Business Benefits from Climate Policy
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President Donald Trump’s “One Big Beautiful Bill Act” slashed about $500 billion from clean energy tax credits, a key component of the 2022 Inflation Reduction Act (IRA) that had attracted over $800 billion in private investments for clean energy and manufacturing. Despite this setback, the strategy behind the IRA remains relevant, as it drew support from substantial industrial players including automakers and energy-intensive manufacturers. However, the partial repeal of these subsidies in the US is a setback and policymakers are encouraged to learn from this by designing more resilient policies and bringing more industrial players into the climate coalition.
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US Clean Energy Tax Credits Cut by $500 Billion
On Independence Day, the One Big Beautiful Bill Act was signed into law by United States President Donald Trump. A significant component of this act was the removal of approximately $500 billion from clean energy tax credits, central to the 2022 Inflation Reduction Act (IRA). The IRA has been instrumental in encouraging over $800 billion in private investments into clean energy and manufacturing, while also reducing emissions. This support was predominantly felt in Republican districts, which accounted for 80% of the funding. However, these benefits couldn’t withstand the prevailing winds of the Trump administration’s green transition policies.
The IRA Climate Plan: The Strategy Remains Sound
Despite the substantial loss incurred, the strategy behind the IRA’s climate provisions still holds strong. The IRA was birthed from the largest climate coalition ever seen in the United States, including environmentalists, scientists, progressives, green industries, and new industrial participants such as automakers and energy-intensive manufacturers. These industries, which are currently categorized as “brown”, have the potential to transition to “green” with the right investments within one to two decades.
US Clean Energy Investment on the Rise Despite Setbacks
Investment in global clean energy saw a remarkable surge between 2019 and 2024, amounting to a total of $8 trillion, which is more than twice the total for the previous two decades. A contributing factor to this increase is clean energy subsidies such as those in the IRA. These subsidies provide incentives for companies to shift their focus from the fossil fuel-based business models of the past, to the rapidly expanding green markets. Although the partial repeal of these measures in the United States was a setback, lessons can be learned to create more resilient policies and to engage more industrial players in the growing climate coalition. A path to decarbonization is gradually coming into view, a notion that seemed impossible a decade ago.
Industrial Obstacles to Climate Action
Climate action has faced significant roadblocks, not from public attitudes or economic concerns, but from powerful fossil fuel-dependent industries. These industries fear that reducing emissions would lead to massive costs, job threats, and a loss of their leading edge in fossil fuel technologies. To protect their interests, they have been successful in obstructing progress in climate change mitigation. However, this changed in the late 2010s with China’s heavy investment in electric vehicle batteries and wind and solar power supply chains. As global demand for low-carbon technologies and goods rose, industries that could potentially decarbonize had to rethink their strategies. Policymakers seized this opportunity to encourage these industries to adopt green practices in exchange for large-scale government support.
Lessons from the Rollback of the IRA
As the dust settles on the rollback of the IRA, it is crucial for climate advocates and their industry allies to reflect and extract the right lessons. The surviving provisions are significant, including tax incentives for clean manufacturing, while unfortunately consumer tax credits for purchases like electric vehicles and solar panels were not spared. Looking forward, policies need to be designed and implemented swiftly to transform firms and communities into stakeholders and beneficiaries. This will make it more likely they will defend the policies. Policymakers must also ensure that mature technologies like wind and solar power are not neglected, but are given equal opportunities with fossil fuels that have long received public subsidies.
The Future of Climate Policy
Despite the setback in the United States, the fundamental strategy that saw the emergence of the IRA and similar green spending globally still has great potential to advance climate policy. The principle of incentivizing major industry players to align with decarbonization remains crucial. Climate policy is not merely about environmental obligation, it also presents opportunities for investment, jobs, growth and long-term competitiveness. This is the key to building a political coalition that can sustain the green transition.
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