The Inflation Induction Act: How the US Lost The Race for Clean Energy | Ep 219: Ethan Zindler

Michael Liebreich  

It feels like the tactics this time around are just different. It is moving so fast and just, you know, executive orders and so on, which, in the end, may be wound back, but the damage has already been done.

Ethan Zindler  

Yeah, I think that's fair, and I agree that the executive orders create chaos, lawsuits, delays, uncertainty. But I think the most potent thing they've done in terms of setting back the clean energy industry by far, has been this new law. Because that one is not like we're going to wait and see how it plays out. They've fundamentally changed the rules of the game in terms of how these technologies are now not being supported.

ML  

Hello, I'm Michael Liebreich, and this is Cleaning Up. On the Fourth of July, President Trump signed into law the One Big Beautiful Bill Act which, at a stroke, removed around half a trillion dollars of support for clean energy. It's an extraordinary change from nine months ago, when today's guest came on this show and spoke with Bryony Worthington, my co-host, about whether half a trillion that was going to flow under the Inflation Reduction Act would be enough for the US to catch up with China in wind, solar batteries, electric vehicles, critical minerals and so on. Ethan Zindler was at the time climate counselor to Janet Yellen, the US Treasury Secretary, after a distinguished career, first at New Energy Finance and then Bloomberg New Energy Finance as head of Americas. Ethan is now back at BloombergNEF as head of countries and policy. And despite the fact that he was an appointee of the previous administration, I can't think of anyone better placed to talk us through the One Big Beautiful Bill Act, and what's going on currently in climate and energy in the US. Please welcome Ethan Zindler to Cleaning Up. 

ML

Ethan, thank you so much for joining us here today on Cleaning Up. 

EZ

Great to be back. 

ML

And you are back at Bloomberg. And  for those who've not figured it out, that is where you were before being with Janet Yellen, Secretary of the Treasury as climate counselor. And in fact, you were the head of Americas. You were my first hire as I was building what was then New Energy Finance in the US. You were the first person in the US for us.

EZ  

Yes, I don't know whether I owe it all to you, Michael or I blame you for everything. 

ML 

Oh, I think you should blame me, definitely. 

EZ

Okay, fair. 

ML

You already devoted yourself in some way, to actually, it was the offshore wind industry that had captured you. I believe that's right?

EZ  

I was a reporter for the Cape Cod Times, and I was writing about what was then hoping to be the first American offshore wind farm, way back in 2005. That project never came to be, but obviously there's been some other developments since then. 

ML  

So I rescued you from being a local reporter in Cape Cod and made you a star. And then you went on to these fantastic roles at NEF (New Energy Finance), then Bloomberg New Energy Finance, but then climate counselor to the Secretary of the Treasury, which is where you were when you spoke to Bryony. And I had a quick look at the transcript, and I think it makes a pretty good starting point for our conversation today, because a lot has changed. The title of that episode — that we gave it — but it was the topic you talked about was, ‘Can half a trillion dollars help the US catch China?’ And, of course, the half a trillion dollars was the the money flowing as a result of the Inflation Reduction Act, one of the landmark pieces of legislation passed under the Biden administration.

EZ  

That's right. And that bill was passed, or became law in 2022, and so we were already a couple of years into seeing the level of investment and deployment that was triggered by that and the change and the long term — what we thought was a long-term — commitment to these clean energy sectors. And of course, there's been a lot of change since then.

ML  

And what we'll do is we'll put a link in the show notes to that previous discussion, the conversation that you had with Bryony. So any listeners or viewers who want to stop right now and go and watch that first, this would be a good time to do it. But if I summarize it very, very briefly, is that you were pretty bullish that you had locked in the Inflation Reduction Act, and you and Bryony talked a lot about: well, you know, a lot of it's going to red states, and it's going to be kind of hard to unravel it. And at one point you used the word ‘madness.’ You said it would be ‘madness’ if people are about to, or have already put steel in the ground, it would be madness to roll it back. So is what we're seeing now, madness?

EZ  

Yes, I stand by that statement. Given the level of investment that people have made and the expectations they had long-term about the market, to try and attempt to really put the brakes on it in such a way like Congress has done now through the passage of this One Big Beautiful Bill Act, which passed and was signed into law on July 4. They are putting up… and in terms of my prognostication skills, I guess you can certainly take issue with those. I think it did not seem, it seemed unlikely that so many votes were going to be cast by so many members of Congress, that these, to my mind, would go against their own political self interest. But obviously they made very different calculations on that. I think one of the most unexpected things about the entire process that we've seen legislatively in the last month or two is that it actually went down exactly on the timeline that President Trump wanted. He wanted to put the bill done and dusted and ready for signature on July 4, and he got it. 

ML  

Coming back to your prognostication skills, I'm afraid they took a bit of a blow for me back in 2016.

EZ 

I mean, come on, that's ancient history, Michael.

ML  

It’s ancient history. But I recall because we were in, I think we were in Shanghai. We were at a summit over in China shortly afterwards, and you were having to deal with the election of President Trump 45 whilst at the same time tap dancing to try and figure out what it was going to mean, because we were all so unprepared, really, for the first time that it happened. Of course, now here we are, six months into the second Trump administration, 47. So what you're saying, though, is that so much of what was in that One Big Beautiful Bill is actually against the interests of those red states that were benefiting from the Inflation Reduction Act, right?

EZ  

Yeah. It has very negative potential consequences. And we could probably talk a little bit more about what we've now put out, what we think is the potential change to some of the forecasts. But yeah, realistically, a lot of the investment that we saw, particularly on the manufacturing side, was occurring in places in the south like Georgia and Kentucky and elsewhere. These are states that typically vote Republican. And so the expectation was that members of Congress would vote in favor of the investments and the jobs that were being created in their area. There were a lot of other factors at play in this bill, to be clear, and and a lot of political pressure brought by the President, and a lot of concern, I think, among Republicans, that if they did not get in line, they would have faced primary challenges from the right flank of the party. And so I think that was a pretty powerful motivator that overtook some of these other things.

