January 6, 2025

By Eric Scheriff, Capstone’s Global Energy Policy Head

Capstone believes the Trump administration will lean heavily on executive action to implement its energy agenda. Looking at Congress, with slim majorities and a host of priorities outside of energy, we believe Republican lawmakers will shy away from major action on energy. On balance, we believe the result of this dynamic will allow renewables to avoid a worst-case scenario.  

Outlook at a Glance:

• IRA Tax Credits Largely Safe Under Trump, Limiting Risk for Clean Fuels; Congress to Target Chinese Firms’ Credit Access; Grants and Loans to Benefit Baseload Generation
• State Rulemakings to Support Carbon Allowance Prices; Virginia and Pennsylvania Set for RGGI Re-entry; Conservative Party Win in Canada Would Be a Boon for Oil and Gas
• Trump Administration to Deprioritize VCM Support and Withdraw from Paris Agreement, Presenting Opportunities for Private Standard-Setting Bodies
• LCFS Credit Surplus to Keep Prices Weighed Despite More Aggressive Targets; RFS Changes to Rattle Clean Fuel Markets But Trump EPA RFS Policy Likely to Be Favorable
• Trump Efforts to Roll Back Auto Emissions Standards Will Create Legal Uncertainty, Run Ins with California, and Headwinds for Tesla, Ford, General Motors, and Stellantis

IRA Tax Credits Largely Safe Under Trump, Limiting Risk for Clean Fuels; Congress to Target Chinese Firms’ Credit Access; Grants and Loans to Benefit Baseload Generation

Winners	Vistra Corp. (VST), Darling Ingredients Inc. (DAR), Air Products and Chemicals Inc. (APD), First Solar Inc. (FSLR), Occidental Petroleum Corp. (OXY), CNX Resources Corp. (CNX), Clean Energy Fuels Corp. (CLNE)
Losers	Sunrun Inc. (RUN), Enphase Energy Inc. (ENPH), Sunnova Energy International Inc. (NOVA), Tesla Inc. (TSLA), Contemporary Amperex Technology Co. Ltd. (300750 on the Shenzhen exchange), Gotion High-Tech Co. Ltd. (002074 on the Shenzhen exchange), JinkoSolar Holding Co. Ltd. (JKS)

IRA Credits Largely Safe Under Trump, Grant, and Loan Funding Reallocations to Benefit All-of-the-Above Baseload Generation

Capstone believes Congress will not be able to fully repeal key Inflation Reduction Act (IRA) tax credits, given their largely bipartisan support. Instead, the Trump administration will likely adjust regulations to provide more favorable treatment for fuels with higher emission profiles and to restrict Chinese companies’ ability to claim credits.

We believe the Trump administration will, where possible, reallocate IRA grant and loan funding to support key sectors traditionally favored by Republicans, including carbon management, advanced fossil, advanced nuclear, biofuels, methane-based hydrogen, and critical materials. Where this is not possible, we expect the administration to rescind unspent funds and leave other funding uncommitted until the programs’ sunset dates.

Duration of Clean Electricity Tax Credits Likely to Be Scrutinized to Offset Cost of Trump Tax Cuts

We expect the IRA’s technology-neutral clean electricity credits and credits for existing nuclear plants to remain durable under the Republican administration, as such credits have historically enjoyed bipartisan support. However, Republicans may target the duration of the tech-neutral tax credits to help offset the cost of extending the 2017 Tax Cuts and Jobs Act.

Republicans Likely to Attempt to Restrict Chinese Companies’ Access to Tax Credits

IRA tax credits that support domestic manufacturing of batteries, solar components, wind components, and critical minerals will be difficult to repeal, given the widespread investments they have generated in Republican-controlled districts. However, we believe Congress will consider adding provisions that restrict the eligibility of Chinese companies to claim these tax credits, in an effort to bolster domestic supply chains and enhance national security.

Electric Vehicle Tax Credit Most at Risk of Repeal, But Likely to Maintain Necessary Margins of Republican Backing

The electric vehicle IRA tax credit is most at risk of repeal under the Republican administration. However, given that electric vehicle battery manufacturing facilities are increasingly located in Republican districts, providing jobs and promoting economic development, we believe it is possible that there will be sufficient congressional Republican support to keep the credit in place.  

