Balancing on a Net-Zero & Tariff Tightrope - Getting Across the FID Line

The Inflation Reduction Act (IRA) spurred major investments in renewable fuels, carbon capture, and other low-carbon technologies, driven by expectations of strong returns through tax credits and subsidies. At the same time, Trump-era tariffs have added pressure to project costs and disrupted supply chains. Now, with subsidies and incentives in question, the economics and financial viability of many low-carbon projects face significant headwinds.

Against this backdrop, last year at ESF North America this panel explored predictions and expectations for current and future low-carbon investments, the impact of tariffs on project costs and supply chains and the financial outlook for projects in the absence of subsidies and incentives. Read below some of the key takeaways from the discussion.

1. First-of-a-kind project risks – especially in hard-to-abate sectors, there’s no blueprint or precedent, so risk is inevitable. Most projects don’t fail for technical reasons; the challenge is commercial. Some risks are outside our control, like tariffs or shifts in government funding, which introduce volatility. The key is controlling what we can and bringing that risk inside acceptable limits.

2. A three-year window of uncertainty – The Bipartisan Infrastructure Law and the Inflation Reduction Act promised billions in grants, loans, and tax incentives, but accessing those funds hasn’t been straightforward. Qualification processes such as wage requirements, hydrogen credit criteria, and carbon intensity thresholds have been slow. Without clarity, companies have struggled to confidently build incentives into cash flow models and have delayed final investment decisions (FID).

3. Capital allocation is at the core – ultimately, where investors choose to put their money and their risk-reward threshold. Reaching FID requires sufficient technology and commercial de-risking. In recent years, neither has been fully in place, making progress difficult.

4. Spending money to make money – is a major challenge, particularly for first-of-a-kind projects where no one wants to be “serial number one.” Investors need certainty on returns. Ongoing uncertainty around incentives and potential clawbacks makes it difficult to commit capital.

5. Has the tariff train left the station? – For projects already in execution, tariff impacts are largely locked in. For earlier-stage projects, companies can still adapt by sourcing differently or reassessing geography.

6. Cost of production – Lowering production costs remains critical. Like conventional refining, innovation will gradually improve efficiency, flexibility, and margins, but it will take time.

7. You can’t scale talk – Projects must move forward to generate learning. While full certainty isn’t required, there must be enough confidence that projects won’t result in losses.

8. Opportunities that span state lines – Regional initiatives such as cap-and-trade systems and clean fuel standards are driving investment hotspots, particularly on the West Coast and in Canada.

9. Faster than federal – States like Wyoming and Louisiana are actively attracting investment through aligned policies and faster permitting processes, particularly in carbon sequestration.

10. Canadian competition – Canada remains a strong competitor, offering easier access to funding and collaboration opportunities.

11. Unsubsidized pathways reaching FID – Viable unsubsidized projects require creativity in both technology and commercial strategy, including smart site selection and leveraging regional advantages.