April 30, 2025 • 34 mins
One hundred days of the second Trump presidency have passed, and the impact has already been significant. While running for president, Donald Trump put the Inflation Reduction Act, ESG investing and clean energy policy in his crosshairs, only to have been held up once in office by courts, members of Congress and some states. The “Liberation Day” tariffs created turmoil on global markets, and his administration has again had to pause and row back some levies, while others are being renegotiated. To guide us through these first 100 days of the second Trump term, Tom is joined on today’s episode by Derrick Flakoll, BloombergNEF senior policy associate for North America, to discuss recent BNEF research notes including “Trump’s Investment Rules Hold Back Made-in-US Clean Tech” and “‘Reciprocal’ Tariffs Spell Chaos for Clean Energy Markets: React”.
Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com
Links to research notes from this episode:
Trump’s Investment Rules Hold Back Made-in-US Clean Tech - https://www.bnef.com/insights/36067
Reciprocal’ Tariffs Spell Chaos for Clean Energy Markets: React - https://www.bnef.com/analyst-reactions/su5u2hdwx2ps00
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Tom Rowland's Reese and you're listening to Switched
on the podcast brought to you by BNF. The first
one hundred days of Donald Trump's second term in office
have now passed, and in this short period of time,
the impact of his administration has already been deep and
wide ranging. Prior to retaking the presidency, Trump threatened to
cut some of the Biden administration's Inflation Reduction Act tax credits,
(00:20):
clamped down on ESG investing, and repeal clean energy policies,
only for some court states and members of Congress to
steiny his immediate efforts. Having assumed office. Elsewhere, his Liberation
Day tariff announcement created significant turbulence on global markets as
funds and investors struggled to find certainty in safe havens.
With most tariffs now being paused, some rolled back, and
(00:40):
others entering negotiations. The current political landscape in the US
is confusing, with some decisions taken at pace and with
little warning, and overall, the impact on the clean energy
sector seems hard to weigh. To help get a better
understanding of what has happened up to this point, on
today's show, I'm joined by Derek Flakol Bloomberg and EF
Senior Policy Associate for North America, and together we discussed
what has unfold under the first hundred days of the
(01:01):
second Trump administration. B ANYF clients can find related notes,
including analyst reactions to breaking news stories at BNF go
on the Bloomberg terminal or on bf dot com. All right,
let's get to talking about one hundred days of Trump
with Derek. Derek, thank you for joining us today. Happy
(01:26):
to for those of you that are BNF clients and
that show any interest in US politics. I presume that
Derek doesn't need any introduction because he is our main
man when it comes to figuring out what is going
on in Washington. I would also add that he has
knowledge of many other topics. At Bloomberg, we have this
(01:48):
thing on our internal system where we can put a
comment about ourselves, and Derek says approximate knowledge of many things.
This is a bold face lie. He has in depth
knowledge of many things. I have many times try to
outflank him on esoteric knowledge, whether it is physics, the
philosophy of Carl Popper, Japanese anime. So Derek knows many things,
but we are truly playing on his home turf right now.
(02:11):
So I'm really looking forward to this conversation and I
will let you speak in a moment, Derek. But just
one other sort of point of framing here is that
with this latest US election, it has been a lot
of work for him. For those of you, again who
have been F clients, you will have remembered the series
of election notes we did in the build up to
the election, and then the subsequent analysis that Derek has
(02:31):
been working on himself or collaborating with others covering all
of the changes of this latest administration. And as a
particular moment that I want to cast Derek's mind back to,
which is when we did and ask BNF, which is
a webinar for our clients on the day after the election,
analyzing what we expected to happen based on the results
of the previous day. So, Derek, do you remember that
(02:53):
conversation that we had and what was our take on
where things were likely to be did from the offset
with this new administration.
Speaker 2 (03:02):
So we tried to assess the different possible outcomes of
the election based on control of Congress. Both houses could
be Republican or Democratic, and both needed to agree on
any legislative changes and control of the presidency, which is
really primarily about administering and implementing regulations for loss that
Congress passes, whether those are tax credits where the Treasury
(03:24):
Department gets to write the rules for how those were claimed,
or grants and loans where places like the Department of
Energy or Environmental Protection Agency can select the recipients and
the process by which they're chosen. So our whole thought
overall was that generally speaking, while this would vary depending
on the mix of power in the legislature and the
executive branch, intermittent renewables like wind and solar and some
(03:47):
related sectors like storage would be most compromised, I guess,
or face the biggest downgrade in their prospects from a
republican control of government. The sectors that would face the
best improvement in their prospects from real and control the
government would be fossil fuels, coal, oil, and gas, and
then a few dispatchable or so called baseload renewables like
(04:07):
hydro power and potentially biofuels as well. And then somewhere
in the middle were different kinds of emerging technologies like
hydrogen and carbon capture, which are fairly close to the
oil and gas industry, but maybe we're dependent on government
subsidies that could end up facing cuts, as well as
some things like transmission, which has some resilience in national
security characteristics, but are also seen as closely tied to renewables.
(04:30):
As we all know, the Republicans won both Houses of
Congress and the presidency, so that's the scenario we're dealing
with now.
Speaker 1 (04:37):
So that was our expectations back then, and obviously there's
been a huge amount of activities since then. I'm sure
that has translated into many late nights and very busy
days for you personally. And I'm sure that no day
was more frantic than that first day in office, where
there were so many executive orders signed. So this has
been one of the themes of the presidency so far.
(04:57):
The use of EXECUS fielders, particularly on that first day,
did play out how we expected in terms of the
immediate actions taken.
Speaker 2 (05:04):
Initially on the first day pretty much. Yes, we saw
Trump's early executive orders, such as declaring a National Energy
Emergency and unleashing American energy focus on trying to reduce
barriers and ease permitting for the buildout of fossil fuel infrastructure,
but also for biofuels and bio energy, geothermal, hydropower, nuclear,
(05:24):
and critical minerals, all of which are either dispatchable or
base load energy sources or have certain national security characteristics.
At the same time, a lot of these executive orders
also called for pulling back funding for clean energy related
programs and removing regulations that try to promote a transition
away from fossil fuels. So this included specifically called out
(05:45):
electric vehicle charging funding, but also looking at trying to
pull back money from the Inflation Reduction Act Infrastructured Investment
of Jobs Act, the major sort of clean energy investment
programs under his predecessor Joe Biden. And I should also
note some specific executive orders that try to target permit
and leases for offshore wind and to lustser extent on
shore wind as well.
Speaker 1 (06:05):
I could categorize executive orders into three buckets, maybe ones
that have an impact, you know, indisputably ones and this
is a specific I think Trump phenomenon that don't immediately
have an impact because they are trying to do things
that he doesn't have the power to do without Congress
or support from the legislature, but maybe will lead to
(06:27):
activity as they fight it out in the courts, So
things that could make a difference. And then the third
category is executive orders that are as much symbolic as
they are actually impactful. So which of the of the
actions taken on that first day and in subsequent executive
orders as well, how does it fit between those three
(06:47):
categories overall?
Speaker 2 (06:49):
If we're to speak to some of the symbolic actions,
you could maybe point to a series of orders on
a beautiful clean Call that President Trump signed after his
first day office. That's getting a little bit further in
their chronology, but it's the easiest to explain this way effectively.
There's a lot of discussion of trying to promote more
capacity market payments for coal in particular and fossil fuel
(07:12):
generation generally, and this is kind of a repeat of
what he did in his first term. There were executive
orders to that effect, and they didn't really stop the
general decline in coal power in the US or the
rise of natural gas and renewables. In terms of your
first category, the things that will sort of bear fruit,
it should be noted that there were some immediate action
on trying to designate projects for accelerated permitting. The Army
(07:34):
Corps of Engineers has produced a list. The Department of
Interior has tried to put out environmental impact statement guidelines
as fast as twenty eight days for fossil fuel infrastructure.
