Will the Inflation Reduction Act survive Trump's second term?

By now, you know that Donald Trump will start his second presidential term in January. What that means for the Inflation Reduction Act, which provides various clean energy incentives to homeowners, is still very much up in the air. 

Clean energy has been highly politicized but doesn't need to be. "I've helped people with many different priorities and viewpoints go solar," said Nicole Turley, an EnergySage Energy Advisor. "Whether you want to support domestic energy production, save on electric bills, contribute to a cleaner environment, or gain energy independence, solar just makes sense."

That's why we're closely watching how the incoming administration could alter the incentives the IRA provides to homeowners and businesses. We'll explain what we know, what incentives are at risk, and why solar makes sense for everyone—regardless of your politics.

Here's the deal. A full repeal of the IRA is unlikely—but not impossible. In September, Trump vowed to "...rescind all unspent funds under the misnamed Inflation Reduction Act." He has also repeatedly supported lifting limits on domestic oil and gas production, promising to "drill, baby, drill," and indicating little to no concern for decarbonization.

But is it really that simple? No. (At least, not yet.)

The IRA is great for jobs

The IRA supports hundreds of thousands of jobs across the country, making a full repeal quite tricky. According to modeling by policy group E2 and research group BW Research, clean energy projects announced during the IRA's first two years will create "621,000 direct and indirect new jobs—including 154,000 permanent jobs—throughout the economy over the next five years." This would generate about $50 billion in new tax revenue. 

In the same vein, BW Research sent a survey to 900 clean energy companies about the IRA; 53% of respondents said if the IRA is repealed, they'll lose business or revenue as a direct result. About 21% said they'd need to lay off workers. 

Parts of the IRA have Republican supporters in Congress

The jobs we just discussed? They're also predominantly in Republican areas. In fact, according to reporting by the New York Times, 80% of new manufacturing investments have gone to Republican congressional districts. That hasn’t gone unnoticed.

Back in August, 18 House Republicans wrote a letter to Speaker Mike Johnson (R-LA) in support of the IRA. While they called the bill "deeply flawed,” they urged Johnson not to support a full repeal. Specifically, they stated, "Prematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing."

They also added, "Energy tax credits have spurred innovation, incentivized investment, and created good jobs in many parts of the country – including many districts represented by members of our conference."

A lot rests on Congress

Perhaps the biggest reason Trump wants to repeal the IRA is to open up funds to extend parts of the Tax Cut and Jobs Act, which he enacted during his first term in January 2018 and is set to expire in 2025. But to do so, he'll need majority support from the Senate and the House. 

Republicans have already won the Senate and the House. But as of November 14, 2024, a handful of seats in the House have yet to be called; there could end up being a very slim margin. Because of the popularity of the IRA in their districts, some Republicans might not vote for a full repeal. A partial repeal is much more likely, but that could still mean cutting the parts that most directly benefit homeowners.

What else we're watching: Elon Musk's role

Musk was a massive donor to and advocate of Trump's campaign. And he'll have a seat in the new administration. A week after winning the election, Trump announced Musk as the co-leader of a new department designed to restructure the government, the Department of Government Efficiency. 

Elon Musk has already proven to have an influence on the President-elect. In August, Trump changed his tune on EVs, stating, "I'm for electric cars. I have to be because Elon endorsed me very strongly." 

But does this mean the IRA's EV tax credits are here to stay? And could Musk persuade Trump to shift his views on climate change and clean energy policy in general? 

Tesla could actually thrive in a post-tax credit era; other major auto manufacturers may slow EV production and hike prices, allowing Tesla to dominate the EV market. And while Musk has made it clear that he thinks climate change is a real problem, he believes we still have plenty of time to deal with it. 

The verdict? So far, it seems Musk won't be much of a blocker to an IRA repeal or restructure. But we'll be following closely to see if this changes.

We're fairly confident a full IRA repeal won't occur. But some IRA incentives that directly benefit homeowners could be on the chopping block regardless. 

• Federal residential solar energy credit (aka the investment tax credit, or ITC): Provides a tax credit equal to 30% of your solar panel system and/or battery storage system cost. It's currently set to start phasing out in 2033 and expire in 2035.

