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How the 2024 US elections may affect the energy industry

Each potential outcome of the election presents unique challenges and opportunities for the energy sector.


Three questions to ask

  • How could a Democratic sweep in the 2024 elections affect the transition to green energy and the Inflation Reduction Act's energy credits?
  • What changes in environmental regulations and energy tax provisions could we expect under a Trump presidency with a Republican sweep of Congress?
  • In the event of a divided Congress, what is the likelihood of maintaining the status quo in energy policy, and what new policies might be introduced?

The country’s overall tax policy direction will be driven in large part by the results of the 2024 US elections. Many issues hang in the balance, including those affecting the energy industry. We sat down with Greg Matlock, Ernst & Young LLP’s Americas Oil, Gas, Chemicals, Mining and Metals Industry Tax Leader; Terry Huggins, Ernst & Young LLP’s Americas Power and Utilities Industry Tax Leader; and Ryan Abraham, with Ernst & Young LLP’s Washington Council, to get their thoughts on what companies may expect to see.

Q. There’s a lot we could talk about, but let’s focus on what the elections could mean for energy tax policy. What are you hearing?

A. (Matlock) There are four potential election-outcome scenarios, and each would have different effects on energy-related policy. In no particular order they are: Vice President Harris wins the presidency and we have a Democratic sweep of Congress, Harris wins the presidency and we have a divided Congress, Former President Trump wins the presidency and we have a Republican sweep of Congress, Trump wins the presidency and we have a divided Congress.

Q. Let’s take each one by one. What would an across-the-board Democratic sweep mean for energy tax policy?

A. (Matlock) Under that scenario, energy companies would likely see a continued focus on accelerating the transition to green energy. We would expect more industrial policy and infrastructure-related spending. The Inflation Reduction Act (IRA) energy credits would remain in place, and it is possible that the IRA provisions could be enhanced or expanded to further incentivize and accelerate the transition to sustainable energy.


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Existing natural-resource related provisions within the Internal Revenue Code (i.e., intangible drilling and development costs deduction, deductions for exploration and production costs, percentage depletion deductions and similar provisions) may be potential focus areas for repeal. The chances would also be higher that emissions controls would be imposed on industrial and manufacturing facilities, but we may also see carbon capture opportunities for those same types of facilities.

Q. What about under a Harris presidency and a divided Congress?

A. (Abraham) There again we would expect the IRA-related energy provisions to stay in place and a focus on accelerated energy transition. At the same time, the policy environment for the oil and gas and mining industries would also largely remain the status quo.

Q. I have to interrupt you — those ideas seem counter to one another.

 

A. (Abraham) Under the divided government scenario, the policies reflect the interests of both political parties. And it’s always easier to maintain the status quo than to enact new legislation.

 

Q. Is there anything else we might see under this scenario?

 

A. (Abraham) There’s a moderate potential for new industrial policy and infrastructure spending. We might also see new emissions controls on industrial and manufacturing facilities (which could drive additional interest in carbon capture). We also expect increased chances for permitting reform – such as permitting related to certain stalled liquefied natural gas projects and potential easing of permitting requirements (or at least quicker permitting timelines) for transmission lines needed to bring incremental clean energy to the grid).

 

Q. Ok, that brings us to the Republican-led outcomes. Let’s talk about what may be on the table under a Trump presidency and Republican sweep of Congress.

 

A. (Huggins) This is where we would expect to see a lot of activity. It is likely that environmental regulations on construction, permitting and manufacturing for energy-related activities would be eased. Regulations governing oil and gas and mining activities would likely be reduced, and the process for obtaining permitting would be made easier, with an emphasis on making US energy sources more secure. Some power and utility deregulation may also take place.

 

Republican policymakers would likely also consider rolling back or modifying some IRA energy credits when they begin looking for revenue. While full repeal is unlikely, certain provisions, like EV credits, and credits for clean hydrogen, standalone energy storage, and technology-neutral credits, are more likely to be “in the crosshairs” under a Republican-led Congress.

 

Q. So why wouldn’t they repeal all of the IRA’s energy credits? After all, it was Democratic legislation.

 

A. (Matlock) Many projects that qualify for the credits are in GOP-led districts. As such, many Republicans, particularly from the Midwest, support IRA credits for biodiesel, alternative fuels, and carbon capture use and sequestration. Similarly, the Gulf Coast has many decarbonization-related projects that will likely qualify under Section 45Q (carbon capture use and sequestration), as well as blue hydrogen projects.

 

What Republican policymakers could do, in addition to repealing targeted provisions, is curtail funding and/or make credits more difficult to obtain. Eliminating or materially curtailing IRA-related grants and loans would make it significantly more difficult for clean energy developers to access less expensive capital (which is an important part of the capital stack for certain projects).

 

The final regulations under Section 45V are an example of guidance that could possibly be modified or finalized in a way that would make it more challenging for green hydrogen projects to qualify for the credit, as the proposed regulations are already more complex than the statutory language, and the final regulations have not yet been issued.

Q. That leaves us with one last scenario — a Trump presidency and a divided Congress.

A. (Huggins) Again we would expect to see an easing of environmental regulations on construction, permitting and manufacturing for energy-related activities (like potential permitting movement in stalled liquefied natural gas-related projects and quicker permitting timelines for transmission lines to bring clean energy to market). Like what we would expect under a Harris presidency and a divided Congress, we’d probably see a reduction in the number of regulations governing oil and gas and mining activities, an easing of the process for obtaining permitting for those activities and an emphasis on energy security. Some power and utility deregulation is also likely. Republicans would not have much ability to change energy- tax-specific provisions and IRA-related energy credits.

Q. This has been very enlightening. Any final thoughts?

A. (Matlock) Regardless of who wins in November, energy companies should expect to see changes that could affect their existing and future projects. Working with trusted advisors to monitor, model and run scenario planning will help them prepare for whatever a new Congress and Administration may look to implement.

The views reflected in this article are those of the authors and do not necessarily reflect those of Ernst & Young LLP or other members of the EY organization. The information in this article is provided solely for the purpose of enhancing knowledge. It does not provide accounting, tax, or other professional advice. Copyright 2024 Ernst & Young LLP. All rights reserved.

Summary

Whether it's a Democratic sweep leading to an accelerated green energy transition and potential enhancements to the Inflation Reduction Act, or a Republican-led shift that might ease environmental regulations and reconsider IRA energy credits, the stakes are high.

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