The United States government has long treated innovation as a national priority. Nowhere is that more relevant right now than in clean tech and climate tech. If your company is developing cleaner energy sources, more efficient manufacturing processes, or the next generation of climate solutions, you may be sitting on a substantial federal tax credit you haven't fully claimed.
Here's what U.S. clean tech and climate tech businesses need to know about accessing non-dilutive government funding through the R&D tax credit and the complementary programs that can stack on top of it.
What Is the R&D Tax Credit and Why Does It Matter for Clean Tech?
The R&D tax credit under Section 41 of the Internal Revenue Code remains available and unaffected by recent legislative changes. It provides a dollar-for-dollar reduction in federal tax liability based on qualified research expenses (QREs); that is, wages, supplies, and eligible contractor costs tied to qualifying activities.
The credit comes in two calculation methods: The Regular Research Credit (RRC), which equals 20% of current-year qualified research expenses exceeding a base amount calculated from prior years' spending patterns, and the Alternative Simplified Credit (ASC). For most companies, the effective benefit works out to roughly 6–8% of total qualified spending, though the precise figure depends on your expense history.
The credit is permanent as of the PATH Act in 2015, and it applies across industries. For clean tech and climate tech companies, that's significant, because the scope of what qualifies is broader than most people assume.
What Qualifies? Clean Tech and Climate Tech Activities That Count
To claim the credit, activities must pass a four-part test: they must serve a permitted purpose (improving a product, process, formula, or software), involve technological uncertainty, use a process of experimentation, and be technological in nature (relying on engineering, computer science, or physical or biological sciences).
Qualifying R&D activities include developing new or improved manufacturing processes, designing prototypes or performing iterative testing on new products or software, enhancing product formulas, materials, or structural designs, and experimenting with new techniques in fields like engineering or agriculture.
For clean tech companies specifically, this can include:
- Developing new battery chemistries or energy storage architectures
- Engineering more efficient solar cell designs or photovoltaic materials
- Building software that optimizes energy grids or building performance
- Designing carbon capture or sequestration processes
- Developing and testing hydrogen fuel cell systems
- Improving manufacturing processes to reduce emissions or increase energy efficiency
- Iterating on wind turbine components or geothermal systems
- Creating new materials with improved thermal, conductive, or structural properties
Activities that can qualify in manufacturing specifically include development of new construction or processing techniques to improve reliability in the manufacturing process, and development of new techniques to address health, safety, and environmental concerns. Manufacturers investing in cleaner or greener production processes (not just clean energy products themselves) can be strong candidates.
The 2025 Legislative Shift: Good News on R&D Deductions
One of the biggest recent developments for R&D-intensive companies was the passage of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025.
The OBBBA restored full expensing of domestic research and experimental expenditures in the year incurred under new Internal Revenue Code Section 174A. This reverses a painful change introduced by the 2017 Tax Cuts and Jobs Act, which required companies to capitalize and amortize domestic R&D costs over five years starting in 2022.
The OBBBA ended the requirement of capitalizing domestic R&D expenses for tax years 2022 and forward. Specifically, it brings back full expensing of domestic R&D expenses for tax years 2025 and forward. Foreign R&D expenses remain subject to 15-year amortization.
Small business taxpayers—those with average annual gross receipts of $31 million or less using the Section 448(c) test—can apply the Section 174 repeal retroactively for tax years beginning after December 31, 2021, by amending 2022, 2023, and 2024 returns to deduct domestic R&D expenses previously amortized. The election deadline for amended returns is July 6, 2026.
For larger companies over the $31M threshold, unamortized domestic R&D expenses from 2022–2024 can be deducted over one year (2025) or two years (2025 and 2026).
The bottom line: the Section 41 R&D tax credit and the Section 174A deduction can now be used together to significantly reduce your tax burden. These are separate but complementary incentives, and clean tech companies doing substantial domestic R&D stand to benefit from both.
What About Clean Energy Tax Credits Under the OBBBA?
The energy credit landscape shifted significantly under the OBBBA, and clean tech companies need to be aware of what changed because this affects how you plan.
The most significant developments:
The legislation rapidly eliminated credits for efficiency, residential solar, and electric vehicles (within 2025–2026) and abruptly phased out wind and solar. One bright spot was the full and permanent restoration of the R&D tax deduction, with retroactive tax relief for small businesses.
