Business Tax Credits for Wind and Solar Power

The federal government provides tax credits for investments in energy sources that generate electricity without emitting carbon dioxide in the process. Two tax credits, the investment tax credit (ITC) and the production tax credit (PTC), directly support investment in wind and solar electric power. In the Congressional Budget Office's baseline projections, those tax credits reduce federal revenues and increase federal spending. In this report, CBO provides an overview of the tax credits and explains how the agency assesses their budgetary and economic effects.

• In CBO's January 2025 baseline projections, the ITC and PTC together increase projected deficits from 2026 to 2035 by about $300 billion. The cost of tax credits for investing in wind and solar electric power is uncertain because the underlying activity—the amount of investment itself—is uncertain.
• The ITC and PTC provide an incentive for private-sector investment. CBO estimates that without those tax credits, investment in wind and solar electric power from 2024 to 2026 would be about one-third less than is expected with the credits in place. But because investors' behavior is uncertain, including their response to changes in tax policy, the amount of investment attributable to the tax credits could be higher or lower than projected.
• The 2022 reconciliation act (Public Law 117-169) made the ITC and PTC more generous for investments in projects that pay prevailing wages and employ apprentices, are located in certain geographic areas, and use domestically sourced materials. Linking the tax credits to those other policy objectives can encourage investment in projects whose costs per unit of generating capacity are higher than they would otherwise be, thus involving a trade-off between supporting the objectives and stimulating investment in wind and solar power at the lowest possible cost.