Why It Matters
Congress is spending heavily on industrial policy with limited visibility into whether it works. The Section 45X Advanced Manufacturing Production Credit, examined in a Congressional Research Service (CRS) report published November 7, 2024, will reduce federal revenues by $20.1 billion from fiscal 2025 through fiscal 2029, ranking as the fifth-highest cost among 53 energy and natural resources tax expenditures studied.
The 45X credit subsidizes intermediate goods rather than final goods, and researchers have conducted no post-hoc analyses of the credit's broad economic or environmental effects. For the Trump administration, the policy represents a cornerstone of domestic manufacturing strategy, yet Congress faces pressure from recent changes: the One Big Beautiful Bill Act (P.L. 119-21) in 2025 eliminated credits for wind energy components after December 31, 2027, while adding metallurgical coal as a qualifying product, a move that reflects shifting political priorities around energy policy.
The Big Picture
The credit subsidizes five categories of goods: solar energy components, wind energy components, battery components, inverters, and critical minerals. Solar modules receive 7 cents per direct current watt, commercial inverters receive $2 per alternating current watt, and battery cells receive $35 per kilowatt-hour. Critical minerals receive a 10 percent credit of production costs. Production must generally occur in the United States or its territories to qualify, though P.L. 119-21 added a notable exception: imports of metallurgical coal qualify through 2029.
The reform act introduced three new layers of complexity. It established a 65 percent domestic direct material cost threshold for secondary components, effective for taxable years beginning after December 31, 2026. It created a "Prohibited Foreign Entity" concept under Internal Revenue Code Section 7701(a)(51), meaning companies receiving material assistance from entities in China, Russia, Iran, or North Korea become ineligible for the credit. The Internal Revenue Service issued Notice 2026-15 to implement a Material Assistance Cost Ratio metric that applies to components sold in taxable years beginning after December 31, 2026.
Investment in manufacturing facilities for batteries, solar energy components, wind energy components, and critical minerals rose from $1.9 billion in the second quarter of 2022 to $6.2 billion in the second quarter of 2026, in constant 2024 dollars. Yet forward-looking studies published from 2023 to 2025 projected the credit would lower solar and wind component costs below average import prices and reduce electric vehicle battery production costs, but did not examine how lower prices would affect greenhouse gas emissions, U.S. reliance on foreign imports, or domestic manufacturing employment.
The Bottom Line
Section 45X has no aggregate cap, and no published studies have yet estimated the comprehensive economic and environmental effects of the credit. One Big Beautiful Bill Act eliminated credits for wind energy components at the end of next year, and scheduled critical minerals credits to phase out between 2031 and 2034. Whether the subsidy achieves its intended outcomes remains largely unknown.
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