2024 Green Expectations: U.S. election risk?

Introduction

Over the past five years, environmental equities have weathered a complex array of headwinds: the Trump presidency, the COVID-19 pandemic, the war in Ukraine, an unprecedented rate-hiking cycle and renewed Middle Eastern tensions.

These equities have also withstood challenges including global supply chain disruptions and volatile costs for critical materials such as rare earth metals and lithium, vital for renewable energy technologies. They have managed to navigate a shifting regulatory landscape across various countries, dealing with intricate and evolving policies related to clean energy incentives and carbon emissions. Furthermore, environmental equities have managed to maintain stability amidst varying public sentiment around the energy transition, ranging from strong support to skepticism, which mirrors the diverse global stance on climate change and energy policy. This steadfastness not only underscores the sector’s general resilience, but also highlights its significant role in the global economy’s gradual shift towards sustainability.

In this article, we will delve into the clean energy sector’s sustained growth, a secular megatrend underpinned by market demand, technological progress and global commitments to sustainability. Additionally, we examine the increasing bipartisan support for renewable energy, a factor that tempers the likelihood of significant policy shifts post-elections.

How bipartisan is support for clean energy?

It’s unsurprising that the U.S. exhibits a notable divide on environmental concerns, as Pew survey data shows a stark contrast: 88% of Democrats feel distressed about Earth’s condition, versus only 50% of Republicans, with fewer still feeling anxious or motivated to address climate change.[1] Despite this, the partisan gap hasn’t stymied clean energy investments. Republican states are actively pursuing wind and solar power. This following analysis examines wind and solar generation across the U.S., using data from the Energy Information Administration and Ember Climate and incorporates key insights from Hannah Ritchie from Our World In Data.[2]

Red states are the largest producers of wind

In 2022, the top five states leading in wind power generation were predominantly Republican, as indicated in the accompanying chart. The following chart uses colour coding to distinguish the political leanings of each state: red for Republican, blue for Democratic and grey for swing states.

Examining the total output of wind power reveals a similar trend. The next chart below displays the top 10 states based on their wind power generation. Texas, significantly ahead of others, tops this list. Following Texas, the next three leading states—Iowa, Oklahoma and Kansas—are all Republican. Notably, approximately 70% of U.S. wind power is produced in states that are politically red.[3]

Republican states show less enthusiasm for solar, but are not against it

Moving to solar power, the trend among Republican states is subtly different. Although they are less active in solar than in wind, they are still significantly engaged. California leads in solar power generation, but Texas, typically a Republican stronghold, ranks second. Florida and North Carolina, also red states, feature prominently in the top five. Notably, red states accounted for one-third of the U.S.’s total solar output in 2022.[4]

Republicans like energy security, even if they (may) care less about climate security

This data suggests that Republican states are progressively adopting clean energy, with economic considerations possibly playing a more significant role than climate change concerns. Their geographic position in the U.S. “Wind Belt” provides them with abundant wind and solar resources, leading to high capacity factors and appealing investment returns.[5] For landowners, clean energy offers a profitable venture, yielding steady income while minimally impacting their farming operations. This stability is particularly attractive compared to the uncertainties of farming, often prone to inconsistent yields due to varying weather conditions and poor harvests. The economic allure of wind and solar energy seems to be a key driver in its uptake in these areas, suggesting a more pragmatic stance towards renewable energy development than one might initially anticipate.

However, the shift towards clean energy in Republican states isn’t exclusively driven by market dynamics. Policy considerations also play a critical role. Firstly, the speed of renewable project development is significantly influenced by regulations and building restrictions, areas where red states often have an advantage. Secondly and somewhat ironically, these states have been major beneficiaries of President Biden’s Inflation Reduction Act (IRA), despite their political leanings.[6]

Anticipated impact of the Inflation Reduction Act (IRA) on red and blue states

Currently, GOP-led states stand to be the biggest beneficiaries of President Joe Biden’s signature climate law, despite?not a single Republican?voting for it.

The Financial Times noted in September 2023 that around 80% of identified clean-tech and semiconductor investments had in the first year of the IRA been announced in red states or states with broad Republican constituencies—most of them in South Carolina and Georgia, followed by Michigan and Ohio.[7]

Indeed, according to White House?estimates, red states are set to attract some $337 billion in investments for large solar, wind and storage projects through the end of this decade, thanks to the IRA. Meanwhile, states led by Democrats, are set to draw about $183 billion.

And here’s why

The IRA’s climate section clearly and strongly supports states with proven solar and wind potential and a track record of successful utilisation. Despite resistance to clean energy in certain regions, these states are nevertheless leading in solar and wind development.

“We’ve seen Republicans soften their opposition to climate change. So we could see a fading of their default support for fossil fuels and default opposition to renewables as a result of the IRA.” – Timothy Fox, analyst at research firm ClearView Energy Partners

Texas, the foremost wind energy producer, is anticipated to attract an estimated $66.5 billion in investments, surpassing all other states according to White House estimates.[8] Florida, although currently trailing behind six states in renewable energy production, ranks second with a projected $62.7 billion. Iowa, known for its wind energy prowess, follows closely with an estimated $24.6 billion.[9]

Additionally, Texas is poised to surpass California, a trailblazer in solar power, as the nation’s largest producer of solar energy from large-scale farms.

Among the blue states, New York leads with an expected $34 billion in clean energy investments, followed by California with $21.2 billion, as reported by the White House. Illinois secures the third position.[10]

The regions in the Midwest and southern U.S. have become significant hubs for cleantech factories, earning them the moniker “Battery Belt”.[11] Georgia, traditionally a red state with recent Democratic gains, is emerging as a frontrunner as both Republican and Democratic leaders actively promote solar, electric vehicle and battery manufacturing. They are keen to align themselves with the burgeoning industries, particularly in terms of job creation, that were once primarily championed by progressives and climate advocates.

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The experience of the renewables industry under the 2016-2020 Trump era

We can also take a closer look at how, during Trump’s presidency from 2016 to 2020, remarkable shifts occurred in the energy landscape, despite his climate skepticism:

1. U.S. solar panel production surged by an astounding 110%.[12]
2. U.S. installed wind capacity doubled, climbing from 4.6% to 9%.[13]
3. Battery pack production costs plummeted by a remarkable 89%, catalysing the expansion of solar and wind technologies.[14]

These achievements in clean energy did not happen because of Trump’s presidency, but rather in spite of it. This underscores a crucial point: the dynamic interplay of market forces and technological advancements proved too formidable to impede the march of renewable energy. The market has acknowledged that the energy transition is inevitable, with fossil fuels destined for obsolescence.

Conclusion

In light of our analysis, we believe the risk associated with the U.S. election outcome in November is likely to be minimal. This conclusion is underpinned by the bipartisan recognition of the economic advantages stemming from investments in solar, wind and batteries, even within Republican-leaning states.

Furthermore, we note that the IRA transcends its role as an ‘Energy Transition’ bill, aligning with the ‘American First’ agenda, a compelling factor for Republicans, substantiated by empirical data.

Our assessment also indicates that investors are primarily going to be motivated by the pursuit of investment returns from renewable investments, regardless of their geographic location or political alignment of the state in which they investment is occurring. This, we believe, underscores an enduring appeal of renewable energy investments for capital allocators.

Finally, it’s crucial to note that ‘Energy Security’ has resonated broadly across the political spectrum, unlike the narrower appeal of ‘Climate Security.’ This resonance can be attributed to the universal impact of rising energy prices on individuals, transcending political lines and this trend has become more pronounced over the past two years as global events, such as conflicts, have challenged our perceptions of security.