Sending shockwaves world wide
Trump’s dismantling of U.S. climate action is redrawing the global climate map—economically, diplomatically, and strategically. The world’s largest economy is walking away from decarbonization, leaving allies disoriented, rivals emboldened, and developing nations exposed.
At the heart of this shift are two competing powers: China, advancing with industrial scale and ambition, and Europe, caught in its typical but dangerous prevarications. Meanwhile, emerging markets, often most vulnerable to climate impacts, find themselves in the crossfire.
China: The Relentless Green Industrialist
Trump’s retreat is China’s opening.
While the U.S. pulls back from climate leadership, Beijing is going all-in on clean tech dominance. China now produces 80% of global solar panels, over 60% of global EVs, led by companies like BYD and CATL, the lion’s share of global battery cells and components, and 95% of key rare earths used in clean energy technologies. In 2023, China produced more solar panels than the United States in its entire history, while cutting wholesale price by half, increasing fully assembled panels by 30% and doubling the export of key components.
And it’s just the tip of the iceberg, with an acceleration of construction of solar panel farms, wind farms, and hydroelectric projects. China understands that climate change isn’t a dogmatic issue, it is an inescapable scientific fact. Whoever owns the technologies of mitigation and adaptation owns the future. Therefore, its long term industrial strategy is to replace the “old trio” of industries (clothing, furniture, appliances) with a new trio: electric vehicles, batteries, and solar panels.
It has reached “peak carbon” six years ahead of schedule, and contributed over USD 34 billion in climate-related development finance over the past decade, making it one of the most significant providers of international climate aid.
China argues that its green economy dominance accelerates the transition towards clean energy, as no other region can roll out green goods on that scale and price point. Doing so, it instrumentalizes the climate agenda of its trading partners and corners them into a relationship of dependence. Through its Belt and Road Initiative, China is building solar farms in Pakistan, wind parks in Argentina, EV bus fleets in Kenya, and hydropower in Laos. Financing, construction, and hardware are bundled together—locking in long-term influence.
At global climate forums, China now shows up as a heavyweight: not necessarily to lead politically, but to shape the rules, supply the tools, and build the infrastructure of the post-carbon world.
Europe: Scared of its green mantle
With the U.S. stepping back and China stepping up, Europe finds itself trapped between two deeply uncomfortable choices.
It can follow the U.S. into fossil populism, slow down regulation, and protect its legacy industries—at the cost of climate credibility, energy sovereignty, and long-term economic competitiveness.
Or it can double down to compete with a hyper-industrialized China, building the technologies, supply chains, and infrastructure needed for green industrial sovereignty—without access to the vast market of its former transatlantic ally.
To remain a climate leader, Europe must navigate a double bind: external pressure abroad, and internal fragmentation at home.
Challenges Abroad: Finding its place in a fragmenting world
Without the U.S. as a climate ally, Europe is facing increasing headwinds on the global stage.
Trade tensions are mounting. The EU’s Carbon Border Adjustment Mechanism (CBAM)—designed to protect European industries from foreign competitors operating under looser environmental rules—is being challenged at the WTO and condemned by key trading partners in Asia, Africa, and Latin America. What was meant as a tool of climate diplomacy is now being framed as green protectionism.
At the same time, strategic alliances are unraveling. Joint EU–U.S. initiatives on methane, clean hydrogen, and energy standards are stalling. Europe has severed its dependency on Russian gas at great cost—only to face a new vulnerability: the weaponization of American LNG. Like Russia before it, the U.S. is now leveraging its energy exports as geopolitical tools, challenging Europe’s vision of energy sovereignty.
Meanwhile, China is dictating the tempo of the green economy. European markets are flooded with cheap solar panels, batteries, and EVs. While this accelerates deployment, it undermines domestic manufacturing. European policymakers are caught between embracing fast decarbonization or defending their industrial base from erosion.
In this fractured, post-American climate order, Europe’s voice remains loud—but its leverage is fading.
Challenges at Home: Political and Industrial Headwinds
Europe’s internal consensus on climate is fraying—not from denial, but from opportunism, fatigue, and industrial anxiety.
Pushback from legacy industries is growing louder. Heavy industry, automakers, and chemical producers are presenting climate regulation as the root cause of their competitiveness problems. Rising energy costs, tightening carbon markets, and Chinese import pressure are fueling calls to “pause” or “rethink” the Green Deal. This is in spite of the recent report by Mario Draghi which identified high energy prices as one of the biggest hurdles to European competitiveness, and the Green Deal one of the key measures to solve it.
This industrial discomfort is being seized upon by populist movements. Far-right parties across the continent—AfD in Germany, RN in France, FdI in Italy—are exploiting public frustration over inflation and high energy bills. Climate policy is increasingly painted as an elite agenda, out of touch with the struggles of ordinary citizens and small businesses.
The 2024 farmer revolts made this tension visible. What started as a movement for fair agricultural pricing quickly escalated into a backlash against EU environmental rules—particularly emissions and pesticide targets. The Commission’s subsequent retreat on several green policies revealed just how brittle public support can be when economic pressure mounts.
Beneath it all lies the perennial risk of fragmentation. Eastern European countries continue to resist carbon price hikes and clean energy mandates. Wealthier states push for acceleration, while poorer ones warn of social breakdown. The result is a bloc where climate ambition is increasingly uneven—and where the idea of a “two-speed Europe” no longer sounds theoretical.
