With a renewed focus on domestic energy production and regulatory reform, the incoming administration signals significant shifts in U.S. energy and climate priorities
Takeaways
The incoming Trump Administration will prioritize domestic energy production—including critical minerals—and support technologies that make the U.S. competitive with China.
Key Biden-era programs like the Inflation Reduction Act could face partial rollbacks and some funding may be repurposed across energy sectors, but are unlikely to be fully repealed given the benefit of these programs in red and purple states.
Trump is expected to withdraw once again from the Paris Agreement and possibly even the UN Framework Convention on Climate Change, reducing U.S. climate commitments and easing pressure on China to decarbonize.
Energy policy under President-elect Trump and Republicans, who will control both the Senate and House of Representatives at the start of the next Congress in January, will shift focus from the energy transition agenda of the Biden Administration to energy security, with a primary focus on lowering domestic energy costs.
Starting with “Day 1” executive orders to spur increased energy production and make good on President-elect Trump’s campaign promises to “drill, baby, drill” and “frack, frack, frack,” the incoming Republican trifecta is expected to have a significant and lasting impact on U.S. energy policy. While many Biden-era priorities, like, for example, investments in electric vehicle (EV) infrastructure and consumer EV tax credits, are likely to face repeal under the incoming Administration, other energy initiatives, like increasing nuclear deployments or advancing permitting reform, are poised to accelerate.
In this comprehensive roundup, Pillsbury’s energy team examines the wide range of expected changes across energy sectors and the industry’s most pressing issues.
International Climate Accords: An Expected Exit from International Climate AgreementsAs he did during his first term in the White House, President-elect Trump is again expected to exit the Paris Agreement (the Agreement). He may withdraw the U.S. as soon as his first day in office via executive order.
Since the Agreement provides for a waiting period after a country provides notice of withdrawal, the U.S. will remain party to the Agreement until at least early 2026 and therefore be required to submit a national climate action plan to the UN in 2025. However, it is expected that any plan submitted by the Trump Administration would contain weaker emissions reduction commitments than those submitted during the Biden era.
President-elect Trump’s expected withdrawal from the Agreement will be more impactful during his second term than his first. The first exit was short-lived because the Agreement, which entered into force in 2015, required the parties to wait for three years before giving notice of an exit, in addition to the one-year period between notice and exit. The U.S. thus only formally left the treaty in November 2020 under the first Trump Administration and almost immediately rejoined it in February 2021 under the Biden Administration, with no impact on the country’s climate commitments. This time, however, the Trump Administration has fewer impediments to a renewed exit, meaning that at least between 2026 to 2029, the U.S. will no longer annually report on its emissions or adhere to any commitments in the national climate action plan.
The bigger question is whether the Trump Administration would seek to exit the UN Framework Convention on Climate Change (UNFCCC), the framework accord that underpins all climate change negotiations and commitments. Doing so could potentially require Congressional approval. An exit from the UNFCCC would mean that the world’s second-largest polluter (behind China) would be absent from the climate dialogue and no longer contribute to climate mitigation and adaptation in developing nations, requiring other countries to fill the void. A U.S. exit from Paris and/or the UNFCCC would likely reduce pressure on China to adhere to its commitments under the treaties, while potentially simultaneously boosting China’s influence as the world’s largest trading partner for technologies such as solar panels and electric vehicles.
U.S. Government Incentives for the Energy Industry
Inflation Reduction Act
President-elect Trump and Republicans made components of the Inflation Reduction Act (IRA), a Biden Administration signature policy achievement, a campaign issue, promising to repeal aspects of the law that are unpopular in Republican circles, namely many of the clean energy tax credits.
Republicans further see the repeal of certain IRA tax credits as a means to lessen the budgetary impacts of extending (and potentially expanding) the expiring provisions of the Tax Cut and Jobs Act (TCJA), a law that cuts the tax rate for corporations and individuals. The TCJA served as a signature policy achievement for the first Trump Administration and its extension and expansion is a topmost policy priority for President-elect Trump and the incoming Republican Congress in 2025.
Despite these political and budgetary dynamics, a complete repeal of the IRA is unlikely. According to some estimates, 80% of the investments spurred by the IRA have been made in “red” and “purple” states, meaning that the Republicans who represent those states may be loath to repeal federal incentives that are being used by their constituents. At the same time, many projects are still in the early stages, which means that project benefits—like continued investment and job creation—may not yet be felt in these states, making it easier for Republican lawmakers to agree to repeals.
