The News
Donald Trump’s victory in yesterday’s New Hampshire Republican presidential primary makes clear the stark choice coming into view for voters: On one side, an incumbent president whose signature climate achievement — the Inflation Reduction Act — is doing more to accelerate the energy transition than any other U.S. policy against an opponent who continues to deny basic climate science and for whom “drill, baby, drill” is the cornerstone of his energy platform.
Clean energy investors may be hoping for the former, but are already preparing for the latter.
The renewables and climate-tech sectors “need to avoid magical thinking,” said Jim Kapsis, CEO of the Ad Hoc Group, a climate policy consulting firm. “If Trump is reelected there will be a clean energy reckoning in the first 100 days.”
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Tim’s view
The prospect of Trump’s reelection is testing the faith that clean-energy companies and investors have in the near-term stability of the energy transition.
There’s little disagreement that the transition will happen sooner or later. But given the uncertain fate of IRA tax credits and other incentives, some investors are already tapping the brakes on new deals that could be put at risk. The U.S. is already behind the curve on the energy transition compared to China and Europe. So any speed bump will damage the country’s ability to catch up and could lead to significant economic — and climate — costs.
“Short of banning renewables, a head of state has little ability to make serious inroads into the market forces driving their expansion,” Julie Gorte, senior vice president of sustainable investing at Impax Asset Management, told me. But “the risk of sharp valuation swings in the sector means we are unlikely to be adding to clean energy positions in the run up to November unless we see severe mispricing.”
Completely gutting the IRA would be difficult for Trump unless Republicans also take full control of Congress, which will be a close race. Still, that level of uncertainty is enough to make investors discount the value of the law’s tax credits, which Kapsis said is driving down deal sizes and kneecapping the IRA’s ability to drive new investment.
Meanwhile, short of a legislative overhaul, there’s plenty of damage the Trump administration could easily do to the Biden climate agenda — by scrapping new emissions regulations for cars and power plants, stalling progress on grid permitting reform, and freezing the rollout of grants and loans for clean energy projects. All of that adds up to turbulence for industries that barely have their feet under them. And if some investors appear spooked, others will get chills as well, said Elizabeth Levy, head of ESG strategy Trillium Asset Management: “Clean energy as a group has historically traded based on emotions and anticipation.”
Room for Disagreement
IRA tax incentives would be challenging even for a fully Republican-controlled government to repeal, given how many of the biggest new investments in things like EV battery factories have gone to Republican-majority districts. And many of the forces driving the investment case for clean energy — falling costs, efficiency gains, eager global markets, state and local policies — aren’t much influenced by the White House occupant. U.S. renewable energy capacity grew a lot under Trump’s first term.
“We’re optimistic about the rest of the year and beyond,” said Pradeep Tagare, head of investments at National Grid Partners, the venture investing arm of the U.S. and UK electric utility National Grid.
The View From Europe
Trump’s isolationist approach to foreign policy could also sour relationships with countries that are important for U.S. clean energy trade. He could enact additional trade barriers with China, including setting more stringent EV battery domestics sourcing requirements for IRA tax credits. If he withdraws the U.S. from the Paris Agreement, or from NATO, it could threaten access to European markets that are critical both for clean energy and for liquified natural gas exports.
“Our allies might just say, ‘to hell with you’,” said Josh Freed, senior vice president for climate and energy at the think tank Third Way. “All of these ties that have been built up and plans that have been made, where do they go?”