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The U.S. is too enmeshed in the global financial system for the rest of the world to solve climate change without us.
The United States is now staring down the barrel of what amounts to a full repeal of the Inflation Reduction Act’s energy tax credits and loan authorities. Not even the House Republicans who vocally defended the law, in the end, voted against President Trump’s “One Big, Beautiful Bill.” To be sure, there’s no final outcome yet — leading Republican senators don’t seem satisfied with the bill headed their way, and energy sector lobbyists are ready to push harder. But the fact that House Republicans were willing to walk away from billions of dollars of public spending for their districts and perhaps $1 trillion worth of economic growth is a flashing red sign that Trump’s politics have capsized the once-watertight argument that the IRA would be too important to American businesses and communities to be destroyed.
The Biden Administration touted the IRA as the United States’ marquee investment not just in reducing emissions and promoting economic development, but also in bringing back American manufacturing to compete against China in the market for advanced technologies. The Trump administration takes this apparent conflict with China seriously ― the threat of economic decoupling looms large ― but seems to have no desire to compete the way the Biden administration did. Rather than commit to the solar, wind, battery, grid, and electric vehicle investments that are laying the foundation for a manufacturing revival, the Trump administration has doubled down on the conjoined ideas that America should be self-sufficient and should play to its strengths: critical minerals, nuclear, natural gas, and even coal. Never mind that Trump’s tariff policy and his party’s deep cuts to energy-related spending will stop these plans, too, in their tracks. “Energy dominance” has always been a smokescreen ― of fossil fuels, by fossil fuels, for fossil fuels.
While Republicans attempt to shut down America’s entire scientific research apparatus, the rest of the world moves on. The demise of the Inflation Reduction Act would decisively surrender the global market for all types of commercialized clean energy sources (and nuclear energy, too) to Chinese companies. Chinese companies already dominate the input sectors for these technologies, whether it’s processing and refining mineral products such as polysilicon, gallium, and graphite, or producing infrastructure commodities such as steel and aluminum. The end of Biden’s climate and infrastructure laws will also leave the American car industry in the dust, as the rest of the world shifts gears toward purchasing more efficient and cheaper electric vehicles ― particularly Chinese brands such as BYD. (Ford’s CEO drives a Xiaomi electric vehicle and “doesn’t want to give it up.”) Consider it a sign of the times that Ethiopia recently banned the import of gas-powered vehicles. Electrification is in, combustion is burnt out.
It’s not just China that benefits. In November, the Net Zero Industrial Policy Lab at Johns Hopkins estimated that the repeal of the IRA leaves up to $80 billion in clean technology manufacturing investment opportunities for other countries to seize between now and 2032, the law’s intended sunset year. Those countries aren’t just the likely (read: wealthier) suspects such as Japan, South Korea, or the European Union. The abdication of U.S. leadership would also boost electric vehicle and battery manufacturing capacity in Morocco, Mexico, India, Indonesia, and elsewhere across Southeast Asia; solar power-related manufacturing further across Southeast Asia; and wind power-related manufacturing in Brazil, Mexico, South Africa, India, and Canada.
These countries won’t just benefit from investors looking to build outside the United States. A Trump-induced fall in American imports of these technologies and their inputs may also drive some degree of global disinflation, insofar as these countries can secure input goods no longer flowing into the American market at cheaper prices. The writing has been on the wall since the early Biden administration that failing to invest meant investing in failure. This is what the Trump administration is poised to do, to the detriment of American technological capabilities and standards of living.
Just because the United States might be dropping out of the race for global decarbonization, however, does not mean that the rest of the world can choose to ignore the United States in return. The Trump administration can still play spoiler with every other country’s efforts to decarbonize ― even China’s ― for one overarching reason: the mighty dollar. The United States may be hemorrhaging the political capital that coordinating the energy transition requires, but it still controls the currency of decarbonization itself.
It’s hard to overstate how central the management of the U.S. dollar is to the management of global decarbonization. Let’s sketch out some of the key dynamics. First, the dollar is the world’s primary trade currency. Because most global trade is denominated and invoiced in dollars, fluctuations in the value of the dollar relative to the value of other currencies will affect the price of importing both essential commodities and capital goods in other countries. Any volatility in the prices of oil, critical minerals, food, or machinery ― including the inputs to energy systems ― is most likely measured in a currency that every other country needs to earn through trade or borrow from investors. Efforts to denominate commodity trade in other currencies, such as the Chinese renminbi, are not likely to scale up rapidly, however, thanks to the network effect of the dollar system: Market actors will only ditch the dollar if most of their counterparties do.