But here's the tricky part. It's very hard to tell
the sort of first category of executive orders you're talking
about with the second category. Generally speaking, the Trump approach
has been to basically make pretty sweeping claims and then
(07:56):
fight things out in the courts. Some of the recent
permitting reform procedures from places like the Department of Interior
fall into that. If you're trying to accelerate permitting under
the National Environmental Policy Act, there's actually nothing in the
law to my knowledge, that allows for a faster emergency procedure,
unlike the Endangered Species Act, Clean Water Act, and other
laws that other agencies from acting under, and so you
(08:17):
can be sure that that's going to be challenged in
the courts a bit more. Another area where there's a
bit more ambiguity isn't spending. Shortly after President Trump signed
in order to try and pull back clean energy spending
from the Inflation Reduction Act, we've seen a major move
from different government agencies, led by Elon Musk's Department of
Government Efficiency, to basically pull back not even spending that
(08:40):
hasn't previously been contracted, but contracted funding which had previously
been considered pretty sacro sayct. So this has gone to courts,
but operationally there's been a lot of back and forth
and mixed reporting and changes about who and whether different
businesses or nonprofits can access loans of the Department of
Energies Loan Program Office, grants from the doe's Office of
(09:02):
Clean Energy Demonstrations or the EPA, and so forth. So
this is still really being litigated, but right now Congress
hasn't been pushing back too much, largely because they're of
the same party as President Trump. It remains to be
seen how much of these grants and programs will ultimately survive,
not only you know, legally and in terms of the
staffing which has also been cut back, but in terms
(09:24):
of trust from the business sector, and in terms of
how many grantees can really survive without some of the
government loans and guarantees being accessible to them as they
face rise and costs and other pressures.
Speaker 1 (09:35):
So what you're saying is even if ultimately it proves
to be the case that Trump has proven wrong in
his assertion that he has the right to make some
of these cuts and some of these changes, it's too
late because for those areas, the damage is done.
Speaker 2 (09:50):
Yeah, we've already seen this happen with some specific projects.
The battery manufacturer core Power, if I recall correctly, had
a conditional commitment from the Department of Energy's Loan Program's
office to build a battery manufacturing plant in Arizona, and
it's had to cancel that because they are aware that
they're not going to get funded in time. The effect
is going to be particularly intense, not only for manufacturing
(10:10):
for existing clean energy technologies like wind and solar, but
especially for new ones that haven't really scaled yet. The
Office Clean Energy Demonstration's Industrial Demonstrations Program, for example, was
meant to fund major first projects to off take clean
hydrogen or to implement carbon capture and industrial processes, and
to help create low emission materials like steal aluminum and cement.
(10:30):
And without some indial help to get those mergence sectors
off the ground, we might see considerably less progress on
those in the United States than we could otherwise expect.
Speaker 1 (10:38):
Got it. And even if that help proves to be
legally secure, the uncertainty has already had its effect, is
what you're saying.
Speaker 2 (10:45):
Yeah, there's also something to keep in mind. There's something
called the Impoundment Control Act, which allows the President to
submit something called recisions basically cuts to Congress, and if
they approve, they can pull that back. The House and
Senator currently voting on a giant budget package, and it's
part of that. They might agree to rescind some of
that spending. Now, it's possible that that will fall out
(11:06):
of the usual legislative time window when you're allowed to
do that. But this is going to be a live
area of contention, not only in courts, but also in
Congress too.
Speaker 1 (11:15):
This is the first time I've heard of was it
the Impowerment Control Act? Yes, I told you that Derek
knew his stuff that we're playing on his home turf
right now. While on the topic of things that President
Trump and his administration would symbolically like to impact but
maybe don't have the leavers to impact them in its
own way, and there's this whole area of things that
(11:37):
he can't legally control. But there's another area, which is
where a president, whoever they are, they can't change fundamental economics.
And so one of the things that seems and people
have been calling this out a little bit in the
public domain, but is a bit of a paradox, is
this idea of bringing down gasoline prices, which I believe
is something that Trump has spoken about wanting to do
(11:58):
a lot, and then this idea of drill baby drill,
because cheap gasoline prices means cheap oil. Cheap oil means,
particularly given the marginal cost of a barrel in the US,
which is not at the bottom of the supply stack,
it's one of the more costly barrels globally, the US
shale industry needs high oil prices to drill baby drill.
So there's this paradox. Do you have a sense from
(12:20):
any of the actions that the administration has taken, which
of those two seemingly conflicting ideals they are in favor of,
or anything to resolve that paradox?
Speaker 2 (12:32):
Well, as with a lot of things, the trum administration
is kind of trying to pursue both objectives at once,
but it's hard to be really confident that that'll work.
I think on the cost side, they're trying very hard
to remove regulatory barriers, including you know, pollution controls and
long permitting timelines in order to allow projects to get built.
(12:53):
We've seen a lot of this in particular, and trying
to expand global loqui financial gas exports by approving new
export terminals which the DOE has control over. At the
same time, fundamentally, it seems like there's a very strong
interest in low oil and gasoline or petrol prices. Certainly,
some have attributed the recent OPEC plus production cuts partly
(13:15):
to an attempt to curry favor with the president, and
I believe there's been some cheer leading of the general
decline and oil prices. But of course, if you look
at the Federal Reserve Bank of Dallas survey of energy producers,
there's not a lot of happiness with Trump's recent policy
moves and tricle support for lower prices. In particular, the
sense that the tariffs might hit global aggregate demand and
thereby drive oil prices down has caused a great deal
(13:37):
of ajitah among some of the major oil and gas
industry backers of Trump's administration. So ultimately it seems like
there might be a little bit more of a hope
or a prioritization for cheap consumer prices, with the sense
that in the longer run, removing regulatory barriers opening more
federal land for oil and gas production will make things
(13:57):
cheap enough to expand supply. Ultimately, the real growth in
US supply has mostly been from the shale patch, which
has those surprisingly rapid price sensitivities, even if they're often
able to undercut other producers. In short, we're going to
have to see what happens, but I'll just leave you
with the classic commodity traders point of view. The solution
to high prices is high price, and the solution to
low prices as low prices. We're going to be on
(14:19):
a bit of a merry go round for quite a
while going forward, based purely on economics, to say nothing
of the policy.
Speaker 1 (14:24):
Yeah, I mean well, based purely on the economics and
what OPEC decides to do, which is always this uniqueness
to the oil market, and presidents of the United States
are famously not able to influence that. You touched on
something else, which is a major topic here, which is
Tariff's What was the date of liberation day? April second April. Second.
(14:44):
I don't know how you have been able to sleep
since then, because I'm sure that one piece of analysis
you've been working on, you wake up the next day
find you have to delete it because there's new news
and the things have changed again. Have things sort of
settled down? I mean, are you starting to see a
little bit of a an equilibrium setting in, you know,
because there's been a lot of flip flopping, and you know,
(15:05):
Trump detractors will say that that's because keeps changing his mind.
His supporters will say this is all negotiation tactics. We're
not here to determine which one it is. But the
fact is is that what has been said has changed
pretty frequently. So are we seeing an equilibrium on tariffs generally?
And where are you seeing the biggest impacts?
Speaker 2 (15:23):
Well, I think the calm that we're seeing now isn't
so much the calm before after the storm as the
eye of the hurricane, right, a sort of calm patch
before further progress continues. Just as a reminder, we are
in the middle of a ninety day pause on high
tariff rates on a select set of countries such as
the European Union and Southeast Asia, but there's still a
general ten percent tariff on all imports to the United States,
(15:46):
with a handful of exceptions which are mostly following into
other categories like autos, steel and a lunium or Mexican
Canadian goods that were tariffed separately by Trump earlier. All
of these are kind of in the midst of ongoing negotiations.
The administration has touted good talks with nor Way, South Korea,
and Japan, just to name a few, But the real
big enchilada here is effectively the tariffs on China, which
(16:06):
are currently at one hundred and forty five percent based
tariffs for every good, with higher tariffs on a lot
of goods, particularly in the energy sector, especially on batteries,
on electric vehicles, which China doesn't really sell much to
the US, and for solar which China has not directly
sold to the US for a long time because those exist.
