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Don’t ignore what the president says he wants to do, no matter how unwise it seems.
On Saturday evening, President Donald Trump signed orders placing 25% tariffs on all goods imported from Canada and Mexico, and a lower, 10% tariff on Canadian oil, natural gas, uranium, and other energy sources.
Trump also imposed a 10% tariff on all goods imported from China.
The tariffs will go into effect on Tuesday, giving Trump — who revels in proposing tariffs but has shown some reluctance to impose them for real — another 48 hours to maneuver. But if the new tariffs do actually bite, then they will affect nearly half of America’s imports and reshape some of the world’s most important energy and trading relationships.
Every day, millions of barrels of oil and cubic feet of natural gas flow across the U.S., Canada, and Mexico borders. The three countries have developed an integrated and harmonized network of pipelines, storage tanks, and refineries that has helped turn the United States into the world’s No. 1 producer of oil and natural gas.
The tariffs will almost inevitably disrupt that relationship. They may also upset the millions of dollars’ worth of electricity that shuttles from Canada to the United States every day across their shared power grids.
The tariffs will prove economically painful, although just how damaging is hard to know in advance. They could shrink the United States’ GDP by 0.4%, while increasing taxes by $830 per household, according to an analysis by the Tax Foundation, a center-right think tank. Another estimate from the Budget Lab at Yale says that the tariffs could push up the personal consumption expenditures price index — the Fed’s chosen inflation gauge — by 0.75%, reducing the average household’s purchasing power by $1,200 over the course of a year.
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These costs could worsen as Mexico, Canada, and China raise their own tariffs or trade barriers in retaliation. Late on Saturday, Prime Minister Justin Trudeau announced that Canada would impose its own 25% tariffs on CA$155 billion of goods imported from the United States.
The economic hit to the U.S. economy could also be much larger than estimated if some manufacturers respond to higher costs not by hiking prices, but rather by delaying or shutting down production.
We’ve been reporting on the economic impact of these tariffs at Heatmap over the past week, documenting their potential impacts for oil refineries and the electricity grid. But now that the details are here, a few things stand out.
First, the tariffs on China are qualitatively different from the tariffs on our North American neighbors — especially Canada.
Chinese tariffs are not new. Trump engaged China in a trade war during his first term and ultimately reached a handshake agreement, although he has since said that China did not buy enough American agricultural products to keep up its end of the bargain. Some of the tariffs Trump placed on Chinese imports last time — including eye-watering levies on solar panels — remain in effect; the new 10% tariff will be added to those figures.
What did not happen last time was a serious, out-and-out trade war with Canada and Mexico, America’s neighbors and biggest trading partners. Although Trump entertained the possibility of Mexican tariffs during the campaign, he did not propose tariffs on Canadian imports until after his November election.
Second, the tariffs are quantitatively different, too. The president has not yet explained why he has placed higher tariffs on Canada and Mexico, who are our allies, than on China, which is our economic frenemy at best and our geostrategic adversary at worst. During the campaign, Trump sometimes proposed a “universal tariff” of 10% to 20% on all American imported goods, regardless of their country of origin. That proposed universal tariff — which was seen by some analysts as an extreme and unlikely proposal — was at a lower rate than what he is now levying on North American imports.
Third, this trade war has apparently been concocted and planned much more haphazardly than the one during Trump’s first term. Last time, the U.S. was careful to exempt electronics — iPhones, laptops, Xboxes — from its levies, as well as other consumer products. These tariffs do not do so, at least not yet. Nor do they exempt certain minerals that are essential to manufacturing electric vehicle batteries or other high-end electronics. (Bloomberg has reported that as recently as Friday, Tesla was lobbying for an exemption for graphite, a mineral crucial to making EV anodes.)
Finally, what is so striking about these tariffs is how they will be good for almost nobody.
The tariffs will hurt the American oil industry. As I wrote earlier this week, U.S. energy companies have spent tens of billions of dollars on special equipment that can refine the sludgy, sulfurous crude oil extracted in Canada; Canadian companies, in turn, have sold us that crude oil at a discount and built infrastructure so that it can be used by the United States.