ML  

Because the decision was made, as you say, just before July 4. For those listening around the world who are not familiar with the kind of sausage making of US political processes and the political calendar, the congressman would have gone back to their constituencies for the July 4 holiday, potentially with effectively nothing to show for six months in Washington. So they were under a huge amount of time pressure — were they not — just to get it done?

EZ  

To some degree, although I think the President was the one who put the July 4 deadline. So I don't know if that specifically is it... I mean, one of the questions that we certainly have and will have going forward is ‘do their constituents know what they voted for?’ And what little polling I've seen suggests that many don't, and what little they know about this legislation they don't like, including some of the stuff that was done on clean energy. So I'm not going to attempt to prognosticate too much here, but I think Democrats are hoping to make some hay out of this into the midterm elections next November. But in the meantime, more importantly, we have to live with the consequences of what this legislation says. And it is quite negative, particularly for wind and solar. A little less so for storage, and has different implications for other technologies as well.

ML  

I think we'll come back to what might happen in the midterms and so on, but you know, it feels to me like a lot of the tax break… making the tax break permanent, those sorts of things that all kind of happen now. But some of the really bad effects, the inevitable hole that opens up in the finances is going to be after the midterms. So we can come back to that. Perhaps let's go through, if you can, you said something a couple of minutes ago. You said, ‘we've just produced some research.’ When you say we, that is BloombergNEF, and perhaps you can just go through and reprise the bits of it that relate to energy and clean energy. How does it parse? What were the chunks and what is it going to change?

EZ 

Yeah, let's start from the worst impacted, to the stuff that's either neutral to even positive for some of the industries. And by worst, I mean probably most harmful. So the law essentially cuts short the tax credits for wind and solar. And for your listeners who are not familiar with it in the United States, the way we have historically subsidized the development of renewables has been by providing generous tax credits to the wind and solar industry, either based on the amount of output, how much electricity they generate, or on a CapEx basis. Meaning that if you, in the second case, if you spend a billion dollars on building a new solar project, you can take, literally, a $300 million credit off your taxes, so you effectively reduce the cost by 30%. These are long-standing generous tax breaks that have been on the books for a long time.

ML  

And they're very clever, because they are transferable. There's a whole industry around swapping them and so on. Making sure that anybody who has got a tax liability can effectively sort of launder it through the system and use it, which, of course, reduces the cost of the technologies.

EZ  

Exactly. And this is important if you're a small-time developer. To give an example, maybe you didn't have to pay $300 million in taxes last year. So what would you do with a $300 million tax credit? So you go and find another party to invest in your project, and in fact, as you note then, it's now possible to pass the credits on further. And that sort of transferability, as it's known, has been a very positive development for the market. That was a new thing that was invented essentially in 2022 that is actually one thing that the law largely leaves alone, is the ability to transfer the credits. But most importantly, regarding getting the credits for wind and solar. The new law makes it very tricky for projects, for wind and solar projects, to access them. It has a very short timeline. They literally go off the books in the next several years. But more importantly, they put in place a new foreign entity rule, which means that you need to be able to prove that your project isn't owned by a harmful foreign entity, i.e. China, or doesn't get certain amounts of equipment from a harmful foreign entity, again, i.e. China. And some of these thresholds are going to be very challenging for projects to meet. And so the real question we're trying to understand is just how much stuff people can basically get under development or under construction in this calendar year and maybe even into next calendar year in order to qualify. I'm trying hard not to go too far down the rabbit hole here, Michael, but basically there has been long standing guidance from the IRS that so long as you prove that you are under construction, you can basically get your project in under a deadline. So if you're under construction by the time a deadline comes around, you still have a certain amount of time thereafter to get completed. And then you get the credit. The short-form version is, if you put 5% of the money down to build your project now, and then you demonstrate continuous construction, you have all four years to come to completion. Again, I wish I didn't have to get this far in the weeds, but one of the really important things and open questions, despite the fact that it's whatever it is, a 1000 page bill, one of the open questions that we now have is whether or not there'll be some kind of a change about how you define ‘under construction.’ And that actually is due to the fact that three days after the President signed the law, the White House put out an executive order in which they told the IRS to go back and reconsider what these definitions are of ‘under construction’ and the timelines. And if they change that, it could be even more damaging for the industry than the law as it was passed.

ML  

Yeah, so there's a lot to unpack there, and I want to make sure that our audience is keeping up. So let's come back to the point about how this might hit different sectors differently, but that capriciousness, in and of itself, is very damaging. The fact that you may not know what the rules are. You've got to get construction started. You've got to have something called ‘continuous construction’, but you don't know how that's going to be interpreted. And we've already seen some very capricious behavior. For instance, the Empire offshore wind project that suddenly got halted, and in fact, it ended up getting restarted. But those sorts of stop-start and essentially uncertainty and the demonstration of ill-will, frankly, from the White House, that must really concern people. And that drives up the cost of capital, doesn't it?

EZ  

Yeah, I think you're exactly right. There seems to be a certain level of, for lack of a better word, downright malevolence, in particular towards wind, and in particular towards offshore wind. As you note, that was a project, a $2.5 billion dollar project that was already under construction, had been through seven years of review and permitting, and then all of a sudden, one day, they get a letter from the US Department of Interior saying, ‘You need to stop work on it.’ And for a month, the project was held up. Hard to tell if there's any real reason other than to just mess around with the project. I mean, there were some concessions. Ultimately, New York State agreed to move faster on a natural gas pipeline. And so you could argue that that was the point of it. But from a policy perspective and policy certainty perspective, it is terrible news. It actually coincided with our summit that we hold every year in April, and we heard from our overseas investors who just made the exact point you did, which is, ‘how do we look at the US and feel like this is a market where we feel comfortable deploying capital when things like this can happen?’ Usually, if the federal government has taken seven years to review a project, and it's a multi-billion dollar project, a green light is a green light. And you don't expect that to get changed after the fact. So that kind of thing is definitely true. And in this case — just to go back to the tax credits — because the executive order made it very clear that the White House wants to look at these definitions, and as you note, it's really not always about whether you're being legal or you're being clear. Ambiguity in and of itself when it comes to policy has very damaging effects, and I think they understand that. So we'll see what happens. 

