Thoughts on what a Biden presidency could mean for US energy and climate policy

Here’s a one-question pop quiz.

The first major international climate-change conference took place in Kyoto in 1997. Since then, the share of fossil fuels in global primary energy consumption has:

a) Gone up some (1 to 5 percentage points)

b) Gone up a lot (6 or more percentage points)

c) Gone down some

d) Gone down a lot

e) Stayed the same.

The answer is e).

Consider what that means: after 23 years of much-publicized conferences and hotly-negotiated targets, plus hundreds of billions of dollars in investment, plus a blizzard of regulations and policies meant to promote the use of cleaner, greener fuels, the old fossil-fuel stand-bys (coal, gas and oil) still comprise about 84 percent of what the world consumes to function. In the United States, the figures are similar:  85.6 percent in 1993 and 80 percent last year, with the rest renewables and nuclear. 

I mention this not only because the answer is interesting, and perhaps surprising, but because it encapsulates just how fiendishly difficult transitioning to a non-fossil-fuel dominated energy system is going to be, even as the issue of climate change gains urgency. The production and use of energy, which accounts for about two-thirds of global greenhouse-gas emissions, has to be part of the climate solution.

And that brings me to President-elect Joe Biden’s energy goals. These are ambitious. In his recent transition plan, he pledged to make the US power sector carbon free by 2035. And in his July energy plan, he stated the goal of making the whole economy net-zero by 2050. (“Net-zero” means that the economy takes out as much carbon as it puts in. This could include things like offsets and sequestration, in addition to lowering emissions.) To get there, Biden has pledged to make climate a priority throughout his government, including areas like the Departments of Agriculture, Defense, and Justice in addition to Energy and Transportation. The United States accounts for about 15 percent of global greenhouse-gas emissions.

As a veteran of the energy industry, I have learned the hard way not to make predictions on the future of energy. That said, I also believe that climate change is a critical issue and that reducing greenhouse-gas emissions should be central to how the United States thinks about both energy policy specifically, and economic policy in general. With that in mind, here are a few thoughts.  

First, change tends to be slow on something that is so fundamental to the workings of the economy: remember that 84 percent figure. To decarbonize the power sector by 2035 would require a massive upheaval in a relatively short period, including the retirement of costly energy infrastructure, such as pipelines, drilling assets, and mines. At the moment, non-hydro renewables like wind, solar, biomass and geothermal account for a little over 10 percent of US electricity generation, although that share has been growing in recent years.

Second, the politics are sticky. Internationally, China dominates solar and battery production. Given current trade conflicts, and Biden’s expressed commitment to meet “the existential threat of climate change while creating millions of jobs,” the possibility of future tension is real. 

Domestically, there could be some common ground around energy infrastructure. For example, the American Energy Innovation Act, introduced just before the pandemic hit, has more than 60 Senate sponsors from both parties. The legislation includes significant provisions around clean energy, grid modernization, cybersecurity, and research; it does not include emissions-reduction mandates.  

In terms of dealing with emissions, some of Biden’s green allies, such as the Sierra Club, Friends of the Earth, and Greenpeace don’t like nuclear power or carbon capture, which together could help get to net-zero. Right now, nuclear is the largest single source of zero-emissions power in the United States, accounting for about 20 percent of power generation. Republicans are generally less fussed about climate change, and among those who are, they tend to prefer these options. I (like many economists) think  a well-designed carbon tax, with proceeds recycled back to taxpayers, could be an effective long-term approach to promote a steady, cost-effective transition away from fossil fuels; President-elect Biden also seems to be at least theoretically open to something along these lines. But the idea hasn’t gotten a lot of love from those whose jobs depend on getting elected; nor do voters appear keen.  

Third, while of course it matters who is President, it is also important to remember that politics are not the only factor in how energy systems evolve. Consider President Trump, who promised to “end the war on coal” and get coal miners “back to work.” In fact, coal employment has declined under his administration, from 51,000 in 2017 to  43,200 as of October. There are fewer miners because there is less demand. In 2019, coal accounted for 23 percent of electricity generation, down from almost 30 percent when President Trump took office. Recent trends are no more promising: coal consumption declined almost 15 percent from 2018-19 alone, and the power sector used 30 percent less coal in the first half of this year compared to 2019.

The reason for coal’s decline had to do with economics (natural gas is cheaper); local regulation on air quality and climate change (gas pollutes less and is much less carbon-intensive); international trade patterns (fewer exports); and changes in private investment (utilities shifted from coal to gas). In short, what President Trump wanted, and what actually happened, were two very different things.

Finally, a Biden administration has room to maneuver in meaningful ways. While I said I would not make predictions, I will make one exception: the United States will rejoin the Paris climate agreement, which aims to limit the rise in temperatures to no more than 1.5 to 2 degrees Celsius by 2100 and in general play a more active role in international energy and climate policy-making. That would be a good thing. As the world’s biggest economy, and the home of many brilliant minds, it makes sense for the United States to be inside the global climate tent rather than out.

Moreover, the Presidency has enormous authority over many agencies. At least at first, here is where it may be likelier that a Biden administration could make a discernible difference. For example, President Trump loosened regulation on methane emissions; I would be surprised if, as President, Biden did not strengthen them. He could do the same on matters like standards for vehicles, roads, buildings, and appliances; what kinds of cars and trucks the federal government buys; spending on efficiency and weatherizing; and working with state and local governments on resiliency and sprawl. He is likely to push for the continuation of the investment tax credit and production tax credit for renewables; these have had broad bipartisan support. None of this is startling, but it could all add up.

Then there is the budget. Right now, according to The Economist, the US federal government only spends about $7 billion a year on green research and development; it would be relatively easy to increase this figure substantially, particularly in high-potential, low-commercial interest areas like sequestration and geo-engineering. During his campaign, President-elect Biden proposed establishing a cross-agency Advanced Research Projects Agency to research climate-focused technologies like small-module nuclear reactors, grid-scale storage, and hydrogen. Whatever the question is, innovation is the answer, and money helps. Certainly, it has been innovation that has driven down the cost of renewables over the last decade; the same could happen in regard to hydrogen, batteries, and other technologies.

As a candidate, President-elect Biden gave energy and climate issues much more attention than President Trump did, and I expect that this will continue to be the case under a Biden administration. But on the whole—and really, this isn’t a prediction—think accelerated evolution toward a cleaner, greener energy future, not revolution.

All views are mine and not those of McKinsey & Company.