Midterm scenarios and impacts on Biden’s climate agenda

Climate action could be slowed in a Republican-controlled Congress

The midterm elections are upon us, and while the greening of the US economy is among a myriad of contentious issues on voters’ minds, it is crucially important for the Biden administration’s legacy.

President Biden’s landmark climate bill, the Inflation Reduction Act, passed in August 2022, promising nearly $370bn of capital deployed for clean energy and climate change. It’s too early to measure the act’s impact, but we are seeing examples of increased investment announcements from companies in areas such as renewable energy, carbon capture solutions, battery storage and research and development in new technologies. For example, US-based First Solar announced an investment of $1.2bn to ramp up its manufacturing capacity. And CarbonCapture is proceeding with its direct-air-capture plant in Wyoming, targeting 5 million tons of carbon dioxide capturing capacity.

The act has also given confidence to companies that, despite uncertain economic conditions, there is the government’s financial support available to push through development projects. Companies are even looking at projects that predate the Inflation Reduction Act and are retrospectively assessing if they are applicable for tax credits.

Broadly, it has been a contentious year when it comes to climate and sustainability. We’ve seen ESG backlash in several states effectively blacklisting certain investment managers from public pension funds.

Meanwhile, the war in Ukraine continues to have a global impact on energy provision, which has increased the output of coal. Short-term energy supply needs have necessitated this, but reliance on the dirtiest fossil fuel can greatly derail the 1.5 degrees C emissions pathway by 2050.

This makes the upcoming midterms ever more interesting from a sustainability perspective. US economists at ING have conducted a scenario analysis for the midterm elections attaching a probability for each result, and what that scenario could entail. Within each scenario, there are potential ramifications for the US climate strategy. Although the Inflation Reduction Act is likely to stand, protected by Biden’s executive power, how aggressively the Democrats and Republicans act on climate will be determined on who controls the chambers of Congress.

Republicans win the House and Senate: Probability 50%

Like in the split Congress scenario, Biden’s climate agenda will be constrained. The big difference is that Republicans will be able to more aggressively push their agenda and propose energy legislation in the run-up to the 2024 election.

However, there are some clean-energy areas of bi-partisan support. For instance, even in a Republican-controlled Congress, we could see support for increased spending in areas such as carbon capture and storage (CCS), as it can be applied to hard-to-abate sectors such as oil and gas, clean manufacturing and domestic energy supply-chain strengthening.

Congress will also likely support blue hydrogen projects (produced from natural gas using CCS technology). But the more radical transition to green hydrogen, which is produced from renewables, and the speed of that will be difficult for Democrats to pursue. In this scenario, Biden will have to be more aggressive in his use of executive power.

Republicans win the House and Democrats retain the Senate: Probability 40%

In this scenario, Republicans can disrupt execution of the Inflation Reduction Act and its planned clean-energy spending. Legislation could disturb but not derail Biden’s climate agenda, and the Democrats will not be able to push forward more ambitious action. We could see increased oil and gas activities to cement US energy dominance to seize profits from exports, and especially amid the current global energy crisis. The federal energy product permitting process could be streamlined – this is something that was dropped from the Inflation Reduction Act but could be put back in under a Republican-controlled House. It’s a double-edged sword; it will make it easier to commission new renewable and clean energy projects, but the same can be said for commissioning oil and gas projects.

Democrats retain House and Senate: Probability 10%

This is unlikely, based on polling numbers. However, Biden would have the power to aggressively push his climate agenda and even expand the clean energy legislation. Parts that were previously in the Democrats’ agenda, like limits on emissions from the power sector, could be pushed through.

Overall, this scenario will see a more comprehensive policy framework for fighting climate change. Congress could vote to give authorization to the Environmental Protection Agency to limit power plant emissions. And the Biden administration could take further regulatory measures, including tougher rules on methane emissions, as well as new vehicle emissions and efficiency standards.

Anything can happen under all three scenarios. What we do know is that the Inflation Reduction Act is crucially important for progress against Biden’s climate agenda and meeting the 1.5 degrees Celsius transition pathway. The act by itself could lower the US emissions from 24-35% to 31-44% below 2005 levels by 2030, according to analysis by Rhodium Group. Since tax credits are only distributed until 2032, it is important for the Inflation Reduction Act to be fully implemented over the coming years.

Even with control of both chambers of Congress, it’s unlikely the Republicans would be able to roll back much of Biden’s climate agenda, given his executive power. But Republican control of at least one chamber can make the path to decarbonize the US economy a lot rockier. The big question will then become, what happens in 2024?