alt
  • Funds

    Fund Explorer

    • Search our funds

    Capabilities

    • Fixed Income
    • Equities
    • Multi-Asset
    • Alternatives
    • ETF Capabilities

    Fund Information

    • Fund News and Announcements
    • Regulatory Updates
    • Capacity Management
  • Investment Themes
    • Sustainable investing
    • Income
    • Multi-Asset Solutions
    • Strategic Beta
    • Fixed income investing
    • Investing in China
  • Insights

    Market Insights

    • Guide to the Markets
    • Guide to Alternatives
    • On the Minds of Investors
    • The Weekly Brief
    • Investment Principles
    • Investment Outlook
    • Monthly Market Review

    Portfolio Insights

    • Bond Bulletin
    • Monthly Strategy Report
    • Asset Allocation Views
    • Fixed Income Views
    • Equity Views
    • Factor Views
    • Emerging Market Debt Strategy
    • Long-Term Capital Market Assumptions
    • Global Alternatives Outlook
    • ETF Perspectives

    Webconferences

    • Webconferences
  • Library
  • About Us
  • Contact Us
Skip to main content
  • English
  • Role
  • Country
Search
Menu
CLOSE
Search
  1. Home
  2. Insights
  3. Market Insights
  4. On the Minds of Investors
  5. What does Biden's presidency mean for the global climate agenda?

  • Share
  • LinkedIn Twitter Facebook
  • Email
  • Download
  • Print
  • Actions
  • LinkedIn Twitter Facebook
    Email Download Print

What does Biden's presidency mean for the global climate agenda?

22-01-2021

The election of Joe Biden has fueled expectations of an increase in global momentum on tackling climate change. Climate action was one of Biden’s key campaign promises and, according to exit polls, the main reason that 74% of his voters voted for him.1 Having control of the Senate gives the Democrats more scope to deploy their (climate) programme, but they will still need to compromise given that they fall well short of the 60 seats required to easily pass major legislation. Business groups will also be active in lobbying Congress to oppose the pieces of legislation they find the least acceptable.

Biden’s climate proposals 

In his Plan for a Clean Energy Revolution and Environmental Justice, President Biden set out his central ambitions on climate, including:

  1. “Rally the rest of the world to meet the threat of climate change”: The president has stated that rejoining the Paris Climate Agreement will be a day one priority. He also wants to fully integrate climate change into US foreign and trade policies in order to get every major country to further ramp up their domestic climate targets. From a global climate policy perspective, greater US support could be a game changer, as the US is the second-largest CO2 emitter in the world and the carbon intensity2 of its economy is three times higher than the global average. Quite how the president intends to work with the international community should become clearer following COP 26, the United Nations Climate Conference due to take place in Glasgow in November. At that point, we could see a new Grand Climate Accord. One possibility investors should look out for is that Biden makes climate policy central to ongoing trade tensions with China.

  2. “Ensure the US achieves a 100% clean energy economy and reaches net-zero emissions no later than 2050”: Biden’s pledge to achieve net-zero emissions by 2050 has already been made by more than 110 countries,3accounting for more than 50% of global GDP and carbon dioxide emissions. To achieve the net-zero goal and ensure that the US becomes a 100% clean energy economy, Biden plans, among other policy measures, massive public investments (USD 400 billion) in energy- and climate-related research and development (R&D), an area where the US is lagging compared to Europe and China (see Exhibit 1).

  3. “Build a stronger, more resilient nation”: In addition to supporting R&D, Biden has promised significant investments in low-carbon infrastructure, committing to “a federal investment of USD 1.7 trillion over the next ten years, leveraging additional private sector and state and local investments to total to more than USD5 trillion”. This is probably the aspect of Biden’s climate plan that has generated the most enthusiasm in the US as there is a bipartisan consensus about the need to invest in infrastructure. The American Association of Civil Engineers estimates4 that to close its investment gap, the US “must increase investment from all levels of government and the private sector from 2.5% to 3.5% of US GDP by 2025”. Infrastructure spending will be part of a broader agenda of easy fiscal policy to promote the post-Covid 19 recovery.

 

As well as these key climate commitments, other parts of Biden’s programme could further support the sustainability agenda. For example, changes to the Employment Retirement Income Security Act could redirect pension capital flows to encourage private capital to be part of the climate solution. 

Exhibit 1 : Government investment in greening the economy and level of CO2 emissions

Source: IEA, OECD, World Bank, Mission Innovation, J.P. Morgan Asset Management. R&D budgets for Brazil, Russia, India and China are estimates. Note: R&D numbers from public sector data and may not reflect private sector or joint venture research initiatives. Data as of 2019 or latest available.

Implications of climate policy initiatives for the (global) economy

The economic impact of the transition to a low carbon economy generally depends on whether it is “sticks-based”, with private businesses bearing the bulk of the cost of the transition, or “carrots-based”, with governments supporting the transition through subsidies and other forms of fiscal stimulus.5

The carrots-based approach, on which Biden focused in his campaign, is of course the most popular in the current economic environment as it could support the recovery while also addressing the longer-term threat of climate change. Even though he inherits the highest debt/GDP ratio since the second world war, Biden aims to maximise the fiscal impulse of his policies by leveraging public-private partnerships. Similar approaches, such as the European Fund for Strategic Investments, launched in 2015, have delivered strong results6 in terms of economic growth and energy transition while also generating opportunities for private investors.

However, to be most effective from a climate perspective, this approach should be combined with a sticks-based approach.7 The most common such approach is the implementation of a carbon tax, or more generally of a carbon price that can be set either through taxes or preferably through Emissions Trading Schemes (ETSs) to incentivise carbon producers to reduce their carbon intensity.

