UK energy: The Trump effect

Energy was firmly in the spotlight during the latest US presidential campaign and in particular, climate change. It's left a lot of us in Britain wondering what this will mean for the UK's industry and how this will affect the everyday consumer.

The UK fossil fuel industries

While the UK's fossil fuel industries have and will likely be most affected by Brexit and the upcoming negotiations with the EU, they’re exposed to global changes in the price of oil and gas as well.

Trump said that he wants to ramp up oil and gas production under an 'America First’ energy plan, going after un-tapped shale, oil and natural gas reserves, pressing ahead with fracking and drilling as environmental regulation is cast away.

An increase in fossil fuel production could force global prices to drop due to a glut of supply, which may potentially hurt UK oil and gas firms operating in the North Sea, who are already seeing increasing costs and decreasing investment due to having to drill deeper and in more complex places. High decommissioning costs in the North Sea are also hitting investment hard.

While the industry is striving to improve efficiency, the high profits enjoyed when oil was expensive have disappeared, and if they drop further due to an American energy boom, jobs could be lost and wages cut.

This could be reversed with tax cuts and government subsidies, but with low tax revenues due to low oil prices and the costs associated with Brexit, this might not be possible.

What does this mean for coal? Not much. Coal production and investment is currently in free-fall as demand from China falls, as well as increases in oil and gas production. President Trump won't have much power to stop this, and the same goes for UK coal too.

UK energy research

President Trump's choices for his cabinet have been weighted heavily towards those who don't accept the impact of human activity on climate change. He said during his campaign that global warming is a hoax, and that he would scrap the US's obligations to the Paris Agreement on climate change and NASA's lauded climate research programme. His new team are of a similar mindset - comprised of climate change deniers and those with ties to the fossil fuel industry.

While this is bad news for the climate, it could mean good things for UK energy researchers. This month 100 revered UK researchers and climate scientists penned a letter to Theresa May asking her to be tough on Trump over the climate and encourage him to continue research. It also stated that the UK science community stood ready to welcome scientists from the US who had seen their funding cut.

If President Trump cuts climate research programmes, the UK's science community, and it's global leading climate research institutions, could pick up the slack which is good news for the renewable energy research community.

UK renewable energy industry

With increased investment in the fossil fuel industry and a reduction in environmental regulation and research, the US renewable energy industry looks set to take a hit, but will the same ring true in the UK?

On a global level, the Republican government will likely slow, not reverse, action on climate change.

This is because large countries such as India and China are now behind the drive towards clean energy. According to the Global Trends in Renewable Energy Investment 2016 report from the United Nation’s Environment Programme, China, along with the rest of Asia and Europe, individually invested far more in renewable energy than the US. What's more, according to the International Renewable Energy Agency, the costs involved with renewables are dropping, in some cases below fossil fuels.

However, if fossil fuel prices drop due to a big increase in US fossil fuel production, this could hurt the renewable energy industry, as it would it have to compete with cheaper oil and gas, despite the cost of solar and wind dropping. If the US were to pull out of the Paris Agreement, it could also cause other countries to drop out, hampering the process.

The upcoming trade negotiations between the US and the UK are also a point of contention because of brexit. If the US holds firm on slapping high tariffs on renewable energy goods made in the UK, this could hit British industry.

UK consumer energy costs

So what does all of the above mean for the consumer? Well, if Trump's policies and actions cause oil prices to lower globally, fuel and energy prices in the UK could fall. Although in the long term, this could impact our own domestic production, forcing us to import our energy, which could make things more expensive.

In terms of renewable energy - lower investment could mean a stall in lowering costs, but then again, if renewable energy is able to weather the storm, solar and wind prices could continue to fall.

It's also important to think about the effect of the US dollar. Since lots of the world's energy is priced in USD, a strong dollar will increase import prices, which in turn could raise household energy prices.

With the world's eyes fixed firmly on the incoming administration, all sorts of questions are being asked, but ultimately, we'll all have to wait to see what the Trump effect really means for energy.