RIP IRA. That’s the message that House Republicans sent with the passage of a tax bill passed yesterday that would all but eliminate the Inflation Reduction Act, the landmark clean energy bill passed during the Biden administration.
Hardliners made even more drastic cuts than an earlier version released by the House Ways and Means Committee. Rather than phase-outs, many incentives will abruptly end.
To qualify for clean energy subsidies, for example, projects would have to begin construction within two months of passage of the budget bill, and go into operation by 2029. The changes “will pull the rug out from a host of projects in active development and effectively end use” of the popular investment tax credit and production tax credit, said industry group Advanced Energy United.
The bill will next go to the Senate, where clean energy advocates hope more moderate views will prevail. Most of the IRA’s investments have flowed to Republican-led states, and many legislators have voiced their support for at least some of the credits. The “big, beautiful bill,” which cuts spending on healthcare, education and food assistance and extends Trump’s 2017 tax cuts, is expected to add add roughly $3 trillion to the national debt.
Industrial policy
With its carrot vs. stick policy for next-generation industries and clean power, the IRA amounted to the US’s most extensive industrial policy in decades, spurring hundreds of billions of dollars in private investment.
“The tax credits have really been like rocket fuel for investment into US manufacturing,” said Jenny Wieroniey, director of federal government affairs of Michelin, a tiremaker that employs 20,000 in the US.
If the new tax bill passes without significant changes, hundreds of manufacturing plants, pilot projects and demonstration plants would be thrown into turmoil. Trump administration policies, including clean energy funding freezes and tariffs, have already caused many companies to rethink their investment plans — despite the president’s assertions to the contrary.
Nearly $8 billion in previously announced climate tech projects were cancelled, downsized, or closed in the first quarter – more than three times the dollar amount of cancellations in the 2 ½ years since the passage of the Inflation Reduction Act (IRA) in August 2022, according to data tracked by business advocacy group E2. And with the draconian changes just passed by the House, that’s likely just the beginning.
More than 60% of the $823 billion in investments announced since the IRA have not yet been spent, says a new report from Clean Investment Monitor, a joint project of the Rhodium Group and the Massachusetts Institute of Technology. With a wide range of tax credits and incentives facing the budget axe, much of that unspent $523 billion will likely stay in corporate coffers or move elsewhere around the globe.
“What House Republicans just produced is a perfect plan to strangle economic growth, kill American jobs, shut down new factories and cancel new sources of made-in-America energy, just as they’re getting started,” says E2’s executive director Bob Keefe.
Multi-sector axe
The first-quarter cancellations run the gamut of major sectors in climate tech manufacturing – solar and wind power, battery storage, hydrogen, and electric vehicles (EVs) – and accounted for an estimated 7,800 current or potential clean energy jobs. Although some of the 16 projects were felled by corporate bankruptcies and other business factors, uncertainty over the fate of the IRA’s tax credit incentives is the overarching issue.
EVs and battery/storage were hit the hardest, accounting for 10 of the 16 cancelled projects in the quarter — not surprising given Republicans’ early aim at both electric vehicle demand (tax credits for EV buyers) and supply (tax incentives for manufacturers). The EV sector has chalked up the largest share of IRA-related investments to date, but is pumping the brakes on new US investments going forward.
“You see people like Ford CEO Jim Farley saying that if these tax credits go away, we’re going to have to re-evaluate our expansion plans,” says Keefe. “And if Ford’s thinking that, guess what? The battery people supplying them are thinking that, and the component companies that go into those batteries are thinking that.”
The EV credits were rescinded in the newly passed House bill.
A few climate tech sectors are better positioned to weather the storm. Components for more efficient electricity transmission, for one – the nuts and bolts of grid infrastructure – are generally less dependent on IRA incentives and are critical to meet fast-growing demand on the grid regardless of the energy source.
Six of the 10 new projects announced in March were in this sector, including a $134 million TS Conductor plant in Jasper County, South Carolina to make advanced conductors that boost transmission capacity.
Frozen loans
Tax credit uncertainty affects nearly every US climate tech enterprise, but companies waiting on conditional loans issued by Biden’s DOE Loan Programs Office, or LPO, are particularly vulnerable since the program has been frozen. And virtually every dollar of conditional loans – some $47 billion for 28 projects – would be wiped out in the current budget package.
