After the Green Vortex
Why Energy Policy Bipartisanship Could Be Closer Than We Think
By Ted Nordhaus
The passage of the one big beautiful budget reconciliation package by the Republican House majority should be both a teachable moment for Democrats, progressives, and climate advocates and an acid test for the evolving Republican political coalition.
For Democrats and environmentalists, it is the nail in the coffin for the Green Vortex theory of political economy, which informed the construction of the Inflation Reduction Act. The Biden Administration’s whole of government green deliverism failed to deliver either Democratic wins or Republican votes in key Congressional districts that benefited from the IRA’s clean energy largesse. Of the fourteen remaining Republican members of Congress who wrote to Speaker Mike Johnson last August urging him to preserve the IRA’s clean energy tax credits, all 14 voted for the budget reconciliation package, which would repeal those tax credits. Partisanship, the SALT deduction, and concerns about Medicaid benefits trumped the tax subsidies that supported various clean energy projects in those districts.
For Senate Republicans, the MAGA coalition’s energy dominance ambitions are now pitched against the Freedom Caucus’ libertarian dogmatism. The party’s grand nuclear ambitions will be difficult to achieve without tax credits and loan guarantees that the IRA provided. And without nuclear, the Republican energy agenda offers no hedge against either volatile natural gas prices on the upside or deteriorating domestic oil and gas production economics on the downside. For an administration and party that see energy dominance as the key to revitalizing America’s manufacturing economy and reducing our vulnerability to economic and geopolitical supply shocks, betting the farm entirely upon an oil and gas sector that is notoriously susceptible to booms and busts is a risky bet.
Bipartisanship has become a dirty word among many partisans. But whether the objective is climate mitigation or energy dominance, there is no cheat code to get around the reality that energy systems and technologies are slow to change. As Alex Trembath and I wrote on the one year anniversary of the passage of the Inflation Reduction Act, “what executive action and budget reconciliation giveth, it just as easily takes away.”
That maxim is no less true today than it was at the height of the brief, overhyped Dark Brandon era. No course can succeed that cannot be sustained over multiple decades, administrations, and electoral swings. And while budget reconciliation is, unavoidably, a partisan gambit, Senate Republicans will be well served to push for a reconciliation that leaves open the possibility of energy policies that might survive the next election cycle. The IRA was deeply flawed legislation that should be reformed. But how Republicans do that will matter and will have lasting implications for how America’s energy economy evolves over the coming decade.
The Green Vortex Goes Down the Drain
For a lot of Democrats, environmentalists, and climate and clean energy advocates, there was a theory of political economy that informed both the policy and political strategy behind the IRA effort. Robinson Meyer dubbed it “the green vortex” in a 2021 Atlantic article. The idea was that public investment in energy technology innovation and deployment would lead to cost declines in green technologies, making them more competitive with carbon based fuels and in turn reducing the political resistance to enacting carbon regulations, taxes, or other mandates necessary to drive a shift to green energy.
Meyer borrowed the concept from the political scientist Nina Kelsey, who described the dynamic as the “green spiral” in a 2014 paper. But the idea that public policies directed toward technological change might lower the economic cost and political obstacles to environmental policies had been explored by a lot of people over the last several decades, including early Breakthrough Institute publications.
“Making clean energy cheap, a term that we coined in 2008, was explicitly intended to “cut the gordian knot” that inevitably hindered efforts to regulate, tax, or otherwise price carbon dioxide emissions. Clean energy technologies didn’t necessarily need to be absolutely cheaper than fossil fuels. But they had to be close enough that the regulatory or pricing lift was not that great economically or politically.
By the time that Meyer wrote his essay, in the early days of the Biden administration, these ideas had become common currency among Democratic policy-makers and mainstream climate advocates. But along the way, the concept also subtly changed. In its early iterations, the idea had been that subsidies and other policy support for clean energy technology would be temporary. Various factions engaged in these efforts waged a long running debate about the merits of innovation versus deployment. But both sides of that debate, up through around 2018 or so, viewed the point of these policies as being to drive down the real cost of clean technologies such that they no longer required subsidies or other policy support to compete with fossil fuels.
