Chart of the Week: US announces new path to net zero

US President Joe Biden announced a new emissions reduction target for the US at an international climate summit in April 2021. The US is now aiming to reduce emissions by 50-52% of 2005 levels by 2030. The previous target, set in 2015, of reducing emissions by 26-28% of 2005 levels by 2030 was deemed inconsistent with the IPCC’s goals of limiting global warming to 1.5 degrees and Mr Biden’s 2050 net zero target. This new target is one of the most ambitious globally in terms of the speed of emissions reductions in the next nine years. To achieve it, US emissions must fall by a greater amount by 2030 relative to 2018 levels than those in the EU and UK, assuming all targets are met and emissions fall at a steady rate. Canada, Japan, Brazil, and the UK also announced more stringent emission reduction targets at the summit. The US is yet to outline a detailed plan of how it will meet the new goals, but should do soon ahead of COP26 in November. Supporting emerging green technologies is likely to be a central strategy. President Biden has already announced a $2 trillion infrastructure package, which included subsidies for electric vehicles (EVs) and construction of EV charging points, although it remains to be seen whether this plan is approved by Congress. Government spending could alter the incentives for the private sector by reducing risk, lowering the cost of capital, generating economies of scale and pushing down prices. However, for US to get on a sustainable emissions path, other meaningful climate policies such as domestic federal carbon taxes and carbon border taxes should also be considered, which will require bipartisan support.

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