Second, then, the dollar is the world’s dominating financial currency. Countries seeking foreign investment must issue debt at rates and on terms that foreign investors, many of whom measure their returns in dollars, judge as safe relative to the returns on U.S. Treasury bonds, conventionally the world’s premier “safe asset.” How the U.S. Federal Reserve moves interest rates influences how every other central bank does; higher rates in the U.S. usually push up Treasury bond yields and, as other central banks also raise rates or stockpile dollars, make borrowing for investment and for refinancing debt more expensive across the whole world ― particularly for large-scale energy and adaptation infrastructure projects. The U.S. Federal Reserve also manages the dollar swap lines and repurchase (or “repo”) facilities that provide dollar liquidity to the rest of the world during a financial crisis, as in the Great Recession and the subsequent Eurozone financial crisis, or a sudden dollar cash shortage, as in 2019.
Finally, the United States maintains a comprehensive sanctions regime that operates through cross-border dollar payments systems and “clearing-house” facilities such as SWIFT, which processes interbank payments, and CHIPS, which handles over 90% of all dollar-denominated transactions globally. When the United States wants to cut target companies and whole countries out of the dollar financial system, it prevents SWIFT from processing targeted entities’ cross-border transactions and U.S.-based financial institutions from accepting them.
The Obama administration and first Trump administration used U.S. control over SWIFT and CHIPS to administer sanctions against Iran, and the Biden administration did the same to Russia. The U.S. Departments of Treasury and Commerce also administer what’s known as a “secondary sanctions” regime that imposes these financial penalties on unrelated third-parties that violate initial sanctions. And the Department of Commerce enforces export controls that restrict technology transfer to foreign targets. The Biden administration combined these authorities to limit the ability of both U.S. and foreign companies to export certain technologies to targeted Chinese companies.
Perhaps ironically, some of these dynamics don’t bite the way they used to during the Biden administration, when the dollar was expensive relative to other currencies. Trump’s inflationary and growth-destroying budget, trigger-happy tariffs, and neglect of the fracking sector have driven a sharp depreciation in the dollar and destabilized the market for U.S. Treasury debt. Some cuts to U.S. interest rates are likely given the elevated probability of a recession. All of these factors ― undeniably a bad look for the United States ― should support emerging market financial conditions by lowering the cost of commodity imports, raising the attractiveness of sovereign debt to foreign investors, and help stave off potential debt crises.
But easier global financial conditions in the short term do not diminish the threat the Trump administration continues to pose to global economic stability. The danger that the Trump administration expands the American sanctions regime implemented via the global dollar invoicing system and export controls remains undiminished. What’s more, the tension between the president and Federal Reserve Chair Jerome Powell should alert foreign central banks that their access to the American dollar liquidity facilities is ultimately contingent on the Federal Reserve’s independence from Trump’s influence. During the first Trump administration, the European Union and China alike started strategizing how to derisk their dependence on the dollar; U.S. policymakers should not be surprised if those governments are now dusting off those playbooks.
The dollar’s dominance is in part an effect of the gargantuan size of the U.S. consumer market. Trump’s tariff threats had governments across the world scrambling to cut deals with the United States to preserve their market access ― including by promising to purchase U.S. natural gas.
The view outside the U.S. seems to be that there is no easy replacement for the U.S. consumer. As the Australian Strategic Policy Institute put it, “US household spending in 2023 reached $19 trillion, double the level of the European Union and almost three times that of China. … there are no obvious markets to replace [U.S. consumers].” Indian journalist M. Rajshekhar notes that China, too, needs external markets to absorb its products, and that it cannot count on other Global South countries to let Chinese goods flood their markets. Americans are the motor that keeps the global economy spinning.
The inability to sell goods to the United States is a threat to decarbonization abroad not just because it gives Trump an avenue to hawk natural gas, but also because U.S. consumer spending provides the world with a source of the dollars with which decarbonization is financed in the first place. And to the extent that the IRA would have supported U.S. consumer demand for clean energy technologies and electric vehicles, its de facto repeal ― while a source of potential disinflation for Global South producers ― snuffs out a key demand signal for the production of inputs to those sectors across the Global South.
Where the Global South’s clean energy transition is concerned, natural gas unfortunately remains an important alternative to coal in the absence of widespread renewable energy deployment. The U.S. is the world’s largest exporter of liquified natural gas, the use of which has doubled since 2009 as global demand for the fuel rose sharply. Countries across Europe and Asia depend on U.S. gas for domestic power and industrial uses ― particularly after Russia’s invasion of Ukraine. Large energy importing countries like India increasingly rely on gas to meet energy demand spikes. Over the longer term, industry leaders expect LNG demand to rise 60% by 2040, particularly on the back of persistent Asian demand. Although planned U.S. LNG export capacity is already on track to double between now and 2028, the Trump administration is supporting the buildout of even more capacity to meet this expected global demand.
