Future of Energy Infrastructure Under Trump: Q&A with Capital Innovations’ Michael Underhill
The environmental and energy policies anticipated under President-elect Donald Trump will substantially differ from those of the Biden-Harris administration. The energy sector, for example, rose sharply the day following Trump’s victory, with the Energy Select Sector SPDR Fund (XLE) rising over 4% on optimism about fossil fuel investments under Trump’s expected pro-oil and gas policies. In contrast, shares of renewable energy businesses declined dramatically across the board.
We asked Michael Underhill, CIO of Capital Innovations and past president of ADISA, what a second Trump term might entail for climate and sustainable energy programs at home and abroad.
CM: What does a Trump administration mean for the energy transition?
MU: It will accelerate with a focus on streamlining permitting for new energy projects. Generally speaking, it should get easier to build anything, especially in red states, with some exceptions noted below. This will benefit most energy projects.
The Inflation Reduction Act (IRA) will face persistent headline risk once Trump returns to the White House, and unified GOP control of Washington would certainly lead to more investigations and oversight, but we firmly believe that the bulk of the IRA’s green energy provisions will be safe given that the combination of environmental benefit and job creation should provide considerable political cover. Our only caveat is that we expect targeted technical changes as well as serious curtailment or possible complete repeal of the law’s electric vehicle and tech-neutral ITC provisions.
CM: Will it derail the clean energy initiative?
MU: No but it may take different forms such as Trump’s preference for nuclear over solar and wind. Trump doesn’t care about climate change, or at least opposes acting as if it’s happening, but will pursue clean energy for “clean air” reasons, assuming states (mostly red states) want to build.
However, I expect a reduction in federal financial support for non-nuclear clean energy, whether through an alteration of the Inflation Reduction Act (IRA) or its wholesale replacement. IRA projects have mainly benefited red states. Expect any replacement policy to continue bringing federal money to red states.
WIND:
Trump hates wind, especially offshore, and has an intense interest in the subject. I expect offshore projects off the Atlantic Coast, more expensive than new nuclear but much less valuable, to suffer. These projects are backed by the largest European clean energy companies. I expect these companies to continue taking a beating on their American projects. Red states have enacted significant local bans on new wind. I do not expect permitting reform to significantly alter this situation under such an anti-wind president.
SOLAR:
Solar remains extremely popular in red states and is a business and personal interest of Trump’s most famous new advisor. But the cheap panels come from China. There is tension here. I expect it to be resolved in favor of solar remaining cheap. It is not certain solar retains its current level of support from the IRA.
NUCLEAR:
In a recent interview, Trump extolled France’s nuclear buildout based on standardized GW-scale reactors. I expect his administration to support similar efforts in the U.S. He expressed concern about reactors getting complex as they got bigger (1.3-1.7 GW projects) which indeed have had a very poor record in the West. He likes the idea of “small modular reactors” so expect his administration to support ongoing efforts with both military programs and civilian reactor efforts. Trump’s advisors and VP-elect Vance strongly like nuclear energy. Congress likes nuclear power. Expect strong nuclear leaders to find their way to the White House early and often.
CM: Are we looking at a U-turn on energy policy?
MU: Nuclear will need to bear much of the burden for climate hawk hopes during this administration, as it is one of the only areas of bipartisan agreement that also enjoys local community support.
CM: What does it mean for oil & gas companies?
MU: Oil and gas are being produced at record levels at relatively low prices. Expect further expansion of production and for Trump to encourage exports and high production volumes. Trump is likely to vocally oppose natural gas bans in new construction. Oil & gas professionals have voiced significant concern about Trump’s pledge to halve the cost of fossil energy. There is an obvious tension here. I do not expect Trump to try to halve the cost of fossil energy.
