The Trump2.0 Energy Policy: The Fate of IRA, Renewables, Fossil Fuels, and Nuclear - What's In and What's Out?
Donald Trump's stance on climate and energy policy has always been clear and loud: "Pittsburg, not Paris", "Drill, Baby, Drill!", the list goes on and these slogans have not only captured headlines but also served as clear signals to both domestic and international energy leaders about his administration's direction. Trump’s first term was marked by significant actions like withdrawing from the Paris Climate Accord, approving drilling in nearly all U.S. waters, and repealing the Clean Power Plan. Now, with a second term on the horizon and full congressional support, might we witness the end of the renewable energy sector in America?
Not necessarily. The landscape is more nuanced than it appears at first glance, with the some green funding policies finding unexpected allies even among Republican ranks. So, what can we anticipate from the Trump-Vance administration? Let's delve into the complexities of what's likely to be 'in' and 'out' in Trump 2.0's energy policy.
1- The Inflation Reduction Act (IRA):
The environmental provisions of the IRA, signed in 2022 by Joe Biden, focus on reducing greenhouse gas emissions and promoting clean energy by allocating significant funding ($391 billions through 2031) for renewable energy development, EV incentives, energy efficiency programs and clean energy financial incentives (tax credits, funding and grants). Will Trump repeal the IRA? This seems to be the million dollar question for energy developers these days. The answer is that it is extremely unlikely.
While it is true that Trump has been critical of the IRA and has called for a recall of unspent funds. to be instead used to plug the gap for his income tax reduction plan, getting congress to agree to repeal tax incentives will be extremely challenging. The reason being that the IRA’s tax incentives mostly benefit Republican states. As can be seen on the map, most states with the most investments and renewable developments eligible for tax rebates benefit have actually voted for Trump.
Given his past comments on the Inflation Reduction Act, Donald Trump isn’t likely to leave it be as it is though. Few clauses which could be altered however, often in the spirit of protectionism:
The 25% threshold of ownership of a company by a Foreign Entity of Concern (FEoC) could be revised upwards (this would lead to higher costs of metals and parts).
Further tariffs on European/Asian-made key parts for wind and solar such as turbine blades and rotors (this could potentially be part of the 10% tariffs policy on all imports that Trump mentioned earlier this year).
An addition to the FTA clause within the IRA to exclude exports from “connector countries” which use Chinese technology or Chinese parts. (These countries were identified as “connector” by Bloomberg due to having strong industrial supply chains and value chains that are extremely well connected to both China and the Western World, especially in the Automotive/EV/EV battery industry, on top of having Free-Trade Agreements with the United States or EU. Examples include Mexico and Morocco).
Any change, however, is yet to be announced.
2- The Oil & Gas industry:
Since 2021, Republicans, under the leadership of House Speaker Mike Johnson, have been actively trying to reverse President Biden's moratorium on oil and gas lease expansions on federal lands. These lands, although not as large and numerous as private ones, hold sizeable resource potential, particularly in Alaska. With Donald Trump's return and the support of both houses, there is a strong likelihood that he will swiftly repeal this ban, especially given his affiliations with pro-oil advocacy groups like the American Petroleum Institute. This move is widely anticipated to be made within days or weeks of assuming office.
The actual development of new drilling projects will require time, which is acceptable considering that immediate increases in oil production are not critically needed for several reasons. Firstly, under Biden's administration in the 2023, the United States achieved its highest oil output to date, securing its position as the world's leading oil producer that year. Secondly, energy producers have already adjusted their forecasts to accommodate expected energy consumption for the upcoming year. Finally, global oil markets are projected to face an oversupply in 2025, with the International Energy Agency (IEA) predicting an excess of approximately 1 million barrels per day, primarily due to China's economic challenges.
As for natural gas, the same tendency to push for more drilling permits applies. Donald Trump also wants to make the bureaucracy and permitting processes of drilling projects and pipelines easier, even suggesting that anyone investing over 1 billion dollars will receive “fully expedited approvals and permits”, however a change of this scale is legislatively near-impossible inside a 4-year term. We expect an increasingly strong local demand from AI datacenters. This has likely already been taken into account into production planning for the near-term but it could change in the mid-to-end 2025.