Kore Power, an energy storage startup, abandoned plans to build a $1.2 billion battery plant in Buckeye, Arizona that would have employed up to 3,000 people. Kore had an LPO loan commitment of up to $850 million to cover 80% of construction costs. Another recipient, Aspen Aerogels, stopped waiting on the fate of its $670 million LPO conditional loan for a Statesboro, Georgia factory to make thermal barriers for EV batteries. The company ended both loan negotiations and its construction plans in February; it will expand production capacity at facilities in China, Mexico, and Rhode Island instead.
“Based on the early actions of this administration, we can expect to see more and more American factories cancelled or closed, leaving our communities with more broken promises,” said Jigar Shah, the former LPO director, which doled out loans and guarantees to companies scaling up their innovative technologies and building new plants.
“We are on track to again cede our manufacturing industry to China,” he said.
The largest cancelled project in Q1, in total investment dollars, was Norway-based Freyr Battery’s $2.57 billion battery plant in Newnan, Georgia. About 40% of the 390 projects announced since the IRA passage have been by foreign companies, notably from Germany, China, Japan, and South Korea. Without tax credits and other federal incentives, those companies are likely to pull up stakes here and look to other countries committed to growing their clean energy sectors.
One poison pill in the House budget bill concerns so-called Foreign Entity of Concern restrictions, which Advanced Energy United calls “complex, uncertain, and overly proscriptive.” As written, the group says, “these FEOC restrictions will undermine American competitiveness – particularly against China – by restricting energy production and undercutting domestic advanced energy manufacturing.”
In the meantime, other countries are forging ahead with clean energy development. Spain, says Keefe of E2, has approved $18.4 billion in investments in 300 projects of solar, wind, and hydro power. “If you’re a wind or solar developer, you’re going to look at going there. Why would they waste their time fighting Donald Trump in America?”
Headwinds for offshore wind
The nascent US offshore wind industry has been among the hardest hit by the new administration’s policies. Because offshore wind farms need to obtain leases and permits from the Interior Department’s Bureau of Ocean Energy Management, President Trump was able to halt all new leases in an executive order on Day One. He also put the brakes on the permitting processes for 34 projects with a total of 35,000 megawatts of potential generation capacity. On the same day, global offshore wind giant Orsted announced $1.7 billion of writedowns of its U.S. business.
In mid-April Interior Secretary Doug Burgum issued a stop-work order on a fully approved project already under construction – Equinor’s 810 megawatt Empire Wind 1 farm off the coast of Long Island, New York. Equinor had said the halt was costing it $50 million a week and that it would cancel the wind farm outright without a timely resolution. The company has already spent $2.7 billion on the $5 billion project.
This week, the administration reversed course, allowing the project to proceed. But the deal appeared to be a one-off in exchange for concessions on a natural gas pipeline from New York State, rather than a wholesale policy change.
One offshore wind developer, TotalEnergies, saw the writing on the wall early. It cancelled (put “on pause”) its 3,000-MW Attentive Energy farm off New Jersey just three weeks after Election Day in 2024.
What could effectively be a four-year moratorium on all new US offshore wind will have devastating ripples through companies supplying materials, components, transportation, and construction to these multi-billion-dollar projects – and to the deep water ports in New England, New York, Virginia and other places where turbines are assembled and shipped out.
And it’s not just coastal areas – the US offshore wind supply chain includes firms in 42 states, says Katharine Kollins, president of the Southeastern Wind Coalition advocacy group.
Suppliers are already bailing out. Italy-based Prysmian cancelled its $200 million undersea cables plant to be built on the site of a shuttered coal-fired power plant in Somerset, Massachusetts. Nucor Steel’s sprawling plant in Brandenburg, Kentucky has invested millions to become the sole US supplier of steel plates that can support offshore wind turbine foundations; with its domestic market effectively gone, Nucor will have to compete in the EU and other markets which already have makers of the product.
“Offshore wind was set to bring $25 billion in investments in US industry, an industry that’s as domestic as it gets,” said Kollins, citing a recent study by industry trade group Oceantic Network. “That should be a no-brainer – but unfortunately that’s not the case.”
Clean energy advocates and investors are planning a last minute lobbying blitz to salvage what they can of the IRA as the budget bill moves to the Senate. “Unless redone, this legislation will raise prices across the country, resulting in less energy and more scarcity,” said Zach Friedman of the climate policy advocacy group Ceres.
“It is the equivalent of waving the white flag of surrender to China and other countries for investment in strategic core industries including AI, critical minerals, batteries, autos, energy, steel, and aluminum,” he added, “and it will threaten our economic, energy, and national security.”
