Trump’s Impact on the American Energy Market

Donald Trump Win Impact and Constequences Energy Sector

Trump’s Impact on the American Energy Market – Empty shells in the short-run, uncertainty for the long-run?

 

Late on Tuesday, as the final result of the 2016 election became apparent, first speculations started to emerge on how Trump actually could influence energy policies (and hence the energy sector) within the United States during his time in office and fueled by the statements Mr. Trump made during his candidacy, the American energy market reacted powerfully.

As he declared in his victory speech, Trump will focus his attempt to “make America great again” in infrastructure projects, tax cuts, and pro-business policies, which he claims will result in new jobs and economic growth.
All of which is good news for steel and concrete suppliers, and great news for fossil fuel producers.

But Mr. Trump’s support for oil, gas and coal could result in a decline of renewable energies as well as nuclear power (although Trump has made comments on the need for America to increase the number of nuclear power plants), as without a change in cost of carbon neither nuclear nor renewable energy are able to compete with natural gas.

As a first reaction of the markets, energy stocks ended sharply divided the following Wednesday. Resulting in solar stocks showing high losses as investors expected Trump’s administration to favor carbon reliant energy sources and to impede policies, which favored renewable energy.

The solar industry of the United States has developed well under the Obama administration, and a Trump presidency along with a Republican-led Congress poses significant risks to a potential reduction (or even elimination) of the federal tax credits for solar, extended at the end of last year

Trump has promised throughout his campaign to “cancel” the Paris agreement and to curb climate regulations from the Environmental Protection Agency (EPA), including the Obama ministration’s Clean Power Plan, which had planned to cut emissions from coal-fired power plants, during his first 100 days in office.

But on how much of this claims can he really follow through after he assumes the presidency on the 20th of January, along with a Republican majority in the House of Representatives and the Senate?

 

“..Getting rid of [EPA] in almost every form.” – Trump, March 2016

 

The president elect has made no secret of his disdain for America’s Environmental Protection Agency (EPA) and two sources close to Trump’s campaign have stated that Mr. Trump has selected one of the widest-known climate skeptics to lead his EPA transition team, Myron Ebell.

Ebell is known for questioning what he calls “climate change alarmism”, and is chairman of the Cooler Heads Coalition, a group of nonprofits that “question global warming alarmism and oppose energy-rationing policies.”
This selection sends a strong message. Ebell has famously called the Obama administration’s Clean Power Plan for greenhouse gases illegal, and stated that Obama joining the Paris climate treaty “is clearly an unconstitutional usurpation of the Senate’s authority”.

Ebell is a polarizing persona within the energy and environmental sector. His participation in the EPA transition signals that Trump is trying to follow through on his ambition to drastically reshape the climate policies the agency has pursued over the past 8 years. Although Ebell’s role as part of the EPA is likely to aggravate environmentalists as well as Democrats, it is aimed to take a side with critics of Obama’s climate rules.

The team behind Trump has also recruited leaders for its Energy Department and Interior Department teams. Republican energy lobbyist Mike McKenna is heading the team of the Department of Energy, and the former Interior Department solicitor David Bernhardt is leading the effort for that respective agency, according to sources close to the campaign.

Mr. McKenna, the president of MWR Strategies, is well known within the circles of Republican energy. He was director of policy and external affairs for the Virginia Department of Environmental Quality in the past and functioned as external relations specialist at the Energy Department during the George H.W. Bush administration.

As Trump’s team takes over, however, they may find it more difficult than it might seem to change the power plan and other climate regulations that have already gone through lengthy review and release processes.

More drastic changes at the EPA would require collaborating with House and Senate Republicans, as much of the agency’s budget and regulations come from legal requirements. It’s possible that Congress could slash these laws as well as the agency’s budget, as Trump has promised, but it is far from certain that Republicans would be united enough for such a decision.

 

“I will be looking at that very, very seriously, and at a minimum I will be renegotiating those agreements, at a minimum. And at a maximum I may do something else,” Trump on the Paris Agreement (Reuters, May 2016)

 

For the past eight years, the Obama administration has been using everything at its disposal to push down US greenhouse gases, aiming for a cut of 28 percent below 2005 levels by 2025. But the views on climate change held by the team of Mr. Trump are contrasting the ambitions of the past.

In May of 2016, Trump stated he would “cancel” the Paris agreement, which was ratified by Barack Obama and for the first time in more than two decades found a common vision for curbing greenhouse gas emissions.

But is it even possible to simply “cancel” the agreement?

Well, Mr. Trump could simply withdraw the US from the agreement, on the basis that his predecessor acceded using an executive order.
But under its requirements, any government aiming to withdraw from the Paris agreement could only do so by giving notice three years after it came into force, and would then have to wait a full year for the withdrawal to be complete. Meaning Mr. Trump could do so by 2020.

There’s a more drastic option as well: Trump could have the United States immediately submit a written notice to the Secretary General of the United Nations (U.N.) that it is leaving the 1992 climate convention (underpinning the Paris Agreement), which would also take a year from notice being given to the UN.

Experts suspect this as Mr. Trumps most likely step, as it would be the more symbolic action to take.

Overall, while Trump certainly will act as a brake on the United States renewable energy development, the falling costs of solar and wind technologies will continue to influence the sector over time and take market share elsewhere.
Continuing the energy sector’s progress will fall to states with ambitious renewable energy targets (i.e. California).

The dark horse seems to be how quickly the new administration under Trump will move on any of these topics. Having the majority in the Senate, the temptation could be to push hard and fast on energy policy. And even if it seems unlikely, repeal of things as the investment tax credit that underpins much of renewable energy investment in the U.S. cannot be dismissed.