The rollback of energy subsidies will not derail clean energy. Lower costs and rising demand will push only the most viable projects forward, strengthening the sector long term.
With the passage of the One Big Beautiful Bill (OBBB) and President Trump’s Executive Order restricting the use of renewable tax credits, most reports and commentary have postulated that recent actions have cast a dark cloud over the future of clean energy in America. But the future of economically viable clean energy remains bright. With electricity demand growing, market needs will expand opportunities for a wide range of energy sources and technologies. Projects that are not reliant on taxpayers but meet the needs of consumers will drive an affordable, dependable, and cleaner energy economy.
A Familiar Energy Subsidy Debate
If the conversation around energy tax credits feels like the movie Groundhog Day, it’s because we’ve been here before. Take, for instance, the historical reminder from Greentech Media’s reporting about the conversation over energy tax extenders a decade ago: “Part of the renewables industry’s pitch as it sought and ultimately secured a multiyear extension of the wind [Production Tax Credit] PTC and solar [Investment Tax Credit] ITC in 2015 was that a phase-down would help usher in a post-subsidy era.” Once political favoritism is in place, however, it becomes difficult to transition to the post-subsidy era, even when projects no longer require support.
It’s reasonable for the wind and solar industries to be disappointed with the outcome of OBBB. After all, energy subsidies are free money. If you subsidize something, you’re going to get more of it. However, the dismantling of energy subsidies does not equate to the dismantling of an industry, as evidenced by projections of renewable energy growth in the absence of the Inflation Reduction Act (IRA) subsidies.
Clean Energy Without Energy Subsidies
With declining technology costs and a new load growth paradigm, there will be ample opportunities to enter into long-term contracts for generation from nuclear energy, natural gas, or solar sources, as well as storage. It is also worth noting that the Biden administration’s power plant regulations would have constrained new energy supplies more than a reduction in projects from subsidy money going away.
Eliminating energy subsidies will help evaluate projects based on their financial rates of return rather than their political rates of return. In many cases, private capital will step up to fill the void. In other instances, projects that might not survive without energy subsidies will be shuttered or cancelled. However, making those decisions now could prevent a larger manufacturing bubble from bursting later down the road.
A Strong Foundation for Long-Term Viability
The long-run health of these projects and industries will be stronger when they are financially viable without energy subsidies, rather than misallocating resources to projects that exist because of the subsidies. There were investments in approximately 40 electric vehicle and battery manufacturing facilities before the enactment of the IRA.
With the administration and Congress turning their attention to permitting and regulatory reform, policymakers can drastically improve the efficiency of bringing new energy supply online, which will save project developers time and money. As I noted earlier, the major obstacles for many clean energy projects were not a lack of financing but rather generator interconnection, local siting and permitting challenges, litigation, and expensive tariffs. Fixing these policies that inflate the costs of energy projects will do more for energy affordability, reliability, and emissions reduction than a perpetual extension of tax credits.
Unlocking Innovation and Aligning Costs
Additionally, several policies in OBBB will encourage more investment in clean energy. The immediate expensingprovisions for equipment and research and development will reduce costs for projects and incentivize more innovation, including for clean energy startups. The bill includes $1 billion for loans that can help finance first-of-a-kind clean, firm projects, such as small modular nuclear reactors or enhanced geothermal systems.
Americans will benefit from efficient outcomes when customers who benefit from a more robust power supply are the ones who pay, rather than concentrating benefits on the politically connected and pushing the bill on all Americans. Energy policy looks a lot different in an OBBB world. At a time when America will need a lot more power—and fasterthan ever—removing bureaucratic obstacles will benefit all forms of energy, and most importantly, American energy consumers.
About the Author: Nick Loris
Nick Loris is the Executive Vice President of Policy at C3 Solutions. Loris studies and writes on topics related to energy and climate policies, including natural resource extraction, energy subsidies, nuclear energy, renewable power, energy efficiency, as well as the ways in which markets will improve the environment, reduce emissions, and better adapt to a changing climate.
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