Becoming dependent on “molecules of U.S. freedom” for industrial growth and for transitioning off of coal may once have seemed like a smart decision across emerging markets, particularly when prices were lower. But it has now left dependent Global South countries uniquely vulnerable to energy import price and power market shocks caused by erratic U.S. policy and volatile (dollar-denominated) natural gas prices. Will the gas-dependent countries in Europe and Asia be able to access enough Chinese imports, invest sufficiently in local clean technology, and kick their LNG fix in time to meet their emissions reduction goals? Europe might; for the rest, this question is one worth following over the coming years.
The truth is that the United States has always had a unique opportunity to weaponize these aspects of dollar dominance in the interest of playing global spoilsport. As Chen Chris Gong, a researcher at the Potsdam Institute for Climate Impact Research, argues in her forthcoming (not yet peer-reviewed) paper on “The geoeconomics of transitioning to the post-fossil world,” Global South countries have an urgent reason to decarbonize built into their politics, whether their governments recognize it or not. So long as much of the Global South is dependent on imported fossil fuels for energy, “local people’s livelihood and firms’ survival are made vulnerable to compound cycles of dollar capital flow and cycles of basic commodity trade.” If the Global South cannot fully avoid the United States, their governments can at least sidestep it. Countries powered by clean energy, importing less fuel, and generating their own power are far more insulated from the dollar cycle and the dollar system, simple as that.
In contrast, as Gong highlights, the only incentives for the United States to pursue decarbonization come from the pressure of competing with China ― a competition that Republicans, for all their bluster, may not actually want to win ― or the pressure of mass consumer demand for a clean economy ― for which Democrats are not exactly fighting tooth and nail ― and the profits both promise. It’s darkly funny that the Inflation Reduction Act’s defenders are seizing on these exact reasons in their attempts to protect the law in the Senate when neither sufficiently moved House Republicans to reconsider.
For posterity, then, we should add another reason, even if it won’t convince Republicans to change tack: The looming repeal of the Inflation Reduction Act portends a future where Trump and his Republican party happily use their control over the global economy to drag the rest of the world down with the United States. “Energy dominance” may always have been formless bluster, but the United States’ financial dominance remains sharp enough to cut ― if not global emissions, then global standards of living.
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On the third anniversary of the signing of the Inflation Reduction Act, Heatmap contributor Advait Arun mourns what’s been lost — but more importantly, charts a path toward what comes next.
Today, the Inflation Reduction Act would have turned three years old — if it hadn’t been buried alive in a big, beautiful grave. While the IRA was a hodgepodge of programs salvaged from President Biden’s far more ambitious Build Back Better agenda, it still represented the biggest climate investment in U.S. history. It catalyzed over $360 billion in energy and manufacturing investments and was expected to drive the installation of over 155 gigawatts of new solar and wind energy by 2030. And now Republicans have taken a sledgehammer to its achievements.
The timing could not be worse — not just for the climate, but also for the energy systems that we rely on. At a moment when the energy sector requires $1.4 trillion worth of upgrades by 2030 just to keep up with rising energy demand and increasingly erratic weather, Republicans have instead delivered a one-two punch of tariffs and tax hikes, sabotaging the industrial base required to deliver those investments and raising the retirement age of our power generation fleet.
All over the country (Texas and California maybe exempted), our aging electricity system is putting in its two-weeks notice. Staring down the barrel of precipitous demand growth, the country’s regulated utilities have requested over $29 billion in rate increases, concentrated across the West and South. The Department of Energy ordered the delayed retirement of coal plants and oil generators to manage this summer’s demand peaks. Meanwhile, capacity market prices on two of the country’s largest grids, PJM and MISO, have reached record highs ― a cry for new supply that is now increasingly unlikely to materialize quickly or cheaply. Two months ago, an unplanned nuclear reactor outage on a congested part of Louisiana’s energy grid plunged 100,000 people in and around New Orleans into a blackout. That meant no working AC or refrigerators across large swaths of the city during a sweltering Memorial Day weekend.
All of this amounts to an opening for Democrats to shift public opinion decisively in favor of renewed climate action. Moving forward, lawmakers cannot ignore our infirm fossil-fired energy system, which stands to thwart their ability to deliver affordability, employment, health, and resilience to their constituents. Despite our recent losses, we still need an energy policy ― a climate policy.
What should the Democrats’ second attempt at a clean investment program look like? Having delivered the Bipartisan Infrastructure Law and the Inflation Reduction Act, laws that committed the state to the realization of a particular energy future, Democrats are well-positioned to build on their successes, and even to engage Republicans who remain interested in supporting innovative technologies, decarbonizing industry, and protecting public lands.
Where they cannot meet Republicans halfway, Democrats should double their ambitions. They must continue to embrace the power of federal investment to shape markets and achieve policy goals. But they must also learn from the shortcomings of their previous legislative outings and substantively change how the federal government invests in the first place. The way forward for Democrats starts with mapping out exactly how far they didn’t go, and ends with going there.
