US November election results could decelerate energy transition, with $1 trillion in energy investment on the line, says David Brown at Wood Mackenzie
The Infrastructure Investment and Jobs Act (IIJA) of 2021 and the Inflation Reduction Act (IRA) of 2022 catapulted the US to global leadership in decarbonization. But a victory for former President Donald Trump in the November 2024 election, combined with long-standing issues around the US’ relationship with China and government deficits, could significantly alter the path of US energy policy and usher in a delayed transition scenario, according to a new Horizons report from Wood Mackenzie. While investments for technologies that support the energy transition and low carbon technology may decelerate, the opposite effect might take place for fossil fuels, which could see expanded investment and push out peak fossil fuel demand.
‘This election cycle will really influence the pace of energy investment, both in the next five years and through 2050. Investments in low carbon supply need to be made in the near term to realize longer-dated decarbonization targets. US carbon emissions could grow, putting net zero out of reach in our delayed transition scenario,’ according to David Brown, director of Wood Mackenzie’s Energy Transition Research.
Delayed Transition Scenario
In Wood Mackenzie’s delayed transition scenario, the team projects about $6.5 trillion (€5.95 trillion) in investment for the US energy sector over 2023- 50, about 55% lower than in Wood Mackenzie’s net zero scenario (which you can read about online). The results of the November 2024 election, US tensions with China and rising budget deficits could significantly alter the path of US energy policy.
‘It is not likely that the IRA will be fully repealed,’ says Brown. ‘However, a second Trump presidency would likely issue executive orders that would abandon the 2035 net zero target for the power sector, establish softer emissions goals from the EPA, and issue tax credit regulations that could favour blue hydrogen.’ Brown adds that the fiscal environment may prove challenging as well, as US government spending could be limited to address the country’s debt burden – the US Congressional Budget Office expects the US debt-to-GDP ratio to reach 109% by 2030 and hit 155% by 2050.
Wood Mackenzie’s base case projects about $7.7 trillion in investment for the US energy sector over 2023-50. However, in the delayed transition scenario, less policy support for things such as low-carbon energy and infrastructure improvements decreases investment for the US energy sector by $1 trillion compared to the base case.
Net Zero Is Out Of Reach
The US is the second-largest greenhouse gas emitter globally, behind China. Investment in low-carbon supply in the US is key to lowering global emissions according to Wood Mackenzie’s base case outlook. In this forecast, it’s projected that by 2030 the US will reach peak fossil fuel demand and have about 30% of global CCUS (carbon capture, utilization and storage) capacity, and electricity demand will double by 2050.
According to Brown, where policy support for low-carbon energy is cut back, CCUS and low-carbon hydrogen would face a slower investment pathway. Total US natural gas demand would rise to be 170 million m3 per day, higher than in Wood Mackenzie’s base case by 2030, a jump of 6%. ‘It is important to note that peak fossil fuel demand does occur – it is just around 10 years later than the 2030 prediction in our base case. With a peak still on the horizon, companies will need to continue diversifying into low carbon technologies to build a business model that is resilient through the energy transition. Each sector, from transport to power and emerging technologies, will be affected by a nuanced set of drivers,’ says Brown.
Sector Impacts
EV sales stumble: A look at new car sales in the US so far in 2024 offers clear indications that a slower energy transition is plausible. While sales of hybrids have leapt 57%, EV sales have undershot expectations, growing by only 19%. Weakening federal greenhouse gas (GHG) emissions and fuel economy regulations continue this trend, and the total stock of EVs by 2050 would be 50% lower than in Wood Mackenzie’s base case. With hybrids, not EVs, in the driving seat of transport decarbonization, US oil demand could be 15 million barrels per day by 2050, down only 24% from 2024 levels.
Zero carbon power supply faces strong headwinds: With less financial support from the Department of Energy Loan Program Office, fewer grid improvements, and continued trade tension with China, the delayed transition scenario for the US projects that wind and solar and energy storage capacity would be about 500 gigawatts (GW) by 2050, 25% lower than the base case. Coal would remain in the mix for longer. ‘Amid continued load growth, less policy support for renewables and mounting confusion over emerging technologies, the biggest states for coal-fired power generation – including Indiana, Michigan, Texas and Tennessee – would slow down coal retirements significantly. Companies would take time to decide how to decarbonize their power plant fleet and keep the lights on,’ says Brown. ‘To replace coal plants that are shutting down, natural gas is required to meet power demand. With slower growth in renewable generation, natural gas capacity in 2040 is 30 GW higher in our delayed transition scenario than in our base case. The growth of gas could be supported by additional policy measures. Texas has already legislated for US$5 billion in loans to support new gas-fired power plants, and similar measures could be brought in more widely.’
In the delayed energy transition scenario, the pace of electrification would ease in the near term. However, industrial, residential, electrolytic hydrogen and EV usage would still combine to increase power demand by 2.0 petawatt-hours (PWh), a 45% jump from 2030 to 2050. With less policy support for renewables and continued load growth, there would be no way out of using coal. As a result, by 2040, coal generation capacity would be four times higher than the base case, with 104 GW on the system.
Low-carbon hydrogen could falter. The lack of federal demand-side targets, reductions in federal funding and cost inflation would challenge the investment case for low-carbon hydrogen. Eligibility for tax credits under the IRA could be adjusted to tilt incentives towards blue hydrogen. Near-term growth shifts to export markets in Europe and Asia; Wood Mackenzie’s delayed transition scenario would still foresee a 2 million tonne export market emerging by 2050.
Devolving Responsibility To Individual States
A look at state-level policies shows that momentum for low-carbon investment can be independent of federal policy. Since 2020, California’s utility-scale battery capacity has expanded eight-fold to 8.4 GW. By the end of the year, Wood Mackenzie expects battery capacity to reach 11.7 GW. State-level renewable portfolio standards and voluntary renewable energy targets supported wind and solar capacity expansions of over 13% a year on average between 2016 and 2020, during the last Trump administration. California’s Low Carbon Fuel Standard (LCFS) will help underpin investments in low-carbon hydrogen, direct air capture (DAC) and bioenergy across the country. ‘A slower transition scenario for emerging technologies does not mean the story is over,’ says Brown. ‘The emerging technology sector in the US will need to reassess costs, project sizes, and subsidy reliance. This should be approached through a position of confidence. The US has a track record of innovation – going from a net LNG importer to the world’s largest LNG exporter over the last decade.’
