Climate activists will surely be disheartened by many coming headlines about Trump turning a warming planet’s thermostat even higher. But Trump won’t be quite the wrecking ball his rhetoric might suggest. The green energy transition now has inertia that an adversarial American president might be able to slow a bit but will not be able to reverse.
Many forces will propel the advance of low-carbon energy through Trump’s second term and beyond.
States and municipalities report strong demand from businesses and consumers for renewable energy on their grids. Hundreds of billions of dollars of green energy incentives Biden signed into law are benefiting red states more than blue ones. That means they're likely to remain on the books. Businesses and their investors see green energy as a fast-growing industry of the future, and they want in. A surge in green energy investment under Biden could even fulfill Trump’s desire for more domestic manufacturing as plants under construction start to come online and hire American workers.
“Capital is flowing into the energy transition, and it’s flowing at an accelerating rate,” Michael LaMotte, senior managing director of the Energy and Power Group at Guggenheim Securities, said at a recent conference at the Dallas Federal Reserve. “Given the success of this flow of capital, it’s going to be really hard to monkey with this policy.”
Trump is promising some “day one” moves to demonstrate his commitment to fossil fuels and his disdain for green energy. He may quickly reverse some Biden policies, making it easier for energy firms to drill on public land and export natural gas. He will likely withdraw the United States from the Paris climate accord, as he did during his first term. (Biden brought the United States back.) Trump is also likely to push Congress to repeal some or all of the green energy incentives Biden signed into law in 2022.
Trump’s impact on actual energy markets, however, is likely to be incremental and perhaps ephemeral.
Start with drilling. Energy firms will certainly welcome Trump’s lighter regulatory touch, but they don’t want to “drill, baby, drill,” as Trump hopes. US oil and natural gas production has already reached record highs under Biden, with prices in a moderate range that allows healthy industry profits without withering consumer backlash. The additional barrels Trump wants to drill would mean lower prices and smaller profits.
Energy prices were lower during Trump’s first term because many drillers overproduced. Energy profitability was the worst among 11 industry groups, culminating in a financial bloodbath in 2020, when the COVID pandemic struck, demand collapsed, and drillers lost gushers of money. Few firms are willing to risk overproducing today.
Big energy firms, whatever their past sins, also know that climate change is real and that global oil demand will peak and start to taper off during the next 10 to 15 years. Oil giants such as Exxon Mobil (XOM) and Chevron (CVX) are investing in new technology such as carbon capture, which removes carbon from the atmosphere, and green hydrogen, a possible future source of emission-free power. The green energy transition is global, with hundreds of billions of dollars in future profits at stake. American businesses want their share.
The green energy incentives Biden signed into law in 2022’s Inflation Reduction Act were meant to speed the pathway to renewable energy and establish US dominance in key technologies. The law passed Congress with zero Republican votes. Republicans have tried to repeal all or part of the IRA at least 54 times. So once they have full control of Congress and the White House next year, they’ll kill the IRA straightaway, right?
Not even close.
It turns out that the majority of green energy spending unleashed by the IRA is flowing to Republican states and districts. The map below shows all green energy investments, from every source, for the last 12 months as a percentage of state GDP. Of the top 10 states — Wyoming, Nevada, Arizona, Georgia, New Mexico, Kentucky, North Carolina, South Carolina, Texas, and Maine — eight went for Republican Donald Trump in this year’s presidential election.
In dollar terms, ruby-red Texas has drawn $13 billion of investment during the last year in solar power alone, according to the Rhodium Group/MIT CEEPR Clean Investment Monitor. That’s four times as much as No. 2 California. Texas is a solar hotspot for several reasons. One, it gets a lot of sun. But solar is also an important source of power for remote fossil fuel drilling operations in West Texas. And power-hungry data centers require “all of the above” energy solutions drawing on every available source.
