Will Trump’s Bill Trigger a ‘Big, Beautiful’ Energy Crunch?

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2:12Stephanie Flanders:I'm Stephanie Flanders, Head of Government and Economics at Bloomberg. Welcome to Trumponomics, the podcast that looks at the economic world of Donald Trump. Now, he's already shaped the global economy. And what on earth is going to happen next? This week, we're talking about the big, beautiful assault on renewable energy. Will the Republican megabill passed last week bring on a new American energy crisis? What could be the impact on electricity bills, the broader economy, and America's leadership in the race for artificial intelligence? We're recording this on Tuesday, the 8th of July, and of all the elements of the one big beautiful bill, as Donald Trump called it, that he signed going into the July 4th holiday, one I find particularly hard to get my head around is the decision to get rid of tax credits for clean energy.

3:00Stephanie Flanders:As a result of that, wind and solar projects will cost more, and more likely there will be a lot fewer built. In fact, in an analysis this week, a climate policy think tank called Energy Innovation forecast that the bill would put an end to 300 gigawatts of wind and solar projects that would have otherwise come online in the next 15 years. That's the equivalent of about 300 nuclear reactors. Now, obviously, that set back the fight against climate change and the decarbonisation of the US economy. And that may not be much of a worry for the supporters of the big bill, but there could be more concern about another very likely consequence, higher electricity prices.

3:37Stephanie Flanders:That matters for voters facing rising utility bills, but it also matters for tech firms chasing the next breakthroughs in AI. The country that reigns supreme in AI will rule the world. Everyone seems to think that these days, including Donald Trump. In fact, you might remember on the day after his inauguration, he announced the creation of Stargate, a project to expand AI infrastructure in the US. But to announce the largest AI infrastructure project by far in history, and it's all taking place right here in America. As you know, there's great competition for AI. But projects like Stargate need electricity, lots of it.

4:14Stephanie Flanders:And in fact, that's part of the reason electricity demand in the US is rising faster now than it has any time in the last 20 years. The tax credits in the Inflation Reduction Act under President Biden helped the US keep up with that rising demand, in theory, by making clean power sources cheaper. Investments in wind, solar and battery storage had spiked in the years after the IRA was passed. But now the big bill has changed all that, and a lot of people, including me, are scratching their heads wondering what the plan is now. And this week I'm delighted to say I'm in the Washington studio with two guests who have a good perspective on this topic and can help me think through the consequences for the US economy.

4:54Stephanie Flanders:First up, Ethan Zindler, the Head of Country and Policy Research at Bloomberg NEF. That's the part of Bloomberg Research that's focused on the energy transition. And we should say that before joining us, Ethan served as Climate Counselor to the US Treasury Secretary Janet Yellen from July 2023 to January 25. So he was across a lot of policy efforts then, including helping to write and implement the Inflation Reduction Act. Welcome, Ethan. Thanks for having me. And also with us, Emily Birnbaum, who's a Bloomberg reporter here in DC, who covers corporate lobbying and influence. Thank you so much for being on Trumponomics, Emily.

5:32Stephanie Flanders:Thank you.

5:36Stephanie Flanders:So, Emily, people will have heard quite a lot about that bill, but it's probably useful to just take stock of how that turned the tables for the renewable industry. What are the specific measures that are going to be painful for that part of the U.S. energy industry? There was a lot of last-minute wrangling over the details of what this bill will do to the clean energy industry. The top line is that it's very bad. It's not as bad as it could have been. What ended up in the bill was pretty aggressive timelines for phasing out tax credits. But elements of the bill would encourage companies to begin construction over the next year.

6:25And if they're able to do so, it's likelier that they'll be able to get some of these important tax credits. but overall they're going to have to begin construction very quickly and these tax credits are going away on a more aggressive timeline than had initially been anticipated.

6:44Stephanie Flanders:Yeah and that was what was interesting because when it went from the House to the Senate there was some expectation that the Senate would want to extend the time frame a little bit, the investments that had already been announced, give them a bit more time to get up and running But if anything, the bills seem to get worse. Yes. And at the last minute, there was something that would have dealt a huge blow to the industry, which was this excise tax. There was basically panic in the industry and among moderate Republicans who said this excise tax would so dramatically increase costs for solar and wind projects.

7:21It would effectively make it untenable for a lot of these projects to move forward or begin construction. So right before the Senate passed it, they removed the excise tax, which was a huge relief, but they still are dealing with pretty aggressive phase-outs.

7:36Stephanie Flanders:Ethan, you were saying just before we started that even though parts of the renewables industry was kind of breathing a sigh of relief for having at least dodged that particular bullet, not having this extra tax, that the administration has already sort of indicated that it's not done with the renewable industry yet. What happened early this week? Yeah, things have kind of gone from bad to worse, even within the last less than 24 hours. Basically, there's been some real questions about whether projects could qualify so long as they were, quote unquote, under construction. And the IRS historically is defined under construction fairly liberally.

