US November election results could decelerate energy transition, with $1tn in energy investment on the line.
The Infrastructure Investment and Jobs Act (IIJA) of 2021 and the Inflation Reduction Act (IRA) of 2022 catapulted the US to global leadership in decarbonisation but a victory for former President Donald Trump could significantly alter the path of US energy policy and usher in a delayed transition scenario, according to a new Horizons report from Wood Mackenzie.
While investments for technologies that support the energy transition and low carbon technology may decelerate, the opposite effect might take place for fossil fuels, which could see expanded investment and push out peak fossil fuel demand, according to the report, “Hitting the brakes: how the energy transition could decelerate in the US”.
Director of Wood Mackenzie’s Energy Transition Research David Brown said: “This election cycle will really influence the pace of energy investment, both in the next five years and through 2050.
“Investments in low carbon supply need to be made in the near term to realise longer-dated decarbonisation targets.
“US carbon emissions could grow, putting net zero out of reach in our delayed transition scenario.”
He added: “It is not likely that the IRA will be fully repealed.
“However, a second Trump presidency would likely issue executive orders that would abandon the 2035 net zero target for the power sector, establish softer emissions goals from the EPA, and issue tax credit regulations that could favour blue hydrogen.”
Brown added the fiscal environment may prove challenging as well, as US government spending could be limited to address the country’s debt burden – the US Congressional Budget Office expects the US debt-to-GDP ratio to reach 109% by 2030 and hit 155% by 2050.
Wood Mackenzie’s base case projects about $7.7tn in investment for the US energy sector over 2023-50.
However, in the delayed transition scenario in the US, less policy support for things such as low-carbon energy and infrastructure improvements decreases investment for the US energy sector by $1tn compared to the base case.