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Trade Wars and Climate Change

Trade Wars and Climate Change

Tim Mohin
April 11, 2025

The surprising impact on climate action from Trump’s on-again, off-again tariffs.
Despite the trade chaos, the energy transition is in full swing.
Trump signs executive orders aimed at reviving the coal industry.
New York will require major polluters to report emissions annually.
Setting up a new federalism battle, Trump seeks to quash at state-level climate rules.
The US pulls support from a global maritime carbon levy.

Global trade was shaken to its core when US President Donald Trump announced ‘reciprocal’ tariffs on most of the US’s largest trading partners last Friday. After global equity markets plummeted and fears of recession loomed large, Trump halted all but China’s tariffs for 90 days.

While the winners and losers of these on-again, off-again tariffs will be teased out over the coming weeks, slowing economic activity and growth also slows climate change as we saw during the COVID-19 pandemic. But over the long term, there is little doubt the trade war will slow the global energy transition.

The majority of the solar panels and electrical components used in EVs, batteries, and grid electrification all emanate from countries with high US tariffs: China (145%), Vietnam (46%), Cambodia (49%), and Thailand (39%). This will inevitably increase the costs of all things related to the energy transition and slow adoption. While the tariffs are meant to bring manufacturing to the US, Antoine Vagneur-Jones of Bloomberg NEF said, “extreme volatility puts firms off [investing in] assets with a 20-year depreciation timeline, and inflating the cost of inputs makes scaling manufacturing considerably harder.”

Executives warned that the added costs from tariffs would result in higher power bills. Electricity prices rose twice as fast as inflation last year, with several utilities requesting double-digit price increases from regulators to cover the rising costs. Sandhya Ganapathy of EDP Renewables said, “[Tariffs] could be a potential de-railer when we really have to usher in this new era of energy dominance to put the US at the epicentre of data centres and AI technology.”

The US ‘energy dominance’ agenda will also be impacted by tumbling oil and gas prices making it likely that firms will defer plans to expand drilling. An oil and gas exploration company employee said, “The administration’s chaos is a disaster for the commodity markets. ‘Drill, baby, drill’ is nothing short of a myth and populist rallying cry.”

In the short-term, the chaotic US tariffs will have a “covid-like” impact from slowing the economy and reducing oil and gas exploration. While this benefits the climate it results in massive human suffering. But, if the trade war accelerates, it will impede climate action by raising prices on materials and components needed for the energy transition.

The Energy Transition Continues

Despite the uncertainty around US tariffs, all signs point to accelerating global energy transition. A new report from the energy think tank Ember revealed that more than 40% of global energy came from renewable sources. While hydro-power is the majority, solar-power is catching up as the fastest growing energy source for 20 consecutive years.

The EU has led the way on energy transition thanks to their Emissions Trading Scheme (ETS). The ETS, which is now in its 20th year, has reduced the emissions of the covered sectors, like aviation, energy, and heavy manufacturing, by 50% - with 5% coming in 2024. The scheme is well on its way to its goal of a 62% drop by 2030.

Coal Revival?

Trump signed new executive orders aimed at reinvigorating the coal industry. By reducing Biden-era limits on pollution, opening new federal lands for coal exploitation, and exploring the possibilities of coal use in AI data centers, the Trump Administration hopes to revitalize the flagging industry.

Most energy analysts believe these measures won’t be enough, with a Capstone research analyst saying, “We believe Trump’s coal executive orders are unlikely to have a material impact on power or carbon markets, and the orders [are] symbolic [in] nature.”

Trump also opened up thousands of acres of land protected under the Biden administration in Nevada and New Mexico for oil and gas drilling and mining.

New York Proposes Climate Reporting

New York State’s Department of Environmental Conservation (DEC) announced draft regulations for large emitters to report on their greenhouse gas emissions beginning in 2027.

The rule would cover energy companies, waste companies, fertilizer companies, facilities producing more than 10,000 metric tons of CO2e annually, and others. It would require them to report emissions as part of a new planned “cap-and-invest” system, where emitters purchase allowances to cover their emissions beyond a cap that declines each year. The state has said it will support companies through this transition with guidance, assistance, and a simple online platform where companies report emissions.

DEC Acting Commissioner Amanda Lefton says the rules will help to “fill the data gaps left behind by proposed federal rollbacks.” The rule is open for public comment until July 1st, 2025.

New Executive Orders Target State Climate Policies

New York Governor Kathy Hochul

While New York and other Democratic-led states have been flexing their climate policy muscles, a new executive order signed by President Trump this week aims to reign in these actions. The order, called Protecting American Energy from State Overreach, instructs the US Attorney General to compile a list of all local and state laws related to climate change, emissions, ESG, or environmental justice and put a stop to them.

The order specifically mentions Vermont and New York’s “Climate Super Fund” and California’s cap and trade policy, but given the vagueness of the language, many other laws will be pulled into the fray. In a joint statement from the US Climate Alliance, New York Governor Kathy Hochul and New Mexico Governor Michelle Lujan Grisham said, “The federal government cannot unilaterally strip states’ independent constitutional authority. We are a nation of states — and laws — and we will not be deterred. We will keep advancing solutions to the climate crisis that safeguard Americans’ fundamental right to clean air and water.” The final decision on these rules will be played out in the courts.

In addition to Trump’s Executive order, state legislators in Texas are fast-tracking a bill that would inflict civil penalties on companies that track their GHG emissions. The rule would block any company doing business in Texas from measuring direct or indirect emissions in the state. Any company doing so would risk a $10,000 fine or double the amount it spent on measuring emissions. This bill is meant to be the mirror image of the California climate law requiring emissions reporting from companies doing business in the state.