8:13And yesterday, the White House issued an executive order basically saying that they are ordering the Treasury Department within the next 45 days to rewrite that rule. And if they do that, and instead of away, they can make it very challenging for projects to qualify. It is not even beyond the realm of the possible that they would write something that is essentially retroactive and effectively make it much more challenging for projects to actually be able to qualify for the credit. So from our perspective at Bloomberg NEF, we're trying to go back and sharpen our pencils and try and think about how much stuff is going to get built.

8:46But I think the one thing that's pretty clear as of this morning is that many who are in the wind and solar and storage industry are probably scrambling to get as much stuff as they can, essentially under construction at this very moment, while they are concurrently probably lobbying the Treasury Department about what this new regulation is going to look like.

9:03Stephanie Flanders:Emily, I'm going to come back to you on some of the dynamics on the Hill. But Ethan, let's just step back. And I know that's what Bloomberg NEF likes doing. They tend to do their 25-year horizon, it's considered to be quite short term. But if you do take that kind of longer term, you know, what has been happening to energy demand and electricity demand within that in recent years? And what was, you know, until this bill, what was that basic plan for meeting it? Yeah, so the United States, like other wealthy developed countries, has been able to grow its economy without growing demand for electricity, really for 20 years.

9:40Essentially, we've had flat demand overall, largely because of energy efficiency improvements and new technologies and the desire to save costs. The last couple of years, that's started to change, and we think that's going to continue to change going forward. The number one driver in the short run has been AI and the demand from new data centers. We also think electric vehicles, as you look further out, are going to start to play a much bigger role as well. In the U.S., we think we're going to see demand for electricity double from about 4 ,100 terawatt hours at the moment, up over 6 ,000 by the time you get to 2050 overall.

10:15And by 2035, we think that about 8 % of capacity in the United States is going to go specifically to powering data centers, which is a really considerable portion overall. all. One other quick just note in terms of trends is that really over the last 10 years or 15 years or so, the U.S. has really been rapidly decarbonizing our power generation sector. We went from about half our power coming from coal to well under 20 percent as the last year, could be even under 15 percent this year, depending on conditions. And meanwhile, renewables have grown from almost nothing to about 20 percent of generation.

10:50Nuclear is about 20 percent. So we're at about 40 percent zero carbon here, and the natural gas is a huge part of the story, which is a lot cleaner than coal overall. So the general trend has been towards cleaner sources of energy going forward. And if you look at what's gotten built in the last several years and what would get built in the next several years in terms of purely cost, it's renewables. The vast majority of new stuff that's due to come online is renewables. And so that is why it is so questionable that you would go out of your way to essentially raise the cost of those technologies, which is effectively what Congress has now done.

11:23Stephanie Flanders:Those of us who kind of looked on the outside and seen the US go from being a net consumer of energy or oil, I should say, to an exporter, have been very familiar with a rather different story, which is America had this fracking revolution, which was not environmentally friendly, but did bring an enormous amount of gas online, which has brought down the price of energy for US consumers. So I guess the story that you might tell against your story, at least be sort of, well, hang on a minute, it's fracking that has made this a kind of golden era for U.S. energy prices, and the renewables is not completely reliable and is a sort of sideshow to that basic story.

12:05So, yeah, really good points. I mean, certainly we have the lowest price natural gas in the world in terms of production, and that has allowed a lot of manufacturing to be very competitive in the United States. I would note, though, that first of all, that renewables plus storage gets you maybe not to 24 hours of generation, but can get you enough production of electricity into the sort of key hours of the evening. And we're starting to see solar plus storage be very cost competitive in many markets around the world, not all markets in the United States, but a bunch of markets. But then just purely speaking practically in the United States in terms of what we're going to build over the next five years, you're absolutely right that gas is cheap and gas is cost competitive in a number of markets in the United States.

12:45The problem is you just cannot get your hands on a combined cycle gas turbine at the moment for a number of years, anywhere from three to seven, depending on who you ask. So in terms of what our next megawatt of capacity is going to be, it basically has to be renewables because there isn't really any other sources. And if we have rising demand from AI, that means it's going to probably come from renewables. And again, if you take away essentially what has been a longstanding tax credit and subsidy to the clean energy industry that has effectively socialized a discounted electricity production price in the United States.

13:19You're just simply going to concentrate it on certain markets. So the next place where you're going to build a wind or solar project, potentially, you're going to have to sign a higher price contract in order for the developer to make the return that they need without the tax credit.

13:33Stephanie Flanders:But if they're the only short-term viable source of additional energy, then it surely must be cost-effective to build. I mean, here's the question, and I think we're going to find this out over the next couple of years, is what's the breaking point for consumers. So yes, you can pass on some form of higher electricity prices, but if you're a developer of a large-scale data center, you're not necessarily entirely wedded to the United States. Just because the most AI has been built not that far from here, maybe 30 miles from here just outside of Washington, doesn't mean that every next AI data center has to be here.

