Trump tax bill puts US clean energy industry under threat of relentless subsidy slashes

The US renewable energy sector was dealt a crushing blow on Thursday as shares dropped in reaction to President Donald Trump’s new tax bill, which sets deep and surprising reductions in clean energy subsidies. Narrowly passed by the Republican-held House, the bill reverses some of the Inflation Reduction Act’s (IRA) central incentives, poised to jeopardize the momentum achieved under the climate legislation signed into law by former President Joe Biden, the Financial Times reported.

Among the hardest hit were solar and renewable energy stocks, with NextEra Energy and Enphase Energy shares plummeting 6.4% and 19.6%, respectively. The Invesco Solar ETF fell as much as 10%, and residential solar play Sunrun, which reaped heavily from IRA subsidies, closed down 37%.

A precipitous shift from the IRA

The tax bill hastens the phase-out of a number of clean energy tax credits, such as the 48E investment tax credit for commercial systems and a residential solar credit for householders who install solar equipment. These had been a core part of the IRA, which was intended to speed up the United States’ shift away from fossil fuels towards renewables. The amended bill, however, hastens their sunset, causing shockwaves among the green energy industry.

Jefferies analysts referred to the cuts as “sledgehammer strikes” and cautioned that the result was “worse than feared.” The market already was preparing for regulatory rollbacks, but the scope and rapidity of the rollbacks proposed surprised many.

“There’s no obvious catalyst or reason to own [US] solar companies any more,” said Manish Kabra, head of US equity strategy at Société Générale. “Fears were already there and we’re realising that one of the focuses of this administration is to remove green subsidies.”

Fossil fuel lobby hails victory

As renewable energy companies staggered, the lobby for fossil fuels embraced the law. The American Petroleum Institute released a statement commending the bill for assisting “restore American energy dominance,” remarking on the ideological shift Trump’s administration has undergone from Biden’s climate policies to a pro-fossil-fuel agenda.

A few clean energy sectors were exempted. Tax credits for advanced manufacturing and nuclear energy were left alone. Stocks in Oklo, a modular nuclear reactor company funded by OpenAI CEO Sam Altman, climbed 6% on the news that nuclear subsidies would be retained.

Future uncertain in the Senate

The bill now goes to the Senate, where Republicans also control a majority but with a smaller margin. Several moderate senators have said they are concerned that the cuts are so severe and that the legislation could be watered down before passage. Nevertheless, JPMorgan analysts cautioned that investor sentiment towards green stocks could still be negative even if the Senate has amendments.

“There is likely to be some tweaking on the periphery,” said one note from JPMorgan, “but the larger message is unmistakable: the political environment for green energy in America has changed dramatically.”

As the industry prepares for more turbulence, supporters fear that decades of climate policy gains could come undone in short order under the pressure of the new administration’s tax agenda.