In short, we're seeing a bit of a deadlock between
the Trump administration, which is claiming that it might be
(16:29):
willing to flower some tariffs for a deal, and reports
out of China suggesting that there might be some reduced
tariffs at least for industrial inputs. However, there's disagreement between
the two sides on whether talks are even happening right
now at all. There's disagreement about protocol, with Trump preferring
a face to face with Chinese leader she's in pink
and the Chinese bureaucracy preferring a more formal process. In short,
we are waiting to see what happens with a lot
(16:52):
of these things. The Canada and Mexico tariffs are further
complicated by the fact that probably by the time this
pot is out, will have a final determination on the
government and Ottawa in Canada, and that'll contribute to questions
of whether the US Mexico Canada agreement, Trump's revamped version
of NAFTA gets renegotiated yet again this year or next.
The current Prime Minister Mark Carney of Canada has argued
(17:12):
that they should accelerate the USMCA renegotiation, which is due
next year, and so we could see a bit more
instability and uncertainty moving forward before things settle down.
Speaker 1 (17:22):
Just reflect on what you said about China, like really
highlights the complexity of analyzing geopolitics. The fact that China
and the US cannot even agree on whether they are
talking to each other it's publicly wow, But I want
to I want to actually drill down a little bit
on China because you know, you mentioned the tariffs on
(17:42):
sola specifically, So when I think about what the US
is importing in terms of energy equipment, and you mentioned
the US doesn't actually buy that many evs from China.
Maybe batteries is a different topic, I'm not sure. But
one thing that comes indirectly from China that the US
does import in large volumes solar. So, for those of
you not familiar with this, there's for a long time
(18:03):
been really high tariffs on Chinese solar from the US,
and that goes all the way back to Obama. But instead,
Chinese solar manufacturers have been setting up factories in Southeast Asia.
A lot of the equipment, the upstream equipment is imported
into Southeast Asia from China. The later stages of assembly
happened in Southeast Asia. Then it's exported to the US,
thus circumventing these tariffs. And I feel like that has
(18:26):
been a situation that everyone has been kind of content
with because there's sort of this very public facing We're
not being flooded with solar from China, but on the
reality for the industry, they still have access with maybe
a little bit of a markup to all the cheap
solar from China. Now, with these very high tariffs on
Southeast Asia, that loophole appears to have been shut. And
I've been to our solar analysts about this. I thought
(18:48):
they would be freaking out, and they were like, oh, no,
you know, because all of the major developers they've built
up inventory of solar. They've got enough for at least
the next year or so of build. So then the
question is is do we see this situation still being
as it is in a year's time, if that's the
rough timeline of whether tariffs really start to impact the
energy transition in the US. Do you think that the
(19:09):
current tariffs on Southeast Asia are part of a negotiation
or are they likely to stay in place and you know,
would impact the solar industry in the ways that it could.
Speaker 2 (19:19):
Well, there's two different tariffs to be speaking about here,
a set of tariffs on all goods from Southeast Asia
that the Trump administration imposed, then paused, and seems to
be negotiating about as we speak. It's hard to be
predictive of those. But the recent solar specific tariffs were
the result of investigations at US agencies initiated by labor
unions and US manufacturers. So those tariffs, you might have
(19:42):
heard the eyewatering number of three thousand percent on Cambodian
solar imports, several hundred percentages on imports from certain manufacturers
in Vietnam and elsewhere. Those certainly raise prices, no question.
But when I've spoken to our colleague poll about this,
who covers this, there's not a lot of concern there. Ultimately,
even when you add costs, solar is generally still fairly cheap.
(20:04):
There's been a tendency in Southeast Asia to shift production
and onshore some of the upstream aspects to minimize some
of these so called anti circumvention and anti dumping tariffs
that target assembly of Chinese components in Southeast Asia, and
more to the point, there's growing capacity in other markets
like Turkey and India, to say nothing of the US itself,
where there's somewhat economically competitive production. At the end of
(20:26):
the day, it should be noted that Southeast Asian solar
still tends to be the cheapest thing that the US
can import, and it still remains economically competitive when you
consider the higher costs of upstream imcore components that are
then assembled in the US and to US made solar modules.
So things will be a bit more expensive, but the
hit isn't necessarily going to be as intense, at least
(20:48):
for commercial and industrial or utility scale solar. You might
see more damage to the rooftop solar market, which is
a bit more price sensitive.
Speaker 1 (20:56):
So while it's talk about global trade and tariffs, a
few weeks ago, we did a podcast with our colleagues
Andy Leach from our batteri's team and Matthew Hill's from
our Global Trade and supply chains team, I'm talking about
the EU's battery strategy, which has somewhat similarities with the
US's in that it is about creating a space for
(21:16):
a homegrown industry to develop. They're they're using joint ventures
with Chinese companies and that's how you can access the market.
But the question I asked them at the time is
are they shooting themselves in the foot a little bit?
Because the real prize is dominating the automotive industry. And
so if we believe the future of the automotive industry
is electric vehicles, by kind of fixating on trying to
(21:38):
have their own battery supply chain. Are they stemying themselves
from what actually matters, which is dominating vehicles And shouldn't
they just be importing Chinese batteries. So with that in mind,
what are the tariff specifically on on batteries and I
for the US and are we seeing a sort of
a similar I would say maybe paradox at the heart
(21:59):
of the strat I'm not front.
Speaker 2 (22:01):
Well, the Trump administration isn't particularly eager to transition the
US auto industry to electric vehicles. They've cut back or
tried to cut back a fareantom of regulations on that front.
But accepting the premise that evs are probably going to
be the future of the auto market, which I think
we believe, there's decent economic reasons to want the batteries
at home. That's kind of a lot of the value
(22:21):
of the car and a lot of the jobs associated
with art could be associated with making the battery. Right now,
the US has already sort of erected higher trade barriers
against batteries for electric vehicles than it has for stationary storage.
That was true even under the Biden administration, and certainly
while it takes some time to scale up domestic battery production,
it's going to be a real challenge to raise the
(22:43):
costs of them further by raising the costs of imported batteries.
On top of that, even US made batteries might depend
on upstream components from China, particularly critical minerals which are
largely processed in China lithium, nickel, and so forth, and
the Trump administration is considering raising additional tariffs on those
and also graphite and which are a critical component of
the cost of battery and which could face tariffs of
(23:04):
over nine hundred percent under another investigation that's ongoing. As
our colleague Eli Gomez Callus has written about, on the
stationary storage side, the effects are actually more immediate and
somewhat more dire, because the US really does import the
vast majority of its stationary storage lithium ion batteries from China,
and it's not going to be able to upgrade its
manufacturing capacity soon enough to fill that gap, if at all.
(23:27):
Really imports would still be a critical component, and so
that means it's going to be considerably more expensive to
import something that makes renewables a bit more competitive, especially
at peak power demand times. In the evening with natural
gas and peaker plants.
Speaker 1 (23:39):
Yeah, that's interesting, and that will potentially have an impact
on markets like California and on KOT the power market
in Texas which have high penetrations of solo and whose
battery markets were then following suits. So we will see
what happens there, and in particular in Texas, if you
can't manage peak load, then that can have serious impacts
(23:59):
on power price. And that's a region where there is
ambitions to develop AI data centers on the basis partly
of having a stable power supply. So it will be
really interesting to see how that particular impact that the
knock on effects that could happen. That's just my two cents,
just adding that in As because my jam is analyzing
power markets. So final angle, I want to look at
(24:21):
this first hundred days from and I can't believe we
haven't really talked about it yet, but I kind of
wanted to save one of the big ones to last,
which is the Inflation Reduction Act. Looking more and more like,
I don't know, this sort of ship in the water
that is going to just have holes put in it
from all sorts of different angles. I don't know, but
it is certainly endangered, at least in terms of the rhetoric. So, firstly,
(24:45):
is it actually that endangered. I know that there's a
little bit of nuance there, and has anything happened in
the first hundred days that gives us any more insight
into whether the tax credits for wind, solar storage, electric vehicles,
hydrogen carbon c from storage, how are they all faring
or have they fed in this first hundred days.