14:06And to some large degree, AI is some of the servers, not all, to be clear, there's different types of servers, and that's not my area of expertise. But some can really be anywhere in the world. And so they will go where the price of electricity is most affordable and reliable. And there are other options. Brazil is about 70, 80 percent hydropower, low cost. They've been trying very much to market Brazil as an AI place. Gulf states have enormous amounts of sun, very cheap solar. They don't put big tariffs on solar equipment like we do, can build batteries to go along with it, they are certainly trying to market themselves as hubs for AI as well.

14:44So there's no foregone conclusion that the United States will be the one and only place where we build all this new capacity.

14:51Stephanie Flanders:But as far as you're concerned, the only way that this energy that we were expecting to come online or electricity that we were expecting to come online in the U.S. to meet this demand will actually come online is through higher prices. I mean, it seems inevitable. And And I think one of the questions we're just trying to parse out, given the incredible complexity of what Congress has just done, is how many projects could still qualify for the tax credit if they get under construction basically yesterday and how many of them will not. And those that don't, obviously, are going to have to figure out some way to get compensated correctly so that they can earn the return that they want.

15:27The best guess at the moment is that if you get under construction sometime in this calendar year, you'll probably be OK. but the White House just created additional uncertainty with this executive order.

15:37Stephanie Flanders:One estimate I saw is that the future clean energy products that don't have these tax credits will cost 50 % more to get built. Do you think that's in the right ballpark? That feels a little on the high side of me, but we need to do the analysis ourselves. I think historically, if you look around the world, the history of clean energy is you have a number of countries that have put in place very generous supports in the form of feed-in tariffs, like we've seen in countries in Europe and elsewhere. And when they disappear, it's terrible news for the industry. But we also find that the industry is incredibly innovative about finding ways to reduce costs.

16:11The U.S. is really not a low-cost market when it comes to putting solar on people's roofs in particular, but also large-scale projects. So there's definitely some room for cost reduction, I think, for the industry overall. But there's no question this is going to boost costs. In the case of a typical solar project, the tax credit is 30 % of CapEx. So a billion-dollar project,$300 million right off the top was basically disappearing because of tax credits. That has to be dealt with somehow.

16:39Stephanie Flanders:And I've seen the energy innovation think tank, from what you're saying, suggests that maybe it'd be a little bit on the high side, but their estimate of the impact on bills would be that the average energy bill by 2035 could be nearly$500 higher in Michigan, similar, maybe more in Maryland, and$600 or$700,$800 higher in Texas than it would have been if the credits had remained. Yeah, I guess I won't dispute that. We haven't done that analysis ourselves. I've seen different numbers from other research firms as well. There's no question, particularly in a market like Texas, which is really deregulated and where pricing can get passed along directly to large-scale consumers, there's no question this is going to have a real impact ultimately.

17:19I think the interesting question is, what about businesses? I mean, we talk a lot about retail consumers, and eventually they are the ones who get hit. But more immediately, in often cases, it's wholesale purchases of electricity that feel the effects. And that is one of the puzzling things. Why in this debate? Were the utilities not more engaged in this? Because ultimately, they're the ones who are going to get bigger bills that they're going to have to pass along to their consumers. Or where were the manufacturers who are going to have to pay higher prices for electricity than they would if you're in the, say, ERCOT market or PJM?

17:47I'm puzzled as to why there wasn't a more engaged conversation around this. Some people treat ChachiPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects.

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20:06Stephanie Flanders:And you're reading my mind, Ethan, because I was thinking about your title, Emily, and the fact that you are a reporter focusing on corporate lobbying and influence. People have focused on the impact and the influence of the fossil fuel lobby in driving part of this bill. And we know that there's some parts of that industry that have been big donors to Donald Trump. But there were an awful lot of people on the other side of the argument, including, as Ethan mentions, there's the utilities and sectors that would really be hurt by this, not to mention the tech firms who are lobbying to get more cheap electricity.

20:38Stephanie Flanders:So why is it those voices just weren't heard in the last few weeks? Ultimately, the reason this bill goes so aggressively against clean energy is because of House Speaker Mike Johnson's math issue, which was that he could only stand to lose a very small number of Republican votes. And so that made the House Freedom Caucus, the group of hardline conservatives in the House, that made them very powerful in this conversation. And a lot of them, for the most part, really lean towards the oil and gas industry. So thinking about Chip Roy from Texas, he was one of the most consistent voices saying, we really need to phase out these subsidies very quickly.

21:30He was in communication very closely with a conservative activist named Alex Epstein, who actually shaped a lot of this debate behind the scenes. And basically, Alex Epstein's arguments are in favor of natural gas. He says that solar and wind are unreliable sources of energy. You know, I'll let you debunk some of what he has to say. But essentially, that the subsidies artificially lowered the cost of electricity and were creating inflation. So there is a lot of arguments behind the scenes against the clean energy industry. And ultimately, I think oil and gas just really won in this bill. And to be clear, they're subsidized, too.