Trump is elected to a second term
Last month, Donald Trump was elected to a second term as US president, beating Democratic opponent Kamala Harris with 50% of the popular vote and 312/548 electoral votes. Trump is only the third Republican presidential candidate to win both the Electoral College and popular vote since 1988, and Republicans gained majorities in both the House and Senate.
It was an unconventional election cycle that has left the fate of several key aspects of Biden’s energy and industrial policy unclear. On the back of a record year of investment in US clean energy, investors are now asking one key question: how will the new administration impact the energy transition?
Budget cuts will be a priority
A very clear priority of the new administration is funding the continuation of the tax cuts enacted during Trump’s first presidency in 2017. These tax cuts are set to expire at the end of next year and extending them is expected to cost $4–5 trillion over ten years. This is in addition to the campaign promise of removing taxes on tips to service workers and the potential to lower corporate taxes, increasing costs even further.
It is likely the administration will attempt to find at least partial funding for tax cuts through a combination of tariffs and cost cutting. Given the ambition of Biden’s flagship energy and infrastructure bills—up to $1.6 trillion in the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIIJA) combined—plus the incoming administration’s stated antipathy towards clean energy, it’s easy to understand why some investors are nervous about key underpinnings of the US energy transition being undermined.
In short, we are confident that the energy transition in the US will continue over the coming decade regardless of who sits in the White House. Still, it’s clear that there are several ways the incoming government could succeed in slowing the pace of clean tech deployment.
How can a Trump 2.0 administration undermine the energy transition?
- Pause the flow of funding
- Influence tax code guidance
- Change or overturn tax code guidance through the legislature
- Delay action at the EPA
- Submit rule proposals to FERC (via the Department of Energy)
One of the most direct ways for the Trump 2.0 administration to claw back money is to stop the flow of funding for provisions with large amounts of money allocated but not yet spent, like the IIJA’s funding for regional clean hydrogen hubs or EV infrastructure buildout. Of the $7 billion-dollar fund to create clean hydrogen hubs, less than $100 million has been allocated, leaving at least $6.9 billion vulnerable. Tax credits for wind, solar, and batteries do not fall into this category. While they are accounted for in the federal budget via estimations from the Congressional Budget Office, it’s not as simple as pausing availability for the credits—claw backs could come in the form of unfavorable tax code guidance or repeal altogether, as discussed below.
Second, the new administration could seek to write tax code guidance that has yet to be finalized in such a way that makes it harder to access credits. While the President has no direct influence over tax code, he will have the opportunity to appoint the heads of both Treasury and IRS—the two agencies tasked with interpreting laws into tax code guidance. For example, final clean hydrogen tax credit guidance is not expected before the new administration comes into office. Strict requirements on time matching or additionality could render the credit much less supportive for the nascent hydrogen industry.
Third, it’s possible there could be a more substantial overhaul like rewriting tax code guidance already made final or repealing tax credits altogether. Rewriting tax code guidance already made final would mean passing a joint resolution via the Congressional Review Act (CRA), requiring simple majority support from both houses of Congress. It would be a lengthy process but not without historical precedent—under the first Trump administration, Congress used the CRA 16 times to roll back Obama-era actions, primarily focused on Environmental Protection Agency (EPA) rulings. Prior to 2017, Congress had only used the CRA once before to overturn a rule. The administration could also seek greater overhaul and attempt to repeal tax credits altogether through passing a law. Given party divides, this would likely need to be achieved via budget reconciliation—the same process used for passing the IRA in 2022. This is perhaps the worst-case scenario for the industry, but one we see as less likely for the reasons outlined below.
Fourth, while laws at the EPA are somewhat insulated against changes in administration, we can expect President Trump’s EPA to not pursue more aggressive action. Given that the EPA primarily deals with pollution controls, their rules have not been a direct driver of clean energy investment historically.
Finally, the new administration could seek to influence energy regulation by submitting rules to the Federal Energy Regulatory Commission (FERC) via the Department of Energy (DOE). This is not a common practice but was attempted in 2017 to pass coal and nuclear subsidies and was unanimously rejected by FERC commissioners.
The case for cautious optimism
Several factors stand in the way of a complete overhaul of the US energy transition:
Bipartisan support for some clean energy provisions
The deployment of clean energy has led to record investment in 2023 in the order of $245bn. In fact, around 80–85% of IRA funding so far has primarily benefitted Republican districts. It is little surprise that clean energy provisions like tax credits for wind and solar have historically enjoyed bipartisan support—ITCs and PTCs for wind and solar have been around for decades and have seen renewal under both Republican and Democratic administrations during this time. In August, 18 House Republicans sent a letter to the House Speaker, Mike Johnson, asking for clean energy tax credits to be spared from funding cuts. Johnson replied that he would be tackling the IRA with “a scalpel and not a sledgehammer.”
Beyond tax credits, industrial policy itself is increasingly bipartisan. The IRA’s domestic manufacturing components and Biden’s continued support for tariffs are very much in line with the sort of US-first protectionism also championed by the Trump administration. Any reversal of policies designed to boost domestic industry is likely to face stiff opposition from state and local government, unions, and trade groups.
Ultimately, the fate of the IRA may look something like the Affordable Care Act—challenging to get over the line in the first place in the face of Republican opposition, yet popular and difficult to get rid of once enshrined in law.