Speaker 2 (25:04):
Well, it's important that you mentioned the tax credits because
those really are the bulk of the Inflation Reduction Acts
funding for clean energy technologies, at least about seventy five
percent of the clean technology deployment funding that we cataloged
back when it was passed, and in fact probably more
because the tax credits are uncapped a percentage that would
really only grow as certain grant your loan programs get
(25:26):
rolled back. So generally speaking, this is a thing that
you would need Congress to take away. Ultimately. You know,
if you just pay the government lesson your tax forms
and show that you've documented and complied with the various
rules for your tax credits, that's a little bit safer
and harder for the executive branch to interfere with than
say a grant or loan that has to be continuously
funded from government bank accounts, although we'll also see what
(25:48):
IRS enforcement looks like later in the year. At the
end of the day. In the background, with all the
sort of sterm and drang of the Trump administration's executive policies,
there's been much quieter work going on in Congress to
try and arrange a tax bill by the end of
the year in an attempt to make individual tax cuts
in Trump's first term permanent. As part of that, they're
looking for everything they can find to sort of cover
(26:11):
the costs of that, and among those sources to funding,
the Inflation Reduction Act has looked like a prime target
due to controversies about supporting electric vehicles, about the intermittency
of solar and storage, and so forth. That said, the
vast majority of the sort of project funding for the
Inflation Reduction Act has gone into Republican states and districts.
(26:34):
We're seeing a lot of factories claim manufacturing or forty
five X tax credits, and a lot of those factories
have their off take dependent on keeping the existing Clean
Energy Deployment tax credits with their domestic content bonuses intact.
Twenty one Republicans in the House and four Republicans in
the Senate have both publicly put out letters saying that
(26:56):
any changes to the Inflation Reduction Act should be cautious
and they shouldn't jeopardize exists projects. All of which is
to say, the tax credits are probably going to survive
in some form, but we could still see some major
modifications through them, such as tougher rules on domestics content sourcing.
We're on keeping Chinese firms out of the tax credit
subsidization scheme, or potentially earlier phase outs for those tax
(27:17):
credits so as to reduce their effective fiscal impact. Now,
what's usually happened to the tax credits before the IRA
is they have a sunset date and then Congress swoops
in at the last minute to bring them back as
part of a negotiation. But if you make it seem
like it's going to phase out, then its scores better
in the Congressional Budget Office. We're not really sure which
of these things were ultimately going to see. We have
a few deadlines coming up. How Speaker Mike Johnson has
(27:39):
said that he wants to get a tax bill passed
by May. The federal government is going to hit its
debt ceiling sometime in probably September or October, at which
point they're really going to want to have passed some
kind of budget. So we're going to see by the
end of this year, unlikely sooner the final product, and
that's going to really dictate how the Inflation Reduction Act
(28:00):
changes and even if it survives, if it's the kind
of thing that can really drive the energy transition as
it was intended to do.
Speaker 1 (28:06):
I mean, it's interesting what you mentioned about there's twenty
one Republicans in Congress in House of Representatives, and did
you say for senators from the Republican Party that are
somewhat supportive of the Inflation Reduction Act tax credits in
some form, And ordinarily I would say, well that's that.
Then it's not going to get repealed because as presuming
(28:27):
the Democrats will vote with it. But given this administration's
track record in these first one hundred days, which very
much seems to be make a declaration via executive order,
even if it falls outside of the bounds of what
it is legally allowed to do, and then fight about
it later in the courts and maybe with Congress, do
we see that being a potential outcome? And I suppose
(28:48):
what it fundamentally boils down to is what is the
Trump administration's view on these tax credits.
Speaker 2 (28:54):
Well, generally speaking, you've heard a lot of conversation from
people like Energy Secretary is right saying that baseload power
is important, that technology neutral support for different energy sources
is important, and that certain things subsidized by the tax
credits like nuclear or geothermal are potentially important. However, you've
(29:14):
also heard a lot of criticism of particularly wind, but
also to a lesser extent, imports of solar and storage,
and have touched Chinese supply chains as a bit more controversial.
So there's some conflicting forces here that might raise questions
about how these tax credits are going to be allowed
or enforced. In particular, I would look to IRS actions
(29:37):
to see if there ends up being some form of
selective enforcement. That said, I think it's important to think
about the broader context here. The administration has claimed that
it wants to reindustrialize the United States, and it's certainly
shown a lot of active support for data centers and
AI and all of those really require power as of course,
to individuals' homes, and everybody wants that power cheaply and
(29:57):
fairly reliably. The vast majority of the new electricity sources
that are going to come online in the United States
are going to be wind and solar. Natural gas turbine
makers like giev Rnova, and I think believe Zemans have
said that they don't want to expand the production of
their natural gas turbines too quickly because that they've gotten
burned by that before and eaten into their profits. And
(30:18):
so the fastest and in many cases cheapest and most
reliable thing you can build across the US is solar
plus storage or similar technologies, and between that and support
for things like nuclear and geothermal. Pragmatically speaking, if you
want data centers, if you want AI if you want
new factories, and if you want consumers to not be
extremely mad at you because their power bills are rising,
(30:40):
you're going to want renewables that are partly paid for
by the federal government and rather than on rate payers bills.
So it remains to be seen, but I think there
are reasons to believe that pragmatism might have to win
out in the.
Speaker 1 (30:52):
End, costing yourself back to when we did that, webinar
together and we talked about what the outlook would be
for you know, the Trump administration, and I realized that
the first hundred days is not the whole story, but
it is an interesting bell weather of what is perhaps
going to happen. So what has surprised you? What did
we not expect to happen that has happened or hasn't
(31:15):
happened that we expected to happen. What has happened that
is exactly as you expected? And what were things that
we talked about were you know, likely to happen with
this administration where we still don't have a good indication
of how that's going to go.
Speaker 2 (31:28):
Excellent question. I think often the specifics were more surprising
than the general. I think we anticipated that the Trump
administration was going to try and take funding back, but
we didn't think that they would try to bring back
contractually obligated funding. So more seems to be at risk
than we had initially anticipated.
Speaker 1 (31:46):
So it's just the just to put it into sort
of more in English, just the aggression with which they
are going after funding that has been committed to the
energy transition.
Speaker 2 (31:54):
Yeah, and on top of that, there were more or
less the moves towards some form of permitting reform that
we anticipated, but there's also attempts to fast track it
to ignore the Administrative Procedure Act and some of the
rules that govern whether a regulatory change can be legally made.
That's someone in line with his first term, but again
more aggressive than before. And what the jury is really
(32:17):
still out on is this case I made for energy
pragmatism going to win out. Are we going to see
attention to the needs of consumers and data centers and manufacturers,
or are we going to see ideology kind of Trump that,
so to speak. And I have my bets, but as
we've seen, the only certainty with this administration has generally
(32:40):
been uncertainty. So as the President says, we'll see what happens.
Speaker 1 (32:44):
I think that's a really excellent question, this idea of
particularly because the data sent question is relatively new. It's
an exciting new industry, and it does create just like
I was saying earlier with the cheap gasoline versus drill,
Baby drill, it creates a paradox between various things that
the administration says it wants to achieve. And I completely
(33:06):
agree with your assessment that is a really key question
that we don't know the answer to currently. That will
certainly have a really big bearing on what the ultimate
legacy of this administration is in terms of the energy
transition and the development of those industries. Derek, thank you
so much for joining us. It's been a really fascinating conversation.
It's always great to get your take on the political
(33:27):
aspects of the energy transition. You do such a great
job with managing to successfully weave it into the economic
and trade considerations that are all adjacent to that. So
real pleasure speaking to you.
