Will ‘Big Beautiful Bill’ Derail Clean Energy Growth?

On May 22, the House of Representatives passed its version of what President Trump has dubbed the “Big Beautiful Bill,” a sweeping budget package addressing taxation, federal spending, and the debt ceiling. Now headed to the Senate, a revised version is expected to emerge by early July.

The House bill proposes deep funding cuts to programs like Medicaid and extends the Trump-era tax cuts from 2017. For the clean energy sector, however, the most consequential provisions are those targeting the Inflation Reduction Act. As written, the legislation would significantly curtail tax credits for renewable energy projects and the domestic manufacturing base that supports them. Incentives for electric vehicles and EV charging infrastructure, as well as battery storage, hydrogen, and nuclear power would also be sharply reduced or eliminated altogether.

Derrick Flakoll, U.S. Policy Expert at BloombergNEF, examines what this could mean for the future of clean energy in the United States. BloombergNEF recently released an analysis projecting the impacts of the House bill on clean energy growth and investment. Flakoll outlines the report’s findings, including the resilience of clean energy markets without IRA tax credits, which sectors face the greatest risks, and how the proposed “Foreign Entity of Concern” provisions could further complicate project development.

He also considers how the Senate might alter the legislation and whether any of the IRA’s clean energy incentives are likely to remain intact.

Correction: The conversation states that Foreign Entity of Concern (FEOC) material assistance provisions go into effect for renewable energy projects one year after the budget reconciliation bill is signed. In correction, the FEOC provisions would go into effect for projects that begin construction in 2026 or later.

Full Transcript

Andy Stone: Welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone.

On May 22nd, the House of Representatives passed its version of President Trump’s “Big Beautiful Bill,” a sprawling budget package covering taxation, spending, and the debt limit. The bill has now moved to the Senate, which is expected to have its own version ready for a vote by early July. The legislation, as it looks today, includes major funding reductions for programs such as Medicaid and an extension of Trump’s 2017 corporate and individual tax cuts. Most relevant to this podcast, the legislation seeks to dramatically limit IRA tax incentives for clean energy projects and the manufacturing base to support them. It would additionally limit incentives for electric vehicles, charging, batteries, nuclear power, and hydrogen energy.

On the podcast, we are going to look at the practical impact that the legislation, as it looks right now, may have on the trajectory of clean energy development in the United States. My guest is Derrick Flakoll, Policy Expert for the US at BloombergNEF which recently published its own outlook for clean energy under the house bill. Derrick will guide us through the report’s projections into the pace of investment in renewable energy and the degree to which these industries may be resilient or not, without tax incentives provided by the Inflation Reduction Act. He’ll also explore how proposed foreign entity of concern provisions may impact the clean energy sector. He’ll also discuss the prospects for the Senate tempering some of the House bill’s cuts to IRA credits. Derrick, welcome back to the podcast.

Derrick Flakoll: Glad to be back, Andy.

Stone: So you were here in December with a colleague to talk about the clean energy outlook under the new administration. At that time Trump had just won the election with the promise to roll back IRA incentives. The takeaway, I believe, from our December conversation and from BloombergNEF’s analysis was that the damage might actually be somewhat limited. The business case for renewables — batteries and other related technologies — seemed to be strong enough to keep things going even if development would slow a little bit.

And now we’ve got the House version of the One Big Beautiful Bill Act, which gives us a clear picture of what those rollbacks might actually look like. Bloomberg has updated its analysis, but before we get into that, I wonder if you could start us out by explaining the reconciliation bill that just passed the House. Give us the broad context of the legislation, and how does the fact that this is going through the reconciliation process shape what is actually legislatively possible?

Flakoll: Okay, it’s going to be a bit of a lengthy explanation here, but for those in your audience who don’t know, reconciliation is a special budget-based process that the US House of Representatives and Senate use to agree of how they are going to fund the government. Because it is about budget, basically any provision that goes through that process has to be tied to spending money or taking in money for the federal government. That has to be its primary purpose. That is most strictly enforced in the Senate through a procedure called the “Byrd bath,” after the late  Senator Robert Byrd, who devised it. It’s meant to ensure that provisions are primarily geared toward that kind of budgetary function — taxes, spending, and related phenomena.

