The fight against climate change may be collateral damage in the escalating trade war between the U.S. and China.

If warming is going to be limited to 2 degrees Celsius or less, there will need to be greater cooperation between the countries, a Wood Mackenzie Power & Renewables report said. The consultancy holds to a 3 degrees Celsius rise in global temperatures as its baseline outcome, according to Wood Mackenzie’s Energy Transition Outlook released on Aug. 2.

There have been many negative changes since The Paris Agreement was ratified at the 2015 United Nations Climate Change Conference, Wood Mackenzie said. The accord aimed to limit climate change to less than 2 degrees above pre-industrial levels. While policies promoted by the European Union and smaller economies are helpful, according to the report, larger, energy-dense countries and energy-rich segments lack serious progress.

“We’re witnessing a trade war between the two largest global economies and a go-it-alone approach driven by populists and protectionist agendas,” Wood Mackenzie President Neal Anderson said in an Aug. 2 statement. “I see that as at odds with the collaborative, can-do spirit that emerged from Paris at the end of 2015.”

Rapid change will occur in the global energy system over the next two decades, particularly in the electricity sector, the report said. There are 2 billion people lacking reliable electricity access, and the population is still growing, so energy demand will continue rising until at least 2040. 

The U.S.-China trade war adds an impediment to the transition to cleaner energy, according to Wood MacKenzie. 

“The ratcheting up of trade tension in solar has raised prices for U.S. consumers,” Xiaojing Sun, a Wood Mackenzie senior research analyst, told Karma. “Solar panels in the U.S. are about 20% more expensive than those sold in major European countries, 50% more expensive than in China and 40% higher than in Japan.”

The U.S. has imposed tariffs on most types of imported solar modules, and proposed tariffs on wind turbine towers may undermine project economics. U.S. installers opposed the Trump Administration when it slapped a 30% tariff on imported solar cells and panels in January 2018.  

Tariffs on Chinese imports, as well as the threat of new duties on Mexican imports, will slow growth in the wind sector and at some point lead to a reduction of jobs, Tom Kiernan, CEO of the American Wind Energy Association, told CNBC in June.

China’s imports of U.S. liquefied natural gas, which the Chinese government has slapped tariffs on, have tumbled this year. China’s move from burning coal to natural gas has curbed carbon and soot emissions. U.S. producers are no longer benefiting from this bonanza.

“There’s always going to be retaliation by the country having tariffs imposed on its products,” Sun said. “What’s happened to polysilicon should be a warning.”

REC Silicon, which makes polysilicon, the raw material for solar cells, is shutting its factory in Moses Lake, Washington, as a direct result of the trade war. China was its biggest customer before trade tensions rose but that changed with the imposition of a 57% Chinese tariff.  If the tariff disappeared the company would still face challenges exporting to China, because rapidly expanding polysilicon producers there have brought down prices and secured domestic sales contracts.

Karma Takeaway: While the trade war may hurt or help individual companies it’s clear that one casualty will be efforts to curb climate change. Higher costs will delay the switch to renewable, clean energy sources and add further uncertainty to investment decisions.