What happens to the energy transition with the US exiting the Paris Agreement?
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Clients are able to choose in what way they would like to communicate with me, whether video or on the phone or chat texting. BetterHelp is there when you need it, and that's what makes all the difference. Visit betterhelp.com slash podbusiness to get 10% off your first month. Therapists were compensated. Welcome to Xero. I'm Akshat Rati. And I'm Maithili Rao. This week, moving past Paris. Hello, Akshat. Hi, Maithili.

So Trump has been in office for just over a week as we record this. A lot has happened. Bloomberg Green reporter Zahra Hirji has a great piece summarizing all the big developments and what Trump's flurry of executive orders means for climate, which I recommend listeners check out. There will be more to come on all of that. But the big headline that's going to have some impact, which is

Everyone at Bloomberg Green is looking closely at and what you're writing about this week is Trump withdrawing from the Paris Agreement. Yes, it's something I'm working with lots of reporters across Bloomberg News because this is the second time that Trump has withdrawn the U.S. out of the Paris Agreement.

And there is a lot that has happened since 2017 when he first attempted it. There are some similarities, but many differences. Okay, let's go through what's the same and what's different from 2017. The first time it happened, there were all these rumors that once the U.S. exits, it's the world's largest emitter, it's the world's largest economy. Other countries that weren't really committed to climate will also leave. Well, that didn't happen. And even now...

We are only a week out. It hasn't happened yet. There are still rumors of countries like Argentina and maybe Russia that might want to pull out. But so far, that hasn't happened.

The other thing is that the US does provide significant funding towards climate finance, especially under the Biden administration. Now, that money is nowhere close to the fair contribution that an economy the size of the US should be making. But it was, you know, $11 billion in 2024, according to the Biden administration. That money is going to go away. Plus, the world's largest banks are in the US, the world's largest companies are in the US. And that did have an impact last time around.

and it will have an impact this time around. Multilateralism itself, especially on the climate stage, was always on shaky grounds. It is perhaps on shakier grounds now. Okay, so those are things that are quite similar. What do you feel is radically different this time around than from 2017?

One is simply the time factor, right? 2017 was 13 years from 2030 when many companies and countries had set targets to reach. Now we're just five years away and most countries and companies aren't on track. So the urgency to act has grown. Of course, climate impacts have grown in number and in ferocity and the urgency to act on climate change has grown.

There is also not that many world leaders who are pushing for climate action. In 2017, you had Justin Trudeau, you had Angela Merkel, you had David Cameron.

This time, Trudeau is on his way out. Angela Merkel is not here. David Cameron or none of the UK's very climate forward leaders are stepping up. Sure, China's perhaps showing up in bigger ways. There's an Australian leadership in place, at least for now, that's doing something. But the big bulwark of world leaders against Trump's climate moves aren't here.

And then the global economy in 2017 had low interest rates, but very expensive clean energy. This time, interest rates are higher, but clean energy is cheaper and the sums being invested in the clean energy transition are just far greater.

And our colleagues at Bloomberg NEF have some new numbers on that energy transition out in a report today. You sat down with Albert Chung, deputy CEO of Bloomberg NEF, Bloomberg's new energy research unit, to talk about what those numbers are and what they have to tell us about the momentum on the energy transition. So let's hear that conversation now. ♪

Albert, welcome to the show. Thank you. Great to be here. Now, as a climate reporter, I often feel like I have two distinct realities that I live through all the time. One where, because we keep putting greenhouse gases into the atmosphere, we're not able

the world keeps heating up and we see more extreme weather events and more catastrophes. On the other, the energy transition, the solutions to try and tackle climate change only seem to be growing in size, accelerating, despite the politics around the world. And these two realities are seemingly contradictory, but they are two realities. And at pressure moments like the election of Donald Trump, those conflicting realities are hard to parse.

I know that this is something you also think about a lot. In an analysis you wrote for Bloomberg NEF, you said you are also in a constant state of dissonance. What do you mean? Yeah, I mean, so we live and breathe energy transition in BNF. And even if you just look at energy transition all day, you also have this dissonance of things sometimes looking really great and other times just not enough.

And certainly this year feels that way. I mean, there was record investment across clean energy technologies, record numbers of electric vehicles sold, record amounts of renewable energy installed, record amounts of storage, you know, all these amazing achievements and progress and scale and acceleration, which is great to see.

