While the new US administration's actions suggest a concerted effort to roll back the Inflation Reduction Act (IRA) and support for Cleantech more generally, the complex legislative process and existing state-level initiatives may buffer the Cleantech sector from the full extent of these changes.
This article examines the potential implications for the Cleantech sector from an investor's perspective.
What is Cleantech?
Cleantech, short for clean technology, refers to products, services and processes that use renewable materials and energy sources, reduce emissions and waste, and have a minimal impact on the environment. It encompasses a wide range of innovations aimed at improving environmental sustainability.
Focus on IRA repeal
Enacted in 2022, the IRA represented a significant legislative effort to promote clean energy through substantial funding and tax incentives. However, the new administration has articulated a clear intent to dismantle key components of the IRA. President Trump has labelled the Act as the "Green new scam" and emphasised plans to terminate its provisions, particularly those related to clean energy subsidies. This focus aligns with the administration's broader agenda to prioritise fossil fuel production and reduce regulatory burdens on traditional energy sectors.
Feasibility of repeal
Although President Trump has expressed intentions to rescind unspent funds under the IRA, a complete repeal would necessitate congressional action. Given the current political landscape, with Republicans holding majorities in both the House and Senate, there is a plausible pathway for attempts to modify or repeal parts of the IRA. However, the slim majority in the House and the Senate's procedural rules mean that passing significant rollbacks of the IRA will require careful negotiation and coalition-building within Congress.
Current attempts
As of now, the administration has initiated steps that signal a shift in policy focus. For instance, the US Department of Agriculture (USDA) recently froze funding for certain farmer assistance and environmental conservation programs, some of which are tied to the IRA. This move indicates a broader review and potential redirection of funds previously allocated for climate-related initiatives.
Implications for Cleantech investment
- Investor sentiment: The potential scaling back of the IRA may introduce uncertainty in the Cleantech sector. Investors might adopt a more cautious approach due to anticipated changes in federal support and incentives.
- Early vs. late-stage investments: Early-stage investors may continue to fund innovative technologies, banking on long-term market potential and state-level support. In contrast, late-stage investors could become more risk-averse, preferring to wait until there is greater clarity on policy directions and the availability of federal incentives.
- State-level mitigation: It's important to note that several states have robust clean energy mandates and incentives independent of federal policies. These state-level initiatives can provide alternative avenues of support for Cleantech companies, potentially mitigating some negative impacts of federal policy changes.
Investors will no doubt be closely monitoring policy developments, taking careful account of both federal and state-level dynamics on their portfolio spread. For expert legal advice on these topics, please contact our team.