Trump(ed) Again: Will the Fraying Global Coalition to Combat Climate Change Survive the Shock?

"With America first, it seems the world must come last."

The people have spoken!!!

Donald Trump & the Republican Party have returned to office in the US, with a thumping majority in Presidential, House and Senate races on a mostly ′climate denial ′ and ′anti-energy transition′ platform. Combined with a conservative-leaning Supreme Court that recently struck down the ′Chevron Doctrine′, it is a perfect storm for efforts to prevent climate change ... OR IS IT?

The Reaction: Fossil Fuels Gain, Renewables Retreat

Following Trump’s victory, markets reacted decisively. Fossil fuel shares, including ExxonMobil and Chevron, surged, adding over $60 billion in market cap, while renewable shares, such as Orsted and Siemens Energy dropped by as much as 10%. Given Trump’s actions in his first term, this was not unexpected.

Many market participants, policymakers, and environmental leaders I spoke to in the last two days are still reeling from the shock. It was unexpected for many, but as I had highlighted in my earlier notes in the year, it was within the realm of possibility, with odds more in favour than against. The recent signs, especially ESG & Renewables pullback, and a lean-in on fossil fuels were already suggesting that financial and energy companies were betting on it.

The Global efforts to combat Climate Change were already fraying, with a series of setbacks since COP28, from global emissions growing, ESG pullback, right leaning opposition to climate change. However, is it ready for this shock? Let′s explore.

Trump’s First Term: An Anti-Climate & Pro-Fossil Story

During Trump’s initial presidency, his administration took it upon themselves to dismantle several environmental regulations and advance fossil fuel production. These included:

Withdrawal from the Paris Agreement: Trump pulled the U.S. out of the flagship Paris Agreement, undermining global climate accords and commitments.

EPA Rollbacks: The Environmental Protection Agency (EPA) regulations were rolled back on emissions limits for power plants, air quality standards, and clean water regulations, with 100+ environmental protections being removed or weakened.

Vehicle Emissions Standards: The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule reduced fuel efficiency requirements, stalling emissions reductions.

Methane Regulations: in the oil and gas sector were loosened, allowing increased emissions of this potent greenhouse gas.

Offshore Drilling Leases: Trump reinstated offshore oil and gas leases, including opening federal waters off Alaska and the Atlantic coast.

Public Land Drilling: Federal lands were opened to extensive drilling, impacting ecologically sensitive regions.

National Oceanic and Atmospheric Administration (NOAA): Trump proposed privatizing parts of NOAA, reducing climate research and limiting resources for weather predictions.

In the meantime, while some Offshore Wind Approvals were stalled, the production tax credits and incentives for Onshore projects were maintained. These resulted in wind installations growing by 45% and solar by nearly 100% during the term. Furthermore, many of the proposed EPA law changes were later struck down by courts.

In Biden′s term that followed, the US stepped forward with the Inflation Reduction Act with $370bn+ of giveaways to encourage renewable projects and supply chain development. At the same time, the Biden administration continued Trump's policies on supporting Oil and Gas production (especially after the Ukraine war), with US Oil and Gas production and exports now at record levels.

New Trump Administration - Expected Policy Shifts

Trump’s anticipated policies, based on his previous term′s record and campaign statements, point to a continuation of anti-climate policies. While there is, in most cases, a gap between what politicians promise before the election and what they execute after, the gap for Mr Trump in his first term was much wider. However, most expect this gap to be narrowed this term as the incoming administration has demonstrated a strong capability to organise and execute. Therefore, the base case is more alignment between rhetoric and action.

THE DOMESTIC IMPACT

Offshore Wind has been a prime target of Mr. Trump′s campaign, with clear statements indicating that he will cancel/ stop projects. However, existing projects that have secured federal approvals are likely to remain unaffected due to the potential risk of claims and litigation from those affected. However, many projects that are still awaiting BOEM/ Federal leases and permits are at risk of delays or cancellations, many of whom may be located in deep Blue (Democratic)states.

Solar & Onshore Wind projects are generally State Government led and difficult for Federal Government to intervene in. Trump is, however, expected to impose additional tariffs on imported solar panels and wind turbines (components), particularly those from China, raising costs and reducing competitiveness. Additionally, some federal production & investment tax credits included in the Inflation Reduction Act may be rolled back or eliminated. The likelihood of the latter is low as many projects and production facilities are in deep Red (Republican) states.

Electric Vehicles (EVs): While Trump has threatened (Federal) Tax Credit Elimination, based on his first term record and that Elon Musk may be a part of the Government it is unlikely to happen. Many of the dynamics of Red states also apply.

Batteries from China are likely to suffer, and Trump has indicated plans for heavy tariffs on EV components sourced from China, disrupting supply chains and increasing costs for American EV manufacturers.

Oil and Gas Exploration is likely to experience an expansion with Trump’s “energy dominance” agenda promoting expanded drilling on federal lands, loosening restrictions and reducing environmental safeguards.

LNG Exports are likely to boom with the new administration’s overturning Biden’s decision to stop new LNG project development for exports. This is likely to boost domestic gas production and prices.