The reason that this gets used is because it allows a simple majority up or down vote that is not subject to the filibuster in the Senate. So if you’re the Republican Party right now, and you have 53 seats in the Senate but not the 60 votes that you would need to get past the filibuster, you want to use this procedure for all of your big partisan priorities that you can’t necessarily get 7 Democratic votes on — or whatever number you need to pass it.

Budget reconciliation is the same procedure that passed the Inflation Reduction Act, and that’s why it was a very tax-and-spending, heavy piece of legislation, as opposed to one with regulations which would have required 60 votes. So ultimately, this new bill that the House and Senate are trying to pass, the One Big Beautiful Bill, is a tax-and-spending bill. It is motivated by the need to try to maintain the 2017 Trump tax cuts, particularly for individuals, before they expire at the end of the year. Along with that and a bunch of other fiscal priorities on the Republican side, bringing back some general business tax credits, meeting Trump campaign promises like “no taxes on tips,” and some concerns from California and New York to try and reduce double taxation of state and local taxes, we’re basically going to see a lot of fiscal pressure to cut spending or eliminate tax incentives elsewhere. And because this is sort of the Biden administration’s signature legislative achievement, it has become very politically polarizing, and the tax-and-spending provisions about climate and energy are both somewhat lucrative and also very politically palatable for Republicans to go after.

Now we should be pretty clear, the size of these IRA credits is much smaller than, say, the extension of the state and local tax deduction that a few House representatives in New York and California really want and negotiated hard to get. Nevertheless, they’re looking for money wherever they can. So what this House bill does specifically is it phases a lot of credits out, basically at the end of 2025. Anything that’s relating to putting solar or storage or heat pumps in your house, or in most cases buying electric vehicles, whether you’re a consumer or a business. This is sort of the red meat culture war stuff that’s getting pared back. A little bit more complicated, however, are the credits regarding utility-scale power, particularly clean power, and manufacturing for those sectors. A lot of investments, as I mentioned in the last podcast, have gone into Republican states and districts, so there’s a fairly strong economic incentive to go there. However, at the end of the day, they do need money. So what this bill does is kind of a compromise between overt and immediate repeal and some really severe restrictions that, for many projects, would effectively repeal them much earlier.

Stone: Let’s go into some of the details on these different provisions. Again, as you just mentioned, it’s pretty sprawling. It covers clean energy pretty broadly, but I think a good place to start, as you just started yourself, might be with the incentives for renewable energy projects and manufacturing. We’ve got 45Y, 48E, and 45X. Could you give us the rundown on what’s happening there?

Flakoll: Sure, so as a reminder, 45Y is the clean power production tax credit. You get a certain dollar value for each unit of zero emissions power that you send into the grid. 48E is the zero emissions investment credit. You get a certain percentage of your total expenditure on building the plant off your taxes. And lastly, 45X is the manufacturing tax credit, so each unit of, say, certain solar or battery or wind parts or refined critical minerals you produce, you get a certain dollar value for that.

So the clean energy tax credits, 45Y and 48E face some pretty severe new restrictions. First of all, in the House version of the bill, the final version, if you don’t begin construction on a power plant within 60 days of the bill’s final passage being signed into law by the president, then you can’t get any credits at all. Secondarily, you then have to place your project in service, that is, have it producing power by the end of 2028. Thirdly, after a certain year, at least in an earlier House version of the bill — this might crop up again — you weren’t allowed to transfer those tax credits. So if you were a business that didn’t have a large enough tax bill to absorb the full value of the subsidy, you were able to sell those to other players. In an earlier version of this bill in the House, that transfer ability was eliminated early, and for some credits like 45X, that’s still true. That basically makes it harder to finance a project, effectively. You can’t necessarily get the full value of the subsidy, and so that hurts your project economics.

