Recently, US President Trump signed the “Big and Beautiful” tax and spending bill, which made significant adjustments to the US energy policy. The shift in the US energy policy not only affects the pace of the US energy transition but may also trigger a major reshuffle in the global energy structure.
The “Big and Beautiful” bill has abolished many tax incentives for clean energy and energy efficiency projects such as wind and solar energy in the Inflation Reduction Act, which will make it difficult for the new energy industry to move forward. Energy analysis agency Energy Innovation pointed out that wind energy combined with battery storage is currently the fastest and lowest-cost way to increase power generation in the United States. In the past year, more than 80% of the new power generation capacity in the United States has come from solar + battery projects, and most of them have been deployed in “red states” such as Texas, Oklahoma and Kansas. If this trend is artificially interrupted, the consequences will not only be an increase in electricity prices, but also a shake-up of the industrial base. Against the backdrop of emerging industries such as AI, big data and chips being highly dependent on clean and stable electricity, any blow to green energy is equivalent to a restriction on the future industrial chain.
John Gimigliano of KPMG said, “Renewable energy companies are the biggest losers. The expectation is that the hundreds of billions of dollars in subsidies during the Biden era will be gone for good.” According to the new regulations, clean energy projects must be put into use by 2027 or start construction within 12 months of the bill’s enactment to be eligible for the remaining credit. After the 12-month window for new renewable energy projects to start expires, developers will no longer be eligible for specific tax credits. American factories that produce renewable energy equipment such as solar panels are expected to see a short-term increase in orders as developers rush to get projects up and running before the deadline. But after that, they will lose a significant number of customers. Moreover, without tax credits, how these renewable energy projects will be financed becomes a problem.
The premature termination of green subsidies has led to a significant reduction in investment in wind and solar power projects. The Solar Energy Industries Association has warned that nearly 300,000 jobs will be lost. Hensley, senior vice president of market analysis at the American Clean Energy Association, said that changes in related tax measures will increase the industry’s burden by 4 to 7 billion US dollars. Such a policy that goes against the global energy transition trend will not only weaken the United States’ competitiveness in the clean energy sector, but may also cause it to fall behind completely in the future energy transition, leading to more greenhouse gas emissions and air pollution.
However, the latest version of the bill has made a small concession to renewable energy by withdrawing a provision that would have imposed a devastating new tax on wind and solar energy. The bill will increase the cap on state and local tax credits, a provision that lawmakers in New York and other high-tax states have been fighting for. Secondly, it extends the tax credit of up to $3 per kilogram for hydrogen energy projects from January 1, 2026 to January 1, 2028, an unexpected boon for the hydrogen energy industry that adds two more years.
Keane Su, a senior lawyer at the Center for Biological Diversity in the United States, pointed out that the cancellation of tax incentives for clean energy means that all this new energy demand will be shifted to the fossil fuel industry, leading to more greenhouse gas emissions and air pollution. Moreover, utility companies are incentivized to build more costly fossil fuel power plants to increase profits, and in the process, electricity prices are also raised.
While the “Big and Beautiful” Act represents a step backward in the development policies of new energy, some provisions in the Biden administration’s Inflation Reduction Act that benefit fossil fuel companies have been retained, including subsidies amounting to billions of dollars and drilling leases in the Gulf of Mexico, new tax credits for coal used in steelmaking, and the cancellation of a program that helps natural gas and oil companies reduce waste and methane emissions.
The bill stipulates that new oil and gas block lease auctions will be resumed in Alaska, public lands in the Gulf of Mexico, federal waters and western states, and has restored lower royalty rates. This is undoubtedly a “timely rain” for the US oil and gas industry. Industry practitioners excitedly refer to this bill as a “home run”. Under the stimulus of this policy, major US oil and gas companies are all gearing up to make their mark in the new blocks.
However, from the perspective of the global oil and gas supply and demand situation, the current global oil and gas market is generally in a state of overcapacity. The United States itself is an energy exporter and the world’s largest exporter of natural gas. If oil and gas production increases excessively, it may lead to a decline in global oil prices, which is not in the interest of the United States. Therefore, although there will be a boom in oil and gas exploration in the United States in the short term, in the long run, the balance of supply and demand in the international oil and gas market will eventually constrain its development.
As a global leader in technology and energy, the implementation of the “Big and Beautiful” Act in the United States will usher in a transformation period for the global energy industry. For foreign new energy enterprises, in the short term, the act will inevitably raise market entry barriers and increase cost pressure. However, from another perspective, the domestic supply chain gap, the explosive demand for commercial energy storage, and the pain of traditional energy transition triggered by the act also leave room for new energy enterprises with technological advantages and a global vision to break through.