The challenge of passing legislation without Senate supermajority
Despite the Republicans’ trifecta, passing laws will not go unchallenged. Senate Republicans are shy seven seats of a supermajority necessary to avoid a filibuster, meaning Democrats could effectively stall any legislation they don’t want to pass. The budget reconciliation process avoids risk of filibuster but is a more complicated process—the same way that the IRA was passed in 2022, after 1.5 years of negotiations among Democrats. Both the House and Senate have a narrow Republican majority (220/435 and 53/100, respectively), and it is evident that many clean energy provisions enjoy support from Republican lawmakers and constituencies. With a similar Senate majority and greater House majority during the first two years of Trump’s first administration, still no significant legislation was passed owing to the difficulty of reaching an agreement. Without unanimous Republican support from Congress, passing laws will be challenging.
Trumponomics as a departure from traditional fiscal conservatism?
There’s a possibility Trump’s administration is not concerned with increasing federal debt, meaning less emphasis on cutting budgets to make up for tax cuts. Traditional Republicans tout fiscal responsibility; given the national debt exceeded $35 trillion this year, we expect finding a way to fund tax cuts to be a priority for more traditional Republicans but perhaps less so for Trump and his cabinet.
Other priorities for budget cutting
Spending on energy is a fraction of total Government spending, just 1.3% of the national budget. Regardless of where cuts come from, the Trump administration has stated several priorities which could distract from the energy sector, most notably defense, immigration, and trade policy.
US spending broken down by sector, from Inflation Reduction Act: Impact on Power Markets policy note
FERC commissioner composition
While Trump will appoint four new FERC commissioners in his second term, FERC will remain in Democratic majority until midway through 2026. By that autumn, the House and Senate composition may change entirely. This means that it’s not certain that the Trump administration will hold both a trifecta in Congress and a FERC majority for a prolonged period.
FERC composition by political affiliation, from US election: implications for gas and power markets
Presidential impact on markets is limited
The business case for energy projects is driven in part by federal regulation and tax credits, but it’s also driven largely by market forces and state policy, over which the President has limited impact. Take “drill, baby, drill,” for example: Trump can increase the number of federal oil and gas leases available (46% of leases were inactive per Bureau of Land Management in 2022), but the federal government cannot force companies to increase production if the economics don’t stack up. The US president’s impact on oil and gas markets is limited given these are global commodities and available federal land for lease is not necessarily correlated with production.
Additionally, the deployment of clean energy is driven as much by individual states as by federal policy, like Renewable Energy Credits (REC) in compliance markets or states involved in the Regional Greenhouse Gas Initiative (RGGI), a carbon market covering 11 Eastern states. It’s possible that state policies could make up in part for backsliding in federal policy—e.g. REC prices could increase, RGGI targets could grow more aggressive. Corporate demand for clean energy also supports clean energy deployment via Power Purchase Agreements and voluntary Renewable Energy Credits, mostly politically agnostic. If federal subsidies are reduced, we may expect some of this money to be made up by state programs and corporations.
What do our models say?
Most likely scenario has little impact on gas and power markets
Despite the uncertainty, we at Aurora do what we know best—run our models and see what the numbers say. We released a Policy Note in September examining the impact on gas and power markets (across six US ISOs) for a range of Trump presidency outcomes. It’s impossible to predict the future, we don’t what the new administration will do, but in the face of such uncertainty, models are a helpful tool for quantifying the potential impact of different scenarios. Our Trump Presidency case assumes 50% tariffs on China and places downwards pressure on gas prices, an end to electric vehicle subsidies reduces uptake, and coal subsidies extend the life of coal plants. Across our modelled ISOs, power prices declined due to the surplus of coal capacity and reduced demand but impacts altogether are not great. This is our “most likely” Trump scenario—given high tariffs are achieved and some reallocation of subsidy money, there is relatively little impact on gas and power markets.
Tax credit repeal has material impact on renewables deployment
The much bigger impact was seen in the Project 2025 scenario. As tax credits are the main form of clean energy subsidies in the US, their termination leads to far less renewables and battery buildout across the US, leading to 200 GW less renewables and storage buildout across the six modelled ISOs. There is an outsized impact in markets that lack substantive state clean energy policies like Renewables Portfolio Standards and carbon mechanisms (like ERCOT and MISO). Higher electricity prices owing to less renewables buildout does not fully mitigate the loss of federal tax credit revenue, evidenced by a wind project in ERCOT below whose IRR drops 2.7pp in a Project 2025 scenario.
ERCOT wind plant economics with and without tax credits, from US election: implications for gas and power markets.
The bottom line: what is most at risk?
For the past six months, the world of US clean energy has been inundated with speculation on how a Trump 2.0 presidency could impact the energy sector. Our view is that Production Tax Credits (PTCs) and Investment Tax Credits (ITCs) for onshore wind, solar, and storage deployment are most likely to be safe from the chopping block given they enjoy relatively broad bipartisan support. If true, this would avoid some of the “worst case” scenarios for the clean energy transition. Subsidies that are likely to be more vulnerable include: electric vehicles, home energy retrofitting, grid modernization, green fuels, Department of Energy (DOE) loan guarantees, and the tax credit phaseout schedule. Somewhat less susceptible but still on the chopping block are provisions for direct pay and transferability, domestic manufacturing, offshore wind, and green hydrogen.
Looking forward
The US energy transition is at an interesting juncture. Load is poised to grow for the first time in over a decade, driven largely by demand from data centers. Wind, solar, and batteries continue to be built at record rates. No matter who sits in the Oval office, demand growth, clean technology cost declines, and state policies will continue to drive the energy transition. Though capital flow may slow during this period of uncertainty, we can expect greater clarity in the coming months, one way or another.
Authored by:
Lizzie Bonahoom – Research Associate, North America
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