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The Green Tsunami


Last November, as the U.S. presidential election approached, we considered the possibility of an acceleration in government efforts to create a greener future. 

Earlier in 2020, we had already feasted on the European Union’s (EU) “Green Deal,” which was at the heart of the region’s €750 billion recovery package to revive the European economy from the coronavirus. Around 25% of the funds will be targeted at climate investments, such as renewable energy, cleaner transport and logistics and upgrades of buildings and infrastructure. But what of the U.S.?

First of all, lets remind ourselves of what Biden proposed as the election approached:

  • A new “Green Deal” that would hasten a “Clean Energy Revolution.”
  • Ensure the U.S. achieves a 100% clean energy economy and reaches net-zero emissions no later than 2050.
  • Support for a Green Border tax & structuring trade agreements based on countries' commitments to the Paris Agreement.
  • Rally the rest of the world to meet the threat of climate change & re-join the Paris Agreement and raise the ambition.

These proposals were accompanied by some eye-watering monetary expenditures; a federal investment of $1.7 trillion over the next 10 years, which is around 8% of current U.S. GDP. Add in some hoped-for private sector and state and local investments, and the figure rises to a gravity-defying total of more than $5 trillion (or 23% of current U.S. GDP).

Of course, proposals are meaningless if they are not put into action. So, with six months of the Biden administration already behind us and the EU also making admirable promises, how close are we to implementing these Green Deals?

President Biden making progress

On his first day in office, President Biden fulfilled his promise to re-join the Paris Agreement, and one week later he signed an “Executive Order on Tackling the Climate Crisis at Home and Abroad.” As part of the Paris Agreement each member country pledges to reduce emissions by a certain amount, called a nationally determined contribution (NDC). In advance of a climate summit in April with 40 world leaders, President Biden issued the NDC pledge from the U.S., announcing a 50% to 52% target for emission reductions from 2005 levels by 2030.

To help achieve its NDC pledge, the White House presented the American Jobs Plan on March 31, 2021. It is the closest thing to a “climate bill” and includes:

  • Setting a path toward a clean electricity standard and reshaping the U.S. electrical grid.
  • Installing 500,000 charging stations, making electric vehicles more affordable through rebates and tax incentives, and purchasing electric vehicles for the federal fleet.
  • Retrofitting buildings for energy efficiency, research clean industrial processes, and increase natural carbon sinks like forests.

Again, these are admirable proposals. Implementation, however, is far from certain. President Biden initially proposed a $2.25 trillion budget, but in multiple rounds of negotiations the Republican party has not been willing to exceed a new spending budget of $330 billion, which is only 15% of the initial budget. There is still a large political gap to close before the execution of the green agenda can proceed.

Europe also pressing ahead

In December 2020 European leaders agreed to reduce the EU’s carbon emissions by 55% from 1990 levels by 2030 and achieve “net zero” by 2050. On July 14, 2020 the European Commission presented its implementation plan aimed at helping achieve these cuts. The plan contains 14 different legislative proposals that focus on essentially every sector of the economic system, from fuels to forestry, from CO2 taxes to road transport and shipping. The plan also contains a target of zero emissions from petrol or diesel cars by 2035.

One of the core pillars of the commission’s climate plan is the so-called “carbon border adjustment mechanism” that would incorporate an emissions tax on imported goods. The mechanism is aimed at avoiding unfair competition by countries that have less stringent climate regulations, outside of the European Union and also discourages European companies from relocating their production. Similar to the U.S., however, there are political hurdles to be overcome. It will likely take months of negotiations at least to get the green light from the 27 Member States and the European Parliament.

It is still early days, but the progress made by the U.S. and the continuation of the EU plans shows that momentum keeps growing. But, a difficult path toward political agreement is still required in both jurisdictions before this wave of green proposals turns into a tsunami.

CRN: 2021-0817-9397 R

The opinions and views of this commentary are that of Aegon Asset Management and are not necessarily that of Advisors Asset Management.

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit http://www.aamlive.com/.

 


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