Trump plans to dismantle Biden’s climate law. It won’t be easy

President-elect Donald Trump will be empowered by Republican gains on Capitol Hill to pull back portions of the Democrats’ signature climate law he calls “the green new scam,” which devoted hundreds of billions of dollars to subsidizing emission-free energy.

Just don’t expect a wholesale repeal of the Inflation Reduction Act.

“We are not looking at immediate, drastic, apocalyptic changes overnight,” said James Lucier, managing director at research group 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 fused climate policy with industrial policy, subsidizing electric vehicle, battery and solar manufacturing and other enterprises that will help the U.S. decarbonize. Trump’s return will put the resiliency of this approach to the test. 

The law is driving a wave of investment in red districts. Some GOP lawmakers, loath to give that up, have already said they don’t support making significant changes to the law. And although no Republicans voted for the measure two years ago, some of its incentives, such as credits for producing hydrogen and capturing carbon dioxide, are very popular with oil companies and other core GOP constituencies.

Gina McCarthy, a former White House climate adviser and managing co-chair of the climate coalition America Is All In, called any attempt to roll back the IRA “a fool’s agenda.” 

“Republican members of Congress have been joining hundreds of business leaders at ribbon cuttings and groundbreaking ceremonies” for IRA-supported projects, McCarthy said. (America Is All In is supported by Bloomberg Philanthropies, the philanthropic organization of Michael Bloomberg, the founder and majority owner of Bloomberg News parent Bloomberg LP.)

But Trump’s presidency is almost certain to usher in new restrictions, expiration dates and caps that narrow its scope. That could help offset the costs of extending Trump’s 2017 tax cuts before they expire next year, a top priority of the president-elect and other Republicans. 

The IRA “is the doomsday machine for the budget,” Scott Bessent, a top Trump economic adviser and potential Treasury Secretary pick, who serves as chief executive at the hedge fund Key Square Group, told CNBC. “I think the priority is going to be turning off the IRA.”

ClearView Energy Partners said in a note Thursday that top targets for elimination in the law include credits for used and commercial EVs; a fee on methane emissions levied on oil and gas producers; and billions of dollars in authority given to an Energy Department loan program. A clawback of unused funds for federal climate programs is possible, as is “an attempt to claw back obligated-but-undistributed balances,” the Washington-based consulting firm said.

The success of such efforts is likely contingent on the size of the expected Republican majority in the House. While many races have yet to be called, Republicans appear on track to hold at least a slim majority. They would likely need a much larger one to make major cuts to the law. 

Changes could happen administratively, too. Even without action from Congress, IRA opponents say, the Treasury Department could tighten rules around who can claim tax credits. For instance, strict rules on the sourcing of materials from China and other foreign adversaries, put in place for electric vehicle tax credits, could be applied more broadly to other incentives, such as the advanced manufacturing credit for solar panels and other clean-energy technologies. 

A policy that allows leased electric vehicles to evade those requirements, derided by critics as the “leasing loophole,” is almost certainly done for, analysts say. 

Other rules requiring the use of domestically sourced contents will likely be made more stringent, while bonus credits, such as those for projects built in “energy communities,” could be narrowed. 

Taking a scalpel — not a sledgehammer — to the IRA would still generate revenue to help pay for a tax cut extension. Some lawmakers have already advanced plans to bar companies tied to China and other so-called “foreign entities of concern” from collecting tax credits under the law. That would scale back the expected payouts and align with Republican interests in separating U.S. supply chains from China.

A Republican Congress is also likely to phase out a pair of technology-neutral clean electricity generation credits that go into effect next year. Those credits alone, expected to benefit utility-scale solar and onshore wind, could be a ripe target for lawmakers looking for budget cuts, since they aren’t set to end until the later part of 2032 or until carbon dioxide emissions from the U.S. electricity sector decline to at least 75% below 2022 levels. Some analysts have predicted that won’t happen for another 30 to 40 years. 

“We are talking decades, and definitely trillions of dollars,” said Ryan Sweezey, a director at energy research firm Wood Mackenzie Ltd.