- November 11, 2020
- Posted by: Arne Stifel
- Category: FFI Perspectives
Much has been written about the potential impact of a Biden/Harris electoral victory on the economy, and specifically on how President-elect Biden’s US climate policy may impact market returns. We know what he has stated as major policy goals: rejoin the Paris climate agreement, and collaborate with the (G7) nations, once again securing a US leadership role on the climate, by calling for zero-net emissions by 2050. Biden’s other broad climate policies include an overall investment of between $2-$3 trillion, in the form of implementing an emissions-free grid, building a transcontinental electric vehicle (EV) charging network, and upgrading building infrastructure nationwide to green energy efficiency standards. These policy efforts will help fuel the already super-charged growth of clean energy, the ongoing energy transition away from fossil fuels, and the acceleration of what is already a robust investor interest in clean energy and ESG investments.
It remains likely that President-elect Biden’s climate agenda will face opposition if Republicans retain control of the Senate, limiting many of these policy goals from implementation, and forcing him to rely on executive order to effect many of the promises he made. At the moment, Biden’s promises, which would certainly add to oil industry woes, include the banning of new fracking and blocking of new drilling permits on federal lands; the reversion back to increased fuel standards; the re-imposition of stricter industry emissions regulations; and the reinstatement of rigorous environmental rules and EPA standards from previous administrations. All of these plans would likely increase the costs of production, transportation, and the refining of hydrocarbons. Furthermore, Biden’s electrification plan would erode natural gas’ share of power generation, stymie new pipeline development, and curb demand for gasoline and diesel.
Overall, our view is that the energy transition has thus far been driven by technological advances that have made clean energy cheaper than fossil fuels for electricity generation. Similar technology advances are improving energy storage, and will soon make electric vehicles cheaper than their conventional internal combustion counterparts. While a Biden/Harris administration is expected to enact policies intended to accelerate the transition, we do not believe that the future performance of clean energy and fossil fuel companies is predicated on government policies, or even on a Democratic administration, for that matter. Government policies are no doubt necessary to limit emissions so that we can keep global temperatures from rising more than 1.5 degrees C° above pre-industrial levels. However, it is worth remembering what happened in the 16 years of the previous two administrations: George W. Bush was friendly towards the oil industry, and yet production declined during each of his eight years in office; and Barack Obama was friendly towards renewables, and oil production rose to all-time highs in his first seven years. These trends tend to show that a president’s policies do not have an outsize impact on energy markets, and if they do, then there is certainly lag time.
Markets have shown, and we believe will continue to demonstrate, that the economics behind the clean energy transition are most reliant on the cost competitiveness of clean energy and the growing societal concern about climate change that is increasingly causing consumers and businesses around the world to change the way they source and consume energy — and the way they elect leaders.
Arne Stifel is the Head of Business Development at FFI Advisors, a wholly-owned subsidiary of FFI Holdings.