New Year, New US President - What does a Biden Presidency mean for climate action and what can we expect from the United States in the coming years?

After a turbulent confirmation and transition of power, the United States welcomed in President Joe Biden and Vice President Kamala Harris on January 20th. A Biden Presidency brings a sense of hope and optimism to a year fraught with uncertainty— a new era of international climate collaboration. 

Though we are just shy of a month into the Biden Administration, President Biden has already announced not only will the US rejoin the Paris Agreement with ambitions to reach Net Zero by 2050, but also appointed an impressive ‘climate cabinet’ to help tackle the challenges ahead. Of President Biden’s key advisors, some notable names include John Kerry who signed the Paris Agreement in 2015 on the US’ behalf, former head of the EPA and current CEO of the NRDC (National Resources Defense Council) Gina McCarthy, as well as Janet Yellen who served under Obama in the Federal Reserve and is a proponent of a carbon tax. As the first female US Treasury secretary, Janet Yellen has already pledged to “forcefully address climate change” with particular focus on the risks climate change poses to the financial system.

Climate change is at the top of the agenda

The Biden Administration’s ability to achieve such lofty climate goals received a sizeable boost when Democrats won both seats in the Georgia Runoff, giving Democrats control of the senate and a significant win for climate action. However, regardless of who controls the Senate, much of the Biden Administration’s first year will be spent undoing all the climate rollbacks of the Trump Administration. In the past weeks, President Biden has already signed a record-breaking number of executive orders to catalyze this effort. From canceling the contested Keystone XL pipeline to banning new oil and gas leases on federal lands, President Biden sends the world a clear message: climate change is at the top of his agenda.

Historically, the environment was not a partisan issue— President Nixon established the EPA, NOAA, Clean Air Act, Clean Water Act, and the Endangered Species Act. While executive orders are useful to quickly move policy, they are also vulnerable to judicial challenges and can as easily be signed away by President Biden’s successor. Executive order policymaking is a less permanent solution than regulatory policymaking, which is why bipartisan collaboration is paramount to building lasting momentum on climate action. Globally, the economics are now in favor of renewables, with solar and onshore wind as serious competitors of fossil according to IRENA. Further, BlackRock’s CEO Larry Fink has clearly identified the need for fundamental restructuring of finance to incorporate climate change.

The Trump Administration’s destabilization of diplomatic ties in the past four years coupled with China’s economic acceleration has positioned China as an economic superpower. In order for the Biden Administration to catch up with China’s transition momentum, Biden will not only have to quickly reverse Trump’s anti-climate policies but also make immense progress to decarbonize. If the US aims to, once again, lead the world as President Obama did in forming the Paris Agreement, they must first mend their relationship with China. The EU may wish to remain neutral on China-US relations and maintain good relations with both superpowers in order to influence and motivate an accelerated transition.

Implications for investors:

As we continue to progress on our 2021 journey with rejuvenated climate ambitions, we will have to see whether coordinated transition efforts by the US, China, and EU proves sufficient to achieve Paris goals. Will we embark upon an orderly, disorderly, or a failed transition? Will tipping points and physical feedback loops catch up with us? Will hydrogen be included at the table? Investors should monitor both physical signs and policy closely, and continue preparing for both severe transition and physical risks. Never has objective information on where the world is heading in combination with comprehensive scenario analysis been more important.

 

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