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Evaluating Biden's Two Climate Paths

Evaluating Biden's Two Climate Paths

President-elect Biden will come into office with the highest mandate on climate than any other US president.

According to a survey conducted by the Pew Research Center at the beginning of this year, 64% of adults say protecting the environment should be a top priority for the president and Congress.

However, the possibility of a divided government looms large on just how far Biden can go when it comes to policies concerning climate change.

Should a divided government occur, Biden’s most ambitious climate proposals may not come to fruition. A split Congress holds the purse strings for a “green” stimulus, If there’s one, it would likely to be on the scale of ~$500 billion.

Not only does all spending need to be approved by Congress, but it also requires a supermajority vote (60 out of 100) to pass the Senate (or simple majority for items permitted under budget reconciliation). Therefore, a $2 trillion green stimulus bill is highly unlikely to happen under a Republican-controlled senate.

Additionally, the Supreme Court has shifted more to the right since it froze President Obama's Clean Power Plan. As a result, it's unlikely the Biden administration will be able to rush into sweeping regulatory changes.

If Congress ends up split, we could see Biden become more aggressive through executive order. For example, Biden can, and is at least likely to take some of the following actions:

  1. restore the Corporate Average Fuel Economy (CAFE) vehicle standard with limits higher than Obama-era targets
  2. ban fossil fuel leasing on federal land and implement tougher emission regulations across the energy value chain, including the reversal of Trump-era rollbacks
  3. grant greater freedom for states to set independent climate targets
  4. place more focus on carbon capture as a means to reduce power sector and industrial emissions.
  5. Rejoin Paris Climate Agreement in a largely symbolic move
  6. Declare national emergency on climate to set the tone for priorities, but impacts would be minimal
  7. Require federal agencies to consider climate impacts on projects by using a social cost of the carbon price for permitting
  8. Add emissions standards for the power sector
  9. Re-direct federal procurement toward renewable energy, EVs, and retrofits
  10. Establish mandatory ESG disclosure framework through SEC

If Biden wants to get more ambitious projects done, he'll need the support of Congress which becomes less likely with a split. The initiatives that need congressional approval include:

  1. Extending renewable tax credits - the current investment tax credits for the new construction of renewable assets are set to reduce to 10% after 2021 (from 30% in 2019) and the current extension was approved in 2015.
  2. Extending carbon capture tax credits - an area of bipartisan support to date that doesn't cost significant upfront capital from the government.
  3. Extending EV tax credit - the $7,500 EV tax credit has had bipartisan support in the past but is currently capped at 200K vehicles per automaker. We could see a compromise of cutting the credit, but extending the number of eligible vehicles.
  4. National zero-emission vehicle target - almost impossible under a split Congress a national standard similar to California's recent pledge would be a boom for the EV industry.
  5. Renovating non-federal buildings - Biden campaigned on renovating and retrofitting over 70% of current commercial real estate stock, it's unlikely a split Congress would pass anything close to making this possible given the spending that would be required. However, local and state governments could play a role in pushing this forward regardless of Congress's makeup.
  6. National carbon tax system - a well-designed carbon tax system has had bipartisan support in the past, even if small. Leading economists from both sides of the aisle have also voiced support. Globally, even China has implemented carbon tax legislation. However, Biden walked back this pledge during the campaign and there are concerns it could hurt US businesses.

We'll all be watching Georgia over the next month to see the partisan makeup of Congress. However, we're certainly going to get positive developments for cleantech it's just a matter of how far and wide.