That all changed after the 2018 election, which brought Alexandra Ocasio-Cortez and her Green New Deal to Congress. The Green New Deal meant many things to many people. But above all else, it was big, it was Keynesian, and it would be the alternative to the neoliberalism that, in the eyes of many progressives and environmentalists, had failed both the Democratic Party and the climate over the previous generation. Spending a lot of money was, arguably, the entire point. No longer was the objective to spur sufficient innovation to assure that low carbon technologies could compete with fossil fuels. It was to spark a brute force transformation of America’s energy economy which, along with saving the climate, would assure full employment and racial equity.
After 2018, making clean energy cheap was out and industrial policy was in. Democratic presidential aspirants jockeyed for who could propose the most outlandish spending plan to build the clean energy economy, with Bernie Sanders finally ending the bidding war with a preposterous $14 trillion proposal. Joe Biden, comparatively at least, kept his powder dry, proposing only a pedestrian $1.7 trillion Build Back Better proposal. But that proposal was still roughly 30 times more than the $60 billion that Hillary Clinton proposed to spend in her climate and clean energy program four years earlier.
Advocates still insisted publicly that solar, wind, and electric vehicles were the technologies of the future and were well on their way to being cheaper (and better) than fossil fuels. But there was no longer any stopping mechanism to the subsidies and industrial policy. The IRA tied the sunset of tax credits to deep reductions in US emissions, allowing the administration to claim that investments would allow the US to hit its emissions commitments under the Paris agreement. At the same time, the Biden administration was determined not to make the same mistake as the Obama administration, which shorted its stimulus spending after the financial crisis for fear of blowing up the deficit, while the progressive wing of the party had come under the sway of so-called modern monetary theory. Democrats, as a result, couldn’t spend too much money on clean energy.
The policy arguments for unfettered federal clean energy spending, in turn, begat a political strategy which argued that if the Administration was able to deliver the goods, in terms of factories and jobs in key Congressional districts around the country, those districts would reward Democrats by electing them to Congress. Even if they didn’t, Republicans from those districts would have strong incentives to keep the federal clean energy spending flowing in the event that control of Congress and the presidency changed hands. The maximalist policy and spending strategy and the maximalist political strategy, in other words, were self reinforcing and gave Democratic partisans license to ignore any notion of negotiating policy with Republicans or constraining costs. Instead, Democrats believed that pursuing these policies to the maximal extent would make it more likely that Democrats would retain control of Congress while making it much more difficult for Republicans to repeal the IRA in the event that Democrats didn’t.
Unfortunately for Democrats and their climate agenda, almost every assumption that underpinned this strategy turned out to be wrong. The IRA’s big infusion of federal spending, coming on the heels of the Chips Act, the IIJA, the American Recovery Plan, and enormous pandemic relief spending in the last year of the Trump administration jacked up the deficit and exacerbated inflation. The lessons of the Obama stimulus after the financial crisis turned out to be exactly the wrong lessons for pandemic recovery. Contra modern monetary theory, big federal deficits contributed to a big run up in inflation, just as conventional economic theory has long suggested.
On the ground, Democratic fealty to proceduralism, environmental review, environmental justice and organized labor handcuffed the Administration’s ability to deliver IRA goods to districts quickly. In an election dominated by concerns about inflation, energy costs, and immigration, it probably wouldn’t have mattered anyway. And in a reconciliation negotiation that hinged on partisan budgetary priorities, things like the SALT deduction and preserving Medicaid benefits proved higher priorities for Republicans in swing districts that had benefited from IRA spending.
Ironically, if unsurprising to anyone who hadn’t spent the prior four years talking up the Democrats’ industrial policy strategy, it was programs enacted with Republican support through the CHIPS and IIJA laws that survived the reconciliation onslaught largely intact. What ultimately mattered was that Republicans had skin in the CHIPS and IIJA games, not IRA pork in their districts.
Energy Dominance or Libertarian Purity Tests?
As the reconciliation process moves to the Senate, Republicans face their own strategic test. Trump and Republicans propose to christen a new era of American energy dominance. Rhetorically, this has mostly entailed oil, gas, and nuclear energy. Republicans have had little to say about geothermal, hydrogen, and carbon capture and have been actively hostile towards wind, solar, and electric vehicles.
US electricity demand is growing rapidly, with much more on the way as new energy intensive AI data centers come on line. Since last fall, natural gas prices have risen while crude oil prices have fallen. This combination creates a problem for US oil and gas production. Much of US natural gas production is a byproduct of oil production, most especially in the Permian Basin, which has driven much of the increase in US oil and gas production in recent years. “Associated gas” now accounts for about 40% of US natural gas production. Meanwhile, US oil production is often relatively high cost, again especially in the Permian Basin. So while low oil prices are good for US consumers, they are bad for US oil producers, who can’t compete with lower cost producers in Saudi Arabia and elsewhere when oil prices drop below around $60 per barrel.
