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ENB Pub Note: This article is from Alex Epstein’s Substack, and I highly recommend subscribing and supporting his work here: Energy Talking Points by Alex Epstein.
I have interviewed Alex three or four times and thoroughly enjoyed all of my conversations with him. This article comes at a critical juncture in our United States Congress. Our beloved RINOs are really a problem, and Alex really lays out the story beautifully. I will cover this story on tomorrow’s Energy News Beat Daily Stand Up. I am disappointed in Speaker Johnson for not getting the Executive Orders codified and for not standing up for the directives of President Trump. All RINOs must be primaried and voted out, which is an understatement, but we are running out of time.
The expectation: the Republican trifecta would terminate the vast majority of IRA subsidies
During the 2024 elections, President Trump ran on “terminating” the IRA’s energy subsidies, which he called “the Green New Deal” or “the Green New Scam.” “Terminating…the Green New Deal” (IRA subsidies) was the very first policy in the Republican 2024 platform.
And for good reason: The IRA subsidized inferior forms of energy to the tune of a trillion dollars per decade—which necessarily raised energy costs and, because the subsidies were largely directed toward unreliable solar and wind, made our grid less reliable.
So when Republicans won a “trifecta” victory—the Presidency, House, and Senate—many, including me, expected that at least the vast majority of the IRA subsidies would be “terminated” during the budget reconciliation process (when budget-related items like subsidies can be passed or terminated by a filibuster-proof simple majority in the Senate).
I wasn’t sure whether all the subsidies would be terminated, because there was one clear force that was going to press Republicans to keep some IRA subsidies: lobbyists for companies and industries that had existing subsidized projects that would be unviable if their subsidies were taken away. For example, a wind developer who was in year 2 of a 10-year stream of subsidies might go bust if their subsidies ended in 2026 instead of 2034.
Even though most independent observers would acknowledge it’s just and legal for subsidy-seeking companies to have their projects de-subsidized, it was highly predictable that many of those companies would lobby to keep their project subsidies.
Because I thought these lobbyists were wrong, I invested a lot of time and energy making the case for terminating IRA subsidies for existing projects. I am fortunate to have the trust of a lot of elected officials, and any chance I got I explained to them why we should have “full repeal”—termination—of the IRA.
The response I got behind closed doors was mostly, “We agree with you, but we are being pushed really hard on this”—by lobbyists and by special interests within some districts who were depending on these projects. I pushed back that the lobbyists were talking their own book, and that the actual benefits to districts were very small compared to the costs of the IRA to everyone—but I could tell at a certain point that full termination was not going to happen.
At that point, I expected the following compromise: Republicans would strike a deal to grandfather the IRA subsidies for some existing projects, but they would certainly stop any new IRA subsidies from going out the door going forward.
That would take care of the concerns of lobbyists and others worried about sabotaging existing projects—while still saving a lot of money: at least $600 billion vs. the $1 trillion you’d get for full IRA termination. I hoped that we could at least get rid of or phase down subsidies for existing solar and wind projects, since those are actively undermining our grid right now, and terminating them would save another $200 billion ($800 billion total savings).
The mystery: Why did a Republican trifecta that ran on “terminating” IRA subsidies make a deal to hand out new ones?
The committee’s proposal not only grandfathered all IRA subsidies for existing projects, it gave an absolute bonanza of subsidies for new projects.
Take solar and wind subsidies, the subsidies that most urgently need to end for the sake of our grid (and budget, since they’re the largest subsidies).
Instead of being totally terminated (ideal) or grandfathered for existing projects (bad, but understandable) they would continue being doled out in full for the entire Presidency of Donald Trump! For example, under the Ways and Means proposal a wind developer could bring a wind project online at the end of 2028, and collect a hefty subsidy every year until 2038.
So much for terminating the Green New Scam!
There were many other egregious giveaways of subsidies under the recent Ways and Means proposal, as I detail here. But the question I want to tackle here is “Why?”
Why did Republicans, instead of negotiating to keep IRA subsidies for some existing projects and terminate all new ones, “negotiate” to not only keep IRA subsidies for all(!) existing projects—at the cost of $400 billion and grid stability—but gift hundreds of billions of IRA subsidies to new projects?
How the subsidized energy lobby used “framing” to win Republican negotiations before they even started
Looking at the calculations and talking insiders, I realized what had happened: Ways and Means, when talking about “termination,” wasn’t really considering full termination—which means terminating subsidies for existing projects and new projects. They were operating on a definition of “termination” that kept subsidies for all existing projects and only terminated them for new projects.
By redefining “termination” to include keeping subsidies for existing projects, someone—I strongly suspect lobbyists—won the negotiation before it even started. The extremely important option of terminating subsidies for existing projects was never on the table!
The Republican subsidies negotiation should have been between freedom fighters who wanted to terminate all IRA subsidies, and subsidy seekers who wanted to keep them for existing projects. But because the freedom fighters were duped into a (mis)definition of “termination” that kept all existing IRA subsidies, they lost the negotiation before it even started.
At that point, the subsidy seekers could go wild, demanding lavish subsidies for new projects. Note that their main rhetorical point was that new subsidies were needed to avoid stranded projects. But that wasn’t true: grandfathering existing projects took care of those.