And lastly, on top of all this, all three of these credits face new restrictions on foreign entities of concern. That’s basically a legal construct that means businesses that are tied in some way to Iran, North Korea, Russia, or — most pertinent for this conversation, given its dominance in the clean energy industry — China. In particular, there are material assistance provisions which basically involve procuring any supplies from a Chinese company or using Chinese intellectual property that are so severe that they would be effectively handicapping any project to which they apply. Now a weird caveat is that in the original House version of the bill that came out from the Ways and Means Committee, this was the real bottleneck to the bill, but that came into effect for any projects that are built about a year after the bill was signed.

Stone: Is that now immediate?

Flakoll: No, it’s not, actually. A weird quirk of the way that this final bill was drafted — it kind of came together at the last minute — is that you have to begin construction within 60 days of the bill’s signing at all to be able to get credits, but there is also a one-year beginning of construction deadline, if I recall correctly, for the foreign entity of concern provisions. So for most kinds of clean power project, these are not the bottleneck anymore. First of all, it would be if the Senate gets rid of the 60-day beginning new construction deadline. And second of all, it still applies to a small class of projects. Basically nuclear projects don’t have the same tight beginning of construction deadline restrictions that clean power of other kinds do, so then they still face their own restrictions. That might be more relevant for Russian parts and technology, given the importance of that country in the supply chain, but China is also coming up.

Stone: Tell me a little bit more about the 60-day in construction deadline. How significant is that? That means that everybody who has a project in line or in mind, they need to actually get investment going very, very quickly if the Senate meets its deadline of July 4th to come up with its version, and the House and the Senate versions are reconciled, and then the president signs it. This could actually make that deadline late September or early October, which is really soon. How much of a real barrier to development is that going to practically impose?

Flakoll: Something that’s really important to know about the beginning of construction deadline is that there is what’s called a “5% safe harbor.” If you can basically spend or contract to spend about 5% of your projected capital expenditure, you will be considered to have begun construction. So 60 days is a tight deadline, but considering that it’s 60 days from the final passage of the bill, and developers are kind of on notice that they might want to start securing some spending, it might be possible to, in many cases, work with that.

Now obviously there are some important caveats here, right? This depends in part on consistent and continued enforcement of existing standards that the IRS has had for a long time. That’s something that could possibly change. Capital availability — and honestly there is a lot of legal stuff which, as a non-lawyer, I can’t — this does not constitute legal advice, to be clear. But this is our assessment as analysts, that a fair number of projects will be able to make it through. In fact, what this leads to is a rush dynamic where construction that would have happened maybe later, after 2028, gets pulled forward a little bit.

Stone: You had mentioned in an earlier conversation that the EV incentives are the most overtly targeted of the legislation. Tell me a little bit more about what’s going on with the EVs.

Flakoll: Obviously this has been highly complicated by the president’s until-recent close relationship with Elon Musk, the self-proclaimed techno king of the US EV market. But ultimately, even when Trump and Elon were the best of friends, there was a lot of stuff that Elon was saying publicly, saying ultimately repealing this EV tax credit hurts our competitors more than it does us. I think that dovetailed with a general consensus on the Republican side that these tax credits were subsidizing rich consumer’s lifestyle choices. They weren’t relevant for most people. They were seen as expensive, and there were also a lot of concerns this would ultimately be subsidizing an industry in which China is dominant. Now, in point of fact, there were some fairly strict restrictions in there about trying to minimize, trying to use presence in the supply chain. Nevertheless, all of these controversies have kind of dovetailed to make EVs both relatively attractive as a fiscal target. If you’re trying to look for a source of new spending for other things in the bill, it was in the top three or four of those. Secondarily, it’s a fairly big culture war target. The irony and the paradox of this is that the vast majority of manufacturing investment which both Republicans and Democrats like quite a bit has been in the battery space, and a lot of that has been tied to electric vehicles, and in particular the sense that the domestic content provisions in the 30D consumer EV tax credit created a really strong demand signal for US-made batteries, US-refined critical minerals, another bipartisan priority, and so forth.