ML  

During Trump 45 — his first term — there was this very organized, I don't know what to call it, resistance to what was coming out of the federal machine. And the States, in particular, and a lot of the local businesses put up this very organized resistance. And that was quite legalistic. It was saying, ‘Look, this piece of proposed legislation is changing the regulations. It's illegal. It doesn't work.’ And that process kind of ground through the courts. But it feels like the tactics this time around are just different. It is moving so fast, with executive orders and so on, which, in the end, may be wound back, but the damage has already been done.

EZ  

Yeah, I think that's fair. I think, though, the major difference, and I agree that the executive orders create chaos, lawsuits, delays uncertainty, but I think the most potent thing they've done in terms of setting back the clean energy industry by far, has been this new law. Because that one is not like we're going to wait and see how it plays out. They have fundamentally changed the rules of the game in terms of how these technologies are now not being supported.

ML  

So let's go through some of the sectors. Because wind, the way I look at it, you've got a huge US champion — GE — producing turbines, and therefore wind, when you look at some of the provisions about the hostile losing the terminology, potential hostile foreign entity, whatever it's called... 

EZ

Foreign entity of concern

ML  

Foreign entity of concern. There we go. So at least you have a large domestic production in wind. But you don't have that in batteries, and you don't have that in solar, and you don't have that in some of the other sectors. So how is this playing out, sector by sector?

EZ  

Yeah, so, so you're right. In the case of wind, there is a foreign entity rule, but as you note, we have a fairly robust domestic manufacturing supply chain, so we feel like that's something that the industry can probably comply with. When it comes to solar, it's a lot trickier, and batteries as well. 

ML  

Can I interrupt and just come back to wind, specifically. So wind, you've got this domestic supply chain, so that's not the problem. You've also got a limited amount of time to get construction started, whatever that means, and continuous construction, whatever that means. Does that translate into a kind of rush for the line? Are there going to be a few boom years in wind where people just say, ‘Look, as long as we're fast, we'll get it done. Let's go for it.’ 

EZ  

Yeah, so boom is probably a little strong word for it. But I think a scramble might be a better way to describe it. And I think, anecdotally, we're already hearing, even just coming into this calendar year, once it was clear that Trump had been elected and that there was potential of a change of either the regulations from the Treasury Department/IRS, or from legislation, some of the biggest developers have been moving very quickly to safe harbor, as it's called. Effectively, get under construction as early as possible. The trick is, bigger players have the money to put the 5% down. Smaller players don't, and that can be really challenging for them. So I think in the market, we're certainly seeing anybody who doesn't have safe harbor is trying to, and then there may be some number of projects that change hands, potentially as smaller, less-capitalized players try to switch projects out to bigger players who do have the money. So that scramble is on. In terms of what it actually means, just looking at our numbers. Interestingly enough, we actually haven't shifted our forecast for the next couple of years all that much in terms of both wind, solar and storage build, at about roughly 75-80 gigawatts for the next couple of years. Actually, it's 85 in 2026 and 81 in 2027. It's really in 2028 when you see a big drop. And that's because, in our view, that's kind of when you come to the end of the line in terms of projects that have been able to get access to the credits and then have taken their time to get to completion. And that's when you see a market drop from about 80 gigawatts to about 50. And for wind, it's actually a tougher drop even than that. And when to be honest, the US wind market has not been enormous for a long time like solar. Solar has been a much bigger player in terms of the amount of capacity that's been getting added here.

ML  

Let's talk about solar, and let's talk about batteries, then move on to some of the other sectors. So solar, what's happening there, the foreign entity of concern must be much more of a substantial worry. And the batteries. And yet you haven't changed your forecast. Why not?

EZ  

Well, there's a couple things. There was actually a bit of a delay in projects earlier in the year, a little bit more of a delay in the first half of the year than we were expecting. So that's one thing that's had some effect on the forecast. But the other thing is that we do think some solar is going to be able to be… you know, the good news is that concurrent with this, one of the things about the last several years is we've also seen a bit of a scale up of manufacturing capacity in the United States. And a big open question, of course, is what happens to that next? And we should talk about that, because those tax credits are also being scaled back very substantially. And so we have a number of manufacturers who are probably looking at the US market now and asking themselves some very tough questions, which is, should we finish building the plant and get online and produce equipment, even though we're not going to get the tax credits we're expecting? Or should we stop even though we've sunk maybe a billion dollars into the ground? And so there's a lot of competing things here. But you know, on solar, it's not like we're expecting a massive growth market. We think the market gets a little bit bigger in the next couple of years, and then again, it really drops very sharply once the tax credits roll off. But there's a whole other factor on this we should talk about, which is demand, which is a huge part of the story as well.

ML  

And we'll get on to AI, because that's obviously going to be at the heart of any conversation about demand growth. But just to put it in perspective, the US, the sort of numbers you talked about, 80 gigawatts of new build in the US. And that was everything together, right?

EZ  

That's right, we have about 1,100 gigawatts, give or take in the United States online.

ML  

And to put it in perspective, it sounds like a lot to a European, where our whole grid in the UK is only 44 gigawatts peak demand. But of course, compared to the amount that's being installed in China, which would be something in the order of half a terawatt equivalent of wind and solar together. It is still a good year in the US, but it's still a tiny year in China, right?

EZ  

Yes. As our friend and colleague Jenny Chase likes to often remind me, the United States is not a major market when it comes to solar, in her words. And I think that's a little ungenerous, but it's certainly no China, that's for sure.

ML  

Let's do rapid fire on some of the other things: you've got geothermal, you've got nuclear, you've got hydro. You got a few other things. What do you want to highlight from within the One Big Beautiful Bill? 

