Republican Senate may temper Biden’s green agenda

The ‘green revolution’ remains a priority for Joe Biden, but a divided government may slow down progress in the move away from oil.

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  1. Garry White

Although it is not yet settled, Republicans will probably keep their Senate majority. This means the most radical parts of the Democrat’s eco-agenda will have trouble becoming law. There will be relentless partisan wrangling ahead.

Two mega-themes that will dominate investors’ asset-allocation decisions over the next few years are the ‘digital’ and ‘green’ revolutions. The first of these is now unstoppable, the second has hit what could be regarded as a significant bump in the road.

The Covid-19 crisis accelerated technological uptake by formerly tech-resistant people. The retired who were stuck in isolation were forced to understand and use digital services such as Zoom and Amazon. This resulted in the addressable market for digital services increasing significantly – the market is now much bigger.

But the US green revolution may hit a slow-moving traffic jam on Pennsylvania Avenue. At the time of writing, the Republicans are near-certain to retain the Senate. This will result in a divided government that will often hamstring President Biden’s agenda. The degree to which a president has control of Congress often determines their political might. For any radical agenda involving major changes in the law and changes to ordinary American’s lives, a divided government will make progress much more difficult – and achievements fewer.

Mr Biden committed $2 trillion to be spent over the next four years to turbocharge climate policy as part of his campaign pledges. He argued that this would drag the economy out of the pandemic-induced doldrums at the same time as futureproofing US economic infrastructure. None of this is now a certainty.

For US energy policy, a shift away from carbon is a historic moment and major milestone in the history of a country that was arguably built on a foundation of oil. But, of course, the oil industry is will not take this attack on its existence lying down. With Republicans directing power in the Senate, Washington’s oil lobbyists have some real allies to watch out for their backs and ensure a green revolution becomes more of a ‘green evolution’.

During campaigning, Mr Biden argued that directing investment in the economic recovery towards green endeavours will tackle the US’s second-rate and crumbling infrastructure, making it fit for the economy of tomorrow – create jobs in the process.

The long-standing Republican mantra ‘drill baby, drill’ highlights the close links between the Grand Old Party and America’s oilmen. Mr Trump's re-election campaign’s fundraising efforts brought in at least $1.9m from donors in the oil & gas industry until the end of August this year, two months before the end of campaigning. That’s according to the Center for Responsive Politics' analysis which looked at Federal Election Commission data on donations. In the 2016 election, the Trump campaign received $1.2m from the industry in the entire electoral cycle.

Nevertheless, there is still going to be a permanent shift away from carbon-intensive fuel into wind, solar, geothermal, hydrogen and other new technologies that will improve the air we breathe. The rest of the world’s major economies are accelerating their plans to achieve this, but the overall rate of progress will be tempered by the US political fight.

The European Union’s (EU) ‘Green Deal’ grandly claims it will transform the bloc from its current status as a high-carbon economy into a leader of a cleaner future. It aims to use some EU money earmarked for job creation to encourage a sustainable, green shift. But the administrative super tanker that is the EU will take time to allocate and spend this money – and there will be arguments aplenty in the process. China has also recently introduced a net-zero carbon target – and the UK has had one for some time.

The green revolution is certainly happening, but this American election has impacted the rate of change. The result is likely to reduce demands to implement the radical new agenda from some Democrats, as its mandate is clearly lower than the party hierarchy hoped. It will embolden Republicans from the oil-rich states to use the Senate to block and filibuster – and is a cast-iron guarantee of partisan gridlock in many – if not most – issues on Capitol Hill.

Advocates of the green agenda will be disappointed – but this is likely to be one of the best possible outcomes for markets. Shares in oil companies rose as it became clear any policy changes will now be slow and probably watered down. There’s also been a lot of politics driving markets over the last few years, so the inability of politicians to act in a radical manner has been taken as a positive. The US political gridlock may provide almost as much relief for general investors everywhere, as it does for the fancy-boot wearing oil barons on the far side of the Atlantic.    

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