The World Trade Organization (WTO) has held that the clean energy subsidies introduced by the U.S. under the Inflation Reduction Act (IRA) are inconsistent with its agreements and has called for their rollback by October 1, 2026.

In a ruling on a trade dispute brought by China, the WTO upheld all of China’s claims regarding investment tax credits (ITC) and production tax credits (PTC) for renewable energy projects.

The WTO’s trade dispute body found the ITCs and PTCs to be inconsistent with the 1994 General Agreement on Tariffs and Trade, the Agreement on Trade-Related Investment Measures, and the Agreement on Subsidies and Countervailing Measures.

“The panel recommends that the U.S. withdraw the ITC/PTC Domestic Content Bonus Credits by October 1, 2026, at the latest,” the WTO said.

China had claimed that the eligibility for the bonus amounts is tied to the use of U.S.-origin goods, resulting in “less favourable” treatment for imported products.

The WTO, however, did not rule on the clean vehicle tax credits, which were terminated by Donald Trump’s ‘One Big Beautiful Bill’ last July.

In 2022, then-President Joe Biden signed the IRA, which proposed $369.75 billion in energy security and climate change programs over ten years. However, his successor, Trump, reversed much of Biden’s clean energy agenda, even if several tax credits under the IRA remain, albeit with restrictions and deadlines.

China welcomed the WTO ruling, with a Ministry of Commerce spokesman saying the decision emphasizes the importance of upholding global trade rules. The spokesperson added that China hopes the U.S. will correct its wrongful practices and take steps to promote orderly global trade.

The U.S. criticized the WTO ruling, noting that its legislation was a response to massive Chinese excess capacity in the renewable energy sector.

“Incredibly, the WTO report finds that the U.S. has broken WTO rules by defending industries that China unfairly targeted for global dominance, but does not say a word about the harms caused by China’s industrial policies and massive excess capacity. It is also absurd that the WTO panel questioned whether the U.S. has deep and abiding concerns with ensuring that the conditions of competition within the U.S. market are fair,” the Office of the United States Trade Representative (USTR) said.

The USTR recalled that it had long expressed serious doubts about the WTO’s capacity to regulate trade in a world marked by severe and sustained trade imbalances. “The U.S. remains committed to defending our companies, securing supply chains, and rebalancing trade. We will always take necessary measures to support U.S. jobs and pursue economic and national security.”