When Donald Trump takes office in January, the industry is bracing for rollbacks and potentially major changes to the Inflation Reduction Act.
A full repeal of the IRA is looking unlikely, despite Trump’s campaign promises to unravel it; many elements of the law have bipartisan support, especially because so much of the funding has gone to Republican states. House Speaker Mike Johnson said in September that he would plan to take a “scalpel and not a sledgehammer” to the law. And with the Republican sweep in Washington, the GOP will likely have the votes to do it.
So which clean energy tax credits are at highest risk? The answer isn’t just about what the incoming president has said he doesn’t like — though if it were, offshore wind and electric vehicles would be first up. It ultimately comes down to two factors: cost and timing.
Ranking risk
Implementing many of the Trump campaign’s promises will require Congress to cut costs elsewhere. The Tax Cuts and Jobs Act, for example, which Trump signed into law in 2018, is set to expire next year. The promised extension of that law will cost trillions of dollars, and Congress will need to offset it, said Michael Catanzaro, who served as special assistant for domestic energy and environmental policy during the first Trump administration.
“They’re going to be looking anywhere and everywhere for [offsets,]’” Catanzaro, who is currently CEO of Republican lobbying group CGCN, said on a Norton Rose Fulbright panel this week. “In terms of these [IRA] credits, while some may stay on the books, I do think they may not all look like they look today.”
Changes to eligibility, scope, and time frames could be scaled back to “try to raise revenues to reduce that deficit number that will surely be there once the TCJA is extended,” he added.
And Dave Kautter, who served as assistant treasury secretary for tax policy in the first Trump term, said the Republican sweep in Washington has pushed the next Congress to raise revenue however they can.
“I think the pressure to look around every corner for any potential revenue raiser has grown,” he said on the panel.
Kautter and Catanzaro agreed that credits like the nuclear production and carbon sequestration credits are in “fairly safe hands” — largely because of Republican enthusiasm for them — but that phase-out dates for renewable energy tax credits will likely be accelerated.
“I do think [distant phase-out dates] are in jeopardy,” Catanzaro said. “I would think that the Republicans would move to start the phase out as soon as they possibly could, but grandfather existing arrangements so far.” As to at what point projects will be grandfathered, Catanzaro said he’s not aware of any “detailed discussion” on that beyond “as soon as we get the chance, we’re going to pull the plug.”
Alfred Johnson, CEO and founder of transferable tax credit marketplace Crux, said something like the consumer EV tax credit is likely high on the repeal agenda, given its political risk and its high cost. Other elements of the EV tax credit, like those for fleets or manufacturers, for example, have been less central to the conversation, he added.
The potential role of Tesla CEO Elon Musk in the EV credit debate is still a bit of a wildcard, Johnson added, though Musk, who was recently nominated by the incoming president to lead a newly-created Department of Government Efficiency, said on the campaign trail he would support a repeal of that credit — saying it would hurt his competitors more than it would hurt Tesla.
Tech-neutral tax credits, Johnson said, are likely less at risk.
“The politics of the tech-neutral credits are different from the politics of any of these underlying technology-based credits,” he explained. A tech-neutral tax regime has the potential to subsume other credits, bringing more stakeholders behind them.
The government has very different estimated cost profiles for a tech neutral ITC than for a PTC, explained Power Brief CEO and founder Jason Clark.
“At least from what they are using as their baseline, they see a higher utilization of the tech neutral ITC,” he said, which makes it more expensive and puts it at higher potential risk than the PTC.
Clark said he doesn’t see a huge political risk for either credit, however, and that the more likely lever a new administration would pull would be something like duration of the credits, which currently last until 2032 or until emissions targets are met.
“You could see somebody saying, let’s just call it 2032, let’s not leave the door open,” he said.
Possible outcomes
Though there’s agreement that modifications to the IRA are much more likely than a blanket repeal, the question of when those modifications might begin to happen is a little trickier.
“I don’t think we’ll be having conversations substantively about where does the IRA specifically go until the end of 2025,” Clark said.
Tax provisions from the first Trump era don’t expire until December 31, 2025, and it’s likely Congress could work right up to that deadline, he added; that conversation “will be the thing that opens the door to a conversation that may include the IRA.” And the inflation rate mid-next year when that conversation does happen, will be very important, he added.
In the meantime, Johnson said the transferable tax credit market is still moving on 2024 and 2025 credits. In the four days following the election, Crux saw $1.2 billion in bids on the platform, he said. Part of the reason Johnson said the market still feels secure enough to trade is that, as far as Crux is aware, there has never been a retroactive removal of a previously granted tax credit.
“It’s just not how tax law tends to be administered,” Johnson explained. “When changes to the tax law happen, they are made prospectively, often with some phase in period.”
Also, existing operative guidance from the Trump era provides “safe harbor” for projects that are started when a credit is available. “I think all those factors lead the market to feel reasonably confident in progressing on building energy infrastructure projects and manufacturing projects for which there is a very significant demand signal,” Johnson added.
Catanzaro, however, has a different expectation of when that conversation will come up. Republican leadership in Congress have been preparing for a Republican trifecta for the last six months, he said. That includes drafting a budget resolution for extending expiring tax credits and pursuing reconciliation.
“The notion of doing this in the first 100 days is very, very ambitious, but not entirely unrealistic, because they are ready to move the ball down the field quickly,” he said .”We’re certainly not going to see this extend past May or April.”
Given the Trump administration’s penchant for defying Washington norms, anything could be on the table, Kautter added. That means that political support or costs may not be the only dynamics at play in the conversation around the fate of certain tax credits.
“I would not underestimate the depth of emotion on the part of some Republicans with respect to some of these provisions,” Kautter said. “It’s not business as usual.”