Pipeline Infrastructure is likely to be fast-tracked such as Keystone XL, by reversing Biden′s decision and reducing environmental review requirements. However, it remains to be seen whether the project will materialise despite these exemptions.

EPA Powers: The EPA’s regulatory power is likely to be curbed and many of the 100 or so changes that were rejected by the courts on pollution controls, higher emissions factories, and vehicles from his first term may be passed through legislation.

Methane Penalties Removal: Trump is expected to cut penalties for methane leaks, giving oil and gas companies more leeway in operations and contributing to rising greenhouse gas emissions. However, it is expected that commitments made by especially Oil Majors and large fossil companies in their ′Methane Emissions Pledge′ are likely to be honoured reducing the impact.

Inflation Reduction Act (IRA) Reversal: Trump has vowed to dismantle the IRA and remove key incentives for renewable projects. However, the major alignment of benefits of the IRA in Red states, and many of the IRA provisions benefiting Oil and Gas Companies (CCS/ Hydrogen) suggest that many of the provisions may be retained with some watered down.

Despite Trump’s expected federal rollbacks, we may continue to see sustained renewable growth in the US. Economic and cost momentum for renewables, a strong pipeline of projects under development, and State and corporate commitments provide a partial counterbalance. Key states like California and New York, which have independent renewable energy targets, are likely to maintain their direction. Additionally, private sector champions, including Elon Musk, may oppose any harsh measures that may impact trajectory helping soften some of the policy blows.

THE GLOBAL IMPACT

Trump’s climate policies, however, risk undermining the global progress and coalition on climate change, creating a ripple effect that may go well beyond the carbon emissions in the US.

Strengthening the ′Anti-Climate′ Lobby: Withdrawal from climate agreements, strong concerted action and advocacy by the US is likely to embolden others, especially closeted Fossil Fuel advocates. It may also strengthen the momentum building in Europe against Climate change in right-leaning parties, increasing pressure on EU to dilute commitments on carbon emission reduction and costs. This, in my view, is the biggest risk the Global Coalition faces.

Global Climate Finance: Trump’s expected resistance to climate finance contributions will leave developing nations without crucial funding for transition, adaptation and resilience, stalling climate action. This will likely delay the energy transition in LDCs and entrench fossil fuel eco-systems.

China-U.S. Climate Tensions: The breakdown of U.S.-China climate collaboration may stall emission reduction efforts between the world’s two largest emitters. However, in the near term, limited change is anticipated in China′s domestic policy posture as it may remain a major player in renewables to support its homegrown industry and reduce reliance on imported fuels. However, New tariffs on Chinese imports in the US (and if Europe goes along with it) may increase costs and disrupt supply chains for solar panels, wind turbines, and batteries, making green technology deployment more costly worldwide and dampening progress.

EU & UK′s Carbon Border Adjustment Mechanism (CBAM), a key decarbonisation tool, was already facing U.S. opposition and may see that resistance get stiffer. There is a risk that the EU may be forced to delay or rework its implementation to avoid strains on EU-U.S. relations landing a strong blow to the concept of global Carbon Taxes.

Ukraine-Russia war, which Mr Trump has claimed he can resolve before he is inaugurated in office, may likely loosen the oil and gas market, resulting in a drop in prices and reducing incentives to accelerate climate change.

Can Europe and the Rest of the World Play a Role in Sustaining Climate Leadership?

Trump’s return to the White House puts more pressure on Europe, the UK, China, India and other committed nations to lead in climate action. However, economic and geopolitical challenges, such as the energy crisis, inflation, tariff threats and the Ukraine conflict, may constrain their ability to counterbalance the US. As they say, if ′the US sneezes, the World catches a cold,′ the US is likely to more than sneeze on climate after the election.

However, to uphold climate commitments and drive international efforts toward the 1.5°C target, the current climate coalition (sans potentially the US) may have to carry the weight while the US figures itself out. This is not too different from when Mr Trump was last in office when the rest of the world pushed for global renewable capacity expansion.

Conclusion: A New Era of Climate Uncertainty

Trump’s presidency may delay U.S. climate action, obstruct global climate progress, and weaken alliances at a critical moment. Yet, market forces, state-led policies, and corporate and international partnerships have helped maintain momentum in the past, even when the US has shifted priorities.

Trump’s potential shift in US policy will be a setback. However, we need to remember that climate actions are long-cycle efforts. The current pipeline of activity in the US is strong enough to maintain momentum and not substantially alter the near-term trajectory. However, changes in US policy in this term may have long-range impacts beyond his term ending 2028.

The climate change coalition may only survive if the rest of the world acts in unison as it has done before. The global fight against climate change is hanging in the balance.... but most countries are in a good place, including here in the UK, where the National Energy System, in its report on Monday, confirmed that achieving complete decarbonisation of the power system by 2030 is possible.

The outcome of COP29, starting next week in Baku, Azerbaijan will be the first test of this resolve and a clear sign of whether the world is ready to take the challenge.

As Jack Ma said, ′Today may be hard, Tomorrow may be worse, but the day after Tomorrow, the sun will shine!′