What a Biden or Trump victory could mean for the energy sector

As the 2024 U.S. presidential election approaches, the energy sector is at a crossroads.

Potential policy changes could significantly impact both traditional and clean energy markets.

The election result of the incumbent president, according to insights from JPMorgan’s strategic research team Joe Biden and former president Donald Trump can lead to different scenarios.

Each of these scenarios has distinct implications for investors and companies in the sector.

1. Biden Presidency, Congress in Split

• Pure energy: This scenario is seen as the lowest risk for the clean energy sector. A divided Congress will likely maintain the status quo, making it difficult to phase out or repeal the Inflation Reduction Act (IRA) incentives. This stability benefits companies that benefit from federal clean energy incentives. Under the Biden administration, hundreds of billions of dollars have been allocated to green energy incentives.
• Traditional Energy: The regulatory environment under Biden is expected to remain challenging but stable. Companies adapted to more stringent regulations, which did not stop record oil and gas production in the US. During Biden’s presidency, the United States set a record for oil production. In 2023, it surpassed what all other countries – including Saudi Arabia – have ever produced in a single year.

2. Trump Presidency, Congress in Split

• Pure energy: This scenario slightly increases the risk profile. A divided Congress would make it harder to repeal IRA incentives; Trump – who has withdrawn more than 100 environmental policies during his administration – will likely slow down their implementation by reducing funding for relevant departments. It may also impact grant and loan spending.
• Traditional Energy: Trump – who has vowed to become a dictator on “day one” so he can “drill, drill, drill” – could ease regulations, potentially increase access to resources on federal lands and reduce regulations, thereby supporting greater exports.

3. Trump Presidency, Republican Congress

• Pure energy: This is considered the highest risk scenario for clean energy. Most Republicans could partially repeal the IRA through a reconciliation bill, specifically targeting unspent funds. Full repeal is unlikely, however, due to significant investment in Republican states.
• Traditional Energy: The sector could benefit from reduced regulation and increased access to resources. Policies that encourage more energy exports such as LNG can have a positive impact on the long-term gas market.

JPMorgan has not examined the scenario of a Biden presidency and a Democratic Congress.

Also read: Enphase Stocks Rise as Biden Increases Tariffs on Chinese Solar Energy Imports

Clean energy supplies

• Rating and sentiment: Clean energy stocks, including electric vehicle (EV) charging and green hydrogen stocks, are lagging due to weak fundamentals. The election results may exacerbate this trend, especially under the influence of the Republican Party.
• Loan programs: Republican action could limit the authority of DOE’s Office of Lending Programs, negatively impacting companies seeking non-dilutive financing for capital-intensive projects.
• Subsidies and tariffs: The potential reduction or removal of subsidies for electric vehicles and tighter charging incentives are risks. However, protectionist measures such as tariffs on Chinese imports are likely to remain, regardless of the administration.

Investors in iShares Global Clean Energy ETF (NYSE:ICLN), First Trust NASDAQ Clean Edge Green Energy Index Fund (NYSE:QCLN) i Invesco WilderHill Clean Energy ETF (NYSE:PBW) must take these comments into account.

Traditional energy supplies

• Regulations: The Trump administration could ease regulations and increase access to resources, but ongoing legal and policy challenges may continue to shape the regulatory landscape.
• Refiners: Refineries could benefit from continued Trump-era corporate tax cuts. However, geopolitical tensions such as those in the Middle East can pose risks to oil supplies and impact refinery margins.

Investors in SPDR Energy Select Sector Fund (NYSE:XLE), Vanguard Energy ETF (NYSE:VDE) i Alerian MLP ETF (NYSE:AMLP) may want to adjust their position based on these observations.

Utility and renewable energy sources

• Regulated vs. unregulated: Unregulated renewables are more sensitive to election outcomes, while regulated utilities are less susceptible. Biden’s re-election could be a catalyst for renewables to regain lost ground in 2023.
• IRA Resilience: IRA provisions on essential utilities and renewable energy are expected to be resilient, although a Trump victory could create uncertainty until policy clarity emerges.

See also: Solar energy leaves the wind in the dust as renewable energy reaches new peak

Utility investors like those investing in Tools Select sector SPDR Fund (NYSE:XLU), Global X ETF for US infrastructure development (NYSE:PAVE) or Vanguard Utilities ETF (NYSE:VPU) must take this observation into account.

For those looking to gain exposure to renewable energy sources, popular capital market funds include the ICLN, QCLN and PBW ETFs.

Investment considerations

Investors should monitor the changing political landscape as the election approaches. The potential for policy changes under different election scenarios underscores the importance of a diversified portfolio.

As always, staying informed and flexible in responding to political developments will be key to meeting the challenges and opportunities facing the energy sector in the run-up to the 2024 elections.

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