Strangely, though, we haven’t really seen this, “You’re going to lose a lot of factory jobs” argument take hold with the Republican Party in Congress. A theory for that is not all of these factories have ultimately been built yet. They were in the pipeline, and so —

Stone: So no jobs to lose.

Flakoll: At least much fewer, and fewer than would have happened if they had been faster. On top of that, we’ve already seen some retoolings of investment from some of the major automakers towards gas-powered cars. So I think maybe there was a sense that some of this might be fungible. We’ll see how true that ultimately is, right? If you’re making a battery factory, if you’re not necessarily building the same kind of battery or the same form factor that you would for grid storage, for example — and of course, instead, circuit storage would also go away in this version of the bill.

Stone: It’s a shame here because I’m stating the obvious, but the rest of the world, China and Europe as well are moving full speed ahead as quickly as they can on EVs, and we’ve just taken the urgency out of it here.

Flakoll: Yes, when you talk to automakers, they’ll certainly talk about their concerns with Chinese competition and China dominating the rest of the world, but it has been a fact that for the last ten years or more, a lot of US automakers have focused on the idiosyncrasies of the US market and were entrenched with it. And this would reinforce that trend with the possibility that by the time the rest of the world has transitioned to EVs, and they’re able to start exporting high-quality products to the US, it’s not clear that a pure “Fortress America” tariff strategy can really protect these automakers in the long run.

Stone: I want to go quickly to a couple of other energy types here. You mentioned nuclear. Nuclear gets a bit of a reprieve. The construction deadline for nuclear projects, advanced nuclear, is the end of 2028, as opposed to the 60-day deadline for wind and solar. Also you mentioned that hydrogen has been hit particularly hard. Tell us about nuclear and hydrogen and what’s going on.

Flakoll: Nuclear is both a bipartisan priority and probably one of the top energy sources that Republicans are interested in cultivating. That said, the restrictions are still fairly strict. The only two kinds of nuclear projects in this final bill that seemed to get exempted as far as I can tell are expansions of existing nuclear capacity and advanced nuclear facilities. So you know the famous small modular reactors that we’ve all been waiting for a while — this is seen as a sort of future industry that the US wants to dominate. It’s pretty closely tied to certain national security capabilities and concerns, like the nuclear fleet and the nuclear submarine Navy. I think there is a desire to try to stimulate some innovation there, but there are still restrictions in terms of time and which kinds of projects qualify that will make it relatively hard for this sort of full-bore revival of nuclear. We’re not going to see new AP1000s that are subsidized by this, in part perhaps because it would be very expensive.

Now hydrogen, I think, was one of the bigger surprises in this bill. Generally speaking, there is a lot of bipartisan enthusiasm for hydrogen. A lot of oil and gas companies liked it because it’s both an input to petrochemicals and it’s seen as a potential sort of new market for them, but ultimately, the 45V clean hydrogen tax credit, which mostly incentivizes green hydrogen, hydrogen that’s electrolyzed from water. That would end for any new project that began after 2025. It was a pretty expensive credit, and I think some of the massive amount of time that it took to get rules out for that credit, to sort of deflating enthusiasm for hydrogen as a market made it both kind of expensive as an item but without a lot of existing industry to defend it. And it’s complicated by the fact that 45Q, the carbon capture tax credits, remains in place with a few more restrictions, and that was often seen as a bit more of a lucrative tax credit for blue hydrogen projects — those which are traditional natural gas processed but with carbon capture added on top. The Trump administration recently changed some modeling in what’s called the “GREET model” that would maybe make clean hydrogen made with that carbon capture process, that is blue hydrogen, a little bit more lucrative under 45V. Maybe that saves it. We’ve seen some talk about that in the Senate, but at the end of the day, this might be an industry that’s too early to effectively lobby for its incentives.

Stone: And because the technology is relatively nascent, quite nascent, again, meeting that construction deadline by the end of the year becomes even more difficult, I understand.

Flakoll: And if you’re a natural gas company, you might be more interested in going for blue hydrogen, which still gets subsidized by 45Q anyway. Green was only ever a small portion of the plant projects in the US.