Although Biden has refrained from formally mentioning carbon pricing in his programme, his Treasury Secretary, Janet Yellen, has made clear in the past that she sees carbon pricing as a key element of any climate policy package.8 Yellen has also advocated so-called “carbon border tax adjustments9”, which would ensure that ambitious carbon pricing does not undermine a level playing field globally. As already discussed, this may contribute to ongoing trade tensions with China.

Conviction in the need for border tax adjustments is shared by many countries that have already launched their ETSs, but so far emissions coverage and price levels remain heterogeneous, and too low to reach our climate goals (Exhibit 2).10  The US could be tempted to leverage its experience with state-level ETSs, such as those in California and Massachusetts, to support the creation of a global level playing field for carbon prices.

Contrary to the general belief, moving towards a fairer carbon price globally should not necessarily be negative for the global economy. The example of Sweden is striking in this respect. Although Sweden introduced the world’s highest carbon tax (Exhibit 2) in 1991 and joined the EU ETS in 2005, its GDP per capita grew by 53.5% between 1990 and 2019, or slightly less than the 54.6% posted by the US. In the meantime, Sweden’s carbon intensity has dropped from 6.8 tonnes of CO2 per capita (tCO2/cap) in 1990 to 4.45, a third of US carbon intensity (Exhibit 3). 

Exhibit 2: Carbon pricing initiatives around the world

Carbon prices in USD (as of 1 November 2020) and % share of carbon dioxide emissions covered in the jurisdiction

Source: World Bank Carbon Pricing Dashboard, National Bank of Belgium, J.P. Morgan Asset Management. Data as of 20 January 2021.

Exhibit 3: Economic and carbon performances of Sweden compared to the US, 1990-2019
Economic and carbon performances of Sweden compared to the USA 1990-2019

Source: National Bank of Belgium, Refinitiv Datastream, Emission Database for Global Atmospheric Research, Crippa, M., Guizzardi, D., Muntean, M., Schaaf, E., Solazzo, E., Monforti- Ferrario, F., Olivier, J.G.J., Vignati, E., Fossil CO2 emissions of all world countries - 2020 Report, EUR 30358 EN, Publications Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-21515-8, doi:10.2760/143674, JRC121460. , J.P. Morgan Asset Management. GDP per capita based on purchasing power parity (PPP), 2011 international dollars. Data as of 20 January 2021.

Investment implications

Biden’s climate policy is likely to be part of a package of broader fiscal measures to support growth and speed up the energy transition of the country. It should also generate opportunities for investors in asset classes including real assets and global renewables, all of which have rallied over the last couple of weeks. 

Internationally, the US is likely to re-embrace a more multilateral approach, after rejoining the Paris Climate agreement and committing to net zero carbon emissions by 2050. While US support for global carbon pricing initiatives remains uncertain, Biden’s administration may support carbon border tax adjustments, which could lead to a level playing field globally for carbon prices.

This is not necessarily negative from an economic perspective, as shown by the Swedish example, but carbon policy will need to be monitored by investors as carbon intensity is going to be an important non-financial parameter of economic and corporate performance.  

1 Morning consult (https://morningconsult.com/exit-polling-live-updates/), exit polls based on 20,000 voter’s interviews about the reason why they chose one candidate over the other.
2 Expressed in tonnes of CO2 per capita
3 United Nation, press release, 12/11/2020, “Net-Zero Emissions Must Be Met by 2050 or COVID-19 Impact on Global Economies Will Pale Beside Climate Crisis, Secretary-General Tells Finance Summit”
4 https://www.infrastructurereportcard.org/solutions/investment/2017
5 J.P.Morgan Asset Management, 2021 Long Term Capital Market Expectations, Weighing the investment implications of climate change policy
6 https://ec.europa.eu/commission/strategy/priorities-2019-2024/jobs-growth-and-investment/investment-plan-europe/investment-plan-results_en
7 Group of Thirty, MAINSTREAMING THE TRANSITION TO A NET-ZERO ECONOMY, October 2020
8 Group of Thirty, MAINSTREAMING THE TRANSITION TO A NET-ZERO ECONOMY, October 2020
9 The main objective of the carbon border adjustment is fighting climate change by avoiding carbon leakage. Carbon leakage occurs when production is transferred from a country to other countries with lower ambition for emission reduction, or when products from this country are replaced by more carbon-intensive imports. If this risk materialises, there will be no reduction in global emissions, and this will frustrate the efforts of this country and its industries to meet the global climate objectives of the Paris Agreement. In this context, a carbon border adjustment mechanism would ensure that the price of imports reflect more accurately their carbon content.
10 High-Level Commission on Carbon Prices

0903c02a82ae5979​

More Insights

JPMorgan Guide to the Markets calendar

Guide to the Markets

The Guide to the Markets illustrates an array of market and economic trends using compelling charts, providing you the building blocks to support conversations with your clients.

Download the latest Guide
Vincent Juvyns photo

On the Minds of Investors

Drawing on the depth and breadth of our market and economic expertise, we offer timely macro insight into today’s big investment themes, to enable more confident portfolio decisions.

Views on today’s key investment themes
Men shaking hands in an office

Webconferences

Listen to recorded updates from our portfolio managers and market strategists and register for future editions. These materials are for financial professionals only.

Keep up to date with our views

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not a reliable indicator of current and future results.
 

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy.
 

This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000.

J.P. Morgan Asset Management

  • Terms of use
  • Privacy policy
  • Cookie policy
  • Accessibility statement
  • Sitemap
  • Investment stewardship
  • Remuneration disclosure
Decorative
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase

Copyright © 2021 JPMorgan Chase & Co., all rights reserved.


We use cookies to provide necessary site functionality and improve your online experience. To learn more about the cookies we use, view our Cookies Policy.

Close
ACCEPT
Read our cookie policy