Even within its own borders, Europe’s climate mantle is slipping—threatened not by climate denial, but by the slow grind of exhaustion and political calculation. And without a coordinated transatlantic partner, the costs of green leadership—economic, political, and social—are rising fast.
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Emerging Markets: Stuck in the Crossfire
Finally, for much of the Global South, Trump’s climate reversal is a gut punch.
Emerging markets are often the most exposed to climate risks, yet the least responsible for emissions. Many had pinned their transition hopes on Western financing, especially from the U.S. and multilateral funds backed by it.
Now that pipeline is drying up. The U.S. has frozen funding for the Green Climate Fund and other international climate finance mechanisms.Just Energy Transition Partnerships (JETPs), once hailed as a model for coal phaseouts, are stagnating without U.S. engagement. Projects in countries like South Africa, Indonesia, and Vietnam are now at risk of collapse or delay.
At the same time, private capital is pulling back. Without strong U.S. signals, financial institutions are becoming more cautious, especially in emerging markets already grappling with debt, currency risk, and political volatility.
And as the U.S. retreats, China moves in—not just with clean tech, but with coal and oil infrastructure too, wherever it serves its interest.
The result is a fragmented landscape: climate policy by great power rivalry, not global coordination. And emerging economies are left navigating a new era of climate realpolitik—where financing, technology, and influence are all strategic tools, not public goods.
How markets are responding
Markets have anticipated and priced in the climate reversal. Since Trump’s inauguration, investors have reacted quickly, revealing a story of volatility, shifting capital, and emerging divergence between regions and asset classes.
Public Equity Markets are repricing climate risk
In the immediate aftermath of Trump’s return to office, public markets staged a short-lived relief rally, driven by expectations of deregulation, tax cuts, and pro-fossil fuel rhetoric that could drive new investments. However, the honeymoon didn’t last.
The S&P 500 has fallen by over 6% since the inauguration, marking one of the worst post-inauguration performances since 1937. The Nasdaq Composite, sensitive to long-duration tech and clean energy valuations, is down over 11%, hit by the rapid rollback of Biden-era incentives. Clean energy stocks—once buoyed by IRA tailwinds—have borne the brunt. ETFs tracking solar, wind, and EV manufacturers are down double digits YTD.
Of course, this isn’t only linked to climate policy. Threat of tariffs and trade wars have been a driver of stock price correction. But in general, investor confidence in the U.S. as a stable climate investment destination is fading. What’s being repriced isn’t just risk—it’s the entire transition narrative.
Energy and Commodities: a strong narrative on weak fundamentals
The administration’s “Unleash American Energy” policy sparked renewed enthusiasm for fossil fuel producers. Share prices for oil majors and pipeline operators jumped in January on expectations of fast-tracked drilling, LNG export terminals, and deregulation.
But fundamentals are pushing in the other direction: The U.S. is already the world’s largest oil and LNG exporter. The IEA forecasts that global oil supply will outpace demand in 2025, especially if China’s post-COVID recovery continues to underperform. A potential glut in LNG markets—with excess U.S. supply—could push prices lower and hurt profitability across the value chain. This expectation would also dampen investment in new production in the US, regardless of political incentives. Meanwhile, critical minerals like lithium and rare earths—which had surged under the IRA—are seeing price softening, as supply chain localization efforts stall and Chinese exporters regain pricing power.
In short, the Trump administration’s push for fossil fuel expansion may overcorrect, triggering margin compression and volatility in energy markets.
Private Equity: Uncertainty Freezes the Climate Pipeline
Private equity investors, particularly those with exposure to climate tech, infrastructure, and ESG-linked assets, are hitting the brakes.
Deal volume in U.S.-based clean infrastructure projects has slowed significantly as firms reassess political risk and policy reversals. Late-stage climate tech companies, once beneficiaries of generous subsidies, are now facing valuation cuts and financing delays. Even generalist PE funds are pausing climate-aligned strategies, citing lack of clarity on medium-term tax treatment, permitting regimes, and public-private partnerships.
As a result, some European and Canadian investors are already shifting climate capital toward jurisdictions perceived as more stable.
European Union Allowances : riding the geopolitical volatility
EUAs are also experiencing strong short-term volatility linked to the newsfeed from the US. Increased tariffs are a risk for industrial exports, which may hurt European industrial output and hence EUA demand. In parallel, a “peace” in Ukraine negotiated directly between the US and Russia may imply a lifting of sanctions and resumed flows of Russian gas to Europe. This would also decrease gas prices and reduce EUA demand, while putting a pause on clean energy development and electrification in Europe.
At the same time, the need for energy autonomy and industrial sovereignty has never been greater, especially if Europe wants to remain competitive in the decades to come. High carbon prices are an engine of public and private investment in decarbonisation technologies, and as such should continue to have strong political backing - as they have had for the past 20 years.
Final Word
The return of Trump marks a turning point—not just in U.S. politics, but in the global climate and economic order. The climate transition just became harder, messier, and more geopolitical. But it also became more inevitable. For European private investors, this is a time for clarity, conviction, and strategic allocation. And a new dawn for Europe.
The regulatory backbone and carbon pricing mechanisms remain strong, even amid internal tension. However, Trump’s fossil pivot and China’s green export machine highlight a core vulnerability: Europe is not yet sovereign in the technologies of tomorrow. The hope lies in European private investors. They are not just capital providers—they’re agenda-setters.
In a world where governments retreat, markets become political. That means shifting capital where it's most needed. Backing industrial and technological sovereignty. And speaking up—because silence is no longer neutral.
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