Banks could lose $30bln tax credit market from Trump's climate rollback: IFR

Zawya

19-05-2025

Clean energy tax credits will no longer be transferable under Republicans' 'One, Big, Beautiful Bill', upending a booming US$30bn business for banks to broker and arrange loans backed by tax credits.
Wall Street saw a lucrative opportunity to monetise hundreds of billions of dollars in tax credits granted to clean energy projects after the Inflation Reduction Act was signed into law in 2022 by former US president Joe Biden.
As many project developers generate more tax credits than they can offset in tax bills, they typically sell these credits upfront to raise financing for construction. Banks established a business as middlemen in this tax credit transfer market, helping clean energy developers to find corporate buyers and often co-investing in projects.
The market grew exponentially to US$30bn in 2024, according to Crux Climate, a financing platform for low-carbon energy.
However, the sweeping tax and spending legislation proposal released by Republican lawmakers on May 12 is threatening to put an end to this trade. If the bill is passed in its current form, the ability to sell most types of tax credits to other companies will end in two years.
'It's a significant loss of business for industry participants such as banks that were brokering transferability transactions,' said Alexander Leff, a partner at law firm Clifford Chance focused on renewable energy and infrastructure. 'The loss of transferability will likely reduce overall the volume of tax credit monetisation transactions.'
The bill also introduced extensive rollbacks of green subsidies under the IRA, including culling tax credits for electric vehicles and hydrogen production, as well as a gradual phase-out of incentives for other clean power production and advanced manufacturing. Projects that use equipment or critical minerals from companies tied to China, Russia, North Korea and Iran will be denied tax credits.
Estimated savings will be used to fund broader tax cuts promised by president Donald Trump.
US government bonds sold off sharply following the bill's release on fears that Trump's tax and spending measures will drive inflation higher and postpone interest rate cuts, and that growing deficits could force new borrowing that could add an estimated US$3.3trn to national debt.
The controversial bill, which includes deep cuts to Medicaid, is expected to be debated in Congress and put on the president's desk this summer.
Short-lived success
In the past two years, tax credits transfers have become a popular form of clean energy financing, often arranged by major US banks with longstanding tax equity businesses. The deals are often structured to allow banks to sell tax credits to corporate clients for a profit.
Bank of America has been a major player in tax credits and told IFR in December that it planned to be a market-maker in the tax credit transfer market.
BofA did one of the first deals when it purchased US$580m in renewable energy production tax credits from Chicago-based Invenergy in 2023 and JP Morgan closed a US$680m financing last June for solar and storage projects by Danish renewables developer Orsted.
The proposed bill is also set to hit bridge loans backed by IRA tax credits. As they become non-transferable and less liquid, project developers may no longer be able to use them as collateral for loans.
Bank of America declined to comment on the proposed legislation. JP Morgan did not respond to requests for comment.
Although existing deals are mostly unaffected as the proposed law permits tax credit transfers until 2027, the future of the market hinges heavily on policy support from the next administration, said David Burton, a partner at law firm Norton Rose Fulbright specialising in energy transactions.
'If I was a young banker, I may think twice about making transferability my specialisation, because if the 2028 election doesn't go well, you may find yourself having a skill set that is no longer valued,' said Burton.
Vikrant Prakash, head of Societe Generale's Energy + Group in Houston, said most transactions will continue to be structured in the current format for the next six to 12 months.
'Beyond that, we'll see how tax laws evolve when we get to another election cycle,' Prakash said.
Old playbook
Although clean energy projects can still be financed through tax equity as they were before the IRA came into effect, these transactions have sophisticated structures and a limited pool of investors.
'The new rules would put some pressure on weaker players, including smaller projects and some esoteric technologies,' Prakash said, adding that large utility-scale projects such as solar and wind could still attract investors.
'Now that we've tasted that other option and we've seen how well it works, it's going to be a real shock to go back to the pre-IRA world,' a senior energy lawyer said.
Source: IFR