The European carbon market dropped to its two weeks low early Wednesday in response to Donald Trump’s victory in the US Presidential election. The market is factoring in Trump’s promises to pursue a radical shift for the US on climate policies put in place under the Biden Administration.

“That includes leaving the Paris Agreement, under which countries pledge to limit global warming to 2 degrees Celsius by 2050, and potentially undoing Biden’s flagship Inflation Reduction Act (IRA)  which provides massive subsidies and incentives to clean energy technologies”, writes Reuters on Wednesday.

In the past, Trump dismissed and even mocked the effects of climate change. At a rally last month, he once again casts doubt on climate science”. While the concerns that Trump’s reelection would cause backward steps in the world’s progress on fighting against climate change are understandable, carbon market participants must also consider that his second term will play out in a different context. 

However, several analyses have shown that, in fact, Trump’s promises for climate inaction may be difficult to fulfill. “At least seven of Trump’s close allies and fundraisers, or the firms they run, hold hundreds of millions of dollars-worth of stakes in companies that are significant beneficiaries of the tax breaks embedded in the IRA” writes Reuters referring, among others to Tesla, whose founder Elon Musk boosted Trump’s campaign. Furthermore, Republican states “have already benefited from new factories springing up on the back of the IRA credits” writes Argus Media referring to Oklahoma, Alabama and Georgia.

While it is hard to calculate the precise impact of Trump’s second term in terms of climate action, it is safe to assume that the new administration would withdrew from the Paris Agreement once again, this time “on the very first day, likely with a lot of dramatic flourish” according to Barry Rabe, an energy policy expert quoted by the Guardian. This time around, such a decision is more likely to deliver a serious blow to the climate fight, making it impossible to limit peak warming to 1.5°C.