Introduction

Climate change is increasingly recognised as the most significant long-term downside risk to almost all investment sectors. This urgency is underscored by the approaching 2024 U.S. Presidential election, where energy policy is a key issue, particularly in the context of the Republican Party’s push to revive the fossil fuel industry. With global temperatures in 2023 reaching unprecedented highs and surpassing even the most dire projections, the severity of climate-related disasters has escalated. These developments make it clear that mitigating climate change is not just an environmental imperative but also a critical economic and geopolitical challenge. The outcome of the U.S. election could have profound implications for global energy policies, especially as the Republican nominee, Donald Trump, advocates for an aggressive expansion of fossil fuel production.

Increasing Severity of Climate Disasters

2023 has been a stark reminder of the accelerating impacts of climate change. Record-breaking global temperatures, partly driven by an El Niño intensified by climate change, have led to widespread heatwaves, wildfires, and other extreme weather events. These developments have surpassed the projections of most climate models, highlighting the increasing unpredictability and severity of climate-related disasters, and the real-world implications of inaction on climate policy. The nonlinear trajectory of ecosystem collapse is one that has far-reaching implications, affecting everything from agriculture and infrastructure to public health and economic stability.

As the graph above shows, 2023 surpassed every previous temperature record by-far; almost showing an off-the-charts uptick in increasing temperatures. This must be seen in the context of the political economy of the green energy transition, involving stakeholders like big-oil to employ significant effort to subdue, delay, and slow down momentum of green energy through extensive lobbying in an effort to stay relevant in a world where renewable energy has become cheaper than conventional oil and gas as shown in the graph below.

COP and Delayed Multilateral Action

The international community has attempted to make some progress toward addressing climate change, with the United Nations’ Conference of the Parties (COP) serving as a central platform for multilateral action. COP 28 in Dubai marked a significant moment, signalling what many hoped would be the beginning of the end for fossil fuels. However, the subsequent COP 29, hosted in Baku, Azerbaijan—also a petro-state—seems to have reduced the pace and effectiveness of global climate action, and put the world off-track to limit global warming to 1.5C. The influence of fossil fuel interests and lobbying has continued to slow progress, delaying the implementation of much-needed measures to reduce emissions on a global scale, which by the number of lobbyists in COP 26 for instance, outnumbered national delegations to the convention.

The 2024 U.S. Presidential Elections

The 2024 U.S. Presidential election represents a pivotal moment for the country’s energy policy, particularly in the context of climate change. Donald Trump’s acceptance speech at the Republican National Convention on July 19th highlighted his intent to revive America’s fossil fuel industry. Declaring, “We will drill, baby, drill!” Trump pledged to ramp up domestic fossil fuel production to unprecedented levels, with the aim of making the United States "energy dominant" on the global stage. His commitment to this vision was evident in his efforts to court oil industry leaders, promising to roll back President Joe Biden’s environmental regulations in exchange for financial support for his re-election campaign.

Trump’s team argues that unleashing vast untapped oil reserves in regions like Alaska and the Gulf of Mexico could significantly boost production if environmental regulations were eased. However, experts contend that such plans might not significantly alter the U.S. energy landscape, whether fossil or renewable. Despite the oil industry’s grievances under Biden, the sector has seen substantial growth, with oil and gas production reaching record levels. Biden’s administration has issued more drilling permits in its first three years than Trump did during his entire term, and the profits of major oil companies have soared due to the 2020s global commodities boom.

Federal Policy and Oil Production

The impact of federal policy on oil production is often tempered by broader market dynamics and investor behaviour. The oil industry, particularly after the financial strains of the shale boom, now prioritises capital discipline, driven more by market conditions and Wall Street’s influence than by the White House’s policies. Even if Trump were to win the presidency, the overall trajectory of oil production is likely to continue being shaped by global supply-demand balances and the strategic decisions of organisations like OPEC.

Interestingly, Trump’s promise to repeal Biden’s Inflation Reduction Act (IRA)—which includes substantial subsidies for green energy—may face significant obstacles. The IRA’s benefits are largely concentrated in Republican districts, and industries traditionally aligned with fossil fuels are beginning to recognise the advantages of low-carbon technologies. For example, companies benefiting from the IRA’s subsidies for hydrogen and carbon capture are prepared to defend these incentives against any potential repeal.

Conclusion

The urgency of addressing climate change is often underestimated due to a common misunderstanding of the non-linear feedback loops involved in ecosystem collapse. Many tend to view emissions as a simple, transactional force with nature, failing to grasp the exponential and potentially catastrophic consequences of inaction. This underestimation leads to a dangerous complacency, undervaluing the need for urgent and robust policy action. 

The U.S. holds significant sway over global climate outcomes mainly because of two reasons: (1) It is the second largest emitter; and (2) it is one of the only countries in the world for climate policy to be a partisan issue, making it particularly susceptible to hampering global emissions targets.

With much of the Global South still dependent on coal, oil, and gas, a unilateral decision by the U.S. to aggressively increase fossil fuel consumption could single-handedly push the planet toward an irreversible climate disaster. The stakes are incredibly high, especially as the political economy of the green transition faces opposition from entrenched fossil fuel interests. These forces work to delay and obstruct the shift to renewable energy, despite the clear and present need to accelerate this transition to prevent ecological collapse.

Having already surpassed 1.5C warming; the world is headed towards 4.1-4.8C warming without climate action policies; 2.5-2.9C warming with current policies; and 2.1C warming with current pledges and targets. In this context, if the U.S. were to aggressively change course and begin burning more, instead of less as Trump suggests—it may severely hamper the ability of the global ecosystem to recover and restore, potentially breaching already critical tipping points.

Therefore, it becomes more important than ever for climate-conscious energy policy, to recognise that ecological collapse is a non-linear and irreversible outcome of breaching environmental tipping points, and to underscore the need to prevent misinformation on climate change spreading as a result of forces acting against renewable energy in the political economy of the green transition.

The good news, however, may be that while Republicans may advocate for a new oil boom, the realities of global markets and investor behaviour suggest a different outcome. Wall Street, driven by a cost-benefit analysis that increasingly favours renewable energy, may not align with the interests of a pro-fossil fuel administration. Although the White House can influence energy policy, it is ultimately market forces that will dictate the future of America's energy landscape. This shift towards green energy, driven by economic viability and technological advancements, underscores the need for accelerated action to mitigate climate risks and ensure a sustainable future.