Editor’s note: This article was first published on ESG Clarity in the UK.
Since his inauguration last week, US president Joe Biden has been quick to commit to several environmental measures that aim to combat climate change and reduce damage. Here, investment professionals react to Biden’s first moves to protect the environment.
Re-joining the Paris Climate Agreement
In one of his first moves as US president, Joe Biden signed an executive order to re-join the Paris Climate Agreement.
David Harrison, fund manager of the Rathbone Global Sustainability Fund, commented: “The commitment to re-join the Paris Climate Accord is the most notable change, and one that the current administration have repeatedly flagged, suggesting its intention to place a leadership role in helping drive down global carbon emissions – a significant reversal on the last four years. We anticipate a number of new policy initiatives in the coming weeks, with a likely environmental stimulus package to help accelerate change in the US economy.”
Committing to carbon neutrality by 2050
Part of re-joining the Paris Agreement means reaching net zero emissions by 2050.
David Page, head of macro research – core investments at AXA IM, said president Biden has proposed an experienced team to take forward his climate goals. For example, Gina McCarthy, the former head of the US Environmental Protection Agency (EPA), will become the effective Climate Tzar as head of the Natural Resources Defence Council and Brenda Mallory will chair the Council on Environmental Quality, having served as general counsel at the EPA. Michael Regan, an environmental regulator from North Carolina will head the EPA, while former Secretary of State John Kerry will serve as International Climate Envoy.
“Staffing these key roles with experienced professionals should help the administration begin to address climate change quickly and effectively. However, the Biden administration will face numerous challenges in trying to deliver this ambitious agenda,” commented Page.
Unveiling stimulus package
Biden revealed a $1.9trn (£1.4trn) stimulus package to help the US get through the coronavirus pandemic.
Jeffrey Schulze, investment strategist at ClearBridge Investments, said US treasury yields have moved above 1% in January thanks to president Biden’s stimulus plans, but while most analysts expect further rises to be limited, his team can see it climbing further from here.
“With a Democratic clean sweep, another $1trn of stimulus to come, and then a rise in inflation, we think yields could go above 1.5%, especially if we are in a slowdown and not a double-dip, as we believe.
“In fact, the 10-year treasury will end the year closer to 1.75% because it will be very difficult for rates to remain depressed in an environment where nominal US GDP growth will be 6-8% over the next two years. This is not a difficult scenario to envision, considering the 10-year treasury was at 1.92% coming into 2020 (12/31/2019).
“Although 10-year treasuries are well below levels seen coming into last year, inflation breakevens continue to grind higher and are firmly above 2020 levels. One of the key drivers of inflation breakevens and higher expected economic growth has been the recent fiscal stimulus packages, which will add fuel to the already hot 2021 US economic recovery. “
Extending solar tax equity programme
The stimulus package also contained clean energy support measures. The legislation increases the income tax credit for solar power through 2023, extends the production tax credit for wind for one year, extends offshore wind credits through 2025, provides $35 bn for energy technology research and development, and establishes a target for construction of renewable energy on public lands.
Liam Thomas, CIO of the US Solar Fund, said: “Although solar is competitive in many parts of the US without tax incentives, New Energy Solar Manager expects that the solar tax credit increase may result in increased acquisition opportunities later in 2021 through 2023, and that the other components of the package will have a positive impact on the already buoyant renewable energy market in the US.”
Scrapping Keystone XL oil pipeline
On his first day in office, Biden signed an executive order revoking the permit for Keystone XL, a pipeline carrying crude oil from Alberta to Nebraska.
Gemma Woodward, director of responsible investment at Quilter Cheviot, said: “One of Biden’s very first actions as president was to announce that America will re-join the Paris Climate Accord and will scrap the permit for the Keystone XL oil pipeline between America and Canada.
“No doubt this move will be the first of many aimed at supporting the transition to a cleaner and greener economy, and we should prepare for the first 100 days of the Biden presidency to feature many headline initiatives aimed at achieving net zero by 2050.
“Biden will likely go on to introduce an infrastructure plan, which in his words will lay a ‘new foundation for sustainable growth’ by updating America’s public transport networks, roads and crumbling infrastructure.”