ZEW Economist Sebastian Rausch on Biden Inauguration

Today, Joe Biden will be sworn in as the new President of the United States. On his first day in office, we will already see some groundbreaking decisions, especially regarding the future course of US climate policy. Professor Sebastian Rausch, head of the Research Department “Environmental and Resource Economics, Environmental Management” at ZEW Mannheim, comments on this matter:

“The new US administration will in all likelihood bring about a turnaround in US national and international climate policy. The Biden administration’s climate goals are quite ambitious. For example, the electricity sector is set to become carbon-neutral by 2035 and the entire economy by 2050. Particularly in view of the implementation of the Paris Agreement, this sends an important signal to the international community. After all, this would mean that about two thirds of the world economy and more than half of global greenhouse gas emissions would be subject to the goal of carbon neutrality.

Despite the euphoria over a new dawn in US climate policy, however, it is questionable whether we will actually see far-reaching climate legislation in the next few years. Also, with a razor-thin majority in the US Senate, ambitious climate legislation will be difficult to implement. Nevertheless, even without new climate legislation, the new government could set a number of other levers in motion. For example, the new president could, through an executive order, fairly quickly reinstate the greenhouse gas reduction regulations that Trump had rolled back at the federal level. This could include important rules such as the Clean Power Plan, energy efficiency standards, and fuel economy regulations for cars and trucks. In addition, Biden could reverse Trump’s reduction of the social cost of carbon, a metric used by regulators to set limits on greenhouse gas emissions, and raise it from about one to 50 US dollars per tonne of CO₂.

However, ruling by decree alone will not be enough to make the USA carbon-neutral by 2050. Besides a post-COVID-19 green stimulus package, a possible infrastructure bill could also play an important part in Joe Biden’s climate policy. In order to strengthen renewable energies, the United States must first invest in its power grid. Republicans have also recognised this. Other cross-party options could include measures to promote wind and solar energy, carbon storage and use, technology initiatives through government research labs, and a promotion of electric vehicles.

The litmus test for future US climate policy will be whether a CO₂ price can be successfully introduced. It is still unclear how the ‘enforcement mechanism’ announced by the new president to curb harmful greenhouse gas emissions will look like in practice. One option would be for the new US administration to focus on a legislative approach based on clean energy investments and sector-specific decarbonisation standards for electricity, transport and heat. However, this could put the achievement of climate targets at considerable risk and create unnecessarily high economic burdens.”