Renewables under Trump: what to expect

The following is an extract from our 2025 global outlook.

Pre-election rhetoric left little room for doubt regarding the incoming president’s view of pro-climate policies, with Trump promising to “terminate” funding for what he called the “Green New Deal”.

In contrast, we believe the eventual impact of the Republican administration on the clean energy market will be highly nuanced.

The details will matter, of course. Still, there are practical as well as political complications that could significantly blunt Trump’s stated ambitions.

The Inflation Reduction Act

The 2022 act has served as a potent source of capital for renewables in the US via federal investment, loans and tax credits. It’s widely seen as the headline risk to renewables under the incoming government. Yet there are good reasons to believe the act may survive.

The Republicans’ slim majority in the House will make a full repeal difficult. Yet the greatest source of resistance may come from within the party, as noted by Emiel.

It’s been estimated[1] that 70% of manufacturing jobs created under the act are in Republican jurisdictions and 80% of new clean energy projects worth over $1 billion are in red districts[2], making removal of investment potentially unpalatable.

Additionally, 18 House Republicans have signed a letter to the speaker stating that, “A full repeal would create a worst-case scenario where we would have spent billions of taxpayer dollars and received next to nothing in return”.[3]

The outlook for EVs

Emission requirements on new vehicles is an area where Trump can bring about change by targeting the Department of Transportation’s Corporate Average Fuel Economy Standards and the Environmental Protection Agency’s greenhouse gas emissions standards.

However, there are once again complicating factors that make the eventual impact on the electric vehicle (EV) sector harder to judge.

If it becomes clear that the EV tax credit is at serious risk, consumers may bring forward EV purchases before the incentive expires, leading to a near-term spike in sales.

Tesla* CEO Elon Musk’s proximity to Trump further clouds the picture. One possible scenario is that the decision to buy an EV may become increasingly depoliticised, with partisan preferences expressed by customers choosing particular marques of EV.

What to watch in the near term…

While all eyes are now on Trump, it’s worth remembering that the Biden administration still has a meaningful window in which to deploy funds under the current policy regime. Precedent suggests[4] previously committed funding may be ‘safe harboured’ when the Republicans take power.

The first few months under Trump will also shed light on how much rhetoric might translate into reality.

Laxer emission requirements for new cars could be enacted quickly, while the actions of Congress will provide an indication on the extent to which the Inflation Reduction Act might be repealed. The longer it takes, the more likely it will remain in one form or another.

… and the long term

As the dust settles over the coming months, it’s worth remembering the long-term fundamentals that support the clean energy theme, which investors can access via both clean energy equities and the commodities needed to enable the transition to net zero.

Beyond fluctuations in levels of policy support, the economics of clean energy is transforming how the world gets its power. It’s estimated that renewable power deployed globally since 2000 has saved $521 billion in fuel costs in the electricity sector.[5]

Ultimately, we believe economics provides an argument for renewables that will prove increasingly difficult to oppose – regardless of ideology.

We anticipate heightened volatility in the sector as we await clarity on the new administration’s plans. For tactically minded investors this could create opportunities. For investors with a longer-term mindset, we believe the transition to clean power continues to be a fundamentally compelling theme with a clear economic rationale.

The above is an extract from our 2025 global outlook. 

 

*Reference to a particular company and/or the securities which it issues is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The information does not constitute a recommendation to buy or sell any security

[1] Source: Renewable energy growth 'likely to continue' under Trump despite proposed wind power ban
[2] Source: https://www.schroders.com/en-sg/sg/wealth-management/insights/2024-us-election-outcome-implications-for-investors/
[3] Source: It’s not just Democrats. Republicans are working to Trump-proof their climate money | CNN
[4] Source: Treasury, IRS extend safe harbor for renewable energy projects | Internal Revenue Service
[5] Source: https://www.irena.org/News/pressreleases/2023/Aug/Renewables-Competitiveness-Accelerates-Despite-Cost-Inflation