Stone: I want to get to where all this leads us in terms of the clean energy build-out going forward and the Bloomberg analysis on this. But before we get to that, I actually want to take a step back and look at where we were going until, let’s say, December of last year, December of 2024. The NEF has calculated that over a half-trillion dollars had been invested in clean energy between the time the IRA was passed in 2022, again, through the end of 2024. Tell us more about the trajectory that we were on up until that point.

Flakoll: It depends on which way you look at things, glass half-empty, glass half-full. From an emissions and climate change standpoint, we certainly weren’t on track to meet the US’ commitments under the Paris Climate Accord, back when we were in that. In terms of the trajectory we were on, we were seeing some fairly solid, continued growth across the core clean air energy technologies of wind, solar, and storage. There was a truly massive uptick in storage, build, and investment across 2023 and 2024. It seems to be really catching fire now — fortunately not literally in most cases — and in general, I think there was a fairly strong sense that despite some headwinds in inflation, interest rates which are really important for capital expenditure have a set of projects like clean energy and trade wars, there was a lot of forward momentum basically. Now, frankly, a lot of those factors are still in place. With power demand growing pretty rapidly, driven primarily but not exclusively by data centers and AI, there is a really strong desire to get things on the grid as quickly as possible. In most power markets in the US, renewables actually are faster on average and in the median case than, say, a gas turbine.

It’s true of storage, as well. They are also often the cheapest resources in a lot of markets, and states continue to maintain renewable portfolio standards and other policies that require them to be deployed. Ultimately, the Trump administration, while it is trying to pare some of those back, it seems fairly unlikely to be successful for federalism reasons.

Stone: That’s one of the big issues here, right? Are there conditions still on the ground to pull clean energy projects through, based upon demand?

Flakoll: In some cases, yes, because of the lack of other alternatives. A new theme that we’ve seen emerge since last we spoke is an increasing gas turbine shortage for the largest and most efficient models of gas turbine. You’ll hear GE Vernova and NextEra talk about backlogs out to 2032, like 5 to 7-year waits in some cases for gas turbines for those customers who haven’t really gotten in early enough. It is hard, long, and expensive to expand production capacity, and some of the major manufacturers like GE and Siemens are somewhat reluctant to do it because the last time they did, it led to a boom-bust cycle.

So you are definitely going to be seeing existing gas and coal plants running a bit longer, but they are still fairly expensive to do. In general, more renewables are going to get built. We’re still confident of that, but with the tax credits repealed, it’s going to be less than otherwise would happen. What we project in our most recent modeling is you see about an 11% net decline in combined solar, wind, and storage installed capacity, that is, like new capacity additions between 2025 and 2035. Now, that might not be as ominous as some people were expecting. Certainly there have been more negative models, but think about what would happen if your income went down 10% just as we were expecting a lot of really expensive bills to come due. That’s basically what would be happening here with new power demand, often around-the-clock and with the price of installing a lot of that existing solar and storage and wind growing without about, say, half the capital expenditure being picked up by the federal government, that means higher power prices for consumers. It might also mean some availability concerns or some projects, not just power, but in terms of power off-takers not getting built.

There are some different sectoral impacts I’d like to point out, as well. Solar and storage tend to be a little bit more resilient. They’re smaller. They’re modular. You can scale the size to fit the cost. Wind projects, however, are always big, always really expensive, always require big loans, and so those take a notably larger hit in terms of what’s actually built out. Offshore wind in particular, we basically see any projects that are currently under construction finishing, and anything new that would have been planned basically just not happening. They were already facing a lot of regulatory concerns from the Trump administration, as well as costs, and this would just push a lot of them over the edge. One thing to say about wind is that it’s particularly important because it has higher capacity factors than solar. So the rated capacity of solar, you might get like 20-something percent of that in terms of actual power generation. Wind tends to be notably higher. It complements solar well. It’s really useful for creating more consistent power, creating a more balanced grid, and preventing some of the price cannibalization and build limitation problems that you get if you rely more or less purely on solar as a power source.

