Is This the Future of Clean Energy Under Trump 2.0?

Our Sustainability analysts Stephen Byrd and Laura Sanchez discuss the range of impacts that the Republican sweep may have on energy policy and the ESG space.

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Stephen Byrd: Welcome to Thoughts on the Market. I'm Stephen Byrd, Morgan Stanley's Global Head of Sustainability Research and Head of Research Product for the Americas.

Laura Sanchez: And I'm Laura Sanchez, Head of Sustainability Equity Research for the Americas.

Stephen Byrd: Today, Laura and I will talk about the potential impact of the next Trump administration on the US energy transition, and on the US ESG Investing landscape.

It's Thursday, November 21st at 8 am in New York.

Now that Donald Trump has been re-elected, all eyes are on potential changes to the Inflation Reduction Act or IRA. So Laura, what are your expectations and on what kind of timeframe?

Laura Sanchez: There has been a lot of dialogue internally between our clean tech and public policy teams exactly on this question, Stephen. Basically, we continue to believe that a full repeal of the IRA is unlikely because a significant amount of investment has gone to Republican states that has in turn driven a good amount of good paying jobs. On the back of this, we have seen a large number of Republican legislators, as well as large oil and gas companies, write letters to high members of Congress supporting portions of the IRA.

Now, unfortunately, that doesn't mean that it won't be noisy. We do think that a partial repeal is likely, potentially a rebranding, and/or a clear phase out of the tax credits, by, let's say, the end of the decade.

It will take some time to get clarity around what's in and what's out to the second part of your question. We believe clarity on final changes is likely by the end of 2025 at the earliest, which is when the TCJA, or the Tax Cuts and Jobs Act, is set to expire. And so, a lot of tax related conversations and concessions will happen then.

Lastly, a point that I want to make here is that many technologies received support in the IRA, and even though the next 12 months will be volatile or noisy, as I said before, we do think that some of them are relatively safe. And those include the domestic manufacturing tax credit, the production tax credit for nuclear power, and the tax credits for carbon capture and sequestration technology, as well as for clean hydrogen.

Stephen Byrd: That's really interesting, Laura. So, it really is a bit more nuanced than we often hear from many investors with portion of the IRA that are clearly at risk, others much less so at risk. That's really helpful. And Laura, a related topic that comes up a lot is concern around tariffs. So, do you see any risk to clean technologies from elevated trade tensions?

Laura Sanchez: Yes, I see multi multilayered risks. The first, which is I think well understood by investors, is the potential risk for higher tariffs on goods imported from China. We know that the supply chain for energy storage specifically, and particularly lithium-ion storage batteries, is highly linked to China. And even though solar equipment also tends to come up in conversations with investors, the supply chain there has somewhat decoupled from China.

However, a significant amount of supply is still sourced from China domiciled entities that operate in low-cost countries, such as those in Southeast Asia. But another risk, and I think this one is less understood or discussed by investors, is the potential inflationary pressure that could result from number one, higher tariffs on imported materials that are needed in the manufacturing of clean energy technologies. And number two, the potential risk of China responding to US imposed tariffs with additional export bans on minerals or materials that are key for the energy transition.

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