In practice, this means that the US no longer has to submit a climate action plan to the United Nations every five years.
This will slow the US economy’s path towards net zero, although a complete withdrawal from the United Nations Framework Convention on Climate Change (UNFCCC) would be complicated by the US Constitution, as presidential authority on treaties requires the support of two-thirds of senators, writes Sophie Chardon, head of sustainable investment, private bank at Lombard Odier in a Jan 22 note.
During the last Trump presidency, costs of solar, batteries and electric vehicles continued to fall, with markets for these products expanding globally, says Höhne-Sparborth. “At the same time, despite the administration’s political support for coal, at least 11 coal power companies went into bankruptcy — no longer able to compete with new sources of energy.”
For economic, technology or environmental transitions to be successful, they must first and foremost be driven by sound economics, says Höhne-Sparborth. “Ultimately, we believe the transition to an electrified and renewably-powered economy will happen because of the demonstrated cost advantages of these technologies, which are driven by innovation cycles, the modularity of technologies and basic engineering principles.”
See also: Biden administration commits to 61% emissions cut by 2035 as Trump waits in wings
Höhne-Sparborth acknowledges that technologies that are not yet economically feasible, such as hydrogen or carbon capture and storage (CCS), may well be delayed by lack of political support. However, their high cost and lack of cost competitiveness mean they will only serve a “satellite role” in the transition “in any case”, he adds.
Climate leadership shifts to China
Existing climate commitments outside the US remain strong, says Chardon. At the COP29 climate conference in November 2024, the UK, Brazil and the United Arab Emirates enhanced their 2035 climate targets. Four countries — Bhutan, Madagascar, Panama and Suriname — have already achieved net-zero greenhouse gas emissions.
See also: Trump says he could hit China with 10% tariff from next month
Chardon does not think the Trump administration will impact other countries’ transition policies, especially not the countries in the European Union.
“The region’s recent energy supply shock, [along with a] report by Mario Draghi, former European Central Bank president, [which] identified high energy prices as one of the biggest brakes on Europeans competitiveness, make a reversal of the European Green Deal’s ambitions unlikely,” she adds.
China will play a more central role in multilateral agreements, says Chardon. At COP29, China’s leaders called for international cooperation and “a complete transformation of growth models”.
China is under pressure to increase its commitment, she adds. “Between 2013 and 2021, China contributed over US$34 billion in climate-related development finance, making it one of the most significant providers of international climate aid.”
China has already met its 2030 peak emissions, six years ahead of schedule and emissions could start declining as soon as this year, says Chardon. “This trend is likely to help mitigate the slower pace of US progress.”
At past UN meetings, negotiations between the US and China were central to global progress, she adds. “A shift away from climate action in the US should not mean that China backs away from its goals, in our view.”
New opportunities for sustainable investing
See also: Fatigue, anxiety behind shifting jargon in sustainable investing
Trump has revoked Biden’s 50% EV penetration target by 2030, which was not legally binding, and called to terminate waivers that allow states to limit sales of cars with internal combustion engines (ICE).
Biden’s 2022 Inflation Reduction Act (IRA), however, is unlikely to be fully repealed, says Chardon. The IRA, which supports US manufacturing and clean energy, enjoys some Republican support, she notes, though a “gradual and partial rollback” is possible.
“In our view, the most vulnerable areas are EVs, energy efficiency, heat pumps and offshore wind,” says Chardon. “Technologies such as solar, onshore wind, advanced manufacturing, hydrogen, nuclear and carbon capture may be less at risk than initially thought, as they have received Republican support in the past.”
A rollback would delay the energy transition, but the full impact depends on how profitable each technology is without subsidies, says Chardon. Should the IRA be fully repealed, the hardest-hit areas would be hydrogen, carbon capture and offshore wind technologies, which today remain “largely uneconomic”, she adds.
On the bright side, Höhne-Sparborth thinks the Trump administration will open up new opportunities in sustainable investing, such as in dietary guidelines and food additives, technology and the further digitalisation of the economy, and autonomous driving.
The latter is expected to receive increased support from the administration, says Höhne-Sparborth, and although the administration’s motivations may not be environmental, any such move will provide indirect support to further adoption of electric vehicles (EVs).
By prioritising the reshoring of strategic industries, Trump’s administration may also unlock additional opportunities in industries such as semiconductors, batteries and other segments, he adds.
