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President Donald Trump’s new “big, beautiful” law repeals many — but not all — of the U.S.‘s clean-energy tax credits. The incentives that remain, though, could still prove prohibitively complex, rendering them effectively useless for energy project developers and manufacturers.
That’s because of a provision in the bill aimed at restricting Chinese companies and individuals from benefiting from those tax credits. These restrictions on “foreign entities of concern” — “FEOC” for short — combine harsh penalties with very little guidance on compliance. The impact of rules meant to limit U.S. funds flowing to China could, ironically, be to undermine U.S. efforts to compete with China, which dominates many of the industries that will bear the brunt of the requirements, experts say.
The ramifications of FEOC rules will be felt most by developers of grid-scale battery, geothermal, and nuclear energy projects as well as by companies that produce batteries, solar panels, and critical minerals in the United States. The law preserved tax credits for these sectors until the 2030s, subject to FEOC provisions.
The FEOC provisions in the bill passed last week aren’t as strict as those that emerged from a House version of the bill in May, experts say. But they’re still complex enough that experts fear it will take the U.S. Treasury Department a long time to finalize its rules for compliance. The bill sets a deadline for the department to issue its FEOC rules by the end of 2026.
During the Biden administration, the department took a year and a half to craft rules for a much narrower set of FEOC restrictions for electric vehicle batteries under the Inflation Reduction Act. It’s unlikely the agency — understaffed and overworked following cuts from the Trump administration — will be able to finalize rules for these much broader restrictions in a timely fashion, said Ted Lee, a former Biden administration Treasury official who worked on those EV tax credits.
That puts the industry in a bind. Until the guidance is finished, it will be risky for companies to claim tax credits — and riskier yet for the investors who finance clean-energy projects and factories by purchasing these credits to offset their own tax bills. These entities would face the risk of eventually having their tax credits clawed back if they’re later found to be in violation of the as-yet-unwritten rules, Lee said, among other penalties.
“When I talk to developers, manufacturers, lawyers, and tax insurers and other participants in this market, they’re not sure how they’re going to deal with this,” Lee said. “There’s a risk that some projects get so burdened in compliance and red tape that projects and investments that should move forward will not be able to.”
To make matters more challenging, the IRS has a long time to challenge tax credit claims, said Andy Moon, CEO and cofounder of Reunion Infrastructure, a company that offers software and services to support the multibillion-dollar market for tax-credit transfers. The department has six years after a return is filed, and can assess a 20% penalty for incorrect claims — in addition to clawing back the value of the credit.
The confusion ultimately threatens to put hundreds of billions of dollars worth of planned investment in clean-energy projects and factories on ice while companies wait for the details to take shape. It could also sow chaos for the hundreds of billions of dollars worth of existing projects that have been built with the assumption that they could access Inflation Reduction Act tax incentives.
It’s unclear whether every company will be able to find alternative suppliers that comply with the FEOC rules. China makes most of the world’s solar and lithium-ion battery materials and components, including those used in domestic installations and factories. For some projects, that might be OK. Certain energy developments and factories will still make economic sense without tax credits. But plenty won’t.
“The industry has not yet fully absorbed the potential impact of FEOC rules, which will kick in starting in 2026,” said Moon. “And I think that some market participants are looking at it and raising the alarm bells.”
In particular, the “material assistance” rules that go into effect next year will prove a challenge for firms, Moon said. Under those rules, factories and energy projects seeking to claim tax credits must have an increasing proportion of materials coming from companies and sources that aren’t linked to FEOC.
For manufacturers seeking credits under the Inflation Reduction Act’s 45X program, those proportions will rise from 60% in 2026 to 85% in 2030 for lithium-ion batteries, while the proportions for solar manufacturers will rise from 50% to 85% over the same time period, for example. Manufacturers of other products have their own ratios, as do wind, solar, battery, geothermal, and nuclear power projects.
It won’t be easy for companies to prove they’ve met those thresholds, Lee said. “To do that, you have to go through a calculation that’s described at a high level in the text” of the bill, he said. “But the details of how you do that calculation are somewhat unclear,” with only passing reference to existing domestic-content “safe harbor” guidance for solar, wind, and battery projects.
Yogin Kothari, chief strategy officer for Solar Energy Manufacturers for America, a coalition of U.S. solar-equipment makers, said that the companies in his organization are working with the Trump administration and members of Congress to forward “a set of rules that supports domestic manufacturers and drives demand for domestic manufacturing. Anything that undermines that will have a negative impact on these manufacturing communities.”
GOP lawmakers have good reason to develop workable rules: The vast majority of manufacturing investment generated by the Inflation Reduction Act is flowing to Republican congressional districts.
Spencer Pederson, senior vice president of public affairs for the National Electrical Manufacturers Association (NEMA) trade group, highlighted the work that the organization and its member companies have taken to comply with existing “Build America, Buy America” rules set by the 2021 Infrastructure Investment and Jobs Act. Those kinds of efforts could help companies prepare to comply with the FEOC rules set to emerge from the Treasury Department, he said.
