In recent years we have seen a strong development of government plans aimed at increasing spending in different aspects with the aim of seeking the transition to greener economies, such as the European Union’s Next Generation plan or the IRA (Inflation Reduction Act) of the United States. The ultimate goal: respect the Paris Agreements. However, these practices carry a cost that they are often unaware of or rarely talked about. Visit the specialized elEconomista ESG portal.
Europe’s green agenda of electrification and decarbonization comes with costs for businesses, who will likely try to pass prices on to their customers. This is clearly a competitive disadvantage compared to companies that have no obligation to implement these policies. This is not a problem until Trump wins the US election. There have already been several announcements from the candidate at the White House where he has expressed his antipathy towards these measures. If Trump wins, the United States will leave the Paris Treaty and moderate decarbonization requirements.
In his presentation at the Republican Convention, Trump insisted a lot on the “Green New Scam”, green fraud. He says wind and solar power are expensive. If this happens and American companies have less demanding environmental requirements than European companies, they will have a competitive advantage. Converting a company’s production process to green technologies is time-consuming and expensive. If American companies are not forced to make this transition, they will be able to sell their products to their customers much cheaper and gain a competitive cost advantage.
But all this talk against sustainability is currently creating two big losers.
One of the first victims he attacked at the convention was wind and solar power. In this case, the candidate’s tone was noticeably more aggressive than he had on other occasions. Some of the statements he made are that these energies are expensive and do not work, in addition to requiring a lot of space and subsidies. Some companies have already encountered problems with the profitability of their projects in the country, especially with wind energy offand without these grants, they may not be willing to undertake more projects in the region.
Another target of attack was the electric carwhere he said he would end incentives and credits for these vehicles and batteries on his first day. Removing this type of incentive for electric cars, which are already more expensive to produce, will reduce their sales to the public, thus favoring fossil fuel cars. This represents a step backwards in the race to decarbonize and limit temperature increases to 1.5°C.
Ultimately, Trump’s ultimate goal is to redirect billions of dollars not yet spent on green projects toward building roads, bridges and wetlands. In other words, the infrastructure companies that develop these projects will be the big winners from this change in IRA distribution policy. So, one of the most polluting countries in the world will not help in the race for the environment and this will create a problem for the rest of the regions, notably Europe, where they will have to make a greater effort to compensate for this departure from the Paris Accords, if Trump ends up winning.
Guillermo Uriol Sanz is Head of Investment Grade and Manager of Fixed Income Investments and Pension Funds at Ibercaja Gestión.
