High stakes globally…

At the global level, the implications for climate change mitigation are vastly different depending on who wins the US presidential election in November. Kamala Harris would continue the current administration’s engagement with the international community around the Paris Agreement and global climate negotiations (to the extent the US Congress, much of which opposes international cooperation, allows), whereas Donald Trump would seek to remove the US from the Paris Agreement as he did in his first presidency.

This time around, backing out of Paris would deal a much harder blow to international emission reduction efforts than the previous time, as the commitment timeline for the US as a major party to the agreement is different than it was after Trump’s election in 2016. Then, the US had just submitted its first round of emission-cutting targets (nationally determined contributions or NDCs) so those applied when President Biden rejoined the agreement after his election in 2020. Now parties’ updated NDCs are due in 2025 right after Trump would be inaugurated. Even though the US would still be party to the Paris Agreement at that time (formally withdrawing takes a year as per the terms of the agreement), the sitting administration will have broad authority to weaken the US climate targets or possibly cancel them altogether while waiting to leave the accord.

Worse yet in terms of global climate cooperation, the Trump campaign has signaled he would seek to withdraw the US from the Paris Agreement’s parent treaty, the United Nations Framework Convention on Climate Change (UNFCCC). This would end US participation in global climate at all (not just in the context of the Paris Agreement), as only countries that are parties to the UNFCCC (every country in the world)
participate in its global effort to limit average global temperature increases to 1.5 degrees Celsius.

Leaving the UNFCCC would also not be immediate, as parties to the treaty must give formal notice and their departure would not enter into force for one year. That act would be unprecedented for the US, as the country played a significant role in creating the UNFCCC in the first place under president George H.W. Bush in 1992. It would remove the treaty’s biggest funder, which is also the world’s biggest economy and the highest cumulative contributor to climate change. Not being party to the UNFCCC releases the US from even the most basic elements of international climate cooperation such as keeping emissions inventories and greenhouse gas reporting obligations.

But even without formally withdrawing from the Paris Agreement or the UNFCCC, a Trump win would cut US climate finance: Trump has repeatedly called the Paris Agreement “a bad deal for the US” because it sends American taxpayer money to developing countries, vowing he would stop such flows as president. Such finance is in fact the headline issue at this November’s annual UNFCCC talks in Azerbaijan, which occur immediately following the US elections. Parties are expected to set a new more ambitious goal for delivering climate change mitigation and adaptation funding – particularly to developing nations.

Already other parties are not making concrete financial commitments in the runup to the talks – diplomacy experts attribute this in part to the uncertainty around the US climate finance contribution. Like the governments of most rich countries, who are finding climate finance increasingly unpopular among their citizens, the Biden administration has resorted to characterizing mobilization of private sector climate change mitigation investment as US climate finance (see our analysis on this here) and Harris would do the same, whereas a Trump presidency would eliminate even that effort to support corporate voluntary carbon market participation.

Indeed a Trump presidency and correlating shakeup of global climate cooperation could lead to a destabilization of emissions trading worldwide, given that most major existing carbon markets were created by governments as a tool to meet emission reduction targets whose very underpinnings may be in question if the UNFCCC and Paris Agreement no longer involve the world’s biggest emitter.

…small stakes locally?

It is therefore all the more ironic that despite the stark differences between the two US presidential candidates on climate change policy, who wins will have relatively little bearing on North America’s existing carbon markets. Both the Western Climate Initiative (WCI, between California and the Canadian province of Quebec), and the Regional Greenhouse Gas Initiative (RGGI, among 10 northeastern and mid-Atlantic US states) are run entirely at the jurisdictional level, not by the US federal government. The emission reduction targets they are geared to achieve apply to those jurisdictions, not to US targets that are part of its NDC. Trading of CCAs and RGGAs – the allowance units of the respective markets – will continue regardless of who is president of the United States in 2025 and whether the country is party to the UNFCCC or the Paris Agreement.

That said, policies of either a Harris or a Trump administration will of course affect the trajectory of greenhouse gas emissions in jurisdictions covered by the WCI and RGGI. Anything that changes the amount emitted in a cap-and-trade program changes the demand for allowances in that program relative to supply, which in turn affects allowances prices. Since both the WCI and RGGI are not the only climate policy measures in their respective regions, interactions with all other measures related to energy and emissions (at the local or federal level) have a bearing on the demand/supply balance in the two emission trading systems and therefore on long- and short-term prices in both markets.

Perhaps the most relevant policy in this regard is the Biden Administration’s Inflation Reduction Act (IRA) which channels billions of dollars into renewable energy, clean fuels, and other emissions-cutting measures. A Harris administration would keep and potentially build on these, whereas the Trump campaign has decried the IRA. A Trump presidency would see efforts to dismantle many of the tax credits for energy efficient appliances, low-emission vehicles, and alternative fuels currently incentivizing a faster downward emissions trajectory, meaning emissions in the WCI and RGGI could be comparatively higher in the medium to long term. That in turn implies higher demand for allowances relative to supply, which makes for higher prices such that some see a Trump presidency as “bullish” for carbon markets compared to a Harris presidency.

On the other hand, some see a Harris presidency as bullish because it is generally perceived as more conducive to climate change mitigation measures overall. The markets in question by their very existence constitute a climate change mitigation measure. Trading of environmental commodities (including emissions permits but also renewable energy certificates and low carbon fuel credits) is likely to experience greater liquidity under an administration that supports such markets and invests in their regulatory infrastructure. Indeed, CCAs and RGGAs saw a temporary price dip after Trump was elected in 2016 that was widely attributed to fears of federal climate policy rollbacks. The Biden administration instead reinforced the concept of accounting for climate risk through support of carbon pricing across the economy, via e.g. an executive order in 2021 on Climate-related Financial Risk, the Securities and Exchange Commission’s Final Rule on the Enhancement and Standardization of Climate-Related Disclosures for Investors in March 2024, as well as new guidelines adopted by the US Commodity Futures Trading Commission that require exchanges (rather than developers or sellers) to validate the integrity of carbon offset derivatives’ underlying product.

In the end, however, the degree to which a Trump or a Harris election victory affects any US carbon-market-related legislation depends on what their administration can get enacted. Since laws are made by the legislative and not the executive branch of government, that in turn depends on the composition of the US Congress: will republicans retain their slim majority in the House of Representatives and will Democrats retain their one-seat majority in the Senate? Those questions will be answered by the result of US Congressional races, which are the subject of the next analysis in this series – US elections: what’s at stake for carbon markets? Part 2 – Congressional races