A mere two years ago, climate world was awash in optimism as the tax credits in the recently passed Inflation Reduction Act and other Biden-era legislation opened up exciting opportunities for climate tech companies. Now, Trump has said he wants to repeal the IRA in its entirety and “terminate” all of its unspent funds. So what becomes of the crop of startups that were either born directly out of or buoyed by IRA incentives and other positive policy developments?
Let’s take a look at a few examples. First there’s Crux, a marketplace for the transferable clean energy tax credits unlocked by the IRA. There’s also Watershed, a $1.8 billion software startup that helps businesses track and reduce their carbon emissions. And there’s Quilt, which makes a sleek, small, and expensive electric heat pump.
If they’re worried about what will happen to their business under a Republican trifecta, they’re certainly not talking about it. In the week since the election I've gotten used to hearing a couple primary refrains. One: Everyone obviously wants to create and invest in tech that can weather changing political tides and compete on market fundamentals alone. And two: Red states disproportionately benefit from the IRA.
Crux, for example, generates revenue by charging transaction fees for the tax credits that are bought and sold on its platform, thus tying its business model to these tax credits’ continued existence. Since the startup began facilitating transactions last year, however, CEO Alfred Johnson told me the market has been dominated by credits associated with solar, wind, and advanced manufacturing, none of which are thought to be at a particularly high risk of deletion.
Who knows with Trump, though. There’s certainly no doubt that the priorities of his administration will be quite different from those of Biden’s, and that gives rise to a lot of what-ifs. For example: If Trump guts the Department of Energy overall, eliminating or hollowing out the Loan Programs Office and the Office of Clean Energy Demonstrations, presumably far less clean tech requiring huge infrastructure investment will get built. And that will mean fewer tax credits to trade.
Johnson agrees, calling this “a real cause for concern” for emergent technologies overall. So essentially, Johnson is banking on there being enough bipartisan support for enough tax credits and enough new project buildout that the market keeps humming right along, even as specific energy priorities change.
“The number of times that Trump has talked about nuclear energy or domestic manufacturing as big objectives of his campaign and administration is extremely high,” Johnson noted. “And transferability is already the mechanism by which you'll drive additional dollars into those markets.”
And then there’s Watershed, the unicorn software company founded in 2019 on the premise that global corporate sustainability reporting was on a steady upwards trajectory, driven by pressure from customers and investors as well as impending regulations, including domestic climate disclosure rules from the Securities and Exchange Commission. Now, it seems relatively safe to say that under Trump, those (already long-delayed) rules will probably never see the light of day.
Watershed co-founder Taylor Francis told me that’s not as big a problem as you might expect for a company that makes its money selling emissions-tracking software to large companies. Why not? Europe and California, mostly. Each has its own respective reporting requirements that will go into effect in the next few years, he explained. In the EU, it’s the Corporate Sustainability Reporting Directive, which applies to all medium-to-large companies in the region, plus any non-EU companies with over €150 million in annual revenue there, while California’s climate disclosure law applies to any company doing business in the state that has at least $1 billion in global revenue.
“It is very hard to think about any large company that does not fall into one of those two buckets,” Francis told me. “And those things are unconnected from who's in the White House.” Though the SEC rules would have been a boon to Watershed’s business, Francis said that since they’re already stuck in court due to challenges from Republican-led states, the company wasn’t banking on federal climate disclosure policy to be enacted under either administration.
A tax credit that supports residential energy efficiency could be in real danger though. This credit makes things such as insulation, energy-efficient windows, and heating and cooling systems such as heat pumps more affordable for homeowners. And that, of course, could be bad news for companies working in these spaces, including Quilt, which seeks to create “the Tesla of heat pumps.” The current credit allows homeowners to claim up to $2,000 on the purchase of their heat pump, but Quilt’s CEO Paul Lambert told me that he doesn’t think this has made any real difference in consumer uptake thus far.
“It's a nice-to-have,” he said of the tax credit. “But if you asked me, ‘How many Quilt customers would not have purchased Quilt had that not existed?’ I think the answer is zero.” Right now this high-performance heat pump is only available in San Francisco, where many tech enthusiasts have both money to spend and an entrepreneurial attitude when it comes to early adoption. And while the upfront costs of heat pumps are high, they eventually pay for themselves in energy savings — though Lambert also acknowledged that as the company expands into more markets, it will encounter more price-sensitive customers who may be put off by the high sticker price.
Even if the energy efficiency tax credit gets nixed, heat pump adoption could still be aided by another IRA provision, the Home Energy Rebates Program, which provides low- to moderate-income households with savings of up to $8,000 on heat pumps alone, with additional money available for other electric appliances. These programs are state-administered, and only 10 states plus Washington D.C. have launched their programs so far. Once money gets disbursed, it will get much trickier for Trump to eliminate these programs. But the many states that are still preparing their applications or awaiting approval could be at risk of getting their funding pulled.
Lambert chooses to see the bright side of an increased reliance on state and local level policy. “A lot of states are going to feel like they need to step up and pick up the ball where it may have been dropped,” he told me, also noting that “a lot of the rebates we’re benefiting from now at a local level and state level were made in reaction to the first Trump presidency.”
It’s an optimistic sentiment that I’ve heard from investors, as well — that there’s nothing as energizing as a climate foe in the White House to motivate states and even philanthropists to pick up the slack. But at the end of the day, there’s also nothing that quite replaces the hundreds of billions the IRA poured into energy and climate initiatives, and the trillions that it’s set to unlock in additional funding for renewable energy technologies.
