The Democrats take control with Georgia wins: Comment from M&G

by | Jan 6, 2021

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By Randeep Somel, manager of the M&G Climate Solutions Fund 

As the Democrats won the White House in last November’s Presidential election and kept control of the House of Representatives, there was one chamber that they were lacking: the US senate which remained in Republican control. The two run-off elections in the state of Georgia this week have changed that. With 98% of the vote counted it looks as if the Democrats will take control of the chamber with a 50-50 split and Democratic Vice President Kamala Harris able to cast the deciding vote.

Republicans maintaining control of the chamber put a check on incoming President Joe Biden and speaker Nancy Pelosi’s policies, but if the result goes through as expected it will give them a lot more bandwidth to implement the policies they campaigned for.

 
 

Biden campaigned to increase corporate tax rates to 28% from 21% and also raise income taxes for those earning over $400,000. While an increase in corporate tax rate is not guaranteed, the Democrats taking the senate makes the result more likely, and US futures have reacted slightly negatively to the news so far. Meanwhile, greater scrutiny of the large US technology companies that were subject to a Democratic-led US House investigation last July into uncompetitive practices is also likely. The Nasdaq futures have reacted most negatively to the news.

From an economic perspective, a Democratic controlled senate increases the likelihood of more expansive fiscal spending to aid the economy in light of the pandemic. US treasuries are likely to be weaker as investors get concerned for the likelihood of an increasing US deficit.

A huge opportunity for Biden’s green ambitions as Georgia goes blue 

 
 

However, the key long-term opportunity for the Biden Presidency is accelerating their ambitions around climate policy. Biden campaigned to take the US back into the Paris Climate Agreement, but this action would have largely been symbolic without policy, something the Republican party have not shown signs of ceding ground on.

Biden campaigned for a clean energy revolution to address “the grave threat and lead the world in addressing the climate emergency.” His plans include $2 trillion of federal government spending over his four year term, something that will be more likely now Democratic spending plans won’t be blocked by senate Republicans. It represents a huge opportunity for climate-focused sustainability companies both in the US, and also worldwide.

This should significantly escalate the use of renewable energy for electricity generation, which will target emissions free power by 2035 and the upgrading of four million buildings to meet the highest standards for energy efficiency.  The third part of the plan will encourage adoption of electric vehicles with the US government offering tax incentives to replace older cars and also funding over 500,000 new EV charging stations.

 
 

Joe Biden’s pick for treasury secretary, Janet Yellen, has also advocated a carbon tax to both help climate goals and raise much needed revenue to implement climate policy. The Georgia results means this policy will at least now be put to both chambers for serious discussion and a vote.

Biden has consistently expressed his dismay that it is China rather than the US is leading the world in green technology, especially in electric vehicles.  Hopefully the next East-West arms race will be to see who can develop an economy best equipped to reach net zero.

The Democrats have been in agreement on climate policy so this should be one of the key opportunities for the Biden Presidency, and a meaningful way for him to leave a lasting legacy.

These election results represent a huge opportunity for climate focused sustainability companies as the full force of the US government gets behind net zero.

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