President Donald Trump’s massive budget bill — officially the “One Big Beautiful Bill” — makes sweeping changes to the tax code, defense spending, and Medicaid, while also undoing most of the clean energy provisions enacted in 2022 under President Joe Biden. To break down how these changes will impact clean energy deployment and efforts to slow climate change, Wisconsin Energy Institute Science Writer Chris Hubbuch talked with Gregory Nemet, a professor of public policy in UW–Madison’s La Follette School of Public Affairs and author of the book “How Solar Energy Became Cheap” (now in its second edition) and a co-author of the Intergovernmental Panel on Climate Change’s 2022 mitigation report.
At a high level, how does this law change U.S. energy policy?
What it’s trying to do is kind of reverse the tide that’s been moving in some ways over the last 20 years, but especially in the last 10 years, which is where the bulk of construction of new power generation is from wind, solar, and batteries. It’s trying to change that so that you have fossil fuel (generation) being built instead of renewables. That seems to be the main kind of driving goal that underlies a lot of the various changes to the tax code that they’re implementing.
One of the big changes is the swift elimination* of tax credits, along with new restrictions on sourcing, for wind and solar power. How do you expect that to affect clean energy development?
The tax credits have been important since 2005. There have been changes to take them down a little bit over that time, but they’ve really been part of the background of the energy industry. It’s a pretty big change to phase them out very quickly. They’re on the order of 25 to 30% so all the projects are now 25 to 30% more expensive. It should actually slow things down quite a bit.
I think if it was, Oh, we’re going to taper tax credits down over a period of five years, the industry adjusts and starts preparing and pricing for a world where there are no more tax credits, that would be one way to do it. I think there’s a lot of arguments that that would be a smart thing to do, and also arguments that we actually need tax credits. This is neither of those. This is get rid of them as fast as possible, which is in the next year or so, so that should really put a chill on building new wind, building new solar and and then also batteries and also transmission.
The law preserves tax credits for energy storage through 2033, so why would we see a slowdown in battery and transmission construction?
A lot of the reason why we have a need for batteries and transmission is to get power to people when the sun goes down, for batteries, and to get power from windy places to where people live, which is the transmission. So the drivers for batteries and transmission go down because there’ll be less wind and solar.
Developers have dozens of solar and wind projects with a combined capacity of more than 6,000 megawatts in line to connect to the grid in Wisconsin, some of which already have state permits. How will these changes impact those projects?
I think we’ll see new development, but less of it. The other trends that this policy is not changing is the increasing demand for electricity, which is being driven by the switch to electric vehicles, to electrification of heating with heat pumps, and also by data centers, especially for AI. We’ve had 20 years without almost any load growth for electricity, and so it’s a new regime where we’re going to need a lot more electricity for multiple reasons, and the tricky part is that the fastest way to bring new electricity online is solar and batteries, and probably wind after that. Slower is natural gas, and beyond that is probably nuclear, where we’re talking more than 10 or 15 years. So we’re kind of making more expensive the technologies that would be the fastest way to bring electricity generation online.
Does that mean utilities will keep running older coal plants that were scheduled to close?
That’s a pretty expensive prospect for utilities. They’re shutting those plants down mainly because they’re too expensive to run, and so if we’re taking these alternatives off the board — wind, solar and batteries — then they’re forced to run these more expensive units. That may be what they have to do.
How will this affect utility ratepayers?
Higher rates and more volatile prices. That’s pretty clear. That’s the history of fossil fuel prices: they go up and down, so they’re very volatile. It also means that U.S. ratepayers are going to be linked to disruptions in the rest of the world, whether it’s in the Middle East or in Ukraine or wherever else, because the U.S. has become this big exporter of fossil fuels. The prices that Americans pay are affected by what Japanese are paying, and Europeans and others around the world. So if we were to move to a clean energy economy, we pay for that equipment, and then we’re insulated from price changes. If we’re going to focus more on fossil fuels, and especially if we’re exporting fossil fuels, we should expect higher prices and price spikes. It will look more like what has happened in Europe in the last three or four years, where, even though they’ve moved to renewables, their dependence on gas and the price spikes that have come because of Ukraine and supply from Russia make all their electricity more expensive.
In addition to eliminating tax credits, the law imposes restrictions on materials and services from Iran, North Korea, and China. Why is this important?
Going back to the Green New Deal proposal in 2019, the idea was to transition to this clean economy, but to do it with American manufacturing and American jobs, and not source any of the technology from outside. That was a proposal from the left. There was actually pretty bipartisan consensus that we want to be as domestic as we can in making this transition. But it belies the reality of the last 40 years of globalized innovation, which is, you take what you can get from all over the world. Someone makes a smart component, you put it in a car dashboard, or someone’s really good at doing electronics for moving something like that, and you just take the best that’s around the world and integrate it in an assembly plant. So to say you can’t use any components or any services from China or other countries where we have concerns, that makes it really hard to do domestic manufacturing.
Isn’t it also just another way of eliminating the tax credits?
That is one of the goals. But I do think there’s this goal to just be completely detached and disengaged from China. My point is that those two goals conflict with trying to create this renaissance of American manufacturing.
Because they have no fuel costs, solar and wind are generally the cheapest sources of new generation. So why should the government continue to subsidize them?
Because we want to have the (clean energy) transition happen more quickly than the natural replacement rate of aging out fossil fuel plants. If all we’re doing is when a coal plant gets to the end of its life, building solar and wind without tax credits, you can do that. That takes too long to get to our net zero goals or to get the economy to be clean. So I think the speed is the biggest reason for having tax credits, even after we’ve got all this cost declines and solar winning on its merits, and wind too.
