When President Donald Trump said last week that he was pulling the U.S. out of the Paris climate agreement, it was seen as a big win for U.S. fossil fuel interests and particularly coal. Fewer regulations, particularly concerning fossil fuel power plants, could in theory lead to lower costs and greater demand in the fight against an increase in renewable energy. 

Instead, what appears to be happening is that cities and states across the country are staying committed to the Paris agreement's carbon reduction goals and may even double down on policies to grow clean energy. Leaving the Paris agreement may be putting renewed energy into the renewable energy movement, and that could have a big impact on how we look at energy investing going forward. 

Solar panels and wind turbines with an urban landscape in the background.

Image source: Getty Images.

The focus is now on cities and states

One of the first important reactions to Trump's decision to leave the Paris agreement came from city and state governments. If they had thrown their hands up and given up on meeting carbon reduction goals, it could mean they might back off on renewable energy standards and policies meant to increase efficiency of devices, like CAFE vehicle standards or the Energy Star program. 

But within a few hours of that decision, local governments started to fight back. The U.S. Climate Alliance was created as an informal organization of states that would pursue similar policies to address climate change. The governors of California, Washington state, and New York were the first to jump into the fold, and at last count 13 governors (including the governor of Puerto Rico) have joined the alliance to uphold the Paris agreement. On top of that, 279 mayors across the country have signed on to "Climate Mayors" to uphold the Paris agreement, and over 1,400 businesses, institutions, states, and cities have added their names to the open letter "We Are Still In."  

Technically, mayors and governors probably can't create a formal alliance that creates policy, because of a clause in the Constitution (as The Washington Post explains), but there could be ways to adopt similar policies. States often copy one another's legislation and regulatory rules, so there could be cooperation in reaching common goals without making an official alliance. And for renewable energy investors, that could be bigger news than the Paris agreement ever was. Energy policy that drives the adoption of wind, solar, and energy storage comes from states, not the federal government, so this is a big deal. 

State policy will drive more renewables

In the last week alone, the response by states has been swift. 

  • The New York State Energy Research and Development Authority said that it will procure 1.5 terawatt-hours of electricity per year from renewable sources, and the New York Power Authority will add another 1 terawatt-hours. The projects are expected to be the first of 40 to 60 large renewable power plants built by 2022, and could be worth $1.5 billion to the winners. 
  • Nevada's legislature passed a bill on Sunday that will reinstitute net metering in the state, which was demolished by regulators two years ago, causing Sunrun (NASDAQ:RUN) and Tesla's (NASDAQ:TSLA) SolarCity to leave the state almost overnight. The initial rate that customers will get for exporting electricity to the grid is 95% of the retail rate, declining gradually to 75%, which will give companies and customers some certainty in their compensation for rooftop solar in the future. Sunrun, incidentally, said shortly after the bill passed that it will reenter the state. 
  • Nevada also passed a bill that will require the state's utilities to get 40% of its electricity from renewable sources by 2030. That's an increase from the current renewable portfolio standard of 25% by 2025. If approved by the governor, this could lead to another surge in solar installations, and likely energy storage to stabilize the grid, to meet this new standard. 

These are just the state activities in the last several days, and they are from just two states -- and Nevada isn't even part of the climate alliance. So, if states start adopting similar policies and act in tandem, there could be a number of favorable renewable energy policies pushed forward in coming months in response to the U.S. leaving the Paris agreement. 

The response from utilities themselves might not be what Trump expected, either. Nicholas Akins, the CEO of American Electric Power (NYSE:AEP), which runs a utility that produces more electricity from coal than any other in the country, said last weekend that he'll invest in renewables and natural gas over the next decade because coal is too costly and risky for the business.  

SunPower solar installation in a grassy field.

Image source: SunPower.

What should investors do now? 

I think it's clear that states and cities with the economic power in the U.S. are going to be driving forward with policies that will improve adoption of renewable energy and electric vehicles. And they'll be emboldened to act now that they're aware the federal government isn't going to. 

Expect to see states push for more renewable energy adoption on the state level, which means more wind, solar, and energy storage. Developers like SunPower (NASDAQ:SPWR) and First Solar (NASDAQ:FSLR) will be likely winners on a utility scale, but we should see more rooftop solar as well. Tesla, Sunrun, Vivint Solar (NYSE:VSLR), and SunPower are leaders in the rooftop space, and this should improve their prospects going forward. 

On the electric vehicles side, reducing oil consumption will be big, and Tesla is the clear leader and will continue to see its product uptake increase. But if states help drive better charging infrastructure and ridesharing, we could see General Motors gain even more traction in EVs as well. Remember, the Chevy Bolt was really the first mass-market EV, even before the Model 3 hit the market. 

One often forgotten opportunity is in building and owning the renewable energy assets and other infrastructure (like charging networks) that will drive renewable energy adoption. NextEra Energy (NYSE:NEE) and its yieldco, NextEra Energy Partners (NYSE:NEP), are building out their own capabilities to develop renewable projects, and after buying sPower, AES Corporation (NYSE:AES) is a leader in solar and large-scale energy storage. These are two utilities and a yieldco that should profit from the city and state policies helping renewables. 

These are the industry leaders in renewable energy, and if policies in cities and states push for greater adoption across the country, they'll be the first to benefit. If you're not already on the renewable energy investing bandwagon, this may be the time to get on. 

Travis Hoium owns shares of First Solar and SunPower. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.