Trump's "beautiful" bill wrecks our energy future

This legislation is terrible!

I continue to feel that Donald Trump is pulling off something close to the heist of the century by creating so much news on other topics that there’s barely any public attention on the multi-trillion dollar piece of legislation that already passed the House of Representatives and is pending in the Senate. I don’t want to do a huge disquisition on political strategy, but I do want to flag that progressives are allowed to organize protests against looming Medicaid cuts, not just immigration enforcement.

We’ve already written about those health care provisions several times, but just to review, we’re talking about nearly 11 million people losing their health insurance if this thing passes.

And it’s also going to increase the national debt by $3 trillion.

This generates a short-term boost to GDP growth via fiscal stimulus, but in the long run, the growth rate and level of GDP are lower than they would be without this bill.

That all sounds pretty bad. But what’s received even less attention is the energy provisions of the bill, which would repeal much of the Inflation Reduction Act. And because the IRA replaced prior energy programs with new, enhanced programs, the repeal wouldn’t just put us back where we were pre-IRA. It would leave us with no policy support whatsoever for wind, solar, or emerging technologies, including advanced nuclear and geothermal and carbon capture. It doesn’t even leave us with policy support to keep existing conventional nuclear plants open.

The upshot is going to be a loss of innovation and momentum for the long term. And in the short term, it’s going to mean higher electricity prices, as Trump’s multi-pronged effort to kneecap renewables runs up against the supply chain constraints limiting the pace at which new natural gas facilities can be brought online.

This is all genuinely really bad, and I think in a deep and profound way, this is truly not what voters angry about inflation wanted when they cast ballots for Trump.

And yet, it’s what we’re getting.

Trump’s BBB will raise electricity prices

The basic story here is that by killing the Production Tax Credit for solar and wind and storage, as well as the Investment Tax Credit for biomass, geothermal, hydroelectric, offshore wind, and nuclear, the BBB is going to reduce the rate at which new electricity sources come on the grid.

NERA Economic Consulting¹ did some modeling of the impact of repeal and found significant state-to-state variation. Household electricity prices would go up 20 percent in Maine, for example, versus only 3.5 percent in New Hampshire, according to their estimates. But prices are up either way. The Princeton Zero Lab has a somewhat more restrained set of estimates, suggesting an average 9 percent increase nationally (though again with state-to-state variation), while the Rhodium Group sees something like a 7 percent increase.

Modeling the entire electrical system is complicated, but directionally speaking, the story here is that by eliminating the tax breaks, the BBB will slow capital investment in solar, storage, and onshore wind. This will be offset by burning more natural gas, both by running the stock of gas-fired plants more intensively and also by building more gas plants. But there’s a supply crunch in the availability of turbines to build more gas plants, and relying on the existing natural gas plants so heavily to power the country will raise the price.

This bottlenecking of electricity sources will happen against the backdrop of structurally rising demand for electricity thanks to EVs and data centers.

To a limited extent, this higher price of electricity will help keep existing nuclear plants open. Except that Energy Secretary Chris Wright himself concedes that removing tax credits is going to kneecap the nuclear industry. Wright is a renewables-hater but a nuclear enthusiast, and he keeps saying that scrapping the nuclear tax credits — and scrapping the Energy Department’s Loan Program Office, which the legislation also does — is a bad idea for the long-term future. Unfortunately, Wright seems to have very little sway over the Trump administration’s actual policy, and the president and the rest of his team are making no effort to change the legislation.

So the upshot is that in the short-term, we get a slower renewable buildout and higher electricity prices, existing nuclear plants probably close anyway (which could drive prices further up), and our ability to advance innovative future technologies is also damaged.

Losing the energy future

Back in February, Ted Nordhaus and Alex Trembath tried to put on the table a proposal for what they called “IRA Reform.”

Their argument was that the IRA is kind of like an Opposite Day version of a carbon tax, delivering open-ended subsidy to any emissions-reducing technology in order to compensate for the unpriced negative impacts of greenhouse gases. They called on Congress to abandon that approach in favor of a narrower focus on innovation policy. This kind of policy would say that onshore wind and especially solar are now, in fact, mature technologies. The cost per electron of utility scale solar is currently very low; the cost barriers to further adoption relate to intermittency, land use, and transmission.

Their proposal is that all clean energy technologies should be eligible for subsidy in the short-term, but that subsidies would phase out for any given technology as it reaches five or ten percent of total generation. The point would be to use the money to kickstart investment in unproven technologies — advanced geothermal, advanced nuclear, carbon capture — which would preserve a majority of the global benefit of investment-led climate policy, while eliminating a large share of the expense of the IRA.