How significantly will this policy shift contribute to global climate change?
It’s a pretty big one. It adds about seven gigatons of emissions that wouldn’t have happened before the Big Beautiful Bill over the next five to 10 years. That’s something like 20% of U.S. emissions every year. So that’s a signal that would be picked up by the rest of the world. It could also make the difference between global emissions declining and rising, because we’re right on the edge of starting to decline. So the U.S. adding, say, a gigaton a year would be enough to push the world total into a growth rather than decline.
What would have happened without the Big Beautiful Bill is some pretty serious emissions reductions because of the push on renewables, and then also into industrial decarbonization and vehicle decarbonization. It’s not just where we are today, it’s where we would have been in 2030 that is where the big difference comes from.
On the other hand, the U.S. is a big part of the world economy. It’s not the hugest part of global emissions. The rest of the world is just pushing ahead on clean energy, renewables, electric vehicles and batteries and electrification really quickly. That’s not being affected by what’s happening in the U.S., and there are probably reasons why it might actually go a little faster. Because the U.S. is not buying solar panels. It’s not in the market for EVs as much. So those become more available to other places, and especially in the developing world, which is where the real risk of big future emissions could come from.
I would have a different story if this was 10 years ago, if China hadn’t taken such a leading role, if we didn’t have developing world economies that are getting really interested in clean energy. If those things weren’t happening, I think the U.S. change is a bigger blow, but it just feels like we’re handing the reins to China to really lead this clean energy transition.
The bill preserved tax credits for nuclear and geothermal energy. Could those low-carbon energy sources replace the lost wind and solar?
I don’t think they’re up to replacing what was moving so fast. Geothermal is interesting. That could be really helpful, and it’s a nice compliment to wind and solar with their intermittency and can go beyond the range of what batteries can do today in terms of shifting electricity use.
Nuclear is pretty far out. On a climate change perspective, that’s maybe helpful to have if we had new nuclear plants coming online, say, in the late 2030s, but that doesn’t help data centers. They need to scale immediately. So nuclear and data centers, it doesn’t really fit together, just because the timeline for nuclear is just so slow.
What about other technologies like hydrogen and carbon removal?
There were some pretty important programs that had been in place the last few years that are being dismantled. For example, for carbon removal is funding these demonstration plants and the loan program to do these early plants. That’s been just absolutely crucial, because these are earlier stage technologies than wind and solar and batteries. They’re also kind of large and more concentrated, so you need specific support for a project rather than just a general tax credit. Those projects are much more at risk now, even though there is some tax treatment in there. The direct funding for hydrogen hubs and also the direct air capture hubs — those going away is a pretty big blow, because those are big projects that people could look to and learn from.
Are there any dark horse technologies that could fill the void?
If (nuclear) fusion starts becoming viable and can deal with the materials properties that are needed and is going to be commercialized, that’s really helpful. But we just know from how long it takes something to go from laboratory scale to even early commercial that’s really like a 2040s benefit — if it does work. I don’t think there’s anything that’s going to save us.
I think what we had was the miracle of the last 15 years, which is all of a sudden we have cheap solar and cheap batteries that 15 years ago no one thought was going to happen, and now we have them. I guess the issue is they threaten some existing industries, or for whatever reason we’re kind of pushing back. At least the U.S. is pushing back against using them, whereas the rest of the world is really moving quickly forward with them.
Why is time so important for clean energy adoption?
The big difference between climate and these other environmental problems that we’ve addressed, like clean water or acid rain or getting particulates out of the atmosphere, is those substances — sulfur, nitrogen, particulates — they get rained out of the atmosphere in a few weeks. Carbon dioxide stays in the atmosphere for 100 years, so you don’t get to have a fresh start. We have to just stop putting CO2 into the atmosphere. And even that takes a while, because that means we have to start shifting away from dirty and toward clean. And so there’s a lot of urgency. If we don’t want to have the damages of a changing climate, we need to get to zero, like in the next 20 years — by 2050 or so. And so that’s a transition that we need to really get moving on.
What’s your personal feeling about where we are and where we’re heading?
My mantra is the climate problem is getting worse, but the solutions are getting better. I think the damages that we see from especially intense rainfall events, but also drought and other things that are likely to happen are — I don’t think we’re adapting to them as well as the models suggested that we would. I think that’s a real concern, and that makes me pessimistic.
On the other hand, the solutions that we have available — it’s like someone just gifted us something from another planet in the last 10 years that we didn’t think we had. It’s just a matter of making the most out of these technologies that we have. And it’s pretty simple things, like wind power, solar power, batteries, and the digitalization that allows us to deal with intermittent resources smartly. We’ve got all these tools now, so that makes me really optimistic. And then when you look at the rest of the world and you see the deployment of these technologies and the costs continue to come down, that also makes me optimistic.
So the U.S. is kind of stepping backwards here — it is difficult, but I feel a lot better knowing the rest of the world is moving in the right direction.
*To qualify for tax credits, wind and solar projects must begin construction by July 4, 2026, or be in service by 2028, and must comply with new limits on materials or services from foreign adversaries, including China. For a deeper dive, Third Way and Princeton’s REPEAT lab have produced a comprehensive list of the energy policy changes, while Columbia Business School has an analysis of the industry impacts.
– Interview by Chris Hubbuch