7 Climate Money Opportunities with Biden's Climate Agenda
And why the insurrection may actually have been *good* for Climate
Hello and welcome to the first installment of Climate Money!
Quick preface: Pay attention as Big History is happening
I had written about 80% of this email yesterday, and was just taking a break around noon (PT) when my husband Jose ran into my office and said, “Can you believe what’s happening? The Trump people are at the Capitol!”
I rolled my eyes and said, “Oh, just ignore them,” assuming that it was yet another pray-in or similar. I quickly realized that we were witnessing the most significant historical moment of our lives (as a student of history, this was simultaneously cool and horrifying), and that my own “just ignore them” refrain was part of what got us here in the first place. So I canceled all my meetings, stopped writing, and started paying attention to the events unfolding at the Capitol.
History is made by all people — not just leaders or generals or activists — and it is happening all the time. However, there are certain ‘tent poles’ of Big History that signal turning points. It’s both an honor and a burden to live through these as we are now, and the least we can do is pay attention.
All that said, the even bigger reality is that climate change isn’t taking the day off. So, let’s get to it.
What a Biden climate agenda means for Climate Money
The other big news of January 6, 2021 was the Democrats’ shocking upset in the Georgia Senate run-offs, where Jon Ossoff and most especially Raphael Warnock achieved historical victories in a political structure (the run-off election) expressly designed to favor Republican voters and suppress Democrats and voters of color.
It’s unsurprising that Donald Trump and his failed hostile takeover of American democracy somehow stole the spotlight from this incredible development, but in an ironic twist, the insurrection could actually pave the way for even better outcomes for Warnock, Ossoff, their colleagues in the Senate, and the rest of us in climate-conscious society.
These wins give the Democrats a slim majority of 1 tie-breaking vote belonging to Vice President Kamala Harris, so the prevailing thought was that even with this moonshot win, we’d still be facing a more or less divided Senate. Most meaningful legislation requires a 60 percent supermajority vote in the Senate, so this can’t be viewed as a landslide for the Democratic agenda by any means.
And then came the insurrection — a word reintroduced to the common American lexicon by Republicans like Mitch McConnell and Mitt Romney.
Now, folks on the hill are reporting an increasing, if sheepish, willingness for Republicans to cede some ground to Biden’s agenda.
Nothing ever plays out exactly as mapped, but the convergence of yesterday’s events — the Warnock/Ossoff win and Trump’s and Republicans’ loss of face — add up to a big positive in the global climate fight, with massive market implications for Climate Money.
It likely means that the Biden administration will be able to pass the most aggressive climate agenda in history, called “revolutionary” by Nature, and not a second too soon.
So today I want to take a look at some of the changes we’re now a little more likely to see, and what they mean for private markets.
First, two things to know:
The US government is the single biggest ‘customer’ in the nation, with an annual procurement budget of over $550B. Talk about a whale.
We already have a lot of great pro-climate legislation couched in the Clean Air Act and other existing federal programs that don’t require new laws that would need Senate confirmation. Biden can do a lot within existing legislation and programs by issuing executive orders, which typically don’t require additional legislative approval.
Here are a few of the Climate Money drivers we are now more likely to see coming from the US government.
1. Reducing emissions via a tightening of fuel economy standards, leaning on existing Clean Air Act legislation
Porsche accidentally-on-purpose leaked designs of a fully electric version of its incredibly popular Macan light SUV back in the fall, and has plans to eventually phase out the ICE Macan entirely some time after the Macan EV public release in 2022.
We may see other carmakers accelerate their EV plans as emissions and fuel economy standards layer on some extra incentive, but the real motivator here is going to have to be consumer market pull.
We should expect to see other automakers trying (and succeeding) to get a piece of the ever-growing Climate Money pie, especially as even the bears on Wall Street continue to upgrade their TSLA price targets.
2. Turning the federal government into a massive customer of 100% clean energy and zero emissions vehicles
The federal government runs a $550 billion-a-year procurement engine, and is the single biggest customer in the country.
The Biden administration will likely lean into their purchasing power directly and leverage another existing program called the Environmentally Preferable Purchasing Program to create market pull within the climate economy.
The federal government uses nearly 60,000,000 megawatt hours of energy per year (for scale, the average US household uses about 7.2 megawatt hours per year), and right now only about 10% of that is renewable so there’s a LOT of room to improve here. Here are the current areas of opportunity for all you Climate Moneymakers out there:
[ 1 more key read on the federal gov’t and renewable energy]
3. Incorporating climate drawdown principles into every federal infrastructure investment by strengthening the National Environmental Policy Act (one of the Trump administration’s biggest rollbacks)
Trump’s 99 environmental rollbacks were expected to lead to greater emissions by enabling more pipeline projects, and make basic infrastructure like roads and bridges riskier for society because developers would no longer be required to incorporate data around sea-level rise into their assessments.
Strengthening the NEPA could open the door to climate-positive building and over time would lessen the chances of catastrophic risk, with costs borne by society at large — big insurers and investment banks rejoice.
On the Climate Money side of things, risk is basically like negative money. As NEPA gets its legs back under it, we can expect federal infrastructure projects to be more open to Climate Money companies that take climate risk (and just, basic risk) into closer account, again creating favorable market conditions for the climate solutions ecosystem.
