US President Donald Trump’s second term has seen the swift retraction of climate policy, leaving green investment, financing and infrastructure projects vulnerable. As the future of the Inflation Reduction Act is thrown into question, this uncertainty is forcing investors to navigate policy risks and focus more on long-term economic trends.
This was the focus of a roundtable hosted by OMFIF’s Sustainable Policy Institute, which brought together industry experts on US climate policy to examine the implications of the retreat from transition goals and net-zero targets.
Threats to clean energy investment
The election of a fully Republican government has shaken US climate policy introduced under President Joe Biden, threatening the over $500bn invested in US clean energy projects since the IRA was enacted. Trump’s executive orders over the last two months have paused the distribution of IRA funds and increased the focus on US energy security.
Further clarifications on the extent of changes to the previous administration’s policy package are expected in May 2025. The Congressional tax bill is likely to consider targeted revisions, and changes like shortening credit timelines and altering eligibility are probable. Certain tax codes, particularly those for electric vehicles, are also vulnerable to full repeal due to their unpopularity in the Republican party.
The IRA spans several critical sectors, including industry, energy and healthcare, and targets historically under-resourced communities. It works to secure a durable and broad energy transition through a series of tax codes that promote investment into clean energy and EVs. It also features investment packages to be incorporated by the Environmental Protection Agency and Department of Energy into national clean energy infrastructure projects, some of which have broken ground.
Speakers at the OMFIF roundtable discussed how the Trump administration might restrict communication to limit the overall access and scope of the IRA. They said that, even though certain projects might be underway, application and permitting challenges are likely to continue.
There is already evidence of this happening. The IRA handbook has been taken down from the White House website in a move that clearly signals the administration’s intentions. Earlier this month, the EPA terminated grants worth $20bn that were issued through the Greenhouse Gas Reduction Fund, a green bank created in 2022 through the IRA. This move is being challenged legally but reveals how the administration is threatening further restrictions on climate financing.
Low appetite for complete reversal
However, given the speed of capital flow into clean energy infrastructure by the IRA, its complete destruction remains politically undesirable. Clean energy investment in energy-producing communities has doubled, meaning that representatives from these historically Republican districts are going to be hesitant to enact policies to slow this progress. Infrastructure development likewise shows signs of bipartisan support. As such, energy is the key sector in the long term due to investment opportunities in energy storage infrastructure and renewable energy sources.
Investors must keep an eye on these long-term economic trends to navigate any short-term policy risks. The attractiveness of sustainable investment continues to be evidenced through the increased integration of climate risk assessment tools like carbon footprinting and climate value-at-risk models in investment strategies.
With the shifting position and uncertainty at the national government level, a crucial space is emerging for state-led initiatives like California’s climate disclosure laws. State governments can explore policy innovation and climate action plans, green banks and procurement strategies in this respect. Public funds also have a chance to lead in this space. For instance, the New York State Common Retirement Fund is committing billions to sustainable investment and identifying climate risk as a core fiduciary duty.
Policy moves from the current administration do not reflect the fact that transition still appears inevitable. A speaker at the roundtable argued that it is ‘the most predictable and consequential transition in human history’. As clean energy costs decline relative to those of fossil fuels, the long-term economic attractiveness of sustainable investment projects will continue to grow.
The Trump administration will most likely continue to favour US energy security over climate protection. Still, the space for discussions on investing in the transition will remain and continued collaboration between policy-makers and investors will be critical to ensure stability.
Isabella Frymoyer is Programme Coordinator, Sustainable Policy Institute, OMFIF.
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Image source: White House