IRA and BIL were paradigm-shifting attempts at market-shaping. They laid the groundwork for the deployment of promising clean firm energy technologies such as next-generation geothermal and nuclear energy, as well as for necessary grid and supply chain upgrades, such as long-distance transmission corridors and critical minerals processing.
IRA and BIL were not, however, a comprehensive climate policy. They created cost-share programs for infrastructure resilience but neglected to buttress municipal bond markets, which states and local governments can use to make longer-term investments in climate resilience and adaptation. They penalized methane emissions but organized no comprehensive or compulsory managed phaseout of fossil fuel infrastructure. They failed to advance or adequately finance a coordinated deployment strategy for any key energy sector. And they shed the transformative vision of Biden’s Build Back Better agenda, which sought to stabilize the cost of living for Americans in the meantime — a tactical retreat that, in retrospect, looks ill-advised given voters’ current worries about affordability.
I am aware that criticizing BIL and IRA on these grounds amounts to judging them for goals they didn’t attempt to achieve. Judging them by the goals they did attempt to achieve, however, reveals that they only ever worked incompletely. Taken together, BIL and IRA expanded the energy tax credit system, created powerful programs for piloting and deploying innovative energy technologies, and seeded an ecosystem of regional financing institutions devoted to more equitably distributing the benefits of decarbonization. But the energy tax credits were never expansive enough; the programs intended to motivate investments into deeper decarbonization were not flexible enough to drive the mass uptake of emerging technologies; and efforts to decarbonize disadvantaged communities lacked a coherent strategy and ran headlong into local capacity constraints.
Speeding up the energy transition and building new infrastructure at scale requires endowing federal and state agencies with adequate appropriations, access to liquidity, and crystal-clear, wide-ranging mandates, as well as empowering them in statute with considerable flexibility as to the financial products and strategies they deploy to achieve those mandates.
Although imperfect, the IRA’s tax credits scored some significant wins that should undoubtedly inform future policy. The law took an existing system of technology-specific subsidies that had been on the books in some form since 1978 and made them technology-neutral, allowing developers of nearly any zero-emissions energy technology to access tax relief. It expanded the credits to domestic manufacturers of certain low- and zero-carbon technologies. It created a tax credit transfer market, allowing developers with limited tax liability to sell their credits for cash on an open market to any tax-liable buyer, rather than engage in expensive and complex “tax equity” transactions with a few large banks. It made certain credits directly accessible to tax-exempt entities, significantly broadening the pool of potential users. And most of these credits remained entirely uncapped ― a “bottomless mimosa” for developers that spurred over $321 billion in clean energy and manufacturing investments and supported more than 2,000 new facilities across the country.
To be sure, the IRA did not level the playing field perfectly across developers or across technologies. Developers of energy transmission, grid transformers, and electric rail were shut out of the credits. Tax-exempt public and nonprofit developers ― entities as large as the New York Power Authority and as small as local churches ― could not monetize depreciation or participate in the transfer market. And some credits remained capped, forcing developers to apply and cross their fingers. But as early as 2023, Goldman Sachs argued that even with these inadequacies ― which have easy legislative and statutory fixes ― the IRA would still have spurred over $3 trillion in investment by 2033.
The GOP has gutted much of this system, shortcomings and all, and replaced it with a tangle of red tape. The energy tax credits are once again technology-specific ― solar and wind developers have a few months left to start a project and claim the credits as written, though what it means to start a project got more complex just yesterday. But even the “clean firm” energy technologies that can still claim credits until 2032, such as nuclear and geothermal, may not be safe under new “foreign entity of concern” rules, which condition credits on developers’ ability to limit their reliance on Chinese suppliers and investment, requiring them to map out their supply chains at an unprecedented level of detail.
Democrats seeking to restore and build upon this plank of the IRA have their work cut out for them. The developers and manufacturers of any technology that contributes to zero-emissions energy production should be able to access and monetize federal support regardless of their tax status and free from the rigmarole and uncertainties imposed by competitive application procedures. Goldman Sachs’ $3 trillion estimate is now the lower bound of what’s possible — for instance, a tax credit for transmission investments suggested as part of Build Back Better but excluded from the IRA could have catalyzed over $15 billion in investment and supported the economics of all other energy projects. To the degree that the tax credits can help build industrial capacity and institutional support for decarbonization, future policymaking should maximize their remit and their distribution.
Tax credits alone, however, are hardly a skeleton key to decarbonization. Being disbursed only once a project is complete, tax credits do not substitute for the kinds of upfront financial support that project developers — especially developers of emerging technologies — require to complete their projects in the first place. Private investors have been comfortable with solar, batteries, and onshore wind because these projects can be completed, claim their tax credits, and earn revenues on the grid on a mostly predictable timetable. But new nuclear reactors, geothermal, hydrogen, green steel, and carbon capture are unfamiliar investments, have uncertain development pathways and return profiles, and thus remain un-bankable to investors.
