When it comes to sustainable goals, the US has made many an unfortunate decision over the past decade. From backing out of the Paris Agreement to contributing over 6.6 billion metric tons of greenhouse gases to a warming planet in 2019. It seems, however, that America’s newest president has decided to completely change the superpower’s environmental stance by 2030, irrespective of congressional support. But what are the components of this new green deal, what does it mean for the future and what challenges may it face?
The all-encompassing American Jobs Plan, which includes a sweeping expenditure of around $2tn, has been hailed as a “once-in-a-generation” investment and contains a number of ESG based objectives. As far as environmental changes go, Biden has pledged to cut CO2 emissions by 50 – 52% across the next decade. This goal is to be reached by pumping $334 billion into public transport, electric vehicles and clean energies. There is also a proposed cash injection pending with the aim of rebuilding bridges and roads across the country. Biden commented on this environmental push, saying; “Those that do take action and make bold investments in their people [and] in a clean energy future will win the good jobs of tomorrow and make their economies more resilient and more competitive”.
The plan also targets a significant social impact, with sizable contributions towards affordable housing, schools, veteran’s hospitals and federal buildings. The American Jobs Plan will also focus on providing clean, safe drinking water across the States with the lofty goal of replacing 100% of the nation’s lead pipes and service lines.
As well as the obvious emphasis on the energy transition, the stimulus is expected to ripple through the wider economy. One good example of this is the hypothetical uptick expected in both the lumber and steel markets, atop rising resource prices globally. After recent catastrophic power outages which brought Texas to a standstill, Biden has also included an entire rework for the aging American electrical grid which currently costs the US an estimated $70 billion a year from outages alone. This part of the plan will reduce the cost of electricity on a retail level, create jobs and improve air quality. This string of investments aims to not only reduce unemployment levels, reduce climate change contributions and revitalise transport but it will also try to modernise schools, hospitals and housing. And if you think all of that sounds too good to be true, you wouldn’t be the only one.
What does the AJP mean for markets?
With such an intricate and far-reaching plan as the AJP, it is only natural to see a reaction in the capital markets. Fossil fuel companies such as Shell, Exxon Mobil, and Chevron are losing out on future subsidies by being on the wrong side of the growth of clean energy and are in turn losing the faith of investors. Increasing environmental regulations are putting a huge dent in oil companies’ bottom lines, and pairing this with recent historical defeats in the Hague, the one-two punch of the AJP legislation and interior shifts may spell the beginning of the downfall of traditional big oil on the trading floor. On the other hand, the cheap and established fossil fuel energy sector may be in for one last boon as a key component for the introduction of the AJP.
Investors may also now turn to sectors such as construction, EV tech or green energy. We could also see investments into long-term, infrastructure based portfolios. The big money however still remains undecided as the AJP waits to be passed into law.
Inflation rates are also a concern for many as the economic cost of the staggering multi-trillion dollar plan is feared to balloon even further due to higher-than-expected inflation rates. In a recently released budget report from the White House, the US in relying on inflation to not rise above 2.1% for 2021 and control rises to under 2.3% a year over the next 10 years.
One of the main criticisms to the AJP is the magnitude of its ambition. Organisations such as the National Rural Electric Cooperative Association and The Edison Electric Institute both echo the sentiment that perhaps the plan offers too much. There is also congressional opposition to the suggested changes not only due to the way in which some members believe that Biden cannot deliver on all that is promised but also because a good chunk of the plan will be funded by a sharp increase in corporation tax, from 21% to 28%. When speaking on the divisions that this proposal may cause, Biden told reporters that “It’s big, yes. It’s bold, yes. But we can get it done”. He continues “The divisions of the moment shouldn’t stop us from doing the right thing for the future”.
The American Jobs Plan is certainly one of the most ambitious proposals in recent memory, and if successful will see an almost complete rework of the US’ sustainability network and its economy as a whole. If the plan fully delivers, we will see huge improvements to both transport and green infrastructures. If the plan can overcome the doubt and controversial funding options it will not only prepare the US for a green tomorrow but will also encourage other world powers to follow suit.