Energy priorities of House Republicans come out in full force

“When it rains, it pours” is a popular expression around the world. It reflects a series of events that cascade in quick succession and can have big implications. And it defined US energy and economic policy last week.

Detailed answers have emerged to an important question facing the US energy sector: how will the Republican party change Biden-era policies?

There is a clear agenda from the Republican-led Ways and Means and Energy and Commerce Committees: bolstering traditional energy sectors and reducing low-carbon energy incentives. Leasing activity for the Gulf of America (Gulf of Mexico) and geothermal acreage are set for a major expansion under proposed legislation. While nuclear power investment incentives have a faster sunset, other federal policies provide momentum for the sector. Carbon capture, utilisation and storage (CCUS) was a surprise winner, with incentives largely unchanged.

Zero-carbon energy policy could change radically, should House Republicans have their way. A phased reduction of tax incentives for renewable projects, the termination of both the electric vehicle tax credits and clean hydrogen production credits are possible. These modifications could dramatically delay the transition to low-carbon technologies in the United States.

It is important to note that Congress is still debating the future of US energy policy. As the budget reconciliation process progresses, further legislative changes are highly likely. Senate Republicans are advocating for more moderate changes to the Inflation Reduction Act (IRA) of 2022 to ensure reliable power supply, maintain foreign investment in US energy and preserve economic growth.

Other top stories this week include:

• Trump’s tariff pause: our assessment of the impact on US economic growth
• Canada goes nuclear: the first FID for small modular nuclear power in the OECD
• Turbocharged vs turbo lag: opportunities and constraints facing natural gas-fired power

Zero-carbon power: investment incentives are shorter and harder to claim

Beyond the phase-out of production tax credits (PTC) and investment tax credits (ITC) for wind, solar storage, and nuclear, other provisions in the proposed legislation could slow down investment. In the proposed bill, projects are eligible for tax credits once they are placed in service, rather than from the start of construction. Transferability of credits would also end, eliminating a key option for financing projects. Stringent new Foreign Entity of Concern (FEOC) provisions for some of the tax credits would further restrict investment.

Companies using components with material assistance or licensing agreements from prohibited foreign entities, known as FEOC would be disqualified from receiving the credits.

For wind, the most significant aspect of the proposals may be section 112014, which outlines a halt on the advanced manufacturing tax credits for all wind locally produced components starting from 2027. Significant investments have been made in recent years to strengthen the US wind supply chain, particularly in nacelle assembly and tower manufacturing. 

Sylvia Leyva Martinez, Wood Mackenzie’s Principal Analyst for utility-scale solar, says the US solar manufacturing sector could be negatively affected. The 45X Advanced Manufacturing Production Credit would remain at full value starting in 2029, then decrease to 75% in 2030, 50% in 2031 and 0% in 2032. But although the slower phase-out is positive for manufacturers, US companies licensing Chinese technology or engaging in joint ventures with Chinese entities would lose access to the 45X credits under the FEOC exclusions. This could disrupt solar component supply for US solar manufacturing.

For storage, the impact would be exacerbated by increased tariffs because of the US market’s reliance on batteries from China, says Allison Weis, Wood Mackenzie’s Global Head of Energy Storage.

Even with proposals from House Republicans, there is still momentum for new nuclear power. According to Gerardo Bocard of Wood Mackenzie’s  Scenarios and Emerging Technologies team, there are three areas to watch. The US Department of Energy recently reissued a US$900 million SMR funding program. Licensing improvements are taking place following the ADVANCED Act, which should lower project development costs. New project learning rates from Canada's nuclear investment program can be applied to new nuclear projects in the US.

For geothermal, the Ways and Means bill accelerates the phase-out of the ITC. While this is a challenge, the Energy and Commerce Committee is proposing to increase geothermal lease sales on federal lands. Richard Hood of Wood Mackenzie’s Geothermal team, notes that several states including New Mexico, North Dakota, and Colorado are enacting legislation to expand geothermal investment. In addition, lease sales were announced in Alaska and Utah.

