Trump’s return may alter the future of renewable energy

Air Products and Chemicals Inc

• Potential opportunities for Gulf
• Industry awaits clarity
• Complications with China ties

Adnoc’s acquisition in September of a 35 percent stake in ExxonMobil’s low-carbon hydrogen facility in Baytown, Texas, might have been a sign of things to come.

The deal between the Abu Dhabi-owned oil company and the US energy major came as interest in clean hydrogen was waning in the US while rising in the Gulf.

Former President Donald Trump’s re-election is expected to muddle the renewables picture at home further, perhaps to the advantage of the more innovative players in the GCC.

The new administration’s approach to the clean-hydrogen regulatory environment will drive American investors and producers’ next moves, says Karen Young, a senior researcher at Columbia University’s Center on Global Energy Policy.

“For Gulf producers and potential investors, clarity in the next administration will be equally important,” she tells AGBI. 

“Second to that is how there might be opportunity for production outside of the US to accelerate while the US figures its regulatory environment out,” Young adds. “It could be an opportunity for Gulf funded projects in the Middle East and in India to move forward.”

Much revolves around Trump’s scepticism of the Inflation Reduction Act (IRA), a Biden-era law that supports domestic renewable energy production, including clean hydrogen. 

Alamy via Reuters

“Rachel Ziemba of Ziemba Insights in New York says that GCC buyers and other foreign investors like Japan may remain interested in US hydrogen assets especially if some of the US government incentives remain.

“They also might be interested in carbon capture storage projects and other less clean sources of hydrogen, which might be more sought after,” she says.

The definition of clean hydrogen is fluid. Green hydrogen generally describes hydrogen produced with renewable energy, while blue hydrogen refers to the use of natural gas as the main power source and carbon capture storage to reduce its footprint.

Development of green hydrogen is faltering in the US and Europe. There are several reasons: this clean power source remains far more expensive to produce than even the blue alternative; possible future demand for it has been hard to predict; building the necessary infrastructure requires a lot of capital; and government support has been lagging.

The IRA and other recent US laws target both green hydrogen and carbon capture storage through tax credits, primarily the so-called 45V and 45Q from their respective sections in the tax code. Industry watchers believe Trump may push the latter while limiting the former, which are still being finalised by the outgoing administration more than two years after the passage of the legislation.

Adnoc said in September that the Baytown tie-up with ExxonMobil is “contingent on supportive government policy and necessary regulatory permits”. 

The deal was not the first planned foray of GCC firms into the American clean hydrogen market. 

During Cop28 in Dubai last year, Spain’s Iberdrola and Abu Dhabi’s Masdar said they would jointly invest more than $16 billion in offshore wind and green hydrogen projects in Germany, the UK and the US. Acquisition targets in the latter have not been revealed. 

“GCC state investors in clean hydrogen seem to be less cautious about its ultimate economic viability than many other investors – EU and US included,” says Richard Wilson, president of the Saudi-US Trade Group.

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The decision by American industrial gas supplier Air Products to slow down green hydrogen production in the US while increasing it in Saudi Arabia’s Neom gigaproject offers a glimpse of the mood in the two places, according to Wilson. 

Air Products’ chief executive Seifi Ghasemi said on an earnings call in early November that “the lowest cost place to produce green is in northern Saudi Arabia, and the lowest cost place to produce blue is in US Gulf Coast”.

As Americans cool over green domestic hydrogen, could we see more Gulf purchases of undervalued facilities in the US?

“You might be on to something,” says John Calabrese, an assistant professor at American University and a senior fellow at the Middle East Institute in Washington DC. 

“But besides the potential infusion of Gulf Arab funds into US green energy assets, I would wager that they might spread their investments a bit more widely,” he adds. “For example, what about prospective partnerships with big energy consumers with which they already have strong ‘traditional’ energy supply links — Japan, China, and India?”

The rivalry between the US and China complicates things. 

Trump’s selection of foreign policy hawks to serve in his new administration suggests the US may “redouble” its push “to persuade traditional Mena allies and partners” to part ways with China, according to Calabrese.

However, Washington has less leverage when it comes to renewable energy than, for instance, advanced technology. 

That’s both because sustainability is not seen as relevant to national security and because the Chinese green energy industry is by and large ahead of its US counterpart.

“Under Biden, the US has been more or less content for the Gulf states to work closely with China, in part because there is no real US renewable energy sector that is able to compete,” says Kristian Coates Ulrichsen, co-director of the Baker Institute’s Middle East Energy Roundtable.

“With Trump 2, that might be different.”