Low oil prices, for this reason, are increasingly problematic for US gas production and the electricity sector. When US producers stop drilling for oil in places like the Permian Basin, gas production drops as well. And while there is plenty of cheap oil to import when domestic production drops due to low crude oil prices, there is no similar substitute for domestic gas production, a problem that is further exacerbated by the big buildout of gas export facilities that the US is in the midst of. The US is currently exporting about 10% of domestic natural gas production. But it has approved facilities sufficient to export as much as 40% of US production slated to come on line by the end of this decade.
For many clean energy advocates, and Democrats, the answer to rising natural gas and electricity prices is wind and solar. But Republicans rightly worry that high wind and solar penetration on electricity grids undermines reliability and increases costs even when the wind and solar generation itself is relatively cheap. Wind and solar undermine the economics of firm generation sources like nuclear, coal, and geothermal but grids still need a lot of those firm resources to assure reliability. As a result, most places with high shares of variable renewable energy also have high electricity prices.
So the question for Republican policy-makers is how to assure affordable and reliable electricity for the United States in an era of rising electricity demand and high natural gas prices, especially if they do not want to continue to subsidize the deployment of mature renewable energy technologies. Nuclear has been an obvious answer. But large conventional reactors, as Adam Stein and I demonstrated last fall, are limited by a variety of logistical and institutional constraints while small modular next generation reactors are a nascent technology.
The Trump administration has issued a series of executive orders calling, among other things, for ten new large reactors under construction in the United States by 2030. It has also unveiled ambitious plans to expedite licensing of small advanced reactors, demonstrate them at DOD and DOE facilities, and sell the power to data centers and other defense critical facilities. But neither a large reactor build out nor the commercialization of next generation small reactors is likely viable without substantial public support.
Westinghouse (the sole vendor for large reactors in the United State), large traditionally regulated utilities that would build large reactors, and state public utilities commissions that would approve rate increases to pay for new large reactors have all made clear that the economics of these next large nuclear builds don’t pencil out without loan guarantees from the Department of Energy’s Loan Guarantee Office, clean energy electricity tax credits made available by the IRA, and federal cost-overrun insurance. Likewise, commercialization of small, next generation reactors likely depends upon the first two of these programs whether or not the first of a kind reactors are built on public land and approved by DOE or DOD instead of the NRC, as the recent Trump Administration executive orders allow.
If Republicans in Congress are committed to assuring US energy dominance and hedging against high natural gas prices with nuclear energy, in other words, they are going to have to pay for it. Instead, the version of the budget reconciliation that passed the House last week would cut the loan guarantee program and phase out the tax credits that the administration's nuclear ambitions are predicated upon.
These cuts have been taken in the name of reducing federal spending and repealing partisan federal clean energy reconciliation spending and justified by libertarian arguments about letting the free market determine the mix of energy sources and technologies. But the new Republican Party, the one committed to energy dominance, has considerably less fealty to the latter principle and the Trump administration's expansive nuclear executive orders are explicit recognition that the federal government will need to have a heavy hand in the effort to revitalize America’s nuclear power industry. “Swift and decisive action,” the order reads, “is required to jumpstart America’s nuclear energy industrial base and ensure our national and economic security.”
The House version of reconciliation does not, at present, reflect these priorities. But prominent Republicans in the Senate have already signaled that this is an issue that will need to be addressed. Doing so need not significantly increase spending or accede to forever subsidies for mature wind, solar, and electric vehicle technologies. As we demonstrated recently, simply sunsetting the IRAs technology neutral clean energy subsidies based on grid penetration instead of emissions targets (as is currently the law) or arbitrary dates for all technologies (as per the House reconciliation bill) saves virtually the same amount of money while providing critical support for advanced nuclear energy and other early stage technologies such as geothermal that the US is likely to need, at the very least, as a hedge against high natural gas prices.
One Big Beautiful Bipartisan Energy Policy?
The wild swings of energy policies from Democratic to Republican administrations beg the question of whether the United States is capable of sustaining any coherent energy policy, whether in service of climate mitigation or energy dominance. And yet, despite all of that political and policy volatility, the US over recent decades has both managed to sustain a significant and consistent rate of decarbonization while establishing its energy economy as the envy of much of the world. America is a global fossil energy superpower. Despite decades of stagnation, it still operates the largest nuclear fleet in the world. It has ample, developed hydroelectric resources. It trails only China in installed wind and solar capacity and generation and is at the forefront of geothermal energy technology.
