Less than a year before the 2022 U.S. mid-term election, Republicans are increasingly optimistic about the prospect of the “red storm”, hoping to subvert the party structure of both houses and end the Democratic Party’s control over Congress. In the past, Biden’s administration will be difficult and his measures in the climate field will be restricted. Before that, manqin refused to support the $2 trillion reconstruction of a better future act Build back better act (BBB) plays an important role in fulfilling Biden’s commitment to greenhouse gas emission reduction under the Paris Agreement. If it is less than the market expectation, it will drag down the global carbon neutralization process. In view of the uncertainty of the mid-term election and the tight time for the establishment of Biden’s throne law, the Senate is expected to vote after the adjournment in January 2022.
Reviewing Biden’s commitment to climate change since taking office, there are three main points: ① reduce greenhouse gas emissions by 50-52% in 2030 compared with 2005, and achieve net zero emissions by 2050. ② Achieve 100% zero carbon power industry by 2035. ③ Methane emission commitment shared with more than 100 governments around the world: by 2030, global methane emissions will be reduced by 30% compared with 2020.
In terms of greenhouse gas emission reduction, BBB can contribute more than a quarter. According to the White House briefing on November 1, 2021, BBB can reduce greenhouse gas pollution by more than 1 billion tons by 2030. According to the data of the U.S. National Environmental Protection Agency, 50% of greenhouse gas emissions in various fields in the United States in 2005 was about 3.7 billion tons. Therefore, BBB plays an important role in greenhouse gas emission reduction, This can be seen from the fields involved in BBB: BBB includes the largest single investment of US $555 billion in clean energy, involving construction, transportation, industry, power and other fields. Through investment, tax incentives and other policies, promote employment and technology in the field of renewable energy, as well as major investment in new energy vehicles and public transportation, so as to reduce the greenhouse gas emissions of the two main players of energy and transportation of greenhouse gases in the United States.
However, it is greatly hindered in the power industry and methane emission reduction. Manchin has cut off a clean power project of about US $150 billion (not included in the above US $550 billion) during the BBB negotiations, because coal is the pillar industry for West Virginia represented by Manchin. In addition, Manchin has been reluctant to support the legislation of taxing or charging methane in order to safeguard the interests of natural gas producers in West Virginia.
Given that congressional legislation is crucial to achieving Biden’s emission reduction targets, we expect that the US Congress will eventually pass BBB, although its investment projects in the field of clean energy may be restructured or even reduced in scale.
According to the report of rhodium, an independent research provider quoted by the White House in October 2021, the realization of the emission reduction target requires the joint action of Congress, executive departments and state and local government leaders to reduce the net greenhouse gas emissions of the United States to 45-51% of the 2005 level in 2030. The reason why congressional action cannot be replaced is that it accelerates the application of clean technology and reduces costs. Without the cost reduction assistance of congressional action, the federal and state governments will face higher technical and political obstacles.
If BBB’s investment in clean energy is significantly reduced, it will be more difficult and uncertain to achieve the emission reduction target. Although it can be supplemented by measures such as the establishment of new regulations and standards, and more actions can be taken at the state level and administrative departments (such as stricter regulation of federal regulations on power plant, vehicle and industrial emissions), the future president can overturn the regulations and standards of the former president, resulting in the slowdown of the pace of carbon emission reduction in the United States.
The analysis of the climateactiontracker, an independent organization, shows that in order to be consistent with the objectives of the Paris Agreement, U.S. policies and objectives should be more radical. From the process of 2021, even if the world imitates the United States, it will only control global warming within 2 degrees Celsius, rather than the optimal target of 1.5 degrees Celsius agreed in Paris.
In terms of U.S. stocks, under the favorable low-carbon oriented policy, the MSCI U.S. low-carbon responsible investment leader index continued to outperform the S & P 500 index in 2021. The MSCI U.S. low carbon index is based on the MSCI U.S. index, which includes large and medium-sized stocks in the U.S. market. The index selects companies with lower carbon exposure than the market and good performance in environmental, social and Governance (ESG). Looking forward to 2022, with the BBB plan expected to be implemented and favorable policies continued, the excess return of MSCI us low carbon responsible investment leader index is expected to continue.
From December 1, 2021 to December 29, 2021, the S & P 500 industry index rose and fell as follows: real estate rose 9.15%, energy rose 3.37%, finance rose 3.52%, information technology rose 4.55%, medical care rose 9.09%, materials rose 7.23%, communication equipment rose 3.66%, non essential consumption rose 0.35% and industry rose 5.17% Public utilities increased by 8.63% and essential consumption increased by 9.54%.
Risk tip: covid-19 virus mutation, vaccine failure, large outbreak of confirmed cases, leading to economic blockade