Speaker 2 (33:38):
It's been a pleasure to speak with you. Tom. Today's
episode of Switched On was produced by Cam Gray, with
production assistants from Kamala Shelling. Bloomberg NEF is a service
provided by Bloomberg Finance LP and its affiliates. This recording
(33:59):
does not constitute, nor should it be construed as investment
a vice, investment recommendations, or a recommendation as to an
investment or other strategy. Bloomberg ANIAF should not be considered
as information sufficient upon which to base an investment decision.
Neither Bloomberg Finance LP nor any of its affiliates makes
any representation or warranty as to the accuracy or completeness
of the information contained in this recording, and any liability
(34:22):
as a result of this recording is expressly disclaimed
This is Tom Rowland's Reese and you're listening to Switched
on the podcast brought to you by BNF. The first
one hundred days of Donald Trump's second term in office
have now passed, and in this short period of time,
the impact of his administration has already been deep and
wide ranging. Prior to retaking the presidency, Trump threatened to
cut some of the Biden administration's Inflation Reduction Act tax credits,
(00:20):
clamped down on ESG investing, and repeal clean energy policies,
only for some court states and members of Congress to
steiny his immediate efforts. Having assumed office. Elsewhere, his Liberation
Day tariff announcement created significant turbulence on global markets as
funds and investors struggled to find certainty in safe havens.
With most tariffs now being paused, some rolled back, and
(00:40):
others entering negotiations. The current political landscape in the US
is confusing, with some decisions taken at pace and with
little warning, and overall, the impact on the clean energy
sector seems hard to weigh. To help get a better
understanding of what has happened up to this point, on
today's show, I'm joined by Derek Flakol Bloomberg and EF
Senior Policy Associate for North America, and together we discussed
what has unfold under the first hundred days of the
(01:01):
second Trump administration. B ANYF clients can find related notes,
including analyst reactions to breaking news stories at BNF go
on the Bloomberg terminal or on bf dot com. All right,
let's get to talking about one hundred days of Trump
with Derek. Derek, thank you for joining us today. Happy
(01:26):
to for those of you that are BNF clients and
that show any interest in US politics. I presume that
Derek doesn't need any introduction because he is our main
man when it comes to figuring out what is going
on in Washington. I would also add that he has
knowledge of many other topics. At Bloomberg, we have this
(01:48):
thing on our internal system where we can put a
comment about ourselves, and Derek says approximate knowledge of many things.
This is a bold face lie. He has in depth
knowledge of many things. I have many times try to
outflank him on esoteric knowledge, whether it is physics, the
philosophy of Carl Popper, Japanese anime. So Derek knows many things,
but we are truly playing on his home turf right now.
(02:11):
So I'm really looking forward to this conversation and I
will let you speak in a moment, Derek. But just
one other sort of point of framing here is that
with this latest US election, it has been a lot
of work for him. For those of you, again who
have been F clients, you will have remembered the series
of election notes we did in the build up to
the election, and then the subsequent analysis that Derek has
(02:31):
been working on himself or collaborating with others covering all
of the changes of this latest administration. And as a
particular moment that I want to cast Derek's mind back to,
which is when we did and ask BNF, which is
a webinar for our clients on the day after the election,
analyzing what we expected to happen based on the results
of the previous day. So, Derek, do you remember that
(02:53):
conversation that we had and what was our take on
where things were likely to be did from the offset
with this new administration.
Speaker 2 (03:02):
So we tried to assess the different possible outcomes of
the election based on control of Congress. Both houses could
be Republican or Democratic, and both needed to agree on
any legislative changes and control of the presidency, which is
really primarily about administering and implementing regulations for loss that
Congress passes, whether those are tax credits where the Treasury
(03:24):
Department gets to write the rules for how those were claimed,
or grants and loans where places like the Department of
Energy or Environmental Protection Agency can select the recipients and
the process by which they're chosen. So our whole thought
overall was that generally speaking, while this would vary depending
on the mix of power in the legislature and the
executive branch, intermittent renewables like wind and solar and some
(03:47):
related sectors like storage would be most compromised, I guess,
or face the biggest downgrade in their prospects from a
republican control of government. The sectors that would face the
best improvement in their prospects from real and control the
government would be fossil fuels, coal, oil, and gas, and
then a few dispatchable or so called baseload renewables like
(04:07):
hydro power and potentially biofuels as well. And then somewhere
in the middle were different kinds of emerging technologies like
hydrogen and carbon capture, which are fairly close to the
oil and gas industry, but maybe we're dependent on government
subsidies that could end up facing cuts, as well as
some things like transmission, which has some resilience in national
security characteristics, but are also seen as closely tied to renewables.
(04:30):
As we all know, the Republicans won both Houses of
Congress and the presidency, so that's the scenario we're dealing
with now.
Speaker 1 (04:37):
So that was our expectations back then, and obviously there's
been a huge amount of activities since then. I'm sure
that has translated into many late nights and very busy
days for you personally. And I'm sure that no day
was more frantic than that first day in office, where
there were so many executive orders signed. So this has
been one of the themes of the presidency so far.
(04:57):
The use of EXECUS fielders, particularly on that first day,
did play out how we expected in terms of the
immediate actions taken.
Speaker 2 (05:04):
Initially on the first day pretty much. Yes, we saw
Trump's early executive orders, such as declaring a National Energy
Emergency and unleashing American energy focus on trying to reduce
barriers and ease permitting for the buildout of fossil fuel infrastructure,
but also for biofuels and bio energy, geothermal, hydropower, nuclear,
(05:24):
and critical minerals, all of which are either dispatchable or
base load energy sources or have certain national security characteristics.
At the same time, a lot of these executive orders
also called for pulling back funding for clean energy related
programs and removing regulations that try to promote a transition
away from fossil fuels. So this included specifically called out
(05:45):
electric vehicle charging funding, but also looking at trying to
pull back money from the Inflation Reduction Act Infrastructured Investment
of Jobs Act, the major sort of clean energy investment
programs under his predecessor Joe Biden. And I should also
note some specific executive orders that try to target permit
and leases for offshore wind and to lustser extent on
shore wind as well.
Speaker 1 (06:05):
I could categorize executive orders into three buckets, maybe ones
that have an impact, you know, indisputably ones and this
is a specific I think Trump phenomenon that don't immediately
have an impact because they are trying to do things
that he doesn't have the power to do without Congress
or support from the legislature, but maybe will lead to
(06:27):
activity as they fight it out in the courts, So
things that could make a difference. And then the third
category is executive orders that are as much symbolic as
they are actually impactful. So which of the of the
actions taken on that first day and in subsequent executive
orders as well, how does it fit between those three
(06:47):
categories overall?
Speaker 2 (06:49):
If we're to speak to some of the symbolic actions,
you could maybe point to a series of orders on
a beautiful clean Call that President Trump signed after his
first day office. That's getting a little bit further in
their chronology, but it's the easiest to explain this way effectively.
There's a lot of discussion of trying to promote more
capacity market payments for coal in particular and fossil fuel
(07:12):
generation generally, and this is kind of a repeat of
what he did in his first term. There were executive
orders to that effect, and they didn't really stop the
general decline in coal power in the US or the
rise of natural gas and renewables. In terms of your
first category, the things that will sort of bear fruit,
it should be noted that there were some immediate action
on trying to designate projects for accelerated permitting. The Army
(07:34):
Corps of Engineers has produced a list. The Department of
Interior has tried to put out environmental impact statement guidelines
as fast as twenty eight days for fossil fuel infrastructure.