The tariffs will hurt oil refineries. The U.S. refines about 18 million barrels of oil a day, but it extracts — even today, around its all-time high — only 13.5 million barrels a day. Most of the difference between what it refines and what it extracts is made up by heavy crude from Canada and Mexico, which blends well with the lighter petroleum produced by U.S. fracking wells. By raising the cost of Canadian and Mexican fuel imports, the cost of all refined products will rise.
The tariffs will hurt anyone who buys gasoline in the Midwest and Mountain West, where Canadian oil plays a much larger role in local markets. They will hurt diesel and jet fuel prices in those regions too.
But the damage will not be limited to the fossil fuel industry.
The tariffs will hurt anyone who uses electricity across the parts of the country, especially the Northeast, that import large amounts of electricity from Canada’s roaring hydroelectric plants.
The tariffs will hurt home builders and construction companies because the United States gets its best building-grade lumber from Canada. That lumber — already made more expensive by a climate change-intensified supply crisis — will now face additional taxes at the border.
The tariffs will hurt anyone who wants to buy or rent a home in the United States because the lack of lumber will worsen the housing shortage and general affordability crisis.
They will hurt automakers, who in the past three decades have constructed sophisticated supply chains spanning North America — a logistical dance that allows a single vehicle’s components and parts to cross the U.S., Canadian, and Mexico borders many times on their way to becoming a final product. They will hurt autoworkers, who depend on that supply chain. They will even hurt car dealerships, who will respond to higher prices by selling less inventory.
If the dollar rises to accommodate the new tariff level, as some White House officials have argued, then the tariffs will hurt all U.S. domestic manufacturers because their products will become more expensive, and therefore less competitive on the global market.
I am not saying, to be clear, that these tariffs are an economic catastrophe. We don’t actually know their economic cost yet — perhaps it will be minimal. But even then, they will still be a stupid waste of money that will help nobody, and which will make the U.S. economy neither more complex nor more secure.
The tariffs are a warning. As recently as last week, Goldman Sachs analysts put the risk of tariffs at only a 20% chance of actually happening. They ignored what Trump had said he would do because it struck them as too implausible, too unwise, too patently harmful. Perhaps in the next two days they will be proven right. But Trump has begun to blather about many unwise and harmful ideas — invading Panama (where Secretary of State Marco Rubio is headed right now), annexing Greenland, making Canada (somehow) the 51st state. Many seem even more implausible than these tariffs, and yet Donald Trump says that he wants to do them, too. How much longer can Republican lawmakers and business leaders pretend that he doesn’t mean what he says? The chance of calamity has only just begun.
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Lower borrowing costs aren’t enough to erase the threat of tariffs and Trump.
It won’t rescue the renewables industry, but at least it’s something.
The Federal Reserve announced today that it will cut the federal funds rate by 0.25 percentage points, bringing it down to between 4% and 4.25%. Fed officials also projected quarter-point rate cuts at the last two meetings of the Federal Open Markets Committee this year.
This may provide some relief to renewables developers and investors, who are especially sensitive to financing costs. “On the financing side, high rates are never going to be exactly a good thing,” Advait Arun, a climate and infrastructure analyst at the Center for Public Enterprise, told me. “I think in this case, it’s going to be good that we’re finally seeing cuts.”
Because the fuel for solar and wind energy is essentially free, the lion’s share of the cost to develop these energy sources comes up front, meaning that interest rates can have a disproportionate effect on how projects pencil out. Renewable projects also tend to carry more debt than fossil fuel projects, according to energy consultancy Wood Mackenzie. When interest rates rise by 2 percentage points, the consultancy estimated, the levelized cost of electricity for renewables rises by 20%, compared to 11% for a gas-fired power plant, which might have higher operating costs but less need to borrow.