As a tax and spending law, the IRA was passed and can be repealed or amended through the budget reconciliation process, which is not subject to the Senate’s filibuster rules and thus only requires a simple Senate majority. Republicans are likely to use the reconciliation process to extend the TCJA and seek to claw back funds or repeal portions of the IRA, along with a slew of other government funding programs. At the same time, because of the close margin held by the Republicans in the House, the Democrats are expected to use whatever leverage they can muster to protect many of the IRA programs.
DOE Loan Programs Office (LPO) and Grants
The Loan Programs Office (LPO), created in 2005 under the Bush Administration, has been a primary target of Republican scrutiny. As a result, the program, which provides loans and loan guarantees to help deploy innovative clean energy and advanced transportation projects, was not widely used until its budget was massively increased through enactment of the IRA.
As with the IRA tax credits, the vast majority of the LPO funding to date has benefited Republican districts. For this reason, elimination of the office altogether is unlikely. However, it is possible that the LPO’s funding authority could be rolled back and that the funding programs are restructured to benefit technologies championed by the incoming Administration. Further, to date, only $13B of the $55B committed by the LPO is in the form of closed loans, with the remainder conditional. This provides an opportunity to suspend or walk back commitments. The incoming Administration is expected to continue to support funding for technologies that give the U.S. a competitive edge over rivals like China.
Across all DOE incentive programs, including competitive tax credit programs, the LPO, and even longer-standing grant programs like ARPA-E, we expect significant scrutiny from incoming agency officials and Republican oversight committees in Congress. For example, we expect that the incoming Trump Administration will closely scrutinize how funds have been expended for the installation of EV charging stations and innovative clean energy projects. Outcomes from any such investigation could foreseeably include attempts to claw back funds.
Oil and Gas Extraction
The energy landscape is set for a seismic shift with the proposed policy actions beginning on day one. First, President-elect Trump plans to revoke the liquefied natural gas (LNG) export ban on his first day back in office, and has signaled plans to expedite the approval of new LNG export permits to boost gas exports. President-elect Trump has also promised to terminate the leasing of federal lands and waters for offshore wind projects while favoring oil and gas extraction on federal property, signaling a decisive pivot back to traditional energy sources and a focus on domestic production. This objective is furthered by the incoming Trump Administration’s plans to open more federal lands and waters to drilling and the creation of a National Energy Council chaired by North Dakota Governor Doug Burgum, who has also been tapped to lead the U.S. Department of the Interior. Burgum and President-elect Trump have indicated that the National Energy Council will oversee a path to energy dominance by fostering coordination among all federal agencies with a view to cutting red tape. The Administration also plans to replenish the Strategic Petroleum Reserve while counteracting the International Energy Agency’s energy transition policies—all of which underscore a combative stance toward rapid energy decarbonization and would boost short-term oil demand and encourage production. Additionally, while largely symbolic, he plans on re-approving the Keystone XL Pipeline. The dynamics within the industry are equally compelling; some traditional integrated companies may find themselves on the periphery as independent players with a deeper deregulatory bent like Chris Wright, CEO of Liberty Energy and the nominee for the U.S. Department of Energy (DOE) Secretary, gain influence. Adding further intrigue, the interplay between the fossil fuel sector and figures like Elon Musk will shape the selection of policies and incentives.
Renewable Fuels
Over the past 15 years, the mandates of the federal Renewable Fuel Standard (RFS) have resulted in dramatic increases in the production and use of renewable fuels as transportation fuel in the United States, including ethanol, biodiesel, renewable diesel, renewable natural gas (RNG) and sustainable aviation fuel (SAF). During his first term as President, President-elect Trump implemented a number of measures that resulted in significant reductions in the price of environmental credits (known as RINs) that are generated on the production of renewable fuels under the RFS. Further, presumptive EPA Administrator Lee Zeldin, who would be charged with implementing the RFS, introduced two bills into Congress that would have repealed the RFS or, alternatively, eliminated the ethanol mandate of the RFS. These actions, taken together, have led many to forecast a bearish outlook for the renewable fuel market over the next four years.
