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I considered writing a “predictions for 2025 in climate solutions private equity” post a couple of weeks back, but as recent events have shown, it really comes down to one key question, at least in the U.S.: What will happen regarding the Inflation Reduction Act and other key laws and regulations in 2025.

There are really two scenarios. I describe them as the “Money Talks” and “BS Walks” scenarios.

In the first, “Money Talks” scenario, Wall Street and other key investors and financial stakeholders resist any major wholesale changes to clean energy and other climate incentives.

After all, per the most recent levelized cost of energy analyses, renewables (now including geothermal alongside solar and wind) rival the all-in costs of fossil-based power generation, and has a better long-term prospect. There is a reason that, as I’ve written before, thermal generation projects are now viewed as the “risky” option versus renewables. Renewables capacity keeps rising, and many billions of dollars of investment have been put into that.

Even under this scenario, there will be some specific sectoral impacts. Federal consumer EV tax credits and support for offshore wind projects, for example, seem destined for at least very early sunsetting. But under this scenario, major pockets of the financial industry, utilities, and even red state Congresspeople scream bloody murder if support for further development of renewables is withdrawn in any truly disruptive way. And commercial and industrial EV fleet and charging station build-out support may also be insulated, as both of those areas have major PE firm support at this point.

It’s also worth noting that while U.S. infra and private equity dry powder declined slightly in 2024 because of limp fundraising, there is still a lot of it around. Infra and PE firms often have raised funds specifically to target “energy transition” and such, if not explicit sustainability mandates. This is money that needs to be put to work sooner rather than later.

In short, in the first scenario, the Trump Administration’s rhetoric about attacking the “Green New Deal” falls short of wholesale disruption past the middle of the year because major GOP donors and red district constituents make it clear that pulling these incentive programs fully away would be bad for business.

Note that the uncertainty and current sense of chaos would still lead to perhaps a half year of infrastructure investors largely sitting on their hands in the US, waiting to see how the dust eventually settles. This could by itself be enough to kill various startups and even better-established developers along the way.

The second scenario is much more dramatic, however. In the “BS Walks” scenario, the Trump Administration successfully disrupts incentive programs and federal spending for renewables in a major way.

This is really an issue well beyond the scope of climate solutions spending. It’s a constitutional question about whether the White House can unilaterally kill and repurpose spending that Congress has mandated. We won’t go into constitutional issues here because I am not a lawyer and that is a topic for smarter people than me to opine upon.

But in this second scenario, the Trump Administration either successfully wrests control of spending away from Congress with Supreme Court support, or simply does so without support and SCOTUS takes a year or such to definitively rule against (or even if they do so sooner, the White House just ignores them anyways).

Under this scenario, the supposed protections above by a Congress motivated by financial giants and red district constituents doesn’t matter. If the executive branch can simply decide that the Inflation Reduction Act and other legislative obligations are no longer obligations, they can do whatever they want.

And they’ve made clear already that if so, every single source of federal funding and incentives for climate solutions is under threat.

I personally believe the first scenario will win out. That the first half of 2025 will see infrastructure and private equity be active in thermal power projects and sit on their hands regarding renewables projects. As a gross overgeneralization. Lots of renewables projects will still reach financial close and move forward, given attractive underlying core economics. But on the whole, the first half of 2025 will be slow for climate solutions and then the second half comes roaring back. This is certainly how things went in the first Trump administration. Record levels of investment in climate solutions were reached, despite all the negative rhetoric and regulatory chaos.

But others, even within my own firm, put more weight on the second scenario. That this federal administration is so adamant against climate change policies, and so determined to kill the industry, and so deadset upon ignoring Congress and defying SCOTUS or taking advantage of SCOTUS delays, that the industry could face a catastrophic 2025. We have also seen this before, from other causes, in the early 2010s when CalPERS and others decided to withdraw lots of their climate investing commitments for a number of reasons basically boiling down to “vibes”.

Yes, the recent administration memo regarding a spending freeze was rescinded, but that doesn’t mean at all that legislatively-mandated climate funding is safe. It just delays the inevitable effort to wrest budgetary control from the legislative branch to the executive branch. We should learn a lot more over the next couple of months as Congress and the Courts get more involved.

But which pathway will it be in 2025 for the US?

Hold your breath.

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