What hope does Joe Biden’s administration offer on climate action?

On 20 January a new US President was inaugurated and the work of a new Administration began. Hope and expectations for climate action by the US are high. Rejoining the Paris Agreement is more than symbolic; the US is central to ensuring the Paris Agreement’s success. Not being part of the Paris Agreement would have always given others a pretext to hold back.

Striving for a net-zero economy

President Biden has already pledged to put the United States on an irreversible path to a net-zero economy by 2050, and so joins the growing group of countries that have committed to climate or carbon neutrality by mid-century, including the EU, Japan, South Korea and South Africa by 2050, and China by 2060. Countries having made such ambitious commitments so far represent more than 65 per cent of global carbon dioxide emissions, and more countries are expected to join them, thereby significantly reinforcing the pledges made under the Paris Agreement.

John Kerry, now Special Presidential Envoy for Climate, was the US Secretary of State who facilitated reaching the Paris Agreement, alongside Xie Zhenhua, who has recently been nominated as China’s Special Representative on Climate Change. Over the years, both have developed excellent relations with each other and with Europe. This bodes well for COP26, the next round of UN climate negotiations to be held next November in Glasgow.

The policy challenge

However, the hardest part of progress still needs to be tackled, namely, to put policies and measures in place to deliver on these commitments. The EU is rolling out its Green Deal, and has, of course, still much to do. The economies of both the US and China are still very deeply anchored in the use of fossil fuels, in particular coal, oil and gas. The manufacturing industry as well as financial markets across the globe have understood that profound structural change is coming.

The US has a mix of federal and state powers, rather like the EU. Measures at both levels are surely needed. At federal level, the slowing of authorisations for oil and gas extraction is a good start, and Biden’s cancellation of the Keystone oil pipeline projects a powerful signal. The administration needs to put money into research and development, and offering tax breaks for making the right investments may have a role to play… but more is needed.

Incentivising trade partners

In the past the US has considered applying a border levy on imports from countries that are not taking enough climate action. This idea looks similar to the EU’s idea of a “Carbon Border Adjustment Mechanism”.

Might we have reached a once in a generation opportunity for the US and EU to collaborate in developing an import charge for countries wanting access to their markets but who could do more to address climate change?

Carbon pricing

US Treasury Secretary Janet Yellen is an economist who has previously endorsed the idea of a carbon tax and rebate scheme, where a carbon tax would be levied and the proceeds returned to citizens in the form of a flat-rate payment, to ensure that the measure is fiscally neutral.

Richer people tend to pollute more than poorer people, so such a measure would be redistributive as well. Will she act on this idea as Treasury Secretary? Might carbon pricing’s day have come in the US?

The EU concluded some 20-years ago that mandatory rather than a voluntary carbon pricing is needed to be sure of robust environmental outcomes and the fair treatment of producers across Europe in competition with each other. In the US there may be insufficient political support for mandatory carbon pricing despite the belief of so many US economists that it would be the most efficient approach. The new Administration will have to consider the best way forward.

20 years ago, the Kyoto Protocol triggered the development of explicit carbon pricing in Europe. The learning-by-doing implementation has resulted in a European emissions trading system that works well today. Emissions by the included sectors have fallen by 35 per cent since the start of the of the system in 2005, a performance that far outstrips other economic sectors. Recently the European carbon price has risen steadily to above EUR 30, making coal-fired power generation economically unattractive.

Might re-joining the Paris Agreement be the trigger for the US to introduce carbon pricing? At her confirmation hearing in the US Senate on 21 January, Treasury Secretary-designate Yellen stated very clearly “We cannot solve the climate crisis without effective carbon pricing”. Encouraging words indeed.

The US has a dual opportunity within its reach: to put a price on pollution, and to generate revenues that can contribute to funding the climate transition and winning public support.

 

Professor Jos Delbeke is the EIB Climate Chair and Peter Vis is Senior Research Associate at The School of Transnational Governance (STG) at the EUI. The STG teaches and trains on climate change, and contributes to the debate through High-Level Policy Dialogues and Policy Briefs.