But the challenges for the renewables industry go well beyond financing. Developers are still wondering how they will be able to use Chinese-linked components without losing eligibility for clean energy tax credits. Those tax credits now come with a ticking clock after the passage of this summer’s One Big Beautiful Bill Act, which shortened the eligibility period for wind and solar projects. The Treasury Department also tightened the definition of what it means to “start construction,” making qualification even more of a race. All the while, the Trump administration’s regulatory assault on the sector, especially wind, has led to project cancellations across the industry.
“High interest rates obviously impact the business, but there are a lot of other headwinds and other things going wrong, as well,” Gautam Jain, a senior research scholar at the Center on Global Energy Policy at Columbia University, told me. “If anything, compared to the beginning of the year, rates have come down quite a bit.”
Maheep Mandloi, an analyst at the investment bank Mizuho Securities, wrote in a note to clients that renewable stocks rose last week in part because investors saw yields falling on 10-year government bonds. Ten-year Treasuries are a widely used benchmark for corporate debt, and when they get cheaper, it often means that companies can access financing more cheaply.
Falling 10-year yields are also a sign that the market anticipates a Fed rate cut. So far this year, the 10-year Treasury bond yield has fallen from 4.57% to 4.00% as of Wednesday afternoon after the rate cut was announced.
Lower borrowing costs are a welcome transition for the industry. Borrowing costs started to rise dramatically in 2022, as the Fed hiked interest rates to combat the worst inflation the U.S. had seen since the early 1980s. Annual price increases had been bouncing around or even below 2% since the 2008 recession before climbing to as high as 9% in the summer of 2022, following Russia’s invasion of Ukraine, which led to an energy price shock. The uneven and stimulus-fueled economic recovery from Covid-19 also created price instability throughout the economy, including the renewable energy industry.
Renewable energy businesses in particular were hammered by higher interest rates, as well as higher costs for commodities like steel and for final products like solar panels.
Even as unprecedented government support flowed into the renewables industry from the Inflation Reduction Act, signed in August 2022, clean energy stocks continued to stagnate, with the iShares Clean Energy ETF falling over 30% from the beginning of the Biden administration through the end of 2023. (Despite the assault from the Trump administration, the index has actually risen about 30% so far this year after falling in the fall and winter of 2024, as uncertainty around the IRA’s tax credits has dissipated.)
One of the poster children for renewables dysfunction is the Danish wind developer Orsted, which has been a victim of just about every brickbat thrown at the industry. In its most recent financial statement, the company said that its future earnings estimates were imperiled by “assumptions with major uncertainty,” which included “investment tax credits, interest rates, imposed tariffs in the U.S., and the supply chain.”
Home solar giant Sunrun, too, has cited financing stresses. In its most recent quarterly report, the company disclosed that “rising interest rates, including recent historic increases starting in 2021 … [are] reducing the proceeds we receive from certain Funds.” It also acknowledged that “because our financing structure is sensitive to volatility in interest rates, higher rates increase our cost of capital and may decrease the amount of capital available to us to finance the deployment of new solar energy systems.” High rates, the company disclosed, “have impacted and may continue to impact our business and financial results.”
Even as rates come down, the renewable industry still has the Trump administration to contend with. The various agencies of the executive branch have shown little hesitation about getting in the way of renewable energy development, even for projects that are already nearly complete. The Treasury Department also has yet to issue guidance on complying with OBBBA’s rules about sourcing from Chinese suppliers, prolonging uncertainty for many in the industry. Trump’s tariff policy, too, remains a potential wildcard, as developers await a Supreme Court ruling on the legality of the president’s efforts thus far.
“In terms of being able to build more supply with the benefit of lower financing costs,” Arun told me, “I think this is where we’re running into all of the issues with delays in procuring components — the uncertainty regarding whether the tariffs will be struck down or not, and of course, changes to the inflation Reduction Act through the OBBBA.”
Last week, analysts at Rhodium Group projected that Trump’s policies could slow U.S. progress on reducing emissions by more than half.
For renewables developers, the rate cuts may be welcome, but everything else — and there’s a lot of everything else — may be what really matters, Jain told me. “All those things add additional uncertainty, and anybody who’s in the space will be aware that more could come,” he said. “Of course, lower rates will help, but it’s a combination of the two.”