Despite conflicting signals, the investment tailwind for geothermal remains: the DoE announced over a billion dollars’ worth of funding for geothermal related projects, the House of Representatives passed significant bills supporting the exploration and development of resources and, tech giant Apple expanded its data center capacity and increased support for US manufacturing.

Transport: electric vehicle incentives are phased out; support for biofuels expands

For electric vehicles, the House Ways and Means proposal eliminates the new clean vehicle credit for any vehicle placed in service after 31 December 2026, effectively phasing out the tax credit. For electric vehicles, the House Ways and Means proposal restricts the clean vehicle credit (CVC) to 200,000 vehicles per manufacturer in 2026, eliminates the CVC from 2027 and the commercial clean vehicle credit, including leasing, from 2026.

Prateek Biswas and Andrew Brown, Wood Mackenzie’s lead analysts covering the transport sector, expected these changes. The proposals are consistent with our worst-case scenario forecast, which projected EV penetration in 2030 to drop to 23% from around 32% in Wood Mackenzie’s base case. More steps to change EV incentives are likely, according to Biswas and Brown.

Key developments to watch: Lee Zeldin’s Environmental Protection Agency is likely to lower federal greenhouse gas emission standards for the 2027 to 2032 timeframe. Sean Duffy’s Transportation Department will revise Corporate Average Fuel Economy (CAFÉ) standards. The Trump administration is also likely to challenge California’s zero emission vehicle wavier.

Policy support for biofuels expands with amendments to the Clean Fuel Production Credit under 45Z. The credit would be extended to 2031, increasing investor certainty. The proposed legislation excludes emissions from indirect land use change in carbon intensity calculations, increasing credit values for domestic food-crop based biofuels. While the legislation also limits credit eligibility to feedstocks sourced outside of North America and could reduce the US market’s appeal, imports are still likely due to state level clean fuel credits from the low carbon fuel standards and the federal renewable fuel standard.

Emerging technologies: hydrogen hit hard, CCUS unscathed

The Ways and Means Committee proposes to terminate the clean hydrogen production tax credit. This would apply to facilities beginning construction after 31 December 2025. This change exacerbates market uncertainty since the credit was introduced in 2022 as part of the IRA.

Wood Mackenzie's analysis shows that 95% of the 3.4 million tonnes per annum of announced green hydrogen capacity is at risk. According to Wood Mackenzie’s Principal Analysts for low-carbon hydrogen Hector Arreola and Bridget van Dorsten, this policy change could significantly impact the US clean hydrogen industry's growth and competitiveness in the global clean energy market.

CCUS incentives emerge largely unharmed from the Ways and Means Committee. The 45Q tax credit remains unchanged in quantity and duration, but the Committee's proposal includes two modifications: a restriction barring entities from "covered nations" (China, Russia, Iran, North Korea) from claiming 45Q credits and an elimination of the transferability of the 45Q credit.

Even with these minor modifications, Rohan Dighe, US CCUS lead for Wood Mackenzie, notes that CCUS projects currently in development in the US should not see major impacts if this proposal is enacted.

Upstream: lease sales will jumpstart Gulf of America (GoA) exploration

The House Energy and Commerce Committee plans to expand offshore oil and gas leasing. Draft legislation requires 30 total lease sales between 2025 and 2040, beginning in August 2025. This would replace the Biden administration’s leasing goals, which led to only three lease sales in the GoA since 2021, well below the historical average.

More frequent leases will unlock more GoA production through exploration, according to Miles Sasser Senior Analyst of Wood Mackenzie’s L48 upstream team. Right now, the GoA is around 20% of global deepwater production. But with its current project profile, the GoA peaks by 2027. With exploration, we think it is possible to maintain about 2 million boe/d of GoA production beyond 2030. Key companies to watch include Chevron, Shell and BP, all of which have the technological capabilities to open up new GoA resources.

Minerals: more domestic supply won’t offset China’s dominance

The House Energy and Commerce Committee also aims to expand production for copper, nickel and lithium. Each are key minerals for zero-carbon energy technologies. According to the committee, more US mineral production could come from renewing mineral leases, expanding mineral exploration and improving project permitting.

