With the presidential and congressional elections less than two months away, energy infrastructure investors are assessing the implications of their outcomes, especially if Republicans take the presidency and/or control of Congress. Despite concerns that energy infrastructure investment, which soared under the Biden administration, might retrench dramatically under Republican-controlled executive and legislative branches, overarching change is likely to be mitigated by the fragmented U.S. energy market and legislative, geopolitical and supply-and-demand realities.
Legislative realities
Central to the discussion of the political future of infrastructure investment is the Inflation Reduction Act of 2022, which among other initiatives seeks to substantially lower carbon emissions in the U.S. by 2030 and includes nearly $370 billion of federal funding for clean energy initiatives. Former President Trump has vowed to rescind any portion of that total yet unspent for climate provisions in the Act. History, and facts on the ground in red states, may not be on his side.
No energy or climate bill has been repealed after having been signed into law and the $190 billion of the roughly $225 billion of IRA clean energy capital announced to date is for projects in Republican-controlled states. Any attempted repeal of the IRA could face resistance at the state level, even with Republican control of both the executive and legislative branches. This might include budget reconciliation efforts focused on slashing IRA incentives for electric vehicle charging and related tax credits, rooftop solar and energy efficiency. After all, Republicans have targeted these initiatives in past legislative sessions. Even here, Trump has been noncommittal on EVs and, during the Sept. 10 debate with Democrat candidate Kamala Harris, said he is "a big fan" of solar energy.
Offshore wind, historically hamstrung by the high construction and transmission costs, has drawn frequent criticism from Trump. Methane emissions reductions mandated in the IRA might also face legislative backlash.
The Biden Administration’s other core piece of infrastructure legislation, the Infrastructure Investment and Jobs Act, included $550 billion over an eight-year period for new investments in transportation, water, power and energy, environmental remediation, public lands, broadband and climate resilience. As it was less controversial politically than the IRA and enjoyed bipartisan support, it would be less likely to be targeted for repeal. Separately, energy transition investments in areas such as hydrogen, and carbon capture and storage, have largely avoided political controversy.
All of this suggests that significant change to the framework for traditional renewables is unlikely.
Geopolitical realities
Because of ongoing tensions between the U.S. and China (and related bipartisan coalescence of concern regarding relations between the countries), import-dependent supply chains, especially solar photovoltaics, are likely to carry continued risk for U.S. energy developers, regardless of election outcomes. Government focus on U.S. content in renewable projects, including related tax credits, is challenged by scarce production (about 2% of global production of solar panels, for example). While in the long term the market equilibrium for equipment procurement will feature more U.S. production with stable prices, in the medium term the industry is likely to face continued volatility, long lead times, and competition for supply capacity.
Supply realities
Republicans’ traditional focus is on energy independence, security and affordability. While historically these goals have translated into support for fossil fuels, these are not necessarily incompatible with advancing climate goals. On the other side of the political aisle, Harris has recently recanted past support for certain policies perceived to be too liberal, which, regarding energy, included a reversal of her prior support of a ban on fracking.
With energy demand rising at its fastest level in five years, a binary “fossil fuels vs. renewables” debate is incomplete. Annual U.S. oil production and electricity generation from renewables both hit records in the Obama, Trump and Biden administrations. The Biden administration’s energy policy is, for now, an amalgam of traditional fossil fuel production (still representing more than 80% of U.S. energy production) and a span of renewables that are growing and hold promise for a clean energy future.
Energy transition is a continuum and will always be subject to policy shifts across election cycles. While the gap between a vision focusing on maximizing fossil fuels and one centered on accelerating energy transition is a genuine ideological divide, there is no outcome wherein energy transition grinds to a halt. And none where fossil fuels disappear imminently. Moreover, as real as the divisions seem in the heat of the election, there likely will be broad agreement on issues such as streamlining permitting for energy projects, onshoring key technologies supporting clean energy development, carbon capture and storage and strengthening critical mineral supply chains.
Even with known political uncertainty, more than $110 billion of private clean energy investment has been undertaken since the passage of the IRA in 2022. Private sector investment will continue to propel energy transition and public policy will likely follow suit.
Investor realities
Infrastructure investors need to consider their exposure to federal policy and the implications of continued policy support at the state level when managing investments in energy transition. At a macro level, a Republican executive and legislative sweep would be unlikely to have broad disruptive implications to energy transition. In specific areas — EVs and offshore wind, for example — the disruption could be more meaningful if Republicans are in control.
Still, a multisource (sometimes known as an “all-of-the-above”) energy backdrop, combining fossil fuels and renewables, will remain in place in the near term no matter the election outcomes. Renewable energy will continue to gather momentum and, over time, share of energy generation, regardless of intermittent and inevitable political and related policy shifts.
John DiMarco is a managing director at Igneo Infrastructure Partners. He is based in New York. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I’s editorial team.