State Rulemakings to Support Carbon Allowance Prices; Virginia and Pennsylvania Set for RGGI Re-entry; Conservative Party Win in Canada Would Be a Boon for Oil and Gas

Winners	California Carbon Allowances (CCAs), Regional Greenhouse Gas Initiative (RGGI) Allowances, Washington Carbon Allowances (WCAs), emission-intensive industries in Canada
Losers	US power sector and other industries that need to comply with more stringent compliance market standards, low-carbon fuel producers based in Canada

CARB Cap-and-Trade Rulemaking to Bolster Allowance Prices; Legislature to Consider Extending Program Beyond 2030

Capstone believes that the California Air Resources Board (CARB) will release its initial 45-day cap-and-trade rulemaking package in early 2025, with changes coming into effect in 2026. CARB has indicated plans to remove at least 180 million allowances over the 2026-2030 period and is considering price tier changes to the Allowance Price Containment Reserve (APCR). We expect these changes and the regulatory certainty provided by CARB to support CCA prices.

Separately, the state legislature is preparing to consider legislation to reauthorize the program post-2030. Due to delays in reviewing the program and lingering political tensions following the approval of the Low Carbon Fuel Standard package in November, the legislature may choose to wait a period of time before pressing ahead with reauthorization. While an extension bill will face difficult political dynamics, we believe it will ultimately pass by 2026.

Ballot Initiative Defeat and Linkage Rulemaking Point to Steady Rise in Washington Cap-and-Invest Carbon Allowance Prices

Capstone anticipates a steady rise in Washington Carbon Allowance prices, driven by two key developments. First, the recent defeat of Ballot Initiative 2117 preserved Washington’s cap-and-invest program, removing a significant source of uncertainty. Second, the Washington State Department of Ecology is actively working on a linkage rulemaking to align certain aspects of its cap-and-invest program with those of California and Quebec. We expect the agency to continue working on this rulemaking in 2025, making changes to Washington’s program to ensure all three programs can operate jointly. The department has stated that it could finalize a linkage agreement as soon as late 2025. However, given the lack of action and coordination with CARB thus far, we do not expect linkage until at least 2027.

Greater Program Certainty to Support RGGI Allowance Prices; Virginia and Pennsylvania Set for RGGI Re-entry

Capstone believes the Regional Greenhouse Gas Initiative (RGGI) member states will complete the Third Program Review and finalize updates to the Model Rule by late 2025. In its latest update in September, RGGI introduced a new cap trajectory scenario. It also discussed the potential for a second Cost Containment Reserve (CCR) tier and providing additional allowances in both CCR tiers to manage price spikes. RGGI initially planned to release a draft updated Model Rule in fall 2024 and then a final rule in Spring 2025. The update also included consideration of a state accommodation mechanism that would make it easier for non-participating states to rejoin the program. All in all, we expect these developments will likely lead to greater program certainty and support allowance prices going forward.

Regarding Virginia’s participation, the Floyd County Circuit Court ruled on November 20^th that the state’s withdrawal from RGGI was unlawful. We expect the appeals process to play out through 2025—potentially spilling over to 2026—and believe that the ruling will be upheld, setting the state up for a likely 2027 re-entry. In Pennsylvania, briefs were due to the state Supreme Court on September 10^th, and we expect a ruling no earlier than late Q2 2025. Based on the 5-2 Democrat majority, we believe the court will rule in favor of the state rejoining RGGI as early as 2026, but with the potential for legal delays to push this to 2027.

Conservative Party Win in 2025 Canadian Federal Election Would Be Big Win for Oil and Gas Sector

Capstone anticipates that the Conservative Party will seek to end or significantly amend all federal carbon pricing mechanisms if it wins the 2025 Canadian federal election. The party maintains that the federal government should refrain from imposing carbon taxes or cap-and-trade systems, asserting that such authority belongs exclusively to provinces and territories.

This pivotal policy shift would be a big win for the oil and gas sector as well as other emission-intensive industries. Repealing these pricing mandates would lower compliance costs and maintenance capital expenditures related to the Clean Fuel Regulations and Output-Based Pricing System. 

