Trump's Return: The Energy Transition's New Era

MKB Perspectives

Donald Trump is set to return to the White House in January 2025 to become the 47th President of United States. Alongside him, the Republican Party will control the US Senate and likely the House, resulting in unified control over two key branches of the US Federal Government for the next two years. President-Elect Trump has presented a platform to contravene much of Biden’s energy transition agenda. Nevertheless, there is valid reason to believe that the global and private sector inertia of decarbonization will prevail over, or coexist with, the core of Trump’s platform.

The 2024 election was in many ways a rebuke of the Biden administration on issues including inflation, immigration, and foreign policy. However, President Biden had a notable record of domestic legislative achievements, particularly with regard to climate. He signed bills including the Bipartisan Infrastructure Law, CHIPS & Science Act, and of course, the Inflation Reduction Act (IRA), which was the largest and broadest-reaching climate policy in American history.

As of October 2024, there had been $153.4bn in announced clean energy manufacturing projects that would benefit from IRA incentives, which promised to create roughly 160,000 jobs according to Atlas Public Policy. Unfortunately for Biden, such is the nature of large infrastructure and manufacturing projects that there has been a meaningful lag between the passing of legislation, the announcement of projects, and the operational start date of these projects. Of the estimated 555 projects that make up this investment, 92% have yet to come online.¹ Although many of those facilities plan to begin operations by the end of 2024, this means voters who went to the polls on November 5th have yet to see the full economic impact of the solar, wind, battery, and electric vehicle manufacturing facilities.

The geographic and political dispersion of projects benefiting from the advanced manufacturing production tax credit (45X) and other IRA incentives is also a key dynamic. As per Bloomberg, almost 80% of the investments in clean technology manufacturing were slated to take place in Republican House districts. Nine of the top 10 congressional districts receiving investments were represented by Republicans, and 43 out of 51 projects over $1 billion were in Republican districts. ²

Manufacturing was a key piece of the IRA, but it is far from the only important one. Clean energy investment and production tax credits (ITC and PTC) for the deployment of renewable energy projects were extended through 2033. A stand-alone energy storage tax credit was created, and buyers of electric vehicles can receive tax credits of up to $7,500. The IRA also enhanced the energy efficiency home improvement credit, enabling a 30% rebate on qualified energy efficiency improvements, home energy audits, and the purchase of products like qualified heat pumps and water heaters. Clean hydrogen received a tax credit for up to $3/kg (45V), and carbon capture, utilization, and storage (CCUS) projects received a tax credit of up to $180/ton (45Q).

There is now a broad coalition of stakeholders benefiting from these and the many other “carrots” that the IRA created or extended. As of the end of 2023, the US solar industry employed 280,000 people, mostly in blue collar jobs within small and medium businesses performing installations and developing projects. In total, around half a million workers spent time on either solar energy or clean storage in the US in 2023. ³ At the end of that year, there were 195,000 electric vehicle-related jobs, with 51% (~100,000) of those announced since the passage of the IRA in late 2022. Plus, four of the top five states with EV-related job growth are swing states in federal elections: Michigan, North Carolina, Georgia, and Nevada. ⁴ Large oil and gas companies have also been vocal about their support for the hydrogen and CCUS incentives. Leaders of companies such as Occidental Petroleum, Exxon, and Phillips 66 have specifically informed Congress of the importance IRA tax credits hold for their businesses. In summary, the repeal of any of the IRA measures may carry a political and economic cost for the new President. If anything, legislative changes to the IRA are likely to be made with a “scalpel, not an ax”, as Republican Senator from North Dakota Kevin Cramer said. ⁵

However, there are elements of the Biden green agenda which are not as legislatively engrained and therefore more at risk. These include tighter rules on greenhouse gas emissions in the electricity sector. Potentially mitigating this to some extent, most utilities and power developers have long-standing decarbonization targets that rest in part on state-level mandates and economics. ⁶ In contrast at the federal level, the Department of Energy’s Loan Programs Office (LPO) appears poised to play a diminished role in financing first-of-a-kind (FOAK) climate technology deployment relative to the last four years. Fuel economy and emissions standards are also at risk of being rolled back, which could slow incentives, mandates, and the pace of vehicle electrification.

Critically, on the international stage, Trump has also stated his intention to once again withdraw from the Paris climate agreement. Diplomacy on climate action in a more isolationist and protectionist-minded administration will be deprioritized and difficult. Tariffs also have the potential to raise costs on the deployment of clean energy technologies, but the same can be said for products across the broader economy. The Trump-negotiated USMCA trade agreement establishes American market access terms for Canadian companies. Nonetheless, Canadian clean technology companies may need to be proactive in their US approach with strategies like establishing local manufacturing facilities for physical goods.

During the first Trump administration, states and localities responded to federal anti-climate sentiment with clean power mandates, decarbonization-friendly building codes, and electric vehicle incentives. This may continue through his next administration via legislation such as state-level vehicle emissions standards and EV mandates, which have now been passed in 25 states and Washington, DC. A similar number of states have passed net-zero carbon and 100% clean energy laws or executive orders. ⁷

The energy transition’s lexicon and what resonates with regard to its urgency is likely to shift over the next several years. Language around decarbonization may be swapped in favor of words like energy security without changing the end result of clean technology deployment. Plus, with the removal of certain subsidies becoming a possibility, the requirement of cost savings and unit economics as a value proposition becomes more imminent. This was always going to be the case in the medium to longer term. It is incumbent on entrepreneurs and investors focused on this theme to show grit and adopt strategies that allow companies to stand on their own two feet.

Regardless of how much the climate policy landscape changes over the next several years, the transition towards a decarbonized economy will persist. Climate tech and the energy transition are certainly influenced by policy, but it is only one of many factors driving the transition. Technological improvements and cost declines will continue regardless of the US federal policy regime. Corporations understand that while policy may be a pendulum, the vector of change points in the direction of decarbonization. Their long-term global competitiveness will still increasingly depend on their ability to reduce emissions. Consumers remain as climate conscious as they ever have been. These forces will enable climate technology businesses to continue to thrive; smart capital to scale them will persist and be rewarded for prudent investments.

1 https://www.politico.com/news/2024/11/04/private-energy-spending-democrats-election-00185344

2 https://www.bloomberg.com/graphics/2024-opinion-biden-ira-sends-green-energy-investment-republican-districts

3 https://irecusa.org/programs/solar-jobs census

4 https://www.edf.org/media/us-electric-vehicle-investments-have-grown-188-billion-almost-200000-jobs-new-report

5 https://www.wsj.com/business/energy-oil/big-oil-urges-trump-not-to-gut-bidens-climate-law-795dc597

6 https://www.bloomberg.com/opinion/articles/2024-11-06/trump-s-win-is-neither-an-oil-gusher-nor-a-green-crusher-election-2024

7 https://www.canarymedia.com/articles/politics/after-trump-win-its-up-to-states-to-lead-on-climate-action