A Biden Victory Will lead to a Green New Deal and a Major Reorganization of the U.S. Economy
Lost amidst the headlines of the terrible COVID-19 pandemic and the upheaval of the BLM movement is that the nation is on the cusp of a significant transformation in the US economy. A ‘blue wave’ election propelling the Democrats to power would result in enactment of a Green New Deal resulting in major winners and losers across large industrial sectors of the nation. Businesses and investors would be prudent to consider the impact of such an event sooner rather than later.
Of late almost all presidential, congressional and senatorial polls for the November election show a consistent trend: we are heading for a major Democratic Party victory. If current polling numbers remain relatively stable, the Republicans may be able to hold onto the Senate, but by the narrowest of margins and only if current support remains steady for the GOP. However, current trends weigh against President Trump and his party: COVID-19 cases and hospitalizations are rising at alarming rates. The growth of the pandemic is leading to businesses being shuttered in populous states such as Texas and Florida which will dampen hopes for an economic recovery. Even if the President began calling for universal mask wearing and renewed strict shelter-in-place guidelines to shrink viral load in the nation by election day, it is unclear if many Americans would be willing to engage in such shared sacrifice after so much mixed messaging on the subject from our elected leaders.
Nothing is for sure until the votes are counted, but investors should focus upon what is most likely, and that is a Biden Administration along with a large Democratic majority in the House controlling the purse-strings of the Federal budget. Thus, we should focus today on what Biden is promising to do once in office which will impact the economy. While politicians not following through on campaign promises is as old as campaign promises themselves, every major Democratic candidate supported a Green New Deal in the 2019–2020 primary campaign demonstrating that such a policy platform is quite popular across the party voter base. A May, 2020 poll showed 75% of Democratic voters supported spending $5 trillion over 20 years to move the US to 100% clean energy. Such a policy was supported by 60% of independents and even 40% of Republican voters. In fact, a Green New Deal is likely the plank of the Democratic platform which has the most bipartisan support across the electorate. https://www.dataforprogress.org/memos/climate-change-winning-issue-2020
Thus, let us consider what the Biden Campaign has put in writing on the subject:
· The candidate has given significant support to a Green New Deal which would encourage investments in solar and wind power. This plan includes,
- Move towards a 100% clean energy economy with net-zero greenhouse gas emissions by 2050.
- A proposal to invest more than $1.7 trillion over ten years on infrastructure of which $400 billion would be on alternative energy research.
- Restore the electric vehicle tax credit.
- Focus significant tax credits towards retrofitting buildings with more efficient lighting, heating, cooling and installation of insulation. The pace of such projects at Federal buildings and military bases would be increased.
- Green tax credits and new infrastructure spending will be funded by at least partially reversing the tax-cuts enacted under the Trump Administration.
- Federal agencies will begin to procure zero-emission vehicles whenever possible.
- Significant portions of new infrastructure spending would be to climate-harden roads, bridges, power plants, levies, military bases, etc.
· The flip side of a Green New Deal are policies which make the production and use of fossil fuels more expensive, including,
- Ending government subsidies towards hydrocarbon extraction here in the US and working to eliminate them overseas.
- Impose much more strict methane release rules on the oil and gas industry.
- Raise fuel economy standards on the passenger vehicle fleet making gasoline-powered large pickups and SUVs problematic to produce and sell.
- End OPIC and International Monetary Fund lending towards fossil fuel projects.
- Incidentally, the Biden Campaign has pledged not to accept any donations from companies in the hydrocarbon extraction industry.
Assuming the Democrats take power and impose a significant portion of this program, what does it mean for the US economy?
1) The alternative energy, electrified vehicle, and battery storage space will see a boom in sales investment, and employment. Tax incentives, economies of scale and technological improvement will drive down the cost of wind and solar power while additional regulation increases the cost of natural gas, oil and coal. Green energy sources, already competitive with those from fossil fuels, will soon be significantly cheaper.
2) Infrastructure spending will rise significantly benefiting a host of companies from large engineering project managers, to commercial LED lighting and suppliers of aggregate gravel for road beds. While not all projects will be prioritized perfectly according to return on investment vs. political expediency, we can assume that GDP will benefit as transportation bottlenecks are removed and failing systems are repaired.
3) An acceleration in the pace of electrification of the terrestrial vehicle fleet will not lead to an immediate collapse of the use of the internal combustion engine. However, it will begin to put pressure on the sustainability of a large number of companies across the nation ranging from car dealerships, to aftermarket auto parts companies to engine manufacturers to gas stations.
4) Similarly, oil, natural gas and coal will continue to be pulled out of the ground and burned. However, demand will begin to fall putting pressure on the revenue lines of many companies ranging from oil field service firms to pipelines to refiners.
5) Some regional geographies will see a rise in unemployment and economic pain while others will prosper. Certainly, oil-producing regions of Texas, Oklahoma, New Mexico and North Dakota will be negatively impacted along with local banks and real estate markets. In contrast, coastal cities from New York to Savannah to Tampa will benefit from climate-hardening infrastructure investments along with areas with high solar photovoltaic resources in southern California, Arizona and Nevada.
To date, most have assumed that the largest impacts from climate change would be direct costs of larger storms, rising sea-levels and higher temperatures reducing agricultural output and outdoor labor productivity. Over time, they likely will be. However, in the near term the Democrats retaking the White House and implementing a Green New Deal means that mitigating future climate change effects will represent the largest short-term impacts which will ripple through the economy.
For a deeper dive into specific subsectors and individual companies poised to benefit or be injured by the enactment of a Green New Deal see Hot Stocks: Investing for Impact and Profit in a Warming World now available from Rowman & Littlefield