And yet, and yet, and yet, we always run the numbers, as you know, at the beginning of every year on what does actually need to happen to get on track for the climate goals for the Paris Agreement and so on and so forth. And usually what we find is the total amount of investment going into energy transition is roughly about a third of what it needs.

needs to be to get on track. So for me, that's the dissonance we grapple with around this time of year, actually, funnily enough, in the winter when we're running those numbers. Well, talking of investment trends, Bloomberg NEF is launching its report for the investment trends in the energy transition of 2024 today. What do the numbers say? So the report is Energy Transition Investment Trends 2025. It's a report we've been doing for 20 years. And this year, we find that total global energy transition investment hit $2.1 trillion last

Last year. That's a new record. That's breaching the $2 trillion mark. The first time over $2 trillion. And so it's a real milestone, a great achievement. But there are some caveats in there. So one is...

growth year on year was only 10.7%, which in most industries you would take that as a growth industry if you're growing. I would be happy with that. Yeah, you'd be happy with that. Exactly, exactly. I think we'd all be okay with an 11% raise. However, in previous years, the last three years, the growth was between 24 to 29%. So the growth has been a bit slower. Now, what's driving that growth?

It's one country. It's China. So China invested more than $800 billion in energy transition last year. That was more than the EU, the US, and the UK combined, which, by the way, hadn't been the case the year before. So that doesn't happen every year.

And China alone drove two thirds of the global growth that we saw last year. Wow. So, yeah, it's a really interesting read. We really enjoy going through the data every year and kind of picking out the trends. So I really thoroughly recommend that folks take a look at that. And

There is a framework that you have created to try and understand this year that we are going into with the politics where they are and with the energy transition where it is. And you say that we have gone through three phases of the energy transition. You describe them as sacrifice, opportunity and competition. Expand on that.

Yeah, I mean, this was in the piece that I wrote really about the way that the multilateral climate action discussion has evolved over the time that, you know, we at BNF have been following this. So in the 2010s, you know, prior to the Paris Agreement, most countries thought of climate mitigation and low carbon transition as a sacrifice they would have to make, you know, they would have to lower living standards or sacrifice economic growth in order to save the planet. That was the kind of

overarching thesis. And so a lot of the discussion around that was, how do I make sure that I don't do too much too quickly and make sure that other countries do their part and really just kind of find a fair way to share the sacrifice? Right. Developing countries were suffering and are suffering from most of the climate impacts disproportionately, while developed countries have been the ones that have put out all these greenhouse gas emissions. And so there's always this push between developing countries wanting developed countries to do more. Exactly. And that was

That was always the primary axis of this debate was developing and developed countries having that sort of discussion. But even among developed countries, this question of who bears more responsibility and how can we make sure others are doing their part? And all of that changed, you know, after the Paris Agreement, which was really a coming together of this idea that actually this can be an opportunity for

And at the same time that the Paris Agreement was being signed, we were seeing these tremendous cost reductions in renewable energy technology, batteries and storage and electric vehicles all coming down in cost. We had the IPCC 1.5C report come out right after that, which sort of gave the world the net zero framework. There's the Fridays for Future with all the kids marching on streets. That felt like a momentum. Exactly. And so we arrived in Glasgow in 2021 for COP26.

with this idea that countries are grasping the opportunity. So it became an opportunity framing and countries almost racing to say, we can do this faster and better than we thought and potentially faster and better and capture more opportunities than others as well. That led to record investments in the energy transition, but also in climate tech startup, which saw a huge amount of investments coming through in 2021, 2022.

And then over the past few years, even before the US election, it all started to feel a little bit deflated.

Yeah, and I think the opportunity framing that was so strong three or four years ago hasn't gone away. But what's happened is there's just been this very strong sense of competition and quite a strong kind of economic cost-benefit analysis that's been injected into that at a country level. So policymakers, heads of state are all saying, look, we see this low-carbon transition opportunity to create industries, to create jobs, to capture the value of this transition. But we need to actually see that materialize in order to make the case to our people that this is the right way forward.

