The Biden-Harris swearing in, cancelling the Keystone XL Pipeline and rejoining the Paris Climate Agreement all bode well for the environment under the new administration. What other changes might be in store for climate change initiatives in the US? What will this mean for the broader world? And how will these changes potentially affect investing in renewables, clean technology and other related themes?
There’s a wonderful quote from Maya Angelou that I think serves well for this discussion: “When someone shows you who they are, believe them the first time.” With that in mind, let’s take a look at what Biden has historically done around the environment, energy policy and governmental regulations. Throughout his tenure as a lifelong politician, he has stood up for the environment. From 1973, his record on energy, clean energy or environmental protections show that 83% of the time he voted pro-environment. He has supported higher fuel efficiency standards, supported greenhouse gas caps, and helped introduce and usher in the Global Climate Protection Act of 1986 which mandated annual reports from the EPA to Congress on the state of the environment.
On the campaign trail, there were speeches and talk of a “Green New Deal” - invoking what FDR did for the infrastructure of our country after the Great Depression. Biden countered Trump’s “America First” rhetoric with his “Build Back Better” economic plan. The core of Build Back Better creates jobs and addresses inequality through investment in clean energy, infrastructure and other green initiatives, with the headline target to achieve a carbon pollution-free power generation sector by 2035 and net-zero emissions by2050. Build Back Better advocates multilateralism and international cooperation to advance global climate action.
The Biden-Harris Plan seeks to infuse the US with a boost of climate resistance by rebuilding critical water, transportation and energy structures to meet more comprehensive environmental standards.
Biden believes that via fiscal initiatives, we can adopt clean energy across the country, reduce carbon emissions from oil and fossil-fuels and foster job development. He is earmarking dollars and job support measures for rural economies dependent on environmentally outdated/damaging farming techniques – thus enabling rural communities to lower emissions and reduce environmental damage. If current Climate Team appointments are any indication, Biden is dedicated to building a strong environmentally-forward-looking cabinet to support the BBB plan out of the gate. In his article “Biden Plans to Fight Climate Change in a Way No US President Has Done Before,” former Colorado Governor Bill Ritter Jr. has interesting insights on how important these climate team appointees will be to implementing meaningful change, beyond ‘just electricity’. https://theconversation.com/biden-plans-to-fight-climate-change-in-a-way-no-u-s-president-has-done-before-152419
Even before the election, investors had been increasing their investments in clean technology and renewable energies in anticipation of more consistent, pro-clean-energy policies coming from the top. In 2020 the return on investment from clean energy sources, such as wind, solar and other renewables, significantly outpaced traditional fossil fuel investments. One study from the Imperial College London and the International Energy Agency found that over a five- and ten-year period, renewable investments in Germany and France yielded returns of 178.2% vs a -20.7% return for fossil fuels. And the ROI for the US, while still heavily dependent on fossil fuels, painted a rosy picture for renewables, yielding 200.3% over five years, compared to fossil fuels’ 97.2%.
The fossil fuel industry has been the beneficiary of governmental subsidies for the last 100 years. These subsidies are delivered through tax breaks and incentives that originally were put in place to keep energy costs down, encouraging innovation. We have long exhausted that need; renewable energy can be generated and delivered more cost-effectively than fossil fuel energy. Thus, the need for subsidizing fossil fuels is null. Removing tax breaks for fossil fuel generation would lead to a boost in the US tax revenue by potentially $20 billion annually. That doesn’t even consider money saved from emission reductions, health care money spent on environmental side effects, or the environmental clean-up averted with a reduction of emissions (related to the “COVID-effect” – the reduction of pollutants when fewer people drive gas-powered vehicles).
Bottom line is that more and more investors are aligning their assets with their values. Total ESG (“Environmental, Social and Governance”) assets are now estimated at nearly $7.2 trillion- more than double 2019’s $3 trillion estimate. In 2020, the US saw the biggest increase in ESG adoption and has the greatest room for growth since 80% of sustainable assets are currently in Europe. One of the big ESG headliners in 2020 was Tesla, which increased its market cap by more than $500B, making it worth more than the market cap of nine of the largest car companies COMBINED. Tesla only sells 500,000 cars a year, 1% of all cars on the road. Does it have the staying power that its competitors have had? Or is the valuation so inflated it might be the kiss of death? (Rumors of Tesla taking over a big auto company hearken back to AOL’s takeover of Time Warner!).
In this new political era, we are excited to see how the Biden-Harris White House steps up to combat climate change. With 2020 tying for the warmest year on record, we need all hands on deck. As an investor, there are simple steps that can be followed, and the beginning of a year is a great time to start. As part of a green-living-new-year’s-resolution, investors can look at their portfolios and screen out fossil fuel holdings. Investors can also research green technology and renewable energy companies. Research can be done by individual investors on sites like Smart Investors Daily and Nasdaq.com, which provide research reports for the environmentally-curious investor. And here at Pearl Wealth, we are available to take a deeper dive, applying our ‘green-eye’ perspective to help identify hidden environmental pitfalls for investors. We look forward to being part of the solution mitigating climate change and ensuring a thriving planet for generations to come!