Heliene Inc. has operated a solar manufacturing plant in the U.S. since 2017, and is contending with uncertainty over the fate of federal tax credits as it plans to expand.Weston Handren Photography/The Globe and Mail
U.S. President Donald Trump has unmistakably signalled upon retaking office that he intends to take aim at the Inflation Reduction Act, the landmark green-spending bill put in place by his predecessor, Joe Biden.
Much less clear so far is how much of the many hundreds of billions of dollars in subsidies Mr. Trump will actually be able to scrap, and how quickly. The subsidies are primarily aimed at building new domestic manufacturing industries around clean technologies such as electric vehicles and renewable electricity, to both combat climate change and compete with China.
Among proponents of such investments, the executive order on energy policy that Mr. Trump issued this week – which included a call for an immediate freeze to funds being disbursed under the IRA, pending a review – has caused widespread confusion. The reasons include mixed interpretations around whether he wants to pull back funds that have already been awarded, as well as the reality that the bulk of the subsidies are tax credits that would require congressional approval to repeal.
The muddled picture has major international ramifications, including for countries that have attempted to keep pace with the U.S. by introducing their own green-investment incentives. Canada, where a new government may soon be deciding whether to maintain approximately $100-billion in cleantech tax credits and other financing mechanisms, is high on that list.
But in the near term, the IRA’s unknown future – combined with other uncertainties, including how far Mr. Trump will go with an assault on environmental regulations and supports for the fossil-fuel sector also signalled in the energy order – could go some distance toward achieving his apparent aim of discouraging climate-friendly projects from moving forward in the U.S.
“It’s next to impossible for businesses to make longer-term plans involving billions of dollars of investments,” said Bob Keefe, the executive director of E2, a national environmental alliance of U.S. business leaders.
The possible cut-off of Washington’s financial backing was already leading to companies holding off on planned projects before Mr. Trump took office, Mr. Keefe said in an interview. He pointed to examples, including Canada’s Heliene Inc. announcing last month that it’s pausing a US$200-million expansion of its manufacturing facilities in Minnesota. (In a statement, Heliene CEO Martin Pochtaruk said that the company is maintaining other manufacturing operations in Minnesota, and will move ahead with the new project when it’s clear that the tax credits will remain in place.)
David Brown, the energy transition director for the international consultancy Wood Mackenzie, said that there is still a healthy pipeline of U.S. capacity being built in sectors such as solar for the next 12 to 18 months. However, thereafter the impact of the uncertainty – or the consequences of incentives being scrapped – could be felt more strongly, he said.
Mr. Trump’s energy directive on Monday did not directly address the biggest question for many cleantech manufacturers: whether the production tax credits at the heart of the IRA, which are essentially subsidies per unit produced by new factories, will remain in place.
Their fate will be up to the Republican-controlled Congress, and their full repeal could be a tough sell, since projects receiving the credits are disproportionately in GOP-held districts. Last August, 18 Republican members of the House of Representatives (14 of whom remain in office after November’s election) signed a letter calling for the credits to be kept in place. However, it remains to be seen how much pressure Mr. Trump will exert on his party to scrap them.
The directive more explicitly called for the halt of loans, grants and other funds being awarded through the IRA on a more discretionary basis, through agencies such as the Department of Energy, over which the executive branch of government has greater control.
But complicating matters on that front is that, according to officials in Mr. Biden’s administration, 84 per cent of the approximately US$145-billion appropriated for those uses had already been awarded by the time Mr. Trump took office.
That has spurred debate about whether Mr. Trump will settle for merely stopping the remaining 16 per cent from being spent, or is seeking to halt payments that have already been committed, which would lead to a slew of legal battles.
“It would be very difficult to undo all that,” said Grace Smith, a lawyer with the Washington-based Environmental Defense Fund, “which isn’t to say they won’t try.”
An additional source of complexity is whether Mr. Trump wants to pull back funding for all forms of clean technologies, or just specific ones.
While the wording of Monday’s directive suggested he would be taking aim at all IRA disbursements, his administration issued a subsequent memo that seemed to suggest the funding freeze would apply primarily to support related to electric vehicles. However, it also indicated that he would be targeting any measures that are at odds with increased fossil-fuel production, which could be open to broad interpretation.
The additional guidance “offers a bit more clarity,” Ms. Smith said, “but not much.”
There is less confusion around Mr. Trump’s plans for measures meant to steer consumers toward low-carbon investments. His directive clearly states that purchase subsidies for EVs and federal funding for EV-charging infrastructure (the latter of which is through the Bipartisan Infrastructure Law, which was also passed during Mr. Biden’s presidency) are to be frozen.
That prompted concern from Canadian Vehicle Manufacturers’ Association president Brian Kingston about slowing sales that could affect EV manufacturing facilities being built around North America, including several battery factories and assembly lines north of the border.
But he expressed equal concern about the more ambiguous future of the manufacturing production tax credits in the U.S.
Canada effectively matched those with multibillion-dollar subsidies for the battery plants being built in Canada by Stellantis NV and by the Volkswagen Group, while explicitly stating that it could stop that funding if the U.S. credits were scrapped.
Mr. Kingston went to Washington for Monday’s presidential inauguration aiming to leave with a better sense of Mr. Trump’s plans both for potential tariffs on Canada and for the IRA. But like representatives of many industries that have been investing in energy transition, he left with more questions than answers.
“I was hoping for clarity,” he said. “I’ve returned without specificity on what will or could happen.”