US climate pledge could bring spectacular changes, but regulatory agencies key to green transition

Looking up in a Coastal Redwood forest (Sequoia Sempervirens), converging tree trunks surrounded by evergreen foliage, Purisima Creek Redwoods Preserve, Santa Cruz Mountains, San Francisco bay area

By Gilles Moëc, Chief Economist at AXA Investment Managers


The US clearly wants to assert some leadership on the green transition, and the statement yesterday shows the intent to do so. The US probably sees China as its main competitor on this, as on many other issues, after Beijing’s unexpected pledge last year to reach “net zero” by 2060.

However, on the regulatory aspects, and especially on green finance, the real competitor may well be the European Union.

Biden’s main problem in trying to take global leadership on this essential matter is that the US track record is far from unblemished – including at times when the Democrats dominated the policy stance in Washington DC.

The Obama-Biden administration, for example, failed to get a comprehensive carbon “cap and trade” framework through in 2010. It had been supported in the House but could not reach a majority in the Senate although the Democrats held a 9-seat majority.

This former administration’s most concrete achievement – the Clean Power Act, which was designed to reduce CO2 emissions from electricity generations by 32% by 2030 relative to 2005 – came very late (it was unveiled in August 2015 only) and was in effect stopped by Donald Trump. Foreign leaders could therefore be forgiven for doubting Biden’s capacity to deliver concrete change domestically with only a one-seat majority in the Senate.

Under Biden, the focus has so far been on the new President’s investment plan. Although it could indeed bring about spectacular changes, we think some attention should be devoted to the new administration action via the regulatory agencies. It is less an obvious “headline maker” than pledging billions of dollars towards renewable energy, and the legal ramifications are often complex, but it can be an effective accelerator of the green transition, either to bypass a reluctant Senate, or to pressure it into supporting the White House’s investment package.

This includes the decision whereby the Environment Protection Agency (EPA) is to reopen consideration of a national climate pollution cap.  We note as well that the Securities and Exchange Commission (SEC) is now making efforts to include ESG issues, and especially climate-related corporate filings, into its framework. A SEC official in a speech in March opined that his organization “can and should play a leading role in the development of a baseline global framework” for ESG disclosure.

As it stands post this week’s announcement, the US administration may be catching up with its own regulations, and a key issue – in terms of collective welfare – is whether this could ultimately lead to a competition between different frameworks globally, or if a good measure of harmonization between the already well-established EU approach and the emerging US one will be achieved.

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