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