This is why BIL and IRA created powerful programs worth tens of billions of dollars to finance the deployment of emerging clean technologies and break this vicious cycle of uncertainty. The Office of Clean Energy Demonstrations, or OCED, and the Loan Programs Office, or LPO, in particular, were empowered to support, at scale, the testing and commercialization of these emerging technologies as well as conversions of whole electricity grids.
OCED, with over $27 billion in appropriations, set up hubs for hydrogen and carbon capture projects across the country, and funded a suite of advanced steel and iron decarbonization projects. Endowed by BIL and IRA with over $15 billion in total credit subsidy and well over $300 billion in total loan authority, LPO made ambitious investments across a host of innovative technology categories, including ― but certainly not limited to ― energy storage, sustainable aviation fuels, virtual power plants, EV charging, and bioenergy. At the end of 2024, the LPO had over 200 loan applicants in its queue.
By rescinding OCED’s unobligated funding, ambiguously rewriting LPO’s lending authorities (while rescinding most of its unobligated credit subsidy), and pulling the plug on billions of dollars worth of conditional commitments, the GOP has stopped years of progress in its tracks. In the meantime, LPO has shed considerable staff while the administration has prevented it from making any new commitments. The combination of the “foreign entity of concern” rules constraining tax credit eligibility and this shuttering of federal financing opportunities could seriously throttle the development and commercialization of nuclear energy in particular, the darling du jour of Republicans’ energy strategy.
If these offices were once the engines of decarbonization, they needed a stronger spark plug. The LPO, in particular, has a special authority to finance state government-backed, non-innovative clean energy projects, such as regional battery manufacturing clusters or a state power developer’s renewables portfolio, but has never used it. And while OCED and LPO can provide developers with some degree of upfront support, LPO cannot easily provide construction loans, cannot derisk project cash flows to provide security to investors, and cannot mandate offtake. These deficiencies prevent ambitious borrowers with unproven technologies from scaling up: they scare off private lenders in the infrastructure sector, many of which are skittish about construction risk, require project developers to demonstrate three to five years of stable cash flows, have a low tolerance for market price uncertainty, and have shareholders who demand a certain level of returns.
The DOE can bridge this “valley of death” by using its broader market-shaping authorities to take a more aggressive “dealership” role in these sectors, providing stable offtake for developers through upfront purchasing while becoming a reliable source of supply to downstream customers (like an actual car dealership or a grocery store). The DOE has in fact already used this approach to provide demand-side support to its now-endangered hydrogen hubs through OCED.
These kinds of public dealership arrangements are not unique or path-breaking: The Federal Reserve’s backstop of the municipal bond market in 2020, nonprofit investor Climate United’s planned EV trucking purchase-and-lease program in California, and even the Department of Defense’s recent MP Materials deal are all examples of public entities addressing a mismatch in the supply of and demand for a critical good and, in doing so, shaping markets toward public ends.
For all that BIL and IRA built avenues for developing and deploying energy technologies, they were also full of programs aimed at distributing the fruits of decarbonization equitably. Both the energy community bonus credits, a provision in the IRA that increased the value of the energy tax credits for projects in poorer, higher-unemployment, and energy facility-adjacent communities, and President Biden’s Justice40 initiative, which directed 40% of federal spending toward poorer and more rural communities, exemplified the administration’s “place-based” approach to industrial policy and economic development. The Biden administration heavily encouraged disadvantaged communities, local governments, schools, nonprofits, and tribal nations to develop their own clean energy projects — aided by the IRA’s direct pay mechanism, which allowed tax-exempt entities to access subsidies — by drawing on the various local decarbonization programs in BIL and IRA.
The Greenhouse Gas Reduction Fund, perhaps the most important of these programs, exemplifies the promises and pitfalls of the administration’s approach to “place-based” industrial policy. Managed by the Environmental Protection Agency, GGRF provided $27 billion to disadvantaged communities for the financing of rooftop solar, zero-emissions transport, and net-zero housing. That pot was split into three thematic buckets ― $7 billion to the Solar for All program, specifically for rooftop solar development; $14 billion to the National Clean Investment Fund, for supporting clean energy project finance more broadly in disadvantaged communities; and $6 billion more to local and regional technical assistance providers. Each program then subdivided its appropriations further. Solar for All went to 60 recipients across the country via a competitive application. The National Clean Investment Fund’s $14 billion was split among three awardees, each a coalition of various financial institutions designed to lend to energy projects, such as green banks, impact investors, and nonprofits ― and each of those recipient coalitions planned to subdivide much of its funds still further, first among coalition partners and then to subordinate local and state partners.
