Upon President Donald Trump’s return to the White House, it was widely anticipated that his government’s top priorities would be to cut government spending and find ways to fund extended tax cuts. For many however, including our Sustainable Investment team, their approach to climate action was of greatest interest. It was largely expected that they would retain the Biden administration’s landmark climate bill, the Inflation Reduction Act (IRA), even though the new President had made sceptical remarks on industries such as renewables.1 The latest news continues to support this view amid the new government making proposed changes to the IRA, which are more supportive than many expected. These changes, however, must still go for a vote so we may yet see amendments. We must remember that despite some Republicans being sceptical, a broad-based repeal of support for clean industries remains unpopular nationwide, and these industries remain economically important to the nation. Below, we have summarised three of the key elements of the proposal and the broader context.2, 3
The current US federal EV tax incentive offers up to $7,500 off the purchase of a new electric vehicle and up to $4,000 for a used EV. The government have proposed removing these in their amendments to the IRA.
This move is unsurprising as it was well flagged coming into the presidential race that Trump would cut the EV incentives, and he has kept this promise. Although this will reduce the relative benefit of purchasing an EV in the US, costs have come down significantly in recent years and ranges have increased notably too. The long-term expectation is for EV penetration to increase, and we continue to see much stronger shifts across other markets such as Europe and China.
ITC (Investment Tax Credit) and PTC (Production Tax Credit) are US federal tax incentives designed to encourage investment in clean energy:
In short, ITC helps offset the initial cost of building clean energy projects, while PTC rewards the actual production of clean power over time.
Although this phasing out sounds like a negative outcome, under the original bill, these were due to be phased out by 2032 anyway, just one year later. The new proposal would see the incentives phased out by 2031, but full tax credits will still be available for projects that are placed in service by the end of 2028 and only after this point will credits be phased out. Although this is a scale back, it is important to highlight that support for investment in clean energy remains high and should continue to incentivise further investments. This news is better than market expectations and companies involved in US renewables development have reacted strongly to the proposals.
In an unexpected move, the government has proposed to retain credits for biofuel manufacturing and carbon credits for a further four years. Biofuels remain highly economically important in regions such as Iowa and Nebraska (Republican states), both in terms of agricultural demand but also jobs and industry. The extension of this support reflects the increasing economic importance of clean industries and also the political impact of reducing investment in lower income regions, which have received the majority of IRA benefits thus far.
Additionally, the proposal continues to support the capture of carbon emissions, either for permanent storage or reuse in other industries. Given the current focus on reducing pollution, it is encouraging to see continued incentives for cutting emissions from carbon-intensive industries.
The proposed IRA amendment announcement reflects some important considerations for the US, mainly around energy dominance and security, and the role the IRA will have in supporting this.
It may not be a smooth path to implementation, however. Four Republican senators have warned against a wholesale repeal of energy tax credits, asking their party’s leadership to instead take a measured approach. Republicans effectively won’t be able to pass their tax agenda without them. With a 53-47 majority, the party can have no more than three defections and still pass the partisan tax bill with a tie-breaking vote from Vice President JD Vance.
“We urge a targeted, pragmatic approach that balances these priorities without undercutting current and future private-sector investments that are vital to domestic manufacturing, energy innovation, and affordability for American families,” said the letter, which was sent to Senate Majority Leader John Thune. The senators wrote that a full-scale repeal of the current credits “could lead to significant disruptions for the American people and weaken our position as a global energy leader.”
“A wholesale repeal, or the termination of certain individual credits, would create uncertainty, jeopardizing capital allocation, long-term project planning, and job creation in the energy sector and across our broader economy,”.4
A compelling example from LGT’s own portfolio isa leading developer of renewable energy, NextEra Energy. The company’s CEO has highlighted just why pragmatism around clean energy is critical for energy security and dominance. In a public address he highlighted that natural gas alone cannot meet the soaring electricity demand projected through 2030. Even under optimistic assumptions, only 75 gigawatts of new gas-fired capacity – just 16% of the 460 gigawatts needed – could realistically be built. Rising construction costs for gas plants further challenge their economic viability, potentially driving up energy bills for consumers and businesses. As a result, NextEra expects renewables to provide the majority of new power generation, around 350 gigawatts, underscoring that market forces, cost efficiency and energy security – not political shifts – continue to drive the clean energy transition.5
As we have continued to highlight, the US is only one component of the global climate opportunity and although these developments continue to signal multi-year support for clean energy, the US President stands mostly alone in his scepticism of climate action.6 The European Commission recently announced the Clean Industrial Deal, setting the stage for increased support for decarbonisation.7 The leaders of the decarbonisation industry, together with support from China, have also reiterated their commitment to both the Paris Agreement and climate action.
When world leaders appear to disagree with the general consensus of climate risks, this can seem to be a major risk to progressing towards climate protection and innovation within clean energy industries, but the announced proposals from the US government highlight a pragmatic approach for the US that will see continued support for clean technologies in the years to come, and we continue to see strong support from other major economies.
We continue to engage with companies and fund managers on these developments and to see strong support at a corporate level globally.
[1] Reuters: https://www.reuters.com/sustainability/climate-energy/trump-budget-proposes-slashes-renewable-energy-farms-epa-2025-05-02/
[2] US Government, Ways and Means: https://waysandmeans.house.gov/
[3] Bloomberg
[4] Reuters: https://www.reuters.com/world/us/four-republican-us-senators-back-biden-era-energy-tax-credits-2025-04-10/
[5] Bloomberg: https://www.bloomberg.com/news/articles/2025-03-10/top-us-utility-says-gas-can-meet-only-a-fraction-of-power-demand
[6] Bloomberg: https://www.bloomberg.com/news/newsletters/2025-04-28/trump-s-missing-climate-invite-makes-us-look-even-more-isolated
[7] European Commission: https://commission.europa.eu/topics/eu-competitiveness/clean-industrial-deal_en
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