How the Presidential Election Could Impact Renewable Energy Tax Credits

President Biden signed the Inflation Reduction Act (IRA) into law in 2022. The IRA is the largest public investments in renewable energy in American history and created more than 20 different tax incentives for renewable energy and related manufacturing.

Certain Republic politicians have directed vitriol at the IRA. However, even if Republicans win the White House in the November election, a repeal of the IRA is unlikely.

Nonetheless, a Trump administration could take a variety of executive actions to make developing and financing renewable energy projects more difficult. Easier options include declining approvals for projects on federal lands, revoking Internal Revenue Service (IRS) guidance, and revoking proposed Treasury Dept. regulations. More difficult options include freezing grant funding and revoking final Treasury regulations.

COMMENTARY

IRA Repeal (Unlikely)

Repealing the IRA would require congressional action, so even if the Republicans win the White House, they are unlikely to be able to repeal the IRA. At a minimum, Republicans would need to keep control of the House of Representatives and secure at least 50 votes in the Senate. Repeal would be possible if Republicans could muster exactly 50 Senate votes and used the vice president to break the tie. However, Republicans would still have to overcome a Democratic filibuster. To overcome the filibuster with only 50 votes (rather than the usual 60 votes), they would need to use the budget reconciliation process. The budget reconciliation is typically available once a year at best. The IRA itself was passed as a budget reconciliation measure in 2022.

Even if Republicans retain their majority in the House, it no longer seems as likely that all House Republicans would vote to repeal the IRA. While no House Republicans voted for the IRA originally, some have publicly expressed support for keeping it, at least in part. For example, in August 2024, 18 Republican House members sent a letter to House Speaker Mike Johnson stating they would not support a full repeal of the IRA.

While the letter maintained that the IRA was “deeply flawed,” it noted that renewable energy tax credits “have spurred innovation, incentivized investment, and created good jobs” across the country, including in their districts. This letter does not preclude a repeal of some IRA provisions, but it seems unlikely that the Republicans who wrote it would vote to repeal credits for core renewable energy technologies like solar, wind, storage, and geothermal.

Republican members of Congress have good reasons to retain IRA tax credits. First, their districts benefit economically: so far, more IRA funding has flowed to Republican congressional districts than Democratic congressional districts. Second, many Republican voters seem to support the IRA. In September 2024, the Solar Energy Industries Association published a poll in which 78% of self-described Trump voters answered that they support the IRA’s renewable energy tax credits.

Trump himself has signaled tepid approval for renewable energy. During the September 2024 debate, he said that, while he is concerned about the land-use implications of renewable energy, he is “a big fan of solar.” That may be a small nod to his voters who support renewable energy. Trump’s appreciation for solar energy may also be related to his family connection to the solar industry: a private equity firm formed by his son-in-law, Jared Kushner, has made a large investment in Mosaic Solar, which finances rooftop residential solar installations. So, Trump may avoid targeting solar energy (especially rooftop solar).

Overall, repealing the IRA would likely require unanimous support from Republicans, and unanimous support no longer seems to exist. Further, it may be difficult to cobble together unanimous Republican congressional support to even amend key provisions of the IRA.

Executive Action on Federal Lands

There are also a number of actions the Trump administration could take without congressional support. One of the easiest would be to order the Department of the Interior to decline approval or leases for projects on federal lands or federal waters. For example, the Lava Ridge wind project is awaiting approval to be located on federal lands managed by the Department of the Interior’s Bureau of Land Management (BLM). Various Republican politicians from Idaho have already vocally opposed the project. If Trump wins, he could direct BLM to decline approval for Lava Ridge and other renewable energy projects on federal land. The project developer could challenge such a decision as arbitrary and capricious; the likelihood of success for such a challenge would depend on the rationale BLM uses to support its decision.

Federal approval is also critical for offshore wind projects. Many offshore wind projects are located in federal waters and thus require approval from the Department of the Interior’s Bureau of Ocean Energy Management (BOEM). Trump could potentially direct BOEM to decline or pause approvals for offshore wind development. This appears to be a high priority, as he vowed to sign an executive order against offshore wind development on his first day in office. Trump began expressing dislike for offshore wind when an offshore wind project was built within view of one of his golf courses in Scotland.

