Trump’s Budget Bill Slashes Climate Programs, Ramps Up Fossil Fuel Expansion

A sweeping budget bill passed by the U.S. Senate and now awaiting final approval in the House marks a sharp turn in U.S. energy policy, cutting key climate initiatives while significantly expanding support for fossil fuel production. If enacted, the legislation would weaken several pillars of the Inflation Reduction Act (IRA), undermining efforts to accelerate the clean energy transition.

One of the bill’s most significant changes is the restriction of access to the 30% tax credit for solar and wind projects. Previously available until 2032, the credit would now be limited to projects starting service by late 2027 or beginning construction within a year of the bill’s adoption. Stricter requirements on the origin of manufactured components, aimed at boosting domestic production and reducing dependence on China, add new compliance hurdles for developers.

Clean manufacturing projects like solar panel or battery factories will also face new material sourcing standards to qualify for tax credits starting in 2026. These changes are expected to delay or derail many renewable energy projects currently in the pipeline.

While solar and wind face setbacks, the bill maintains or extends tax credits for other energy sources favored by the Trump administration, including nuclear, hydropower, and geothermal.

Clean hydrogen projects would remain eligible for credits through 2027, while carbon capture initiatives and existing nuclear facilities retain favorable credit treatment. Developers in these sectors would still be allowed to transfer credits to third parties to raise financing, an important tool for project viability.

In a major rollback of Biden-era climate programs, the bill rescinds all unobligated funds from the $20 billion Greenhouse Gas Reduction Fund and slashes grants earmarked for clean energy infrastructure, low-carbon construction materials, methane reduction, and tribal energy programs.

Tax credits for household energy efficiency upgrades will expire after 2025, and commercial building developers must begin construction by mid-2026 to qualify-stricter deadlines than those proposed in the House version.

Fossil fuel expansion is a central feature of the bill. It mandates oil and gas lease sales in Alaska’s Arctic National Wildlife Refuge and National Petroleum Reserve, overturning prior leasing restrictions. The Gulf of Mexico will see 30 mandatory offshore lease sales over 15 years. The bill also streamlines federal land leasing, introduces non-renewable four-year drilling permits, and weakens environmental oversight.

Coal producers gain new advantages through a last-minute provision allowing metallurgical coal to qualify for advanced manufacturing tax credits. Additionally, the royalty rate for coal mined on public lands would drop from 12.5% to 7%, while 4 million acres of federal land would be opened for expanded leasing.

The bill cuts funding to replenish the Strategic Petroleum Reserve, allowing for only about 3 million barrels in new purchases, far below the 20 million previously targeted. It also cancels a required sale of 7 million barrels.

Overall, the bill represents a significant realignment of U.S. energy priorities, pulling back from climate action and reinforcing fossil fuel dominance across federal policy.

Doubling down on fossil expansion while unwinding climate spending forces a genuine rethink of stranded-asset assumptions across US energy portfolios - and it changes how TCFD scenario narratives need to be built to remain credible to lenders and insurers. That's the kind of scenario re-work our sustainability-due-diligence and climate-action teams have been pulled into more frequently this year.