India should double down on climate action in the face of Trump’s policy rollback

As Donald Trump begins his second term as US president, the world is bracing for a dramatic shift in US climate policy. His first presidency was marked by a withdrawal from the Paris Agreement, a regulatory rollback on emissions and a strong embrace of fossil fuels. His successor Joe Biden rejoined the commitment made in Paris, where leaders of nations had come together in 2015 to “pursue efforts” to contain global warming, key among them being to set up country-level emission-reduction targets.

Now, with Trump back in the White House, early indications suggest an even more aggressive dismantling of climate priorities. One of his first actions was to exit the Paris deal, which according to the rules will take a year to implement. This has direct implications for climate action—especially in India and the Global South.

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The voluntary carbon-credit market has long been a vital mechanism for financing climate action in emerging economies. Under the Biden administration, the US actively participated in strengthening carbon markets, pushing for corporate net-zero commitments and regulatory clarity.

Trump, however, has historically dismissed carbon trading as an unnecessary burden on businesses. If his administration dismantles carbon pricing mechanisms or weakens US participation in international carbon markets, it could significantly depress carbon credit prices.

India, a leading supplier of high-integrity carbon credits through projects in renewable energy, forestry and carbon sequestration, could see diminished demand. This will particularly hurt small-scale sustainability projects that rely on carbon finance to stay viable.

However, India’s own compliance carbon market is maturing. The Bureau of Energy Efficiency’s Perform, Achieve, Trade (PAT) scheme and the upcoming Carbon Credit Trading Scheme (CCTS) are designed to support domestic demand.

To counteract volatility, India must strengthen intra-regional trade in carbon credits, aligning with overseas partners like the EU, Japan and Australia—economies that remain committed to climate goals despite the US withdrawal.

Trump’s protectionist trade policies could further disrupt green technology markets. During his previous term, he imposed tariffs on solar panels from China, creating ripple effects across global supply chains. Biden increased these tariffs and Trump has now further hiked tariffs by an additional 10%.

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India, in a bid to become a global green manufacturing hub, is witnessing a rise in investments in domestic production facilities under the production-linked incentive (PLI) schemes for solar modules, green hydrogen and battery storage.

A trade war between the US and China could drive up costs in the short-term, but it might also create opportunities for Indian manufacturers to fill global supply-chain gaps. If India positions itself strategically, it can emerge as a preferred export hub for green technologies, with its exports bound particularly for other developing economies and Europe.

Despite Trump’s climate scepticism, economic fundamentals will continue to drive green investments. The global energy transition is now shaped by market forces, not just policy mandates.

The cost of renewables has plummeted to a point where solar and wind are more competitive than coal in most regions (and this includes a couple hours of battery storage to ensure continuous supplies to consumers). Electric vehicle (EV) adoption is accelerating, propelled not by regulation alone, but also by superior technology and lower operating costs.

Investment in clean energy is no longer a matter of choice, it is a commercial imperative. Major American companies, ranging from Tesla and Microsoft to oil giants like ExxonMobil, are investing in low-carbon solutions—not out of environmental altruism, but because these sectors represent the future of profitability. If Trump tries to roll back climate policies, he will face pushback not just from activists, but from corporate interests as well.

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While Trump may not believe in climate change as a real phenomenon, having expressed much scepticism in the past, he clearly believes in budget cuts. US spending on green research and development (R&D) is likely to be slashed, affecting the pace of technological breakthroughs in advanced battery storage, carbon capture and hydrogen technologies. This could slow down global innovation cycles, making green technology less accessible and more expensive in the near term.

However, necessity is the mother of invention, and India must step up its own green R&D efforts to fill the void. If Washington won’t fund the future, perhaps Bengaluru, Hyderabad and Delhi will.

A Trump presidency also means heightened uncertainty in capital markets. Wall Street has increasingly embraced green investing, but with a regulatory rollback and potential decline in government incentives, capital for green technologies may become scarce. Institutional investors who had bet big on companies adopting sustainability strategies might tread more cautiously, impacting liquidity in climate-focused venture capital and infrastructure financing.

This could mean that startups in green hydrogen, EV batteries and smart grids will need to look beyond traditional funding sources. India should strengthen its own financial ecosystem for climate innovation by using sovereign green bonds, development finance and blended capital structures.

Rather than reacting to the unpredictability of US policies, India must focus on fortifying its own green ecosystem. Expanding domestic carbon markets, boosting clean energy manufacturing, and ensuring technology leadership in next-generation renewables will help India stay ahead. The message is clear: No matter how US politics shifts, the economics of sustainability is irreversible. Businesses that understand this will thrive while those that do not will be left behind.

These are the author’s personal views.

The author is a distinguished fellow at the Observer Research Foundation, visiting professor in practice at the London School of Economics, former Union minister and a member of the Lok Sabha.