Despite passage of the Inflation Reduction Act (IRA), which included some of the largest climate-related expenditures on record, clean energy stocks and related ETFs disappointed investors during most of President Biden’s time in office. With President Trump back in the White House, climate-aware investors are pondering the fate of clean energy equities and ETFs like the ALPS Clean Energy ETF (ACES).
Those worries aren’t unfounded. Trump is unabashed in his favoritism of fossil fuels. Many market participants view that as a risk to increasing adoption of renewable energy sources in the U.S.
That’s a factor that can’t be ignored and one generally viewed as a near-term headwind to clean energy stocks. But that sentiment may belie the long-term potential offered by ACES. For example, the Intergovernmental Panel on Climate Change recently noted that, at most, 30% of the world’s fossil fuel reserves can be consumed prior to triggering alarming global temperature increases.
ACES Offers Opportunity
There’s concern about what a second Trump administration could mean for clean energy stocks. But there are some points that could work in favor of ACES and related funds. First, much of the climate-related spending outlined in the IRA is occurring in districts Trump carried. That implies the president might be reluctant to cut those expenditures.
Second, many states are setting their own renewable energy policy. That signals commitment to renewables exclusive of federal policy. Third, global clean energy adoption and spending are trending higher. They’re expected to continue doing so in the years ahead.
“Billions of dollars are now being poured into renewable infrastructure and technology — solar, wind, hydro, biomass and geothermal. There’s also significant capital investment into [nuclear. Though] as this requires the use of uranium, it can only be classified as a low carbon energy source as uranium will also eventually run out,” reported Charles Archer for IG International.
As for government support of clean energy, the current political climate could make the U.S. an outlier. That’s because many developed and emerging economies view renewables as integral to their long-term energy security. That could be a positive for ACES as well.
“The sector is growing rapidly, particularly as costs fall and technology advances — while governments continue to use legislation to bring renewable targets forward and incentivise change. Perhaps cynically, some consider that governments are more interested in the enhanced energy security by diversifying energy sources, and reduced reliance on imported fuel,” added IG International.
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