The US and Climate Change

While the European Union signals increasing ambition to curb carbon emissions, the common perception is that momentum in the US market is in the opposite direction. While the ambitions of the Trump administration have been to cut back environmental regulation, there are reasons to believe these reversals may be stalled. Factors to consider in the US market include:

Legal Opposition

A recent article in the FT highlighted that while the current Republication administration has attempted to roll-back multiple environmental regulations in the last few years, legal opposition from state attorneys and non-profit organisations has to date been highly successful in preventing the change. While positive for environmental protection, it has also created an uncertain environment for businesses.

A good example is the newly drafted clean car rules – the most recent draft suggested it would reverse direction and weaken fuel economy requirements and CO2 standards for cars built between 2021 and 2026. 18 states are preparing joint legal action over these rules. When they were opened for comment, the car manufacturers responses were not of unified support. Honda wrote that the draft plan ‘invites litigations and regulatory uncertainty, stalls long-term strategic industry planning, and puts at risk American global competitiveness’

American Public Opinion

There is growing pressure from the American public as opinion polls demonstrate increasing concern relating to climate change. A recent poll by Yale Program on Climate Change Communication highlighted how attitudes and opinions in America are changing as many states deal with increased extreme weather events, rising sea levels and increasing temperatures.

There is talk of increasing recognition of this change in the Republican party. A GOP pollster recently circulated the results of a poll focused on Republican supporters showing that 58% of under 40 supporters are more concerned about climate change now than a year ago and 69% think the party will lose younger partisans with its climate stance.

The Climate Leadership Council and carbon taxes

There is growing attention on the Climate Leadership Council, a bipartisan organization launched two years ago which describes itself as an ‘international policy institute founded in collaboration with a who’s who of business, opinion and environmental leaders to promote a carbon dividends framework as the most cost-effective, equitable and politically-viable climate solution’. Their proposal contains four main elements: a gradually increasing carbon fee beginning at $40 a ton; a redistribution of the carbon tax to households in a form of a quarterly dividend check; border adjustments for the carbon content of imports and exports to protect the competitiveness of the country and punish free-riding by other states; and the removal of unnecessary regulations that are no longer needed with the implementation of a rising carbon price fee. This program will also be proposed to other leading greenhouse gas emitting countries and regions.

Founding businesses include ExxonMobil, Royal Dutch Shell, Total, BP, General Motors, Pepsi, Microsoft, Santander and many more – companies campaigning for a tax as they face persistent pressure from investors and the public. Founding individuals include Michael Bloomberg, Ben Bernanke, Janet Yellen, Klaus Schwab and Ray Dalio.

A Green New Deal

This comes from a group of Democrats led by Alexandria Ocasio-Cortez which outlines a plan to decarbonise US electricity and transform the US economy  by “meeting 100% of the power demand in the United States through clean, renewable, and zero-emission energy sources” and “building or upgrading to energy-efficient, distributed, and “smart” power grids”. The proposal is criticized for an estimated cost of implementation of $1 trillion, but it is more a list of ideas and ideals than a suggested program. It’s far-reaching in its ambitions and is animating democratic party supporters.

We won’t attempt to predict any political outcome, but with President Trump recently insisting at a press conference that carbon emissions are in fact being curbed in the US the topic is clearly on politicians’ minds on both sides of the political spectrum. As investors it pays to take heed of these potential changes, evaluating the potential affect it will have on companies and incorporating them into our long-term expectations.

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