Trump's Focus on Energy Will Have Variety of Impacts

 

 

November 27, 2024 - President-elect Donald Trump’s transition team has made the U.S. energy industry a focus of its plans for his first days in office, with analysts and energy experts expecting a rollback of environmental regulations for coal- and natural gas-fired power plants. That may have some utilities rethinking their strategies about the scheduled closure of some fossil fuel-burning units.

There also will be an emphasis on increasing already record-breaking domestic drilling for oil and natural gas. A Biden administration pause on new export permits for liquefied natural gas (LNG) is expected to be lifted, a move being decried by consumer advocates who say it would increase energy prices for consumers. Federal tax credits for purchases of electric vehicles (EVs) also could be axed, as the administration works to support continued sales of gasoline-powered transport in a win for the oil industry.

The expected moves are all talking points of Trump’s campaign for president. “The American people can bank on President Trump using his executive power on day one to deliver on the promises he made to them on the campaign trail,” Karoline Leavitt, Trump’s transition spokesperson, said in a statement.

Energy Emergency Declaration

 

Trump has said he will declare an energy emergency on his first day in office to bypass congressional approval for his plans. Trump, though, has said he would ask Congress to provide funding to replenish the nation’s Strategic Petroleum Reserve (SPR) along the Gulf Coast. The SPR, established by President Ford in 1975 as an emergency crude oil supply, was depleted in the past few years as a way to combat inflation and higher gas prices after the Russian invasion of Ukraine.

Trump’s support for the oil and gas industry was apparent with his choice of industry executive Chris Wright, CEO of Colorado-based Liberty Energy, to head the Dept. of Energy (DOE).

Industry consultants and analysts have provided POWER with their takes on industry impacts from a second Trump administration. Tomer Shalit, founder of ClimateView, a Sweden-based group that earlier this month released its Transition Element Framework for cities planning climate action policies, attended the recent COP29 United Nations climate conference. Shalit told POWER that COP29 showed the transition to cleaner forms of energy cannot be stopped, though it could be slowed. “The world is a very different place to what it was eight years ago,” when Trump first took office, said Shalit. “The move away from fossil fuels and towards renewables has too much momentum to be stopped. A nuclear plant’s worth of solar panels is being built every day, global investment in clean technology is running at double the size of coal, oil and gas.

“Those that move the fastest will win the biggest: The question is no longer ‘will it happen?’ but instead, ‘how fast?’ And the winners of tomorrow will be those who move the fastest. Companies and countries that decrease speed or stall the transition will become less relevant on the global stage,” said Shalit.

“Trump’s climate policies will lead to a new age of local leadership: During the previous Trump term, the decrease in federal initiatives meant that a lot of cities and regions stepped up in ambition. The same thing will likely happen this time, meaning that states and cities in America will play a bigger role on the international stage when it comes to moving fast on climate action,” said Shalit.

“Some areas in clean energy will continue to see tailwinds when looking at products like low-carbon ethanol and sustainable aviation fuels,” said Shawn Severson, co-founder of Water Tower Research. “These should benefit from more bipartisan support and are tied to the agricultural complex and support the domestic economy.”

Severson told POWER, “Everyone agrees demand for electricity is likely to continue to grow. Solving this will take a long time horizon in adding capacity. Although ST [short-term] sentiment can be a tailwind, we expect utilities will play a longer game, especially considering the competitiveness of solar and dropping prices for grid-scale energy storage technology and projects, making intermittent renewables more viable.”

Tariffs to Pay for Tax Breaks

 

Zachary Kaplan, partner for global consultancy Roland Berger, and an expert in international policy and development, recently held a series of discussions with representatives from agencies including the Dept. of Defense (DOD), the State Dept., the DOE, and the Federal Reserve regarding policy and regulatory changes anticipated with the incoming Trump administration. Kaplan provided POWER with insight into some aspects of what the energy industry can expect from Trump’s second term.

“Anticipate a strategy of trading tax breaks for tariff hikes and expect much barter and trade and discussion around using tariff increases to ‘pay for’ the tax breaks that Trump expects to give to individuals and companies,” said Kaplan. Analysts have said those tax breaks will mostly benefits those in higher tax brackets; as Kaplan noted, “there will be a push to ‘incentivize’ corporations to manufacture more in the U.S. by offering lower tax rates [perhaps around 15%]”

Kaplan told POWER, “We may see a closer alignment between DOE and DOD. There have been discussions around how to align DOE energy strategy with national security as a new mechanism to message continued government support [whether in tax breaks or in grants]. It will shift from a story of energy transition for the sake of addressing climate change toward investing in new technologies, new forms of energy, new manufacturing investments in the energy supply chain to break any dependence we may have on foreign countries [i.e., China] and create American jobs.”

