Renewable energy could thrive in spite of Trump

Solar
installers from Baker Electric place solar panels on the roof of
a residential home in Scripps Ranch, San Diego
Reuters/Mike Blake

U.S. President-elect Donald Trump has promised to make America
“great again”. One of the industries that will experience this
greatness is the global energy sector.

Many of Trump’s views on oil, gas, coal and clean energy – or, at
any rate, those views enunciated during his presidential campaign
– are very different from what’s in place now. And if his plans
are implemented, they’ll change a lot of things.

The biggest winners will be oil and gas

“America First” is how Trump describes his energy policy. He
wants the U.S. to be completely energy independent. That means
using more of the country’s own natural resources instead of
relying on imports from overseas trading partners such as OPEC –
which supplied 31 percent of all U.S. oil imports in 2015.

Trump repeatedly talked up oil, natural gas and coal on the
campaign trail. Trump said he wants to “unleash America’s $50
trillion in untapped shale, oil, and natural gas reserves” –
partly to bring about the 400,000 new jobs that he thinks the
sector could create. To do this, Trump said he’d remove
regulations that inhibit energy production – like allowing
companies to operate on federal lands.

And judging by his campaign’s economic advisory team, which
included owners of some of the biggest oil frackingcompanies in the U.S., such promises
may become reality. For instance, there is a strong chance that
Trump will choose Harold Hamm as his Energy Secretary. Hamm is
the CEO of fracking giant Continental Resources.

With fracking seemingly backed by Trump, the natural gas industry
could be the biggest single energy winner, as we recently outlined. It’s a cheap and fairly
clean form of energy. And much of it is produced from the U.S.’s
own deposits.

But higher levels of U.S. oil and gas production, when the world
market is already oversupplied, will hurt prices. Oil prices, for
example, are already less than half of what they were in early
2014. Extra U.S. supply will only add more downward pressure.

A
group of coal miners hold Trump signs as they wait for a rally
with Republican presidential candidate Donald Trump, Thursday,
May 5, 2016, in Charleston, W.Va.
Associated Press/Steve Helber

U.S. coal’s prospects will continue to darken

Arguably, Trump has talked up coal more than any other fuel. He
has promised to save the coal industry through deregulation and
by ending the Obama government’s moratorium on new mining on
federal lands.

Coal prices have recovered somewhat this year. But this is mainly
due to lower production and supply in the U.S. and China, rather
than increased demand. One reason for lower U.S. production is
the numerous U.S. coal company bankruptcies – and
thus reduced supply.

Although Trump says he wants to rejuvenate the U.S. coal
industry, he may not be able to do much. The market forces of
supply and demand ultimately determine global energy prices,
including that of coal. According to the International Energy
Agency, China’s declining coal consumption will continue to
reduce demand for U.S. coal exports, which fell by 23 percent
last year and another 32 percent during the first 6 months of
2016.

And with demand shifting away from coal and towards natural gas
for the country’s power generation, Trump will have very few
policy instruments at hand to reverse the U.S. coal industry’s
decline. And if he is able to save coal jobs, this may translate
into higher employment… and thus higher coal production. Any
additional supply would hurt coal prices.

Renewables will continue to shine – regardless of
Trump

If Trump enacts his stated policies, the biggest loser could be
clean energy. After all, he has been very clear about his
thoughts on climate change.

He has called global warming a hoax. President-elect Trump has
promised to cancel the Paris climate agreement – which aims to
boost the world’s response to climate change through a number of
joint targets to fight global warming. And Trump wants to end
U.S. funding of UN climate programmes.

Additionally, his support for fossil fuels may weaken demand for
renewable energy.

Trump’s position has some worried that the Paris climate
agreement could become badly damaged. It could be similar to the
failure of the Kyoto climate treaty after the previous Republican
U.S. president, George W. Bush, abandoned it in 2001.

It’s unlikely that the world – including Asia – will take Trump’s
intended moves lying down this time, though. And the difference
could well come down to China.

Back in the Kyoto days, China gave very little support to climate
talks and agreements. But today, China is a substantially bigger
global economic force. It’s also very polluted, which is a
serious political crisis for its government.

The government is now among the world’s biggest renewable energy
supporters and is working at combating global warming. In 2014,
Presidents Xi Jinping and Barack Obama implemented the U.S.-China
joint climate accord to reduce carbon emissions by 2030. Then in
September this year, the two countries formally committed to the
Paris climate agreement.

And last year saw China as the world’s biggest investor in
renewable energy.

Truewealth Publishing

At the recent UN Global Warming summit, China made clear that if the U.S. pulls out of
the Paris agreement, China is going to continue to work towards a
greener economy. This is good news for the world’s solar, hydro
and wind companies.

What’s more, the U.S. is experiencing a boom in the clean energy
sector that has little to do with the climate change debate.
As we recently noted, renewables are
increasingly cost competitive with fossil fuels across many
markets.

And if Trump wants to limit wind and solar, he will have a fight
within his own Republican party. It was a Republican Congress
that passed legislation to implement tax credits for wind and
solar power last December. And the 5 U.S. states with the highest
proportion of power generated by wind energy all have Republican
governors.

Over 200,000 Americans are employed in the solar industry –
double the 2010 figure. The U.S. Bureau of Labor recently
projected that the country’s fastest growing occupation (in
relative terms) between 2014 and 2024 will be “wind turbine
technician.” Although the absolute number of new jobs is low, the
anticipated growth and overall trend is still notable.

Once he’s president, Trump may soften his stance on renewable
energy and climate agreements. But even if he doesn’t, the boom
in renewables will carry on regardless.

To profit from Trump’s plans to expand U.S. natural gas
production, the First Trust ISE-Revere Natural Gas Index ETF (New
York Stock Exchange; ticker FCG) is an option. It focuses on
companies that generate most of their revenue from natural gas
exploration and production.