One of President Trump’s top priorities when he took office was to remove generous subsidies for things like wind and solar power that, critics have argued, are a drain on federal coffers. The panic that this intention caused in transition industries suggested it would be an easy job. It’s not. A lot of the subsidy billions have gone into Republican-led states.
The warnings have been coming in for months. A lot of the companies that have taken advantage of IRA funds for energy transition projects have done so in red states. Toyota, for instance, is planning on building one of the biggest battery plants in the world in GOP-run North Carolina. Thanks to the IRA, the company has boosted its originally planned investment for the battery factory by $8 billion to a total $13.9 billion. Toyota still plans on moving ahead with the project, at least it was in December last year, after Trump won the elections.
In total, new energy transition projects in Republican districts account for as much as 85% of total IRA investments, one survey conducted last year by a business leader group dubbed E2 found. These projects also accounted for close to two-thirds of all new transition jobs promised by those taking advantage of the subsidies.
In this context, it is not that hard to see why representatives of such states would be reluctant to support the Big, Beautiful Bill in its original form. Indeed, back in April, four Republican senators wrote a letter to Senate Majority Leader John Thune, advocating for keeping the energy tax credits from the IRA in the budget reconciliation bill.
“Our country is blessed with abundant natural resources and an entrepreneurial spirit that uniquely positions us to power both our economy and the world—enabling U.S. leadership in innovation, energy production, and manufacturing alike,” the letter said, as cited by Reuters. “Many of the investments that make this possible are enabled by current tax provisions, including some from the Inflation Reduction Act.”
House Republicans also wrote a letter—a group of 27 of them—asking for the tax credits under the IRA to be preserved. No wonder, then, that the Senate Finance Committee made some concessions to IRA backers, softening the subsidy phaseout language of the original budget bill. For instance, wind and solar projects can still qualify for full subsidies under specific stipulations from the IRA, but only if they begin construction by the end of the year. If they start construction in 2026, they could get 60% of the original subsidy size. For construction starting in 2027, the portion of the original tax credit they could claim falls to 20%, going down to zero from 2028 onwards.
That sounds like a reasonably fair deal. Those enterprises that sprouted only thanks to the IRA or the large international companies that the IRA funds motivated to plan massive investments will now have the chance to make that money work, faster. Even so, not everyone is happy with the concessions.
“For wind and solar, you have particularly large-scale projects that are very much in development,” said the head of Advanced Energy United’s federal policy team said, as quoted by Utility Dive. “They’re in interconnection. They are in permitting processes that have pilot agreements, but they are likely not to go to construction until ’27 or ’28, so this effectively kills those projects.”
“We could essentially shut them down if the market goes away, which is what (removing) these credits will do,” said the chief executive of PanelClaw, a company that manufactures solar panel racks in Utah, as quoted by Reuters.
It is understandable that elected officials from states that have seen federal money pour in to support various transition enterprises might have a problem with the removal of that federal money. But it might be a good time to ask an important question inadvertently highlighted by PanelClaw’s CEO: how viable is a market created entirely thanks to subsidies?
By Irina Slav for Oilprice.com
