Author: Rina Rossi
The BRB Bottomline
Biden’s climate plan, which is the most ambitious plan put forth by any president regarding climate change, will also have remarkable effects on the economy, global GDP, American jobs, and investments. Namely, we will see an increase in public clean energy investment, and corporations with a green commitment will be favored by investors. The climate plan also has initiatives in place that will help mitigate the harmful consequences of climate change that disproportionately affect marginalized populations.
Diving Into The Basics of Biden’s Plan
Throughout the numerous US Presidential Candidate debates regarding healthcare, immigration, women’s rights, and racial injustice in 2019 and 2020, one of the most highly anticipated campaign promises that current US President Joe Biden made was his $2 trillion climate plan. Biden’s climate plan is one of the most ambitious plans to combat climate change that has ever been proposed. Specifically, it aims to significantly increase clean energy in electronic, transportation, and building sectors, while also creating economic and job opportunities for the American people. Sam Ricketts, co-founder of climate policy group Evergreen, emphasized the bridge between American jobs and the climate agenda in Biden’s plan, stating that “Biden’s economic agenda is his climate agenda; his climate agenda is his economic agenda.” Some directives that the plan includes are requiring federal agencies to purchase pollution-free electricity and zero-emission vehicles. Additionally, the US Department of the Interior is instructed to halt entering into new natural gas and oil leases offshore, as well as on public lands. The Biden-Harris Administration has also used executive action to requirepublic companies to disclose their GHG emissions and climate risk.Furthermore, all of these green initiatives encompass Biden’s call for the US to run on 100 percent clean energy by 2035, as well as reach a net-zero emissions economy by 2050. Biden’s climate plan also seeks to confront environmental racism. Environmental racism is a form of systemic racism that causes communities of color to be disproportionately overburdened with health hazards due to policies that force them to live near mines, landfills, power stations and other sources of toxic waste. Currently, 3 out of 5 African Americans live in areas with uncontrolled toxic waste sites, and African Americans have a 36 percent higher rate of suffering from asthma, which is strongly associated with air pollution according to a United States Environmental Protection Agency report. In order to mitigate these inequities, marginalized communities are set to receive 40 percent of clean energy under Biden’s climate plan. Let’s take a closer look at the macroeconomic, investment and employment effects of the plan.
The Upcoming Trajectory For Public Clean Energy Investment
Director of the International Renewable Energy Agency (IRENA), Francesco La Camera, calls renewable energy “increasingly the cheapest source of new electricity” and describes renewable investments as “stable, cost-effective and attractive.” Consequently, energy investment will become increasingly competitive as solar photovoltaic (PV) energy decreased in 2019 by 13 percent and onshore wind generation decreased by 9 percent in 2019. Currently, onshore wind costs below $0.05 USD per kilowatt hour, while fossil fuel energy generation costs between $0.05 USD to $0.18 USD per kilowatt hour. These prices are in line with the fact that renewable energy prices have been on the decline, as wind and solar energy sources have fallen by an average of 50 percent in costs during the past 10 years, and solar PV have decreased in average costs by 80 percent, according to IRENA. As a result of this rise in cheap green energy, renewable energy investment is becoming more competitive, and the increase in US commitment to green energy is helping accelerate the worldwide s-curve growth in renewable energy. The s-curve portrays an early emergent phase of growth that begins small, but quickly increases in magnitude as new technologies emerge and enter widespread diffusion, which experiences exponential growth. Various technologies that the s-curve has historically portrayed are jet engines and successive mobile and steel-making technologies. The final phase of the s-phase is defined by the decreasing pace of diffusion as the new technology stabilizes. Furthermore, the magnitude at which the growth flattens could match the full potential of the technology, or it may fall short if the growth becomes constrained. This s-curve growth is crucial to push the large volume and rapid pace of climate action and reduce greenhouse gas emissions, while fossil fuel energy investments risk stranded assets, making it difficult for the US economy to recover from the COVID-19 pandemic’s economic burdens. Also, there are over 1,693 American corporations who have already been helping the US market shift away from polluting fossil fuel energy sources and will hopefully influence other companies to commit to climate action and green investment.