But here's the tricky part. It's very hard to tell
the sort of first category of executive orders you're talking
about with the second category. Generally speaking, the Trump approach
has been to basically make pretty sweeping claims and then
(07:56):
fight things out in the courts. Some of the recent
permitting reform procedures from places like the Department of Interior
fall into that. If you're trying to accelerate permitting under
the National Environmental Policy Act, there's actually nothing in the
law to my knowledge, that allows for a faster emergency procedure,
unlike the Endangered Species Act, Clean Water Act, and other
laws that other agencies from acting under, and so you
(08:17):
can be sure that that's going to be challenged in
the courts a bit more. Another area where there's a
bit more ambiguity isn't spending. Shortly after President Trump signed
in order to try and pull back clean energy spending
from the Inflation Reduction Act, we've seen a major move
from different government agencies, led by Elon Musk's Department of
Government Efficiency, to basically pull back not even spending that
(08:40):
hasn't previously been contracted, but contracted funding which had previously
been considered pretty sacro sayct. So this has gone to courts,
but operationally there's been a lot of back and forth
and mixed reporting and changes about who and whether different
businesses or nonprofits can access loans of the Department of
Energies Loan Program Office, grants from the doe's Office of
(09:02):
Clean Energy Demonstrations or the EPA, and so forth. So
this is still really being litigated, but right now Congress
hasn't been pushing back too much, largely because they're of
the same party as President Trump. It remains to be
seen how much of these grants and programs will ultimately survive,
not only you know, legally and in terms of the
staffing which has also been cut back, but in terms
(09:24):
of trust from the business sector, and in terms of
how many grantees can really survive without some of the
government loans and guarantees being accessible to them as they
face rise and costs and other pressures.
Speaker 1 (09:35):
So what you're saying is even if ultimately it proves
to be the case that Trump has proven wrong in
his assertion that he has the right to make some
of these cuts and some of these changes, it's too
late because for those areas, the damage is done.
Speaker 2 (09:50):
Yeah, we've already seen this happen with some specific projects.
The battery manufacturer core Power, if I recall correctly, had
a conditional commitment from the Department of Energy's Loan Program's
office to build a battery manufacturing plant in Arizona, and
it's had to cancel that because they are aware that
they're not going to get funded in time. The effect
is going to be particularly intense, not only for manufacturing
(10:10):
for existing clean energy technologies like wind and solar, but
especially for new ones that haven't really scaled yet. The
Office Clean Energy Demonstration's Industrial Demonstrations Program, for example, was
meant to fund major first projects to off take clean
hydrogen or to implement carbon capture and industrial processes, and
to help create low emission materials like steal aluminum and cement.
(10:30):
And without some indial help to get those mergence sectors
off the ground, we might see considerably less progress on
those in the United States than we could otherwise expect.
Speaker 1 (10:38):
Got it. And even if that help proves to be
legally secure, the uncertainty has already had its effect, is
what you're saying.
Speaker 2 (10:45):
Yeah, there's also something to keep in mind. There's something
called the Impoundment Control Act, which allows the President to
submit something called recisions basically cuts to Congress, and if
they approve, they can pull that back. The House and
Senator currently voting on a giant budget package, and it's
part of that. They might agree to rescind some of
that spending. Now, it's possible that that will fall out
(11:06):
of the usual legislative time window when you're allowed to
do that. But this is going to be a live
area of contention, not only in courts, but also in
Congress too.
Speaker 1 (11:15):
This is the first time I've heard of was it
the Impowerment Control Act? Yes, I told you that Derek
knew his stuff that we're playing on his home turf
right now. While on the topic of things that President
Trump and his administration would symbolically like to impact but
maybe don't have the leavers to impact them in its
own way, and there's this whole area of things that
(11:37):
he can't legally control. But there's another area, which is
where a president, whoever they are, they can't change fundamental economics.
And so one of the things that seems and people
have been calling this out a little bit in the
public domain, but is a bit of a paradox, is
this idea of bringing down gasoline prices, which I believe
is something that Trump has spoken about wanting to do
(11:58):
a lot, and then this idea of drill baby drill,
because cheap gasoline prices means cheap oil. Cheap oil means,
particularly given the marginal cost of a barrel in the US,
which is not at the bottom of the supply stack,
it's one of the more costly barrels globally, the US
shale industry needs high oil prices to drill baby drill.
So there's this paradox. Do you have a sense from
(12:20):
any of the actions that the administration has taken, which
of those two seemingly conflicting ideals they are in favor of,
or anything to resolve that paradox?
Speaker 2 (12:32):
Well, as with a lot of things, the trum administration
is kind of trying to pursue both objectives at once,
but it's hard to be really confident that that'll work.
I think on the cost side, they're trying very hard
to remove regulatory barriers, including you know, pollution controls and
long permitting timelines in order to allow projects to get built.
(12:53):
We've seen a lot of this in particular, and trying
to expand global loqui financial gas exports by approving new
export terminals which the DOE has control over. At the
same time, fundamentally, it seems like there's a very strong
interest in low oil and gasoline or petrol prices. Certainly,
some have attributed the recent OPEC plus production cuts partly
(13:15):
to an attempt to curry favor with the president, and
I believe there's been some cheer leading of the general
decline and oil prices. But of course, if you look
at the Federal Reserve Bank of Dallas survey of energy producers,
there's not a lot of happiness with Trump's recent policy
moves and tricle support for lower prices. In particular, the
sense that the tariffs might hit global aggregate demand and
thereby drive oil prices down has caused a great deal
(13:37):
of ajitah among some of the major oil and gas
industry backers of Trump's administration. So ultimately it seems like
there might be a little bit more of a hope
or a prioritization for cheap consumer prices, with the sense
that in the longer run, removing regulatory barriers opening more
federal land for oil and gas production will make things
(13:57):
cheap enough to expand supply. Ultimately, the real growth in
US supply has mostly been from the shale patch, which
has those surprisingly rapid price sensitivities, even if they're often
able to undercut other producers. In short, we're going to
have to see what happens, but I'll just leave you
with the classic commodity traders point of view. The solution
to high prices is high price, and the solution to
low prices as low prices. We're going to be on
(14:19):
a bit of a merry go round for quite a
while going forward, based purely on economics, to say nothing
of the policy.
Speaker 1 (14:24):
Yeah, I mean well, based purely on the economics and
what OPEC decides to do, which is always this uniqueness
to the oil market, and presidents of the United States
are famously not able to influence that. You touched on
something else, which is a major topic here, which is
Tariff's What was the date of liberation day? April second April. Second.
(14:44):
I don't know how you have been able to sleep
since then, because I'm sure that one piece of analysis
you've been working on, you wake up the next day
find you have to delete it because there's new news
and the things have changed again. Have things sort of
settled down? I mean, are you starting to see a
little bit of a an equilibrium setting in, you know,
because there's been a lot of flip flopping, and you know,
(15:05):
Trump detractors will say that that's because keeps changing his mind.
His supporters will say this is all negotiation tactics. We're
not here to determine which one it is. But the
fact is is that what has been said has changed
pretty frequently. So are we seeing an equilibrium on tariffs generally?
And where are you seeing the biggest impacts?
Speaker 2 (15:23):
Well, I think the calm that we're seeing now isn't
so much the calm before after the storm as the
eye of the hurricane, right, a sort of calm patch
before further progress continues. Just as a reminder, we are
in the middle of a ninety day pause on high
tariff rates on a select set of countries such as
the European Union and Southeast Asia, but there's still a
general ten percent tariff on all imports to the United States,
(15:46):
with a handful of exceptions which are mostly following into
other categories like autos, steel and a lunium or Mexican
Canadian goods that were tariffed separately by Trump earlier. All
of these are kind of in the midst of ongoing negotiations.
The administration has touted good talks with nor Way, South Korea,
and Japan, just to name a few, But the real
big enchilada here is effectively the tariffs on China, which
(16:06):
are currently at one hundred and forty five percent based
tariffs for every good, with higher tariffs on a lot
of goods, particularly in the energy sector, especially on batteries,
on electric vehicles, which China doesn't really sell much to
the US, and for solar which China has not directly
sold to the US for a long time because those exist.
In short, we're seeing a bit of a deadlock between
the Trump administration, which is claiming that it might be
(16:29):
willing to flower some tariffs for a deal, and reports
out of China suggesting that there might be some reduced
tariffs at least for industrial inputs. However, there's disagreement between
the two sides on whether talks are even happening right
now at all. There's disagreement about protocol, with Trump preferring
a face to face with Chinese leader she's in pink
and the Chinese bureaucracy preferring a more formal process. In short,
we are waiting to see what happens with a lot
(16:52):
of these things. The Canada and Mexico tariffs are further
complicated by the fact that probably by the time this
pot is out, will have a final determination on the
government and Ottawa in Canada, and that'll contribute to questions
of whether the US Mexico Canada agreement, Trump's revamped version
of NAFTA gets renegotiated yet again this year or next.