While the renewable fuel market could experience volatility over the next four years as it faces the possibility of less robust RFS mandates than under the Biden Administration and the issuance of RFS exemptions to certain small refineries, any action taken by President-elect Trump or Administrator Zeldin to significantly scale back the RFS would likely be met with equally significant pushback by members of Congress. Moreover, traditional refiners, including Valero, Chevron and BP, have invested billions into either converting refining capacity to renewable fuels or purchasing established renewable fuel producers. While not without its detractors, the RFS enjoys broad support from both Democrats and Republicans as it has led to the creation of a large number of jobs in numerous Congressional districts throughout the United States. Perhaps most importantly, the RFS is a statutory program that was passed by Congress and can only be repealed by an act of Congress, which is highly unlikely.
Nuclear Energy – Fission
Nuclear energy has become truly bipartisan, with the latest piece of federal legislation, the Accelerating Deployment of Versatile, Advanced Nuclear for Clean Energy Act of 2024 (ADVANCE Act)—which sought to streamline nuclear licensing and regulation—passing by a 393-13 margin in the House of Representatives and an 88-2 margin in the Senate. Representative Brett Guthrie, who has been chosen by the House Republicans to chair the House Energy and Commerce committee, strongly supported the Act’s provisions on facilitating the licensing of nuclear reactors at former coal sites. On the executive side, the first Trump Administration championed nuclear energy, with then Secretary Rick Perry seeking to make nuclear “cool again.” President-elect Trump has even given a nod to small modular reactors in his interview with Joe Rogan. Additionally, DOE Secretary nominee Wright is on the board of a microreactor company and has been a strong supporter of nuclear energy.
A key issue for the nuclear industry is whether the clean electricity tax credits under the IRA that benefit new nuclear projects will survive the reconciliation process and whether the other incentives, such as loans and loan guarantees under the LPO, will remain available. In addition, the industry, which is looking to embark on building hundreds of new reactors after more than a 40-year lull in new nuclear construction that only saw two completed reactors, is looking for additional federal support to offset the risk of first-of-a-kind nuclear new-builds. On December 4, 2024, Sen. Jim Risch introduced the Accelerating Reliable Capacity (ARC) Act that would provide up to $3.6 billion in federal dollars to cover unforeseen construction costs.
Nuclear Energy – Fusion
Fusion energy, once considered a future technology, has gained substantial momentum over the past decade with major advances by both public and private sector entities. The DOE under the prior Trump administration helped lay the foundation for this growth, initiating a number of programs that provided federal support to the growing industry. For example, Advanced Research Projects Agency-Energy (ARPA-E) launched programs like Breakthroughs Enabling Thermonuclear-Fusion Energy (BETHE) during Trump’s tenure. A second Trump Administration could potentially bolster fusion energy development, building on initiatives started during his first term. Achieving significant breakthroughs in fusion energy could be seen as a victory by the administration, confirming its prior policies. While the administration’s primary focus will likely remain on traditional energy sources like fossil fuels and nuclear fission, the continuity of prior investments in fusion could incentivize continued federal support.
Fusion aligns with Trump’s emphasis on American technological leadership. International and foreign government funding is increasing for fusion, creating the sense of a race between leading countries to commercialize this technology. Trump’s focus on outpacing China and other countries in strategic industries, including energy technology, may help make fusion a priority in maintaining U.S. leadership. This competitive dynamic, combined with bipartisan support and fusion’s potential role in American leadership, could help ensure ongoing or even expanded investment in fusion research during a second Trump term.
Renewables Solar, Wind and Storage
As discussed above, while we expect a strong pivot toward domestic fossil fuel production and away from offshore wind, there has also been a boom of development of solar, wind and storage assets across large swaths of red and purple states. President-elect Trump promised to terminate the “Green New Scam” and the implications of any potential repeal of IRA incentives on the renewable sector, including solar, onshore and offshore wind and storage, cannot be understated.
Additional policies of the Trump Administration could have a direct impact on the solar industry. Trade tariffs, in particular heavy levies on Chinese shipments, could significantly raise the cost of solar components. The IRA has also spurred growth in domestic solar manufacturing, including by numerous foreign companies, but those same companies are now evaluating divestments or sales of their interest in those assets. But even domestic manufacturing relies on imported components which may be impacted by tariffs. Despite federal uncertainties, many state and local governments continue to support solar energy and may further step into any federal void to support the solar industry during the Trump administration.
President-elect Trump has been a vocal critic of offshore wind and has pledged to issue executive orders aimed at halting offshore wind development as soon as he takes office. We have already seen certain offshore wind firm projects be put on hold, a slump in the valuation of shares in offshore wind developers and the expression of concerns by industry stakeholders about potential delays and increased risks for projects that have been announced but are still in development. On the other hand, onshore wind has been less impacted, and state-level mandates and local incentives are expected to continue to drive growth in many regions. In addition, the rollback of certain environmental regulations expected to be pursued by the Trump administration and National Energy Council are expected to benefit onshore wind development by expediting the permitting process.
