Impact of Federal Policy Changes on Climate and the Transition to Clean Energy

The OBBBA restricts and phases out many environmental and climate-related tax credits and incentives from the 2022 Inflation Reduction Act (IRA) that will have far-reaching consequences for New Mexico. Between 2022 and 2024 our state’s renewable energy workforce grew 12%, adding more than 1,000 jobs, and ranking in the top 5 for clean energy job creation among the U.S. for each of those years through support from federal investments.¹ Our abundant sunshine, strong winds, and ample land give our state the ideal geography for renewable energy generation. The impacts of the OBBBA, however, will hinder this growth, as many businesses in the solar, wind, geothermal, and hydroelectric industries rely on federal incentives to scale quickly and meet key climate targets.²

Rollbacks of Key Clean Energy Tax Incentives

Notably, the OBBBA rollbacks impact both producer and consumer incentives, including several popular tax credits for electric vehicles. The $7,500 credit on new electric vehicles (New Clean Energy Vehicle Credit) and the credit of up to $4,000 on used electric vehicles (Used Clean Vehicle Tax Credit), made the transition to clean energy transportation more affordable for many households. In 2024, nearly 97% of all new and 81% of all used EV purchases took advantage of these credits.³ Tax credits for EV charging stations, as well as energy-efficient home improvements, will also be discontinued. EV tax credits were eliminated September 30, 2025, and credits for charging stations and home energy upgrades will end on June 30, 2026. People who can prove they made these purchases or projects that enter service before the deadlines can still claim these credits on their taxes this upcoming tax season.

As a result of the elimination of clean energy tax incentives, many renewable projects that rely on them will be delayed or cancelled, reducing overall energy capacity in a world of increasing energy demand. This reduction in overall capacity means New Mexicans will see an average increase of $210 for their energy bills as soon as 2026.⁴

Reductions in Oil and Gas Leasing

Changes to federal oil and gas incentives designed to increase domestic production are also part of the bill. New rules decrease leasing rates for wells on federal lands from 16.67%, set by the IRA in 2022, back to 12.5%.⁶ This means $170 million in forgone revenue for New Mexico, or $1.7 billion over the next decade. This is lost revenue that could help cover the deep cuts OBBBA makes to the social safety net while maintaining state spending on programs and services that matter most to our children and families. In the past 4 months, New Mexico has already lost out on over $80 million in revenue.⁷ 

In addition, the Bureau of Land Management (BLM) must now hold at least four lease sales per year for oil and gas wells and offer at least 50% of its available parcels for lease. This increase means more fossil fuel production at a time where a clean energy transition is critical for our health and environmental sustainability. The OBBBA also severely limits the ability of the BLM to include environmental protections in its lease agreements that are not already a part of the resource management plan (RMP) for that specific parcel. RMPs are created by the BLM to guide usage and management of lands and go through extensive public commenting processes.⁸ This new change limits the flexibility of the BLM to keep environmental protections up to date for each parcel leased instead of having to go through the entire RMP process for an entire area over again. All new parcels must be offered up for lease no more than 18 months after they are deemed eligible, severely limiting the time and scope of environmental review that can be done under the National Environmental Policy Act (NEPA). These changes will result in increased drilling on the 1/5th of all New Mexico’s lands that are owned by the BLM putting more communities and ecosystems at risk of potential health repercussions from environmental damage and slowing down New Mexico’s renewable energy transition.⁹

Reductions in Federal Environmental Protection Funds

The OBBBA also makes massive cuts to funding for renewable energy and climate protection funds established under the IRA. The $27 billion Greenhouse Gas Reduction Fund (GGRF), $3 billion in Environmental and Climate Justice Block Grants, and $5 billion in Climate Pollution Reduction Grants have all had their unobligated funds rescinded.¹⁰

These programs were created to help disadvantaged and low-income communities build infrastructure and accelerate our country’s clean energy transition. Among the many programs these funds support, New Mexico has received $156 million from the GGRF as part of our Solar for All Program to install panels in low-income neighborhoods and tribal communities, as well as $88 million as part of the Home Energy Rebate Program to help homeowners and renters making less than 80% of Area Median Income (AMI) to pay for new energy efficient appliances.^10,11,14

Much of the unobligated funds for these programs went to administration. This means that as the funds are cut, these programs will operate less efficiently and it will be more difficult to coordinate with state and local governments to track their effectiveness. Similar cuts earlier this year from the Department of Government Efficiency (DOGE) saw many agencies scrambling to rehire positions that were cut as their operations began to fall apart with the lower staffing capacity.¹⁵