Featured Image Source: We Mean Business Coalition
Investors’ Commitments to Clean Energy
As a result of the increase in clean energy market competition, investors will favor working with corporations that commit to clean energy rather than fossil fuel-polluting energy. This is already evident, as companies with better environmental, social, and governance (ESG) ratings lost less money than those with lower ratings, in 95 percent of cases. In particular, Morningstar reported that “among 11 Morningstar Categories, the average down capture for ESG funds was almost 12 percentage points better” than category averages in the first quarter of 2020 up until March 31, 2020. Down capture measures an investment manager’s performance relative to an index during phases when the index had dropped. Additionally, “the median ESG fund only lost an amount equal to 98.3 percent of its category benchmark’s decline” according to Morningstar, in comparison to the average fund which suffered losses of 104.8 percent of its category benchmark index. This is made evident in the table below, which exhibits the median ESG fund’s loss with respect to its category benchmark in the first year, which was 98.3 percent. In comparison to the average Morningstar fund in its category, the median ESG fund captured 6.5 percentage points less of the category benchmark’s decline, after the first year surveyed. After 5 years, the median ESG fund captured 10.09 percentage points less of the category benchmark’s decline in comparison to its category’s average Morningstar fund. Also, BlackRock, which is the world’s largest asset manager, unveiled their Net Zero Commitment for clients in 2020. In this commitment, BlackRock states that they are “explicitly asking that all companies disclose a business plan aligned with the goal of limiting global warming to well below 2ºC, consistent with achieving net zero global greenhouse gas emissions by 2050,” which is one of the most ambitious climate commitments to be proposed by a major US corporation, so far. Currently, BlackRock’s operations are carbon-neutral, and they have also committed to achieve net-zero emissions for themselves as a corporation. Further, BlackRock also asserted to clients that they will divest from companies that do not have net-zero energy emissions by 2050.
Featured Image Source: Morningstar
Consumers’ Spending Habits on Sustainable Products
Customers, in addition to investors, favor companies with sustainable commitments. In a 2018 Nielson report, experts closely followed the purchases of the fastest-moving consumer goods, which are chocolate, coffee, and bath products. The report found that goods with higher sustainability reviews consistently outperformed the growth rate of goods with lower sustainability reviews in their respective categories. Specifically, the report showed that for sales of the three categories in a 52-week period, the weighted average growth was 3 percent more growth for greener products. Based on less sustainable goods in their respective categories, sustainable coffee was met with 11 percent more growth, sustainable bath products 13 percent more, and sustainable coffee had 2 percent more growth. In line with rising awareness for environmentalism, as well as humane labor practices, consumers want sustainable products from sustainable corporations. Tim Grosse, the Founder and CEO of E Squared Energy Advisors echoes this idea, stating that, “Companies that embrace new energy technologies enjoy a triple-bottom-line win in productivity, profits, and planet.” The Nielson report also concluded the study by stating that “strategically aligning your business and marketing strategy to meet that unmet demand will ensure that the next big sustainability wave is a market win for your brand” making it clear that business experts are urging corporations to adopt greener practices for the sake of their market growth as well as the future of the environment.
US Infrastructure Investment & Long-Term Economic Growth
While oil and gas firms may experience long term damage as a result of Biden’s climate plan, industrials and materials firms will likely be the biggest beneficiaries. This is because these firms will be used for infrastructure projects that the climate plan will need. Namely, Biden’s climate plan will spend close to $4 trillion on the construction of roads, bridges, ports and rail lines. The climate plan’s large investment in infrastructure will foster long-term economic growth as it is projected to lead to a 3.8 percent increase in GDP by 2024. In contrast, traditional infrastructure spending only has a multiplier effect of 1.5, which means that for every dollar increase in traditional infrastructure investment, GDP will rise by $1.50.
The Link Between Infrastructure Investment & Unemployment
According to a Moody Analytics report, unemployment will decrease by 3.5 percent by 2024, adding 18.9 million jobs at the end of the decade, in comparison to the 16.3 million jobs that would be added in the absence of Biden’s climate plan. Additionally, due to the fact that unmitigated climate change may reduce global GDP by 25 percent according to Bank America economists and US Treasury Secretary Janet Yellen, Biden’s $2 trillion climate plan is projected to lead to US GDP growth. Specifically, the plan could yield 2 percent to 9 percent of GDP growth in the short-run, and this number is also set to increase. Also, every 1 percent of US GDP growth will translate to 3 percent to 4 percent growth in S&P 500 companies. Furthermore, one of the reasons as to why Biden’s climate plan will bring potential growth in global GDP is because the plan has a commitment to increasing public infrastructure investment. The report states that public infrastructure investment lowers business costs, improves productivity and competitiveness, enables workers to live closer to where they work and consequently reducing commute times, decreases carbon emissions, and improves labor participation, overall bringing “a significantly positive contribution to GDP and employment.”
Political Analysis: What do Experts Think?
In general, experts are supportive of the plan. Cara Horowitz of the UCLA School of Law notes that it is “hugely promising” that the Biden Administration is the first to prioritize climate change leaders and put them in strong appointments. Policy experts like Karen Clay, a professor in economics and public policy at Carnegie Mellon University, believe that the most critical issues that the Biden climate plan needs to address is to enforce existing environmental standards, support decarbonization, propose meaningful metrics to invest in energy efficiency, and prioritize the effects of climate change on low-income groups. Dr. Leah Stokes from the University of California, Santa Barbara thinks that Biden’s climate plan differs from the Green New Deal because it is more detailed and does not only combat climate change but also the inequality crisis in America. Stokes also praised the clean electricity standard aspect of the plan, because the standard “has the potential to clean up our entire electricity system” since emissions from buildings, electricity, transportation, and the industrial sector make up “between 70 to 80% of total U.S. greenhouse gas emissions.” William Boyd of the UCLA School of Law shares this belief and asserts that Biden’s Administration understands that the climate issue and inequality issue are the same crisis. In general, most experts agree that dramatically increasing and accelerating national policy and investment into clean energy will have the greatest impact on optimizing energy supply while decreasing energy demand, as well as improving jobs, human health, and the future of the environment.