[ 2 more key reads on NEPA ]
4. Requiring companies to disclose climate risk
Related to the previous point about building bridges that don’t collapse on us, fully disclosing climate risk is actually a huge deal, and poses a satisfying threat to the fossil fuel industry. It’s hard to price something without understanding the magnitude of risk. It’s hard to create a fair market without prices.
The SEC currently recommends that companies disclose climate risk, but doesn’t require it.
“If these issues were clearly disclosed according to an SEC format like that which is required for reserves, credit [ratings] could be downgraded sooner rather than later for certain companies... from a broader economic standpoint, this would appropriately facilitate re-ordering toward a low-carbon transition." says Danielle Fugere, president of As You Sow.
Investors in GE (like BlackRock, Vanguard, and Fidelity) have lost nearly 200 billion dollars since 2016, when they bet on GE which bet on natural gas and coal:
“GE lost investors an almost unprecedented and simply staggering US$193 billion in just three years to 2018, 74% of its market capitalization.”
People were surprised at how BlackRock, one of the world’s largest and best respected investors, could so stupidly lost $16 billion in just three years.
The answer? Lack of proper disclosure of climate risk.
Btw, it’s no coincidence, and certainly not out of altruism, that in January 2020 BlackRock announced they would divest from thermal coal and other fossil fuels, but they still have a long way to go.
Still… someone has to help BlackRock deploy its capital! A closed-loop equation that takes climate risk into account will help Climate Money companies be *even more* competitive against anti-climate companies, and could make it easier for big investors to divest and reallocate funds to pro-climate solutions.
[ 2 more key reads on disclosing climate risk ]
Deloitte report on Clarity in financial reporting/ Disclosure of climate-related risks
Biden plan to make companies disclose climate risks key to decarbonization
5. Protecting the Arctic National Wildlife Refuge from extractive drilling by blocking permits
Trump put up leases for drilling in the ANWR (literally where families of polar bears currently live) for auction starting Jan 6, 2021.
The best thing Biden can potentially do here is block the permits that lease holders would need in order to commence drilling, but… there’s a lot more that markets can do.
Extracting oil from ANWR would cost approximately $100 per barrel. Problem is, crude is currently trading at just $50 per barrel. Another losing proposition for the oil industry, not driven by direct legislation on land use, but by markets. Go markets.
Finally, a note about stranded assets and fire sales. The oil and gas industry sees the writing on the wall. That the world will move towards clean energy is an inevitability — the big question is whether or not we’ll get there fast enough.
What happens when you know your business is selling something that no one’s going to want in the somewhat near future? If you’re in the extractive industries, you try to sell as much of it now as possible.
Given this ticking clock, the oil and gas industry, particularly in Alaska, could looking to lock in these resources now — or maybe the Trump administration just wants to make good on its promises to early campaign $upporters, since the reality is that the wells could take years or even decades to become productive.
In sum, [headache-inducing permitting process] + [oil prices underwater] + [not going to make money for a long time] + [eroding social license to operate as more and more of the general public realizes your greed is causing our warming] => significantly diminished incentive to bid on those leases.
[ 1 more key read on the ANWR leases ]
6. Accelerate the permitting process for offshore wind farms and other renewables projects
Obvious Climate Money opportunity here. As a side note, Orsted, an ex oil and gas company turned all-renewables giant, is making big strides in offshore wind in the US. Their stock has seen 120%+ growth in the past year, and a Biden administration will likely send even more Climate Money their way.
7. A carbon tax to reduce US greenhouse-gas emissions
A price on carbon, in the form of a carbon tax, could be a game-changer in the climate change map.
Depending on how aggressive the tax is, it alone could account for a 1.3 degree F (0.6 degree C) reduction in projected temperatures. Note that in this estimate, I’m also assuming that a carbon tax would affect transportation, buildings and other areas of the economy that also generate emissions. It’s impossible to get an exact estimate, but I wanted to show how powerful a simple and singular market lever can be in incentivizing solutions.
The Base Case
Estimate with a moderate carbon tax
There’s chatter that a carbon tax actually has some support from Republicans. Although I’m skeptical of this, I do know that many Republicans appreciate market-based solutions, and many of their red states can stand to benefit greatly from the development of renewable energy projects, especially as oil companies continue to ramp down production in those same economies.
This gives a huge lift to the broader renewables sector, which over the past year has already been performing with tech-like returns that absolutely smoke the S&P 500, and will only attract more and bigger investors to reallocate resources from fossil fuel energy to new energy and give these companies a lot more cash to fuel deployment and scale.
As these companies continue to raise large sums of Climate Money in the public markets, I think we can also expect to see them investing in more moonshot R&D — or we may see them getting acquisitive.
This is SO key in the Climate Money space — one reason why climate companies have struggled in the private markets is because of a perceived lack of exit opportunities. If the Climate Money public companies are flush with cash and looking to expand their footprint, startups will have more options, and a great fundraising story for VCs.
[ 2 more key reads on the carbon tax ]
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Trump and his crew have been incredibly busy rolling back environmental regulations (99 of them to be exact), most of them around air pollution — because, who doesn’t want more polluted air to breathe? — so the Biden team is going to be busy rolling back these rollbacks.
Even so, I’m optimistic that they’ll be able to get more done than expected and all Climate Moneymakers should be on the lookout for some big opportunities on the horizon.
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