The current Prime Minister Mark Carney of Canada has argued
(17:12):
that they should accelerate the USMCA renegotiation, which is due
next year, and so we could see a bit more
instability and uncertainty moving forward before things settle down.
Speaker 1 (17:22):
Just reflect on what you said about China, like really
highlights the complexity of analyzing geopolitics. The fact that China
and the US cannot even agree on whether they are
talking to each other it's publicly wow, But I want
to I want to actually drill down a little bit
on China because you know, you mentioned the tariffs on
(17:42):
sola specifically, So when I think about what the US
is importing in terms of energy equipment, and you mentioned
the US doesn't actually buy that many evs from China.
Maybe batteries is a different topic, I'm not sure. But
one thing that comes indirectly from China that the US
does import in large volumes solar. So, for those of
you not familiar with this, there's for a long time
(18:03):
been really high tariffs on Chinese solar from the US,
and that goes all the way back to Obama. But instead,
Chinese solar manufacturers have been setting up factories in Southeast Asia.
A lot of the equipment, the upstream equipment is imported
into Southeast Asia from China. The later stages of assembly
happened in Southeast Asia. Then it's exported to the US,
thus circumventing these tariffs. And I feel like that has
(18:26):
been a situation that everyone has been kind of content
with because there's sort of this very public facing We're
not being flooded with solar from China, but on the
reality for the industry, they still have access with maybe
a little bit of a markup to all the cheap
solar from China. Now, with these very high tariffs on
Southeast Asia, that loophole appears to have been shut. And
I've been to our solar analysts about this. I thought
(18:48):
they would be freaking out, and they were like, oh, no,
you know, because all of the major developers they've built
up inventory of solar. They've got enough for at least
the next year or so of build. So then the
question is is do we see this situation still being
as it is in a year's time, if that's the
rough timeline of whether tariffs really start to impact the
energy transition in the US. Do you think that the
(19:09):
current tariffs on Southeast Asia are part of a negotiation
or are they likely to stay in place and you know,
would impact the solar industry in the ways that it could.
Speaker 2 (19:19):
Well, there's two different tariffs to be speaking about here,
a set of tariffs on all goods from Southeast Asia
that the Trump administration imposed, then paused, and seems to
be negotiating about as we speak. It's hard to be
predictive of those. But the recent solar specific tariffs were
the result of investigations at US agencies initiated by labor
unions and US manufacturers. So those tariffs, you might have
(19:42):
heard the eyewatering number of three thousand percent on Cambodian
solar imports, several hundred percentages on imports from certain manufacturers
in Vietnam and elsewhere. Those certainly raise prices, no question.
But when I've spoken to our colleague poll about this,
who covers this, there's not a lot of concern there. Ultimately,
even when you add costs, solar is generally still fairly cheap.
(20:04):
There's been a tendency in Southeast Asia to shift production
and onshore some of the upstream aspects to minimize some
of these so called anti circumvention and anti dumping tariffs
that target assembly of Chinese components in Southeast Asia, and
more to the point, there's growing capacity in other markets
like Turkey and India, to say nothing of the US itself,
where there's somewhat economically competitive production. At the end of
(20:26):
the day, it should be noted that Southeast Asian solar
still tends to be the cheapest thing that the US
can import, and it still remains economically competitive when you
consider the higher costs of upstream imcore components that are
then assembled in the US and to US made solar modules.
So things will be a bit more expensive, but the
hit isn't necessarily going to be as intense, at least
(20:48):
for commercial and industrial or utility scale solar. You might
see more damage to the rooftop solar market, which is
a bit more price sensitive.
Speaker 1 (20:56):
So while it's talk about global trade and tariffs, a
few weeks ago, we did a podcast with our colleagues
Andy Leach from our batteri's team and Matthew Hill's from
our Global Trade and supply chains team, I'm talking about
the EU's battery strategy, which has somewhat similarities with the
US's in that it is about creating a space for
(21:16):
a homegrown industry to develop. They're they're using joint ventures
with Chinese companies and that's how you can access the market.
But the question I asked them at the time is
are they shooting themselves in the foot a little bit?
Because the real prize is dominating the automotive industry. And
so if we believe the future of the automotive industry
is electric vehicles, by kind of fixating on trying to
(21:38):
have their own battery supply chain. Are they stemying themselves
from what actually matters, which is dominating vehicles And shouldn't
they just be importing Chinese batteries. So with that in mind,
what are the tariff specifically on on batteries and I
for the US and are we seeing a sort of
a similar I would say maybe paradox at the heart
(21:59):
of the strat I'm not front.
Speaker 2 (22:01):
Well, the Trump administration isn't particularly eager to transition the
US auto industry to electric vehicles. They've cut back or
tried to cut back a fareantom of regulations on that front.
But accepting the premise that evs are probably going to
be the future of the auto market, which I think
we believe, there's decent economic reasons to want the batteries
at home. That's kind of a lot of the value
(22:21):
of the car and a lot of the jobs associated
with art could be associated with making the battery. Right now,
the US has already sort of erected higher trade barriers
against batteries for electric vehicles than it has for stationary storage.
That was true even under the Biden administration, and certainly
while it takes some time to scale up domestic battery production,
it's going to be a real challenge to raise the
(22:43):
costs of them further by raising the costs of imported batteries.
On top of that, even US made batteries might depend
on upstream components from China, particularly critical minerals which are
largely processed in China lithium, nickel, and so forth, and
the Trump administration is considering raising additional tariffs on those
and also graphite and which are a critical component of
the cost of battery and which could face tariffs of
(23:04):
over nine hundred percent under another investigation that's ongoing. As
our colleague Eli Gomez Callus has written about, on the
stationary storage side, the effects are actually more immediate and
somewhat more dire, because the US really does import the
vast majority of its stationary storage lithium ion batteries from China,
and it's not going to be able to upgrade its
manufacturing capacity soon enough to fill that gap, if at all.
(23:27):
Really imports would still be a critical component, and so
that means it's going to be considerably more expensive to
import something that makes renewables a bit more competitive, especially
at peak power demand times. In the evening with natural
gas and peaker plants.
Speaker 1 (23:39):
Yeah, that's interesting, and that will potentially have an impact
on markets like California and on KOT the power market
in Texas which have high penetrations of solo and whose
battery markets were then following suits. So we will see
what happens there, and in particular in Texas, if you
can't manage peak load, then that can have serious impacts
(23:59):
on power price. And that's a region where there is
ambitions to develop AI data centers on the basis partly
of having a stable power supply. So it will be
really interesting to see how that particular impact that the
knock on effects that could happen. That's just my two cents,
just adding that in As because my jam is analyzing
power markets. So final angle, I want to look at
(24:21):
this first hundred days from and I can't believe we
haven't really talked about it yet, but I kind of
wanted to save one of the big ones to last,
which is the Inflation Reduction Act. Looking more and more like,
I don't know, this sort of ship in the water
that is going to just have holes put in it
from all sorts of different angles. I don't know, but
it is certainly endangered, at least in terms of the rhetoric. So, firstly,
(24:45):
is it actually that endangered. I know that there's a
little bit of nuance there, and has anything happened in
the first hundred days that gives us any more insight
into whether the tax credits for wind, solar storage, electric vehicles,
hydrogen carbon c from storage, how are they all faring
or have they fed in this first hundred days.
