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21 April 2021

America’s race to net zero

Does Joe Biden’s climate plan go far enough? 

By Adam Tooze

On 22-23 April the Biden administration is hosting a global climate summit to mark Earth Day, named after the largest ever environmental demonstration, staged in the United States 51 years ago. As Joe Biden nears the end of his first 100 days in office, the summit celebrates the re-entry of the US into global climate politics and is a key test for a government that has defined the environmental crisis as central to its programme.

It is also an important shift in focus. So far, the Biden administration’s agenda has been dominated by disaster management. Efforts have been devoted to rolling out the vaccine bequeathed by Donald Trump’s Operation Warp Speed and delivering a third, huge round of fiscal relief to American firms and households. Ahead of the climate talks, the president has to deliver something more long term: a credible commitment to cutting at least 50 per cent of emissions by 2030 and to achieving net zero by 2050.

The crisis-fighting has worked. After a slow start, the vaccine roll-out has been impressive, transforming America’s outlook on the virus. The $1.9trn Covid relief bill was forced through Congress on 11 March against unified Republican opposition. On top of the previous rounds of economic relief, it adds up to the largest fiscal package in history – sized at more than 25 per cent of GDP. Provoking fierce criticism from Clinton-era veterans such as Larry Summers, it represents a sharp break with the fiscal orthodoxy defined by the Clinton and Obama administrations.

[See also: Leader: A man of action]

So decisive is this break that it has encouraged talk of a new age of “Bidenomics”. At the level of economics, this is motivated by a fundamental revaluation of the risk of too much spending leading to the economy “overheating” and inflation. But it is also based on the realisation that the greatest threat to liberal democracy in the US is not macroeconomic instability, but social polarisation and Republican politics. If the Democrats are to steer the US away from the abyss, they must not lose the midterm elections in 2022 as Obama did in 2010 and Clinton did in 1994.

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The double shock of Trump’s election and Covid-19 has driven centrist politicians like Biden and technocrats including the Treasury Secretary Janet Yellen to take a leap on economic policy. For the Biden team to propel the global transition to clean energy, it must make a similar leap on climate policy. The administration needs to break not only with Trump’s climate denialism, fossil fuel enthusiasm and culture war politics, but with the climate legacy of the Obama and Clinton eras as well.

That is a big ask. After all, the Democrats have for a long time been America’s party of climate. The Clinton administration helped to negotiate the original Kyoto accords in 1997, the first international treaty committing participant states to binding targets on tackling climate change. Al Gore was the anointed climate president, but was robbed of victory by the Supreme Court in 2000. The Obama administration pumped money into the US’s solar energy industry and brokered the 2015 Paris agreement.

But it was also Obama’s administration, hemmed in by a Republican Congress, that defined the limits of the Paris accord as little more than the aggregate of more or less adequate national plans. Obama’s own energy policy was dominated not by renewables but by the market power of fracked gas – the “cleanest” of the fossil fuels. Given that gas is so much cheaper, even Trump was not able to turn the country back on to coal, but the US now has a large pool of gas assets – fracking wells, pipelines, power plants and associated petrochemical industries – for which there can be no long-term use if it is to meet ambitious emissions targets.

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With sights now set on net zero by 2050, there is no longer any room for fudges. The Biden administration needs to change the direction of energy policy radically, from Obama’s “all of the above” to a systematic exit from fossil fuels. It needs to find both economic and technical solutions to make a green energy system viable.

But it also needs to win the political argument. While the technological uncertainties and economic obstacles of planning for a net-zero future are universal, America’s distinctive problem is the political question of commitment. Decarbonisation is a long-term business. But there is nothing close to a consensus in US politics on the need for action. As serious as the Biden administration may be about tackling the climate crisis, its power to deliver on this depends on having the votes in Congress, a balance that might shift in the 2022 midterms, or in 2024, or in 2026, and so on. Without broader societal agreement, each US election will be a heart-stopping moment of potential derailment.

In every advanced economy there are economic interests opposed to deep, rapid decarbonisation, including those of businesses, consumers and some labour unions. The US is unique among advanced economies, however, in having one of its two governing parties committed to outright climate denial, and a large part of the public with it. Unless this can be changed, America will remain a fundamentally unreliable partner in the effort to halt global heating.

***

On one count, at least, the Biden administration’s climate policy has clearly drawn lessons from the failures of the Clinton and Obama presidencies. The policy instrument that most economists agree is essential for comprehensive decarbonisation of the US economy is left off the agenda in 2021: carbon pricing – imposing a cost on emissions sufficient to incentivise polluters to reduce, or eradicate, their carbon footprint.