EZ  

Let’s maybe talk for one quick second about storage, because storage is so important, obviously. And interestingly enough, the credits for storage phase out at a much slower pace. They stay on the books all the way into the 2030s, where they start to phase out by about 2035 entirely, or 2036 they'll be gone, gone. And I think that reflects two things. One, it does seem like the administration kind of recognizes the importance, I think, that batteries provide to the grid, and the fact that they want dispatchable sources of energy. We’ll come on to the other ones in a second, and then two. And this is just, I think, a little bit of good luck. Is that, because we've had a relatively low amount of batteries built in the United States, the future cost of the tax credits, as projected by the Congressional Budget Office, was quite small. The assumption was that wind and solar credits were going to cost $200 billion in the next 10-15 years, whereas the assumption on batteries was a much lower number. I don't know what it was, but it was very small. So they got in some ways quite lucky on that. The challenge, though, on storage, is the same as we were talking about before, is that the law requires certain thresholds of non-foreign entity materials. And given the heavy reliance The United States has on the moment, at this very moment, on battery imports from China, that is going to be tricky. On the other hand, we have been scaling up our manufacturing of batteries in the United States, largely in anticipation of an electric vehicle boom, and we can talk about EVs in a second as well. So there is more growth, and there's potential there. And I think our team thinks that you can meet some of these thresholds with non-foreign made equipment, especially since, you know, South Korea and other countries are also not China, and so there's some potential there. So that's batteries. Other technologies: geothermal, also a longer lead time. Again, I'm assuming, benefited from a low scoring by Congress. But also, I think the energy secretary has shown he likes this technology. I think he sat on the board of a company in the in the geothermal space.

ML  

Chris Wright, Secretary of Energy, who was an investor in a company called Fervo. 

EZ  

That’s the one. Nuclear is obviously an industry this administration is very positive on and has wanted to be supportive of overall. And so you know that there are longer lead times on that as well. And so you know that they've sought to cleave out between these sort of intermittent sources of clean, of clean energy, and then ones that they describe as base load, with batteries probably somewhere in between. 

ML  

Interesting, because it does feel that wind is very much the one in the cross hairs, because I was watching President Trump in Pittsburgh a couple of days ago at the innovation conference, and he was talking about how the US is going to power AI, and he lists it's going to be gas and coal and nuclear, and he says it's not going to be wind, because it doesn't work, but he doesn't mention solar.

EZ 

And in fairness, these data centers do need essentially around the clock power, and so if you want to meet their demand, you are talking about potentially… I think you could still find a combination of solar plus wind plus storage, or just solar plus storage to get to most of the hours that are required. But I do think that there's clearly been the emphasis. But we should talk now, you've kind of brought it up, we should talk a little bit about gas and demand. Because one of the things that is interesting is that the administration clearly is very focused on wanting to expand the amount of natural gas fired generation in this country, and we are in an unusual circumstance now where electricity demand in the United States is actually rising. It's been flat for 20 years, and I think that's similar to a lot of developed countries, but suddenly it's rising. And AI, as we can talk about, is one of the main reasons. So as I would say, in terms of renewables, in some ways the One Big Beautiful Bill Act is really the worst possible news, but in some ways, it's coming at the best possible time. That is because top line demand for electricity is growing, and because the equipment costs for clean energy are obviously lower. We've added some domestic manufacturing, and then, maybe most importantly, you just cannot get your hands on a natural-gas fired turbine in the United States in any reasonable period of time, and for most cases, 3 to 7 years. And so what that means is renewables are the only game in town, to some extent. And I'm not sure the administration fully understands that. And they want to maybe move past that, but I think it's a very important point. And so our view is that even without tax credits, you will see renewables and storage being built in the United States, because it's the quickest and in many cases, cheapest thing you can get on the grid.

ML  

But it will be more expensive if those credits expire. So it's going to be electricity price inflation is where it's going… you know, when you squeeze the balloon, something, it's going to come out somewhere, usually in inflation. And I mean, just coming back to these AI data centers, as I think you might know, I've done a lot of work on how they will be powered. And, as you say, if gas takes a long time to get hold of a turbine, well, then that's going to be a gating item. And my assumption is that they will try to go gas, gas, gas as quickly as possible, because it's fast, but then back filling with renewables and storage, because that will reduce the cost, and keep the gas for backup. And all the talk about nuclear, is like, ‘okay, that's fine, if all you want is a data center in 2035.’ But if you want one this side of 2030 there's really only one game in town, which is gas. And then reduce the costs with cheap renewables and storage. But it's not going to be remotely as easy as they think.

EZ 

I think that's right. I actually was speaking with a developer yesterday, and they were saying that, to your point, that they've been having conversations with developers of large scale data centers, and they want electricity and they need electricity, and they need it soon. Not like 10 years from now, which is a nuclear timeline, with some exceptions. Because, in the US, we also have some mothballed reactors which are starting to come back online, like Three Mile Island. Frankly, from a climate perspective, I think that's great, and I hope we see more of that. There's another, apparently, six sites where there's been permits granted for nuclear reactors, on existing sites in most cases. And perhaps you could develop more. But as you know, even just building a new reactor anywhere, even with the permits, you're talking 10 years and good lord, the cost overruns have been so bonkers in the past almost everywhere in the world. So hard to see how that works out on a short timeline. But in the immediate term, you will actually have, I think, relatively price insensitive buyers who are willing to buy clean electricity to make sure they have their next giga center online.

ML  

But again, that's going to translate into inflationary pressure, because absolutely these incredibly wealthy companies, with sort of infinite cash, and under incredible pressure, time wise. And what's to stop them just saying: ‘right, we're just going to buy the electricity and somebody else can figure out how to backfill, because we're going to buy it.’ Even to the point of buying out, I'm expecting some of these companies kind of go off and maybe not buy an aluminum smelter, but just make it impossible for a smelter to work, because that's the electricity that you could use for the next version of of Grok, or whichever model it is you're developing, Claude, etc, etc.

