This article first appeared in The Edge Malaysia Weekly on November 18, 2024 - November 24, 2024

Donald Trump’s re-election as US president on Nov 5 has reignited concerns about how it could impede the progress of climate action and the low-carbon transition.

During his previous term, he infamously pulled the US out of the Paris Agreement. He also claimed that climate change is a “hoax”, refusing to acknowledge the science — and increasingly observable effects — behind it.

However, since this is not the first time Trump is playing this card, the impact might be more muted.

“A second withdrawal from the Paris Agreement is very likely, which would hinder international co-operation and the achievement of global decarbonisation targets. However, countries might be better prepared to mitigate this disruption for the duration of Trump’s second term than they were during his first,” says Dhana Raj Markandu, senior analyst at ISIS Malaysia.

“Many countries and regions, such as Asean, will still be able to continue on their climate and decarbonisation pathways with support from China, Europe, Australia and others, independent of any contrarian US policies.”

There are expectations that China will increase its influence on clean energy, despite tariffs slapped on Chinese-made solar panels and electric vehicles (EVs) by the US and Europe. On the other hand, some expect these trade tariffs, the reversal of climate action in the US and political uncertainty in Europe to cast a shadow over any global progress in this area.

Nevertheless, the global transition is already taking place and the main impact of a second Trump presidency will just be to slow down the shift.

“Under the new Trump administration, the US may play a reduced role in global climate action. However, the global low-carbon transition is expected to continue accelerating. The awareness around the importance of sustainability priorities and international climate action has evolved significantly since Trump’s last term,” says Ong Shu Yi, ESG analyst at OCBC.

“Prioritising sustainability, alongside economic growth, has become more mainstream as climate change impacts become more apparent.”

She is confident that China will have opportunities to capitalise on the US and global market demand for clean energy. High-growth markets for renewable energy components such as Malaysia and Thailand could benefit from China’s rising solar module export trajectory.

“There is strong momentum behind Asean’s low-carbon transition, which faces limited impact from Trump’s re-election, including initiatives such as cross-border low-carbon electricity imports, advancing carbon capture and storage capabilities, as well as developing carbon pricing mechanisms,” says Ong.

Trump has also made calls to end diversity, equity and inclusion (DEI) programmes in government institutions, roll back standards on fuel efficiency, end a suite of federal policies that encourage EV sales and increase fossil fuel extraction and exports, according to reports.

US President Joe Biden’s signature deal, the Inflation Reduction Act (IRA) — called the “green new scam” by Trump — channels billions of dollars in investments and tax breaks to the advancement of the green transition. According to industry observers, this is likely to be reduced but not repealed, as it has driven waves of investment into areas such as hydrogen production and carbon capture utilisation and storage.

“Trump would attempt to cut down on the policies laid down in IRA. However, it’s doubtful that he would reverse it because several of the Republican states would lose out on large investments. In fact, Republication states such as Texas have big investments in renewables and electric vehicles,” says Jigar Shah, head of sustainability research at Maybank Investment Banking Group.

“Second, by reversing the IRA policies, the US would fall significantly behind China in clean energy and transport. American industry is largely pro-climate change mitigation and would continue the transition. In conclusion, we believe Trump may slow the transition, but won’t reverse it.”

Regardless, these actions will have a negative impact on the US’ own climate targets and global emissions, since the country is the world’s second biggest contributor of emissions.

“Basically, Trump’s second term will slow the fall in US greenhouse gas emissions and unfortunately, this will also reduce international ‘peer pressure’ on other countries to reduce their emissions. Given the current technological trajectory of the energy industry, fossil fuels will continue their gradual decline,” says Pieter E Stek, senior lecturer at the Asia School of Business.

Stek is not confident that Trump can completely roll back the country’s support for renewable energy. “Remember that Trump tried and largely failed to roll back the Affordable Care Act during his first term.”

The anti-ESG movement in the US, which is mostly promoted by the Republican Party, is embraced by followers of the late economist Milton Friedman and the Chicago School, who argue that the only responsibility of a business is to make profit for its shareholders.

It is a contested idea that may resonate stronger in the US than in Asian countries, Stek observes.

“Especially in Corporate Malaysia, with its many government-linked companies, there has long been a narrative of social responsibility, which fits well with the ESG movement. This is why I don’t expect the anti-ESG movement to gain significant traction here.”

Jigar concurs with this view, saying that the anti-ESG movement peaked in 2023 and is bottoming out this year, as suggested by the inflows into ESG funds over the past two quarters.

“There are other compelling reasons, such as having the hottest year on record in 2023 and 2024 [so far] and unprecedented catastrophes around the world, suggesting climate change denial is unacceptable,” he continues.

“The increase in ESG disclosures and regulations and the alignment of countries and companies to net zero suggest that the anti-ESG movement peaked in 2023 and was mainly restricted to the US and the oil and gas industry.”

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