Trump’s proposed clean energy retreat: US costs and global rewards

Overview

The Biden Administration’s investments in climate leadership across the CHIPS Act, the Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA) have shifted the landscape of US and global clean energy supply chains. The IRA has created over $200 billion in clean energy investment inside the United States. CHIPS and the Bipartisan Infrastructure Law created new government offices to support scientific and technological development. This kind of action is badly needed for the US to compete with China and regain a position in emerging clean energy supply chains. 

The IRA and BIL investments are having a global impact and the countries that had strategically positioned themselves in clean energy supply chains are benefitting. While the US’  allies initially feared that it was embarked on a protectionist “America First” industrial strategy, other countries now see how they can benefit from US climate action. Allies and partners are needed to provide critical components for US factories as well as to own and run those factories. Over 45% of IRA investment inside the US has been by foreign companies, with Japanese and South Korean firms leading the way. 

“Our scenario analysis shows that US repeal of the IRA would, in the most likely scenario, harm US manufacturing and trade and create up to $80 billion in investment opportunities for other countries, including major US competitors like China. US harm would come in the form of lost factories, lost jobs, lost tax revenue, and up to $50 billion in lost exports.”

The US election results —a likely trifecta with a Trump administration, a Republican-held Senate and a Republican-held House—point towards increased trade protectionism, removal of environmental regulations, and fossil fuel handouts. Yet the irony today is that a repeal of the climate portions of IRA, BIL, and CHIPS would harm the United States and create tens of billions of dollars in opportunities for other countries. These laws give the US a foothold in the clean technology race. The far-right Heritage Foundation’s “Project 2025,” a roadmap for a second Trump administration, threatens to repeal credits and tax breaks for clean energy and eliminate the Department of Energy’s demonstration programs. This would severely damage US ability to develop and scale next generation technologies, effectively stymying the best hope for the US to gain a competitive footing with China. Without these investments and tax credits, US industry will be hobbled just as it is getting going, ceding the ground to others. Canceled projects in the United States mean that other countries can invest and seize the investment opportunity to meet demand for clean technologies. 

“China will be happy to wave in the rearview mirror of one of its world-leading EVs, as US manufacturers hobble on.” 

With or without the US, the global energy transition now has incredible momentum. In 2023, China added more solar capacity and sold more electric vehicles in a single year than the US has in 30 years. Solar is now cheaper than coal almost everywhere in the world. Bloomberg New Energy Finance has shown that cheap Chinese solar panels are flooding into Pakistan, where they have significantly reduced demand on the Pakistani energy grid. Over the next few decades, solar and batteries are likely to boom across the middle-income world as rapidly growing economies add high-quality solar assets to their energy mix. Cheap energy has been, for centuries, the foundation of economic prosperity. The countries that find a way to use rapidly declining solar prices to fuel development, will benefit enormously. 

A Trump presidency would not change these fundamental facts. Without US leadership, the most likely outcome is that the energy transition continues its bumpy but inevitable trajectory. However, in such a scenario the US would cede clean energy technology manufacturing to other countries. 

Indeed, even without subsidies, renewables are so cheap that the US will still install gigawatts of it in the coming decades.

“However, without the IRA’s manufacturing subsidies and the BIL’s demonstration programs, more of these technologies will be imported rather than produced in the US. 

The central analysis in this policy brief is meant to illustrate what could happen to the US global position in the event of an IRA repeal. We show that under a variety of scenarios, a US repeal of the IRA would create two kinds of opportunities for other countries:

• Investment opportunities abroad: Without IRA credits, US manufacturing projects will be canceled. The gap between US demand and US supply will grow, transferring clean energy technology production to countries including China, Japan, Korea, Morocco, and Mexico, in order to meet US demand. 

• Lost US exports: If the US is no longer exporting clean tech to other countries, then competitors can seize the global market share the US would have held.

In short, the US loss will be a gain for others. In the event of an IRA repeal, other countries will be able to attract investments and exports to their shores, thus boosting their clean industries.

Nonetheless, the designers of the IRA understood this possibility, and ensured that it would produce benefits for the entire country, making it very difficult to repeal. We discuss the difficulty of an IRA repeal toward the end of this brief.