Trump’s emergence shakes up the global energy board

With Trump’s victory and probable Republican control of the Senate and House of Representatives, two big questions arise that worry the renewable energy sector, according to Christian Rom, lead portfolio manager for DNB Fund Renewable Energy. On the one hand, there is the impact that this new political configuration could have on the Inflation Reduction Act (IRA), a key piece in the United States’ climate strategy, he says. On the other hand, it is considered how the economic policies of Trump and the Republicans could influence inflation and, by extension, the interest rate policy linked to it, comments this expert.

“For now, we do not see increasing risks or uncertainties regarding possible changes to the IRA,” he says. Rom also notes that during the first Trump administration, investment tax credits remained in place thanks to the bipartisan support the program received. Furthermore, the renewable energy sector managed to outperform the MSCI World index in the twelve months following Trump’s first election, demonstrating notable resilience despite the political context.

“Markets are already anticipating a possible relaxation of Joe Biden’s IRA law, which involved large investments in renewable energy,” says Gregor Hirt, global CIO of multi-assets at Allianz Global Investors. “However, as several red states also benefit from these programs, the risk of significant changes is moderate. Furthermore, it is unlikely that the law will be repealed without a Republican majority in Congress,” he adds.

“USA. “It is the world’s largest oil producer and one of the main exporters, a position that may improve if its production increases even more,” says Pedro del Pozo, director of financial investments at Mutualidad. Del Pozo considers that, given the significant overcapacity of production within OPEC, the price of a barrel of oil could fall even furtheras long as there are no geopolitical tensions, although this last scenario seems unlikely. “Cheap oil can have a crowding out effect or, at least, a slowdown in the development and expansion of other alternative energy sources,” he comments.

In this regard, UNEF, the Spanish solar energy association, tells ABC simply that the photovoltaic industry provides the United States with cheap energy that is driving its industrialization and energy independence. “In general, the clean energy sector is in good health in the United States,” emphasizes Norbert Rücker, director of economics and next generation research at the firm Julius Baer.

Rücker notes that the reaction of the renewables market and general sentiment seems more pessimistic than necessary, although he acknowledges that policy uncertainty remains high. In the absence of clear signals or positive news, it maintains a neutral stance.

One of the factors that could slow down the development of energy transition projects in the United States could arise from the effects of the trade war with China. “Trump has made it clear that he sees tariffs as a means to force foreign companies to move part of their production to the United States, so that companies with plants in the country are not affected,” says Juan Figar, founder and managing partner of the management company Collyer Capital.

This may mean a delay in the development of projects, since many of the components included in electric vehicle charging stations or renewable plants come from China. In this sense, it is important to keep in mind that the Asian giant dominates the photovoltaic industry, controlling more than 80% of global manufacturing capacity in all photovoltaic energy production segments, according to the International Energy Agency.

These measures, which in principle will have an effect only in the United States, could also imply a slowdown in other geographies such as Europe. «It is very possible that there will be a certain setback at a global level in the integration of clean energy, derived from the – foreseeable – abandonment of the United States from the Paris Agreements regarding greenhouse gas emissions.

In any case, this global setback is not likely to lead to a slowdown in clean energy production in Europe, which will probably lead to a reallocation of investments in this matter from North America to the Eurozone,” says Pedro del Pozo.

blow to Europe

This impact on the renewable energy sector in the Old Continent would also be connected to the possible effects that European protectionism would have. «Trump has always defended the American protectionismand part of this is reflected in a tougher tariff policy in the United States that would be especially harmful to European exports, since Trump has proposed a 10% tariff on all imports. In the case of Spain, it would affect the approximately 28,000 Spanish companies that export to the North American country,” says Aurelio García del Barrio, director of the global MBA with a specialization in finance at the IEB.

This would imply a lower capacity of European companies to allocate resources to the development of energy transition projects. Furthermore, this challenge becomes even more complex at a time when analysts predict a relationship between the euro and the dollar closer to parity, driven by Trump’s proposed tax cut policies, which could trigger the production of American companies. A more expensive dollar would mean higher import costs for European companies as well.

“As for the dollar, it is expected to strengthen against the euro due to economic optimism in the US and the tariff policy, affecting the competitiveness of European exports and trade,” says Gustavo Martínez, professor of finance at the University Francisco Marroquín.

While Europe could face difficulties in achieving its green transition goals, China could take advantage of this situation as an opportunity to consolidate itself as a leader in these technologies, according to Gregor Hirt of Allianz.

Complications

As we see, Trump’s re-election returns the global energy landscape to a uncertainty stage for clean energy globally. Its policies, focused on strengthening oil and gas, contrast with the push given by many countries to clean energy in recent years. Although many analysts do not anticipate major changes to the IRA law, trade tensions with China and protectionism could complicate the development of key projects in the United States.

In this context, Europe could face additional difficulties, such as the rise of the dollar and the impact of tariffs, which would limit its ability to advance the energy transition. However, the big beneficiary could be China, which already dominates the photovoltaic industry and could consolidate its global leadership in clean energy. The pieces of the global energy board are shaking with Donald Trump and the coming months will be key to determining the scope of these policies and their real impact on the world’s energy balance.