FAQ: Energy policy outlook under the second Trump administration

Despite much campaign rhetoric, the unified Republican Congress is not expected to repeal the IRA in full. Instead, expect them to approach it with a scalpel as opposed to a sledgehammer.

After all, many provisions in the IRA have bipartisan support. Indeed, they are driving key investments and job creation in congressional districts across the nation.

Still, certain provisions may be modified or limited in order to raise revenue for other policy priorities, such as the extension of certain tax cuts that are scheduled to expire at the end of 2025. 

The Biden administration has issued more than 120 pieces of guidance implementing the IRA, including final regulations related to transferability and labor requirements, proposed and final regulations implementing many new credits, and other subregulatory guidance. Treasury is working to issue additional guidance before the Biden administration ends on Jan. 20, 2025. 

Pursuant to the Congressional Review Act (CRA), Congress may review and potentially overturn new federal regulations issued by government agencies. The CRA provides Congress with a special process to pass a joint resolution of disapproval, which, if signed by the president, can nullify a regulation.

Since 1996, however, the CRA has been used to overturn only 20 rules. Because of its historically limited use, and with Congress focused on other priorities, it may ultimately fall to Treasury to rework certain clean energy policy positions.

The new Trump administration is expected to assess all guidance issued by Treasury and the IRS related to the IRA. It may revoke final rules, issue new notices of proposed rulemaking, and ultimately take new policy positions on proposed and final rules. Those changes, however, will take time. 

Another tactic to slow implementation of IRA provisions would be to simply put a hold on guidance that has not yet been issued. Further, agency webpages specific to the IRA—such as those for the White House, Treasury, IRS, Department of Energy, Environmental Protection Agency and Department of Labor—may be taken down, making it harder for the public to obtain information. 

The Trump administration is expected to scrutinize the clean energy guidance and could change existing rules with which it disagrees—for example, section 45W leasing rules for electric vehicles, rules related to foreign entities of concern, and revisions to environmentally friendly hydrogen production credit provisions in section 45V.

Republicans have been focused on enacting policies to support increased energy production, particularly with respect to fossil fuels. As for clean energy, bipartisan support is expected to continue at least for incentives related to biofuels, domestic manufacturing and carbon capture (including for enhanced oil recovery).

Consider policy dynamics in the following areas:

Clean fuels

Biofuels credits have strong bipartisan support. The IRA added the new section 45Z clean fuel production tax credit beginning Jan. 1, 2025. The biofuels industry is advocating for extension of this credit beyond 2027. 

Additionally, with respect to sustainable aviation fuel, the industry is seeking modifications to section 45Z to sustain and promote new investment in this emerging industry.

With respect to biogas, the industry is lobbying to continue incentives for biogas property that is not generating electricity. Changes to this credit may be in store, but full repeal appears to be unlikely.

Domestic manufacturing

Supporting domestic manufacturing is expected to be a priority of the Trump administration. To that end, we may see additions to the types of technology that qualify for the section 45X advanced manufacturing production credit, which incentivizes U.S. production of certain clean energy components. This popular credit has spurred the development of many solar, wind and battery manufacturing facilities in states such as Texas, Florida, Georgia, Ohio, Michigan and Indiana.

Changes to the section 45X credit may also include limitations on credit eligibility with respect to certain foreign ownership and investments. 

Electric vehicles

The unified Republican Congress may enact modifications to repeal or limit the section 30D and 45W credits for electric vehicles. Additionally, it may enact stronger rules related to foreign entities of concern.

Revenue raisers

The IRA made many of the clean energy provisions effective through 2033. With the new administration seeking to raise revenue to pay for other priorities, Congress may look to repeal or shorten the life of the new technology-neutral production (section 45Y) and investment (section 48E) credits. If they are repealed, we may see a return to the existing production (section 45) and investment (section 48) credits, with shorter extension periods.

Clean energy project developers and middle market businesses can take certain actions now in preparation for uncertain outcomes related to clean energy policies. For example:

• Some taxpayers are trying to expedite project construction to place property eligible for credits in service in 2024 under existing rules.
• Parties engaging in energy credit transfers are carefully considering “change in law” provisions in credit transfer agreements to protect against regulatory or legislative changes. 
• Businesses with foreign ownership, particularly Chinese ownership, are taking precautions with respect to their organizational chart or facility ownership out of concern that IRA amendments will not be favorable to foreign ownership, even if domestic activities are taking place. 

Despite the change in administration, increased investment in the energy transition is expected to continue. Driving factors will continue to include the advent of artificial intelligence, the general need for increased energy from all sources and the increased production of clean energy components. 

The industry received a jump start in 2022 with the clean energy provisions in the IRA. Those credits and incentives have helped subsidize energy projects that otherwise may not have been economical for businesses. While investors in certain sectors, such as offshore wind, may be hesitant to invest in projects involving rules that are subject to repeal or modification by the unified Republican Congress, the Trump administration is expected to carry on support at least for clean fuels and domestic manufacturing.

Globally, we expect continued foreign investment in the United States in clean energy projects. Global businesses are interested in U.S. clean energy incentives not only for their financial benefits, but also for their support of projects that enhance overall sustainability efforts, including ESG reporting for the overall entity.

We expect to continue to see global government policies focused on sustainability and investments to incentivize clean energy through both carrot and stick approaches.

For instance, Canada is enacting clean economy investment tax credits similar to those in the IRA. Global sustainability reporting requirements, such as the Corporate Sustainability Reporting Directive in the European Union, is an alternative approach.

At the U.S. state level, we expect to continue to see clean energy tax credit, grant, loan and other programs, as well as some state sustainability reporting requirements, such as California legislation requiring large companies to file sustainability disclosures. 

Expect the Trump administration to at least revisit the SEC climate rule, which is already facing legal challenges that could take years to resolve. Beyond that, it’s difficult to predict what the Trump administration might do. Businesses should work with their advisors to closely monitor policy developments.

Meanwhile, businesses in the United States and Canada are adapting to recent or forthcoming sustainability regulations, even while some final rules have yet to be determined. This may include investment in clean energy projects and other initiatives to meet regulatory requirements and claim new incentives.