Why did you do this?
I spent the last six months traveling the world and during that time, I was blissfully tuned out on politics. Now that I’m back in D.C., and given how consequential this election is going to be – suffice it to say, I’m tuned back in.
I was close to the IRA drafting process – I’m familiar with the underlying bill and also how the government thinks about the programs. I recently started a company, Power Brief, that marries my love for clean energy policy and my old consulting habits: pretty visuals and PowerPoints. And looking at what might happen to the IRA felt like THE big thing happening in the space right now, so I wanted to dive deeper.
A lot of the content has been “will they/won’t they” analysis. How much do Republicans feel strongly about this bill overall? How much passion would Trump have for pushing for a full repeal? It’s been out there. But this is so complicated and has so many moving parts. I wanted to try and capture both the political reality for some of these programs and also the very practical reality of how the government thinks about the cost of these programs. The fact it can all be contained in one visual is to help people who care about climate policy and want to really understand what may happen depending on how the election turns out.
We know Congress is going to take a stab at a new tax bill next year. I’ve written about how the IRA would be targeted in that situation. Can you help our readers understand why these programs would be vulnerable in tax talks?
Classic partisan politics in D.C. By the nature of using reconciliation, the IRA was ultimately purely Democratic-led and that automatically paints it with a certain color. I think that [former] President Trump has been very unshy about criticizing the IRA, and when he doesn’t use the IRA moniker, he uses different monikers thereof. And people are going to be looking for the easiest path [to money to extend the Trump-era tax cuts].
What I don’t think is that it’ll be thrown out entirely. We’ve seen members of the House and Senate express support for parts of it–
Republicans?
Correct. There was a letter from 18 House Republicans to the [House] Speaker [Mike Johnson] saying we shouldn’t just throw this out, we should really look at it. And I think that there’s a lot of people who look at where the investment from the IRA is flowing – a lot of the dollars are going to Republican-controlled states and districts. Yes, that may insulate the whole bill from repeal outright but a lot of that is announced investment but hasn’t turned into steel on the ground and jobs yet.
So your chart singles out EV tax credits as most vulnerable to repeal. Why?
The universe of electric vehicle tax credits is fully at risk. We’ve seen it from Republican voters – constituents! – who feel that EVs are just some type of government mandated, this is some car you have to buy. But it also happens to be very, very expensive. When the Joint Committee on Taxation (JCT} crunches the numbers about what this is going to cost between now and 10 years from now, it’s one of the most expensive portions of the legislation. So when you look at it and ask how much is it going to cost to ax this and give us the most savings in the tax code? You get this.
The IRA didn’t create these credits though. It simply expanded them. You think the entire credit could go away in a Republican trifecta?
I think the entire EV tax credit.
Okay. So next up on the chopping block per your chart is the renewable energy investment tax credit, or ITC. Why?
“Both the ITC and the PTC [production tax credit] when they shift into this new tech neutral paradigm have the same risk profile. For these, I don’t think it’s necessarily going to be a full repeal. I think the data about how much money is going into Republican districts is legitimate, and I think it will materialize. But there’s many spectrums of levers that someone can pull.
The tech neutral credit doesn’t end on a certain calendar year date. It ends when the U.S. sector hits a certain emissions target. The credit continues until that moment in time. One way to make the credit look less expensive on paper is to say, no, we are going to end it at a certain point. Take 2030 or 2032. You could codify a timeline on it, so the JCT won’t score the out-years on how expensive the credit is going to be. That is one version of it.
Another version of it is that there’s a base credit and then there’s added layers, like wage requirements or low-income area benefits. And that’s another thing you could pull to say, look, we’re not going to do that anymore.
What would be the impact on developers?
I don’t think a lot of folks appreciate just how long range some of this planning is, how long it takes to permit something, how long it takes to figure out the interconnection queue.
Companies aren’t thinking what are we going to build this year – they’re thinking what will be put online in 2035. So if the government changes the stability of that, companies start to pull back and say hey, let’s not go too crazy in the outyears. Baseline? It means fewer clean energy projects come online. The industry has been banking on a certain level of certainty to plan against. Any shockwave against that and some companies are going to look and ask if they have the assurance to move forward with this or not.
Okay well, candidly, to that I say: woof. So okay, your chart labels the PTC and energy efficiency credits as vulnerable. Why are they at risk if they cost less than other programs?
There are going to be certain things where the dollars and cents lose out to the political policy realities. On energy efficiency, it would be easy to make that whole category a continuation over the fight on gas stoves or heat pumps and frame them as tax credits for wealthy people to do expensive stuff on their homes, costing the rest of the country. I don’t think it’s as much of a kitchen table conversation per se but it’s up there. Even if it doesn’t save them that much money, it does face the risk of being that low-hanging fruit.
Well, alrighty then. What about 45X? That’s pretty crucial to many manufacturers out there today.
I think both Democrats and Republicans can stand behind more domestic manufacturing coming to the United States. That’s something that is a bipartisan consensus and reducing that, harming that, will pose a liability for politicians. Now similarly, you could shorten the window and amounts, but at the end of the day, it’s a lot more politically resilient despite being seen as the most expensive part of what was included in the IRA.
You ranked about half of the IRA’s programs – hydrogen, carbon capture, sustainable aviation fuels, and more – as being both low cost and at low risk for repeal. Why?
What they benefit from is a greater resonance with Republican policymakers. Carbon capture and sequestration, sustainable aviation fuels and biofuels, hydrogen – all of these things get more of a shrug with Republicans when you talk to them. And that is why you see major oil and gas groups come out and say, hey, let’s not repeal the whole IRA.
But repealing the programs at risk while keeping these other programs… how would that outcome impact the pace of decarbonization?
Drastically. It would effectively remove the economic premise for all future renewable energy generation. It gets rid of a key driver of the shift toward electric vehicles. I think if you repealed everything in the red, then I think what you’ve done is you’ve gotten rid of all the reasons capital is pouring money into renewable energy projects and storage right now. In that scenario you’d see a drastic slowdown in climate ambitions in the electric power sector and also the EV transition that’s been happening.
So… the oil companies telling Trump to keep some of the IRA is a cold comfort, then?
Knowing it doesn’t go away fully is a cold comfort looking at this risk analysis.
What did this exercise teach you about the IRA?
I think that a lot of the net benefit of the decarbonization that translates to jobs and economic development is really, really close, and a lot of what is in the IRA would be lower risk if more of that had been pushed through faster. I think implementation and the natural barriers of the lack of transmission, siting and permitting challenges… There's a confluence of things that make it hard to quickly double the size of the sector but a lot of stuff is coming. But there’s capital behind it, plans behind it, and I think they’re going to build a lot more. As they do that, the sentiment is going to change behind it, but we have to get to that promised land first.
