The world has reached a hinge moment in the energy transition. Leaps in technology are making it possible to cut emissions faster and more cheaply than ever. At the same time, US President Donald Trump is reversing efforts to decarbonise the world's second-biggest polluter.
Drawing on scenarios built using a detailed model of the global economy and energy system, combined with input from energy research group BloombergNEF, we assess what Trump's policy pivot means and what happens if other leaders follow his example.
• Assuming everyone else stays the course, the US economy gains from backing out of the transition. By 2050, gross domestic product is 0.8 per cent higher than it would otherwise have been. But decarbonising becomes more costly for countries that stay the course. Global emissions climb almost 10 per cent, modestly raising the risks from global heating, but not dramatically.
• If other countries follow the US, they dodge transition costs, but the damage caused by climate change intensifies. Carbon dioxide emissions are 75 per cent higher, with hotter, poorer countries hit hardest. With temperatures rising, by 2050, Vietnam loses just over 3 per cent of GDP, sub-Saharan Africa nearly 2 per cent and India about 1.7 per cent. The US and China face losses of about 1 per cent and 1.5 per cent, respectively.
This pattern of payoffs would be familiar to any game theorist. It's a form of the tragedy of the commons, where the impulse for self-interest outweighs the benefits of cooperation. If Trump alone backs out of the transition, the US gains in the short term. If other countries do the same, the US loses, and so does almost everyone else.
For our baseline, we take BloombergNEF's Economic Transition Scenario (ETS). That describes a technology-reliant, market-driven pathway in which costs fall as innovation and electrification push cheaper clean options to scale, allowing the economy to decouple from emissions. With that as a starting point, we model one scenario in which the US backtracks and another in which every other country follows. In each, we take account of the economic costs of the transition and those from global heating.
Letting Tech Lead the Way
To understand the effects of a technology-led transition, we start with a bottom-up analysis from BloombergNEF and feed that into a model of the global economy, trade flows and the energy sector, developed by the Global Trade Analysis Project and the World Trade Organization.
BloombergNEF maps a path that holds global temperature increases to about 2.6°C by 2100. The ETS captures how technological disruption reshapes energy supply and demand across more than 75 technologies in power, transportation, industry and buildings.
Progress in the ETS rests on rapid advances in how energy is produced and consumed and supportive government policies that level the playing field and help technologies reach scale. Falling costs for renewables and storage—and the spread of electrification across sectors—speed up adoption. As do policy tools such as electric-vehicle purchasing incentives, renewable portfolio standards, and other policies that shape near-term economic and technology uptake.
Trump's Gain, Global Pain
This kind of government backing is now absent in the US. Trump is promoting fossil fuels and easing back on the push toward electrification and renewables. In our US policy pivot scenario, we assume more support for US fossil-fuel producers, more energy exports and further reversals of climate-friendly regulation.
The shift brings a near-term payoff for the US economy. Relative to our reference scenario, we find that the US could gain almost 1 per cent of GDP by 2050 by making fossil-fuel energy cheaper for its economy and profiting from energy exports. Global fossil-fuel use would rise 8.7 per cent above our ETS path, and solar and wind power fall 3.5 per cent. Global emissions increase by 10 per cent, marginally adding to rising temperatures and pushing up our estimate of worldwide GDP losses by an additional 0.2 percentage point by midcentury. Poorer, warmer countries would be more exposed.
Once losses due to faster global heating are counted, the US advantage drops slightly to 0.8 per cent—and losses for everyone else get a bit bigger, as the costs of climate change are shared unevenly around the globe.
Other oil and gas producers, like Canada and the Middle East, would lose out as the US gains global energy market share. Higher temperatures increase damage from heating for all countries, but particularly those in regions with hotter climates and more limited means to respond.
What If Everyone Throws in the Towel?
When a big emitter changes course, there's a strong incentive for others to abandon their climate ambitions. If that happens, past energy and emission trends would likely continue. That would mean fossil-fuel use declines only slowly, renewables fail to take off, and the electricity share of the final energy mix stays roughly where it is now.
In this scenario, emissions are 75 per cent higher compared with the ETS and 58 per cent higher than if the US pivots alone, pushing global GDP losses roughly 1 per cent higher in 2050. By the end of the century, global temperatures are up close to 3°C, compared with about 2.6°C under the ETS reference path.
Doing nothing is a costly strategy, especially for countries already facing intense heat with a limited capacity to adapt. Heat stress, crop losses and extreme weather will strain limited resources. Richer countries are initially affected less severely but would also see their costs climb over time.
If the economic effects appear small at first glance, remember that the costs will continue to grow—and will reach substantially higher levels—beyond 2050.
There's also the risk of reaching climate tipping points where small shifts trigger much larger, faster changes that are irreversible.
Our numbers show the best global strategy is for all countries to support a technology-driven energy transition. But the incentive to dodge transition costs at the expense of others is strong, risking a race to the bottom where self-interest dominates, even though cooperation would yield greater gains.
It's a probable outcome. It isn't destiny. As extreme weather events underscore the costs of climate change and innovation lowers the costs and raises the benefits of the transition, the game could yet change again.