Trump Administration to Deprioritize VCM Support and Withdraw from Paris Agreement, Presenting Opportunities for Private Standard-Setting Bodies

Winners	Private standard-setting bodies including the Integrity Council for the Voluntary Carbon Markets (IC-VCM) and the Science Based Targets initiative (SBTi)
Losers	US-based offsetting projects facing eligibility challenges in Article 6 marketplaces

Trump Will Deprioritize US Support for Voluntary Carbon Market Growth and Will Withdraw from the Paris Agreement, Paving the Way for Private Standard-Setting Bodies to Take a Larger Role

Capstone expects the Trump administration will deprioritize US support for voluntary carbon market (VCM) growth by ending federal programs supporting VCMs. As a result, we expect the Commodity Futures Trading Commission to reduce its focus on and enforcement of the VCM guidance it finalized in September. We also expect the Securities and Exchange Commission to roll back its climate disclosure rule, which it finalized in March.

We also expect the Trump administration to exit the Paris Agreement, minimizing US participation in and influence at global conventions on climate change and reducing US funding for global carbon offsetting projects such as rainforest initiatives and the Energy Transition Accelerator. This will widen the opening for private standard-setting groups and other countries to take the lead in driving VCM policies. Exiting the Paris Agreement will complicate the eligibility of US-based projects for participation in emerging international compliance markets such as the Article 6.2 and 6.4 markets.

Corporate Demand for High-Integrity Carbon Offsets to Increase

Capstone believes the second Trump administration will drive demand for high-integrity carbon offsets. Amid environmental policy rollbacks, corporations will face increased pressure to prove to stakeholders that they are making progress in achieving climate goals. In line with their behavior under the first Trump administration, we expect corporates to continue to pursue sustainability strategies that employ carbon offsets and/or funding for developing new offset strategies such as carbon removal. Demand for high-integrity carbon offsets will present opportunities for companies supplying high-quality offsets, carbon removal technologies, and verification and certification bodies.

LCFS Credit Surplus to Keep Prices Weighed Despite More Aggressive Targets;  RFS Changes to Rattle Clean Fuel Markets But Trump EPA RFS Policy Likely to Be Favorable

Winners	LCFS: Low-carbon intensity (CI) fuel producers such as Clean Energy Fuels Corp. (CLNE) RFS: Soy-based biofuel producers such as Valero Energy Corp. (VLO), Phillips 66 (PSX); small refineries
Losers	LCFS: High-CI fuel producers (e.g., renewable diesel) such as Valero Energy Corp. (VLO), Phillips 66 (PSX) RFS: Renewable Natural Gas (RNG) producers such as Clean Energy Fuels Corp. (CLNE); large refineries without renewable diesel production

LCFS Credit Prices to Remain Weighed Despite New LCFS Rules

Capstone expects a smooth regulatory process for implementing the new Low Carbon Fuel Standard (LCFS) rules, which were passed by CARB in November. The new rules, set to take effect in Q1 2025, introduce more aggressive carbon reduction targets starting in 2025. Despite a step change in requirements, the large surplus of credits currently in the market will persist for several years. We forecast that the total number of credits generated and cumulatively banked in 2024 will be double that required for annual compliance, and this overhang will weigh on prices as we move into 2025.

The new carbon reduction schedule and more restrictive feedstock rules for renewable diesel and biodiesel were discussed at CARB workshops as far back as 2023, so implementation in 2025 should not result in any sharp credit price fluctuations. However, the increase in demand for low-CI feedstocks to maximize Section 45Z credit value at a national level could drive up prices of low-CI biofuels used to comply with the California, Oregon, and Washington LCFS-type programs.

While Trump may attempt to revoke some of the Clean Air Act waivers that California uses to run its clean fuels programs, Capstone does not expect much progress on this front in 2025. Instead, we believe there may be a reactive effect to Trump’s anti-climate policy agenda, with an increase in state-level LCFS-type legislation. If LCFS bills gain traction or pass, particularly in New York, Minnesota, and Massachusetts, the growth outlook for low carbon fuels projects will significantly improve.

Potential Changes to Cellulosic Mandate, SREs, and Tax Credits Will Drive RIN Market Volatility, But Trump Administration Likely to Promote a Favorable RFS Policy

Capstone expects the renewable identification number (RIN) market to experience volatility in 2025 due to uncertainty over the next renewable volume obligation (RVO) rule, small refinery exemption policy, and various tax credit incentives. Capstone expects the Trump administration to continue to promote biofuels by adopting a moderate small refinery exemption policy as well as higher volume obligations for fuels such as biomass-based diesel in the next RVO rule.

