Danielle Lemmon, Ramboll, and Aaron Lang, Foley Hoag
December 21, 2024
How the incoming administration could affect US federal funding for clean energy projects
While President-elect Trump has signaled his intent to roll back clean energy or climate-related programs, it is still too soon to tell which actions the new administration might take or what it may accomplish. Given this uncertainty, it remains important for clean energy business leaders to understand how these programs function and how the new administration could seek to modify them.
The election of Donald Trump, along with the incoming Republican majorities in both the House and Senate, has raised questions about the future of key climate laws enacted during the Biden administration, including the Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA). Both of these laws significantly expanded federal funding and incentive programs for clean energy projects that provide billions of dollars in direct financial assistance, tax credits, and loans and loan guarantees. Many clean energy project developers are relying on these programs to implement innovative decarbonization technologies. To shed some light, Danielle Lemmon, an energy consultant at Ramboll, and Aaron Lang, an energy regulatory attorney at Foley Hoag, have teamed up to provide insights on potential impacts to the policy, politics, and processes surrounding clean energy programs in 2025 and beyond.
Both the BIL and IRA allocated billions of dollars in financial assistance, such as grants and cooperative agreements, for a variety of clean energy projects and technologies. Notable programs include the Hydrogen Hubs ($8B, BIL), the Industrial Demonstrations Program ($6.8B, BIL & IRA), Battery Materials Processing ($3B, BIL) and Battery Manufacturing and Recycling ($3B, BIL) Grants, and carbon management (~$10B, BIL), overseen by various offices, including the DOE’s Office of Clean Energy Demonstrations (OCED), Office of Manufacturing and Energy Supply Chains (MESC), and Fossil Energy and Carbon Management Office (FECM).
Recent proposals regarding these laws range from complete repeals to more targeted amendments. While it isn’t yet clear what actions the incoming administration and Congress will take to modify these programs, several Republican House members have spoken out against complete repeals. For example, Speaker Mike Johnson has recently suggested approaching reform with a “scalpel” rather than a “sledgehammer.” As discussions around potential changes continue, it’s interesting to note that BIL and IRA funds are flowing in relatively larger amounts to Republican-majority states, potentially making full repeal politically challenging. Whether this will have a meaningful effect on decision-making remains unclear.
The uncertainty regarding the incoming administration’s plans has led many investors and developers to question whether and to what extent federal funds in existing programs will remain available. The answer will depend on many factors, including whether the funding was appropriated under the BIL or IRA and whether it has been “obligated” and contracted-for – that is, committed for use by the recipient. Funds for BIL programs have largely been appropriated by fiscal years, scheduling how much money should be obligated over time. The IRA, by contrast, appropriated certain funds to be used by specific dates, such as the $5.8B in funds for the Industrial Demonstrations Program to be used by September 30, 2026. This difference could mean that certain funding for IRA projects could be obligated more quickly, potentially before the new administration takes office. BIL funding, however, may only be partially obligated, with additional funding pending. Consider the BIL’s Hydrogen Hubs program, in which the DOE selected projects worth $7 billion to develop seven regional Hydrogen Hubs. Only five out of the seven projects have moved from selection to award and received initial funding for Phase 1 (planning and analysis). The remaining funding, including for Phase 2 (engineering and permitting), Phase 3 (construction and implementation), and Phase 4 (operation and monitoring), is still unobligated.
This phased approach is typical for DOE infrastructure programs and could render funds in outstanding phases susceptible to repeal, impoundment, or termination, regardless of whether the program is BIL- or IRA-funded. To proceed projects through these phases, DOE will make what are known as “Go/No-Go” (GNG) decisions. These decisions are based on whether projects meet critical milestones, known as GNG criteria, outlined in the contract between the DOE and the awardee. Once the incoming administration takes over in January 2025, its DOE political appointees may use some discretion in determining whether GNG criteria are met. This could lead to delays or termination if DOE determines that projects do not to meet the GNG criteria to proceed, particularly if there are ambiguities in the GNG criteria.
Staffing shortages at the DOE could also cause delays. A recent report by the Government Accountability Office in August 2024 indicates that DOE’s OCED is already understaffed by 101 employees, out of the 351 needed. President-elect Trump has suggested reducing the federal workforce as a cost-saving measure, including rolling back protections for civil servants and making it easier to terminate federal employees. These changes may hinder the DOE’s ability to fill vacancies, slowing the deliberation of GNG and other decisions. Thus, further staffing reductions could impair DOE’s capacity to oversee large infrastructure projects funded by the BIL and IRA.
Key takeaways
- It is unclear how far the incoming administration and Congress will attempt to go in repealing BIL and IRA funds and programs.
- Unobligated funds under financial assistance programs are relatively more vulnerable to repeal or impoundment than obligated funds.
- Whether funds are obligated depends on the program; certain IRA funds may be fully obligated before Trump takes office, while BIL funds, distributed in stages, may only be partially obligated.
- GNG decisions for both BIL- and IRA-funded programs could be influenced by incoming officials, resulting in delays or terminations.
- Staffing shortages may reduce the DOE’s capacity to oversee projects, slowing progress.
The IRA established and amended several tax credits to support a variety of clean energy projects, including both production tax credits (PTCs) and investment tax credits (ITCs) for sectors like wind, solar, batteries, hydrogen, biogas, carbon capture, and manufacturing. The IRA also directed the Department of the Treasury to issue guidance on how project developers can qualify for and claim these credits. Developers rely heavily on this guidance to understand whether their projects are eligible for credits.
The guidance is particularly important when considering the potential impact of the incoming administration on IRA tax credits. Repealing the IRA or individual IRA credits would require another act of Congress, which could be challenging given the narrow Republican majorities in both the House and Senate. In contrast, amending or rescinding guidance is largely within the Executive Branch’s control, requiring no Congressional approval. The Treasury’s guidance takes several forms, including finalized regulations, proposed regulations, and sub-regulatory guidance. The form of the guidance determines the processes required for amendment or repeal.
