Trump’s tariffs’ implications for biogas: An analysis by Chris Huhne

What are the Trump’s tariffs’ implications for biogas? They are both sectoral – specific to biogas and biomethane – and general. The sector will inevitably be affected by the changes in global economic conditions. In this analysis piece, let us start with the sectoral, and then move on to the general economic implications that will also affect businesses in our sector. There are (some) pluses as well as (lots of) minuses.

The tariffs on foreign imports into the USA have been paused for the European Union and the UK at a universal 10%, but will possibly rise to 20% for the EU when the 90 day grace period expires. There are also 25% tariffs on automotive exports, hitting a major UK and European export to the US. Chinese imports are being hit by a tariff of 145%. Various exemptions have been introduced for particular products, but there is debate in the administration over whether these are temporary or permanent. Overall, the Yale budget lab calculates the average US tariff now at 27%, the biggest increase to the highest level since 1903.[1] By comparison, the average tariff rate applied on both US and EU before the Trump tariffs was about 1%, according to the EU Commission.

These new tariffs are far from settled, and have already been subject to no fewer than seven separate changes from Trump. So analysis is difficult and provisional. Nevertheless, there is likely to be an increase in the cost of biogas plants in the USA. EU equipment (notably from Germany, a modern pioneer in the sector and the European specialist in machine tools) has traditionally competed in the US market. As those exports increase in price due to the tariffs, it will also allow competitors based within the US to increase their prices. US competitors will also be facing higher input costs for components ranging from raw steel through to pumps, pipes and filters.

By raising costs, the tariffs will therefore reduce the likely returns on any new plant planned in the USA compared with what went before. There is also an increase in the cost of borrowing for US businesses due to rising US Treasury bond yields (and a reduction in Wall Street’s risk appetite for less well capitalised businesses), and this is likely to push up the target rate of return. Both factors – increased investment costs, increased target returns – are likely to weigh on US investment in the sector despite the general enthusiasm from a number of leading Republicans (including US Senate majority leader John Thune).

There are some corresponding offsets outside the USA. European and Japanese competitors for plant and equipment will, to some extent, have to find alternative markets at home and in jurisdictions without any increase in trade barriers. That will tend to reduce prices and costs of equipment, and therefore make plants more attractive if we look just at those price movements. However, the recent tightening of general financial conditions will offset that advantage.

Natural gas prices are also key, and are a helpful base for the sector. On both sides of the Atlantic, the fossil gas price is down following the announcement of tariffs, but not as much as other commodities (including oil). The US Henry hub gas price is still trading (at the time of writing) at $3.26 compared with $2.01 a year earlier. Fortunately for biogas, biomethane and Renewable Natural Gas (as the US call it), the fossil gas price is reflecting the enormous increase in US LNG exports as new terminals come on stream, and the year-on-year decline in US shale fossil gas output. The major US shale fields appear to have peaked. Reflecting these factors, and the need to rebuild gas reserves, the European TTF gas price is also up about 17% year on year.

Biomethane also benefits from a green premium, and we can see the development of the broad EU carbon price as a proxy. The carbon price ran up in the latter part of last year to peak at just under €85 and is now back to €67, which is about where it was at the time of Trump’s election. Despite Trump’s withdrawal from the Paris agreement, the hard cash being paid out in EU commitments to dealing with climate change has yet to change. For the sector, therefore, the overall impacts are so far small taking the main revenue items. Many European countries also have a mandate or obligation for gas suppliers to buy a certain proportion of biogas, and these are unchanged.

Nevertheless, the biggest longer term impacts on the biogas sector are likely to come from the overall economic environment. International economics is never a zero sum game where one country wins what another loses: economic history is littered with episodes where everyone loses (like the 1930s) or indeed everyone wins (like the period from 1945 to 1973). Long run, the effects on the biogas sector are therefore likely to be dominated by the big economic impacts, which are flowing from the decisions taken in the Oval office. These are historically enormous. The international trading system has not suffered such a shock since the Smoot-Hawley tariffs introduced by the United States in 1930, which were widely blamed along with the banking crisis for the subsequent trade war that turned the 1929 crash into the great depression.

We are not, though, heading for a global re-run of the thirties depression for several reasons. The most important is that US tariffs in the 1930s spilled over into a massive tit-for-tat and beggar-my-neighbour trade war not just between the US and everyone else, but within Europe between the major nation states. The EU’s single market – an economic area two-thirds the size of the US even without Brexit Britain – stops that re-occurring. China, Japan and Canada have also made it clear that they want to maintain open trade with non-US partners. And India is likely to reduce trade barriers in a renewed attempt at higher growth. As EU Commission president Ursula von der Leyen has said, the EU intends to prioritise trading relations with the 87% of the global economy that is not affected by US tariffs.

A second supportive factor in both Europe and China is the new commitment to spending. In China, President Xi has been moving to bolster domestic consumption and the home market as an alternative to its export driven model. In Europe, the apparent sudden withdrawal of US support for Ukraine and the North Atlantic Treaty Organisation has led Europe’s biggest economy, Germany, to ditch its previous conservatism on public spending. By removing defence spending from the calculations on the “debt brake”, the new German government has opened the door to a massive boost in defence spending which will revive production not just in Germany but in its supply chains in northern Italy, and then more widely in the Eurozone economy.

A third supportive factor for overall economic activity is the fall in the oil and other commodity prices: Brent crude oil was down from $75 a barrel before “Liberation day” to $66 at the time of writing. This substantial drop has occurred as traders absorb the possibility of a slowdown in global growth and therefore in oil demand (plus OPEC’s ill discipline). If sustained, it will bolster global growth. Because oil producers tend to save more than they spend, falling oil prices hand spending power back to buyers who tend to spend more than they save. The overall effect is to bolster spending and demand.

