The new US administration under President Biden is sending a message - environmental issues are back at the top of the White House agenda after four years of neglect. The cornerstone of this renewed focus is a c.$2trillion plan to decarbonise the US in just 15 years, by investing in clean energy and the infrastructure needed to deliver it. In turn, this will play a key role in the broader global push towards net-zero by 2050.
Since Biden’s electoral victory in November, the clean energy sector has rallied; the impetus provided by hopes of a ‘Green New Deal’, combined with a wider increasing appetite for environmental, social and governance factors within investing has helped to push up the stock prices of clean energy companies globally, and enabled record amounts to be raised in support of the sector.
As responsible and sustainable investors, we see these two tailwinds as propelling us nearer to a vital and irreversible move towards embracing clean energy. That being said, the landscape of American politics remains incredibly divided, and the more ambitious Biden’s environmental policies, the more challenge he will face in getting sweeping legislation passed.
Signalling the winds of change
The initial action that Biden has taken since coming into office has primarily been to signal his intent around Climate Policy. Re-joining the Paris Agreement and cancelling the contentious Keystone XL pipeline on his initial first day in office was intended to catalyse the change in course established by the previous administration. Six additional policies targeting the oil & gas industry were issued in the first week of office, including a call to eliminate fossil fuel subsidies.
This policy signalling is still a critical next step to achieving lasting change. The Reicher triangle (named for Dan Reicher, the former US Assistant Secretary of Energy) theorises that in order to properly and quickly deploy clean energy, there are three elements that need to align; technology, finance and policy. Green technology is more advanced and available than ever before, and environmental concerns within finance are now widespread, leading to increasing investment in the clean energy sector. Government policy, that traditional laggard, is the final piece of solution that needs to fall into place in order to catalyse lasting change.
The administration’s policy goals of decarbonising the US power sector, electrifying the transportation fleet and developing leading clean energy R&D capability are therefore appropriately ambitious.
Bumps in the road likely
The biggest pushback is likely to be around the quantum of the package that Biden is proposing, rather than necessarily the subject. As indicated in his initial Plan for Clean Energy Revolution and Environmental Justice, the targeted first term investment was targeted to be c.$2trillion. Republican opposition is likely to centre on the extent of stimulus already deployed, most recently the $900 billion signed at the end of last year, coupled with what some Republicans feel is an unsustainable national borrowing trend.
The $900 billion package did however contain a number of climate related measures, including $35 billion for authorised R&D over the next 10 years, while the 30% capex tax credit for US offshore wind is expected to cost $14-22bn.
Creating a greener future is a global initiative
For the past few years, US action on clean energy and climate change has stagnated and even regressed, as federal funding for green initiatives was stripped back and Trump’s administration stepped down from pursuing any international progress on fighting climate change.
In America’s absence, Europe has forged ahead developing its own clean energy initiatives, establishing an early leadership position in this area. For example, Norway is seen to be well ahead in terms of carbon capture and storage (CCS) technology, specifically its ambitious Northern Lights CCS project targets a full value chain solution by 2024. Additionally Europe seems to be ahead in green hydrogen solutions, which offers solutions in heavy transportation and storage.
With the Biden administration pledging to go green however, the US is now poised to step back into a global leadership role in the pursuit of clean energy. America’s unrivalled technology sector combined with its history of innovation means that, along with policy incentives laid down by the new administration, the US is about to catch up to Europe’s lead.
Benefitting from a green push
All of this therefore leads us, as responsible and sustainable global equity investors, to actively seek out and evaluate a number of potential investments in the US clean energy sector.
For example, we recently invested in US-based Hannon Armstrong Sustainable Infrastructure (HASI). HASI is at the forefront of the transition to a low carbon economy, and has signalled that a supportive administration is expected to drive project demand. Since its IPO in 2013, HASI has raised over $8bn to invest into climate change solutions that include projects for energy efficiency and storage. HASI also provides capital for a range of renewable generation outputs, including the acquisition/leasing of land for wind or solar farms and residential solar projects. With jobs a key area of debate around energy policy, Hannon Armstrong’s calculation that through their investment programme they have created an estimated 140,000+ quality jobs across 48 states in the US is likely to provide support for private sector involvement.
Additionally the EdenTree Responsible & Sustainable Global Equity Fund has exposure to broader investment in the renewable generation value chain through companies such as Valmont Industries, which provides utility sub-stations and solar-tracking solutions for large scale photovoltaic installations (i.e. solar farms). During their last earnings call Valmont highlighted increased demand and enhanced order backlog led by increased renewable generation demand, particularly in the South East US, as well as grid hardening initiatives.
We see the changing tide in the US as a key, hinging moment in the world embracing a greener future. For us, this also creates opportunity to be a part of this change – to seek out companies that are enabling a cleaner, safer and more circular future.