That dizzying program structure was meant to endow local communities with the ability to finance their own projects. And by including so many nonprofit institutions, GGRF could make significant inroads into Republican states, whose officials might otherwise reject federal funding.
But there was not much coordination between partners and subawardees around how best to deploy those funds. And what seemed like a firehose of financing often reached local recipients as a trickle of pre-development and technical assistance grants. Demanding that local organizations build their own capacity to plan, finance, and develop projects (or hire expensive external consultants to do so) ― with limited and one-time funds, no less ― is duplicative and inefficient, and it defeats GGRF’s own stated goal of mobilizing private capital through building standardized markets for decarbonization, thereby slowing down the pace of emissions reductions. The program’s complexity also left it vulnerable to EPA Administrator Lee Zeldin’s efforts to hound the program in court and freeze its funding.
Pandemic-era proposals for a National Investment Authority, as well as legislative proposals for a national green bank ― predecessors to the GGRF ― differ sharply from this status quo, instead highlighting how public finance can benefit from economies of scale. Larger financial institutions tasked with deploying clean energy projects can more easily prepare portfolios of projects for co-investors, engage with utilities, raise debt on municipal bond markets, and build a bench of trustworthy private developers to contract for projects. If they are publicly administered, these institutions can also take more risk, undercut private lenders, support more developers, engage with local communities to meet their needs, and use revenues from higher-return projects to derisk lower-return projects that might be necessary to build to achieve their resilience and affordability goals.
Should policymakers get a second shot at building a national green bank system, they should not try to recreate GGRF’s fractal approach to energy finance. Rather, policymakers must ensure that financing sits in the hands of public agencies that already have the authorities and expert staff to be ambitious market-shapers: bond banks, state-led energy finance authorities, and public developers. The good news is that state-level green banks empowered with state funding and a political mandate are already exercising their capacities to shape markets and support disadvantaged communities directly: the New York Power Authority, the Minnesota Climate Innovation Finance Authority, the Connecticut Green Bank, and the Greater Arizona Development Authority, to name a few, are all taking it upon themselves to raise debt and contract with developers to undertake ambitious energy and infrastructure investment programs.
But Democrats should be clear-eyed about the consequences of this reorientation: It means rejecting the prevailing wisdom that local nonprofits should necessarily coordinate local project development. Local groups can be extremely effective advocates for communities’ needs ― but in contrast to public investment agencies, their capacity to finance and implement solutions is simply not great enough.
This analysis of IRA and BIL leaves out more parts of the laws than it includes ― to take just one example, the BIL’s $5 billion National Electric Vehicle Infrastructure charging station program. But the story is similar: Ambitious as it seemed, NEVI money could only flow when state governments set up implementation offices and had their spending plans approved by federal officials. Most states, which had not prepared for any of this, took years to build the requisite capacity ― just in time for the Trump administration to try and snatch away the funding (though it recently admitted defeat in that project). In fairness to state governments, the EV charging sector is incredibly new. But even this program highlights how IRA and BIL lacked the capacity to be implemented as quickly and efficiently as their supporters hoped.
Going above and beyond BIL and IRA to deliver an energy policy that stabilizes Americans’ cost of living while driving an energy transition away from fossil fuels and toward the technologies of the future ― Democrats should embrace this challenge. But they should also be aware that climate ambition runs headlong into the same institutional problems facing American democracy at large. The Senate filibuster prevents either party from comprehensively redesigning the federal government, its institutions, and its regulations to serve Americans more quickly and more efficiently. That leaves both parties reliant on budget reconciliation ― to our detriment. The head-spinning design of GGRF was itself an artifact of the reconciliation process, which prevented Congress from creating a single green bank institution or giving it a specific mandate; its awardee organizations and coalitions certainly did not ask for the program structure they got.
There’s a lot more that budget reconciliation will never solve: the century-old American utility system, the regulatory thicket of U.S. electricity markets, or the land use and permitting rules that constrain project development and grid interconnection. And things could get worse: Trump-appointed judges and Supreme Court justices who reject federal agencies’ and state governments’ attempts to regulate fossil fuel infrastructure have placed the legal system itself at odds with responsible energy system management. The courts may no longer be able to block clawbacks and recissions of legally obligated federal spending. Democrats, like clean energy developers, do not fight on a level playing field.
While Democrats are out of federal power, they should practice ambitious climate policymaking at the state level. States already have considerable ability to raise finance and build capacity for ambitious infrastructure projects ― and they might have to quickly, considering the drain of federal capacity that might support them. By developing their own public programs for transmission finance, utility-scale battery procurement, virtual power plants, and clean firm energy pilots, Democratic state governments can ensure that the ecosystem of clean energy developers created by BIL and IRA does not disappear for lack of demand — and in doing so, these states would help stabilize the cost of clean energy project development.
