Climate Crunch: Of geeks, tariff threats, and executive orders

Issue #08

➔ Trump Tracker: The President’s impact on energy and climate policy
➔ A brake on EV mandates?
➔ Meet the ‘science geek’ at the helm of U.S. energy policy

Hot takes

A trade war looms coast to coast. RBC’s economics team believes a persistent tariff could be recessionary for Canada. But is it equally recessionary for Canadian climate policy? A bit early to say, but in response to a White House that’s placing greater emphasis on energy security relative to energy transition, there is a stronger push to expand all forms of resource development in both the U.S. and Canada (see item below). That likely has negative implications on Canada’s oil and gas pollution cap. The consumer carbon tax, which is increasingly being abandoned by the Liberals and the NDP, is also on shaky ground.

B.C., for a start, is not wasting a crisis. With U.S. tariffs looming, Premier David Eby is streamlining the regulatory track for North Coast Transmission Line and other high grid projects to support the development of critical minerals and liquefied natural gas projects, etc. The government is also expediting approvals for natural resource projects to counter “threats from the south of the border.” B.C. expects its real GDP to decline by 0.6% between 2025 and 2026 if the U.S. goes forward with its tariffs on Canadian goods.

What do tungsten, tellurium and indium have in common? China has announced export controls on all three minerals, but they can be substituted by building up Canadian resources. In December, the U.S. Department of Defense and a Canadian infrastructure fund invested $35.4 million in Vancouver-based Fireweed Metals to advance its 100%-owned Yukon tungsten project towards a final investment decision. Meanwhile, Canada is a top five global producer of tellurium and indium—both are used to make solar panels. In so many ways, American energy security runs through Canada.

Fracking executive is confirmed U.S. energy secretary. Chris Wright will drive U.S. energy diplomacy and oversee the Strategic Petroleum Reserve (which the U.S. wants to build up), among other key tasks. In his Senate testimony, the self-confessed “science geek” pledged to “unleash” American energy at home and abroad, lower energy costs, and cut red tape. He is a fan of nuclear fusion and geothermal. Wright also batted away several questions from U.S. senators on rising insurance costs due to climate risks. He was also non-committal about a question on U.S clawing back renewable investments. Read his fascinating responses to senators’ questions here.

DeepSeek jolted AI exuberance—and that’s not a bad thing. The low-cost Chinese AI app’s unexpected rise rocked Big share prices, but also shook up independent power producers, natural gas producers and gas pipelines that had rallied on unprecedented power demand to fuel the AI frenzy. Suddenly, there are doubts around global power outlook (up to 3x by 2050 from current levels). It’s still early days, but it’s made Big Tech CEOs revisit their portfolio of (low-carbon) energy needs.

Climate Action Award: For successful conservation efforts to revive at-risk sea otters and peregrine falcons in Canada, according to a new research by Carleton University’s Laurenne Schiller, et al.

The brake on EV mandate

All of this might be moot by the next election cycle, but for now Ottawa’s EV mandate (20% of all new car sales must be EVs by 2026; 100% by 2035) still stands. Even before politics cast a shadow, progress is stalling: first, Ottawa ended  its EV rebate program after helping push 546,000 EVs on to the roads. Second, Quebec has temporarily suspended its generous Roulez vert Program until March 31.

If Canada’s federal EV mandate survives the next election cycle, automakers will have to purchase credits from their peers to offset the shortfall if they don’t meet their quota. Tesla collected over US$1.8 billion globally from selling regulatory credits in 2023, and will become a major seller of credits here in Canada, most likely enough to supply most of the industry. (That explains why Tesla founder Elon Musk is pushing for an end to EV incentives in the U.S.)

There is a third pain point: The new U.S. administration’s rollback of EV incentives is going to dent automakers EV plans—they are already delaying them at a time when they should be ramping up. While EVs make up around 20% of Hyundai and Kia’s sales mix in Canada in 2024, other top carmakers still have a large gap to bridge unless they quickly ramp up their EV focus.

All of this could have a net effect of 2.5 million fewer EVs on Canadian roads by 2035, and emissions level that are 10 Mt CO2e higher, or approximately 6% of sector’s current emissions, according to Climate Action Institute economist Farhad Panahov.

TRUMP TRACKER

The U.S. is changing its climate policy in deep and meaningful ways. Here are some of the highlights (or should that be lowlights?) from a flurry of executive orders and policy pullbacks:

Policy shift #1: Abolish Biden-era auto emissions rules.

Implication: Possible disruptions of automakers’ plans in Canada and the U.S. gearing up to build more efficient hybrids and EV cars.

Policy shift #2: Terminate state emissions waivers, like California’s, that seek to limit sales of gas-powered cars; rescind EV sales target of 50% total car sales by 2030; scrap 100% zero-emission federal fleet target by 2035.

Implication: Adds uncertainty to EV production, but unclear whether it impacts EV tax credits are other EV-promoting policies rooted in tax codes and Clean Air Act regulations.

Policy shift #3: Declare a national energy emergency to spur more drilling, pipelines, refineries, power plants and reactors and “a massive increase in domestic energy supply.”

Implication: Oil producers have maintained capital discipline and returned money to shareholders rather than expanding production in recent years. Trump has also urged OPEC countries to open the taps to boost oil output at a time when global oil demand is tepid. But a recent wildlife drilling auction in Alaska yielded no bids, suggesting producer are not ready to “drill, baby, drill” yet.

Policy shift #4: Withdraw the U.S. from the Paris Agreement, a global pact to address climate change.

Implication: The U.S. will be MIA on several global initiatives to fight climate change, suggesting a bifurcated international approach to combat global warming.

Policy shift #5: Rescinded 100% carbon pollution-free electricity by 2035.

Implication: A hit to wind and solar industries, which were expected to drive record clean electricity capacity additions in 2024 and possibly 2025.

ICYMI

Los Angeles after the fires: ‘You can only live in a disaster zone for so long’

The rise of the Net-Zero Dad

Trump’s cash freeze is making clean energy projects collapse

Hotel rooms in Brazil would cost US$15,000 a night for COP30 delegates

Davos 2025: Searching for nuggets in the new golden age

The Institute In Action

What on the team’s reading list?: Range: Why Generalists Triumph in a Specialized World by David Epstein, Source Code by Bill Gates, and Supremacy: AI, ChatGPT and the race that will change the world by Parmy Olson.

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