The focus for today and tomorrow in this section as well as the focus of next week’s ESG and climate piece will be the environmental summit that is being held today and tomorrow and the possible ramifications of pledges that will inevitably come from it. We must start with President Biden’s emissions pledge: “This is the decisive decade,” Biden said at the summit on Thursday morning. “This is the decade that we must make decisions to avoid the worst consequences of the climate crisis.” The administration put forward a goal of reducing US emissions by 50% by 2030. “This is a moral imperative. An economic imperative. A moment of peril, but also a moment of extraordinary possibilities,” the president said.
As we mentioned yesterday, the stark fact that the economic slowdown, and the dramatic reduction in travel caused by COVID, only resulted in a 5% emission drop in the US in 2020, is concerning. Vehicle miles traveled in the US in the 12 months from February 2020 to January 2021 fell by 14% versus the prior 12 month period. US air passenger traffic fell by 60% in 2020. Schools were closed, factories were closed for a while, and offices were very underutilized – yet emissions only fell by 5%! This data puts the new 2030 goals into perspective and suggests that the administration either has to make emissions very expensive or make reducing them very attractive - now. To get to the 2030 targets, investments to lower carbon equivalent emissions need to start this year, or in the worst-case in 2022. Any delays beyond that will make the targets almost impossible. Note in the exhibit below how the European carbon price is rising as emission targets get more aggressive and speculation around expected future carbon values is increasing credit demand. To get the investments moving in the US – and note that done properly they could be very positive for jobs and the economy – companies need clarity and they need the confidence that the investment criteria will not change with the next administration. This is a risk, but likely a low one, because if corporate America is mid-way through a multi-billion dollar investment program, which is creating employment and boosting the economy, a Republican win in 2024 would not likely mean a change in policy that brought wholesale change to something already well baked.
Source: European Energy Exchange, Bloomberg, C-MACC Analysis, April 2021
The larger challenge for the Biden Administration today will be getting enough support for any policies that help push the 2030 emission agenda.