I think this idea has a lot of merit, and it aligns with the strategy recommended in the excellent Founders’ Pledge report on climate strategies for a new political landscape.

The key point is that there’s a difference between the purely local impact of getting one additional wind turbine built and the worldwide impact of commercializing a new technology. If US government subsidies made it possible to do carbon capture in a remotely cost-effective way, for example, lots of places around the world would voluntarily use that technology. I’m pretty skeptical that will pan out, but it would be great if it did. I think a more plausible candidate is geothermal. Right now, every new well that Fervo drills is pushing the boundaries of what’s possible. It costs a lot of money, and it’s only reasonable to invest in because subsidy is available. But they are making a lot of progress on drilling deeper wells, faster, and reaching hotter rocks.

If you can figure out how to drill deep enough, fast enough, and then do it a few dozen times, it gets cheaper to do the next dozen because you’re no longer engaged in trial-and-error learning. Getting over that hump could potentially unlock huge quantities of cheap clean energy for the United States and the world.

The basic concept of hydraulic fracturing had been around for a long time, but it was only sustained US government support for shale fracking starting during the 1970s oil crisis that turned it into a scalable, commercially viable technology for securing natural gas. The vision of doing the same for geothermal and for factory-built small modular reactors seemed compelling, and also sufficiently non-green-coded that I thought it might appeal to Republicans in Congress. And for a while it did, until they changed their minds.

Key Republicans say this is bad

What’s a little maddening about this is that earlier this spring, a group of over a dozen House Republicans was making some of these points and wrote letters urging leadership to scale back — but not completely kill — the clean energy tax breaks in the IRA.

These members had the votes to block the bill, and many of them are frontline members whose seats are deeply imperiled by the basic dynamic of a midterm election. They urgently need to show some independent-mindedness and moderation. If they wanted to insist on making this better, it seems to me that they could have gotten their way. But instead, Speaker Mike Johnson blew them off and they all voted for the bill anyway.

Then on Monday, they wrote another letter reiterating their desire to change the energy provisions and urging the Senate to modify the bill.

On Tuesday, it emerged that there were various technical corrections that needed to be made to the bill text, which will require another vote. But once again, the frontline members aren’t using their leverage, they’re just kicking it to the Senate.

The good news is that various senators have indicated they want to make some changes to the energy provisions.

I hope this happens. But I’m skeptical. The GOP margin in the Senate is significantly bigger in percentage terms than the House margin, and while the House GOP caucus has a bunch of frontline members at risk of losing their seats, in the Senate it’s really just Thom Tillis. It’s the frontline House members who really have the most credibility in a bargaining dynamic, and they keep showing us they won’t use it.

Identity politics for fossil fuels

As I’ve said many times, one of the biggest structural weaknesses of the center-left in the United States (and around the world) is their profound desire to get people to make short-term material sacrifices for the sake of reducing CO2 emissions. I am not personally opposed to doing this — I put rooftop solar panels on my house and drive a plug-in hybrid and have an induction stove. I burn fossil fuels to power my HVAC system, but when it needs to be replaced, I’ll get an electric heat pump.

But most voters don’t want to do it.

Trump, I think, sold a lot of people on the idea that instead of trying to limit global warming, he would focus on advancing their material prosperity.

In office, though, he’s doing things like ordering utilities to cancel scheduled closures of old, non-economical coal plants. This is going to lead to higher electricity prices for consumers, but it’s a payoff to an interest group that Trump happens to approve of. It’s also bad for the climate. What’s more, coal is dramatically worse than natural gas for air quality, so this is really bad for people with asthma or heart disease.

This is a separate issue from the energy provisions of the BBB legislation, but the spirit is the same: going beyond indifference to global warming, or even indifference to local pollution and clean air, into a reckless embrace of fossil fuels, regardless of the economic interests of most households.

Renewables complement natural gas very well in the short-term, which is especially valuable in light of the turbine bottlenecks. Investments in geothermal and nuclear are our best bets of achieving true long-term energy dominance. Things like having a domestic battery manufacturing industry are important not only for decarbonization, but for things like military drones. And Trump wants to throw it all away to maximally polarize the debate and do a dumb kind of identity politics for the fossil fuel industry. It stinks almost as much as the Medicaid cuts, and it keeps being terribly under-covered and under-discussed as Trump generates a dozen other controversies per week.

1. Full disclosure: My grandfather (not the communist grandfather, the other one) co-founded NERA and two of my uncles have worked there at different times, and I did data entry in their White Plains office one summer. But to the best of my knowledge, there is no current family connection.