Is the IRA Here to Stay?

Markets are not anticipatory, markets are forward looking. Looking ahead, is the IRA at risk under Trump?

In September 2024, President-elect Trump said he would “terminate” the IRA and said during a May rally he would issue an order to “make sure that [offshore renewables] ends on day one.” These claims are far too similar to his vows during his successful 2016 campaign to kill the Clean Power Plan. However, history shows that opposition within his party often makes it challenging for him to advance his agenda fully.  Clean energy has changed since Trump took office. It is more economical, with solar and wind being cheap energy sources that hit the grid.

Although this law is a blue one, most of the benefits of the IRA have been reaped in red states. According to Bloomberg, as of April 2024, $206B of IRA investments have been made, with $161B going to republican districts. Red states benefit more from the IRA due to their abundant renewable energy resources, lower land and labour costs, and existing energy infrastructure that supports large-scale projects. These factors make them attractive for investments in clean energy, aligning with the IRA’s incentive.

However, is this flood of capital into red states enough to keep Trump from repealing the IRA? Maybe. In short, it will be harder than expected for Trump to roll back the IRA. However, a more realistic scenario is a partial repeal, similar to Trump’s 2016 campaign, where he weakened the Clean Power Plan by replacing the plan with his own Affordable Clean Energy rule.

Although the Trump administration has a majority in both Chambers, on August 6, 2024, 18 House Republicans sent a letter to Speaker Johnson urging him to “prioritize business and market certainty as you consider efforts that repeal or reform the Inflation Reduction Act.” The letter suggests a strategy to roll back some but not all provisions of the IRA, a move supported by firms such as the U.S. Chamber of Commerce and large energy firms like Phillps 66, Exxon Mobil, and Occidental Petroleum.

A partial repeal of the IRA would likely preserve critical incentives for clean energy and climate tech, ensuring these sectors remain attractive for investment. While some benefits may be scaled back, core subsidies and tax credits could continue to drive innovation and deployment. The outlook remains cautiously optimistic, with VCs expected to prioritize validated technologies and companies positioned to succeed without the need for policy to fully underwrite their growth.

In the unlikely case that the Trump administration can repeal the IRA in its entirety, VC investment in clean energy and climate tech is likely to decrease, but not to a great extent. Although the IRA has amplified investor interest by reducing risks, decreasing the levelized cost of scaling, and boosting returns, even without it, the underlying momentum and existing investments in energy transition technology would help sustain some level of continued growth.