Reallocation of Grant Funding

Trump may also attempt to freeze or reallocate IRA grant funding. This would not disrupt the IRA tax credits as tax credits are not subject to the same funding process as grant and subsidized lending programs. In addition to tax credits, the IRA appropriated billions of dollars of funding for grant programs run by various federal agencies, including the Department of Energy and Environmental Protection Agency. Trump has stated that he would like to restore presidential authority to withhold congressionally authorized funding for certain programs.

However, the 1974 Impoundment Control Act means the executive branch has limited authority to withhold funding appropriated by Congress. Additionally, much of the IRA grant money has already been spent, so there may be little left to freeze or reallocate. The Biden administration has awarded $90 billion in climate-focused IRA grants so far, out of the $120 billion of climate-focused grant money authorized.

Disrupting IRS Guidance

The Trump administration could also attempt to make IRA tax credits more difficult to access by stalling or revoking IRS guidance or Treasury regulations. It is easier to revoke IRS guidance or proposed Treasury regulations than it is to revoke final Treasury regulations.

The president can easily revoke sub-regulatory IRS pronouncements that provide critical guidance to the renewable energy industry. Taxpayers may generally rely on sub-regulatory guidance published in the Internal Revenue Bulletin until subsequent guidance or law renders it moot. This guidance may be revoked (at least prospectively) with less formality than final regulations, and taxpayers generally cannot rely on it after the date of revocation.

The clean energy industry relies on such sub-regulatory rules for issues like guidance on grandfathering rules that determine which tax credit regime applies based on when projects “began construction,” safe harbors for wind, solar and battery projects to determine if a project qualifies for a 10% tax credit adder based on satisfying the IRA’s domestic content standard, and guidance for determining whether a project is sited in an “energy community” that qualifies it for a 10% tax credit adder. The last Trump administration approached IRS guidance with benign neglect; accordingly, reversing sub-regulatory tax guidance likely will not be a focus of a second Trump administration.

Trump could also order Treasury to withdraw proposed regulations. The clean energy industry is still awaiting final regulations in some critical areas, including for the investment tax credit that applies to many renewable energy technologies and tax credits for making hydrogen. It is important to finalize these regulations because taxpayers can only rely on proposed regulations to the extent such proposed regulations provide that they may be relied upon Although it is uncommon for Treasury and the IRS to withdraw proposed regulations, it is feasible.

It would be much more difficult for Trump to revoke final regulations. Once final rules are published, they cannot be changed without a notice-and-comment process under the Administrative Procedures Act. And now that the Supreme Court has reversed the Chevron doctrine, regulatory actions no longer have a presumption of validity, so it would be even more difficult for a Trump Treasury to abruptly reverse course on final energy tax credit regulations that the prior Treasury believed were consistent with the statutory language of the IRA.

What if Harris Wins?

Undoubtedly, a Harris administration would continue the implementation of the IRA. The Biden-Harris administration recently celebrated the two-year anniversary of the IRA with a fact sheet citing its many accomplishments. Among these, they note that the IRA has helped create more than 330,000 jobs and stimulate $265 billion in new clean energy investments.

However, like Republicans, Democrats would likely face congressional gridlock if they sought legislative expansion of clean energy incentives. Fortunately, though, many of the current IRA tax credits do not even start to phase out until after through the later of (i) 2031, and (ii) when the nation’s greenhouse gas emissions from the production of electricity is 25% of 2022 levels.

Democratic support for the renewable energy industry would continue in the form of regulatory guidance for existing tax credits: the Harris administration would continue to finalize key Treasury regulations, which would help provide certainty for renewable energy investments. Further, a Harris Treasury could instruct the IRS to resume issuing private letter rulings on those renewable energy tax credit issues that remain opaque after final regulations are published.

—David Burton is a partner in the Tax practice with Norton Rose Fulbright, focused on a broad range of U.S. tax matters. He specializes in project finance and energy transactions, with extensive experience in structuring tax-efficient deals for wind and other renewable energy projects. Andrew Kelbley focuses on matters involving renewable energy projects. He joined Norton Rose Fulbright’s Projects practice in New York after earning his law degree from Duke University School of Law. He holds a bachelor’s degree from Boston University.