EZ  

No, IMichael, I don't know that I could put together a more concerted strategy for raising energy costs than the combination of things that have been done through the first six months of this administration. So first of all, to your point, you're absolutely right. If you take away the tax credits, essentially socialize a discounted cost of electricity from renewables. If you remove them, then you just focus a higher cost into the markets where those projects are going to be. So that's the first thing. The second thing is, if you expand, as they have sought to do, the export of LNG, and by green lighting the export, you have the potential to raise the costs of what is the cheapest natural gas in the world that we have here in the United States, by creating further external demand pull overall. And then the third thing, and maybe the most important thing in terms of cost, is if you impose massive tariffs on things like steel and copper, that is also another great way to raise the cost of developing new energy projects. So the administration has certainly done a bunch of things, I think, to try to facilitate further drilling and other things, by lowering royalty rates and things like that on public lands, but realistically, you won't see — if that has a benefit — you won't see the benefit of that quickly. And the other thing I would just note is that that assumption and this whole discussion around AI, this isn't even really a criticism of the Trump administration, it's more of a criticism of how Washington in general looks at energy. There's often this belief that all you have to do is like, turn this little dial this way, and this little dial this way, and five minutes later, you get more gas out of the ground and it's cheaper. And that we just sit here at some kind of control station. It's not like that. It's more like steering a giant tanker. And so you make a policy change three, five years down the road, you start to see effects. But the things that they've done relating to renewables, we'll see tomorrow. That kind of stuff has a more immediate effect overall. 

ML  

I just checked the Henry Hub gas price, today, We’re at $3.70 bucks per million BTU. And of course, we sit here in Europe going, ‘we wish that we could have access to gas that cheap.’ But it is about twice the price that it was five years ago, or six years when we were really down to kind of sub $2 and it's now at $3.70. And so, as you say, you permit a whole bunch of exports. I don't know. It's a fantastically innovative industry that's constantly lowering its costs, but at some point there has to be questions about the resources, because they have to keep on fracking, because the decline rates are absolutely ferocious. I mean, within one-year a fracked well declines by 90% plus unless you re-frack it and so on. So there's just all of these inflationary pressures as you list them. It's pretty scary. And is this a discussion — do you think — in Washington? Or is everybody just so high on their own supply that they just think, we've got rid of all these constraints. Climate is not a thing. We can all do what we want now, and it's going to be fantastic. Do they worry? Is there any part of their minds that is taken up by worrying about inflation?

EZ  

I don't know. Michael, I mean, I don't have a hotline to the White House anymore. I'm a Democrat. I worked in a Democratic administration, so they don’t return my calls. I mean, the really cynical view is that perhaps they think that or they know it will raise prices, and then they feel like renewables will get all the blame. But I don't know that anybody's, frankly, thought it through that far.

ML  

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ML

I want to come back to the politics of this, because you've got these tariffs which are already hitting Main Street America. You're going to get tax rises after the midterms that are going to hit Main Street America. And what we've just concluded, although it has to be said, that our prognostication skills, as you've already covered, are not perfect… But there's a good argument to say we're going to see huge electricity and potentially natural gas price inflation. Let's come back to the politics of that, because you wanted to talk us through electric vehicles.

EZ 

Yeah, so on EVs for a second. I mean, this new law is unambiguously terrible, I think, for the electric vehicle industry. So just back up, in the US, if you at this very moment as we record this, you get a $7,500 tax credit as a purchaser of a new electric vehicle. You can get a $4,000 tax credit for the purchase of a used electric vehicle. And there's other ways you can get access to the credit, through leasing a vehicle as well. Effectively, the new law gets rid of all that. I think on September 30. We didn't even make it to the end of the calendar year, and so we might see a bit of a boom of people looking to get the credit between now and the end of September. But longer term, it means that effectively, EVs in the United States are going to have to compete entirely on price, without the kind of subsidy that they've had. There's another little aspect of the law, which has been a little less covered, but is also really important, is that it effectively eliminates any of the penalties that could have been imposed on automakers for violating the corporate average fuel economy standards. And this is actually an important way that the US was pushing automakers to sell more EVs and lower carbon vehicles overall.

ML 

These are the famous CAFE standards, which have driven so much efficiency into the automotive stock in the US. 

EZ  

That's right. So the law, I don't think actually changed the standards, but it just means you can't get punished for violating them. Which is a clever way to get rid of a standard without getting rid of a standard. 

ML  

Ethan, I think all laws should be voluntary.

EZ  

So, I mean, we're going to be in a new era for transport. And I think actually our transport team was pretty bearish coming into the year, because the one thing that it did seem very clear on was that Republicans wanted to get rid of this tax credit. They made that very clear from the beginning. And so that's been a part of our forecasting overall for some time, but it's still not great to see it come to fruition. And so on the other hand, you know, the US has put up a giant wall against importing electric vehicles. This actually happened in the Biden administration, which is that we have 100% tariffs on Chinese made electric vehicles. So we will not sort of get the benefit of super low-priced EVs in this country to offset the fact that this credit has disappeared. So it's really going to be about South Korean made cars, German cars, US cars that have to be made. And I think this will be an interesting test. Obviously, I'm a big fan of EVs. I've driven one for years. I think it's a superior product, so hopefully consumers will come to their senses on buying more and more of them. I think I personally had some hope that the Elon-Trump bromance was going to get the Fox News crowd a little more enthusiastic about EVs. But now that that's over, I'm not sure where all that stands at this point.

ML  

One of the big mysteries for me at the moment is Tesla's share price, because it just strikes me that he's now essentially argued with everybody, and you have a share price which is certainly not, it's certainly not being buoyed up by the cash flows of the business, which is, on the global scale, frankly, a relatively small automotive producer. Sales are now no longer growing. You can no longer argue that he's going to be exporting around the world in huge quantities based on the persona of the CEO. You know, sales in Europe are down. I don't know what percent, probably 40% or something, and they're going to drop further, as far as I can see. So who in America is still buying a Tesla, and why is the share price where it is? Because the company is still worth, I don't know, $800 billion or something like that.

EZ  

I'm not going to attempt to comment on the valuation of companies, certainly under my guidelines here at Bloomberg. But look, they still do have sales, and in fairness, they make a great car, Tesla's are terrific vehicles.

ML  

Are you referring to the cyber truck here?

EZ  

I'm referring to the sedans. I don't think I've ever been in a cyber truck. I have not been in a cyber truck. But I would just say, I think there's still a pretty rational reason to buy one of these cars, because they're great. And the charging network that Tesla offers in the United States is far superior to anybody else's, at least in my opinion, having tried to charge an EV for other places. So I think there's still a market, but your point is still well taken, that he has certainly alienated a lot of people now on both the left and the right, which is not a great place to be. 

