As a new administration takes office in 2025, several new energy policy trends are expected to emerge, reflecting the inherent tension that often exists between political desires and economic realities. For example, while the incoming Trump administration has expressed a desire to claw back subsidies made available under the Inflation Reduction Act (IRA), Republican states have also been significant beneficiaries under the IRA. In other areas such as import tariffs, bipartisan support could emerge, with each party supporting the same result for entirely different reasons. Five trends that could result are discussed below.
- Carbon-Related Tariffs Could Reshape Global Trade and
Business Strategy. The convergence of increased bipartisan
support for import tariffs, albeit for different reasons, could
result in a significant shift in international trade dynamics and
potential costs for energy companies. President-elect Donald Trump
has frequently expressed support for import tariffs as a tool to
boost domestic manufacturing, increase revenues, or to create
leverage for international negotiations. Democrats have supported
adoption of carbon tariffs and mechanisms like the Carbon Border
Price Adjustment Mechanism (CBAM) that is being implemented in the
European Union to level the playing field for businesses investing
in emissions reduction. Adoption of the European Union's CBAM
has created new operational challenges for companies throughout the
world, and similar measures in the United States would add to that
already complex legal and business landscape. Companies invested in
renewable energy projects or reliant on imported components like
solar panels and batteries should ensure transparency and awareness
of their supply chains, monitor ongoing developments, and prepare
for potential cost increases and supply chain disruptions.
- IRA Tax Credit Future Critical for Energy Investment
Decisions. While Trump has expressed opposition to the
IRA, the established tax credits present a complex economic and
political challenge. Republican-controlled states have been
significant beneficiaries of investments generated by IRA tax
credits, and many traditional energy companies have already made
substantial investments based on these incentives, particularly in
energy production and carbon sequestration projects. This creates
significant economic pressure to maintain existing credits.
However, uncertainty looms over funds yet to be distributed by the
government, as well as details of future Internal Revenue Service
guidance on IRA tax credits. This creates the potential to impact
short- and mid-term investment decisions and may create a temporary
chilling effect on new investments as stakeholders await additional
clarity on implementation guidelines. Companies should closely
monitor these developments, particularly those with pending
applications or planning future projects dependent on IRA
incentives.
- Support for Clean Hydrogen Production Tax Credit
Requires a Balancing of Interests. The clean hydrogen
market has experienced record investment growth, catalyzed by the
IRA's tax credits. Many of these investments are being made by
traditional energy companies. However, uncertainty remains over
whether and to what extent the IRS will adopt stringent
requirements advocated by many environmental organizations. These
would require the renewable electricity to be produced from newly
constructed generation (additionality), in the same hour as
hydrogen is produced (temporal matching), and in the same region as
hydrogen is produced (geographic matching). How the IRS resolves
these issues could have a material impact on future green hydrogen
investments. Here, the Trump administration will again be
confronted by tension between its more general desire to claw back
IRA incentives and the economic reality of significant investment
to date along with support by traditional energy companies for
continued future investments and increased financial certainty.
This balancing of interests may result in adoption of technology
neutral policies that are intended to reduce barriers to entry and
increase economic certainty for investors.
- Carbon Sequestration Gains Momentum Across Political
Spectrum. Carbon sequestration offers traditional energy
companies and carbon emitters a rare point of bipartisan consensus
in energy policy, offering traditional energy companies a pathway
to sustainability while maintaining core operations. With former
North Dakota Gov. Doug Burgum, a prominent carbon capture and
storage (CCS) advocate, announced as Trump's nominee to lead
the Interior Department, the technology could see expanded support.
Carbon sequestration appeals to many environmental advocates
seeking emissions reductions and to fossil fuel companies seeking
to leverage their existing expertise in pipeline construction and
drilling to create new opportunities in a transitioning energy
market. This dual benefit of maintaining energy security while
reducing carbon footprint positions CCS as a critical component in
the energy transition landscape and will continue to attract
support from both environmental advocates and traditional energy
producers in 2025.
- Renewed Support for Conventional Energy Production. A significant transformation in federal energy policy is anticipated in 2025, with renewed support for conventional energy development, including through expanded availability of federal oil leases, reduced regulation, and reconsideration of regulations that have been adopted to increase the cost of fossil fuel energy production. The Bureau of Land Management's current restrictions on coal mining are expected to be reversed, while federal leasing for oil, uranium, and other mineral resources is likely to accelerate. This shift extends beyond mere leasing policies, however, as the Department of Justice will likely adopt a more industry-friendly stance overall. For example, enforcement of environmental regulations, particularly regarding methane emissions and associated royalty payments, is likely to become less stringent. These changes could substantially reduce operational costs for natural gas producers and other conventional energy operators, potentially stimulating increased domestic energy production.
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