Democratic aligned modeling shops like Princeton’s REPEAT project and Energy Innovation have, in recent weeks, produced modeling suggesting that the repeal of the IRA will result in rising greenhouse gas emissions and electricity prices. But these sorts of projections are best taken with a grain of salt. The same modelers, after all, produced wildly overstated estimates of emissions reduction benefits from the IRA after its passage. Within a year of publication, all of those estimates were revised downward very significantly. As R Street’s Devin Hartman recently noted, the US Energy Information Agency’s renewable energy projection for 2025 is closer to its non-IRA renewable energy baseline from 2023 than its IRA-inclusive projection from that same year. EIA’s short-term projection for 2025, meanwhile, anticipates that nationwide electricity generation from wind and solar will fall short of post-IRA projections from REPEAT and Energy Innovation by around 30%. Regulatory obstacles, transmission, and interconnection issues, as Alex Trembath and Juzel Lloyd demonstrated last year, will be much more determinative of renewable energy deployment over the coming decade than IRA subsidies.
So the partisan rollback of the IRA is likely to be no more consequential in terms of short term emissions and energy prices than was its partisan passage. By contrast, the energy policies that account for America’s long term decarbonization—the build out of substantial nuclear and hydroelectric generation capacity in the post-war era, the development of shale gas and the coal to gas transition, and most recently the scale up of wind and solar—were largely done on a bipartisan basis in service of a variety of economic, environmental, and geopolitical concerns.
Yet, despite accounting for the lion’s share of energy system decarbonization over the last 60 years, federal policies promoting hydro, nuclear, and natural gas were all consistently opposed by the environmental community. Indeed, federal energy policy partisanship over the last generation has almost entirely been due to the capture of the Democratic Party, and particularly Democratic energy policy, by the environmental movement, which led Democrats to embrace the so-called soft energy path - the notion that the United States could meet its energy needs entirely with variable renewable energy, energy efficiency, and energy storage. This led Democrats to turn first against nuclear energy and then against natural gas while single mindedly elevating climate change and implausible emissions targets as the central objective of Democratic energy policy.
That posture began to shift over the course of the Biden administration. The administration and Democratic Congress largely reversed the party’s long standing skepticism about nuclear energy, recognizing its environmental benefits and reliability. In the face of inflation and rising energy prices, many Democrats learned to love oil and gas production. And as the effort to scale wind and solar increasingly ran up against environmental regulatory obstacles, many Democrats began to dabble in permitting reform.
In the wake of the election, all of those trends have accelerated. A civil war within the party, between Abundance and progressive environmental factions is well underway, driven in significant part by major differences over the party’s posture towards nuclear, natural gas, and permitting reform. Many elected Democrats, meanwhile, have figured out that the party won’t make much progress with working class voters until it is perceived to be for Big Ass Truck and against internal combustion vehicle bans.
So a return to bipartisan energy policy along these lines might not be as far off as it seems. Whether done under the banner of Secret Congress, Quiet Climate Policy, or something else, a Democratic Party that was pro-nuclear and pro-natural gas, that got serious about removing the regulatory obstacles to meeting growing energy demand and building infrastructure, and that abandoned the pursuit of arbitrary and unscientific temperature and emissions targets in favor of achieving climate co-benefits through sustained investment in energy innovation and infrastructure is one that could once again do business with Republicans on a lot of energy policy.
Trump and Republicans will, of course, need to be open to such an outcome. And while there will be much in the Republican reconciliation package, outside of energy and the IRA, that most, if not all Democrats will oppose, Republicans have choices to make on how they roll back the IRA that will make future collaboration with Democrats more or less likely. One way or another, Republicans are going to take a pound of flesh out of the IRA via budget reconciliation. But how they do so matters and may prove determinative not only of the possibilities for future bipartisan energy policy but also for Republicans’ Energy Dominance aspirations. Assuring that America will be an energy superpower, not just an oil and gas superpower, will require sustaining federal support for nascent energy technologies like advanced nuclear energy while rolling back costly, dirigiste policies single mindedly aimed at climate mitigation. Doing so can lay the groundwork for cheap, clean, abundant energy for many decades to come.