What Do U.S. Tariffs Mean for the Climate?

Author

Tim Mohin
07 Feb

What’s in Today’s Newsletter:

  • Trump’s trade war could have widespread implications for climate action. 

  • A climate showdown is brewing between federal and state governments.

  • California’s climate law wins in court.

  • The EU’s omnibus directive looks likely to weaken the Green Deal. 

  • The majority of countries will miss next week’s UN deadline for carbon reduction targets.

Trump fulfilled another of his campaign promises this week by imposing tariffs on Canada, Mexico, and China. The blanket 25% tariffs on Mexico and Canada have been delayed for a month, while China’s 10% tariff was implemented on Tuesday. But what do these tariffs mean for the climate?

Since Tuesday, China has released retaliatory tariffs targeting U.S. fossil fuels, which could upend U.S. liquified natural gas (LNG) exports. Although LNG is a fossil fuel, it emits much less carbon than oil or coal, and countries have been using it as a transition. The tariffs put that transitional step at risk, meaning developing countries could revert to cheaper coal. 

The new tariffs could hit the solar, battery, wind, and electric vehicle industries particularly hard. These industries, already reeling from Trump’s freeze on climate change funds from the IRA,  are halting clean energy projects. Adding to the squeeze, China is restricting exports of raw materials, such as rare earth minerals, which could shrink an industry that has grown rapidly over recent years. 

Energy experts warn Trump’s cuts to renewables could cause an energy crisis in the U.S. In the next three years, utilities will need to boost annual generation by as much as 26% from 2023 levels, more than the U.S. has achieved in more than 2 decades. Most analysts believed the majority of the energy would come from renewables and batteries. Jim Robb, chief executive of the North American Electric Reliability Corporation, said, “I’m not sure I see the wisdom in slowing down the development of any resource right now.” 

This could harm both the climate and U.S. companies' ability to compete in a more sustainable world. China is already a world leader in clean energy, investing $800 billion in 2024, more than a third of the total global investment of $2.1 trillion in clean investments last year. The international community is forging ahead with the energy transition, which will position China as a global leader. 

Other countries are not waiting for the U.S. Lord Adair Turner, head of the Energy Transitions Commission, suggested that China, the EU, and the UK should create a climate coalition independent of the U.S., saying, “The rest of the world has got to pull together agreements which are as effective as possible without the US.”

A Federal vs. State Climate Showdown

It’s not just the international community at loggerheads with the U.S. federal government. At the state level, New York has joined California and other states with bold climate policies, like a congestion tax, a climate super fund, and most recently, an emissions and climate risk reporting rule proposal.

Now, New York is preparing for a legal battle with the Trump administration over the NYC congestion charge. The Federal Department of Transportation is considering withdrawing the authorization that allowed the implementation of the toll. However, legal experts claim the government would be unable to shut down the program through the courts. 

California’s Climate Law Wins Court Challenge

California Governor Gavin Newsom

Another flash point that could soon come onto Trump’s radar is the California Climate Law (SB219). The law withstood another legal challenge this week when the presiding judge sided with the state, dismissing two of the three claims from the plaintiffs (the US Chamber of Commerce). One additional challenge remains: a claim that the law violates the First Amendment of the Constitution on Free speech. After this week’s decision, it is more likely that companies doing business in California will be required to report their climate emissions and risks beginning next year. 

However, an Arizona state senator has already sent a letter to Trump asking him to halt California’s climate regulations. Saying: “California’s war on fossil fuels includes Arizonans who conduct business or make purchases in California." California Governor Gavin Newsom, (who met with Trump this week to secure relief funding for the LA fires), approved $50 million for legal costs to protect the state's policies against the Trump administration.

EU Sustainability Policies Could be Weakened

If rumors are anything to go on, the EU’s so-called ‘omnibus’ regulation could substantially weaken three green deal policies: the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD), and the Corporate Sustainability Due Diligence Directive (CSDDD). 

After closed-door meetings this week, Responsible Investor reported “leaks” claiming that the rules will be ‘heavily watered down.’ While there are no hard facts yet, the report claims that the CSRD scope could be reduced to cover only companies with more than 1,000 employees - 85% fewer companies than the current policy. There is also a rumor that a key tenant of CSRD - double materiality, which focuses on both financial and human/environmental impacts - would be scrapped and replaced by a narrower focus solely on financial materiality. Key aspects of the CSDDD, such as requiring climate transition plans, are also on the chopping block.  

The Platform on Sustainable Finance (PSF), a group that advises the EU on sustainable finance policies, released recommendations that claimed to reduce the EU Taxonomy’s reporting burden by a third. The main changes relate to reduced reporting needs for small companies (SMEs), encouraging green financing, and redefining the ‘Do No Significant Harm’ (DNSH) criteria. 

In addition to these potential changes, plans have been floated to reduce the scope of the EU’s Carbon Border Adjustment Mechanism (CBAM). Under new plans released by EU Commissioner for Climate, Net Zero, and Clean Growth, Wopke Hoekstra, around 80% of companies currently impacted will be exempted. Hoekstra claims that “Less than 20% of the companies in scope are responsible for more than 95% of the emissions in the products.” This means that the climate impact will stay the same while helping smaller EU companies.

While none of this is definitive, it makes it more likely that big changes are afoot. However, there is pushback: Investors representing $6.6 trillion have warned the EU about changing the rules too much, and more than 150 civil society organizations have pleaded with the EU to keep the rules as they are. The omnibus proposal was originally scheduled to be released on February 26th but will likely be issued sometime in March.

Most Countries to Miss the NDC Deadline

This year’s global climate meeting - COP 30, held this November in Belem, Brazil - marks the 10th anniversary of the groundbreaking 2015 Paris Agreement. Every five years after the Paris accord, countries are expected to release climate targets, known as nationally determined contributions (NDCs). UN Climate Change Executive Simon Stiell said this round of NDCs “may be the most important documents to be produced in a multilateral context so far this century.” 

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer. 

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