international analysis and commentary

US energy policy under the Biden administration: domestic and global dimensions

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During the presidential campaign and his first months in the Oval Office, Joe Biden has expressed his commitment to fight against climate change and promote clean energy, marking a sharp difference from his predecessor. Indeed, Trump pursued US “energy independence” by leveraging US fossil fuels production and rolling back from several environmental and climate regulations, which he considered harmful for the US economy. Conversely, Biden has argued in favor of developing the clean energy industry in the US and in the world to vigorously address climate change. The current administration’s energy policy consists of a dual objective: addressing climate change and reestablishing American leadership within the fight against climate change and in key sectors of the future low-carbon economy.

During the presidential campaign, Biden expressed his intention to move away from the oil industry in contrast with Trump’s approach. He also released his “Plan for Climate Change and Environmental Justice”, which aims to reach 100% carbon-free power generation by 2035 and net-zero emissions by 2050 in the USA.

As soon as he became President, Biden signed a series of executive orders aimed at translating his electoral promises into energy and climate targets and policies, with relevant domestic and international implications. He withdrew the permit for the Keystone XL pipeline and directed agencies to consider new rules to curb methane emissions from oil and gas. Furthermore, he halted new oil and gas leasing on federal onshore lands and offshore waters. Although such decision will not affect existing operations or permits for existing leases, as well as private lands, it highlights a major shift from the previous administration.

Source: United States Environmental Protection Agency – https://www.epa.gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks

 

The ongoing decarbonization efforts start from the electricity and transport sectors, which are two of the largest sources of greenhouse gas emissions, although all sectors will need to be addressed in order to achieve carbon neutrality by 2050.

Regarding the power sector, Biden seeks to set a national standard for utilities to use a specific amount of solar, wind and other renewable energy sources. The amount would increase over time, cutting the nation’s use of coal, oil and gas for power generation over the next 15 years. Nevertheless, it is noteworthy to mention that the US energy sector has already witnessed some major transformations at the state level. Several states did not share Trump’s climate views. Thus, they have set their own ambitious climate and energy targets – under the United States Climate Alliance. For example, 30 states – and the District of Columbia – already direct their utilities to include some portion of renewable energy. This has contributed to the significant growth of renewable energy sources across the US, prompted by the steep drop in prices and costs, as well as political commitment.

In 2020, renewable energy sources accounted for 20% of US utility-scale electricity generation. Thus, the advent of the current administration represents a substantial change of US energy and climate policy at the federal level, providing additional impetus and political support to the clean energy industry. For example, Biden is betting heavily on the offshore wind industry setting a target to deploy 30 gigawatts (GW) of offshore wind capacity by 2030, as a way to create jobs and boost decarbonization. Currently, the US accounts for 29 megawatts (MW), which represents less than 0.1% of the global offshore wind capacity (34,367MW) – compared to EU’s share (72.5% of total capacity) and China’s (26.1%).

 

US electricity generation by major energy source, 2000-2020, bn kWh – Source: US Energy Information Administration

 

Furthermore, Washington now seeks to encourage energy transition across the US, taking advantage of the need to foster economic recovery and high public expenditure. Biden unveiled a $2 trillion investment plan, the American Jobs Plan, which is the second element of the so called “Build Back Better” agenda. The agenda seeks to both rescue the economy from the COVID-19 recession and recover from overwhelming previous constraints to prepare it for future economic opportunities. The investment plan extensively addresses challenges related to climate change, stressing the deep relationship between climate policy and industrial policy.

Under this plan, Biden proposes to invest $174 billion to boost the US market of electric vehicles and their supply chains, a sector currently dominated by China. In order to boost electric vehicles in the US, he also announced his intention to incentivize the deployment of 500,000 charging stations by 2030 (currently there are about 42,000 charging stations) along with tax incentives for consumers, as well as electrify 20% of the nation’s school buses. Moreover, he also aims at incentivizing carbon dioxide capture storage and use through the expansion of Section 45Q tax credit, which provides tax credits for each ton CO2 sequestered. The President also proposes to invest $35 billion in innovation and R&D programs. In doing so, he aims to achieve technology breakthroughs that address climate change and position America as global leader in clean energy technology.

These domestic policies are set to also have several international implications. Firstly, Biden’s energy and climate policy envisages an international dimension, being committed to reestablishing American leadership in the fight against climate change, undermined by Trump’s decision to withdraw from the Paris Agreement.

Indeed, American international leadership has been shaken by the last four years. Other countries have tried to emerge as leading powers, notably China and the European Union. As a first sign, he signed an executive order to officially rejoin the Paris Agreement on his first day in the Oval Office and he invited 40 world leaders to a climate summit in April 2021 to galvanize climate action on multiple fronts, reassuring American commitment and leadership in the field. The summit aims at finding ways to keep average temperature increases to 1.5°C compared to pre-industrial levels, while the Paris Agreement has a target of 2°C.

On this occasion, the President announced a new target for the US to cut 50-52% from 2005 levels in economy-wide net greenhouse gas pollution by 2030, under the US Nationally Determined Contribution. The new target will support Biden’s existing goals to create a carbon pollution-free power sector by 2035 and a net zero emissions economy by no later than 2050. Under President Obama, the US pledged to cut emissions by 26%-28% from 2005 levels by 2025 and called for economy-wide emissions reductions of 80% by 2050.

The new US energy and climate policy will also contribute to revive multilateralism, rebuild US alliances around the world and restore stable relations with key partners. Because the US accounts for only 15% of global emissions, the US will need to convince and incentivize other countries in the pursuit of decarbonization through financial and political support. Moreover, climate could represent a field of potential cooperation between the US and China, as well as the EU. However, some energy issues may represent sources of tensions and confrontation, such as the role of coal with China and the carbon border adjustment mechanism with the EU.

Notwithstanding the potential and needed cooperation, climate policy has become a major geopolitical issue, as it will draw a new geopolitical map. Thus, it will also create some competition among major powers. The US is witnessing ever-growing competition and pressure from other major economies (i.e., EU and China) that have expressed their ambitions to lead the decarbonization process and the strategic industries, underpinned by significant industrial policy strategies and high public expenditure.

A few days ahead of the Leaders Summit on Climate of April 22-23, US Secretary of State Antony Blinked identified renewable energy investments as imperative to America’s rivalry with China. In this sense, new US energy, climate and industrial policies will also seek to preserve and increase US world leadership amid the strategic competition with China.

In conclusion, Biden’s energy and climate policy consists of domestic and international dimensions. Domestically, he will provide new impetus to the clean energy industry and the climate change commitment in the US at the federal level. This commitment will reshape the US economy and society, highlighting the fact that climate policies are interlinked with industrial policies. The greater role of government aims at also addressing international competition from other major economies, notably China.