Donald Trump can't slow down the energy transition

You can almost taste the glee in Canada’s oil and gas industrial complex right now. President Donald Trump has already announced his country’s withdrawal — again — from the Paris Climate Accord, signed an executive order aimed at halting all offshore and onshore wind energy development, and ordered federal agencies to “immediately pause” spending associated with the Inflation Reduction Act. His repeated threats to our sovereignty, meanwhile, have caused the federal Liberal government to publicly reconsider the merits of pipeline projects like Energy East. 

They should enjoy the good feelings while they last. The energy transition, which the oil and gas industry and its proxies have embraced with all the enthusiasm of someone going to see their dentist, is far from over. The return — and the revenge tour — of Trumpism may slow its progress in the United States, but its impact on global demand for oil and gas will be far more muted. If anything, it could encourage China to expand its dominance of the ever-expanding market for clean technologies like wind, solar, and electric vehicles, whose costs will only continue to drop. 

Indeed, Bloomberg New Energy Finance’s (BNEF) latest annual Levelized Cost of Electricity report shows that every major renewable energy technology decreased in cost last year, with battery storage (down a staggering one-third) and industrial-scale solar farms (down 21 per cent) seeing the biggest annual declines. “New solar plants, even without subsidies, are within touching distance of new US gas plants,” said Amar Vasdev, the report’s lead author. “This is remarkable because US gas prices are only a quarter of prevailing gas prices in Europe and Asia.”

Ironically, Trump’s plan to increase America’s LNG exports will increase domestic gas prices and make solar — which is already booming in predominantly red states like Texas, Oklahoma, and Florida — even more economically appealing. “The overall trend in cost reductions is so strong that nobody, not even President Trump, will be able to halt it,” said Matthias Kimmel, head of Energy Economics at BNEF. By 2035, BNEF also forecasts a further 26 per cent reduction in the cost of onshore wind, a 31 per cent reduction in the cost of solar, and an almost 50 per cent reduction in the cost of battery storage. 

And while Trump’s policies will slow the adoption of things like electric vehicles and renewable energy in America, they won’t stop it. The same BNEF forecast sees more than 900 gigawatts of new wind, solar and storage built in the United States by 2035 under a scenario where the U.S. government fully repeals the Inflation Reduction Act’s investment and production tax credits. Its automobile sales forecast, meanwhile, sees EVs accounting for one in three new cars sold in 2030. That’s a big step down from the 48 per cent market penetration they expected under Biden-era regulations, but it’s still a near-tripling from today’s levels. 

If Canada’s oil and gas enthusiasts want to know where things are actually headed, they ought to be watching what countries like Saudi Arabia and the United Arab Emirates are doing. They might not play much hockey there, but the leaders of that region’s various petrostates clearly know where the puck is going — and have a vested interest in getting there early. As the Financial Times reported recently, the Middle East is now the fastest growing region outside of China for renewable energy, with massive solar and battery projects being proposed by oil-reliant kingdoms like Saudi Arabia and the United Arab Emirates. By 2030, according to data from the energy consultancy Rystad, renewables will make up 30 per cent of the total capacity in the region. 

They’re not doing those out of the goodness of their hearts. Part of the calculus is that by producing ultra-cheap solar and capturing the energy, they can export the gas they previously burned to generate electricity. But it’s also a recognition that they cannot continue to be completely reliant on fossil fuels for their economic opportunities and government revenues. Even there — and perhaps especially there — the energy transition and its impact on global demand for fossil fuels cannot be ignored. 

But the biggest winner in the energy transition, and America’s deliberate retreat from it, will be China. Its growing dominance of clean energy technologies and their supply chains is an obvious economic asset, one that will allow it to both wean itself off fossil fuel imports and increase high-value exports to other countries. Global clean energy investment was worth more than $2 trillion for the first time last year, a figure that will need to more than double to $5 trillion annually by 2030 if the world wants to remain on track for its 2050 net zero targets. Trump is guaranteeing that China will capture an even bigger slice of that ever-expanding pie. 

That’s not all. There’s also a growing diplomatic dividend that China will receive from its investments in clean energy. As it exports more low-cost clean technology to the developing world — solar imports have, for example, started spiking in sub-Saharan Africa — China will help those countries reduce their dependence on fossil fuel imports and increase their energy and economic security. As Tama University professor Brad Glosserman wrote last year in an op-ed for the Japan Times, “Tackling and conquering the pre-eminent global challenge would constitute an extraordinary diplomatic, political and economic victory and bestow status and influence not unlike that which the U.S. enjoyed after World War II.”

China, in other words, has every reason in the world to bet even more heavily on its leadership role in the energy transition. It will continue to drive down the costs of technologies that destroy demand for oil and gas, and export them to the countries that fossil fuel advocates expect will provide future demand growth. In the end, the most aggressively pro-oil and gas president in American history may end up doing the most damage to its long-term economic prospects — and not just in America, either. 

Canada’s oil and gas industry might want to take heed here. In four years, and maybe less, Trump will be gone from office. His policies, meanwhile, may have only increased the desire in Europe, China, and the developing world to wean their economies away from — and eventually off — fossil fuels. And if he’s increased American oil and gas production the way he says he will, prices will almost certainly be in the toilet. But hey, at least they’ll have those first few weeks of 2025 to look back on.