However, there are still various challenges that these experts foresee in Biden’s climate plan. Namely, Liz Koslov, professor of urban planning at UCLA, calls for the strengthening of programs for refugee settlement, particularly for tribal groups in Washington, Louisiana and Alaska, as a necessary component of Biden’s climate plan. Koslov claims refugee settlement is an important element of Biden’s climate plan because tribal groups are being forcibly displaced by land erosion, permafrost and sea level rise brought on by global climate change. Other experts encourage Biden to leverage existing tax code incentives and use them to motivate companies to use carbon-dioxide mitigating and greener options for natural gas and coal power plants. These new options would facilitate the transition to a fully clean energy economy and would do so in a cost-effective manner. Additionally, critics foresee conflict with a conservative Supreme Court, who may oppose climate change initiatives.
The most common concern about Biden’s climate plan that experts shared was Biden’s need to work effectively with foreign powers on climate change and managing the US-China relationship. Alex Wang, professor of law at UCLA, proposes that in order for the US to push China to move forward with climate action, the US needs to also work on its domestic climate initiatives. Wang believes that strong climate action spearheaded by the US will dramatically strengthen global markets and clean technology funds, which will set a good example for countries around the world.
The Next Steps for Intersectional and Sustainable Climate Change
After hearing discourse from various policy experts on Biden’s climate plan, it is evident that continuing to accelerate national policy and investment into clean energy will have the greatest impact on optimizing energy supply, improving jobs, human health, and the betterment of the environment. While there may be pushback from conservative lawmakers, the decreasing prices of clean energy as well as large asset managers like BlackRock developing a strict net-zero energy fiduciary approach, makes dramatic investment feasible. However, it is also evident that climate change, like most crises, is a multifaceted issue and disproportionately affects people of color and low-income communities. Thus, it is important that the Biden Administration and lawmakers approach the issue in an intersectional manner, and incorporate LGBTQI+, Black, Indigenous, disabled, first-generation students, and low-income individuals in their initiatives. In line with UCLA Professor Dr. Aradhna Tripati’s proposal, this means that the Biden Administration should create a national coalition for environmental justice at higher education institutions. This cohort of students would be made up of marginalized groups who will generate intersectional, ethical, and impactful solutions to climate change, since they are the groups who face the burden of climate change’s effects. Similarly, it is crucial that Biden’s administration includes initiatives and members of their environmental working groups that work to tackle the environmentally destructive effects that come with meat-based diets and deforestation. For example, just like how asset managers like BlackRock have developed a strict net-zero energy plan, the Biden Administration should encourage companies to divest from working with companies who sell or use animal products.
Clearly, the climate change crisis is an extremely complex and multifaceted idea that cannot be solved by one administration. Thus, it is important that lawmakers, companies, activist groups, NGOs, and civilians from all political leanings come together to accelerate the world to net-zero energy emissions as quickly as possible. Climate change is too severe an issue to be divided by politics. Hopefully, seeing the potential success that Biden’s climate plan can achieve will propel dissidents or companies who do not invest in clean energy to begin to move towards a greener mindset. While Biden’s climate plan isn’t perfect, it provides the traction and plans necessary for the future of our planet, children, jobs, and health.
Take-Home Points
- US President Joe Biden’s $2 trillion climate plan aims to significantly increase clean energy in electronic, transportation, and building sectors, and calls for the US to reach a net-zero emissions economy by 2050
- Clean energy investment will become increasingly competitive since renewable energy sources have been significantly declining in price for the past 10 years
- Investors like BlackRock favor working with corporations that commit to clean energy; the median ESG fund only lost an amount equal to 98.3 percent of its category benchmark’s decline, in comparison to the average fund which suffered losses of 104.8 percent of its category benchmark index
- Consumers favor corporations with green commitments as goods with higher sustainability reviews consistently outperformed the growth rate of goods with lower sustainability reviews in their respective categories.
- Industrials and materials firms will likely be the biggest beneficiaries of the climate plan, since these firms will be used for infrastructure projects, which bring long-term economic growth
- Biden’s climate plan may decrease US unemployment and bring potential growth in global GDP
- Policy experts are generally supportive of the plan in its detailed plea to combat climate change and inequality in American jobs, but criticize its lack of preparedness to handle foreign relations and to confront the issue of tribal community displacement as a result climate change