Alignment between DOE and DOD already has been seen in work to make the power supply at U.S. military bases more reliable and resilient, in part through the use of microgrids to generate on-site power and reduce reliance on the power grid.

Reversing the pause on LNG export permits would have an impact on the U.S. power generation sector, because of its effect on natural gas prices. The U.S. Energy Information Administration on Nov. 25 said the global gas market may have a tighter supply-demand balance in the coming months if Europe and Asia have colder temperatures than in recent years. Additional demand from exports of LNG would put upward pressure on prices for natural gas in the U.S.

A Nov. 25 report from Public Citizen, a consumer rights advocacy group, said Pennsylvania’s households, businesses, and owners of electric power plants could pay up to $16 billion more because of higher natural gas prices between 2035 to 2050 if the Trump administration approves the LNG export permits put on hold by the Biden administration. The report said the state’s natural gas-fired power plants would pay up to an additional $7.4 billion for natural gas over a 15-year period.

Severson said lifting the pause on LNG export permits “will be a big deal and really help support the natural gas complex in the U.S. Natural gas provides a great long-term bridge fuel and can be used for peaking plants, transportation, and baseload power worldwide. NatGas and LNG exports have a robust pathway around the world in our view, and U.S. production and export is pivotal.”

Impact for Hydrogen

 

Kaplan noted the support for natural gas, which could help some forms of hydrogen. “Gas investments and projects are likely to be eligible for funding [for example, blue hydrogen, made from natural gas],” said Kaplan. “There will likely be an opening up of the current ban on gas exports. This will be used as a ‘soft’ power tool in some cases linked to foreign policy.”

Kaplan said, “There is speculation that hydrogen hubs will be reviewed and scrutinized because they are so stalled. Some of those in the [U.S. Northeast] may be canceled and others may be asked to be restructured in order to be accelerated.” POWER recently reported on issues with a hydrogen hub in the Appalachia region.

The DOE on Nov. 20 said it would award up to $2.2 billion to hydrogen hubs on the Gulf Coast and in the Midwest. Energy Secretary Jennifer Granholm said the move signals “our deep commitment to strengthening America’s energy security and boosting our economic and global competitiveness while also tackling the climate crisis.” The Biden administration had a plan for U.S. production of 50 million metric tons of clean hydrogen fuel, produced using renewable energy, by 2050.

EV Tax Credits

 

The impact of eliminating federal tax credits for purchases of EVs—individual states could still offer incentives—continues to be debated. That’s in part due to the supply chain for EVs, as many manufacturing plants are located in states that supported Trump for president, and lawmakers in those states do not want to lose the jobs that were created. Many of those lawmakers already have expressed concerns about diminishing the positive economic impact for those states from the Biden administration’s Inflation Reduction Act (IRA).

“The tax incentives for EVs may have a bullseye on them, but at the same time, there is support to continue investing in the supply chain for EVs, especially trying to domicile further component parts and the critical minerals inputs,” said Kaplan. “Also, tax credits are seen as much less contentious in general than upfront grant mechanisms.”

Severson also noted the impact of eliminating EV incentives. “We think this will have a real short-term impact on the sector, [and] not a positive one,” Severson said. “This could negatively impact the EV charging infrastructure, which is a pivotal factor in the EV buyer’s decision process. We think EV penetration will resume in the long term, but we expect headwinds in the short term.”

Kaplan said that existing grants and tax credits that have been committed to energy projects are likely to remain untouched. He said there is a chance Trump could issue an executive order to pause and review funding, but said commitment to projects that have reached the equivalent of commercial close would face serious legal challenges that the incoming administration would likely not want to face. Kaplan said there is still about $20 billion to $30 billion of unappropriated funds at play, which puts that money at risk, but that no more than 10% of IRA funds could be clawed back or redistributed—and the funds would first need to be withheld under the Impoundment Control Act (ICA).

Kaplan said the incoming administration could challenge the ICA requirement, though the time and effort required might not be worth it. Brendan Boyle, a Democratic congressman from Pennsylvania and ranking member of the House Committee, in a Nov. 22 statement said, “The legal theories being pushed by [Trump allies] Elon Musk and Vivek Ramaswamy are as idiotic as they are dangerous. Unilaterally slashing funds that have been lawfully appropriated by the people’s elected representatives in Congress would be a devastating power grab that undermines our economy and puts families and communities at risk. House Democrats are ready to fight back against any illegal attempt to gut the programs that keep American families safe and help them make ends meet.”

Kaplan said some groups within federal agencies that work in the energy space could be eliminated, such as the DOE’s Loan Programs Office. The first Trump administration attempted to do that without success. Justice40, a program directing climate action benefits to disadvantaged (primarily minority) communities, also could dismantled, though Kaplan said many of the program’s elements could survive through alternative avenues.