“Two things are true.”
As I try to track and make sense of the markets, I keep coming back to this phrase from the famous parenting coach Dr. Becky. The current market landscape requires us to hold two, if not more, opposing truths in mind at once. For example:
- Trump’s signature budget bill has been signed into law. One of the big goals for Trump and congressional Republicans was to roll back many of the incentives for climate solutions that were passed in the Inflation Reduction Act under the Biden administration. And while some of the worst provisions were successfully fought back by pro-renewable groups, the legislation is a major financial setback to the rollout of renewables and EVs in the US.
- And yet, TAN, the ETF of US-listed solar companies, is at its highest value of any time since Trump was elected. And for what it’s worth, our Climate Solutions ETF, CCSO, is at all-time highs. This is just not logically what one would expect to happen to such companies in the stock market after significant government support is rolled back.
So, what the heck is going on?
Are the laws of cause and effect broken in stock markets?
Or are there other factors that make such unexpected optimism understandable?
And how did a climate-smart portfolio perform in the last quarter?
So much of this is happening in real time, so the truth is impossible to know. But we have some hypotheses. Let’s dig in.
The Biden era: Policy victories collide with rising interest rates
It is clear that for an industry reliant on federal policy — from tax credits to environmental reviews to interconnection policy — even anticipated shifts in legislation or leadership can have outsized impact.
Just look at how TAN, the US Solar Stock ETF, performed in the time from when Biden was elected (Nov 4, 2020) to when he was inaugurated (Jan 20, 2021). Of special note, look at how sharply the fund moved up in early January.
On January 5th, Democrats, somewhat surprisingly, won both Georgia senate seats, giving them a narrow senate majority and Democrats the ability to pass law (at least in the form of budget reconciliations) without Republican support. Solar stocks jumped about 20% after the runoff alone.
It’s pretty clear that Wall Street traders were buying solar stocks based upon what had just happened in Washington.
And yet, look at what happened to solar stocks during the Biden presidency itself.
While things started out very hot for the sector, it started to give away its gains. The fund popped again in mid-2021 after the House passed a generous tax credit, but fell later in the year after Democratic senators failed to advance the bill.
Then, in July 2022 the Senate surprised the industry by coming forth with an agreed-upon proposal for the Inflation Reduction Act, or IRA – arguably the most pro-solar piece of legislation ever passed.
And while that did seem to briefly somewhat revive solar stock valuations, the impacts of the policy didn’t keep solar stocks from continuing to trade down.
Why? Interest rates.
Renewable energy’s costs are almost entirely capital costs, and that makes the sector very sensitive to interest rate changes. And over the same period the IRA was being deliberated upon and eventually passed, the Federal Reserve raised interest rates to their highest levels in decades.
By mid-2023 a major sell-off had begun as traders realized that rising capital costs were squeezing solar developers’ margins, driving the sector down nearly 40% – despite having the most pro-solar president in history in office.
Trump’s second term: Better than expected for solar
So what happened when arguably the most anti-solar president won the 2025 election? Surprise again!
In somewhat of a weird parallel, the market reacted more to the idea of what could happen legislatively than what actually did.
After Trump took office, solar stocks fell, but not as dramatically as they did in 2023 from interest rates. They dropped a lot further in April after the “Liberation Day” tariffs, but then, as the Big Beautiful Bill got hammered out, they started climbing.
And they continued climbing through the pullback of tax credits – and through the explicit anti-renewables stance of the administration and congressional Republicans.
There is a classic investor saying: “Sell the rumor, buy the news.”
And perhaps this is the big takeaway from this entire piece. In both presidencies the rumor of what each governing body would do for solar stocks led to much sharper rises or falls than what actually happened. In the case of the IRA, the news on the ground of interest rates dampened the legislative impact. And the worst-case scenarios of how bad the One Big Beautiful Bill Act would be didn’t actually come to pass for solar. In fact, the battery tax credit remains untouched, which could be a sneaky big deal.
Looking forward: A new floor for solar stocks?
Solar power isn’t going anywhere. States still have a lot of control on how to incentivize it, and the US is only a small fraction of the global market. Investors can better factor in such upsides now that the details of the law are finalized.
The independent media company Heatmap recently summarized where the renewable industry is likely to go following the passage of the One Big Beautiful Bill Act. This section stood out to us:
“But clean energy development will hardly grind to a halt. While much of the bill’s implementation is in question, the bill as written allows for several more years of tax credit eligibility for wind and solar projects and another year to qualify for them by starting construction. Nuclear, geothermal, and batteries can claim tax credits into the 2030s…
“You can see a world where we have more action on clean energy tax credits to enhance, extend and expand them in a future congress,” [Xan] Fishman [of the Bipartisan Policy Center] told Heatmap. “The starting point for Republican leadership, it seemed, was completely eliminating the tax credits in this bill. That’s not what they ended up doing.”
Perhaps a new floor has been set for solar stocks and the industry can begin its multi-year recovery in earnest from here. The uncertainty is largely gone. The growth curve for electricity demand is spiking (thanks to electrification and AI) and even in spite of these federal policy changes, solar and battery systems may still be the cheapest and fastest way to bring new electricity to market, particularly given the extremely long delays (up to 7 years!) for new natural gas turbines.
It’s always worth remembering what happened to solar stocks during the first Trump presidency:
Past performance is no indicator of future returns, but it’s a good reminder that the status quo is always changing, no matter who is in office.
In a world where policy winds shift quickly and market logic can feel upside-down, two things can indeed be true: political setbacks for clean energy can coincide with market resilience — and even opportunity. As always, staying grounded means staying curious, adaptable, and oriented to the long term. Thanks for being on this journey with us.
Zach Stein and James Regulinski are the co-founders of Carbon Collective. ImpactAlpha has partnered with Carbon Collective to provide a monthly analysis on how individuals, companies, and organizations can incorporate the realities of our changing climate and energy systems into their investments. The analysis originally appears in Carbon Collective’s newsletter.
