US ELECTIONS: Uncertainty looms over Asia’s energy transition amid policy risks

The outcome of the US elections may pose risks for Asia’s energy transition roadmap due to its impact on global climate financing, the US-China cleantech rivalry and the continuation of policies like the landmark Inflation Reduction Act, analysts and industry experts said.

The most immediate risk in the event of a change in government is the watering down of the COP29 climate summit in Azerbaijan from Nov. 11, right after the US elections, where the most critical agenda for developing nations is the New Collective Quantified Goal or NCQG, on Climate Finance.

Under NCQG, developing countries, including the ones in Asia, are looking to secure trillions of dollars of climate finance to replace the previous pledge of $100 billion per year.

“The issue of finance, NCQG negotiation may not be concluded if Trump is elected on Nov. 5, since it would be difficult for the US delegation to commit to NCQG,” said Toshiyuki Sakamoto, director of the Institute of Energy Economics, Japan, who is in charge of the institute's Climate Change and Energy Efficiency unit.

“Also, all parties seem to be negotiating with the understanding that the US will stay on board, and the US will make some financial contribution. Therefore, if Trump wins, it could be a huge impact to COP29,” Sakamoto said.

The US has long been expected to play a leading role in global climate finance efforts, but support for developing countries has seen a mixed trajectory and oscillated based on the climate policy of the presidential administration, S&P Global Commodity Insights had said in an October report on implications of the US presidential election on global climate diplomacy and COP29 negotiations.

“Under a Harris administration, climate diplomacy will likely reflect the status quo, with the US continuing to uphold existing international climate commitments under the Paris Agreement and the UNFCCC,” Commodity Insights said.

“Similarly, in keeping with a continuity approach, a Harris administration is likely to maintain US support for international climate pledges and commitments, such as the Global Renewables and Energy Efficiency Pledge, the Global Methane Pledge, and CORSIA,” it added.

“The Harris administration is expected to build on Biden’s climate policies, emphasizing the importance of increasing financial flows to developing countries while also recognizing the political, economic and budgetary considerations that governments face,” Commodity Insights said.

On the other hand, with Trump, there’s a risk that Asian countries leave this year’s COP empty-handed with no NCQG agreement, and the US will cut back on contributions to other funds like the Adaptation Fund, Loss & Damage Fund, and Just Energy Transition Program financing, according to industry observers.

The lack of US support for a global carbon market framework, especially the Paris Agreement's Article 6, would also impact investor sentiment in carbon markets around the world, especially Asian countries like Singapore, Japan and South Korea, which have been actively promoting collaborations under the Article 6 framework, Singapore-based traders said.

US-China relations

One of the most complex areas of global climate partnerships is the US-China dynamic.

“A second Trump presidency would likely widen the divide in US-China climate relations at the federal level, fracturing one of the most stable areas of engagement between the two countries,” according to Commodity Insights analysts.

Relations between current US climate envoy John Podesta and his Chinese counterpart Liu Zhenmin are already tense – a far cry from the cordial relations between former envoys John Kerry and Xie Zhenhua. Podesta has linked climate strategies with trade policy and called for decoupling clean energy supply chains from China, weakening his ties with Liu.

“The relationship between the US and China regarding climate policies would likely face significant challenges, echoing the dynamics from the first [Trump] term. During that period, Trump’s exit from international climate negotiations heightened tensions with China, giving it an opportunity to emerge as a global leader in climate initiatives,” Commodity Insights analysts said.

“A Harris administration would likely follow Biden’s trajectory, fostering dialogue and potential partnerships with China on clean energy and emissions reduction efforts. While the overall US-China relationship may remain fraught, the climate space could remain a notable exception, allowing both nations to collaborate on addressing shared global challenges and advancing joint initiatives,” they said.

Meanwhile, state-owned investment company China International Capital Corp. said in a recent report that reduced support from a Trump administration could strengthen China’s advancement in cleantech.

Due to its backing of the fossil fuel industry, a Trump administration may invest less in technologies that are capital-intensive and not fully ready for commercialization, such as direct air capture, large-scale battery storage and hydrogen, which implies more opportunities for Asian companies in these sectors, a Singapore-based analyst said.

Asian countries that lost investment to the Biden administration’s Inflation Reduction Act, billed as the world’s largest climate investment in US history, could see it return if Trump dilutes the IRA.

“A second Trump administration would likely target the deployment of funds from the IRA through executive action through the modification of guidance and changes to program offices charged with managing each component of the IRA and disbursing the funding,” Commodity Insights’ report said.

Cleantech wars

In the long term, both US candidates are expected to cut dependency on China for various clean energy supply chains, instead of prioritizing the adoption of renewables and electric vehicles.

“Even if we don't have a second Trump administration, the Harris administration is likely to continue having restrictions on trade, especially [with] Chinese manufacturers. This may create more opportunities for the rest of APAC as long as there's cooperation within the rest of APAC,” Ali Izadi-Najafabadi, Head of Asia Pacific, BloombergNEF, said at a recent industry forum.

India, Southeast Asia, South Korea and Australia are likely to benefit as they become alternative manufacturing hubs for products like solar panels, wind turbines, EVs and mineral resources.

CICC said Trump may also cancel the EV mandate issued by the Biden administration and expedite the issuance of oil and natural gas exploration licenses.

“In addition to Trump's general ‘isolationism,' all these factors will cause near-term shocks on the external demand for China’s clean energy products,” CICC said.

Harris’ support for EV infrastructure has largely been through the Inflation Reduction Act, for which she cast the tiebreaking vote in the senate as vice president, but both candidates are aligned on decreasing dependance on Chinese EV supply chains.

“Thus far in her campaign for president, Harris has done little to suggest that she would materially alter such policies, while also giving little indication of specific policies she would support to accelerate CO2 reductions,” Commodity Insights said in a separate report.