The impact of the different offsetting factors has led to a downgrading of global growth on the average of forecasters from 2.7% this year before “liberation day” to 2.4%: not a disaster but the consensus tends to lag more timely forecasts. A classic financial sector view is usually given by JP Morgan Chase or Goldman Sachs, both of which foresee slower growth with the US being particularly hard hit in part because of the disruption of supply chains. Goldman, for example, has downgraded its global forecast from 2.4% growth to 2.1%.

It is, though, true that economic forecasters tend to cluster around a safe set of views and are legendarily bad at spotting the impact of changes which are outside recent historical experience. It would not be surprising if the confidence effects of the trade war on both consumers and business investors were to sap consumption and investment more rapidly than is currently expected. Recent US data has been weak.  Arguably, there are also important factors today that have the potential to make the outlook far worse.

The first is simply the volatility of the Trump administration, which is not only nominally the “leader of the free world” in defence terms but also in economics, particularly in marshalling responses to crises like Lehman. The on-off nature of Trump tariffs, the extraordinarily primitive way of calculating the proposed “reciprocal” tariffs, and the outright hostility between influential Trump appointees such as Elon Musk and Trade adviser Robert Navarro (whom Musk called “dumber than a sack of bricks”) has given the impression of an administration that is divided, uncertain and incompetent. This uncertainty is corrosive of any business investment decision: why go ahead when things could change with a tweet in a day? Surely better to delay?

This policy uncertainty has also undermined the US position as the key to the western financial system. Last week, share prices fell sharply. Normally, this sort of rout in equities is accompanied by a rise in US bond prices and the US dollar as investors rush into “safe haven” investments. For the first time in many investors’ living memory, however, equities fell but US bond prices also fell, and so did the US dollar. In other words, the US is no longer benefiting from its post-war role as a “safe haven” in times of trouble, but is instead looking more like an emerging market on the brink of a crisis. The gold price rose by 5% last week. The Euro, sterling, Swiss Franc and Japanese Yen have all risen.

Within the USA, this adds to financial pressures on businesses and households. The significance of falling US bond prices is that bonds pay a fixed interest rate or coupon. So if US bond prices fall, bond yields – the effective interest rate that you can achieve as a buyer of those bonds – rise. New bonds also have to be issued at a higher interest rate to equalise with those yields. And those US government interest rates are the base interest rate for corporate America and also for US households’ mortgage interest rates. Last week, US long-term interest rates rose by 0.4 percentage points, and it is this squeeze which appears to have caused Trump to announce his U-turn pausing “reciprocal” tariffs by 90 days.

There are also nightmare scenarios. In the past, the key financial status of the USA has led to a vast amount of foreign investment in the US, including large holdings of US Treasury bonds by foreigners (including central banks) estimated at $8.5 trillion at the end of 2024. These central banks have been slowly diversifying into other securities and gold in the last few years, particularly in those countries afraid that they could be treated like Russia whose reserves were frozen.

However, this has now spread to other central banks: the largest buyer of gold in the last quarter was Poland’s central bank. What if some country suffering from what it sees as unwarranted tariff attacks decides to sell enough of its dollar holdings (usually held in US Treasury bonds) to squeeze US interest rates higher? Even Canada, normally full of gentle people who are well disposed to the USA, is now so fuming with national outrage about Trump’s treatment that there are widespread consumer boycotts of US goods, and even an app – “Buy Beaver” – that allows Canadian consumers to avoid US goods by scanning the barcode in the supermarket. Canada has $350 billion of official holdings of US Treasuries, quite enough to put a wobble in the market if sold. The biggest holders are China and Japan. It is a self-destructive gambit to sell US assets if you are a big holder, since your own asset values will go down, but it would not be the only example of self-harming economic policy in recent years. If everyone thinks someone else will move first, it may also be rational to sell before they do – and spark a crisis. Like Liz Truss’s government in the UK, the US is more vulnerable to a collapse of foreign confidence than it likes to think.

The reserve status of the US dollar has been an extraordinary advantage for the USA for decades: the US has been able to live beyond its means (importing more than it exports) simply by issuing dollars to foreigners. But that may be changing. What if Trump has crystallised a change of view toward the USA? US visitor numbers from Europe were down 17% year on year in March, with potential tourists citing stories of deportation and incarceration. What if that attitude also infects the US dollar? The last time a monetary hegemon declined was when the pound sterling went off the gold standard in the first world war (and again in the 1930s), but even after that many countries in the so-called “sterling area” went on holding assets in London that had to be managed down over many years. And in those circumstances, the holders were friendly nations and not rivals (like China) or alienated allies (like Canada and Germany). Fingers crossed that there will be no “Trump moment” to parallel the “Truss moment”.

So back to biogas. Although fossil gas prices provide a good base for the sector, compared with other commodities, there are clouds on the horizon if we take into account the outlook for the macro-economic and financial environment. Tough times may also make budget support harder for renewables in general, given the backtracking from climate pledges that has been started by the Trump administration. But there is one positive for the sector that will certainly help. The turmoil in international relationships has increased the value of home-grown energy like biogas. Governments are likely to want as much protection as they can get from international price shocks – including from the cost of energy. In these circumstances, biogas is not merely a socially responsible way of forestalling climate change, but also a sensible insurance policy against a rough and tumble world. Overall, it would be surprising if the sector did not maintain strong global growth despite the increasingly alarming noises off.

Chris Huhne, London, 17^th April 2025

[1] https://budgetlab.yale.edu/research/fiscal-and-economic-effects-revised-april-9-tariffs. The Yale researchers estimate US prices will rise 2.9% and the average hit per US household will be $4700 a year.