U.S. Climate Change Policy: Do We Need a New Approach?

U.S. climate change policy is set for a shake-up. Why is it so important for the energy sector?

U.S. climate change policy is set for a shake up, following the results of the Presidential elections this November. Citizens and international investors alike are on the edge of their seats, anticipating how President Elect Biden’s new policies will affect the financial markets. 

  1. The election juxtaposed two opposing approaches to U.S. climate change policy, specifically relating to clean energy and regulation. Biden plans to roll back on many of Trump’s mandates.

  1. It’s a fork in the road for auto emissions; The incumbent administration rolled back Obama-era regulations, now Biden has made a promise to incentivize clean vehicle production. 

  1. Over the last three and a half years, the U.S. has fallen behind the European Union, which plans to reduce emissions by at least 55% by 2030;  Biden plans to update U.S. climate change policy and reposition the country as a world leader. 

It’s obvious to both the public and investors that Trump and Biden have very different, and often opposite, views on a range of issues. The election put everything on the ballot, from how to handle the coronavirus pandemic, to economic and immigration policies and U.S. climate change policy.

In a September poll by NPR, PBS Newshour and The Marist Poll, 12% of voters and 22% of Democrat voters said climate change was their top priority.   

And now the people have made their choice.

Biden’s decisions will not only have an impact on financial markets in the short-term, but also on the US ESG regulations for years to come. That’s why, in this article, we’ll use insights and data curated from Refinitiv Eikon to explore the state of three important U.S policies today – green investments, auto emissions and climate diplomacy – and analyze these in parallel with his current plan to address them. 

Green investments

Biden says he plans to invest heavily in clean energy, which would help move the U.S. toward a low-carbon economy. Trump rolled back regulations protecting the environment and did not have a clear plan on climate change. 

During the last presidential debate, Trump said he would not harm business in order to protect the environment, while Biden said a green economy would help create more well-paying jobs. The comparisons are available in the US Election app in Eikon, show a quick, yet comprehensive view of both candidates’ climate policies: 

For the U.S. to reach 100% clean energy by 2035 – following Biden’s promises – companies would need to set clear targets. However, based on an analysis of the 708 U.S. energy companies featured in the Eikon, we found that very few organizations actually report producing renewable energy today – let alone have a concrete plan for the future.

Our key takeaways:

  • Based on the Refinitiv ESG data, out of more than 700 U.S. energy companies, only 7 companies report the Total Renewable Energy they’ve purchased and produced. Just four companies report their Renewable Energy Supply. This is the energy they produce from renewable sources, divided by all the energy they produce.

  • When it comes to the transport industry, we analyzed the 6 key transportation infrastructure companies in the U.S. However, only 2 of these companies track environmental pillar scores, emissions scores and policy emissions.

  • Only 22 energy companies report to have Renewable/Clean Energy products. This metric explores whether the company develops products or technologies for the use in clean, renewable energy, or if it’s financing renewable energy projects. 49 energy companies report to have the Energy Efficiency Policy, and only 3 – to have the Energy Efficiency targets.

  • Overall, the majority of U.S. energy companies simply do not have concrete plans to tackle climate change. Based on our data, 156 companies report on whether they have a policy to improve energy efficiency – and only 49 of them actually have this policy in place. Furthermore, only 3 companies report to have energy efficiency targets.

Outperformance of renewable energy firms

To answer the question of whether portfolios with renewable energy firms perform better than their fossil fuel counterparts, we created two revenue weighted portfolios within Eikon. One included fossil fuel companies and the other renewable energy firms. 

We looked at the forecasted risk of each portfolio and found the portfolios are dramatically different.

Portfolio type

Total Risk

Fossil Fuel Portfolio

45.152

Renewable Energy Portfolio

39.437

Active (tracking error)

30.480

In this forecast, we also take into account the performance over the last five years. In the graph below fossil fuel companies are represented by the portfolio and renewable energy firms are represented by the benchmark.

Tougher auto emission rules 

Not surprisingly, Biden and Trump also had distinct views on auto emissions. While Trump has attempted to weaken the auto emission standards set under Obama, Biden has pushed for auto industry incentives to produce more clean vehicles.

Let’s not forget that the auto industry went through a major shift this past decade. According to our recent report Sustainability trends and the automotive industry, mid-to-large sized SUVs sales have rapidly increased; while SUVs accounted for 11% of all vehicles sold in 2010, they made up 28% of cars sold in 2019. This, of course, has had a real impact on emissions. 

Based on our analysis of the 27 auto companies featured in Eikon, some manufacturers have begun to produce environmentally friendly vehicles to reach new emission targets. However, the transition to low carbon will still likely be a slow one. 

Our key takeaways:

  • Seven auto manufacturers feature at least one product or service designed to have a positive effect on the environment, while 7 U.S. companies also participate in the electric vehicle industry. 

  • As we concluded in our automotive industry report, companies like to promote their eco-friendly strategies. “But the reality of what is being currently produced and sold shows only a tiny sliver of green alternative drive vehicles (5%) among a sea of internal combustion engines (95%),” it read. It is worth noting that 10 automakers are on track to meeting the 2°C  goal outlined by the Paris Agreement. However, another 10 manufacturers only have a small amount of experience with electric vehicles today.

Climate Diplomacy

In September, the European Commission announced a plan to reduce emissions by at least 55% by 2030, compared to 1990 levels. The U.S., however, currently has no such plans. 

So are companies taking the lead? To understand the state of things, we looked at 371 U.S. companies in Eikon that have reported their carbon dioxide equivalent emissions over the last four years.

Our key takeaways:

  • According to a UN report published in November, global greenhouse gas emissions will need to decrease 7.6% annually until 2030 to reach the 1.5°C goal stated in the Paris Agreement – and 2.7% to meet the 2°C goal. 

  • Out of the 371 U.S. companies we analyzed in Eikon, 89 of these companies decreased their emissions by 7.6% from last year. 

  • However in general, U.S. firms carbon dioxide equivalent emissions are decreasing at a very slow rate. 

While some organizations are on the right track, the majority of U.S. companies are lacking when it comes to green investments and working toward climate diplomacy goals.

However, Refinitiv ESG data offered through Eikon, Refinitiv Quantitative Analytics and Refinitiv Data Loader, can help investors make more sustainable investment decisions.

For a comprehensive overview of the key trends dominating the ESG and Sustainable Finance universe, explore the Refinitiv Sustainability Perspectives podcast.