ML  

It has been interesting, though, that you've had this onslaught on the electric vehicle tax credits. But Elon's response, or his political interventions now, have been around creating this new party. He really hasn't commented on the removal of those credits, as far as I'm aware.

EZ  

Yeah, I think there's been some question, though, that perhaps Tesla was actually going to benefit more because other automakers were… you know based on the amount of credits that had been used to date and things like that. Honestly, the frustration I guess, that I think people in the industry would have with him is that he waited until the moment where he had the least possible influence before he then came out and criticized this legislation. He waited till he'd had a total falling out with Trump, and then he went very public in attacking the bill. And at that point, I don't think it really moved a lot. I don't know that it affected a lot of Republican members of Congress. Clearly, the bill still passed. So he did not prove himself to be particularly adroit at using his political capital, I would say.

ML  

Actually, Ethan, I want to remind you of something way, way back in our past, in 2007 I don't know if you recall, you organized for me to come and testify to the Senate Energy and Natural Resources Committee, alongside a certain Mr. Elon Musk. Do you remember that? 

EZ

I do indeed. 

ML

I went and had a look back at that recently. What exactly it was we said. And, I said, ‘Oh, clean energy is going much faster than people think.’ And there's these things called learning curves, and it all gets very cheap, and it's going to be great. Don't worry. But what Elon Musk did was, having said that electric cars are fantastic, and they accelerate so brilliantly, and the cost per mile is so cheap, he then spent most of his remarks asking for money, and he asked for loan guarantees, and he wanted kind of X-PRIZE type stuff, and he wanted — coming back to the topic — consumer incentives. So that was actually the second time I'd met him. But all the way back in 2007, what he really wanted was consumer incentives.

EZ  

And he got what he wanted, ultimately, right? He got a half a billion dollars in federal loans from the government at a very, very important juncture for that company. And then we did have tax credits for EV purchases. So, yeah it was a moment in history that we could never imagine where we would end up today. I do wonder if that was the first time he'd ever testified before Congress, or one of his first sort of interactions in Washington.

ML 

The funny thing is, when I went to look for it, the video had disappeared. So if anybody out there watching this knows how to get hold of that video, I would be absolutely thrilled to watch it, because the testimonies are there, the written prepared statements, but not the video. But I want to come back: so you've got the US really stepping back in a big way from electrification of transport in a big, big way.

EZ 

Policy wise, for sure. Let's hope the market continues, but yes, the policy commitment is definitely dramatically diminished,

ML  

The policy is different. But then, I mean, surely, even in Bloomberg NEFs numbers, it's going to become very apparent in the numbers of electric vehicles bought. Apart from the fact that you've now got no subsidies, or no subsidies for charging infrastructure, you've even got some of it being ripped out on federal property and so on. So, I mean, it must reduce the market. But also, how can I put this? The chances of people buying American cars around the world have absolutely plummeted in the last few years. China has gone from the number five exporter of vehicles to the number one in three years, and we are having a big discussion, and Europe is putting tariffs on them. The UK is having a big discussion about, why don't we just buy these cheap Chinese electric cars, since people want to buy them. You could hardly imagine a more stark contrast between the US going all in on fossil and China going all in on electrification than around EVs.

EZ  

Yeah, it's a very different picture. And by the way, to be clear, German manufacturers are facing a lot of pressure from Chinese manufacturers as well, and have a lot less opportunity to sell cars in China than they did even three or five years ago because of the active move towards electrification of the Chinese transport sector. So you're absolutely right. I think it was something in the Biden administration that we certainly tried to think about how to make US manufacturers more competitive. And I guess I would love it if we thought that we would have a major potential — globally — to be an exporter in this space. It'd be nice, at the very least, if we were supplying our own market in a meaningful way. And by the way, I say us, it doesn't necessarily mean that these have to one of the big three US automakers. It's been a very good development to see the expansion of Hyundai's manufacturing capacity in places like Georgia and South Carolina as a hub for manufacturing as well. So we certainly should be welcoming manufacturers over here now. And there's a good question, maybe we should think about allowing Chinese manufacturers if they want to put plants in the United States, to be able to manufacture and create jobs here, as BYD has or is — I can’t remember if they've opened, or are soon opening a plant in Brazil? I think they have one coming or open in Hungary as well. And so if they can produce cars at low cost, great, although there's certainly some national security concerns that get raised around these. And I think these were things that we contemplated a fair amount in the Biden administration as well.

ML  

BYD, certainly opening plants around, a number of them in Europe. CATL, the battery manufacturer, actually just raised a bunch of money on the Hong Kong stock exchange to invest in a huge battery plant in Hungary. So see that happening. But doesn't this go further than just EVs. Will the US or US made EVs sell around the world? Will any US vehicles sell around the world? Because the internal combustion vehicle market peaked in something like, I think BloombergNEFwe had Colin McKerracher come on the show and he said that it peaked in 2017. So there's no growth for internal combustion engine vehicles. So it doesn't matter what Chris Wright says about what people want to buy and how the global south ought to just go all in on fossil, just like the US. The fact is, they are not doing that. They're going electric iin transportation, and they're going solar and battery for a lot of their incremental electricity demand. So doesn't this set up a real fight? In a way, it's a battle for these neutral markets between China selling what it sells, and the US selling LNG and, how can I put it, cars nobody wants to buy.

EZ  

Look, if you take three steps back and you talk about an economy that's well rounded and creates jobs for people. I mean, being a resource export economy is, I think, not what should be the primary goal of the United States. It should be to develop the IP and the manufacturing and create the jobs here domestically. So I don't agree with the direction that they're trying to go in. I don't think it's consistent with the trends that you and I have seen over the last 20 years in terms of the way the world is changing, the new technologies are evolving. And so, yeah, I mean, it's just disconcerting to me.