But if competition is being injected into the energy transition with what signals we're getting from President Donald Trump around increasing fossil fuel production, around taking all the subsidies away from electric cars, around not giving any permissions to build wind turbines in federal lands, and this very...

anti-climate. It's not about economic. It's an anti-climate move that's being made. Does that mean the US just becomes less competitive and the rest of the world competes instead? We're talking about this in the very, very early days of the new Trump administration. It's just been a few days since he was inaugurated.

And what we've seen so far is of course that he is doing everything he can really to roll back any kind of policy support particularly for electric vehicles. That's really the sort of biggest target let's say. And so it's things like reviewing the corporate average fuel economy targets, looking at the California waiver that allows California to set its own emission standards.

looking at the IRA funding, looking at the electric vehicle charging infrastructure funding, and seeing if they can stop those funds going out, funds that have been previously committed. So those are quite strong actions that he and his administration want to take. And we will see how much of that is successful and has the desired effect that he's looking for. But the net impact of all of that is that will slow the adoption of electric vehicles in the US relative to what it

had been forecast to be, and has been, we have lowered our electric vehicle forecast. So in the US, we've taken our EV forecast from about half of all new vehicles sold in 2030 being electric to about a third. That's still growth. So we still think the fundamentals driving EV

adoption are going to be strong, the economy is getting better. And because it's going up from about 10% today. Exactly, exactly. So it's still growing, but there's a lot that governments can do to try and slow it down, let's say. Maybe not change the direction, but at least slow it down. And what about the apparent slowdown of the EV transition in Europe? Yeah, and in Europe, so we've looked at it. And in the end, when you look at 2024 as a year, EV sales were flat in Europe. So they weren't

they weren't particularly down, it's going to come out that they were roughly flat.

And there was a lot of hand-wringing in the industry about the consumers don't want them, et cetera, et cetera. But when we looked at it, some of the reporting was really picking on data that wasn't necessarily fair. So for example, in Germany, there'd been a big sudden change in subsidy programs, which meant that sales dropped very suddenly, which is totally expected and to be honest, is going to be part of the transition as you remove subsidies. But that was reported on as being a really negative moment for the EV industry.

And then more importantly, you know, we follow the policy very, very closely. And Europe has a set of emission standards that automakers must meet. And part of their way of meeting them is to sell electric vehicles. Now, those standards have remained stable from 2021 to 2024. So 2024 was the last year that automakers were still at the same standard as they had been for the last few years. And that standard steps up in 2025. So...

the thinking that we've put through the ringer internally is to say, well, if we were an automaker and we were already achieving the emissions targets that we'd been set the last three years, why would I do anything more? We would save up our effort for next year. We would look to launch our new models, reduce prices and all that in the next year when we have a suddenly higher compliance target. So, so we think that the fact that, that, you know, European automakers sold about the same number of EVs in 2024 as they did in 2023 is

Kind of makes sense. It may not be as much of a disaster as people thought. After the break, Aksha and Albert discuss how much the Paris Agreement and the COP framework still matter when it comes to continuing to drive the energy transition.

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So a lot of these policies that we talked about are policies that are now in place, partly because of the Paris Agreement, where all the countries came together and signed off on a target. And then some of the countries went back and actually put legislations in action. Now that all these legislations are in place, how much do you think the COP framework still matters?

I think the COP framework matters a huge deal. I think that if we are to take the Paris Agreement seriously and get on track for well below two degrees, we need to see higher and higher, you know, tightening, ratcheting climate targets from countries. So right now, as actually, as you know, this year, there's going to be a lot of discussion about 2035 nationally determined contributions. Countries are due to put forward their plans in the coming weeks for 2035 emissions reductions.

And those matter a great deal because those countries, assuming they do come forward with ambitious targets, those targets then end up driving lawmaking and regulatory action within those countries towards meeting those goals. So I think that while COP and NDCs are not the only, by far from it, the only mechanism for driving energy transition, it's one of the top-down levers that can really make a big difference. And so in terms of what it means for how

how other countries and economies should navigate the transition. If the US is no longer on board with the Paris Agreement, what should the other countries be doing? In my view, there'll be two different reactions to the US pulling out of the Paris Agreement and so on. One is major economies stepping up and saying, we will lead, we want to lead. This doesn't change the science. This doesn't change the objectives that we have to hit. And so we will put forward ambitious goals and we're going to hit them.

