The House Ways and Means Committee’s recommendations include changes to the Inflation Reduction Act (IRA)’s green energy tax credits and an important elimination of the transferability provisions.
These transferability provisions allow energy developers and producers who qualify for IRA tax credits to sell them to unrelated third parties, often large corporations, for cash. The transfer credit market has allowed energy companies to sell credits for cash without any limit on how many credits can be generated, or on who ultimately receives them.
What is Tax Credit Transferability?
Tax credit transferability allows and encourages companies to sell federal tax credits, like those awarded for green energy projects under the IRA, to other entities. Instead of using the credits to offset their own taxes, developers can monetize them by transferring them to other entities with large tax bills.
The IRA supercharged this practice by allowing the sale of major tax credits like the Investment Tax Credit (ITC) and Production Tax Credit (PTC) with no limit on how much a developer or producer can make from those credits. Credits can be sold once per year, and the income from the sale isn’t taxed. Thus, making it an attractive scheme for both buyers and sellers looking to minimize their tax burden and maximize their cash flow. In essence, tax credit buyers can benefit financially and in the court of public opinion without ever having to take actions to earn them while credit sellers face incentives to maximize the number of credits they qualify for and then sell any they cannot use for a cash profit.
Why it Must be Eliminated in the Final Reconciliation Bill
The transferability of IRA tax credits has created a shadow market where financial institutions and corporations can profit off of credits meant to support energy development, regardless of whether they contributed anything to the project itself. It invites rent-seeking, reduces transparency, and forces taxpayers to subsidize corporate tax breaks for years to come.
The transferability of tax credits under the Inflation Reduction Act is rapidly reshaping the landscape of federal energy policy. Reunion Infrastructure predicts that the transfer market will expand by 10–15% annually, reaching its peak around 2030, based on the IRA’s original phaseout schedule. This booming market is not just theoretical. According to the Penn Wharton Budget Model, transferable tax credits are expected to cost taxpayers $561 billion over the 2023–2032 window. Reunion Infrastructure further estimates that between 50% and 60% of all clean energy tax credits claimed will ultimately be monetized through these transfer markets. In 2024 alone, around $30 billion worth of exchanges occurred in the tax credit transfer market and projections indicate this number rising to over $100 billion in 2030, raising serious questions about cost containment, transparency, and the long-term fiscal sustainability of the IRA’s green energy agenda.
Congress has done well to include a removal of tax credit transferability; however, the current bill text places the phase out dates at the end of 2027. While Congress deserves praise for removing transfer credits, the final reconciliation bill should go further and remove the tax credit transferability provisions immediately in order to disincentivize companies from profiting off of the IRA green energy provisions and taking taxpayer dollars for credits they have not earned.
