qualified attorney.

Assuming a wind or solar project can comply with the FEOC rules, cities now have to contend with accelerated phase-out timelines for the ITC and PTC. Entities looking to claim these credits have two alternative deadlines. 

1. Entities can “commence construction” on a FEOC-compliant solar or wind project before July 4, 2026; after the commencement of construction, projects have a four-year period to be placed in service. IRS guidance sets specific tests and rules that define the meaning of the phrase “commence construction;” those with questions about whether work they’ve completed to date will qualify should consult a qualified attorney. 
2.  Entities can claim the ITC or the PTC if their FEOC-eligible solar or wind project is placed in service before December 31, 2027. 

The OBBB Act then fully eliminates these tax credits for wind and solar projects starting in 2028, subject to any projects with remaining time on their four-year window to be placed in service. 

Geothermal and battery storage. While the ITC and PTC phase out very quickly for wind and solar projects, battery storage and geothermal projects receive better treatment. The OBBB Act provides that, for all non-solar and non-wind clean energy technologies, the ITC and PTC will remain available at their full value through 2033, 75 percent of their value in 2034, and 50 percent of their value in 2035, with final phase-out in 2036. However, both of these technologies are also subject to the new FEOC requirements that take effect on January 1, 2026. Much of the battery supply chain is located in China, which could make tax credit eligibility for these projects challenging. There may be relatively more room to maneuver when it comes to geothermal energy projects, for which the domestic supply chain is more robust. 

Local governments looking to make use of the ITC might consider exploring how geothermal, and possibly battery storage, can be used on their buildings and in their communities. In particular, many public schools have partially funded geothermal heating projects through elective pay, and these project typologies may be useful in many more schools and in other kinds of municipally-owned buildings. More work will be required to map out opportunities for these kinds of projects.

Repeal of tax incentives not eligible for elective pay

In addition to tax credits available directly to local governments through elective pay, the OBBB Act repeals several incentives used by residents and businesses for investments that can help save money and reduce local building, transportation, and electricity sector emissions. The new and used clean vehicles tax credits for individuals – the Clean Vehicle Tax Credit under Section 30D of the IRC and the Used Clean Vehicle Credit under Section 25E of the IRC – will terminate on September 30, 2025, in line with the Commercial Clean Vehicle Tax Credit (discussed above). Widely-used credits for residential energy efficiency and electric appliances (Section 25C) and for residential rooftop solar (Section 25D) will end on December 31, 2025. 

Moreover, credits that support the development of new or renovated green housing under Section 45L of the IRC will sunset on June 30, 2026. Section 179D of the IRC, which provides a tax deduction for energy efficiency improvements to commercial buildings, has the same June 30, 2026 end date. Even though these incentives are used by private parties, their loss stands to cause more greenhouse gas emissions, harm public health, and increase costs at the local level. Local governments may wish to conduct outreach among their residents to make them aware of impending termination dates, for these credits and the ones identified above as eligible for elective pay. For example, residents wishing to purchase an EV eligible for the Section 30D credit should do so by the end of September.

Rescission and repeal of certain federal funding programs 

The OBBB Act has implications far beyond the tax code. It rescinds unobligated funding for a large swath of IRA programs, including the EPA’s Greenhouse Gas Reduction Fund (GGRF), Environmental Justice Block Grants, and Climate Pollution Reduction Grants; DOE’s State-Based Home Energy Efficiency Contractor Training Grants; and DOT’s Neighborhood Access and Equity Program. Local governments are direct grantees under several of these programs; in others, states and community-based non-profits advance important work at the local level.

For several of these programs, unobligated balances are relatively low, consisting largely of administrative funds. However, how these programs will continue to be administered in the absence of designated funds is an open question. It may become more difficult for local governments to communicate with agency contacts, get questions answered, or certify compliance with grant terms. It is also unclear how funds that are currently obligated to awardees under these programs will be treated if the underlying grants are terminated.

The GGRF fares particularly badly: in addition to the rescission of unobligated balances, the Act repeals the underlying statutory authority for the program (in simple terms, it strikes the relevant section from Clean Air Act). The provisions of the OBBB Act sit alongside EPA’s efforts to terminate two of the GGRF programs, the National Clean Investment Fund and the Clean Communities Investment Accelerator, and the litigation surrounding these two programs. All of this portends even more uncertainty for GGRF, and it is difficult to predict the programs’ ultimate outcomes. Local governments are not GGRF grantees, and it was not anticipated that many of them would borrow from GGRF awardees. Still, GGRF funds were intended to support clean energy development, EVs and their charging infrastructure, green and resilient homes, and more – all of which would advance decarbonization, resilience, and affordability at the local level.

The OBBB Act’s economy-wide implications

While the projected macro-scale impact of the OBBB Act  is beyond the scope of this post, the new law will undoubtedly be felt by local residents. The nonpartisan research center Energy Innovation projects that the OBBB Act will increase greenhouse gas emissions by 310 million metric tons of carbon dioxide equivalent by 2035, contributing to increasing and intensifying the climate and extreme weather impacts faced by cities across the country. The same analysis projects about 800,000 job losses as a result of the Act, and over 900 annual premature deaths from exposure to local air pollution by 2035. Further, the elimination of or severe restrictions on clean energy tax credits is projected to raise electricity prices by over 20% in some states, and in no states are prices projected to decrease. When considered alongside potential funding risks to programs like LIHEAP in later Congressional appropriations bills, cities may find that more of their residents experience energy insecurity. All of this is going to change the lived reality for local residents, and cities and community groups may be left to deal with the ramifications.

How local governments can proceed

As the clean energy and clean transportation tax credits phase out in the near term, local governments and others pursuing clean electricity, clean vehicle, or vehicle charging projects and investments should seek to move up their purchases or the commencement of construction consistent with the FEOC rules and the credits’ new sunset dates. Elective pay eligible entities should also continue to file for tax credits where projects that have already been completed, either in 2024 or in 2025. Those projects’ eligibility is not affected and nontaxable entities should seek to collect all monies available to them for eligible investments. This may also be a time to conduct outreach to residents and community groups to ensure they are filing for tax credits they are owed, or moving up their investments to take advantage of the credits before they expire. 

On the grant funding side, cities should proceed as they have been. The OBBB Act does not rescind obligated funding – that is, funds that have been formally awarded in a final contract. If a grant award remains in effect, the Act does not change it (though the rescissions of administrative funds could make all aspects of grant administration and management more challenging, including communication with agency contacts). For grant awards that have been paused, terminated, or are tied up in litigation, the situation is murkier – namely that, subject to numerous legal questions, federal agencies may seek to formally de-obligate funds from terminated grant awards. Still, for now local governments may continue to defend those grant awards through legal or other avenues.

The OBBB Act is one of many developments in Washington, D.C. that will make local decarbonization and climate equity work more difficult. But cities remain critical players as the federal climate policy landscape crumbles. Local governments can and will continue to identify novel strategies to decarbonize the buildings, transportation, and electricity sectors, and to support more resilient, equitable communities. Some of what’s been rescinded or terminated by the OBBB Act may come back again one day – clean energy tax credits, for example, have been renewed many times over the past decades. When it does, local governments will be primed by their experiences with the IRA and in policies they’ve developed for their own local contexts to carry the work forward. Global emissions may rise as a result of the OBBB Act, but local governments will continue their climate leadership in the meantime.