How November Election Results Could Slow Down The U.S. Energy Transition
With increased support for low-carbon energy in the Infrastructure Investment and Jobs Act (IIJA) 2021 and the Inflation Reduction Act (IRA) 2022, Wood Mackenzie’s base case for the US projects that by 2050, wind and solar power capacity will expand sixfold and low carbon hydrogen will account for 5% of the energy mix. It also shows that fossil fuel demand will peak by 2030.
But possibilities exist that it might not work out that way.
Here are some reasons why:
A victory for former President Donald Trump in the election in November would mean new policy priorities and an immediate deceleration in support for decarbonization.
Incentives for electric vehicle (EV) sales would likely be cut, while the growth of green hydrogen and carbon capture, utilization and storage (CCUS) could falter.
The economic nationalism that has defined both the Trump and Biden administrations would continue.
Wood Mackenzie’s latest delayed energy transition scenario for the US looks at critical areas that could be affected. Below, are answers to five key questions that decision-makers will face before and after the election results are known.
In a delayed transition scenario, is peak fossil fuel demand off the table?
Peak fossil fuel demand will be delayed, not eliminated. With a higher demand outlook, our delayed transition scenario calls for US$154 billion more in US upstream oil and gas capital investment compared to our base case over 2023-2050. While electrification of energy is lower than our base case, power demand still increases 45% from 2030-2050. In our delayed transition scenario, peak fossil fuel demand comes around 10 years later than our base case, but the peak is still coming.
Facing peak demand, low-carbon investments by the US oil and gas sector are still needed to build resilient business models. Diversifying business models will require policy support and we do not expect a repeal of the IRA even in a delayed transition scenario. The benefits of the IRA are widely spread across the US, underpinning bi-partisan support. A vote to end provisions such as Production and Investment Tax credits, while not impossible, is unlikely.
Are the latest tariffs on renewables part of a delayed transition scenario?
Yes, but tariffs are one of many variables that could slow down investment. A second Trump Presidency will slow down policy support for electrification, new technologies and grid expansions. Key programs at risk in our delayed transition scenario include the US$8.8 billion for residential electrification and efficiency rebates, the US$27 billion Greenhouse Gas Reduction Fund and the Grid Resilience and Innovation Program.
Other power market reforms stall in our delayed transition scenario. FERC Order 1920, designed to jump start investment in cross state power infrastructure, would have a limited impact due to the cost sharing challenges across states. Reforms to generator interconnection queues fail to clear current backlogs and interconnection delays impede the growth of new renewable generation. Infrastructure permitting reform remains limited. Harmonizing local, state and federal permitting proves to be an insurmountable challenge.
How will industrial re-shoring and AI impact power demand?
In April 2024, manufacturing investments in the US reached US$228 billion–materially higher than the annual average of US$80 billion over the last decade–according to the US Census Bureau. Data center investment, especially in Northern Virginia, is picking up and will act as another tailwind to power demand growth.
Load growth will accelerate, but it may not be as fast as you think. In our delayed transition scenario, we project that industrial load growth will not be explosive or linear. We expect an s-curve profile. It will take time for new data center loads to connect to the grid, find appropriate sites and secure backup power generation. Once major roadblocks are addressed, it’s possible that demand growth will outpace historical demand elasticities through the late 2020s and 2030s. Long-term efficiency gains in computing power will reduce load growth from 2040 onwards.
What is the future for low-carbon hydrogen in a delayed transition scenario?
In our delayed transition scenario, electrolytic hydrogen faces an uphill battle. We assume the rules for eligibility for tax credits under the IRA would be adjusted to favor blue hydrogen.
Two options available to the US Treasury Department could advantage blue hydrogen. Firstly, allowing individual blue hydrogen projects to use reported carbon intensities of gas feedstock rather than national average intensities would help them claim the full 45V tax credit. Secondly, permitting the use of renewable natural gas as a feedstock with source-specific carbon intensities would also support project economics for blue hydrogen producers.
What is the lower boundary on EV deployment and the impact on metals?
Our delayed transition scenario expects EV stock to be around 50% lower than our base case. The key variables in the outlook for EVs are new car sales and potential policy changes under a Trump administration.
So far this year, sales of hybrids have leapt 57%, while EV sales have undershot expectations, growing by only 19%. Weakening federal greenhouse gas (GHG) emissions and fuel economy standards for the 2027 to 2032 timeframe would likely lead to automakers increasing investment in hybrids to meet consumer demand while complying with federal emissions targets.
In our delayed transition scenario, automakers would increasingly shift EV batteries from high-cost metals such as cobalt to lower-cost iron-based chemistries. US battery raw material demand for key metals would be about 27% lower than in our base case, easing supply chain stress and the US’ reliance on China.
