The Economic and Environmental Impact of Trump's Climate Policy Reversal on Global Energy Transition

A giant banner reading "Trump: Climate Genocide" was unveiled in London, highlighting global concerns about climate policy shifts.

The world has reached a critical juncture in the energy transition. Technological advancements are enabling faster and more cost-effective emissions reduction than ever before. However, US President Donald Trump is simultaneously reversing decarbonization efforts in the world's second-largest polluting nation.

Using scenarios developed with a comprehensive global economy and energy system model, complemented by research from BloombergNEF, we evaluate the implications of Trump's policy reversal and potential ripple effects if other leaders follow suit.

If other nations maintain their climate commitments while the US withdraws, America's economy gains approximately 0.8 percent in GDP by 2050 compared to continuing decarbonization efforts. However, countries maintaining their climate goals face higher transition costs, and global emissions increase by nearly 10 percent, moderately elevating global heating risks without catastrophic consequences.

Should other countries emulate the US approach, they avoid immediate transition expenses but face intensified climate damage. Carbon dioxide emissions surge 75 percent, with disproportionate impacts on hotter, less wealthy regions. By mid-century, Vietnam could lose over 3 percent of GDP, sub-Saharan Africa nearly 2 percent, and India about 1.7 percent. The US and China would experience losses around 1 percent and 1.5 percent respectively.

This outcome exemplifies the classic tragedy of the commons, where short-term self-interest overwhelms collaborative benefits. If only Trump withdraws from climate efforts, the US gains temporarily. If a global retreat occurs, virtually all nations suffer losses.

Our baseline reference is BloombergNEF's Economic Transition Scenario (ETS), which outlines a technology-driven, market-based pathway where innovation and electrification reduce costs of clean alternatives, decoupling economic growth from emissions. From this foundation, we model scenarios where either the US alone reverses course or where global climate action collapses, accounting for both transition costs and climate impact expenses.

To analyze technology-led transition effects, we incorporate BloombergNEF's bottom-up analysis into a comprehensive model of the global economy, trade flows, and energy sector, developed by the Global Trade Analysis Project and World Trade Organization.

BloombergNEF projects a pathway limiting global temperature increases to approximately 2.6°C by 2100. The ETS maps how technological disruption transforms energy supply and demand across more than 75 technologies spanning power generation, transportation, industry, and buildings.

Progress in this scenario depends on rapid technological advancement in energy production and consumption, supported by government policies that create fair competition and help technologies achieve scale. Declining costs for renewables and storage—coupled with expanding electrification—accelerate adoption, as do policies like EV purchase incentives and renewable portfolio standards.

This governmental support is now absent in the United States. Trump is championing fossil fuels while reducing emphasis on electrification and renewables. In our US policy pivot scenario, we project increased backing for American fossil-fuel producers, expanded energy exports, and further rollbacks of climate-friendly regulations.

This shift delivers immediate economic benefits for the US. Compared to our reference scenario, America could gain almost 1 percent in GDP by 2050 by reducing fossil-fuel energy costs and profiting from energy exports. Global fossil-fuel consumption would increase 8.7 percent above our ETS projection, while solar and wind power decline 3.5 percent. Global emissions rise 10 percent, slightly elevating temperatures and increasing our estimated worldwide GDP losses by an additional 0.2 percentage points by 2050, with poorer, warmer countries bearing greater impacts.

After accounting for accelerated global heating losses, the US advantage decreases slightly to 0.8 percent—while other nations face incrementally larger losses, as climate change impacts distribute unevenly worldwide.

Other oil and gas producers, including Canada and Middle Eastern nations, would suffer as the US captures global energy market share. Rising temperatures amplify heat-related damage universally but especially in regions with hotter climates and limited adaptive capacity.

When a major emitter changes direction, other nations face strong incentives to abandon their climate commitments. If this occurs, historical energy and emission trends would likely persist. Fossil-fuel use would decline slowly, renewable adoption would stall, and electricity's share of final energy consumption would remain near current levels.

In this scenario, emissions surge 75 percent compared to the ETS and 58 percent higher than if only the US reverses course, driving global GDP losses approximately 1 percent higher by 2050. By century's end, global temperatures increase nearly 3°C, versus about 2.6°C under the ETS reference pathway.

Inaction proves costly, particularly for nations already experiencing intense heat with limited adaptation resources. Heat stress, crop failures, and extreme weather will deplete constrained resources. Wealthier countries initially face less severe impacts but would also experience escalating costs over time.

While the economic effects might appear modest initially, these costs continue growing—reaching substantially higher levels beyond 2050.

Additionally, there's risk of triggering climate tipping points where small changes catalyze larger, faster, irreversible shifts.

Our analysis demonstrates that supporting a technology-driven energy transition represents the optimal global strategy. However, the temptation to avoid transition costs at others' expense remains powerful, risking a race to the bottom where self-interest prevails despite greater collective benefits from cooperation.

This outcome seems probable but isn't inevitable. As extreme weather events increasingly demonstrate climate change costs, while innovation reduces transition expenses and increases benefits, the strategic landscape may transform once again.