There are excellent arguments to believe a second Trump presidency would not have the negative implications for clean energy that his rhetoric would suggest

As the 2024 United States presidential election approaches, the possibility of a second Trump presidency has sparked uncertainty and concerns within the clean energy industry. The general perception is that Donald Trump’s return to the White House would be detrimental to the outlook for clean energy. Our research indicates that the reality is more nuanced than it initially appears with a probability of some unexpected positives.

Negative perceptions

Reversal of favourable clean energy policies

The market perceives that a second Trump administration would reverse many of the clean energy-friendly policies implemented under President Biden. Key amongst them, is the fear that he would abolish tax incentives and subsidies provided by the Inflation Reduction Act (IRA), a move that could slow down the momentum in renewable energy investments.

Greater support for emissions intensive industries

Trump’s energy strategy would be expected to prioritise fossil fuels over renewables, expanding drilling and lifting restrictions on oil and gas extraction. There is concern that his administration might also roll back environmental regulations, reducing pressure on greenhouse gas emissions intensive industries to adapt, decelerating in the energy transition.

Withdrawal from the Paris Agreement

Should he be elected, Trump has already signalled his intent to withdraw the United States from the Paris Climate Agreement, thereby isolating the United States from global initiatives as well as international efforts to reduce greenhouse gas emissions.

The more likely reality

Despite these concerns, several factors suggest that the impact of a second Trump presidency would not have the detrimental effect on clean energy that has been feared.

Economic realities

The clean energy sector has become increasingly competitive, with significant cost reductions in technologies such as solar, wind, stationary energy storage and fully electric transportation. Additionally, major industries, including AI and data centres, are increasingly reliant on renewable energy and storage to meet growing electricity demand. Disrupting this trend is likely to have negative economic implications, suggesting that Trump would be unlikely to dismantle these policies.

State-level momentum

Much of the clean energy progress is happening at the state level, especially in Republican-led states that have benefited and are expected to continue benefitting under the IRA. These states would be unlikely to support a full-scale reversal of clean energy incentives that have brought jobs and economic growth to their regions.

Corporate-level momentum

Large corporates are increasingly feeling the pressure to be responding appropriately to the challenges of the energy transition. It seems unlikely that many would reverse their approach and risk community and consumer criticism.

Difficulty in reversing the IRA

Even with Republican control of Congress, rolling back the IRA would be a complex and time-consuming process. By the time any significant changes could be implemented, Trump’s second term may well have ended, allowing clean energy’s momentum to continue in the interim.

Unexpected positives

Interestingly, we believe there is a probability of some unexpected benefits for clean energy under the scenario of a second Trump presidency. This will be driven by his focus on US competitiveness relative to China in critical industries. Chinese innovation has outpaced that of the United States and the rest of the world in future energy industries including solar, energy storage, and electric vehicles, with China now dominating global markets in these industries. To counter this, we believe Trump would be likely to continue the push for increased domestic (and free trade partner nation) production and innovation, benefiting clean energy industries in the United States and its allies.

Extraordinary contradictions under presidents Trump and Biden

The contradictions between Trump’s rhetoric and actions during his first presidency underscore the complexity of predicting the potential impact on clean energy, if he is elected a second time. During the first Trump presidency, despite all the negative rhetoric, the United States saw significant increases in installed solar (installed capacity more than doubled) and wind capacity. Further, there is an excellent argument to suggest that market forces and state-level, corporate and consumer behaviour would continue to drive clean energy growth regardless of federal policies and rhetoric.

Equally, despite President Biden’s strong support for clean energy, his policies have had an unexpectedly positive impact on the domestic oil and gas industry. For example, few would have expected measures from his administration which included encouraging increased domestic production, approving new petroleum leases and permitting of oil and gas infrastructure projects.

Together, these examples highlight that energy policy is rarely fully in favour of one aspect over another, despite the rhetoric and resulting public perceptions.

A compelling entry point into clean energy?

The clean energy sector has faced headwinds due to rising interest rates which has compressed valuation multiples (we have reported on this in detail in a separate article). With the prospect of interest rate cuts on the horizon, the macroeconomic environment is becoming much more favourable for the industry. Occurring in parallel with the temporary uncertainty surrounding the presidential election in the United States, this presents an even more attractive entry point for investors looking to capitalise on the opportunity in clean energy at the end of its downturn which was driven by the macroeconomic cycle.

We will be monitoring the situation in the lead up to the election on the 5th of November and will report on any developments which are impactful for clean energy and its supply chains.