The shift we are likely to see early on is on LNG. Earlier this year, the Biden-Harris administration had announced a freeze on US LNG exports to non-FTA countries. The United States has been the largest LNG exporter in recent years and its exports to Europe have drastically increased since the Russo-Ukrainian conflict as Europe has looked for alternatives to Russian pipeline gas. Donald Trump has pledged to approve construction of new export terminals as one of his first actions upon returning to office, aiming to increase LNG exports globally, which he views as an important tool of American foreign policy. Lets remind ourselves that LNG is today the best replacement for pipeline gas as, in its liquefied form, it takes up 600 times less volume than Natural Gas and can be easily transported in tankers over water. Demand in LNG globally is expected to rise with new LNG terminals scheduled for completion in the next 2 years, not only in Europe but also North Africa and South America.
3- Wind, Solar and Storage:
During the latter years of Barack Obama's administration, numerous wind and solar projects were initiated, leading to an increase in renewable energy output even through Donald Trump's first term. Notably, Republican states reaped substantial benefits from onshore renewable activities, both in terms of energy production and job creation. Despite these advantages, Trump implemented measures to delay the approval of wind farm projects, with Vineyard Wind serving as a notable example. It appears that under a second Trump administration, the expansion of wind, solar, and battery sectors could significantly decelerate. This anticipated slowdown stems from two primary factors:
Trump is poised to prioritize nuclear energy as a low-emissions alternative to the intermittent nature of wind and solar power, a strategy we will discuss in more detail in the next section.
The proposed imposition of tariffs, a central promise of Trump's campaign, on imports from all foreign nations—with particularly stringent measures against China—would elevate the costs of essential materials and components necessary for renewable energy installations. The previous administration already targeted solar panels from China, indicating a continuation of this policy.
Overall, Trump's policy aims to curb the growth of wind, solar, and energy storage through increased regulation, increased tariffs and potentially by undoing supportive legislation. However, the entrenched market presence of renewables and widespread public support may temper the impact of these policies. Trump's actual governance might focus more on moderating the pace of renewable energy adoption rather than halting it entirely, considering the significant economic and infrastructural investments already in place.
4- Nuclear Energy:
Donald Trump's first term saw a mixed approach on Nuclear Energy, where despite some supportive legislation, the practical advancement was somewhat tempered by his administration's broader energy policy favoring fossil fuels. Many republican states currently benefitting from wind energy have also been vocal about getting new nuclear sources, which unlike wind and solar, aren’t subject to intermittency issues. Even during the Biden administration, the nuclear industry kept active, with big projects reaching commercialization like the Vogtle Plant’s units 3 and 4 in Georgia, adding significant nuclear capacity to the grid.
A SMR (Small Modular Reactor) from NuScale - source: https://www.nuscalepower.com/
Under a potential second Trump administration, nuclear energy policy might take a more central stage, albeit with a nuanced twist: Trump looks to double down on nuclear as a primary low-emissions energy source, focusing on both maintaining existing nuclear plants and accelerating the development of Small Modular Reactors (SMRs). These reactors are smaller, more cost efficient, safer, and twice as fast to build. We believe that this policy might also yield important strategic advantages: Russia (and to a lesser extent, China) has a significant headstart in partnering with developing countries to assist them with developing SMRs in order to achieve their own energy independence. American SMR technology has existed for many years but has recently made large strides in cost efficiency.
Conclusion:
Donald Trump's second term looks set to reshape the U.S. energy landscape significantly, yet not entirely as one might predict based solely on the president-elect’s past rhetoric.
The Inflation Reduction Act is likely to endure due to its economic benefits to Republican states, though modifications could be made to align with protectionist policies.
The oil and gas sector can anticipate a boost in drilling and pipeline projects.
Renewable energy sectors like wind, solar, and storage might face headwinds from new tariffs and regulatory hurdles, but their established market presence and public support could mitigate the extent of these impacts.
Nuclear energy appears poised for a resurgence under the Trump2.0 administration, with a focus on SMRs that could position the U.S. as a leader in this technology, countering the advances made by Russia and China.
However, all these policies will need to be weighted against a set of legislative realities, economic feasibility, and public acceptance.
Disclamer: The view of this author is his own and does not reflect the view of any current or past employer.