Finally, Democrats should not forget that climate remains a cost of living issue. In a city like New Orleans, rocked by the recent nuclear outage, residents spend, on average, over 19% of their incomes on their energy bills, over three times the DOE’s threshold to be considered an energy-burdened community. Their bills already include adders for climate adaptation and disaster preparedness ― yet, for all they spend, they still face blackouts, and their costs will only increase as their grid continues to deteriorate. Here, climate policy is not about combating Chinese supply chain dominance, or even about delivering an American industrial renaissance. It’s about keeping the lights on, keeping bills low, keeping the air clean, and keeping residents safe from disaster.
It turns out that voters all over the country still care about these goals. A majority of likely voters in the next election think climate change will have a direct impact on their or their family’s finances. This constituency is still in play — and given sharply deteriorating macroeconomic conditions, soon-to-spike electricity prices, and the ever-increasing threat of climate disaster, these cost-of-living-focused voters could be far more vocal, relevant, and hungry for change than a coalition built on vague sabre-rattling against China.
In 2022, Democrats made a valiant first attempt to transform the state itself. Perhaps it was inadequate, perhaps it was impossible to do more at the time, but that’s no reason not to think seriously about the kind of policymaking, institutional, and financial interventions that would be called for should they get a second shot at realizing that goal. The rollback of the IRA only reveals how much Democrats left on the table three years ago ― and how much farther a real climate policy could go.
Renewables developers may yet be able to start construction before the One Big Beautiful Bill deadlines hit.
The Trump administration issued new rules for the wind and solar tax credits on Friday, closing the loop on a question that has been giving developers anxiety since the One Big Beautiful Bill Act passed in early July.
For decades, developers have been able to lock in tax credit eligibility by establishing that they have officially started construction on a project in one of two ways. They could complete “physical work of a significant nature,” such as excavating the project site or installing foundational equipment, or they could simply spend 5% of the total project budget, for instance by purchasing key components and putting them in a warehouse. After that, they had at least four years to start shipping power to the grid before stricter work requirements kicked in.
Shortly after signing the OBBBA, however, Trump issued an executive order directing the Treasury Department to revise its definition of the “beginning of construction” of a wind or solar project. Under the new law, this definition can make or break a project. OBBBA established new deadlines for wind and solar development, allowing projects that start construction before the end of this year to qualify for the tax credits as they currently stand. But projects that start construction between January 1 and July 4 of 2026 will have to follow stringent new rules limiting the use of materials with ties to China in order to qualify.
The start construction date also affects how long a developer has to complete a project and still qualify for credits. Projects that start before July 4 of next year have at least four years, while those that start after must meet an impossibly short timeline of being up and running in just a year and a half, by the end of 2027.
Some worried the new guidance would narrow that four year timeframe or affect project eligibility retroactively. Neither happened. The only major change the Treasury department made to the existing guidance was to get rid of the 5% safe harbor provision. While this is not nothing, and will certainly disqualify some projects that might otherwise have been able to claim the credits, it is nowhere near as calamitous for renewables as it could have been.
Projects can still establish they have started construction by completing “physical work of a significant nature,” and the definition of physical work still includes off-site work, such as the manufacturing of equipment. That means it’s still possible for a company to simply place an order for a custom piece of equipment, like a transformer, to establish their start date — as long as they have a binding contract in place and can demonstrate that the physical production of the equipment is underway.
The new guidance also contains a carve-out that allows solar projects that are less than 1.5 megawatts to use the 5% rule, which will help rooftop solar and smaller community-scale installations.
Trump’s executive order came after a reported deal he made with House Freedom Caucus Republicans who wanted to axe the tax credits altogether. The order directed the Treasury to prevent “the artificial acceleration or manipulation of eligibility” and restrict “the use of broad safe harbors unless a substantial portion of a subject facility has been built.”
Treasury’s relative restraint, then, comes as something of a relief. “It’s not good, it’s not helpful, but from my perspective, the guidance could have been a lot worse,” David Burton, a partner at Norton Rose Fulbright who specializes in energy tax credits, told me. “Utility-scale solar and wind developers should be able to plan around this and not be that harmed.”
That doesn’t mean clean energy groups are happy about the changes, though. “At a time when we need energy abundance, these rules create new federal red tape,” Heather O’Neill, president and CEO of the industry group Advanced Energy United, said in a statement. “These rules will make it more difficult and expensive to build and finance critical energy projects in the U.S.”
The changes don’t go into effect until September 2, so for the next two weeks, all projects can still utilize the 5% safe harbor.
Even though the rules are not the death-blow for projects that some anticipated, there’s still one big unknown that could squeeze development further: The Treasury department has yet to put out guidance related to the new foreign sourcing rules created by the OBBB. One of the big fears there is that companies will have to prove their lack of ties to China so far up their supply chains that compliance becomes impossible.