On Democrats’ AI blueprint, more nationalized minerals, and the GOP’s anti-geoengineering push
Current conditions: Tropical Storm Mario is lashing the southwestern U.S. with rainstorms and potential flash flooding • The drought in the Northeast and the Ohio Valley is worsening, with rain deficits in major cities 15% below average • Tropical Cyclone Mirasol is bringing heavy rains to the Philippine island of Luzon.
The Trump administration announced a lawsuit Tuesday aimed at tanking Vermont’s Climate Superfund Act, which set up the nation’s first program to force fossil fuel companies to pay for adaptations to deal with the effects of warming temperatures. The Department of Justice said the legislation “will likely” impose “billions of dollars in liability on foreign and domestic energy companies for their alleged past contributions to climate change.” The motion, filed on Monday, comes months after the Justice Department filed an initial complaint in May targeting the law and similar legislation in New York, Hawaii, and Michigan.
“Like New York, Vermont is usurping the federal government’s exclusive authority over nationwide and global greenhouse gas emissions,” Acting Assistant Attorney General Adam Gustafson said in a press release. “More than that, Vermont’s flagrantly unconstitutional statute threatens to throttle energy production, despite this administration’s efforts to unleash American energy. It’s high time for the courts to put a stop to this crippling state overreach.”
Arizona Senator Mark Kelly. Chip Somodevilla/Getty Images
Arizona Senator Mark Kelly released a proposal Wednesday morning designed to give Democrats a roadmap to back the buildout of data centers to support the boom in artificial intelligence. The 16-page pitch makes no mention of novel tools grid operators are considering to force data centers to dial back electricity consumption when power supply is low, known as demand response. But the proposal does call for establishing a pipeline of projects to support large-scale clean electricity production from 24/7 sources. “While solar and battery storage dominate today’s pipeline, they alone can’t reliably power the AI,” the blueprint reads. “We must build an innovation pipeline for geothermal, nuclear, and other clean dependable sources, while also deploying near-term solutions that advance and strengthen our energy systems for the demands ahead.”
The value of finding ways to add more data centers before that large new power output is available is the big reason for supporting the curtailment of electricity usage at big server farms, Heatmap’s Matthew Zeitlin wrote last month. “Creating a system where data centers can connect to the grid sooner if they promise to be flexible about power consumption would require immense institutional change for states, utilities, regulators, and power markets.”
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The U.S. government is in talks to set up a multibillion-dollar fund for overseas mining projects to help counter China’s grip over the world’s critical mineral supply, the Financial Times reported. The Trump administration is discussing the effort with the New York investment firm Orion Resource Partners, and looking to establish the fund under the U.S. International Development Finance Corporation. The fund would invest in projects to produce minerals such as copper and rare earths. “These talks really show that the [Donald] Trump administration is trying to align its financial tools with its broader mineral ambitions,” Gracelin Baskaran, director of the critical minerals security programme at the Center for Strategic and International Studies in Washington, told the newspaper. “This public-private partnership stands to catalyze a significant amount of capital.”
The move is the latest effort by the Trump administration to take on a bigger role in the mining industry, which requires high upfront costs and years-long development timelines that pose problems for companies beholden to quarterly shareholder updates. In July, the Department of Defense took an ownership stake in MP Materials, the only active rare earths producer in the U.S., marking the most significant federal intervention in the private sector since Washington nationalized railways during World War I. In a sign of the dealmaking environment, Heatmap’s Katie Brigham wrote this month that “everybody wants to invest in critical mineral startups.”
The House of Representatives held a hearing Tuesday on the risks posed by weather modification and geoengineering technologies. Led by Georgia Republican Representative Marjorie Taylor Greene, the hearing — entitled “Playing God with the Weather — a Disastrous Forecast” — examined the idea of manipulating the makeup of the atmosphere to artificially cool the planet, which is an emerging, if hotly contested, idea among some commercial startups. GOP officials such as Greene and Secretary of Health and Human Services Robert F. Kennedy, Jr., have raised concerns over what such technology could do. The issue took on a new partisan valence after the flash flooding that killed more than 135 people in Texas this summer, which Fox News suggested could be linked to cloud-seeding experiments underway in the region.
