President-elect Trump has been outspoken about his intent to reverse many of the Biden administration’s clean energy legislative and regulatory actions.
We expect that the second Trump administration will seek to repeal most, if not all, of the Biden administration’s actions on climate change and the environment. One target of these efforts will likely be the Inflation Reduction Act of 2022 (IRA). The new administration may seek to repeal the IRA in whole or in part. We also anticipate a repeal and replace of the power plant rule, new source performance standards for oil and gas, and emissions standards for greenhouse gas and criteria pollutants from mobile sources, greatly impeding the Biden administration’s electrification efforts.
The IRA expanded and extended federal tax credits for the deployment of clean energy technologies and manufacturing. The federal tax credits are available for solar, wind and other renewable generation projects. The IRA expanded available tax credits to include energy storage, carbon capture, the production of hydrogen, clean fuels and manufacturing of qualifying solar, wind and battery components, inverters and critical minerals. The IRA also established for the first time a right to transfer or sell the tax credit for cash, which has resulted in numerous transactions involving buyers across numerous industries. It has been estimated that $9 to 11 billion in tax credit sales occurred in the first half of 2024 which is expected to increase to $25 billion by the end of the year. The risk of material changes to the tax credits may chill investment in new projects pending resolution of these policy matters.
There are five key take-aways for investors. First, the Trump administration will need strong support in Congress to repeal or materially amend the IRA and such support is not necessarily assured. Although repeal of the IRA aligns with broader Republican priorities, some party members, especially those from red districts where the IRA has spurred job growth and attracted multibillion-dollar investments, may resist its complete repeal. In August, Representative Andrew Garbarino and 17 other Republican lawmakers sent a letter to speaker Mike Johnson urging that lawmakers “prioritize business and market certainty” in considering a repeal. The letter continues: “[p]rematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing.” Speaker of the House Mike Johnson (R-LA) stated in a September interview that it would be impossible to “blow up” all of the IRA and referenced the need to use a “scalpel rather than a sledgehammer.” Elements of the IRA that may garner broader Republican support include tax credits for established clean energy technologies like solar, onshore wind and energy storage as well as the advanced manufacturing production tax credits under Section 45X with respect to the manufacturing of qualifying solar, wind and battery components, inverters, critical minerals and carbon capture, utilization and storage (CCUS).
Second, any repeal is unlikely to be retroactive. According to the Energy Information Administration, in 2023, more than 40 gigawatts (GW) of new electricity generation was from non-carbon emission sources or battery technologies, exceeding deployment in all previous years. Projects that achieve key milestones before any repeal are unlikely to lose benefits under the IRA. We expect investors to accelerate development efforts necessary to “earn” benefits under the IRA before any repeal.
Third, sponsors will continue to make substantial investments in renewable energy, particularly solar and battery energy storage systems, during the next Trump administration. While debate over the IRA will continue, state-based renewable procurement requirements and other state-based incentives will continue to support development. In addition, as was the case in the last Trump administration, strong interest in the procurement and use of renewables by U.S. tech companies and other large corporates in the U.S. will continue to drive growth in renewables. Climate advocacy will not cease but will instead shift in focus from advocating for congressional action and Executive Orders, to shareholder activism, voluntary programs and ensuring companies uphold their existing commitments. Corporations are not expected to abandon their climate commitments as a result of the change in administration, despite likely changes in the way they publicly talk about those commitments.
Fourth, the next Trump administration will likely take swift executive action to reverse key Biden administration policies, including lifting the Department of Energy’s (DOE) moratorium on liquefied natural gas (LNG) export authorizations; withdrawing the U.S. from the Paris Agreement once more; loosening of restrictions on applicable tax credits to promote fossil fuel development; and expanding oil and gas development on federal lands via the Bureau of Land Management.
Fifth, on the judicial front, the recent Supreme Court’s Loper Bright decision opens the door for the United States to drop its defense of agency actions that the Trump administration believe do not best interpret ambiguities or silence in authorizing statutes. Expect the Trump administration to leverage the Supreme Court’s decision to reinterpret environmental regulations, particularly those tied to the Clean Power Plant Rule and motor vehicle emissions standards.