Stone: And also the offshore wind projects that have now been scuttled would have had even high capacity factors than the onshore wind, right? So more reliable power.

Flakoll: There is some really interesting research from Resources for the Future that points out that a lot of gas plants in New York, for example, would be able to shut down because of the relative reliability of offshore wind, and that would have disproportionate impacts on emissions, air quality, and other factors. Those could be pretty important for particular geographies that are otherwise constrained.

Stone: An additional point that came up in the research that I read, you state that between 2025 and 2028, the number of new projects actually increases over the current trajectory as these projects rush through, right?

Flakoll: Yes, assuming they are able to meet the beginning of construction deadlines in 2025, then there’s going to be a very strong economic incentive for these projects to enter service before 2028. First of all, we’ve seen this dynamic before. Before the Inflation Reduction Act, every few years, it would seem like the clean power credits would sunset, and then eventually they would be brought back. But before knowing that, projects would rush to make sure that they were grandfathered in, so to speak, that they were able to claim those credits before the existing law changed. That said, it has been possible to do that in the past. It might be a little bit more complicated this time, given the economic and political landscape. I would also point out that reintroducing a placed-in-service deadline, which had been gone from these tax credits for a very long time, creates a bit of a crapshoot dynamic. At the end of the day, if there’s a supply chain disruption or a recession or just any kind of unexpected event, even a simple logistical challenge, maybe a natural disaster, businesses through no fault of their own might be unable to meet that 2028 placed-in-service deadline, and so projects that tried to do everything right and would provide a public service would not really be compensated for that service under the law. It’s just starting to play dice a little bit, and that dynamic might also dissuade some developers who would otherwise be willing to chance it if they’re not early enough.

Stone: Very clearly on this one, everybody’s rushing to develop at the same time very quickly, and we already have the supply chain constraints that are already causing delays in project development, then you can see where this is going.

Flakoll: Yes, costs go up, things get harder to do. It’s just a challenge.

Stone: And they just don’t get done on time.

Flakoll: Yes.

Stone: Okay, one other little interesting point, I just want to look further out into the future on the Bloomberg kind of outlook here. If I understood this one correctly, by 2050 this report writes, collective additions of wind and solar fall by only 1%. We obviously need these resources as soon as possible, but over the longer term, the next quarter century, it looks like it’s relatively a wash.

Flakoll: That’s one way of thinking about it, but there are multiple ways to think about this. From a climate change perspective, what matters is tons emitted into the atmosphere, and so speed — getting there earlier — is very, very important. Obviously this also speaks to the data center issues, and also I do think that this is based on our neo-modeling, that’s to say models that we used to run our New Energy Outlook, so that’s a pretty economics-based perspective, and I do think it demonstrates the continuing economic appeal and resilience of these renewables markets. But at the end of the day, while we have often pointed out that renewables are frequently the most economic and competitive resource in many cases, what we want is them to be deployed at the right time, in the right context, in the right energy system to provide power that is as cheap and reliable all-in as possible, without contributing to climate change.

Stone: We’re looking at what all this means for the industry, and I want to go back for just a moment to those foreign entity of concern provisions, and it was Tom Tillis, Senator from North Carolina, who basically said that the people in the House who put this in didn’t really understand supply chains, particularly for manufacturing, and that this was really unworkable. Again, how much of a death sentence may these foreign entity of concern provisions be for many projects?

Flakoll: Right, so for projects to which they apply, and again it’s important to note that there might be some limitations on that, based on the final language of the bill. They would be pretty fatal. You don’t have take B-NEF’s word for it. As the CEO of NextEra, John Ketchum, has pointed out at some recent events, that based on the way the law is written, if a plant had a single screw from a Chinese manufacturer, it might be disqualified. Now, that might not have been the legislative intent, but if the language is so sweeping and broad and unclear, then what you really need is the federal government to come in and issue regulations that clarify that and make it workable.