In his testimony, Christopher Martz, a meteorologist and policy analyst at the Committee for a Constructive Tomorrow, warned that there were still major uncertainties about the potential deployment of geoengineering technologies. At times, however, the questioning devolved into debates over the reality of settled science about the effects of fossil fuel emission on warming itself.
“Did man create the Ice Age?” Greene asked Martz at one point.
“No,” he responded.
“Yeah, right, so none of us were alive back then to know for sure,” she said.
Solar developer PosiGen is planning to pull out of three of its projects in Connecticut. The company told state officials late last month it would need to shut down its facilities, eliminating 78 jobs, as financing dried up for the projects. The move highlighted the challenges ahead for the solar industry as federal tax credits barrel toward next year’s phaseout deadline. In 2015, the Connecticut Green Bank helped fund low-and moderate-income homeowners’ purchase of solar panels through PosiGen. But the federal program backing the effort, known as Solar for All, is set to unwind under the Trump administration. The company expects to start laying off workers in Connecticut next week, according to the news site CT Insider.
Robert Redford died Tuesday at 89 years old. During his lengthy career and filmography, the actor fashioned himself as an activist voice for a number of causes, including the U.S. effort to decarbonize its electrical sector. In February 2016, after the Supreme Court paused the Obama administration’s Clean Power Plan, Redford accused the conservative justices of rendering a verdict “on the wrong side of history” in an op-ed in Time magazine. “It was a clear departure from how our courts normally handle government oversight. And I cringe at how we will have to answer to history. When our children and their children ask, ‘When the majority of Earth’s citizens — its scientists, military professionals, industrialists, and more — realized the threat of climate change was real, why didn’t you do more? Why did you delay?’”
Rob talks with Sarah Kapnick about our new era of energy insecurity.
We live in a new energy era — one in which the inputs and technologies key to clean electricity production are at the heart of international politics. What will that mean for decarbonization? And how should climate tech companies prepare?
On this week’s episode of Shift Key, Rob chats about those questions and more with Dr. Sarah Kapnick. She is the Global Head of Climate Advisory at J.P. Morgan, where she advises the bank's clients on climate, energy, biodiversity and sustainability topics. She was the former chief scientist at the National Oceanic and Atmospheric Administration from 2022 to 2024, and was previously a research scientist at NOAA’s Geophysical Fluid Dynamics Laboratory in Princeton, New Jersey.
Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap, and Jesse Jenkins, a professor of energy systems engineering at Princeton University. Jesse is off this week.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, YouTube, or wherever you get your podcasts.
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Here is an excerpt from our conversation:
Robinson Meyer: When companies come to you looking for help navigating this particular moment — where federal policy is quite up in the air, where rates are coming down but kind of high, AI capex is surging — what advice do you give them for navigating this moment?
Sarah Kapnick: The advice that I give them is looking to some of those things that strategically are likely to have more consistency over time, and that they’re looking for those places of more consistency, and that they feel that they can invest in, that they will have support ongoing — particularly if it’s a project that lasts beyond administrations.
They’re really concerned with what they think is going to last. And then for the stuff that doesn’t, that there may be more volatility, they want to identify that volatility, and they want to think through, okay, how can I take opportunity now if I think there’s a small window for it? Or how do I plan for taking opportunity when the opportunity presents itself down the line?
And so, it’s a mixture of long-term planning and thinking through, strategically, where the world is headed and where they can fit in over time, yet also taking opportunities that either present themselves now or they have conviction that will present themselves soon, and then being ready to be the first when that opportunity presents themselves so that they can run with it.
Mentioned:
The New Map of Energy and Geopolitics
Previously on Shift Key: How China’s Industrial Policy Really Works
This episode of Shift Key is sponsored by …
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Music for Shift Key is by Adam Kromelow.