Overview
The future of America’s domestic energy landscape is in flux: significant renewable energy-focused elements of President Biden’s landmark Inflation Reduction Act (IRA) are up for debate on the Hill as the Republican-led Congress finalizes its various budget bills, and President Trump has put efforts to secure American energy security near the top of his domestic agenda. The domestic debate comes amid skyrocketing global energy demand: in 2024, electricity consumption rose to nearly double the last decade’s annual average. In the US, demand for electricity is expected to grow by 16% in the next five years and 50% by 2050, largely driven by growth in data center energy consumption, electric vehicles, and re-shored manufacturing. As Congress debates the Republican-led budget bill, key provisions of the IRA are expected to be rolled back, redirecting money and attention away from green energy initiatives and refocusing attention on spurring traditional energy sources, with implications for the domestic economy, the international energy market, and geopolitics.
The Trump Administration Grapples with the IRA
The US is entering a new age of energy demand, coupled with mounting fear that current electric grids are at an elevated risk of power shortages. President Trump has centered energy security in his domestic agenda: as one of US President Donald Trump’s first acts, he declared a national energy emergency via the “Unleashing American Energy” executive order, citing current US energy capabilities as “far too inadequate” to meet the country’s energy needs and expensive.
Concurrently, Trump has signed several executive orders to redirect the government’s attention to traditional energy sources, including easing energy export permitting, lifting barriers to mining, incorporating more natural gas in the US electric grid, increasing domestic mineral and liquified natural gas (LNG) production, and reviving the US coal industry. Amidst these efforts, Trump has also moved to reverse elements of the Biden-era IRA.
The IRA is most notable for ushering in the US’s largest investment towards addressing and mitigating the effects of climate change, allocating an estimated $369 billion to be spent over the next ten years on various projects, from renewable energy production and manufacturing to promote greenhouse gas (GHG) reduction, to offering a comprehensive list of tax incentives for clean energy investments and production. The bill was intended to support many of the Biden administration’s climate goals, including reaching 100% carbon pollution-free power by 2035.
Sentiments about the measure have increasingly broken along party lines, however. Opponents of the measure argue that the measure improperly picks winners and losers in the energy market, reduces consumer choice, opens loopholes for foreign companies and entities of concern, and disadvantages America’s traditional energy sector when it should be focusing on ramping up to meet demand. The most significant criticism, however, has often been cost: for instance, the total estimate for the cost of the energy subsidies in the Act rolled out over the next ten years ranges from $370 billion to $1.97 trillion.
On his first day in office, Trump directed an immediate pause on all federal agencies from disbursing funds appropriated by the IRA. The Environmental Protection Agency revoked $20 billion in GHG reduction grants, citing several concerns, including the program’s integrity and misalignment with the agency’s priorities. While the freezes were overturned by a federal judge in April, attempts to roll back the IRA continue. Separate from paused funds, the administration is also deprioritizing enforcement of the law: the Department of Energy’s Loan Programs Office, whose loan authority expanded to $412 billion to help implement the IRA, is set to lose roughly 60% of its staff due to the DOGE-led buyout.
Enter “One, Big, Beautiful Bill”
More comprehensive efforts to dilute the IRA are currently underway. House Republicans are rushing to finalize Trump’s sweeping tax breaks and spending cuts, which Trump labeled as the “One, Big, Beautiful Bill,” to send over to the Senate before Memorial Day. This week, the House Ways and Means and Energy and Commerce Committees unveiled plans to significantly reduce and repeal provisions of the IRA.
The Ways and Means Committee proposed terminating several clean energy tax credit provisions central to the IRA by the end of this year, including tax credits related to clean vehicles, homes, and hydrocarbons. The Committee also intends to phase out tax credits for technology-neutral production and investment to 2031, including nuclear power, advanced manufacturing, transportation fuel production, and clean electricity produced by a facility with GHG emissions less than zero. The bill also seeks to repeal the IRA’s landmark transferability provisions, which allow for the transfer of tax federal income tax credits directly to third parties. Notably, biofuel tax credits were the only climate provision from the IRA that nabbed an extension in the committee’s draft, with the credit sunset extended from 2027 to 2031.
The House Energy and Commerce Committee proposed similar measures, aiming to claw back billions of dollars that had not yet been spent on programs established by the IRA. These include electric vehicle charging infrastructure, methane reduction, technical assistance programs, funding for the Department of Energy’s loan program, zero-emission port equipment, offshore wind monitoring programs, grants for interstate electricity transmission lines, and funds for advanced industrial facilities. The Committee also implemented a new fee on natural gas export permits, with expedited permits available for $10 million or 1% of the project’s projected capital cost.
Implications for the Global Energy Landscape
Despite mounting skepticism for sweeping, federal-led green energy programs, the American renewable sector is not without hope. It is unlikely that the above measures would be enacted without substantial changes as the budget reconciliation process progresses. Moreover, a number of Republican lawmakers have voiced support for retaining some aspects of the IRA, including four Republican senators whose votes are critical to support the party’s slim majority in the Senate. Republican lawmakers have stressed the importance of IRA tax credits for strengthening US supply chains, industrial capacity, grid resilience, and job creation.
The IRA’s robust list of clean energy tax credits has already attracted billions in foreign direct investment, with companies from around the world announcing plans to build battery factories, solar panel manufacturing plants, and electric vehicle components in the US. Foreign investment accounted for more than 60% of funds announced in the first year of the IRA’s passage. A repeal or significant scale-back of these provisions may prompt companies to reconsider or withdraw planned investments in the US clean energy sector, and companies that have already initiated investments could expect delays or outright cancellations of their projects. This may result in the US ceding strategic economic ground to its rivals: namely, China is positioned to continue dominating clean energy supply chains stemming from clear policy consistency and low costs.
In light of potentially sweeping policy changes, the domestic renewable industry will face headwinds. In Q1 of 2025, clean energy manufacturers canceled, closed, or downsized nearly $8 billion in projects amid flagging support for the sector in the first few months of President Trump’s second term, per data from clean energy advocate nonprofit E2. Short-term instability, stemming not only from an IRA rollback but also from global trade disruptions, will create a downward trend in the near term despite still-present consumer demand for clean energy and electric vehicles.
While foreign direct investment in US clean energy initiatives is likely to be scaled back should key provisions of the IRA be rescinded, Trump’s government-to-government tariff negotiations have served as a critical avenue for the administration to promote foreign investment in traditional US energy industries, namely LNG. The Alaska LNG project, an 800-mile pipeline from the Arctic to Alaska carrying gas, has played a central role in Trump’s goal of increasing energy production, lowering energy prices, and creating jobs, all while boosting exports of US natural gas. During trade negotiation discussions with both Japan and South Korea, US officials have urged formal investment commitments to the project. Various countries – namely including Japan, South Korea, Taiwan, Indonesia, Pakistan, India, Thailand – have also considered exponentially increasing their import of US energy sources as part of their tariff negotiations. Moreover, the administration has called on international partners to support US deep-sea mining efforts, opening the door for tech-savvy foreign investors to be at the forefront of this emerging industry.
