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President Biden signs an executive order on the Paris climate agreement

What Biden Re-joining the Paris Agreement Means for Climate Action

By Nicole Lim

As you may have heard by now, newly inaugurated President Biden returned the United States to the Paris Agreement. This will officially take effect in 30 days. The President also signed executive orders [1] overturning some of Trump’s other policies that had environmental implications, including putting a halt to the controversial Keystone XL pipeline.

Since Biden first announced [2] that re-joining the Paris Agreement would be one of his first moves in office, many have been anticipating this day. For climate action and for many other reasons, today was a day that marked the beginning of a new era.

But beyond the politics and symbolism of it all, we wanted to take a look at what this all means for climate action and sustainability.

Ambition, leadership and science

As world’s second largest emitter of greenhouse gas emissions (GHG), behind China, the U.S. re-joining the Paris Agreement must come with bold and decisive commitments and plans to significantly reduce GHG emissions. When the U.S. first joined the Paris Agreement under the Obama Administration, the U.S. had pledged to reduce emission levels between 26-28% by 2025 from 2005 levels. At present, it is not on track to reach those goals.

Much has changed since then, and Biden will now be expected to raise the bar by setting more ambitious targets that capture its “fair share” of emissions. Not only that, with China announcing its commitment to be net-zero by 2060 [3], the E.U. to be the same by 2050 [4], and many other net-zero commitments by strong Asian economies, the pressure is on for the U.S. to take on an increased leadership role.

Thankfully, science, as Mr. Biden indicated in his executive order, would guide U.S.’s climate action.

 

It is, therefore, the policy of my Administration to listen to the science.

Executive Order, 20 Jan 2021

Therefore, we can minimally expect that Washington will set targets in line with the Intergovernmental Panel on Climate Change’s (IPCC) guidance on reducing GHG emissions by 45% by 2030 (from 2010 levels) and reaching net-zero by 2050.

Organisations and corporations often adopt or align with national climate targets. With the U.S. being a crucial player in the global economy, their targets send signals and inform how the private sector globally might respond to climate change.

Climate finance and pricing carbon

A striking feature of Mr. Biden’s executive order was Sec. 5.  Accounting for the Benefits of Reducing Climate Pollution. It requires all agencies to capture the full costs of GHGs through incorporating the social cost of carbon” (SCC), “social cost of nitrous oxide” (SCN), and “social cost of methane” (SCM) into cost-benefit analyses in decision-making. To facilitate this, the President has established an Interagency Working Group on the Social Cost of Greenhouse Gases, led by economists and scientists.

The Working Group has been tasked to publish an interim SCC, SCN, and SCM within 30 days (by 21 February 2021), and establish a final SCC, SCN, and SCM no later than January 2022. These costs will be used by agencies in valuing GHGs from change in regulation and other relevant agency actions. The Working Group will also be providing recommendations to the President on where and how these costs can be applied in decision-making.

Mr. Biden also made clear that these costs are to “reflect the interests of future generations in avoiding threats posed by climate change”.

The President also has a $2 trillion plan to invest in the transition from fossil fuels to clean energy [5]. This plan will see the transformation of the U.S. automotive industry to produce increased zero-emission / electric vehicles, green infrastructure, carbon-neutral power, energy-efficient buildings, investment in green innovation, clean agriculture and job creation. Since Biden’s announcement, stock prices of ESG companies that stand to benefit in a decarbonised world have soared [6]. We can expect to see these sustainable, ESG-focused companies to be at the forefront in the coming years.

Ahead of stronger sustainability and ESG regulation, companies are already bracing themselves for increased expectations [7], and some trade groups and organisations have begun meeting with the Biden team to review ESG matters and potential risks.

Outside U.S. shores and as part of commitments under the Paris Agreement, the U.S. will also be expected to play a big role in helping developing nations finance a fair, just and equitable shift away from carbon-intensive industries and fossil fuels.

Moves to watch

So much today, but it is only the beginning. Moving ahead, there are many developments to look forward to.

With COP26 around the corner, it is likely that we will see the U.S. and its newly assembled team of climate experts [8] convene with other leaders to ramp up ambition and align action ahead of the COP. In light of many other nations committing to a green transition, will we see unity and global solidarity like we saw in Paris? Backed by green technologies and corporate ambition, will world leaders take bolder action?

Come 21 February, the Working Group will announce an interim SSC, SCN, and SCM. Based on the Obama administration’s formula, the price per ton would now stand at $52. However, Trump officials reduced it to between $1 and $7 per ton. Economists believe that the Biden administration’s price might start at $125 per ton to better reflect latest climate science and market realities. [9] We can expect the price that Washington sets to impact analysts’ valuation of companies, which will be carefully watched by investors.

By 1 February, the Biden administration has promised additional executive actions to address the climate crisis. Subsequently, the $2 trillion climate package is expected to be passed. With so much optimism surrounding this, it remains to be seen if they will live up to expectations and deliver the action needed in our race towards a decarbonised future.

 

These series of events have instilled hope, inspiration, and ambition. The global pandemic has awakened the need for change, we are optimistic that the world will embark on an acceleration of climate action like never before.

 

What does this all mean for your organisation? Paia helps companies build resilience against climate change and increased expectations to decarbonise. Over past two decades, Paia has been supporting leading corporations across the region to prepare for a decarbonised future through strategically integrating climate and ESG considerations into business. Do speak to us to find out more.

[1] https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/executive-order-protecting-public-health-and-environment-and-restoring-science-to-tackle-climate-crisis/

[2] https://www.aljazeera.com/news/2020/11/5/biden-vows-to-return-us-to-paris-climate-accord-if-elected

[3] https://www.theguardian.com/commentisfree/2020/oct/05/china-plan-net-zero-emissions-2060-clean-technology

[4]https://ec.europa.eu/clima/policies/strategies/2050_en#:~:text=The%20EU%20aims%20to%20be,action%20under%20the%20Paris%20Agreement.

[5] https://www.reuters.com/article/us-usa-election-biden/biden-climate-plan-would-spend-2-trillion-in-bid-to-boost-economy-idUSKCN24F202

[6] https://www.marketwatch.com/story/these-green-stocks-would-thrive-under-a-biden-administration-according-to-fund-managers-2020-07-29

[7] https://www-wsj-com.cdn.ampproject.org/c/s/www.wsj.com/amp/articles/companies-brace-themselves-for-new-esg-regulations-under-biden-11610719200

[8] https://www.independent.co.uk/environment/climate-change/biden-climate-change-hires-white-house-b1788976.html

[9] https://www.washingtonpost.com/climate-environment/2021/01/20/biden-climate-change-inauguration/