ML  

With the caveat that we're rubbish at prognosticating what happens next, because you've got these huge tariffs, 50% tariffs, on copper, but you can't really see how you could build the power supply for data centers without access to copper, and you've got tariffs on rare earths, but we all know that building a rare earth supply chain is going to take 10-15 years to open the mines and the refining and so on. So what happens? Is there a kind of moment of reckoning, or is there the TACO trade — Trump Always Chickens Out — that at some point there'll be a kind of very chastened administration that will admit that it just simply cannot pursue this current strategy. What's going to happen?

EZ  

It's a good question. And of course, I have no idea. But the TACO trade does seem like, I think people are getting a little conditioned to TACOs and I think the market doesn't necessarily have quite the freak out now as it did three months ago when Trump made some pronouncement that was incredibly unexpected and incomprehensible. 

ML

Liberation Day 

EZ

Yeah, exactly. I mean, the market is basically, you know, almost all the losses as a result of that, I think more than that are back now. So the markets rebounded. So I think there's a sort of conditioning that takes place when we will reach some kind of, I don't know what the right word is, equilibrium on trade policy, is really unclear to me. And clearly this is of importance to the President, and by the way, I want to stop and say one thing, which is that when it comes to some of the things that Trump has been supportive of on trade, I don't think he's always wrong on demanding that the US get better trade agreements with foreign countries. Though the question is with which foreign countries, and how do you go about negotiating these things in a rational way. And how do you draw the line with who your friends are, and who your competitors are? And it feels like there's been very little of that. But I don't directly entirely disagree with that. And certainly within the Biden administration, I think we worked very hard to try and push for better arrangements with China and ratcheting up tariffs on certain things in a targeted and strategic way, and not on other things. So, for instance, there was an opportunity to put tariffs on shoes. But the access to low price shoes that you can buy on a Walmart or a Target, you raise those tariffs, you're just hurting the lowest income people. And it's a market that has to some degree, when you're talking about sneakers, been largely commoditized. When you talk about products that are more involved, with more advanced technology, and where there's a lot to play for, like batteries and EBs and things like that, we tried to take a proactive effort of trying to say, ‘No, we're going to try and allow our domestic industries to develop so that we can can be a competitor going forward.’

ML  

Shoes, you can buy from Bangladesh, you can buy from Vietnam, you can buy from Thailand, you can buy from Latin America, emerging manufacturers in Africa, North Africa and so on. But when you talk about these rare earth minerals, where China has, over years, strategically built a hammer lock on permanent magnets, and everything that goes into them — you and I know the list of minerals — it just feels like they hold so many more of the cards than the US. 

EZ  

Frankly, I think that's right, and I think there's been a few key moments already in this administration where that's been made abundantly clear. And interestingly enough, there was an announcement from the Department of Defense the other day that I think they're taking a $400 million stake in a mining company, specifically to try and do this. So in some ways, I think our approach in the Biden administration was okay. Create very generous tax incentives to try and get people to mine this. And if you look at what's called the 45x tax credit, one of the longest and most generous aspects of that was related to mining. And I think the administration is taking a different approach, which is sort of say, ‘Okay, well, we're going to literally just take some US taxpayer money and invest it in some companies to try to achieve certain strategic goals.’ But I'm not disagreeing with you that China, particularly on the processing of the metals, they really have a headlock on things at the moment. 

ML  

I saw that deal, and it's very interesting, but $400 million is absolutely nothing if you look at the amount of investment, if you were talking about across these kind of 20 minerals. And by the way, if you add copper and nickel and a few other things in there, then we're talking about hundreds of billions of dollars invested over decadal time periods, if they really wanted to go that route. Look, of course it could be that it's all just performative, and that actually, it's all about relatively modest tweaks to trading relationships, but just using this huge bully pulpit to get attention, who knows? One thing I want to come back to, I said we would do this, coming back to the politics. And it does amaze me, although the Trump 47 popularity is already lower than other presidents at the equivalent time, it does still seem gravity defying. Given how much harm and how much pain this is going to cause to the average American, it seems extraordinary. But where is the opposition? What is happening? At this time in his first term, you were already getting ‘we're still in’ and you were getting all these sort of billionaires funding very vocal campaigns. You were getting this legal pushback, and right now we just don't seem to be, at least sitting where I am, we don't see that sort of organized pushback, which could culminate in trying to get back one or both of the houses at the midterms, culminating in a coordinated campaign to win the next election against whoever comes after President Trump and so on. It just feels like there's just no organization there pushing back. Is that fair? 

EZ 

Not entirely. I mean, there is the effort that America is all in. Effort still exists, and I think has been sort of restarted. But you're not wrong to note that, in fairness, politically speaking, the President has had a very successful month or so with the passage of this legislation and with the efforts with Iran, which, whether you agree with or don't agree with, the good news is it did not cause much larger calamity than it could have, right? I think there's some real concerns about what was going to happen in the wake of that so far, thankfully.

ML  

The good news is we haven't had a nuclear war yet, okay… 

EZ  

I mean, look, that was a legitimate concern. No joke. And so I think the challenge for Democrats at the moment is that the President actually appears to be kind of riding high here in the United States and here in Washington. I have to say, I realize I'm now regurgitating to you what is Washington conventional wisdom. But like, Washington sort of respects successes. And so even if you're taking people in very odd policy directions, if you're at least successfully moving in that direction, then you're regarded as being a very powerful and successful leader. And so the President, I think, in some ways, has actually enjoyed a very positive month, with the exception of some new stuff around Jeffrey Epstein and a whole bunch of other crazy things, which I don't want to get into. But generally speaking, I think that's sort of where we are. And I think maybe the more important part of your question, maybe it's like, ‘where is the opposition?’ And I think that the Democrats, probably, were not as effective in the discussion around this particular law about articulating the impacts. I think the most powerful argument they had is the one we've been talking a lot about, which is the fact that this is going to raise energy prices. And I think that that's something that people can kind of understand, but I think it's maybe challenging in the United States, because we have enjoyed low prices. We pay so much less for electricity than you do in Europe, and it's not something that people really think a great deal about, with the exception of maybe folks in New England, where electricity services are exorbitantly expensive. But like, it's not something that's front and center for people, but it'll get there within the next couple of years. So maybe that's why the argument didn't get the kind of traction it needed.

