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Trump likely to roll back but not dismantle Biden's clean energy spending
As a candidate, Donald Trump denounced clean energy spending tied to the Biden administration’s sweeping climate law, the Inflation Reduction Act (IRA). At his speech before the Economic Club of New York in September, he called the legislation the “greatest scam in history.”
Yet, as the president-elect prepares to return to the White House in January, he faces pressure to keep the law largely intact from lawmakers in his own party, none of whom voted for the IRA.
“About 75% of the job creation and the capital spending on new manufacturing and other clean energy resources has gone to red states or red counties in blue states,” said James West, senior managing director at Evercore ISI. “So we don't expect a whole lot to come from a new administration.”
The perception that there could be a wholesale shift in energy policy sent clean energy stocks lower in the immediate aftermath of Tuesday’s election. Solar panels and equipment manufacturers First Solar ( FSLR ) and Enphase ( ENPH ) plummeted, while the Invesco Solar ETF ( TAN ) declined 11% Wednesday.
West said trade volumes surged threefold the day after the presidential election, leading to “total chaos.” That knee-jerk reaction fails to recognize the scope of the largest climate investment in US history and the nuances of a potential impact, he said.
In a recent note to clients, West warned investors against lumping all clean energy plays together, saying “different segments of the clean energy economy face different degrees of Trump-related risks.”
'A scalpel, not a sledgehammer'
The 2022 legislation unleashed billions of dollars in grants, loans, and tax provisions to accelerate the US transition to clean energy over 10 years. In total, the Biden administration committed more than $350 billion to projects aimed at reducing harmful greenhouse gas emissions, with the goal of halving 2005 emissions levels by the end of this decade.
While no Republican lawmaker voted to pass the law, their constituents have overwhelmingly benefited from the provisions tied to clean energy investments.
According to data from the Department of Energy, $10.8 billion in investments in solar energy have gone to red states, while just $4.1 billion have gone to blue states. And $35 billion tied to electric vehicle spending has gone to Republican districts, while $22 billion has gone to Democratic ones.
Rescinding money that has already been allocated would require congressional approval. At least 18 Republican lawmakers have already warned House Speaker Mike Johnson against repealing the IRA, making a complete reversal unlikely.
But Johnson has also suggested he would use a “scalpel and not a sledgehammer” to amend the law.
Bob Keefe, executive director of the nonpartisan advocacy group E2, said he was worried that Republicans would push to impose new expiration dates for tax law written with a 10-year time frame in mind. About a third of the money allocated by the IRA hasn’t gone out the door yet, he said.
“We know that Congress controls the purse strings, and they can defund anything they want, or they can defund a lot,” said Keefe, who consulted on the IRA. “Under the president's direction, the agencies can do a lot of damage as well. I think that the Trump administration, if they do what they say they're going to do, will most certainly and unfortunately slow the growth of clean energy.”
Electric vehicles, which make up a large part of the investments allocated by the IRA, could be an easy target, including the $7,500 tax credit for new vehicles.
Trump would have “considerable scope to make regulatory changes” without congressional approval, West said. That includes tightening restrictions around rules of origin, where parts and components are sourced from, and weakening EPA tailpipe emissions rules for carmakers.
Trump has also expressed a desire to halt all offshore wind development, though those projects make up a small portion of all IRA investments. At a rally in May, he vowed to stop all projects on “day one” through executive order.
Solar power faces its own risk, not from changes to the IRA but from the 60% tariffs Trump has proposed on all goods and services imported from China. China dominates the market for polysilicon wafers and other critical components used in solar modules.
Regardless of technology, Keefe said changes to climate policy could have a significant impact on jobs.
A recent survey E2 conducted with BW research found that more than half of clean energy companies said they would lose business or revenue as a direct result of an IRA repeal. More than 20% said they would be forced to lay off employees in an industry that employs 3.46 million Americans, according to E2.
Despite those concerns, Keefe and West said the US energy landscape has fundamentally shifted over the last few years, in part because of the advancement of artificial intelligence.
The decision between clean energy and fossil fuels is no longer a binary choice, especially with the massive need for power at data centers that drive AI. Goldman Sachs estimates that power demand at data centers alone will grow 160% by 2030.
That suggests that Trump would not “meaningfully undercut” renewables development, West said.
“We think Mr. Trump should have a hard time saying ‘no’ to major new sources coming on the grid,” he added.