The Biden presidency, bolstered by Democratic majorities in the US Senate and House of Representatives, indicates a paradigm shift in climate policy at the highest levels of government. Along with immediately rejoining the Paris Agreement, President Biden has announced ambitious plans to position the US as a global leader in several climate-related areas, including clean energy, clean technology, and sustainable infrastructure.
Biden’s plan views climate change as an “existential threat — not just to our environment, but to our health, our communities, our national security, and our economic well-being.”1 The initiative also includes language linking clean energy with job growth, a connection I’ve been waiting for US political leaders to make for some time now.
Biden’s multidimensional agenda has two cornerstones: climate mitigation, or policies designed to reduce harmful greenhouse gas emissions; and — more notably — climate adaptation, or support for investment in solutions that build resilience against the physical risks of climate change. (The Biden plan mentions “adaptation” four times.)
Through our partnership with the Woodwell Climate Research Center, we have been studying the impacts of physical climate risks on capital markets and assessing investment opportunities associated with adaptation solutions for several years. Our research indicates that many regions of the world will experience challenging effects of climate change, including longer and hotter heat waves and droughts, stronger and more frequent wildfires and hurricanes, coastal and pluvial flooding, and water scarcity.
The Biden plan signals an official recognition by the US government of the need to adapt to climate change. The tailwinds from this policy shift should further propel capital spending and investment dollars into climate solutions. Biden’s adaptation-minded proposals include:
- Building out infrastructure that hastens the transition to clean energy and modernizes roads, bridges, rail, and buildings to better withstand the physical effects of climate change
- Facilitating climate-friendly transportation modalities by reintroducing tax credits for electric-vehicle purchases, installing charging stations, and pursuing and advancing high-speed rail
- Supporting clean technology, particularly in the contexts of energy production, storage, and delivery; and across manufacturing
- Reimagining insurance in areas that are increasingly susceptible to climate risks and have become prohibitively expensive to insure. One idea is to reduce property insurance premia for residential and commercial owners who invest in building resiliency.
There are significant investment implications from all of this. Beyond the capital market impacts, the root of this transformation could be a strong jobs story. As the Biden plan puts it: “We have to get rid of the old way of thinking that the clean economy and jobs don’t go together. They do. There are currently more than three million people in the United States employed in the clean-energy economy. But there is a huge opportunity to revitalize the US energy sector, boost growth economy-wide, and reclaim the mantle as the world’s clean-energy leader and top exporter.” 2
With a new climate action plan, the US may be able to do just that, with extensive implications for investors.
1https://joebiden.com/climate-plan/ | 2Ibid.