American Jobs Plan includes over USD600b of spending focused on improving climate resilience and decarbonising the US economy
On 31 March 2021, US President Joe Biden announced a USD2.3 trillion spending plan focused on modernising the country’s infrastructure and sustaining economic growth over the longer term.
The plan includes over USD600 billion of spending focused on developing the electric vehicle industry and clean technologies, decarbonising the electrical grid and buildings sector, and enhancing the climate resilience of the country’s infrastructure. It marks the latest in Biden’s efforts to bring the full power of the US federal government to bear in tackling the existential threat of climate change.
“Every dollar spent on rebuilding our infrastructure during the Biden administration will be used to prevent, reduce, and withstand the impacts of the climate crisis,” the White House said in a 31 March 2021 statement outlining the American Jobs Plan.
The plan’s climate-focused spending initiatives include:
Broadly, the proposals seek to achieve several key objectives that will set the US economy on a path to net zero emissions by 2050, including:
Beyond the proposed green investments, the plan includes measures to accelerate the decarbonisation of the US economy, including eliminating tax benefits for the fossil fuel industry while extending tax incentives for renewable power.
Consistent with our view that President Biden would take a whole-of-government approach to advancing his climate agenda, the US Department of Energy also recently announced a goal to cut the cost of solar power generation by 60% by 2030.
We expect these efforts will add momentum to global initiatives to fight climate change ahead of the COP26 international climate summit in November this year, where countries are expected to present their latest commitments to meet the Paris Agreement goals.
Note: Includes capital invested pre-financial investment decision and capital committed to projects under construction in 2030 but in-service in later years. All values should be considered order of magnitude estimates. Other potentially significant capital expenditures not estimated in the study include establishment of bioenergy crops and decarbonisation measures in other industries besides steel and cement, non-CO2 greenhouse gas mitigation efforts, and establishing enhanced land sinks.
More than 300 businesses including heavyweights such as General Electric, Google, McDonald’s, Microsoft, Nike and Walmart recently signed an open letter to President Biden on 13 April 2021 calling on the White House to cut US greenhouse gas emissions by at least 50% from 2005 levels by 2030.
“To restore the standing of the US as a global leader, we need to address the climate crisis at the pace and scale it demands,” the letter reads. “If you raise the bar on our national ambition, we will raise our own ambition to move the US forward on this journey.”
Even with the latest climate-focused spending proposals, which are subject to approval in Congress, much more will need to be done in the coming years, latest research shows.
Decarbonising the US economy to set it on a path consistent with the Paris Agreement target of limiting global warming to 1.5°C by the end of the century requires at least USD2.5 trillion of new capital investment by 2030, according to a detailed study on net-zero transition pathways by Princeton University published in December 2020.
These required investments span electricity generation – especially wind and solar energy – buildings, appliances, vehicles and industry as well as enabling infrastructure and advanced clean technologies, such as carbon capture, that would create options to complete the transition to net zero emissions beyond 2030, the study shows (see Exhibit 2).
As expected, the Biden administration has intensified its efforts to regain a leading position in the global fight against climate change. In recent weeks, John Kerry, Biden’s international climate envoy, has met senior officials across multiple countries including China, India and South Korea to build consensus on how to address the climate crisis.
Kerry, a respected former US secretary of state, was the first senior figure from the Biden administration to visit China, raising hopes that the world’s two largest economies would find common ground in tackling climate change, despite their differences in other areas.
“The United States and China are committed to cooperating with each other and with other countries to tackle the climate crisis, which must be addressed with the seriousness and urgency that it demands,” the two countries said in a joint statement on 17 April 2021 after Kerry’s meeting in Shanghai with Xie Zhenhua, China special envoy for climate change. Both China and the US agreed to continue discussing “concrete actions in the 2020s to reduce emissions” in line with the Paris Agreement’s goals, according to the statement.
Both countries also committed to developing long term strategies for achieving carbon neutrality or net zero greenhouse gas emissions, before the upcoming COP26 international climate summit in November this year.
China’s ongoing heavy investments to develop and expand the use of clean technologies is pressuring the US to step up its own investments, adding further impetus to global decarbonisation efforts (see Exhibit 3).
In wind power, for example, China is the global leader by a wide margin.
Already, China’s total installed wind power of 288 gigawatts (GW) is more than double the 122 GW in the US and exceeds the 253 GW combined total for Europe, Africa, the Middle East and Latin America, according to the latest data published on 25 March 2021 by the Global Wind Energy Council.
China continues to invest heavily. Last year, China contributed more than three-quarters of new wind power installations globally (Exhibit 4).
We expect the race for superiority in new technologies between the world’s superpowers to intensify in the coming years, driving further rapid advancements in clean energy and decarbonisation technologies.
“US climate ambition by 2030 hinges fundamentally on the ability to rapidly shift to zero-emissions electricity generation,” according to an analysis by the University of Maryland's Center for Global Sustainability published in April 2021.
China’s latest Five-Year Plan emphasises further support for green development and the reduction of carbon emissions by pursuing less energy-intensive growth, increasing the share of non-fossil fuel use in its economy, and embracing new technologies including electric vehicles.
On the current trajectory, the world is facing a temperature rise of around 2.6°C by 2100, far exceeding the Paris Agreement’s 1.5°C goal, according to the latest projections by Climate Action Tracker published in December 2020.
Decarbonising the world economy by mid-century to meet the Paris Agreement climate goals requires further deep cuts in carbon emissions across the full range of economic activity including power generation, industry, transport and agriculture.
In particular, heavy investments are required within the next few years to ensure that global emissions peak by around 2030 – a key milestone that the Intergovernmental Panel on Climate Change believes is necessary to set the world economy on a path that limits global warming to 1.5°C by the end of the century (see Exhibit 5).
This will mean profound structural changes to the way the world economy works – creating both significant disruption and new opportunities for businesses.
Some of the world’s largest asset managers are positioning themselves to take advantage of these opportunities. On 13 April 2021, BlackRock and Singapore’s Temasek Holdings announced a new partnership, Decarbonization Partners, with an initial commitment of USD600 million to invest in start-up firms with products and technologies that aim to accelerate the transition to a world economy with net zero emissions.
As we have highlighted in our earlier reports, we firmly believe that companies that reduce emissions and waste, re-use natural resources and deliver products and services that support the overall decarbonisation of human activity are likely to attract greater interest and investment capital and will be increasingly well positioned to benefit from a strengthening global policy response to climate change.
Concerted global action to decarbonise the world economy means it is possible for global greenhouse emissions to peak before 2030, according to a recent report by the United Nations published on 26 February 2021.
Overall, we expect to see a powerful build-up of climate-related political momentum in the coming months, with more policy announcements and commitments by the US, China, and other major economies ahead of the UN Climate Change Conference or COP26 meeting in November.
This article was first published by Bank of Singapore on April 19, 2021. The Opinions expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of Bank OCBC NISP Private Banking Tbk. or its affiliates.
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