As November elections approach, energy companies are starting to analyze what various outcomes could mean for their operations.
For the oil and gas sector, it is pretty clear that a Trump victory could mean less onerous regulations, more access and leasing on federal lands and offshore and greater support for domestic production, transportation and exports.
However, with so many investments being placed in energy transition solutions, such as carbon capture, utilization and storage (CCUS), and hydrogen, some producers are starting to wonder if some of the tax incentives, grants and loans offered under the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA), would be rolled back under a Trump administration.
Certainly, former President Trump and many Republicans have been critical of the IRA and IIJA as wasteful spending that is itself inflationary. The IRA and IIJA programs, coupled with the CHIPS & Science Act, authorize over $1.6 trillion in federal dollars and tax credits and $1.1 trillion in direct funding.
As of April 2024, Politico reported that only 17% of that direct funding had been distributed, a fact that has been a source of criticism of the program overall. Yet while the federal government works to accelerate getting funds out the door, companies are making significant investments in projects for which they assume that tax credits will be available and to which federal grants and loans could potentially be applied.
To assume that Trump would seek and implement a wholesale repeal of the IRA and IIJA is an oversimplification of how a Trump administration would address clean energy and energy transition incentives.
First of all, a cornerstone of a Trump energy and economic policy is achieving what he calls “energy dominance”—the U.S. making maximum use of its ability to produce fossil energy for domestic use and global export. Therefore, it is highly unlikely that he would take any steps that would jeopardize U.S. competitiveness in the energy space, such as cutting off 45Q tax credits for CCUS projects or 45V tax credits for hydrogen production.
Trump is also a big supporter of nuclear power and advanced nuclear technology, so it is unlikely that he would support a repeal of 45U or 45J tax credits for traditional and advanced nuclear power facilities.
There is also a question of political will within the Republican Party. An outright repeal would require legislation. At the very least, it would necessitate Republicans holding the House and taking control of the Senate. If they were to capture both Houses, their margins of control would likely be very small, likely negating the votes necessary to repeal the statutes or eliminate certain programs.
Responding to potential threats to commercial project economics that would result from an IRA repeal, 18 U.S. House Republican lawmakers recently sent a letter to House Speaker Mike Johnson (R-Louisiana) asking him not to repeal the IRA, citing projects already underway that are dependent on IRA funding. In fact, many potentially impacted projects are in Johnson’s home state of Louisiana.
“Prematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing,” the letter read. “We hear from industry and our constituents who fear the energy tax regime will once again be turned on its head due to Republican repeal efforts.”
Another reason that Trump is unlikely to gut the IRA and IIJA is that these incentives play into overall trade policy. Trump will look at all of the policies in place in terms of their impact on U.S. competitiveness and global trade, especially with respect to China. He would be expected to take another look at some of the approaches that he previously used to further U.S. competitiveness, such as steel tariffs.
Trump has often commented on the Biden administration’s policies to expand renewables as a “plan to make China rich” due to the fact that China is able to produce solar panels, components of batteries and EVs much cheaper than U.S. manufacturers of these items.
While Trump is not in favor of expanded use of electric vehicle (EV) and renewable energy sources, he would have to balance that with the consideration that repealing the IRA and IIJA could hurt American competitiveness with China in those areas.
What is much more likely under a Trump administration would be a more surgical approach to IRA and IIJA incentives. To address the political realities associated with impacts on existing projects, not having sufficient votes to overturn statutes and implications for global competitiveness, a Trump administration is more likely to target some of the more vulnerable programs supported by IRA and IIJA incentives.
One potential target might be EVs and EV charging stations. Last May, Transportation Secretary Pete Buttigieg revealed that of the 500,000 EV charging stations that the federal government is spending $7.5 billion to build, only eight have actually been built. It stands to reason that, given his dislike for EVs and the slow progress in building these stations, this might be a program that Trump could target, along with renewable energy incentives.
To take surgical jabs at select IRA/IIJA funded programs, a Trump administration might not need to go through a regulatory process nor a legislative process. It could choose to slow-walk those programs at the agency level. Such a process would be subject to legal challenges, which could be buttressed by the recent Supreme Court decision on the Chevron deference.
Should Trump win and Republicans take control of both houses of Congress, Congress could selectively strike certain programs and/or defund or restrict, through appropriations, federal agencies’ ability to implement such programs.
In terms of issues that are of most importance to the oil and gas industry, such as CCUS and hydrogen, Trump would be unlikely to take steps that would jeopardize projects that depend on IRA/IIJA incentives. He would also likely continue to utilize oil and gas energy experts to advise his administration or serve in his cabinet.
Trump will be surrounded by advisers who support these projects, such as North Dakota Gov. Doug Burgum, a big CCUS advocate rumored to be a potential energy secretary candidate. Additionally, as Trump does not harbor any dislike for hydrogen as a fuel source, it appears unlikely that he would pursue a wholesale repeal of the hydrogen credit. Instead, Trump would likely aim to make the credit more technology-expansive, expressly including hydrogen derived from fossil fuels and nuclear energy.
For all these reasons, oil and gas projects benefiting from federal tax incentives, grants or loans established under the IRA or IIJA will likely continue to be able to access those benefits regardless of the outcome of the election in November.