An analogy might be helpful here.
Imagine that the parents of an unemployable 25-year-old trust-fund baby—let’s call him Wyndham (“Wind” for short)—decide that the $25,000/month allowance (subsidy) they’re giving him is doing more harm than good. “We have to talk,” they say, “We’re cutting you off.” (Termination)
Wind starts thinking through his options. “Maybe I can get them to keep my subsidy for another six months until my lease is over,” he thinks. I’ll argue that even though I knew they could cut me off at any time, I wasn’t expecting it and I can’t afford it—so I need a little time to adjust.
But when he sits down with his parents (Congress), it turns out he had nothing to worry about.
“We’re cutting you off,” they say sternly. “Starting in 4 years you will no longer get your $25,000 a month allowance.”
Wind can hardly believe his luck: his parents began the negotiation by giving him more than he ever could have expected.
Having won already, he presses his luck. “Mom! Dad! You can just ‘cut me off’ like that! No more money starting at 29? That’s so extreme! Be ‘moderate’! Let’s do a ‘phaseout’—20K at 29, 15K at 30, and so on.”
Everyone is happy: Wind gets his subsidies, and his parents say they’ve cut him off. “It was hard,” they tell their friends at the country club, “but we stopped subsidizing Wind.” Even though Wind is going to be getting new subsidies for many years to come, and when the “phaseout” comes he’ll probably be able to manipulate them again.
This is exactly what happened with the recent Republican proposal, which unnecessarily gave a bonanza to lobbyists who were truly committed only to their existing projects—but more than happy to take hundreds of billions in subsidies for new projects.
If any of Wind’s parents’ friends learned that “cut off” meant “keep a 25K/month allowance until he’s 29, and then phase it down,” they would have had the same feeling I had when Ways and Means announced that their “tax bill ends special interest giveaways” and “repeals and phases out every green corporate welfare subsidy in the Democrats’ Inflation Act.” Get real.
It’s not too late to reframe the negotiation, starting from real termination
I heard refrains such as “You can’t get everything you want” and “If we pass nothing, the whole IRA stays in place.” Most of all I heard, regarding the IRA, “This is what we needed to do to get the ‘moderates’ on board.”
But that was never true.
There is incredibly strong evidence that ‘moderates’—often code for “people with big constituencies from subsidized industries”—would have agreed to an IRA deal that stopped all IRA subsidies for new projects and grandfathered them in for the existing projects that the subsidized industries were truly worried about losing a huge amount of money on.
But, like Wind the trust-fund baby, when the negotiation started by giving subsidized energy exactly what it wanted and calling it “termination,” they asked for a lot more—and got it.
Now that negotiations have slowed, it’s the perfect time for the House—and certainly the Senate—to reframe the negotiations.
The starting point, as President Trump has stated many times, is: “terminate” all the IRA subsidies, for existing projects and obviously for new projects.
Then Republicans in negotiations have to decide which existing projects should be able to keep their subsidies. I would strongly suggest keeping nuclear, which is a victim of previous solar/wind subsidies and a victim of crippling, irrational regulation. And biofuels may have to be kept for voting bloc reasons (even though there is no economic or environmental or security argument for them whatsoever).
I would strongly suggest cutting off or at minimum phasing down solar/wind subsidies for existing projects, since those are a severe threat to the grid.
No matter what, though, subsidies for new projects—above all solar and wind projects—should be off the table.
I realize that people are frustrated that the bill will take a little longer, but we are talking about hundreds of billions of dollars and the fate of our grid for the next decade—a decade in which we need to rapidly improve and expand our grid to meet the existential need for AI demand.
Here’s what I advise the freedom fighters among Republicans to say:
- Republicans ran on President Trump’s promise to “terminate the Green New Scam”—the IRA subsidies that will cost taxpayers $1 trillion and prop up unreliable wind and solar at the expense of gas and coal.
- We, like the President, want to “terminate” these subsidies—cut them off immediately, so that we save $1 trillion, no more taxpayer dollars are wasted, and no more harm is done to our grid.
- We understand that some compromises must be necessary, especially for those who have already made investments based on the subsidies—so we are willing to grandfather in projects that are significantly underway.
- However, we do not want to grandfather in the wind and solar subsidies, as every year we continue them we make our grid less reliable.
- With this proposal we can kill subsidies for good and truly save $800 billion—vs. the “phaseout” proposal that continues new wind and solar subsidies through the entire Trump Presidency (!), and whose $500 billion in savings is based on wishful thinking.
Fortunately, some Republicans—including members of the Budget committee who held up the process—have started to take this approach.
For example, here is Rep. Chip Roy making the point that $400 billion IRA subsidies for existing projects should be challenged.
And here is Senator Lee, who will be central in Senate negotiations, echoing my point that full termination is the starting point.
Already we are seeing results. Reports are that the Budget standoff has led to an agreement to truly end new subsidies vs. hope that a future Congress phases them out after Trump is President.
This is a lot of progress in just a few days, and shows what is possible if one negotiates from a powerful and principled starting point.
Let’s keeping pushing our elected officials to do the right thing. You can start by forwarding them this article.
The post How Republicans got roped into a deal that keeps the IRA—and why there’s still time to fix it appeared first on Energy News Beat.
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