First of all, the administration has to want to do that, and it’s not clear which way the Trump administration would go on this — if they’d rather be more restrictive or more permissive. Secondarily, the wait for regulations to come out, which can take quite a while if an administration really wants to dot its i’s and cross its t’s and take its time, that creates uncertainty that slows down investment, the same way we saw a slowing of investment in hydrogen, because there wasn’t regulatory certainty there.

So even aside from the incredibly broad language of the bill, which again covers acquisition of parts but also intellectual property, which seems pretty deleterious for manufacturers who would want to catch up to cutting edge techniques, even if that improves competitiveness of American industry in the long run. If you are in any kind of business relationship with entities which, whether you like them or not, are pervasive in this sector, there’s not really a lot of sense of proportion there, and the impacts could be pretty intense.

Stone: Piling on here a little bit, again, what’s happening with the reconciliation packages not happening in a vacuum? There are other policy moves that are also impacting the outlook for clean energy. We’ve got the Trump tariffs. We’ve got changes at the DOE Loan Programs Office, the LPO. We have the revocation of California’s Clean Air Act waiver. All of these are additional, I would imagine, headwinds that impact the outlook for clean energy development, clean transportation going forward. Tell us about the overall impact of all of this.

Flakoll: I should point out that some of this was stuff we were already anticipating after Trump’s election. For example, we cut our expected EV share of new vehicle sales from 48% in 2030 to about 33%, knowing that some of the regulatory pushes on, say, tailpipe emissions regulations, corporate fuel economy standards and so forth would be going away, and the credits likely would, as well. That said, that didn’t really account for the impact of the revocation of California’s Clean Air waiver. Trump tried this in his first term, and it didn’t really go through. There wasn’t time for the courts to rule on it because he started it in 2019. So it’s ultimately rather unclear whether Trump will be able to do that, and if he is not able to, California is currently suing for its right to set its own air quality standards, and for other states to follow those air quality standards. That can continue to support EV adoption out in the longer term.

Certainly some of the nearer-term targets for California’s Advanced Clean Cars II rule, the regulation in question, are going to be kind of hard to meet. That said, also, in other markets, some of the tax credits weren’t driving things as much. Heat pumps, for example, the major function of sales there is new home builds and maybe some home renovations. Relatively few people were claiming those credits. Similarly, oddly enough, because of all the restrictions on the EV tax credits regarding where they are sourced and the income of the buyer and the price of the car, not every EV buyer was also using those credits either.

So these create headwinds, perhaps more intense on the regulatory side, at least for things outside of clean power, but it remains to be seen where a lot of these things land. With regard to the Loan Programs Office, for example, as far as I can recall, there has only been one loan that has actually been revoked, to Synova, the rooftop solar company. There were some final loans that were approved for biofuels, which have been another favorite sector of the Trump administration, and for the nuclear restart in Michigan. There has been a lot of talk about appropriating new credit subsidy for advanced nuclear projects. The Trump administration wants to do that for the Loan Programs Office.

There has been discussion of using that for a critical minerals projects for perhaps power transmission, for geothermal, as well. But there are just many disconnects between what the administration is saying it wants to do — some of its actions with regards to staffing and funding of different federal agencies — and what the House and Senate want to do. The House bill doesn’t have any preserved tax credits for geothermal power. There is concern that there is going to be an attempt to repeal and recreate certain Loan Programs Office authorities in a way that might lead to a need for more guidance, lead to more disorganization, make it harder, in fact, than just using existing resources for new projects. And in general, I think it creates a really complicated and problematic landscape in which we’re going to see continued growth for a lot of these sectors, but less so.

In particular I’ll note for some of the hardest to decarbonize sectors, particularly industrial decarbonization, things that require sustainable with carbon-capture hydrogen for clean steel, clean aluminum, clean cement. We’ve seen some fairly aggressive grant revocations there, and it’s not really clear to me that there will be enough focus on supporting those sectors to really drive them forward, rather than letting other countries take the lead.

Stone: The Loan Programs Office has been very important for the nuclear industry, providing source of financing for advanced nuclear projects, right?