But expanding US mineral supply does not address the core issue facing the US minerals sector.  Any expansion to US mineral production will be dependent on China’s supply chains for battery components, cells and recycling, according to Wood Mackenzie’s Adrian Gardner, Principal Analyst. Trade tariffs could be a catalyst for investments in copper smelters in the US, although investors would need to be confident in a multi-decade tariff program to advantage US production over imports.

Other key stories

Trade tariff pressure eases – for now

The temporary reduction in tariffs between the US and China marks a significant de-escalation in the trade war, averting a complete decoupling of the world's two largest economies. The current tariff levels align closely with our Q2 2025 base case assumptions. We projected US tariffs on Chinese imports would settle at 34% by the end of 2026.

According to Wood Mackenzie’s Head of Economics, Peter Martin, should these temporary tariffs become permanent, both nations would be ahead of our projected timeline for trade negotiations. This could lead to slightly lower trade barriers than initially anticipated. However, the temporary tariffs represent a material increase in trade barriers between the US and China compared to 2024 levels.

The US-China agreement presents potential upside risks to our GDP forecasts for both countries. Our current outlook forecasts 1.5% and 4.3% growth in 2025 for the US and China, respectively. This tariff reduction could soften the disruption to global supply chains and investment patterns.

While offering temporary relief on higher tariffs, the reversal in policy adds to volatility and uncertainty. We caution that trade relations remain changeable, and ongoing monitoring is crucial to assess the long-term impact on investment and economic performance.

Canada goes all in on nuclear power

Ontario Power Generation (OPG) has taken a final investment decision (FID) decision to build Canada’s first SMR. This is the first SMR FID in North America and is part of a wider strategy within OPG to build four SMRs by 2050. Funding commitments from OPG, Canada's net zero target and the renewed focus on energy security under Prime Minister Mark Carney underpin the country’s investment in nuclear power.

OPG's SMR plan will be expensive. The company expects total construction costs for all four SMRs to be US$15.7 billion, including control systems. We estimate that capital costs for the first 300-MW SMR will be around US$14,250/kW, based on disclosed OPG estimates. By the fourth project, our cost projections fall to US$10,113/kW – a 30% reduction compared to the first SMR.

The new landscape for gas-fired power

Expectations of higher load growth globally led to a surge in gas turbine orders last year – up 32% globally year-on-year. A “gold rush” is how one of the leading gas turbine manufacturers characterised demand for turbines recently. In our latest analysis of gas-fired power, Wood Mackenzie said that the gas turbine market could face multiple headwinds.

According to Ben Boucher in Wood Mackenzie’s supply chain team, global gas turbine manufacturing capacity of 60 to 70 GW is maxed out through 2030. There are market-specific challenges for natural gas into power. In the US, hurdles include rising capital costs for gas turbines, tariffs and low power prices. In Asia, high fuel prices and renewables limit gas to peaking. Decarbonisation in Europe results in a long-term decline of natural gas into power.

Other views

SMR nuclear market update: Q1 2025 – Prakash Sharma and David Brown

A sledgehammer disguised as a scalpel: What the proposed House budget bill means for the US power and renewables sector – Sylvia Leyva Martinez

How are US tariffs impacting Asia Pacific power and renewables? – Alex Whitworth and Robert Liew

Australia’s 2025 Election: Renewed Focus on Energy Transition – Natalie Thompson

US Independents: Q1 2025 results recap and analysis – David Clark, Ayisha Za, Alexander Beeker

Quote of the week

"This bill would claw back money headed for green boondoggles through 'environmental and climate justice block grants' and other spending mechanisms through the Environmental Protection Agency and Energy Department.”

Republican Congressman Brett Guthrie of Kentucky, Chairman of the House Committee on Energy and Commerce 

Chart of the week

This chart comes from our latest analysis on the future of gas-fired power. We combined known orders with our preliminary gas-turbine forecast to total manufacturing capacity. Our expectations for manufacturing capacity are based on Wood Mackenzie’s latest analysis of the gas turbine value chain. We expect the gas turbine market to be very tight through 2030 with limited expansion to manufacturing capacity.

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