Post: Trump election: energy impacts

Trump election: energy impacts

Donald Trump’s victory in the US presidential election has left investors and business leaders across the globe trying to assess what his return to the White House will mean. Previously Trump has promised protectionist trade measures, relaxed regulation and cheaper energy for consumers, but what is likely to be on the cards for the upcoming presidency?

Stock markets, the dollar and bitcoin rallied in the immediate aftermath of his win, while shares in defence companies, prison operators and Elon Musk’s Tesla rose sharply. Meanwhile, renewable energy companies and German carmakers stocks fell. Here, we study the outlook for key industries.

Energy and climate

To achieve a “rapid reduction in energy costs, I will declare a national emergency to allow us to dramatically increase energy production, generation and supply”, Trump said at an August rally in Michigan. The win positions Trump to deliver on his campaign pledges to go after climate policies he’s dubbed the “green new scam” while reorienting the federal government toward increasing domestic oil and gas production and building more power plants.

Trump has previously promised to hand Americans the “lowest cost of energy of any industrial country anywhere on Earth”. His plan includes getting as much oil and gas from the US as possible by removing red tape and opening up federal land for new fracking projects. Trump has said he has plans to “unleash American energy” and “free up the vast stores of liquid gold on America’s public land for energy development.” A Biden administration moratorium on new permits to widely export liquefied natural gas is likely to be revoked, with Trump promising to end that permitting pause his “very first day back.”

The president-elect has repeatedly vowed to “terminate” a suite of EPA rules that aim to reduce emissions from power plants and encourage the closure of units generating electricity from coal, arguing that surging demand from artificial intelligence and manufacturing means the US needs to be building more of the units, not shutting them down. The EPA also is expected to pause work on developing new emission limits for existing gas-fired power plants. Emergency authorities could also be used to accelerate the construction of new power plants and plans for keeping coal-fired electricity online that was developed during his first term could be revisited.

The installation of Trump as the 47th President of the United States raises questions over the future of the Biden administration’s Inflation Reduction Act (IRA), its $400B in new spending and tax breaks that aim to boost clean energy, alongside the 2021 Bipartisan Infrastructure Deal, which committed over $65B for transmission and grid upgrades. Congress isn’t likely to claw back all unspent funding or repeal all of the IRA’s energy and manufacturing tax credits. But lawmakers could target some of the law’s incentives for phase-downs and scale-backs. The Treasury Department is expected to rewrite rules governing which projects and companies are eligible for credits so they are harder to obtain.

For offshore wind, Trump has been critical of the potential impacts on wildlife, and he used a New Jersey rally earlier this year to vow “day one” action targeting the industry. That could take the form of ordering a pause on permitting new projects or selling new offshore wind leases.

However, it is estimated that half of the growth in US renewable energy generation since the turn of the century can be linked to state-level renewable energy requirements. Individual US states have policies in place such as the renewable portfolio standard (RPS) or clean energy standard (CES) that mandate increased production from low-carbon sources. While the definitions of “renewable” and “clean energy” differ from state to state, more than half of US states have these in place – including 15 states setting a target for 100% clean or renewable portfolio requirements, with deadlines ranging between 2030 and 2050.

While President Biden’s negotiators will be at next week’s COP talks in Azerbaijan, nothing they agree to will be binding for the Trump administration. In 2017 Trump announced the US would pull out of the Paris climate agreement, the most important UN process to tackle climate change. But at that time the treaty’s rules meant the US was not able to withdraw until November 2020, a few months before he left office. If Trump withdraws there will be a one year wait before the US can withdraw from the agreement.

Electric vehicles, manufacturing and technology

Trump has repeatedly promised to end a suite of federal policies that encourage Electric Vehicle sales, and his victory creates an opening for changes. A top target is expected to be an Environmental Protection Agency regulation limiting tailpipe pollution from cars and light trucks, which has a mandate that compels automakers to sell far more electric and plug-in hybrid models over time. It is expected that an executive order directing the EPA to revisit the rule will be issued.

There could also be changes to limit which EVs qualify for tax credits as a “leasing loophole,” which exempts leased EVs in commercial fleets from restrictions on where the cars are made, the source of their battery materials and how much money consumers make.

When it comes to global manufacturing and imports, Trump has previously threatened to increase tariffs on all goods imports – and up to 60% and 100% for China and Mexico respectively. These costs would inevitably be passed on to US buyers, raising prices and depressing import volumes. In the longer term, more international manufacturers may try to build US factories. Pharmaceutical, automotive, and chemicals are the most exposed industries because they represent a significant share of European exports to the US.

Technology is a key industry for the US economy and Trump has already signalled support for the cryptocurrency sector. He gave a keynote speech at the annual Bitcoin Conference in Nashville where he pledged to “ensure that the US will be the crypto capital of the planet”. Trump has also indicated that oversight of artificial intelligence will be relaxed.