The US Department of the Treasury under the Biden administration has yet to issue initial guidance on the Section 45Z credit, set to take effect in 2025. This guidance is critical for the market to determine the degree to which the incentive (worth up to $1 per gallon) can be incorporated into their biofuel price and RIN value calculations.

Separately, we believe the expiring $1 per gallon biodiesel blender’s tax credit (BTC) is likely to be extended at some point in 2025, driven by a coalition of agricultural and refining interests within the Republican Party. A return of the BTC would help bolster the demand for soy oil as an input for renewable diesel and biodiesel production (mostly owned by refiners), since the implementation of 45Z in 2025 will diminish incentives for purchasing seed-based feedstocks.

Both the 45Z credit and BTC tax credits have the potential to significantly change biofuel blending economics and can shift the prices for most RINs (D4, D5, and D6) by 25% to 60%. But the timeline for clarity on either of these tax credits could extend well into 2025.

In addition to tax credit dynamics, RIN buyers are also grappling with uncertainty regarding the RFS policy itself. The current administration has proposed changing the 2024 cellulosic mandate due to D3 RIN production shortfalls against the requirements. Buyers are likely to assume a similar solution might be proposed for 2025 and therefore may rein in demand, which could weigh on D3 RIN prices. Multiple volume change options in the proposal will impact not just cellulosic biofuels like RNG, but also advanced biofuels such as renewable diesel. The final decision will be made under a different administration, introducing further uncertainty.

The Trump administration will likely decide the fate of small refinery exemptions (SREs), but Capstone expects that it will resolve the issue without a net impact to biofuels demand, with methods that were previously used under EPA Administrator Andrew Wheeler, where SREs were granted, but their obligations were distributed across the other, larger refineries.

Potentially the largest changes to the RFS could come from the next set of rules for 2026 and beyond, which would normally be released in June. With the change in administration, the proposal could be delayed, though the process remained timely at the beginning of the previous Trump administration. Until the rule is issued, the anti-green campaign rhetoric will keep the market on edge about future biofuels demand. Capstone expects the Trump EPA is unlikely to break the trend of supporting biofuels by reducing demand from the RFS, but some market participants are likely to remain tentative until the RVO proposal is released.

Trump Efforts to Roll Back Auto Emissions Standards Will Create Legal Uncertainty, Run-Ins with California, and Headwinds for Tesla, Ford, General Motors, and Stellantis

Winners	N/A
Losers	Tesla Inc. (TSLA), Ford Motor Co. (F), General Motors Co. (GM), Stellantis NV (STLA)

Trump Will Create Uncertainty with Legal Challenges to Auto Emissions Regulations and Battle with California

We expect 2025 to bring legal showdowns over the federal government’s role in regulating auto emissions, with the Trump administration likely to go head-to-head with California policymakers. The new administration looks set to suspend ambitious auto emissions policies, such as California’s Clean Air Act (CAA) waiver, which allows the state to set more stringent auto emissions standards than the federal government and has driven electric vehicle (EV) uptake. This uncertainty for long-term planning poses headwinds for vehicle manufacturers such as Tesla, Ford, General Motors, and Stellantis.

The Trump administration will look to upend this legal structure in favor of a single federal standard for auto emissions, threatening up to hundreds of millions of dollars in annual revenue for Tesla. This has prompted automakers to implore the Trump administration to execute a “stable and predictable” set of auto emissions policies, suggesting they recognize that significant changes would likely be rolled back by a subsequent Democratic administration, and thus they are prioritizing policy consistency.

We expect California Governor Gavin Newsom (D) to position himself as a counterweight to Trump on EV policies. A recent example of this is Newsom’s suggestion that California will consider reviving a state program incentivizing the purchase of electric vehicles (produced by companies other than Tesla) if the Trump administration and Congress repeal the 30D clean vehicle tax credit. Specifically, Newsom stated, “We will intervene if the Trump administration eliminates the federal tax credit, doubling down on our commitment to clean air and green jobs in California.” The program Newsom is referring to is the Clean Vehicle Rebate Project. While Newsom would likely face an uphill battle securing funding for the revived program, we expect the state to prioritize it in the face of a 30D repeal.

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