ML  

And just to put it in perspective, it's a huge topic in the UK and in Europe in general. Electricity prices, energy prices are three to four times higher than the US and there’s de-industrialization as a result. It's kind of hard to get people scared about that in the future. And I suppose Trump has been touting his success in getting orders from Saudi Arabia for trillions of dollars of this, and trillions of dollars of that from Abu Dhabi and so on. So he's certainly making a lot of noise about success. But I suppose the question is, can that political weather change sufficiently? Or is there going to be a legalistic response to say, ‘well, actually, here he is defunding whole departments that were set up by Congress.’ The whole constitutional settlement of the executive and the legislature just seems to be, at the moment, kind of on pause. Does it ever come off pause? You're, at this point, my great political analyst for all your mistakes and prognostication failures in the past. Does it come off pause? Does something actually go back to normal in the US?

EZ 

I mean, I don't know. You're exactly right, they've moved very aggressively to fire people and not spend money, even though Congress has told them to spend it. And then, actually, just last night, they more formally passed what's called a rescission bill, where they basically said — they had been holding on spending federal money on things like public radio, and actually some money for international support for the Climate Technology Fund, which is a little fund within the World Bank — that money is officially going to get rescinded once the House passes that bill today. So I'm not going to try to tell you that I think that things are going to turn around anytime soon, because the Supreme Court also seems to be generally receptive to a much more powerful administrative branch than we've seen historically. So I think, just to keep us focused on climate and energy stuff, I think if you are a long-term observer and believer in the power of the technological accomplishments that we've seen to date, and what we think we're going to see going forward. That's where you pin your hopes. And I am positive on that, because, as you know, particularly when it comes to solar and storage, the cost curves have been remarkable, and I think there's no reason to think that will cease anytime soon. We continue to have a massive over capacity in both those technologies, largely due to China. So we think cost declines will continue. And I think the industry is just going to have to fight its way through this to some large degree. 

ML  

I think that's right. Certainly, globally, my sense is that there's going to be continued progress, even though, politically now, you're supposed to say there's no such thing as a transition. Of course, there's a transition. It's happening not as fast as some people would like, and it's going to continue for exactly the reasons you say. It's just that the US is off on this kind of really bizarre anti-transition, pro-fossil detour. And I don't want to be in a position of hoping that there is energy price inflation that causes immense pain across America. I would prefer to hope that there was a more political sort of resolution to that. But I want to finish with: you mentioned the word 'climate' just now. Are you going to be off to Belem to the COP30 meetings? Or has COP now become so irrelevant to what you do? You are head of policy and countries, does that mean you still need to go off and take copious notes and report back from Belem. Or can you give that one a miss?

EZ 

Well, I mean, there’s a whole other conversation about how COP is shaping up at the moment. And it does seem like Belem is really going to be primarily for people who are actually negotiating and for policy makers. I am not that anymore, so I think it's unlikely that I will get to Belem. Quite possibly I may go to Sao Paulo, though, because it does sound like a lot of surrounding events that are more business oriented are going to take place there, and in Rio. So I'll probably go at this point. But I mean, one thing does seem quite clear is the US will be almost completely a non-participation. They have closed the office at the State Department that had taken the lead on those negotiations. I don't know whether many of my former colleagues at Treasury will go down. We did send a good contingent last year. So the US government will be — at the federal level — largely non-participant. I have no doubt that a representation of certain US states will be there. I have no question about that, to seek to represent, and maybe we'll have governors from some of those states as well. But it's going to be a very different vibe, that's for sure, than the last couple of COPs.

ML  

Do you put any credence in the idea that with the US simply stepping aside, there'll be a new partnership forged between China, Europe, and the rest of the world?

EZ  

Maybe. But I mean, look at the US. Given the size of our economy and our historical importance in terms of CO2 emissions, I just have trouble seeing how you craft a global deal that is really, really meaningful, and doesn't have us involved in any way, shape or form. So I do wish everyone, and I do wish the process well, I mean, we've talked about this offline before, Michael, I'm not a huge believer that the process itself really moves the needle that much in terms of what actually prompts change in this world. What we've now chronicled over 20 years is technology, costs, innovation, investment, hard work, those are the things that really do make the difference to decarbonize power grids and transportation systems. 

ML  

I think that's right. There's a few exceptions. I think Paris moved the needle. I think Glasgow moved the needle. Most of the rest of the process, I think, achieved almost exactly nothing. And here we are talking about COP30. There's kind of a clue in the name that we still have a climate crisis, or whatever you want to call it, or whatever it is that Chris Wright, your Secretary of Energy, doesn't want to call it. We've got that, and we're on COP30, and it's not resolved. So I think we can pretty much agree on that process. Ethan, it is always such an enormous pleasure, and it is so enlightening to speak with you. So thank you once again for joining us today. 

EZ

Thanks, Michael. I appreciate it.

ML 

So that was Ethan Zindler, formerly climate advisor to Janet Yellen, the US Secretary of Treasury, and now back at BloombergNEF as head of countries and policy. As always, we'll put a link in the show note to resources that Ethan and I spoke about during our conversation. So primarily that would be his first appearance on Cleaning Up in October 2024, which is episode 181. And we'll also put a link to Jigar Shah's second appearance on the show when he was just finishing his stint as head of the Loan Programs Office, that is episode 198. For a bit of fun, we'll also put a link to Elon Musk’s and my testimony to the Senate Committee on Energy and Natural Resources back in 2007. And so it just remains for me to thank our producer, Oscar Boyd, video editor, Jamie Oliver, the whole team behind Cleaning Up and of course, our Leadership Circle. Please join me at this time next week for another Episode — the final one of this season — of Cleaning Up. 

ML
Cleaning Up is supported by the Leadership Circle, and its founding members: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP of Portugal, Eurelectric, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live. If you've enjoyed this episode, please hit like, leave a comment, and also recommend it to friends, family, colleagues and absolutely everyone. To browse the archive of over 200 past episodes, and also to subscribe to our free newsletter, visit cleaningup.live. That's cleaningup.live.