Trump plans to unravel Biden's climate law

Republican wins on Capitol Hill would enable President-Elect Donald Trump to roll back elements of the Democrats' centerpiece climate program, which he refers to as "the green new scam," which allocated hundreds of billions of dollars to financing emission-free energy.

Donald Trump.

Chip Somodevilla/Getty Images

Don't expect a comprehensive repeal of the Inflation Reduction Act.

"We are not looking at immediate, drastic, apocalyptic changes overnight," said James Lucier, managing director of research firm Capital Alpha Partners. "But there is always a strong likelihood that some parts of the IRA are going to be capped or phased out."

The IRA combined climate and industrial policy, financing electric vehicle, battery, and solar production, as well as other firms that will aid the United States' decarbonization efforts. Trump's return will test the resilience of this approach. 

The law is causing a surge of investment in red areas. Some Republican members, unwilling to give up, have already stated that they oppose making substantial modifications to the bill. Although no Republicans voted for the bill two years ago, several of its incentives, such as credits for hydrogen production and carbon capture, are quite popular with oil firms and other core GOP constituencies.

Gina McCarthy, a former White House climate advisor and managing co-chair of the climate group America Is All In, described any move to dismantle the IRA as "a fool's agenda." 

"Republican members of Congress have been joining hundreds of business leaders at ribbon cuttings and groundbreaking ceremonies" for IRA-funded projects, McCarthy added. (America Is All In is sponsored by Bloomberg Philanthropies, the charitable organization of Michael Bloomberg, the founder and controlling owner of Bloomberg News parent company Bloomberg LP.)

But Trump's administration is likely guaranteed to bring additional limits, expiry dates, and quotas that limit its reach. That might help offset the costs of extending Trump's 2017 tax cuts before they expire next year, which is a primary objective for the president-elect and Republicans.

The IRA "is the doomsday machine for the budget," Scott Bessent, a prominent Trump economic advisor and probable Treasury Secretary nominee who also works as CEO of the hedge firm Key Square Group, told CNBC. "I think the priority is going to be turning off the IRA."

ClearView Energy Partners said in a letter Thursday that top targets for deletion under the law include credits for used and commercial EVs, a methane emissions levy placed on oil and gas companies, and billions of dollars in power granted to an Energy Department loan program. Unused funding for federal climate initiatives may be clawed back, as well as "an attempt to claw back obligated-but-undistributed balances," according to the consultancy business located in Washington.

The predicted size of the Republican majority in the House will most likely determine the effectiveness of such initiatives. While several contests have still to be called, Republicans look to be on course to secure at least a narrow majority. They'd probably need a much larger one to make significant changes to the legislation. 

Changes may also occur at the administrative level. Even without congressional action, IRA opponents argue that the Treasury Department might tighten regulations on who can obtain tax benefits. For example, severe limitations on obtaining components from China and other foreign rivals, which were implemented for electric car tax credits, may be expanded to include other incentives, such as the advanced manufacturing credit for solar panels and other clean-energy technology.

Analysts believe a provision that permits leased electric vehicles to avoid those restrictions, known as the "leasing loophole," is almost probably dead. 

Other laws mandating the use of locally sourced goods are expected to be tightened, while bonus credits, such as those for projects developed in "energy communities," may be limited. 

Using a scalpel, not a sledgehammer, on the IRA would still generate income to help pay for a tax reduction extension. Some MPs have already proposed prohibiting corporations linked to China and other so-called "foreign entities of concern" from receiving tax incentives under the statute. This would reduce the projected rewards while aligning with Republican aims in distancing US supply networks from China.

A Republican Congress is also expected to phase down two technology-neutral clean power generating incentives that go into effect next year. Those credits alone, which are expected to benefit utility-scale solar and onshore wind, could be a tempting target for lawmakers looking for budget cuts, as they are not set to expire until the latter part of 2032, or until carbon dioxide emissions from the US electricity sector fall by at least 75% below 2022 levels. Some analysts anticipate it will not occur for another 30 to 40 years. 

"We're talking decades, if not trillions, of dollars," said Ryan Sweezey, a director at Wood Mackenzie Ltd, an energy research firm.