The Trump effect: COP29, clean stock slumps and potential policy pullback

Donald Trump is taking US office, again. What has been and what will be the effect on global clean energy financing? This week's Power Playbook discusses initial sentiments while the dust is still settling.

Donald Trump’s victory in the US has swept headlines globally; so much so that it is being felt across the ocean, casting a bit of a shadow over discussions in Baku for COP29, dubbed the finance COP.

“Clearly the tone of the negotiations is very aware of the US election,” said Rob Moore, associate director – public banks and development, of climate think tank E3G.

Moore was explaining during a press debrief that Trump’s win in the US has been influencing discussions and negotiations during COP29, despite neither Trump nor current president Joe Biden flying out to Azerbaijan.

The conference is the first big global meeting of minds and decision makers on climate change policy post-US elections and so it only makes sense that breath is bated as to the outcomes and how the negotiations are going to pan out.

Being the financing COP, the main point of discussion across panels, debates and negotiations has been how to raise the money needed from across sectors – energy being one of the most critical – to meet the goals of the United Nations Framework Convention on Climate Change.

Although Biden himself is not present, his administration has a delegation at the conference. The question lingers about the longer-term role of the US in these negotiations, if the new presidency under Trump attempts, again, to pull out of the Paris Agreement.

“Negotiators will be thinking not only about what the number is on paper, but what is the likelihood of that number being delivered," said Moore.

“And so there will be a calibration going on in the minds of the developing country negotiators. There's also an impact on the dynamic with Europe in that, under the current contributor base, at the moment the lion's share of climate finance is provided by European countries.

“If they do not believe that the US will be providing finance, that will impact this dialogue on who is the contributor and who is actually providing support towards the meeting of this goal.

“I don't want to be too prescriptive on how that plays out precisely, but it is an important dynamic.”

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Inflation Reduction Act

Of course, COP29 is now only at its halfway mark, with another week left of negotiating and announcements to be made. Thus, any tangible impact of Trump’s upcoming return to office on the conference's outcomes is yet to be fully seen.

But another way in which Trump’s return is expected to ripple is via the Inflation Reduction Act (IRA), which Trump had been rallying against, saying in a September speech, “we will rescind all unspent funds under the misnamed Inflation Reduction Act…”.

Keeping this front of mind, it was not surprising that his election victory sparked an exodus of investors from renewables, while fortune favoured investors of another kind, with those running bets against renewables profiting massively.

The plunge in shares was not limited to US soil either. The IRA has been a critical piece of legislation in accelerating the country’s competitiveness arguably beyond that of Europe, reeling in investors from across the clean energy value chain, including in the renewables, electrification and battery segments.

According to reportage by Leasing Life, shares in European clean energy companies fell sharply following the election as markets reacted to his pledges, including dismantling the IRA and exiting the Paris Agreement.

But even if Trump could manage to pull out of these pledges, the question lingers: will he? If he does, it could result in a bit of a political kerfuffle.

“That’s a real dilemma,” said Jason Feer, head of business intelligence, Poten & Partners, during the Montel Group-hosted webinar, ‘Trump election win, the impact of the US election on Europe’s energy markets’.

Feer, speaking from the Republication state of Texas, commented that “it's easy to have very black and white rhetoric during a campaign that you're going to get rid of the previous administration's policies.

“But most of the money from the Inflation Reduction Act and a great deal of money from the infrastructure bill goes to Republican states.

“They tend, on average, to be slightly poorer than democratic states, and so the need for jobs and investment is great in a lot of these states.

“And that's sort of the issue. Repealing that or pulling the money back could prove to be very unpopular. I think the other benefit, from a Trump point of view, to the build out of renewables in the US is that … the more renewables the United States builds, the more capacity there is to export, so the less natural gas we need for US consumption.

“I think there are a couple of reasons to think that, in terms of climate change policy, we’ll see a pretty significant rollback from Biden. In terms of where the money is flowing, we may see a continuation of a significant percentage of that money flowing as it's been allocated already.

“In some respects, it's too late as well. Congress allocates money, and once that money is in the pipeline, it gets spent. So a certain amount of the Reduction Act money will flow, regardless of what sort of decisions are made in Washington.”

Whether in terms of IRA or COP29, it is still too early to tell exactly how the Trump effect will manifest.

But what’s clear is that an effect there will be. Stay tuned into the Power Playbook as we follow these developments unfold.

Cheers,
Yusuf Latief
Content Producer
Smart Energy International

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