• Energy Efficient Home Improvement Credit: Provides a tax credit of 30%, up to $2,000, annually toward your federal tax bill if you make certain energy-efficient home upgrades. Heat pumps, heat pump water heaters, air sealing, home energy audits, and electrical upgrades all qualify. 

• Clean Vehicle Tax Credit (aka the EV tax credit): Provides a tax credit worth up to $7,500 toward your federal tax bill if you purchase a new electric vehicle. You must meet income and EV domestic manufacturing criteria to qualify for the total amount. It also includes a tax credit of up to $4,000 for used EV purchases. We've heard this tax credit will probably be the first to go.

• High-Efficiency Electric Home Rebates: The IRA includes funds for state rebate programs covering specific energy-efficient home upgrades. You need to meet certain income criteria to qualify. Some funds have already been distributed to states, which will likely remain protected. But if your state doesn't have a rebate program yet, it may only have until January to secure the funds and implement one.

There's a lot on the line: Energy efficiency upgrades, heat pumps, and electric vehicles could all become much more expensive without incentives (and with tariffs). But solar, in particular, is something to consider investing in sooner rather than later. 

Unfortunately, there's a very real possibility the solar tax credit will disappear

What will the solar tax credit look like in the future? Will it exist at all?

We're hearing from industry analysts and experts that the ITC probably won't be cut immediately, but it could be phased out sooner than its current timeline of 2033. It could also quickly drop in value, saving you less on your solar panel system. But Trump extended the ITC by two years during his first term, so it might remain as is. To be certain you can maximize the ITC, our best advice is to go solar soon, before the end of the year—or at least before the new administration begins on January 20, 2025.

Solar prices are near all-time lows—that might change

In our latest Solar and Storage Marketplace Report covering the first half of 2024, we shared that quoted solar prices have neared all-time lows, reaching $2.69 per watt. EnergySage's Director of Insights, Spencer Fields, stated, "We're at a pivotal moment for solar pricing, where ongoing cost reductions are enabling more homeowners to make the switch to clean energy."

New tariffs could change that. The first Trump Administration used a provision in the Trade Act of 1974 to impose tariffs on solar panels. The Biden Administration renewed most of them. Trump has made it clear that he plans to levy more tariffs during his second term to encourage more domestic manufacturing. 

Domestic solar panel manufacturing has already increased—especially under the IRA—but most solar panels are still imported from Europe and Asia. The new tariffs would hike the prices of imported solar panels, ultimately driving up the average cost of solar, as we saw in 2018 when the tariffs were first introduced. 

The Fed just cut interest rates (again)

Relatively high interest rates have hindered solar adoption for many Americans in the past couple of years. 

But on November 7, the Federal Reserve cut interest rates for the second time in 2024—this time by 25 basis points, bringing the benchmark lending rate down to 4.5-4.75%.

This is excellent news for anyone looking to finance their solar panel system with a loan. You'll see a return on investment faster than you would have a year ago, making it an appealing time to go solar.

There are actions you can take to protect the planet and your future electric bill savings.

Start electrifying your home now

We can't predict the future. The only way to guarantee you'll get IRA incentives is to complete your home upgrades before they're potentially eliminated. It's difficult to forecast if, when, and to what degree that could happen, so the sooner the better. 

If supporting clean energy is important to you, adding solar panels to your home directly increases the amount of clean energy in the United States. Pairing them with a battery helps even more. And to really make an impact, consider electrifying things like your heating system, car, stove, and dryer.

Looking to save some money? Just look at the attractive financial savings solar and other clean tech offers—especially with the IRA incentives involved. 

Reach out to your elected officials

It's easy to think Republican control of the White House, Senate, and House means the end of the IRA. But it's not that black and white. As we explained above, many Republicans support parts of the IRA. 

If you want to see the IRA stick around, call your local officials and tell them why. Maybe you're worried about increasing electric bills and want to go solar affordably. Maybe it's creating jobs that are boosting your local economy. Or maybe you're concerned about dependence on foreign energy. 

Most IRA incentive changes require the support of many congressional members, so swaying just a few can make a difference. You might even encourage some state-led clean energy investment. Ultimately, our government is here to serve us—let's tell them what we want.