“NEMA is going to work with Treasury as best as possible to ensure that the guidance is clear and consistent and produced in a timely enough manner for companies to use the credit for those that wish to take advantage of it,” he said. Even so, “there’s going to be a decision for a number of companies and organizations as to whether or not the juice is worth the squeeze.”
But some sectors don’t have an existing framework to look to. Such guidance doesn’t exist for geothermal and nuclear power projects, or for inverters and other grid equipment, noted Advait Arun, senior associate for energy finance at the Center for Public Enterprise, a nonprofit think tank. Until the Treasury Department releases guidance on those technologies, “it’s going to be tough, if not impossible” for developers of those projects to know how to calculate their exposure to FEOC, he said.
Even if Treasury guidance does eventually offer some clarity, companies are almost certainly going to struggle to obtain the depth of information the FEOC rules in the bill appear to require. Companies tend to be secretive about their exact suppliers, Lee said, adding that this difficulty was part of what slowed down the Biden administration’s rulemaking around domestic content requirements.
“Even if you know what you’re trying to calculate, actually getting that information from your suppliers — and in many cases your suppliers’ suppliers,” as the FEOC rules require, Lee said, “is going to be extremely difficult.”
Ultimately, the extent to which this complexity slows down growth in clean energy and manufacturing construction will depend on the Treasury’s guidance, which could take years to be issued.
“I don’t know yet how hard [compliance] is going to be,” said Harry Godfrey, head of federal affairs for trade organization Advanced Energy United. “It depends on where the administration engages in additional guidance, and if it’s helpful — which we hope it would be — or if it is disruptive.”
Even before those “material assistance” restrictions begin next year, companies will need to prove they aren’t what the FEOC rules define as “specified foreign entities” or “foreign-influenced entities” to ensure they are eligible to receive tax credits.
“Those rules come into effect regardless of when you start construction,” Lee said.
These restrictions could embroil many factories and projects already built or under construction. More than 100 existing or planned U.S. solar or battery factories are owned by Chinese parent companies or backed by majority-Chinese shareholders, according to BloombergNEF analysis obtained by Heatmap.
Other companies “might not actually be owned or influenced by Chinese companies, but maybe they haven’t done all the many tests now required to prove that,” Lee said. “There’s going to be this immediate compliance hit, even for projects that have begun production or [are] about to get turned on.”
Companies under majority-Chinese ownership, such as Japan-based lithium-ion battery manufacturer AESC, have already frozen hundreds of millions of dollars’ worth of U.S. factory plans. House Republicans have previously attacked other projects that license Chinese technology, such as Ford Motor Co.’s battery plant in Michigan that uses technology from China-based battery giant Contemporary Amperex Technology Co., Limited (CATL).
“Effective control” provisions that direct the Treasury to write guidance that could bar tax credits to projects or factories that have made contract or licensing payments to specified foreign entities are particularly problematic, Lee said. “There’s an extremely broad category of things that could be caught up in that, particularly in the battery space.”
Overshadowing all these uncertainties is the fear that the Trump administration will not engage in the same good-faith approach that the Biden administration took to work with U.S. companies in their efforts to comply with FEOC rules.
Already, reports have surfaced of a deal struck between members of the ultraconservative House Freedom Caucus and Trump, who reportedly has agreed to impose administrative burdens and aggressive interpretations of agency rules to prevent solar and wind projects from being able to use the tax credits that remain available to them over the next two years.
On Monday evening, Trump issued an executive order calling on the Treasury to “take prompt action” within 45 days of the One Big, Beautiful Bill’s enactment to implement the law’s FEOC restrictions. “Reliance on so-called ‘green’ subsidies threatens national security by making the United States dependent on supply chains controlled by foreign adversaries,” the order says.
Under the new law, Republicans in Congress could choose to launch investigations into companies and refer their claims to the IRS.
“Historically IRS enforcement has been independent from the political appointees in the executive branch,” Lee said. “The norms and laws that provide that protection are being eroded by this administration. As a result, it’s quite concerning to think about what actions the Trump administration might put pressure on the IRS to take, and what enforcement priorities this administration would have.”
Lee noted that tax-credit financing structures have always had to deal with the risks that credits might be challenged by the IRS, with insurance products and careful lawyering by counterparties in tax-equity and tax-credit transfer deals. But the One Big, Beautiful Bill Act introduces a deeper level of risk than ever before.
“There will be some kind of framework for risk-mitigation strategies that will arise to handle these issues,” Lee said. “The question is, how quickly will that happen — and how much risk will the market be willing to take on?”
An update was made on July 8, 2025: This story has been updated to include details on Trump’s July 7 executive order regarding the implementation of FEOC rules.
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