February 23, 2021

Chart of the Week: Welcome back to the Paris Agreement – time to get to zero

by Fathom Consulting.

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Just over 100 days since its formal exit in November, the US has officially rejoined the Paris Agreement, in a move welcomed by other G7 countries. President Biden signed several executive orders shortly after assuming office, including rejoining Paris. Other climate-related executive orders included temporarily banning new leases that allow oil and gas drilling on federal land and making climate change a key part of US foreign policy and national security.

These actions highlight how action on climate change is a key priority for the new administration, which will no doubt create opportunities and risks for investors and businesses. But despite the president’s ambitious tone, achieving his climate-related goals (of reducing emissions to net zero by 2050 and eliminating fossil fuel emissions from electricity generation by 2035) will be challenging.

Details of how exactly President Biden hopes to significantly reduce greenhouse gas emissions remains unclear, though his plans should be outlined, along with a likely ambitious 2030 emission-reduction goal, before COP26 in November 2021. Moreover, with a wafer-thin majority in the Senate (which includes Joe Manchin, a Democrat who defends the interests of the coal industry), passing the necessary laws and introducing enough fiscal stimulus to achieve these goals will be hard. Bipartisan support seems like a prerequisite to the US getting on to a sustainable path to net zero.

Nevertheless, there are reasons for some optimism. In 2018, the electricity sector accounted for 27% of US greenhouse gas emissions (and this figure is a lot higher when indirect emissions from other sectors are included). US electricity generation has become less carbon-intensive over the past decade; coal provided over 50% of electricity in 1990, but just 24% in 2019. This has largely been replaced by natural gas, which now accounts for around 37% of electricity generation. The share of renewables in US electricity generation has grown in recent years and is likely to increase further. Emissions from transportation are also likely to fall to as electric cars become the norm.

Fathom held a webinar in partnership with Refinitiv last week to discuss the broader issues surrounding economic, political and financial market ramifications of climate change and the appropriate policy responses. Click here to access the event resources and more information on Fathom’s climate research.

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