President Trump's Executive Orders on Climate Policy

President Trump's new direction on energy will have to navigate the rising tide underway on renewable energy generation 

• As promised, Trump issued a sweeping executive order (EO) rescinding all of the previous administration's executive orders related to climate change, the clean energy transition and climate finance. A subsequent EO declared a national emergency on energy, establishing a completely new direction for energy policy in America. 
• Eight previous EOs signed by former president Biden were rescinded, including those that established climate targets at both the national and sectoral level, such as net zero by 2050, 100% EV sales by 2035, etc. In doing so, this also set the stage for the role of the U.S. in domestic and international climate finance and the regulatory framework behind the clean energy transition. For instance, the EPA's multipollutant emissions standard and the Department of Transportation's corporate average fuel economy standards will both be impossible to reach without a significant share of auto sales being zero-emissions vehicles (ZEV). The EPA estimated that the ZEV sales would need to reach 72% in order for automakers to be in compliance. 
• Interestingly, President Trump's language on the energy plan did not immediately dismiss the $7,500 EV subsidy, but does suggest it's in the crosshairs when he noted the administration will "consider the elimination of unfair subsidies and other ill-conceived government-imposed market distortions that favor EVs over other technologies…". 
• The declaration of a national energy emergency combined with the strategic framework of developing "Alaska's extraordinary resource potential" sets a clear tone for fossil fuel expansion and the role the Trump administration intends fossil fuels to play in the U.S. energy system. This includes fossil fuel development in previously-protected areas, including wildlife refuges in Alaska, and those areas protected under the Clean Water Act, the Rivers and Harbors Act, and the Marine Protection Research and Sanctuaries Act. 

Key Implications

• The initial salvo of Trump's executive orders provides a clear window into what will come next. Addressing climate change will not be a priority or supersede fossil-fuel development. And with that, the regulatory regime under Biden that supported the clean energy transition will shift in favor of expediting and expanding fossil-fuel development. 
• That being said, President Trump will be pushing against a tide that's already rising. In the power sector, the all-in cost of energy generation from solar and wind is already lower than for the combined-cycle of natural gas, which is deemed the most cost-effective fossil fuel generation. This was the case even before President Trump's first term, and that cost advantage only became wider under Biden's climate framework. The removal of that framework, will not undo the progress. In the first half of 2024, renewables accounted for over 90% of new utility-scale capacity additions, comprised of solar (59%), batteries (21%) and wind (12%), with the largest capacity additions happening in states that voted for Trump, including Florida and Texas.
• These additions are mainly to account for the significant retirements of fossil-fuel generation occurring due to facilities reaching end-of-life and the economic advantage of renewables over new fossil generation. The EIA estimated nearly 8 GW of fossil generation was to retire over the course of 2024, with the economic advantage of renewables driving capacity additions. Even more fossil capacity is planned for retirement in 2025. This limits the degree to which the administration can mount a more significant role for fossil fuels in the domestic energy system.
• Similar shifts are happening in other sectors of the economy, including in transportation and within certain states. The EIA has estimated that oil & gas demand, while not necessarily declining, has largely flatlined as a result of these broader shifts, reinforcing the rising tide that policies will struggle to push against.  

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.