We probably won’t be left wondering for long, though. Trump’s executive order asked for those rules within 45 days, putting the due date on Monday.
On the worsening transformer shortage, China’s patent boom, and New York’s nuclear embrace
Current conditions: Tropical Storm Erin is still intensifying as it approaches the Caribbean • Rare August rainstorms are deluging the Pacific Northwest with a month’s worth of precipitation in 24 hours, threatening floods • Hong Kong has issued its highest-level “black” rainstorm warning multiple times this month as Tropical Storm Podul lashes southern China.
President Donald Trump’s order to keep large fossil-fueled power stations scheduled to retire between now and 2028 operating indefinitely will cost ratepayers across the United States $3.1 billion per year, according to new research from the consultancy Grid Strategies on behalf of four large environmental groups. If the Department of Energy expands the order to cover all 54 fossil fuel plants slated for closure in the next three years, the price tag for Americans whose rates fund the subsidies to keep the stations running would rise to $6 billion per year.
The problem may only grow. The agency’s existing mandates “perversely incentivize plant owners to claim they plan to retire so they can receive a ratepayer subsidy to remain open,” the report points out.
With electricity consumption hitting new records in the U.S., demand for transformers is surging. The years-long supply shortage for power and distribution transformers is now set to hit a deficit below demand of 30% and 10%, respectively, in 2025, according to a new report from the energy consultancy Wood Mackenzie. Complicating matters further for manufacturers scrambling to ramp up supply, Trump’s One Big Beautiful Bill Act is throwing clean-energy projects into jeopardy and sending mixed signals to factories on what kinds of transformers to produce. At the same time, tariffs are raising the price of materials needed to make more transformers.
“The U.S. transformer market stands at a critical juncture, with supply constraints threatening to undermine the nation's energy transition and grid reliability goals,” Ben Boucher, a senior supply chain analyst at Wood Mackenzie, said in a statement. “The convergence of accelerating electricity demand, aging infrastructure and supply chain vulnerabilities has created constraints that will persist well into the 2030s.”
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A worker in a Chinese electric vehicle factory. Kevin Frayer/Getty Images
For years, China was known for ripping off the West’s technology and patenting cheaper but more easily manufactured copies. Not anymore. China applied for twice as many high-quality clean energy patents as the U.S. in 2022, according to a New York Times analysis of the most recently available public data. The European Patent Office, which supplied data to the Times, defines a “high quality” patent as one that has been filed in two or more countries, indicating that the company or individual involved has a strong competitive interest in protecting its idea.
The growth in China’s intellectual property ambitions is a sign that Beijing’s strategic push to ramp up academic research and industrial innovation is maturing. “It is the opposite of an accident,” said Jenny Wong Leung, an analyst and data scientist at the Australian Strategic Policy Institute, which created a database of global research on technologies that are critical to nations’ economic and military security, including clean energy.
In June, New York Governor Kathy Hochul directed the New York Power Authority, the nation’s second-largest government-owned utility after the federal Tennessee Valley Authority, to support the construction of the state’s first new nuclear plant since the 1980s. Albany has plenty to sort out between now and the 15-year deadline for completing the project, including selecting a site, picking from one of the many new reactor designs, and finding a private partner. But one thing isn’t a problem, at least for now: Public support.
New Siena polling I covered in my Substack newsletter yesterday shows that 49% of registered voters in New York support the effort, with just 26% opposed. Both sides of the political spectrum are largely in lockstep, with Republican support outpacing that of Democrats by a margin of 55% to 49%. That’s lucky for Hochul, who will need support from the more politically conservative upper reaches of the state where the facility is likely to be built. For more on the technical and political considerations in play, here’s Heatmap’s Matthew Zeitlin on the plan.
It seems like everyone is abandoning their net zero goals. But not insurer Aviva. The company’s chief executive, Amanda Blanc, said the British giant remained committed to its carbon-cutting goals in the U.S. and the United Kingdom, The Guardian reported. With rising profits propelling shares in the company to their highest level since the 2008 financial crisis, Blanc said, “extreme weather conditions, climate change, and the impact that that has on our insurance business that actually insures properties” meant Aviva needed to “remain committed to our ambition.”
The red-headed wood pigeon once seemed on the verge of extinction. The population, endemic to Japan’s Ogasawara Islands, fell to below 80 individuals in the 2000s. But once its main predator, the feral cat, was removed, the bird made a remarkable comeback. A team of researchers at Kyoto University set out to find out why the expected problems from inbreeding never occurred. Per a press release: “Their results revealed that the frequency of highly deleterious mutations in the red-headed wood pigeon was lower than in the more widespread Japanese wood pigeon. This suggests that, rather than hindering it, the pigeon's success was likely rooted in its long-term persistence in a small population size prior to human impact.”