June 9, 2025
By Charlotte Jenkins and Andrew LaScaleia, Capstone Energy Analysts
Since Trump first took office in 2017, his administration and Congress alike have asked US companies to reduce their reliance on Chinese suppliers and investors. With the One Big Beautiful Bill Act, Congress is no longer asking.
To hear it from House Republicans, the new foreign entity of concern (FEOC) provisions in the House’s budget reconciliation bill would require any company claiming Inflation Reduction Act energy tax credits to reduce their reliance on Chinese investors and, in many cases, stop integrating any Chinese-made good into an energy project.
However, in our view, these restrictions are a backdoor method to kill the tax credits, and represent an unprecedented expansion of a potent political tool that poses significant underappreciated risk for companies in the energy sector for decades to come.
These restrictions…represent an unprecedented expansion of a potent political tool that poses significant underappreciated risk for companies in the energy sector for decades to come.
As passed by the House of Representatives, the FEOC rules require a company to understand its investors and suppliers at the level of a seasoned tax and supply chain expert with years of experience. The FEOC rules would require any company claiming an IRA energy tax credit – ranging from a major automaker manufacturing batteries to a local solar developer – to determine if any of its investors are citizens, nationals, or residents of China, Russia, Iran, or North Korea.
Just in case any of that seems feasible, the rules might also require companies to determine if their board members have family members with ties to the Chinese Communist Party, a task that is altogether more challenging. Once a company has confirmed the political leanings of its investors (and their family members), they may next need to look inside their own facilities.
A plain reading of the House’s proposal would prohibit any Chinese components, subcomponents, or critical minerals from being integrated into a project claiming the Clean Electricity Investment or Production Tax Credit or the Advanced Manufacturing Tax Credit. This restriction is unbound, meaning the IRS may determine that any Chinese-made screw, bolt, or wire can disqualify a multi-million-dollar investment from a tax credit, upending years of planning, time, and fundraising. These examples are only one facet of the expansive proposal, which would also add new restrictions on ownership, dividend payments, and debt holders.
We want to be clear that FEOC restrictions are not new, but both the degree of stringency in the House text and the possible implementation of the new rules would feel novel to companies governed by them. In the Inflation Reduction Act (IRA), Democrats only applied a FEOC restriction to the 30D clean vehicle credit, and it fell to the Treasury Department, in conjunction with the White House and Department of Energy, to write implementing guidance. And while the auto industry grumbled about the FEOC rules, no one will accuse the Biden administration, which took nearly two years to develop final FEOC guidance, of moving too fast or too recklessly in implementation. While the result is few vehicle models being eligible for 30D, the process was more or less well-received by companies and manufacturers.
But this time around, a different administration will be charged with drafting guidance. An administration that was willing to impose 170% tariffs on China in some cases and whose Treasury Secretary has called the IRA a “doomsday machine for the deficit” will have the opportunity to implement the new FEOC rules coming from Congress. The administration could issue stringent rules that do in fact determine that a single Chinese-made screw in a solar cell disqualifies an entire megawatt-sized project from tax credit eligibility. The administration could also issue no guidance at all, condemning tax attorneys and investors to significant uncertainty and stifling the tax credits and the projects that planned to use them.
Importantly, we note that the Senate is only just getting its hands on this tax bill. Thom Tillis (R-NC), seen as a leading Republican defender of some IRA tax credits, recently told reporters the House’s FEOC proposal was “void of any understanding of just how these supply chains work.” In our view, it’s unlikely that this FEOC will survive in its current form.
The House’s proposal suggests something bigger is happening…Energy investors must pay attention to where the FEOC debate lands.
But the House’s proposal suggests something bigger is happening. Republicans may decide that FEOC – which, under current law, only applies to EV subsidies – should be expanded into new sectors whenever subsidies are on the table, as they are in the House bill. New FEOC rules would mean new opportunities for the Treasury and the IRS to write implementing guidance, potentially creating new definitions, standards, and tests that companies must track. Energy investors must pay attention to where the FEOC debate lands, but prudent investors in any sector would be sure to watch this space.
Charlotte Jenkins, Capstone Energy Analyst
Andrew LaScaleia, Capstone Energy Analyst
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