
As the Trump administration settles into the White House, recent actions have introduced considerable uncertainty for green energy producers affected by federal tax credits.
President Biden released several incentives tied to the Inflation Reduction Act (IRA) in his final days in office. However, Trump has taken immediate action to delay or downright stop some of these initiatives. The move signals his apparent opposition to taxpayer money being used to support green energy projects.
The Pause on 45Z Clean Fuel Production Credit
One of the more immediate changes is a 90-day postponement of the 45Z Clean Fuel Production Credit to hold a "comment period." The public can offer their thoughts about 45Z and how it should be implemented.
This policy specifically impacts producers who were set to benefit from tax credits tied to low-carbon fuel production. The change now leaves them uncertain about the next steps until more clarity is offered.
A key challenge during this 90-day window is deciding how to handle imports of used cooking oil (UCO). The lower-cost feedstock is widely used in greenhouse gas (GHG)-based markets like California's Low Carbon Fuel Standard (LCFS).
While UCO offers economic advantages under current market conditions, it may no longer qualify for 45Z tax credits. Producers are now faced with a difficult trade-off:
- They could continue using UCO at the risk of losing out on credits if the regulation is reinstated.
- They could switch to more expensive feedstocks that qualify but could erode potential profit margins.
The decision hinges heavily on market dynamics, particularly the price spread between qualifying and non-qualifying feedstocks. A rising spread could mitigate risks associated with sticking to UCO. Without clear policy direction, however, producers are left guessing in what is already a highly competitive segment.
45V and 45Q Credits Remain Uncertain
According to a ResourceWise analyst report, other prominent IRA tax credits do not seem to be immediately affected like 45Z. This includes 45V for hydrogen production and 45Q for carbon capture and utilization. Although payouts under these credits are currently on hold, the nature of these programs means that rewards typically come later in the process.
Companies pursuing credits under 45V and 45Q can continue their plans—assuming these programs will eventually proceed. However, the Trump administration's historical stance on green energy leaves the future of these credits highly uncertain as well.
In the short term, the delays will not immediately disrupt business as usual for most operations. However, this prolonged uncertainty, like the market experienced in spades across 2024, could make it harder for companies to plan long-term investments and initiatives.
Read More: 2024 US Biodiesel Market Ends Strong As Uncertainty Remains
DOE Loan Agreements in Limbo
The current situation is less optimistic for companies relying on Department of Energy (DOE) loans.
One of Biden's last outgoing acts approved over $22 billion in green energy loans. With Trump's directive now halting the release of funds from government banks, companies adopting these loans face an uphill battle.
The current administration has signaled its intent to prevent these funds from being disbursed. This could significantly impact projects that had already moved forward with Biden's initial financial backing.
The fallout from this decision further complicates the landscape for developers and producers operating with tight timelines and high upfront capital requirements. Companies relying on this funding commitment may need to explore alternative financing quickly. Alongside continued US uncertainty, the change could slow market progress even more than we've already seen in 2024.
Navigating the 90-Day Window
The next 90 days are critical for green energy producers and stakeholders. With delays and uncertainty surrounding major tax credits and financing mechanisms, businesses must carefully weigh risks and develop contingency strategies.
The regulatory environment is in flux and rife with doubts and ambiguity. While there is hope for greater clarity in three months, the lack of immediate answers places significant pressure on the industry.
Producers can better endure this market fog by actively monitoring developments and building flexibility into their operations. The green energy sector's ability to adapt will be crucial in navigating this challenging period, whether policy stabilization occurs within three months or extends beyond.
To help weather the storm of uncertainty, high-quality data and expert analyst insights are crucial. Learn more about how ResourceWise's market intelligence platform, Prima CarbonZero, can keep you informed and empowered no matter which way the market moves.