When Donald Trump fired up his voter base with promises of a return to the glory days of US oil exploration and production, few questioned its practicality.
The policy also offered a rebuke of the progressive-led green energy agenda. One of the earliest acts of the new administration was to withdraw from the Paris Agreement, the international treaty that committed more than 200 countries, including the United States, to limit the global average temperature rise to well below 2 degrees this century.
Core to the philosophy is the notion that producing renewable energy is more expensive than extracting fossil fuels, leaving aside the fact that burning fossil fuels is a big contributor to climate change. There was a time when that may have been true, but there’s a lot of evidence that it doesn’t stand up as an argument any more.
A report last year from the International Renewable Energy Agency states that the world added 473 gigawatts of renewable energy in 2023 and around four-fifths of this was cheaper than power produced by fossil fuels. This added capacity was the equivalent of almost 500 nuclear plants, producing energy at significantly lower rates than fossil fuels.
According to the agency, fossil fuel prices rose to an average of around 10 cent per kilowatt hour in 2023. Contrast that with the average global cost of onshore wind energy of around 3.3 cent in the same period or utility-based photovoltaic, which fell by 12 per cent from the previous year to a figure of 4.4 cent per kilowatt hour.
A clear trend is emerging of a decline in the cost of renewables in recent years while fossil fuels and nuclear rise. In the case of new nuclear, costs of up to 30 cent per kilowatt hour have been reported.
The report notes that over the next few years, an extensive deployment of renewable power generation in more countries and regions is expected and as the electricity system evolves, innovative technologies are being introduced to facilitate the transition from a fossil fuel-based system to a renewable one.
Deloitte’s 2025 Oil and Gas Industry Outlook notes that over the past year, oil prices ranged between $74 and $90 a barrel, leading energy companies to prioritise restraint over aggressive expansion. Industry sources suggest that the break-even point for new drilling in 2024 ranged between $59 and $70 a barrel.
Many oil producers remain reluctant to take up new opportunities in this area as they are concerned by the prospect that overproduction could lead to price reduction, as happened between 2014 and 2020. The spectre of Opec countries increasing production, as they have in the past, is a further brake on expansionist policies.
Moreover, whatever about the rhetoric from the US administration, globally things are changing, with a greater commitment in Europe and other parts of the world to reduced oil consumption and increased use of renewables.
This applies to the US as well, despite the proclamations of the current administration. Over the past few years many states in the union have been pushing sustainable energy agendas. California has been a trailblazer in putting in place environmental, social and governance regulations that encompass the introduction of climate-related financial risk reporting for businesses operating within the state.
Politically, California may well be one of the bluest states in the union, but this trend also crosses political lines. Around 85 per cent of announced investments in clean energy led by the Biden administration’s Inflation Reduction Act have been in Republican areas.
Eileen Rowsome, director, responsible investment, at Davy, notes that during Trump’s first presidency the US saw an increase in renewable capacity and a reduction in coal production, and agrees that energy production companies are driven by hard economics rather than political ideology.
“Higher interest rates have been a headwind to investment [in renewables] in recent years due to higher initial costs, but with rates stable or coming down, that should ease,” says Rowsome. “Also, in relation to fossil fuel production, there isn’t a link between more permits and more production. The energy price typically spurs more investment into new supply and as Trump wants lower energy prices that is at odds with companies investing in new production profitability.”
An ending of the conflict in Ukraine this year would likely further depress energy costs.
Many large technology companies are signing power purchase agreements with renewable energy suppliers while, contrary to the rhetoric, Trump’s last administration quietly rolled over tax credit incentives for renewables, a process that that is likely to continue, Rowsome believes.
With technological innovation in this space continuing to advance, the cost of renewables continues to fall year on year and the direction of travel is clearly one way. Despite the politically popular posturing, the cold economic realities mean that “drill, baby drill”, will likely remain merely an empty slogan.
