Donald Trump's victory in the 2024 United States (US) presidential election has raised significant questions about the future of climate policy and its impact on the voluntary carbon market (VCM). Amidst the change in US leadership, stakeholders within the VCM are keenly assessing the potential shifts in policy and market dynamics that could result from Trump and his administration’s approach to climate-related initiatives.
During his previous term from 2017 to 2021, President Trump withdrew the US from the Paris Agreement and rolled back numerous environmental regulations. These actions introduced uncertainty into the VCM, affecting market sentiment and corporate strategies. However, upon President Biden's entry into office, many of these policies were swiftly reversed, demonstrating the volatility of federal climate commitments.
A concern now is whether President Trump will attempt to withdraw the US from the United Nations Framework Convention on Climate Change (UNFCCC), a significantly more complex process than exiting the Paris Agreement. The conservative think tank, The Heritage Foundation, has outlined in its "Project 2025" agenda the possibility of such a withdrawal, even if there are legal and political hurdles that would make its execution very challenging. Although Trump has not explicitly stated this intention, the potential for more drastic measures looms due to his association with the organization. The anticipation of policy reversals after Trump’s first term, seen after Biden took power, could also lead to increased efforts from the Trump Administration to create more lasting impacts that are difficult to counter by future governments.
Moreover, certain international mechanisms are expected to remain unaffected. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), administered by the International Civil Aviation Organization (ICAO), operates independently of the UNFCCC framework. As such, carbon trading under CORSIA would likely continue unabated, providing a degree of insulation for the VCM from federal policy changes.
On the corporate front, companies may face increased Scope 2 emissions due to the new administration's support for fossil fuels, potentially leading to a higher carbon intensity of electricity in the US. This scenario could incentivize corporations to pursue less carbon-intensive energy sources or to purchase more carbon credits to offset their increased emissions. Large technology firms, for example, might further accelerate investments in nuclear energy or other renewable sources to mitigate their environmental impact. While uncertainties around Article 6 remain, US developers could be impacted in their ability to participate in international carbon markets, which could limit their buyer pool and place downward pressure on prices.
The anticipated reduction in federal incentives for carbon management technologies, such as carbon capture and storage (CCS) and carbon dioxide removal (CDR), could pose challenges for project developers. The decreased emphasis on tax credits and support for these technologies may slow their deployment, affecting the supply side of the VCM. A factor to consider for these technologies is their use by fossil fuel companies and the potential for them to leverage Trump’s energy policies to generate additional capital to invest in scaling carbon capture and removal.
Trump's potential advisors and associates could also influence climate policy. Figures from the financial sector, including traders and executives from firms like Blackstone and Goldman Sachs, may hold key positions or serve as informal advisors. Their perspectives could shape policies related to taxation, fossil fuel investments, and trade tariffs, indirectly affecting the VCM. These individuals include Elon Musk, who has demonstrated an interest in carbon markets through initiatives like the USD 100M XPRIZE for carbon removal and Tesla's significant revenue from selling regulatory credits—amounting to USD 1.79B in 2023. His past might hint at Musk’s support for innovative carbon reduction technologies, market mechanisms, more tariffs, and fewer taxes.
The broader analysis suggests that while federal policies under a second Trump administration could introduce challenges, the VCM can be supported by strong corporate commitments and subnational actions. During Trump's first term, significant collaboration at the state and local levels helped sustain progress on climate initiatives. This pattern is expected to continue, with corporations increasingly taking the lead in climate mitigation efforts, regardless of federal policies. Additionally, the demand for high-quality carbon credits may persist or even grow, driven by corporate sustainability goals and investor expectations, especially for multinational corporations under different regulatory environments.
Stakeholders are encouraged to monitor developments closely and consider strategies to navigate the evolving landscape. Engaging with subnational programs, reinforcing sustainability commitments, and diversifying investments in carbon reduction projects can help mitigate risks associated with federal policy changes.
Please reach out if you have any questions on how this may impact your carbon strategy.