The storage industry faces similar headwinds as the solar industry, with expected increases in tariffs and import costs driving higher prices and potentially slowing growth in the energy storage market. The countervailing influence is the steep increase in energy demand being driven in large part by data centers which require baseload stable generation, which renewables cannot offer absent a storage solution. We have seen several utility scale storage projects come online in the last four years, and more are slated for development. Finally, the close relationship of President-elect Trump and Elon Musk may impact and likely blunt the Administration’s approach to policies that would directly and negatively impact the storage industry, particularly as storage becomes more critical for grid efficiency.
Geothermal
Geothermal energy in the U.S. has garnered increased interest in recent years, driven by enhanced geothermal systems (EGS) which are unlocking geothermal potential in areas previously considered unsuitable. The Trump administration’s support for domestic energy production could indirectly benefit geothermal by streamlining permitting processes and reducing regulatory barriers that often delay geothermal projects. The new leadership at the DOE also seems primed to continue supporting geothermal. Liberty Energy, at which the presumptive DOE Secretary currently serves as CEO, has invested in Fervo Energy, a leading advanced geothermal developer, indicating a potential openness to geothermal initiatives. Further, many in the oil and gas sector are eyeing geothermal as a market for their drilling and extraction expertise.
One question is the extent to which IRA tax credits remain in place for geothermal, particularly for geothermal versus other energy sources like wind and solar. If credits are repealed for wind and solar but not geothermal, this could provide a further advantage to geothermal projects. Conversely, broader cuts that affect geothermal could slow its growth and leave it reliant on state-level policies and private investment for continued advancement.
Hydrogen
The most significant issue in the development of a domestic clean hydrogen economy is the fate of the December 2023 draft rule implementing the Section 45V Production Tax Credit (PTC) which included the three pillars of “incrementality” (otherwise known as “additionality”), deliverability and hourly matching advocated by some environmental groups but opposed by most in the hydrogen industry as placing “unnecessary burdens on the still nascent clean hydrogen industry,” undercutting projects’ commercial viability. To date, most hydrogen projects have been frozen pending resolution of the rule. Industry expects the Biden Administration to issue the final rule before Trump’s inauguration, but it’s unclear whether the final rule will mirror the draft rule and what the reaction of the incoming Administration will be. If the final rule is not favorable to industry, the Trump Administration—which is unlikely to support the “three pillars” approach—could take steps to unravel it using the Congressional Review Act. Of course, the 45V PTC itself would have to survive any rollback of IRA credits.
The fate of the DOE’s $7B Regional Clean Hydrogen Hub program has also been tied to the resolution of the 45V issue. To date, the DOE has issued only ~$130M of the $7B for the initial phase of projects in five of the seven selected hubs, which include 10 red and swing states. The potential value of these projects could garner Republican support for maintaining the hubs funding. For example, Trump interior secretary nominee Doug Burgum championed the Heartland Hub as governor of North Dakota. The incoming Administration also seems interested in expanding the market for natural gas and is likely to support “blue hydrogen” projects, which are part of several hubs.
Critical Minerals
As the global demand for critical minerals continues to grow, global supply remains under strain due to geopolitical tensions, export restrictions, and limited mining and processing capabilities. But rebuilding the U.S.’s industrial capacity and enhancing domestic critical materials resources are objectives with bipartisan consensus. To that end, President-elect Trump is expected to be an accelerator of domestic critical material development.
Recently, China escalated trade tensions with the U.S. by banning the export of critical minerals (gallium, germanium and antimony), which are essential in developing semiconductors, renewable energy and defense technologies. This move by China is viewed as a countermeasure to the U.S. imposing new restrictions on China’s semiconductor sector.
As the trade and tariff policies of the second Trump Administration develop in the coming months, the U.S. should anticipate greater tensions with China on critical minerals, which will have a cascading impact across multiple industries. However, Trump has made clear that he is pro-resource development in the U.S., which could result in continuing the investment in domestic critical minerals exploration from the tail end of the Biden Administration. Moreover, the administration is expected to continue initiatives that incentivize the use of domestically sourced critical minerals.
As Day One of Trump’s second term draws near, Pillsbury’s Energy team will continue to closely monitor the above developments, as well as any other significant shifts in U.S. energy and climate priorities.
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