5 things climate investors should watch for in Donald Trump's second term

Facebook Tweet LinkedIn

(David Callaway is founder and Editor-in-Chief of Callaway Climate Insights. He is the former president of the World Editors Forum, Editor-in-Chief of USA Today and MarketWatch, and CEO of TheStreet Inc. His climate columns have appeared in USA Today, The Independent, and New Thinking magazine).

SAN FRANCISCO (Callaway Climate Insights) — Donald Trump’s stunning comeback victory this week rattled the world and will set the U.S. on a four-year course of chaos and power-grabs when he becomes president again in January. But it’s not a death knell for climate investors, simply a different opportunity.

This newsletter was born during the first Trump presidency and will be here long after he is gone, as will climate change. Investment themes are constantly evolving and Trump’s expected plans for the U.S. economy and geopolitics will create new ones even as they destroy others.

With the stock market at record highs after the election and the dollar surging, here’s our take on what clean energy investors can initially expect.

1. New era for the energy transition

As we’ve said before, Trump will do what he wants, and what he wants is to be the leading energy power in the world. The U.S. already is leading in oil and gas, but trails China and Europe in renewable energy. Trump will simply rebrand the transition in the name of energy security and use tariffs and tax subsidies to benefit some clean energy projects, such as solar, onshore wind and battery power, especially in red states.

Offshore wind will suffer, as Trump is not a big fan of the turbines and would prefer to focus on offshore oil leases. Already this morning, shares of international wind developers such as Vestas Wind Systems (VWDRY) and Orsted (ORSTED) were down more than 12% on the expectation.

Shares of large U.S. energy companies such as GE Vernova GEV 0.89%↑ and Constellation Energy CEG 1.43%↑ soared, as did the oil companies, of course.

2. Electric vehicle subsidies to change

Trump will keep his promise to gut EV subsidies for consumers and is expected to also curtain federal clean air regulations that push automakers to gradually sell more EVs over time, allowing General Motors GM 1.03%↑ and Ford F -2.50%↓, for example, flexibility to meet market demands if they include gas guzzlers.

Note that Tesla TSLA 0.48%↑ shares soared 14% this morning, however. Trump has no intention of destroying Elon Musk’s business. Instead, Tesla will benefit from the removal of subsidies that encourage other automakers to build competing products (even though Tesla itself was built on subsidies). Trump’s largesse will also likely extend into Musk’s complicated relationship with China, perhaps in the form of breaks on tariffs for Chinese-made Teslas.

3. Transition of the IRA

Despite his bluster, nobody really expects Trump to destroy the Inflation Reduction Act. But he could change it in ways that will help him extend his tax cuts, which expire after 2025. Extending them, and finding ways to pay for it, are key imperatives for Trump, and one of the reasons more than half the country voted for him.

Since much of the benefit of the IRA subsidies and clean energy credits is accruing to red states, many members of a Republican Congress will want to prevent Trump from wiping the IRA out. Instead, he will likely change the way the credits work so that they benefit more of his favorite projects, including more oil and gas drilling.

He will also likely use phasedowns of credit payments to certain renewable projects, such as offshore wind, to save money to preserve the tax cuts. Expect the IRA and the tax cut extensions to start appearing in the same conversations.

4. Bull market for private data centers

The furious rush of tech giants such as Microsoft MSFT 0.34%↑, Amazon AMZN 0.65%↑ and Google GOOGL 0.96%↑ to build new data centers to house their AI product research and development has hit the point where vast new sources of electricity will be needed, competing with consumer electric needs. Even Musk has AI data center needs, including for his SpaceX research. Trump is expected to slash EPA regulations on existing coal and gas plants to allow them to keep churning out energy, despite the harmful emissions.

He also will likely greenlight a spate of private deals between tech companies and energy giants, such as Constellation, to power new data through all forms of energy, including solar, wind and nuclear. The rush to grab private sources of energy will cause dramatic changes to the U.S. grid infrastructure and likely change the face of the utility industry in coming years.

5. China and Europe trade disputes

Trump is expected to revive his belligerent attitude to Chinese and European trade, promising to raise tariffs on some Chinese products up to 60%, which would severely hit imports of solar panels and chemicals, as well as minerals for electric vehicle batteries. The tariffs will increase pressure on U.S. solar companies to perform and likely raise prices for consumers and businesses. Expect a carve-out for Musk, as we said.

In Europe, Trump will take a tough stance against a proposed carbon border tax initiative with threats of reciprocal tariffs, which could raise the costs of imports and crush European energy giants doing business in the U.S.

If Trump’s first term is any guide, these disputes and executive orders will shift with his moods, meaning it will be difficult for investors to calibrate what he might do next. A return to the era of single stocks either soaring or plunging the day after he mentions them in an offhand comment is almost certain.

For clean energy stocks, though, a second Trump term is just another major challenge on the road to a transition that is inevitable, if somewhat delayed. Global warming itself will not wait for years, and Trump and his team will find they are increasingly dealing with its impact, just using different rhetoric.