I think for me, I have a worry that some of the smaller economies or even rapidly growing economies will take the US pulling out of the Paris Agreement as proof that rich countries are not serious about climate action and therefore may come forward with less ambitious targets or at least have the cover to do so if that's what they want to do. So that would be something I'd be looking and hoping doesn't happen, but be looking for. Thank you, Albert. Thank you, Akshay. Thank you.

Akshat, let's talk a little more about that last point Albert was making. He was essentially saying that the U.S. withdrawing from Paris might give other countries cover to be less ambitious in their climate goals, even if they do stay in the Paris Agreement. Is that something that's been bearing out in your reporting as you've been following the story?

I think that's right. There is a wide recognition among experts we spoke to that the U.S. leaving is not a good thing for the international climate diplomacy sphere. We spoke to Andre Correa-Dolago, who is now the COP30 president and who was on the pod in COP29 when we met him in Baku. And in a recent interview with Simone Iglesias, he said...

Given that the world's largest economy has clearly decided to deviate from the path of combating climate change, COP becomes even more necessary in this adverse context. And then he went on to add that, you know, Brazil is part of the BRICS framework, Brazil, Russia, India, China and South Africa, and that he hopes that that grouping will provoke discussions at the COP in Brazil. And he said that he hopes that countries can arrive at the COP safely.

in quotes, with new ideas and perceptions. And that sounds quite similar to the tone he was taking when you talked to him in November. He wasn't even officially in this role of COP 30 president yet, but you spoke to him about Belém and it was clear he was already feeling very ambitious about what role Brazil can play on the global stage when it comes to climate. So that will be something interesting to watch another 10 months from now in Belém.

We haven't yet talked about what the U.S. withdrawing from the Paris Agreement means for companies who are also using the goals set out by Paris and this sort of binding framework to set their own climate targets. Indeed. Between 2017 and now,

Most major companies around the world have set net zero goals. Many of them have 2030 targets. And as we know, many of them aren't on track. I spoke to Helen Clarkson, the CEO of the Climate Group, who said, especially in the US, particularly the weaponization of social media has led to companies doing what is called green hushing, which is continuing their green activities, but not advertising it. She said,

They just don't want to put their heads above the parapet. So they might carry on doing what they've been doing, but quietly.

trying to not draw attention to it, particularly on social media is what you're saying. Right. And that's not the case for European companies where the governments have clearly legislated goals. And sure, there's some right-wing turn in some countries, but European companies and banks are quite committed to the Paris Agreement. We also know in 2017 that a number of non-state actors and regional governments in the U.S. stepped up to try and meet Paris Agreement goals, even though the federal government wasn't a part of it.

Speaking of other actors stepping in, this seems like the place to mention that Mike Bloomberg, the founder and majority owner of Bloomberg LP, which is the parent company of Bloomberg News, is going to be making up the U.S.'s contribution to the U.N.'s climate body.

He's also a supporter of the All-In Coalition that includes many of these non-state actors and regional governments.

One last big picture question before we go. The end of this year, 2025, will be 10 years from when the Paris Agreement was first signed. So the U.S. pulling out is a big deal, but we've already had 10 years of this agreement being in place with its ups and downs. And in some ways, is it fair to say that that alone has been unthinkable?

a pretty big success. Yeah, I mean, we can discuss the numbers as we did around investments, around energy trends, around company and government commitments and legislations. But

But really to me the biggest thing is that the reality of climate change and of climate action has sunk in deeper into the public consciousness in a way that just did not when the Paris Agreement was signed. People kind of know what net zero is today or 1.5 C or if not they definitely know that they can certainly start to connect some of the most extreme weather events that are happening around the world to climate change.

And the demand for climate action, despite the political outcomes in certain countries, hasn't yet gone down. Nice talking with you, Akhjit. Thank you, Maithili. And thank you for listening to Xero. And now for the sound of the week. That's the sound of rock being melted using microwave, a technology from a startup called Quaze that could make geothermal accessible anywhere in the world.

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You can get in touch at zeropod at bloomberg.net. Zero's producer is Maitili Rao. Bloomberg's head of podcast is Sage Bowman. And head of talk is Brendan Newnham. Our theme music is composed by Wonderly. Special thanks to Alfred Tsang, Eva Kokowska, John Anger, Jen DeLui, Zara Hirji, Lou Delbello, Simone Iglesias, Amanda Hurley, and Jessica Beck. I am Akshat Rati, back soon.