‘Drill baby, drill!’ What impact President Trump’s speech on sustainable investing?

22 January 2025

David Coombs and Will McIntosh Whyte, multi-asset fund managers at Rathbones, consider the rhetoric of Donald Trump’s inauguration speech promoting US oil production and pushing back adoption of electric vehicles, and assess the potential impact on sustainable investing.

The second coming of Donald Trump has led many to prophesy the end of sustainable ventures in the US and a degradation in the environment.

Listening to his rhetoric, that’s understandable. But I think there’s a reasonable chance that it won’t be as bad as people believe.

There are a few reasons for this, but they boil down to two main thrusts: Trump is a habitual exaggerator and the US economy is bigger than one man. During the first Trump term we learned that he often overegged or over-threatened his policies, only to come to a more reasonable compromise. Not always, but often.

The Trump administration has talked about wanting to boost oil production by 3 million barrels a day. That would fly in the face of the West’s current efforts to reduce carbon emissions.

Yet it would also be a staggering 20% increase in current production which is already 50% higher than when Trump first moved into the White House in 2016. For this to happen, it will have to make financial sense to the companies doing the drilling. Without subsidies or other incentives (which haven’t been offered), that math simply doesn’t work with the oil price where it is.

Nonetheless, US oil production as things stand is likely to increase under the current administration, and Trump is clear that he expects allies to buy more American oil as he seeks to reduce US trade deficits.

One of the biggest growth areas in the US is technology, AI and digital services. These areas are hungry for electricity, which means that America will need more energy, more efficiently. The Federal Energy Regulatory Commission expects annual national power demand growth will almost double to 4.7% during Trump’s term in office.

Oil will continue to be a part of the US’s energy mix for some time, but oil is not going to be the answer here. Natural gas could be part of the equation, but greater use of solar, wind, hydro and even nuclear, have massive advantages that tech companies have in many cases already decided on using when commissioning their own power plants or securing long-term supply contracts.

Many US companies, and not just the tech sector, have been working for the past decade or more to cut emissions, reduce their environmental impact and generally improve their public image. They have done this because of widespread scientific agreement about the need to slow global warming to reduce harm and costs for everyone, as well as because often it’s simply more efficient. So whilst the new administration may push the US oil agenda, it is not a one way street.

With regards to electric vehicles, the outgoing administration had aimed for EVs to account for half of all vehicle sales by 2030, and were looking to facilitate this journey with subsidies to narrow the cost between EVs and petrol cars.

We were already wary of some of the predictions over mass US adoption of EVs even with these subsidies, given the patchy infrastructure, higher repair costs and heightened range anxiety bearing in mind America’s heavy reliance on cars to cover long distances.

These targets, as well as subsidies for EVs now look under threat, and is likely to be a significant headwind for future sales. Slower growth also likely means slower infrastructure development and continued higher repair costs.

It remains to be seen if and how quickly these subsidies will disappear, particularly should Musk remain a key figure in the new administration – and perhaps we may even see a short term bump in EV sales as consumers rush to lock in subsidies. But for companies focused on this market, they now face a major dent in a key leg of the growth story.

 

Professional Paraplanner