Green Energy Faces Setbacks as a Result of New Trump Tariffs
Solar Farm (Unsplash/ Karsten Würth)
On April 2, President Donald Trump implemented a sweeping set of tariffs intended to “rebuild the economy and restore national and economic security,” with the goal ostensibly being to rely less on foreign trade and bring industry back to the US. However, economists are warning that such tariffs will drive prices up for American consumers and lead to inflation.
These tariffs traverse industries but are likely to strongly impact the development of renewable energy infrastructure, while also impacting the “building blocks” of green energy—such as batteries—for long term storage of green energy and building materials like steel and aluminium. This follows the decision in February to freeze support for many green energy projects, further hampering efforts to reach carbon neutrality.
These tariffs on lithium ion batteries will greatly affect the green energy industry. The batteries are frequently used at wind and solar power plants to store energy produced during peak conditions, when it is very sunny or windy. The energy stored in these batteries can then be used when it is harder to produce energy (such as when the sun is less visible or when there is less wind than is optimal). However, the majority of lithium ion batteries (69%) are imported from China, which has been hit with very high tariffs following Trump’s return to office. This means less reliable green energy and may encourage a return to fossil fuels.
Biden Signs the Inflation Reduction Act in 2022 (Bloomberg via Getty Images/Sarah Silbiger)
Notably, some of these tariffs will also drive up the costs of operation in the fossil fuel industry. Tariffs have been placed on countries importing many building materials needed in both fossil fuel plants and green energy infrastructure, such as aluminum, steel, copper, and cement. Furthermore, lithium ion batteries are often used in fossil fuel plants to increase the reliability of the energy grid. However, the green energy industry is particularly impacted because it is still relatively young. The industry received a significant boost with the passing of the Inflation Reduction Act (IRA), in 2022, which is the largest investment in clean energy in US history. It provided climate subsidies to encourage investment in clean energy infrastructure while creating new jobs in climate industries. Following this, many companies sought to build renewable energy plants, which are thrown into question thanks to the onslaught of tariffs. There are further concerns that Congress, which has a slight Republican majority, will dismantle the incentives first put forth in the IRA.
However, there has been some bi-partisian support for introducing carbon tariffs to reflect the carbon impact of imported goods. This follows the growing popularity of carbon taxes which use a similar process of levying taxes to reflect climate impact on domestic goods. This process raises the price of certain goods in the market and has been criticized for making domestic companies less competitive. Carbon tariffs would, consequently, equalize prices between domestic and foreign producers while accounting for the environmental cost. Importantly, the money raised by the tariffs would then be reinvested in growing the green energy industry.
These carbon tariffs, however, are not without their faults. The process of deciding the cost of a carbon tariff relies on making the tariff proportional to how much carbon is released in the manufacturing and shipping of a product and these calculations can be inexact. Nevertheless, they provide an important tool to mitigate the outsized carbon cost of international trade, as demonstrated by the EU’s climate tariffs against Chinese and South African imports in 2023.