Trump’s political gift to the clean energy sector

Welcome back.

Donald Trump is back on the tariff warpath, vowing yesterday that his punishing trade levies will come into force on August 1, with “no extensions”. The markets still don’t seem convinced (though copper traders have been panicking).

But the president’s landmark tax and spending law is now very much a reality — with some profound, and perhaps counterintuitive, implications for the US energy outlook.

GREEN INVESTMENT

Trump’s attack on clean energy creates a political opportunity

“The people are happy,” Donald Trump said on Friday as he signed his so-called big, beautiful bill into law. “They’re happy.”

But they’re not — at least not about Trump’s new signature legislation. Fifty-nine per cent of respondents opposed it in a recent poll (by Fox News, not known for liberal bias), and other surveys show a similar story.

It’s not hard to see why. The new law would increase the national debt by $3tn over the next decade, according to researchers at Yale University, mainly to fund tax cuts for the wealthiest Americans. They will be partly offset by other measures that will disproportionately hurt the less well off, in areas including healthcare, food aid — and clean energy.

So far, the low-carbon energy sector has been struggling to build national consensus on the benefits that its growth will have for US households. By undermining that growth through gutting Joe Biden’s pro-green Inflation Reduction Act — as part of this historically unpopular and regressive new legislation — Trump has given that sector, and its political advocates, their best opportunity yet to drive home that message.

A key part of the message is about jobs. A May study by the think-tank Energy Innovation estimated that an earlier version of the bill would cost 830,000 jobs by 2030 by slashing tax credits for green energy spending and investment. The International Council on Clean Transportation warned in April that ditching the IRA would cost up to 130,000 jobs in electric vehicle supply chains alone. (These estimates relate both to current existing jobs, and to jobs that would have been created had the IRA remained in place.)

Such predictions can be disputed — and the new law stops short of outright repeal of the IRA, as I discuss below. But a significant jobs toll is already visible, as companies have cancelled investments in response to the IRA’s anticipated demise, and the wider policy uncertainty around the US clean energy sector. E2, a non-profit business group, estimates that planned US clean energy investments worth $15.5bn have been cancelled so far this year, at a cost of nearly 12,000 jobs.

Importantly, the majority of these missing jobs are in Republican or swing states, which — in a smart piece of politics — were set to benefit disproportionately from clean investment galvanised by the IRA.

New green jobs in long-suffering rustbelt areas of states such as Ohio and Michigan would have been a powerful symbol for low-carbon energy advocates. Their loss could also be used to potent political effect.

Still more salient are electricity prices. These have already been on the rise, largely because of surging demand from data centres to power artificial intelligence. The best way of restraining further increases would be to supercharge the growth of renewable energy plants, which are now the cheapest source of power in the US even without subsidies. Renewable plants can be built far more quickly than gas-powered ones — which are, moreover, now facing waiting times of five to seven years for the specialised turbines they require.

By constraining renewable power growth, the new law will make US energy costs much higher than would have been the case under the IRA. The additional annual cost will grow each year to reach $433 per household in 2035, according to the Repeat Project led by Princeton University’s Zero Lab. Again, the impact will be worst in Republican and swing states, where power consumers were set to benefit most from the renewable energy expansion.

All this comes on top of the long-term damage to US competitiveness, which I discussed here. For a sense of how worried some top business leaders are already getting, check out these recent remarks from Ford chief executive Jim Farley — shaken after a recent visit to China, where he was struck by how far ahead Chinese rivals were in the electric car transition and other areas of technology. “We are in a global competition with China,” Farley said. “And if we lose this, we do not have a future Ford.”

Admittedly, the demolition of the IRA is less thorough than proposed in earlier drafts of the law. Credits for the few low-carbon energy sources palatable to Trump’s administration — notably nuclear and geothermal — will be phased out only from 2034.

Wind and solar projects, meanwhile, will be entitled to claim credits if they start construction within the next year — but only if they meet draconian, potentially unworkable restrictions around Chinese components, with full details still to be clarified by the Treasury, which adds further damaging uncertainty. Tax credits for electric cars will be gone from October.

The IRA’s downfall clearly damages the US’s chances in the long-term contest with China for market share in the fast-growing global cleantech economy. And by pushing up electricity prices, the new law will hamper businesses in every US industry, notably in the strategically vital AI sector.

The superior efficiency of renewable energy means it will continue to dominate US power plant additions. According to the Repeat Project’s modelling, renewables and grid battery storage are set to account for 79 per cent of capacity additions over the next decade, in light of the new legislation. That’s only slightly lower than the 82 per cent share it predicted if the IRA had remained in place. But it’s a similar percentage of a far smaller number: an average annual 52 gigawatts of overall new capacity under the new law, against 105GW under the IRA.

All this looks like the basis of a powerful political message against the new law’s energy provisions — especially given the weakness of the arguments on the other side.

Trump has defended the moves by arguing that “energy should NOT NEED SUBSIDY”. But the point of the IRA was not to subsidise technology that was otherwise uneconomic, but rather to accelerate its deployment, to the benefit of medium-term household finances and long-term national competitiveness. It’s hard to avoid concluding, along with Paul Krugman, that Trump’s energy policy is driven by a sense that “real men burn stuff” — together with long-running political funding from the fossil fuel sector.

Small wonder, then, that Republican unity on this issue is already showing significant cracks, amid concerns over the fallout from the IRA’s destruction on red states and districts. Witness the efforts by four Republican senators and a dozen House representatives to pare back cuts to clean energy credits during the wrangling over the new law. (Add to this the newfound vehemence of Elon Musk, who called the law “utterly insane and destructive . . . giv[ing] handouts to industries of the past while severely damaging industries of the future”.)

Washington’s extreme, self-defeating polarisation over the energy transition can appear so ingrained as to be a permanent feature of the US political landscape. But if clean energy advocates can capitalise on the economic shocks outlined above, this might yet prove to be the beginning of its end.

Smart reads

Consulting scandal Save the Children has ended a decades-long partnership with BCG, one of the world’s largest management consulting firms, over its work on Gaza. The move comes soon after the FT reported that BCG had worked on a plan to channel aid through the controversial Gaza Humanitarian Foundation, and helped to model the costs of relocating Palestinians from the territory. The FT editorial board gave its view here.

Cash call J French Hill, the Republican chair of the US House of Representatives financial services committee, argues that the EU must formally seize €258bn in frozen Russian assets in Europe, and use the funds to support Ukraine. The US, he adds, should transfer to Ukraine an initial $5bn in Russian central bank reserves that have been immobilised in the US.

Bank blunder UK bank Monzo has been fined £21mn for failing to enforce protections against financial crime. Regulators found that the bank had signed up customers who’d provided “obviously implausible” home addresses — including Buckingham Palace, 10 Downing Street and the bank’s own business address.