Renewables in Trump 2.0

The election of Donald Trump as the once and future president has frazzled nerves in the renewable energy industry, to say the least. The market illustrated its perspective on the news by pushing green energy companies’ stock prices off a cliff. Some commentators say this is a reflection of things to come, while others say it was a market overreaction that will course correct as the future comes into focus. So which is it?

In this issue’s main article, I’ll focus on how the incoming administration is likely to affect the future of renewables. 

But first, the Lightning Round.

How Will the Incoming Administration Affect Renewables?

The first thing to acknowledge before we dig in is that there is still, of course, a great deal of uncertainty. We can make educated guesses based on statements and previous actions, but nothing is certain until it happens.

“Drill, Baby, Drill”

Trump has signaled a clear preference for fossil fuels, including oil, which he refers to as “liquid gold.” The market took note, hitting solar companies especially hard. As of right now, these companies haven’t recovered to any meaningful degree.

But this reaction may be based on a misunderstanding of the power of a president. The US system gives the executive sweeping authority in many areas of government, but some powers are still beyond him.

Ctrl+Z on the IRA

On the campaign trail, Trump pledged to undo the clean energy investments of the Inflation Reduction Act of 2022 (IRA), but he will likely face significant obstacles in his attempts to do so. The IRA was a bill brokered by President Biden and Democratic members of Congress and ultimately passed by Congress. A true unraveling, then, would require the cooperation of Congress, the prospect of which comes up against two barriers:

1. Will Congress Kiss the Ring?

Come January, Republicans will control all three branches of the federal government, including both houses of Congress. Theoretically, that should give a Republican president who is firmly in control of his party the ability to do whatever he wants. And no doubt that’s broadly true.

However, as with many federal programs, the funding received from the IRA is very popular even though the law itself is unpopular in much of the country. A significant portion of the investment funds from the IRA has been disbursed in Republican-majority states. Congressional leaders from those states won’t be desperate to turn off the spigot of investment that has created jobs and sparked economic activity in their constituencies.

So in large part, it depends on how whipped his party is and whether he decides this is a fight worth having. Trump and his allies have made clear threats to Republican lawmakers who defy him, but not all issues carry the same weight in any politician’s mind. Is undoing the IRA important enough to Trump for him to fight members of his own party and run primary challengers against Republicans who are just trying to bring investment to their communities? It’s hard to say.

To me, that’s going to be one of the most interesting parts of the next few months: seeing how much control he actually has over his party. I’m predicting a lot.

2. Money Out the Door

The other issue Trump would face in undoing the IRA is the fact that billions of dollars have already been invested, a significant portion of the funding that was set aside. The Biden administration is also working feverishly during its lame-duck period to get as much of that money pushed out the door as possible, along with money allocated by the CHIPS Act and the Bipartisan Infrastructure Bill. There’s no pulling those funds back in. Businesses have started. Jobs have been created.

That being said, the long-term investments promised by the bill could certainly be reneged on, but that would require a willingness by Trump and Republican lawmakers to pull the rug out from under American businesses in both red and blue states.

However, a determined administration could have another weapon at their disposal even if they don’t shred the legislation as a whole: using the bureaucracy to make it more difficult to access the funds. Pumping the brakes wherever they can wouldn’t entirely kill the whole venture, but it could certainly hobble it.

We Don’t Always Get What We Want

For our present subject, one of the most significant limitations on the power of the executive branch is possibly the most boring: permitting. The executive has power over where projects can be built on federal land, so permits and leases for those areas can be refused. But the majority of solar and onshore wind projects are built on privately owned land, which he would have no control over. The only sector that his administration could significantly impact through permitting is offshore wind development, which is often built on federal territory and will likely take a pretty big hit over the next few years.

At the same time, though, this control of federal land gives the administration the ability to expand oil and gas exploration on that land, which Trump has pledged he will do.

Greener Pastures

Despite the sweeping power of the presidency, the US is still a federal system, with many levels of government that all have their own interests and internal incentives. Many state governments have their own goals, regulations, and investments in the energy industry. California tends to be the face of states going their own way on renewables, but even deep-red Texas has looked on renewables more favorably than the federal government often does.

Renewable energy companies will still find friendly markets, even if it’s not at the federal level. And as long as the business sector sees money to be made in renewable energy, more investment and growth will occur.

(Project 2025 has a plan for preventing state governments from having stronger mandates than the ones set by the federal government, but I’m trying to avoid being alarmist here.)

“All of the Above”

Some in the Republican party have been adamant that there is no place for renewables in the energy economy of the US, but for many the rhetoric has shifted to an “all of the above” strategy. This framing says that any source that helps us increase our energy independence and dominance as an energy exporter is a good thing, including everything from oil and natural gas to solar, wind, and nuclear.

The Biden administration gave a leg up to the renewables industry that shouldn’t be expected in the next administration, but it’s not necessarily the case that the newbies will try to kneecap it at every turn. If the “all of the above” philosophy wins out, it would mean a toleration of energy across the board, with a preference for fossil fuels.

Relatedly, much of the Republican critique of Biden’s energy policy is based on a misunderstanding of that policy. Yes, there was a massive increase in investment in renewable energy, but the Biden administration was not exactly hostile toward the fossil fuel industry. The US produces more fossil fuel than at any time in history and is the largest producer of both oil and natural gas in the world, beating even Saudi Arabia and Russia.

In a way, “all of the above” has been the bipartisan consensus for some time now.

“Rules Suck,” the Companies Said, Stomping Their Feet

Yes, there are more regulations on the fossil fuel industry coming from the executive branch right now than oil and gas companies would like, but the industry has successfully carried on and grown over the last four years. The incoming administration is likely to undo many of those regulations, and fossil fuel companies will benefit.

The effect on the American people will almost certainly be less rosy. Some of the current regulations require companies to sell a portion of their energy domestically at a lower profit margin than they receive on exports. If they can sell internationally at a higher rate, that’s what they’ll do, reducing supply in the country and driving domestic prices up. Oil and gas profits will go up and so will average people’s energy bills.

But that outcome is dependent on the actual implementation of the slash-and-burn tactic that was promised. A more surgical approach could easily avoid the worst version of that result.

Now the Bad News

Okay, there I’ve covered why the alarmism might be overblown. Now I have to acknowledge that there is actual danger for the renewable energy industry. As I mentioned, the power of the executive is sweeping, and that power has actually expanded over time. Congress has all but stepped aside as a governing body by being a dysfunctional mess, and the executive has moved to fill that void.

Each successive president (of both parties) gets frustrated with the inability of Congress to get anything done, leading them more and more to accomplish as much as they can through executive orders. These executive orders often overreach the power of the presidency and are challenged in the courts. Consequently, the Supreme Court has served as a check on executive orders at times, but with the current solidly conservative court, it seems likely that won’t be a significant obstacle for Trump.

So if Trump gets in there and makes an executive order shooting down the IRA - or something even more drastic - who’s going to stop him? I genuinely don’t know the answer to that question.

(Of course, the very real possibility that Trump will govern through executive order would have consequences far beyond renewable energy, but I’m going to stay on topic.)

Who Knows?

Well, this was a long one. I don’t expect most of the issues of this newsletter to be this long, but it’s an important topic in the world of renewables right now and a subject of great consternation to many. Also, the policy wonk in me got excited to dig in.

I guess my point overall here is that we should save the panic for when we see what actually happens. I’m not saying everything will be fine, but I am saying it’s likely that the damage will be limited by political realities. There’s still reason to cross our fingers and hope for the best.

Please feel free to hit reply and tell me your thoughts about the newsletter and what you would like to read about. Thank you, and I hope to see you next time.