U.S Post-Election Analysis: What’s next in the U.S Energy Sector?

The 2024 U.S. elections have shifted the balance of power in Congress, with the Republican Party now holding majorities in both the House and Senate. This change raises important questions about the future of energy policy, particularly in relation to the Inflation Reduction Act (IRA), a key part of the Biden administration’s climate agenda. While there is vocal opposition to the IRA from some Republicans, a full repeal is unlikely. Instead, focus will likely be on reforming parts of the IRA, particularly its renewable energy incentives and tax credits. A letter from 18 House Republicans shows bipartisan support for certain IRA provisions, signaling potential reforms rather than full dismantling. 

Key Policy Developments to Watch 

1. Tax Cuts and Jobs Act (TCJA) Extension 

• Key Drivers: The potential extension of the Tax Cuts and Jobs Act (TCJA) beyond 2025 could be a top priority for lawmakers in the Republican Party, with a proposed extension of over $4.5 trillion. However, extending and expanding the TCJA would require significant budget accommodations, which may involve offsetting spending in other areas—particularly in energy transition programs under the IRA and Bipartisan Infrastructure Law (BIL).

  
  

• Impact: Extending corporate tax cuts could shift the balance of tax equity incentives, with lower corporate tax rates potentially favoring traditional energy sectors like fossil fuels. This could have a ripple effect on the Tax Equity appetite for renewables. Some key areas of the IRA that may face scrutiny in this scenario include: 

  • Clean Vehicle Credit (Section 30D) 

  • Technology-Neutral Investment Tax Credit (ITC) 

  • Section 48E Adders 

  • Discretionary grant funds for energy projects 

    
    

• What to Watch: The Republican Party is likely to push for a rebalancing of corporate incentives, which could reduce support for renewable energy while increasing incentives for fossil fuel development. Keeping an eye on which parts of the IRA are targeted for potential cuts will be crucial as the extension of the TCJA moves forward. 

2. Campaign Tax Policies 

• Key Drivers: During the 2024 election season, one of the key proposals from lawmakers in the Republican Party is the expansion of corporate tax cuts to a 15% rate (down from 21%). Additionally, decisions around the State and Local Tax (SALT) deduction cap and Child Tax Credits will have implications for state budgets and energy programs. Additional revenues to come from tariff policies.

  
  

• Impact: Keeping the SALT deduction cap in place could disproportionately impact high-tax states like California and New York, which rely on state revenue to fund energy transition programs. A combination of changes to corporate tax policies and family tax credits could further reduce the availability of federal funds for clean energy projects, increasing pressure to offset spending through revisions to the IRA and BIL. Tariffs on imported energy supply chain materials.

  
  

• What to Watch: Provisions within the IRA and BIL that could be re-evaluated as part of broader tax policy reforms. Pay attention to any proposed changes in funding mechanisms that could affect the availability of federal funds for clean energy initiatives. 

3. Project 2025: Conservative Proposals 

• Key Drivers: Project 2025 is a conservative policy agenda that, while not fully endorsed by mainstream Republican leaders, could influence future policymaking in the energy sector. The agenda includes proposals for rollbacks of EPA regulations and reinterpreting the Clean Air Act (CAA) to loosen emissions standards. 

  
  

• Impact: Loosening emissions standards under the CAA could allow greater flexibility for fossil fuel industries, potentially reversing some of the progress made toward decarbonization. Additionally, National Environmental Policy Act (NEPA) deregulation could expedite permitting for large energy infrastructure projects, including oil, gas, and renewable energy projects. 

  
  

• What to Watch: The confirmation of recent EPA nominees could provide insight into the future of environmental regulations under a Republican-majority Congress. A potential pivot to “energy independence” through increased domestic oil and gas production might limit the momentum for clean energy initiatives and reduce fiscal support for green energy projects. 

4.  Counterpoint: Republican District Benefits from IRA 

• Key Drivers: Despite vocal opposition from some lawmakers in the Republican Party, the IRA has had a significant impact in Republican-leaning states. Approximately 80% of IRA funding has been directed toward Republican or swing states, with around 90% of the $110 billion in gigafactory investments (comprising over 40 factories with a combined capacity of 1,300 GWh) being located in Republican districts. 

  
  

• Impact: Even with a Republican-controlled Congress, efforts to reduce funding for the IRA could face challenges, as many Republican districts have benefited from these investments. This presents a complex dynamic where lawmakers may face pressure from constituents and businesses in their districts to maintain or expand clean energy funding. 

  
  

• What to Watch: The 18 Republicans who have publicly supported key elements of the IRA will play a critical role in shaping future energy legislation. Their voices will likely be influential in any discussions about reform, making it unlikely that the IRA will undergo a complete overhaul. 

What’s Next? 

With a Republican-majority Congress, energy policy reform is likely. While efforts to cut the IRA may face pushback, the significant investments in Republican states create a complex landscape. Key areas to monitor include tax policy changes, corporate incentives, and the Project 2025 proposals, as these will shape future energy legislation.