US rejoins the Paris Climate agreement. What to expect?
On his first day of presidency, President Joe Biden fulfilled one of his most important campaign promises to rejoin the Paris Climate Agreement.
USA re-enters the Paris Climate Agreement
Current US Emissions Footprint:
As the United States is the world’s second largest emitter of CO2 (only behind China, with about 5 gigatons of CO2 emissions annually) and the fourth largest emitter on a per-capita basis (behind Saudi Arabia, Kazakhstan, and Australia, with about 16 tons CO2 emitted per-capita annually) , the US’s journey toward net-zero will undoubtedly have a tremendous positive effect on the global energy transition.
CO2 emissions by country (based on 2018 data)
(courtesy: Union of Concerned Scientists)
The United States has historically been one of the largest emitters of CO2. In the past decades, the power sector has been the biggest contributing sector to CO2 emissions. However, in the recent years, there have been significant drop in CO2 emissions from the power sector in the US, as the sector has switched from coal-fired to natural gas fired power generation. As a result, the transportation sector now has a slightly bigger CO2 emissions footprint than the power sector. Significant fractions of the emission also originate from the industrial, residential, and agricultural sectors. In 2020, the US saw a large drop (10.3%) in CO2 emissions due to the economic slowdown triggered by the COVID-19 pandemic, the largest drop since World War II. However, this drop is expected to be temporary, and the emissions are expected to return to 2019 levels once economic activities are fully restored.
CO2 emissions by USA
(data from: US Energy Information Administration [1990 – 2019],
Rhodium Group [2020 estimate])
CO2 emissions in the USA by sector
(courtesy: US Environmental Protection Agency)
The 5-point climate action plan
At the current emission levels, clearly, the administration has to make massive changes to its economy and energy infrastructure to meet the goals of the Paris Agreement. President Biden has referred to climate change as an existential threat and has laid out a five-point plan for his climate action, as summarised below:
Achieving a 100% clean energy economy and reaching net-zero emissions by 2050.
As part of the domestic strategy, the new administration will set up new emissions enforcement mechanisms, invest in research and innovation of clean energy, and provide incentives for deployment of clean energy innovations. Expected changes will include aggressive reductions in the carbon footprint of buildings, acceleration in the deployment of electric vehicles, more sustainable agricultural practices, and deployment of low-carbon manufacturing. Specific ambitions include achieving carbon-free power and 50% reduction in carbon footprint of buildings by 2035, preserving biodiversity by slowing species extinction rates by conserving 30% of America’s lands and waters by 2030, and doubling offshore wind capacity by 2030.
Another core component of the domestic strategy will involve investment in infrastructures – especially buildings, water, transportation, and energy – to withstand the effects of climate change. Some specific focus items would likely include urban tree plantation projects, building of more climate-resilient bridges and roads, coastal restoration projects, and high-speed railways.
Ensuring international alignment on climate action.
As an international agenda, the administration will target incorporating climate change into US foreign policy and national security strategies. Bilateral US-China agreements on carbon mitigation is expected to become an important part of this agenda, particularly with the aim to reduce the carbon footprint of projects related to China’s Belt and Road Initiative. Attempting to establish worldwide ban on fossil-fuel subsidies, creating clean energy export and climate investment initiatives, and creating “green debt” relief to developing countries are other important ambitions as part of this agenda.
Supporting communities that are disproportionately at risk of being affected by pollution.
At the community level, the goal would be to step up legislative actions against corporations that are responsible for pollution. Apart from air pollution, there will also be special focus to enforce violations on water contamination and solid waste generation. More community-driven approaches to stop environmental injustices to communities of colour, low-income and indigenous communities will likely form an important part of this agenda.
Obligations to workers and communities whose jobs and livelihoods are affected by the changes.
Ensuring that existing workers receive the support needed to re-skill and retrain so that they can remain competitive in the job sector. The administration is expected to focus especially on the communities related to coal mining and coal power sectors that are expected to continue undergoing significant job losses in the current decade due to the economic transition.
Ambition to reality
The climate actions targeted by the Biden administration are clearly ambitious and substantial, but how will ambitions transform into reality? Real asset investors will have an important role to play to ensure the execution of this strategy. But in an environment where reliable ESG reports from operators are lacking and greenwashing is rampant, how would investors ensure that the most efficient projects – with optimum returns along both financial and ESG dimensions - are financed? As capital starts to look for deployment opportunities, we believe that being able to accurately predict the materiality of projects is of paramount importance to ensure that the most long-term efficient projects are backed by investors.
At ESG Base, we are on a mission to equip investors with such predictive capabilities. Using a fundamental science-based approach, our state-of-the-art technology and analytical tools enable the users to predict, model, and monitor the material impact of their projects, while drawing from a wide range of environmental, policy, and technological signals. Because of its science-based approach, the ESG Base predictions can cut through the fog where reliable ESG reports of comparable operating assets are either unreliable or not available.
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