How Trump's new term could affect the energy transition

Back in the White House, Trump has wasted no time in following through on his pledge to withdraw the US from the Paris Agreement—again. He already did it in 2017, but the situation is somewhat different now. 

Back in the day, the US had to remain in the Paris Agreement for almost four years due to the initial statutory delay, as the agreement had only come into force a year earlier. In the end, the US was out for only a few months before the Biden administration brought the country back in. 

But by signing the executive order to initiate the exit process, the clock is now ticking on the mandatory 12-month delay before the withdrawal takes effect. By early 2026, the US will stand alone outside the Paris Agreement—joining only Iran, Libya, and Yemen as non-participants. How could this affect the efforts toward a global energy transition? 

US financial institutions will further retreat from sustainability commitments

Professor Àngel Castiñeira, Director of the Esade Center for LeadershipS and Sustainability, emphasizes that the energy transition remains in its infancy, and Trump’s actions could exacerbate an already precarious situation. 

What has the Paris Agreement achieved?

“The energy transition has barely begun,” Professor Castiñeira notes. “By 2030, we will still be far from achieving the promised 45% reduction in CO₂ emissions. As of today, we haven’t even reached the peak of global fossil carbon consumption.” 

The 2023 Emissions Gap Report from the UN Environment Programme indicates a projected 15% reduction in emissions by 2030, far short of the 45% target set at COP26 in 2021. Energy expert Vaclav Smil suggests that fossil fuel consumption will remain relatively stable through 2050, with coal, oil, and gas continuing to dominate global energy systems despite the growth of renewables. The International Energy Agency (IEA) further underscores the likelihood of missing energy transition goals. 

Stalled transition for US climate leadership

Trump’s rush towards fossil fuels will undermine US progress. Meeting Biden’s 50-52% emissions reduction target by 2030 was already unlikely, requiring a 6.9% annual reduction—triple the 2023 drop of 1.9%. And now, the cessation of the Inflation Reduction Act (IRA) will allow for increased fossil fuel extraction and loosen restrictions on energy infrastructure. 

Castiñeira also predicts that US financial institutions, already under pressure, will further retreat from sustainability commitments, as evidenced by the recent withdrawal of the six largest US banks from the Net-Zero Banking Alliance (NZBA). Although these banks claim to support clients’ low-carbon goals, their withdrawal means that all banking activities related to loans, investments, and capital markets aimed at achieving net-zero greenhouse gas emissions will disappear. 

The global impact of the US withdrawal

The loss of US leadership in international climate forums such as the COP conferences, G7, and G20 is another critical consequence of Trump’s policies. Despite the setback, Castiñeira highlights that the US retreat is relative in its impact. "The current massive emissions increase comes from elsewhere," he explains. 

The US’s actions have galvanized other countries into renewed commitments

The biggest increases in emissions currently come from China (responsible for 32% of the world’s emissions), India (emissions have tripled in the past two decades), and Saudi Arabia (emissions have more than doubled in recent years). Significantly, Africa’s population is predicted to double by 2050, driving higher energy consumption. “This is where the crucial battle will take place,” says Castiñeira. 

Trump’s policies provide high-emission countries with an excuse to delay their own transitions, but there are hopeful signs that the US’s actions have galvanized other countries into renewed commitments.  

For instance, China has expressed concern about the US withdrawal and reaffirmed its commitment to the Paris Agreement. “Climate change is a common challenge facing all of humanity. No country can stay out of it, and no country can be immune to it," said Chinese Foreign Ministry Spokeswoman Mao Ning.  

Another crucial player, India, also remains committed. External Affairs Minister Dr. S. Jaishankar asserted that the country “remains steadfast in its commitment to addressing climate change and is actively working towards achieving its climate goals." 

Nonetheless, developing nations argue that rich countries, including the US, must fulfill climate finance commitments to support low-carbon transitions. Trump’s withdrawal of $11 billion in promised US funding to vulnerable countries deepens mistrust. 

The EU’s regulatory fatigue

The European Union, so far a global leader in climate action, has reduced emissions by 34% since 1990 but is now experiencing what Castiñeira calls “regulatory fatigue.” Protests against agricultural reforms and rising opposition from political groups that align ideologically with Trump are forcing the EU to scale back its ambitious environmental agenda. 

“Internally, this will be a phase for consolidating existing projects rather than spearheading new ones,” Castiñeira observes. This shift in public sentiment, combined with economic pressures, has slowed the EU’s progress, further complicating global efforts to combat climate change. 

Missed opportunities for US Innovation

Focusing on fossil fuels while neglecting renewables could be a strategic blunder for the US, as it risks ceding the burgeoning renewable energy market to competitors like China. The global renewable energy market, valued at $1.21 trillion in 2023, is projected to grow to $3.60 trillion by 2030. China, already the global leader in renewable energy investment, continues to advance in solar and wind power technologies. 

China’s investments in green energy and advanced AI place it in a strong position to lead

“The current military, technological, economic, and energy leadership of the United States may make it dominant in the present but blind to the future,” Castiñeira warns. China’s aggressive investment in renewables positions it to set global standards and dominate emerging markets.  

For instance, China’s renewable energy capacity now accounts for nearly 47% of its total energy mix. In 2023, China installed as much solar photovoltaic (PV) capacity as the entire world achieved in 2022, and its wind power installations grew by 66% year-on-year. 

The future of green transition

Despite Trump’s fossil fuel agenda, the energy transition will persist. Individual US states, through initiatives like the Climate Alliance, are taking the lead to compensate for the lack of federal action. “Governors have filled the void left by President Trump before and are prepared to do it again,” says Casey Katims, Executive Director of the Alliance. 

However, Castiñeira underscores the broader risks of Trump’s policies: “This new era of hyperintelligence will demand global collaboration and exceptional speed of action. The US, under Trump’s leadership, lacks the global consciousness needed for this transition.” 

In this Industry 4.0 era—defined by converging digital, biological, and physical technologies—China’s investments in green energy and advanced artificial intelligence place it in a strong position to lead. Meanwhile, the EU’s internal challenges and the US’s retreat from climate leadership may hinder their ability to keep pace. 

Ultimately, the global energy transition will continue, driven by technological innovation and international collaboration. However, Trump’s policies may slow progress, leaving the US at risk of falling behind in the race toward a sustainable future. “The analyst here should not focus on the snapshot but on the movement of the film,” advises Castiñeira.