Georgia has become a clean energy hub largely because of rapid data center growth. Kentucky is replacing coal jobs with solar ones. The “battery belt,” which provides batteries for electric vehicles, includes plants in traditional Rust Belt states but also Kentucky, Tennessee, Mississippi, Alabama, Georgia, South Carolina, and North Carolina. All of these Republican states are cashing in on green energy incentives that not a single Republican voted for.
That explains the recent conversion of some Trump allies.
Eighteen Republican members of the House recently appealed to House Speaker Mike Johnson to keep most or all of the Biden green energy incentives in place. That’s more than enough to block a repeal of the IRA, given Republicans' tiny three-seat majority in the House. “Red states and districts are disproportionately reaping the green money the IRA unleashed,” Beacon Policy Advisors wrote in a November analysis. “There will be intense political pressure to keep the funds flowing and limit the scope of possible changes.”
Not everything will survive. Republicans seem likely to kill tax credits for emission-free electric vehicles, which can lower costs for car buyers by up to $7,500. But those tax credits aren’t as crucial to promoting the technology as they were when EVs were new and consumers were warier.
Trump has bashed EVs, calling Biden’s push for electrification “lunacy.” But his tone has moderated since Tesla CEO Elon Musk became a close adviser. Auto analysts at Morgan Stanley think Trump’s hostility toward green cars will ease further as he realizes that Biden’s effort to domesticate the whole EV supply chain — relocating much of it back from China — fits his America First formulation.
“We struggle with the idea that the incoming Trump Administration, working in close partnership with Elon Musk, would structurally impede US participation in … electrification,” Morgan Stanley argued in a Dec. 10 research note. “What type of manufacturing does the US want to onshore — trailing edge or leading edge?”
"It's going to be really hard to monkey with (his) policy." President Joe Biden in Washington. (AP Photo/Susan Walsh) ·ASSOCIATED PRESS
Trump will probably make a show of eviscerating Biden’s climate plans while rebranding some of them as his own. Markets, in the end, may move in more or less the same direction.
Trump’s plan to pull the United States from the Paris accord, for instance, won’t surprise anybody or do much to change green energy investments big companies are making all over the world. China, for one, might even assert itself as more of a leader on climate change. Half of all new cars in China are electric, compared with just 10% in the United States and 20% in Europe. China is also the world's largest producer and consumer of EV batteries, solar panels, wind turbines, and green-hydrogen equipment, according to S&P Global.
“If Trump were to pull the US out of [of Paris], it would probably be more symbolic than decisive,” climate economist Hamad Hussain of Capital Economics said during a recent webinar. “It could even embolden other countries or US states to redouble their efforts. While Trump may have influence over US policy, he won’t be able to stop the surge in Chinese EV sales.”
One big difference between Trump’s first and second terms is that the green energy transition is now much further along and probably far past the point that policies in any single country could reverse it. Global investment in green energy surpassed that in fossil fuels for the first time in 2016, according to the International Energy Agency. Now, it’s now nearly twice as much.
Research firm Rystad Energy foresees some diversion of green energy investment to fossil fuels under Trump. Before the election, Rystad expected annual green energy spending of about $220 billion in the United States. It has lowered that outlook to a range of $180 billion to $190 billion per year by 2030. But their forecast still calls for global green energy spending to grow from $910 billion in 2024 to almost $1.4 trillion by 2030.
Global warming will continue to worsen, alas, given that current efforts remain well short of what’s needed to keep the planet’s temperature from rising beyond the targets set by international experts. That was likely to happen no matter who won the 2024 US presidential election.
The good news is that carbon emissions in the United States are now declining, and they may be close to peaking worldwide and in China as well. The real question for the next 20 years is whether nations can speed the replacement of carbon fuel with renewables by enough to head off the worst ramifications of climate change.
Trump’s opening bid might slow that process by a bit. But markets have a say, and there’s an opportunity for businesses to influence Trump during the next four years instead of the other way around. Don’t expect him to admit it, but Trump may soon discover that the real lunacy would be trying to stop a business boom that’s going to happen one way or another.
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