Money is the mother’s milk of politics, but the outcome of elections also determines where it flows — and last month’s was especially crucial for the energy industry.
Clean investment — including renewable energy as well as the manufacturing of electric vehicles, batteries and solar panels — has boomed since the passage of the 2022 Inflation Reduction Act, championed by President Biden. In the third quarter of 2024, it reached a record $71 billion, according to a tracker maintained by the Rhodium Group, an energy-focused research firm, and M.I.T.
The big question looming now on Wall Street: Will President-elect Donald J. Trump, who called Mr. Biden’s policies the “green new scam” during the campaign, pull back enough of those subsidies and regulations to meaningfully change the economics of investing in decarbonization?
Market reactions right after the election seemed clear. Clean energy stocks dropped sharply, while shares of oil companies bounced, indicating a divergent view of how the two sectors will fare in the coming years.
Near the top of Mr. Trump’s agenda next year is extending his 2017 tax cuts. He will most likely need to reduce spending elsewhere to do that. Clean energy tax credits — worth about $350 billion over just the next three years, according to the Congressional Joint Committee on Taxation — would be a tempting target. The more those subsidies are pared, the more projects would no longer make financial sense.
Since the election, renewable energy backers have drawn some hope from the knowledge that funding leveraged by the 2022 law has disproportionately flowed toward Republican states, potentially shielding it from cuts. Energy demand has also started rising for the first time in a generation with the growth of electric vehicles, heat pumps, new factories and artificial intelligence, bolstering the case for an expansive approach to energy sources. And solar energy, in particular, is now one of the cheapest forms of power available.
“Renewable energy has a certain bipartisan support,” said Nils Rode, the chief investment officer of Schroders Capital, a Swiss firm that manages $97 billion, including wind farms in the United States. “Even though there might be risks, we don’t believe it will lead to major changes.”
Subsidies aren’t the only policy with the potential to affect the flow of money, however. Mr. Trump and his team have made it clear they wish to ease the path of fossil fuel projects in ways that could make them more attractive to investors.
His candidate for interior secretary, Doug Burgum, has promised to open up more federal lands to oil and gas drilling. Chris Wright, the fracking company chief executive whom Mr. Trump picked to lead the Energy Department, could redirect the agency’s vast research agenda and loan programs away from low-carbon electricity. At the Environmental Protection Agency, the president-elect intends to nominate Lee Zeldin, who has discussed rolling back rules on power plant emissions, which would weaken incentives for utilities to shift to cleaner sources of electricity.
All of those actions would increase the return on fossil fuel investments relative to renewable ones.
“The fundamental thing that changes is just the economics,” said Ben King, an associate director of the climate and energy practice at the Rhodium Group, who has counted $435 billion in renewable energy projects that have been announced but not yet started. “Even today, wind, solar and batteries are competing with natural gas, on the margins. A slowdown in deployment of those technologies just leaves more room for gas on the grid.”
In addition, Mr. Trump’s promise to impose big new tariffs would hit the components needed to build solar fields, wind farms, car batteries and long-duration energy storage systems. And a decrease in the corporate tax rate could weaken the market for tradable tax credits that renewable energy developers use to take advantage of many of the Inflation Reduction Act’s subsidies that must be claimed against taxable income.
The prospect of such changes has caused some banks and investors to pause new renewable energy deals until the landscape in Washington becomes more clear. Financial firms are also making sure that new contracts include provisions that protect them against policy changes that could lower their returns.
“They will not invest when it’s unclear what the economics of the projects are, unless you’ve adjusted the pricing for the worst case and the deal still works,” said Keith Martin, a lawyer with Norton Rose Fulbright who has long handled complex financing for banks investing in renewable energy projects.
But some of Mr. Trump’s proposals and ideas could cut in opposing and unexpected directions. For example, encouraging the export of natural gas would tend to raise its price domestically and make the building of new U.S. gas power plants less appealing to investors, according to Bloomberg New Energy Finance. Speeding up permitting of new electricity transmission could help some renewable energy projects. Mining for the minerals used in battery production might become easier, too.
Also, losing some of Mr. Biden’s climate rules may not make that much of a difference. The Securities and Exchange Commission’s recent rule requiring public companies to disclose certain carbon emissions is tied up in court, and the new administration may simply drop it — but many companies already have to do similar reporting to comply with European Union regulations. And Europe is phasing in a “border adjustment mechanism,” or a kind of tariff for goods produced using a lot of carbon.
“They’re not going to be able to hide from it if they want to keep doing business in Europe,” said Jason Britton, president of Reflection Asset Management, a socially responsible investment consulting firm.
Europe isn’t just a substitute regulator, however. It’s also a competitor for young companies looking for the most friendly place to scale up operations, offering research assistance and other incentives.
Dan Goldman is the managing partner of Clean Energy Ventures, an early-stage venture capital firm with portfolio companies that have frequently been supported by federal loans and grants. If those funds are choked off, he said, they could look elsewhere.
“We want our companies to ultimately be global,” Mr. Goldman said. “That was certainly true before the election, and, if anything, now we would say it’s important to accelerate those initiatives.”
One thing that is clear: Financial firms will most likely stop trumpeting their investments as being about “climate” or “sustainability” or “E.S.G.” — which stands for environmental, social and governance — a trend that has been underway since Republican state officials started targeting asset managers like BlackRock that professed such ideals.
Instead, the monikers have changed to words like “transition finance,” “resilience” and even “critical technology.” The argument for supporting low-carbon electricity will shift even more toward “energy security” and staying ahead of companies based in China.
Banks and asset managers had already been leaving international alliances set up in recent years to collectively advance commitments to divest from fossil fuels and fund decarbonization. But it doesn’t appear that those alliances were propelling institutions to do much that they weren’t already planning. Some experts think the climate movement is better off without them.
“They have been talking out of both sides of their mouths for the past five years, saying, ‘We’re partners in financing the energy transition,’ and then saying, ‘No, we’re agnostic,’” said Lisa Sachs, director of the Columbia Center on Sustainable Investment. “They created a perception that something useful was happening when nothing useful was happening.”
Ultimately, macroeconomic factors may matter more than policy. Oil and gas companies won’t pump more unless global prices are high enough to justify doing so. And renewable energy investment rose even under the last Trump administration, largely because interest rates were so low that investors could make money even without deep subsidies.
That’s why the news last week that the Federal Reserve was not expecting to cut interest rates as much as it had planned to in 2025 was bad news for the sector. If the cost of capital remains high, new tariffs would increase the cost of construction. And if the energy law is entirely repealed, the future for clean energy investment will look much dimmer.
“That, I think, is a tough situation,” said Quinn Pasloske, a principal with Greenbacker, a fund manager focused on clean energy infrastructure. “If any one of those three legs of the stool doesn’t fall, you’re in a fine spot because the fundamentals are still there.”
The post Will Trump Cut Short the Biden Clean-Energy Boom? Investors Are Nervous. appeared first on New York Times.
