Regime Change Can Shift US Net-Zero Energy: Wood Mackenzie

Republican control in the United States (US) will move energy policy away from net zero targets, but President-elect Trump’s full agenda will face political and market opposition according to a Wood Mackenzie analysis.

The US is likely in store for lighter standards on emissions regulations, more protectionist trade policies, and removing the US from the Paris Agreement, all of which would shift US policy away from a net-zero trajectory. However, bi-partisan support for the Inflation Reduction Act (IRA) in Congress, competitive economics for renewable power and private sector net zero goals will not derail the energy transition, it said.

“The IRA has supported over US$220 billion in manufacturing investment and much of this has been concentrated in Republican-led states,” said David Brown, Director, Energy Transition Service at Wood Mackenzie. “The likelihood of a full IRA repeal is low. However, there could be some amendments to the legislation. Renewables investment could slow, but capacity is set to grow by 243 gigawatts (GW) from 2024-2030 even in our delayed transition scenario.

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“We expect President-elect Trump to support the growth aspirations of Big Tech. We have identified over 51 GW of new data center announcements since 2023, which have a better chance of coming to fruition if Republican-supported permitting reform comes to pass. With manufacturing investments concentrated in Republican states, we believe advanced manufacturing credits will remain intact and around 7 GW of solar manufacturing will likely proceed.”

Brown noted that with a significant momentum for low-carbon investment, the impact of the election will vary by sector, commodity and technology, with some more at immediate risk than others.

US solar: The near-term pipeline is robust and longer-dated projects face policy risk

According to Wood Mackenzie, there is no lack of demand for solar energy in the United States. The pipeline of contracted utility-scale solar projects is nearly 100 GW_dc, and customer demand for distributed solar projects continues to grow. A Trump administration will not change this in the near term.

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“We expect flat installation growth in the next few years despite high demand for solar, driven primarily by interconnection and transmission bottlenecks,” said Michelle Davis, global head of solar for Wood Mackenzie. “Then, from 2028-2031, annual growth should pick up modestly, averaging 5% annually and reaching about 50 GW_dc. However, various IRA incentives such as tax credit bonus adders and transferability of tax credits propel additional growth in our base case forecast. This growth is at risk if the IRA undergoes substantial modifications – a strong possibility given Trump’s agenda to maintain tax cuts.”

Offshore And Onshore wind: deployment risk arises from 2040

Wood Mackenzie expects the new administration to de-emphasize offshore wind development by restricting permitting resources and limiting new leases. However, these impacts will not materially change the 10-year outlook, as almost 25 GW of projects under development are already permitted or in the late stages of permitting.

The more significant risk pertains to project economics. “If the administration chooses to not issue guidance on the domestic content bonus credit for offshore wind, or pares back the 45X advanced manufacturing tax credit, investments in a domestic supply chain could be significantly delayed,” said Stephen Maldonado, research analyst at Wood Mackenzie. “While Wood Mackenzie’s base case outlook expects 27 GW of cumulative installed capacity by 2033, the compound effects of these constraints could lead to a 30% decrease over the same time frame.”

A second Trump administration also presents significant downside risk to onshore wind. Should Congress seek to repeal key mechanisms of the IRA or restructure an earlier phase-out of the production tax credit, deployment could slow significantly.

Energy storage: exposed to policy changes in the IRA

In Wood Mackenzie’s base case outlook, the IRA remains in place and storage continues a rapid expansion as a necessary component for grid balancing, reliability, and resiliency given increasing renewables. However, policy changes in the IRA could change this.

“A quicker phase-out of ITC and PTC tax incentives, removal of bonuses and manufacturing incentives, and increased protectionism, including higher tariffs, are developments to monitor,” said Allison Weis, global head of energy storage for Wood Mackenzie. “Although transferability may not be a likely target for Republicans, its removal has particular downside risk for storage as it has been a key source of ITC financing for stand-alone storage projects.”

Trade tariffs: the world should brace itself for more protectionism

President-elect Trump has pledged to hike tariffs on imports to at least 10% globally, with a more penal 60% rate for Chinese imports. The tariffs could be enacted early in 2025 by executive order, supplanting existing trade agreements.

“In the short term, increases in US domestic production to substitute for imports will be minimal – spare manufacturing capacity is insufficient,” said Peter Martin, Head of Economics for Wood Mackenzie. “Shifting trade patterns, especially to reduce imports from China, will be material.

“But with tariffs rising for all trading partners, import costs will increase. We estimate raising tariffs could cost an additional US$450 billion in import duties in 2025, a burden that US businesses and households would carry. And this is before any global retaliation.”