Flakoll: Yes, and I think there is attention to using it for that purpose, but there are questions about what kinds of nuclear projects need even further policy support and what that should be. In terms of other bipartisan or Republican-friendly things like critical minerals, for example, you can offer as many Loan Programs Office guarantees for US lithium mines as you want, but the vast majority of demand for that is going to be in electric vehicles. So if you’re pressing against the demand that would economically support a lot of these mines and factories, the supply side might not be enough.

Stone: I want to ask you one other question related to this, and it’s kind of an elephant or a gorilla in the room, whatever you want to call it. And it’s the cost of power, the cost of electricity going forward. You mentioned earlier some of the supply chain problems that exist, even for natural gas, getting turbines can take 5 to 7 years is the outlook, I guess, at this point. If we see less clean energy, less wind, solar, and battery storage also being added to the grid as a result of these IRA cuts rollbacks, what is the impact on the cost of electricity going forward? Do you have any insights on that?

Flakoll: Well, it’s going to be higher, I can tell you that. Think about the way the electricity market works. Normally, any capital expenditure is rate-based. It’s spread across electricity consumers, and that includes the construction of the power itself, also transmission and distribution tied to that. If you have a tax credit, where the federal government picks up up to 50% of the bill if you meet Domestic Content and Energy Communities’ requirements, and that’s much less that has to be rate-based and much less that prices go up. Similarly, if you have the Loan Programs Office or some other things like the transmission and financing facility, other things from the Infrastructure Investment and Jobs Act of the IRA that might get cut. If you have other things that are reducing those costs, you’re also just reducing cost pressure on the consumers. If those things go away, mechanically, prices are going to go up. This also, I think, applies if you see less wind and solar installations in general. That means you’re going to need to keep older plants running for longer, and those will be more expensive. If you’re increasing demand for gas by reducing the transition away from gas in heating and wind from more gas plants being built, and you’re doing this at the same time that liquefied natural gas export terminals are being approved left and right, and gas producers want to sell into the quite expensive, much more lucrative US/global lucrative financial gas market, you’re going to see gas prices going up, the cost of gas generation going up. It’s just a multi-pronged push, seemingly unintentionally, towards higher power prices, if you make it harder to build these resources and to do so with the federal government itemizing a lot of that tab, instead of consumers.

Stone: So here we are today. The House has passed its version of the reconciliation bill that is now before the Senate. The Senate again looks like it is going to try to have something agreed upon by July 4th or earlier. There was a letter, I believe, from 13 House Republicans fairly recently that was urging members of the Senate to take it a little easy on some of these IRA rollbacks. What do we think may happen in the Senate? Will the Senate again temper some of the cuts that came out of the House bill?

Flakoll: I think it’s possible, but it’s important to look at the constraints here, right? The reason that those 13 House of Representatives were sending letters to their Senate colleagues was because, despite themselves sending a letter earlier saying, “We don’t think the final House bill should look like this,” they voted for an even more restrictive final House bill in most ways, because there’s fairly intense lobbying pressure to get something done, to keep individual income taxes low, and so forth. So you might see some similar pressures in the Senate.

Ultimately, this process of revising the House Ways and Means Committee’s bill to make it even more restrictive came because five representatives, led by Chip Roy on the fiscal conservative side of the House Republicans, were willing to stand up and push for that. Similarly in the Senate, while we have seen four Republican senators sign a letter saying that the credits should mostly be kept intact, you’ve seen others beyond them, like Shelley Moore Capito, step up and express concern about what this might do to power prices and their constituents. You also have a few senators like Rand Paul and Ron Johnson who are asking for tougher, bigger cuts than what the Senate bill currently plants for.

So it’s a fairly unpredictable dynamic, and one thing that the House has been able to leverage is President Trump coming in and saying, “You need to vote for this bill,” and so it ultimately — while there’s quite a lot of possibility of this bill being less restrictive than the House version, that’s far from a guarantee.

Stone: So we will wait, and we will see what’s going to happen. Derrick, thank you very much for talking.

Flakoll: Always a pleasure, Andy.

Stone: Today’s guest has been Derrick Flakoll of BloombergNEF.