For many IRA tax credits, the Treasury has finalized regulations through a process known as notice-and-comment rulemaking. In this process, the Treasury proposes regulations, solicits comments from the public, addresses those comments, and justifies its actions in finalized regulations issued thereafter. Finalized Treasury regulations have the force and effect of law. Therefore, repealing or modifying them generally requires another round of notice-and-comment rulemaking, which could take several months, or possibly more than a year. The Treasury finalized regulations for several key IRA tax credits, including the Advanced Manufacturing PTC (Section 45X), and the Clean Energy ITC and PTC (Sections 48E and 45Y, respectively).
Proposed Treasury regulations have also served as key sources of guidance for the IRA tax credits, although they do not have the force and effect of law. If proposed regulations are not finalized by January 20, 2025, the Treasury can delay, modify, or withdraw the proposed regulations altogether. Proposed regulations include those for the Clean Hydrogen PTC (Section 45V), which have received significant attention for how the Treasury proposes to credit “clean” hydrogen, or hydrogen that is produced with a lower carbon intensity than conventional methods. The Biden administration is seeking to finalize Section 45V regulations before the end of his term.
The industry also relies on other forms of IRA guidance, such as Internal Revenue Service (IRS) notices and responses to frequently asked questions (FAQs). These forms of guidance clarify IRA provisions, yet they do not carry the force and effect or law nor implicate the same lengthy process to issue as Treasury regulations. For example, IRS notices have set out safe harbors regarding how developers building projects in brownfields (contaminated properties) can qualify for the 10% “energy communities” bonus to the Section 48 ITC. Notices and other sub-regulatory guidance can be amended or rescinded at any time and could be subject to more rapid changes.
The Congressional Review Act (CRA) could be used to overturn recently finalized Treasury regulations. Under the CRA, Congress must pass, and the President must sign, a Joint Resolution of Disapproval to nullify regulations. This must be done within a specific period of time from when the regulations were finalized. The precise timing is difficult to determine given how the CRA mandates the timeframe be calculated, but some estimate that regulations finalized as far back as August 2024 could be vulnerable.
Key takeaways
- The incoming administration could affect IRA tax credits by modifying or repealing the Treasury’s guidance.
- Different types of guidance will require different processes to repeal or modify. Final Treasury regulations will require another notice-and-comment process. Proposed Treasury regulations could be delayed, modified, or withdrawn. Other forms of guidance, such as IRS notices, could be changed or rescinded with little process.
- The Congressional Review Act (CRA) could be used to overturn regulations finalized potentially as far back as August 2024.
President Biden’s climate laws greatly expanded the loan authority of the DOE’s Loan Programs Office (LPO), allocating tens of billions of dollars to support clean energy projects. LPO markets its offerings as a “bridge to bankability” for innovative clean energy projects, helping these projects transition to commercialization. However, just because LPO has significant loan authority does not necessarily mean it must use it. Even if LPO’s loan authority remains intact under a new administration, exercising that authority involves a lengthy process, administrative discretion, and decisions on program eligibility, due diligence, and term sheets for conditional commitments. Under a new administration, this combination of process and discretion could lead to delays, rejections of applications, and more selective funding for projects that more closely align with new priorities, such as fossil fuel or nuclear energy development.
LPO is continuing to process applications and has issued several new “conditional commitments” in recent months. While conditional commitments are significant, they are, as the name suggests, conditional. Applicants must meet the conditions to execute definitive financing agreements with DOE and reach financial close, i.e. the final stage of the LPO’s loan approval process. Once the conditions are met, the regulations governing LPO’s process state that DOE and the applicant “may” enter into a loan guarantee agreement, which seemingly gives DOE flexibility on whether to proceed, even if the conditions are met. The incoming administration could leverage the discretion and flexibility in the approval process to interfere with loan applications that have not yet reached financial close.
As with DOE grants, processing DOE loan applications also requires a significant number of staff. The new administration could seek to reduce staffing levels for both federal employees and contractors, which could also hinder loan applications in review. LPO relies heavily on contractors compared to other DOE offices. If the administration declines to renew those contracts, the resulting reduction in staffing could lead to longer periods for application reviews and due diligence. Notably, under the previous Trump administration, LPO approved only one loan in four years, which gives some indication of the pace at which LPO might proceed under the next administration.
Key takeaways
- Conditional commitments are significant, but they are not definitive financing agreements. The outcome of conditional commitments that have not reached financial close by January 20, 2025, may vary on a case-by-case basis.
- Reaching financial close by the end of the Biden administration could provide for greater protection against rollbacks.
- LPO’s reliance on contractors may make it vulnerable to staffing cutbacks, potentially reducing capacity for reviewing loan applications.
While the future of federal funding for clean energy projects under the incoming administration remains uncertain, significant changes to key programs and incentives could be on the horizon. President-elect Trump, along with Congress, may attempt to roll back or modify provisions of the BIL and IRA, take administrative action within executive agencies (such as the DOE and the Treasury) affecting how those laws are implemented, or rearrange priorities and redirect existing programs to different kinds of projects. The changes are likely to impact the financial assistance, tax credits, and loans and loan guarantees for clean energy projects.
Clean energy business leaders, including investors, developers, owners and operators, and engineers, should stay vigilant and adaptable, closely monitoring potential shifts in policy and funding availability. By understanding the nuances of these programs and preparing for possible delays or alterations, stakeholders can better navigate the evolving landscape of federal support for clean energy initiatives.
The table below summarizes potential congressional and executive actions relating to these clean energy programs.