For commercial energy projects:
- Wind and solar (ITC/PTC): For wind and solar facilities, the Clean Electricity Investment Credit (48E ITC) and Clean Electricity Production Tax Credit (45Y PTC) will be eliminated for projects placed in service after December 31, 2027, unless construction begins by July 4, 2026.
- Technologies that retain credit access: Other technologies such as geothermal, nuclear, and hydrogen retain longer timelines, with a gradual phaseout starting in 2034.
- Advanced manufacturing (45X): The advanced manufacturing production credit remains largely intact, with modifications. Wind components sold after 2027 would no longer be eligible for the credit, while other clean energy manufacturing components generally maintain their incentive pathways.
- Carbon capture (45Q): The Section 45Q carbon oxide sequestration credit remains available and was actually modified to create credit parity for companies using captured carbon in enhanced oil recovery.
- Clean fuel production (45Z): The clean fuel production credit was extended two years through 2029, with modifications including restrictions on feedstock origins.
The key takeaway for clean tech companies: the R&D tax credit under Section 41 is entirely separate from these energy-specific credits and remains fully intact. Even if your sector has seen energy credits reduced or phased out, your qualified R&D spending still generates federal tax savings.
Other Federal Funding Programs Worth Knowing
Beyond the R&D tax credit, clean tech and climate tech companies can layer in non-dilutive funding from other federal sources:
SBIR/STTR (Small Business Innovation Research / Small Business Technology Transfer) These programs provide non-dilutive grants for small businesses conducting early-stage R&D. SBIR and STTR funding provides early-stage, nondilutive R&D funding for U.S. small businesses. The DOE administers its own SBIR/STTR program with a focus on energy technology. Note: the SBIR/STTR programs expired September 30, 2025, and on March 17, 2026, the House passed bipartisan legislation to reauthorize the SBIR and STTR programs through September 30, 2031; the bill now awaits the President's signature. Businesses should monitor developments closely as this reauthorization is finalized.
ARPA-E The DOE's Advanced Research Projects Agency–Energy funds transformational energy technology research. In FY 2026, ARPA-E plans to release up to four new focused solicitations, continuing to fund the discovery of outlier energy technologies that ensure the production of reliable, American-made energy. ARPA-E also maintains its own SBIR/STTR program for small businesses beyond its standard solicitations.
State-Level R&D and Clean Energy Credits Many states offer additional R&D tax credits, manufacturing incentives, or clean energy programs that can stack on top of the federal credit. States like California, Texas, Connecticut, Pennsylvania, and Minnesota all have programs worth evaluating. The interaction between state and federal R&D rules also varies — some states conform to the new federal OBBBA expensing rules while others may continue to apply prior TCJA capitalization requirements, meaning taxpayers may face inconsistent state treatment across jurisdictions.
Funded vs. Non-Funded Research: An Important Distinction
One nuance clean tech companies need to watch: if a government grant or customer contract funds your research, that activity may not qualify for the Section 41 R&D tax credit at the same time. Funded research (ie. research funded by a government grant or by a customer) must be analyzed to determine whether the taxpayer bears significant rights to the research and economic risk associated with the research. Proper structuring matters, and working with an R&D tax specialist helps ensure you're maximizing both grant funding and tax credits without inadvertent conflicts.
Documentation: What You Need to Protect Your Claim
The IRS has increased scrutiny of R&D credit claims across all sectors, and clean tech is no exception. Documentation is absolutely key to substantiating your claims. You must maintain detailed records of testing procedures, trial results, and technical specifications. Wage allocations, project descriptions, and contractor agreements are all audit-ready documentation your team needs to have organized.
Proper documentation also feeds into the new Form 6765 Section G requirements, which the IRS has implemented to improve transparency and consistency in how R&D credits are reported.
Bottom Line: Clean Tech Companies Are Leaving Money on the Table
The R&D tax credit is one of the most underutilized incentives available to clean tech, climate tech, and green manufacturing businesses in the U.S. With the OBBBA restoring immediate expensing for domestic R&D costs (and retroactive relief available for smaller businesses dating back to 2022) now is the time to assess what you've been leaving behind.
Boast helps clean tech, climate tech, and manufacturing companies across North America identify, document, and maximize their R&D tax credit claims. Our team has helped 2,000+ businesses access more than $675M in R&D funding since 2011 — and we back every claim with 100% audit defense.