Speaker 2 (25:04):
Well, it's important that you mentioned the tax credits because
those really are the bulk of the Inflation Reduction Acts
funding for clean energy technologies, at least about seventy five
percent of the clean technology deployment funding that we cataloged
back when it was passed, and in fact probably more
because the tax credits are uncapped a percentage that would
really only grow as certain grant your loan programs get
(25:26):
rolled back. So generally speaking, this is a thing that
you would need Congress to take away. Ultimately. You know,
if you just pay the government lesson your tax forms
and show that you've documented and complied with the various
rules for your tax credits, that's a little bit safer
and harder for the executive branch to interfere with than
say a grant or loan that has to be continuously
funded from government bank accounts, although we'll also see what
(25:48):
IRS enforcement looks like later in the year. At the
end of the day. In the background, with all the
sort of sterm and drang of the Trump administration's executive policies,
there's been much quieter work going on in Congress to
try and arrange a tax bill by the end of
the year in an attempt to make individual tax cuts
in Trump's first term permanent. As part of that, they're
looking for everything they can find to sort of cover
(26:11):
the costs of that, and among those sources to funding,
the Inflation Reduction Act has looked like a prime target
due to controversies about supporting electric vehicles, about the intermittency
of solar and storage, and so forth. That said, the
vast majority of the sort of project funding for the
Inflation Reduction Act has gone into Republican states and districts.
(26:34):
We're seeing a lot of factories claim manufacturing or forty
five X tax credits, and a lot of those factories
have their off take dependent on keeping the existing Clean
Energy Deployment tax credits with their domestic content bonuses intact.
Twenty one Republicans in the House and four Republicans in
the Senate have both publicly put out letters saying that
(26:56):
any changes to the Inflation Reduction Act should be cautious
and they shouldn't jeopardize exists projects. All of which is
to say, the tax credits are probably going to survive
in some form, but we could still see some major
modifications through them, such as tougher rules on domestics content sourcing.
We're on keeping Chinese firms out of the tax credit
subsidization scheme, or potentially earlier phase outs for those tax
(27:17):
credits so as to reduce their effective fiscal impact. Now,
what's usually happened to the tax credits before the IRA
is they have a sunset date and then Congress swoops
in at the last minute to bring them back as
part of a negotiation. But if you make it seem
like it's going to phase out, then its scores better
in the Congressional Budget Office. We're not really sure which
of these things were ultimately going to see. We have
a few deadlines coming up. How Speaker Mike Johnson has
(27:39):
said that he wants to get a tax bill passed
by May. The federal government is going to hit its
debt ceiling sometime in probably September or October, at which
point they're really going to want to have passed some
kind of budget. So we're going to see by the
end of this year, unlikely sooner the final product, and
that's going to really dictate how the Inflation Reduction Act
(28:00):
changes and even if it survives, if it's the kind
of thing that can really drive the energy transition as
it was intended to do.
Speaker 1 (28:06):
I mean, it's interesting what you mentioned about there's twenty
one Republicans in Congress in House of Representatives, and did
you say for senators from the Republican Party that are
somewhat supportive of the Inflation Reduction Act tax credits in
some form, And ordinarily I would say, well that's that.
Then it's not going to get repealed because as presuming
(28:27):
the Democrats will vote with it. But given this administration's
track record in these first one hundred days, which very
much seems to be make a declaration via executive order,
even if it falls outside of the bounds of what
it is legally allowed to do, and then fight about
it later in the courts and maybe with Congress, do
we see that being a potential outcome? And I suppose
(28:48):
what it fundamentally boils down to is what is the
Trump administration's view on these tax credits.
Speaker 2 (28:54):
Well, generally speaking, you've heard a lot of conversation from
people like Energy Secretary is right saying that baseload power
is important, that technology neutral support for different energy sources
is important, and that certain things subsidized by the tax
credits like nuclear or geothermal are potentially important. However, you've
(29:14):
also heard a lot of criticism of particularly wind, but
also to a lesser extent, imports of solar and storage,
and have touched Chinese supply chains as a bit more controversial.
So there's some conflicting forces here that might raise questions
about how these tax credits are going to be allowed
or enforced. In particular, I would look to IRS actions
(29:37):
to see if there ends up being some form of
selective enforcement. That said, I think it's important to think
about the broader context here. The administration has claimed that
it wants to reindustrialize the United States, and it's certainly
shown a lot of active support for data centers and
AI and all of those really require power as of course,
to individuals' homes, and everybody wants that power cheaply and
(29:57):
fairly reliably. The vast majority of the new electricity sources
that are going to come online in the United States
are going to be wind and solar. Natural gas turbine
makers like giev Rnova, and I think believe Zemans have
said that they don't want to expand the production of
their natural gas turbines too quickly because that they've gotten
burned by that before and eaten into their profits. And
(30:18):
so the fastest and in many cases cheapest and most
reliable thing you can build across the US is solar
plus storage or similar technologies, and between that and support
for things like nuclear and geothermal. Pragmatically speaking, if you
want data centers, if you want AI if you want
new factories, and if you want consumers to not be
extremely mad at you because their power bills are rising,
(30:40):
you're going to want renewables that are partly paid for
by the federal government and rather than on rate payers bills.
So it remains to be seen, but I think there
are reasons to believe that pragmatism might have to win
out in the.
Speaker 1 (30:52):
End, costing yourself back to when we did that, webinar
together and we talked about what the outlook would be
for you know, the Trump administration, and I realized that
the first hundred days is not the whole story, but
it is an interesting bell weather of what is perhaps
going to happen. So what has surprised you? What did
we not expect to happen that has happened or hasn't
(31:15):
happened that we expected to happen. What has happened that
is exactly as you expected? And what were things that
we talked about were you know, likely to happen with
this administration where we still don't have a good indication
of how that's going to go.
Speaker 2 (31:28):
Excellent question. I think often the specifics were more surprising
than the general. I think we anticipated that the Trump
administration was going to try and take funding back, but
we didn't think that they would try to bring back
contractually obligated funding. So more seems to be at risk
than we had initially anticipated.
Speaker 1 (31:46):
So it's just the just to put it into sort
of more in English, just the aggression with which they
are going after funding that has been committed to the
energy transition.
Speaker 2 (31:54):
Yeah, and on top of that, there were more or
less the moves towards some form of permitting reform that
we anticipated, but there's also attempts to fast track it
to ignore the Administrative Procedure Act and some of the
rules that govern whether a regulatory change can be legally made.
That's someone in line with his first term, but again
more aggressive than before. And what the jury is really
(32:17):
still out on is this case I made for energy
pragmatism going to win out. Are we going to see
attention to the needs of consumers and data centers and manufacturers,
or are we going to see ideology kind of Trump that,
so to speak. And I have my bets, but as
we've seen, the only certainty with this administration has generally
(32:40):
been uncertainty. So as the President says, we'll see what happens.
Speaker 1 (32:44):
I think that's a really excellent question, this idea of
particularly because the data sent question is relatively new. It's
an exciting new industry, and it does create just like
I was saying earlier with the cheap gasoline versus drill,
Baby drill, it creates a paradox between various things that
the administration says it wants to achieve. And I completely
(33:06):
agree with your assessment that is a really key question
that we don't know the answer to currently. That will
certainly have a really big bearing on what the ultimate
legacy of this administration is in terms of the energy
transition and the development of those industries. Derek, thank you
so much for joining us. It's been a really fascinating conversation.
It's always great to get your take on the political
(33:27):
aspects of the energy transition. You do such a great
job with managing to successfully weave it into the economic
and trade considerations that are all adjacent to that. So
real pleasure speaking to you.
Speaker 2 (33:38):
It's been a pleasure to speak with you. Tom. Today's
episode of Switched On was produced by Cam Gray, with
production assistants from Kamala Shelling. Bloomberg NEF is a service
provided by Bloomberg Finance LP and its affiliates. This recording
(33:59):
does not constitute, nor should it be construed as investment
a vice, investment recommendations, or a recommendation as to an
investment or other strategy. Bloomberg ANIAF should not be considered
as information sufficient upon which to base an investment decision.
Neither Bloomberg Finance LP nor any of its affiliates makes
any representation or warranty as to the accuracy or completeness
of the information contained in this recording, and any liability
(34:22):
as a result of this recording is expressly disclaimed
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