This omission is one of history’s ironies. At the very beginning of global climate politics, in the late 1980s, it was the US’s Environmental Defense Fund (EDF) that persuaded then president George HW Bush to adopt cap and trade – a system for allocating the right to emit through permits, which can be bought and sold – as the most effective way to drive down emissions. The model was reluctantly taken up in Europe in 2005, when, with help from EDF, the EU set up the Emissions Trading Scheme (ETS). Today, rising prices in the ETS are beginning to apply real pressure to large polluters in Europe. China is following the European lead and introducing its own carbon pricing system.

In the US, carbon pricing was on the agendas of both the Clinton and Obama administrations – in Clinton’s case, through carbon taxation, in Obama’s, through cap and trade. Both had majorities in Congress, but in both cases, when it came to the final agonising battles that accompany every major piece of legislation in the US, the majorities evaporated.

These defeats have scarred the US climate movement. One of the striking absences in the Green New Deal Resolution introduced by Congressional Democrats Alexandria Ocasio-Cortez and Ed Markey in 2019 is carbon pricing, which has come to be regarded as a neoliberal placebo rather than an effective policy. A state-level scheme operates in California but it is deeply unpopular among the Democratic Party left, who view it as a discriminatory and regressive mechanism that gives pollution permits to corporations and the rich.

Experts insist that if the revenue raised by carbon pricing were reallocated to lower- income households it could be a tool of positive redistribution, but the Biden team despairs of brokering such a complicated deal. The carbon prices necessary to make a real difference would be exorbitant, especially from a standing start. Unlike in Europe, not even petrol is taxed heavily in the US; the last thing the Biden administration needs is a gilet jaunes-style movement.

[See also: Why Joe Biden’s Afghanistan withdrawal doesn’t mark the end of America’s “forever war”]

But without some kind of carbon pricing scheme, what is the mechanism for driving fossil fuels out of the system? Instead of using prices to incentivise polluters to reduce fossil fuel consumption and to shift supply to cleaner energy sources, the Biden administration’s first actions have centred on regulations and the carbon pricing standards used in internal calculations by government agencies.

This is not new. It was the method used during Obama’s second term after the Supreme Court gave the Environmental Protection Agency the right to oversee carbon emissions. It is fragile, because it is subject to court challenge, but it is a first step towards the Biden administration’s aim of achieving a carbon-free electricity system by 2035.

Clean energy technologies are already maturing fast but, given America’s huge energy consumption, it is a demanding goal. Shifting from gas and coal to variable solar and wind requires a vast amount of extra capacity, as well as a new cross-country transmission system to ensure clean power gets from the states with plenty of wind and sun in the centre of the US, to the coastal conurbations that need it most. The growth in demand will be compounded by the need to shift transport and domestic and industrial heating to electricity, too.

***

Where will the investment come from? On 31 March the Biden administration gave the answer in the form of the $2trn American Jobs Plan – the second, after the $1.9trn stimulus, of three major programmes being rolled out by the government. The third will be a family plan aimed at improving the US’s miserably inadequate childcare system.

The Jobs Plan was announced with much fanfare as a three-pronged investment in addressing the ills of American society – from inequality and unemployment to crumbling infrastructure – as well as the challenge posed by China’s autocracy and the climate crisis. Working through dozens of sub-programmes, one has to admire the ingenuity of its construction: covering everything from care for the elderly to laboratory funding at historically black colleges, it is a Rubik’s Cube of intersectionality.

But for all the admirable sophistication of its targeting, there is one outstanding and all-important question: is the investment programme big enough, and will it actually reduce emissions? The $2trn headline sounds impressive. Totting up the various promises made in the initial announcement, one can even arrive at a figure closer to $2.7trn. But the grand total matters less than the timing. Unlike the Coronavirus Aid, Relief and Economic Security (Cares) Act – the first $2.2trn Covid-19 relief stimulus, unleashed at the end of March 2020 – and Biden’s $1.9trn Relief Act, both of which were designed to be disbursed in a matter of months, this infrastructure programme is spread over eight years.

At a generous estimate, half of the $2trn to $2.7trn is devoted to tackling the climate crisis. Spreading $1trn to $1.3trn over eight years comes to around 0.5 per cent of current GDP annually. That is far short of any reasonable estimate of the investment needed for decarbonisation. The Bernie Sanders camp, backed by the writer and activist Bill McKibben’s 350.org campaign, wanted $16.3trn. The Thrive Act proposal supported by groups associated with the Green New Deal is asking for $10trn, with 80 per cent focused on the climate.

The size of those proposed schemes reflects the unprecedented scale of the challenge. But unlike the US’s fiscal response to Covid-19, which delivered trillions of dollars in stimulus cheques and pay-cheque protection schemes to households in the face of a historic shock, the Biden infrastructure programme, for all its clever politics, dispenses its funding in dribs and drabs.

When you break down the items included in the package, its true modesty becomes clear. On passenger railway transport – an area in which the US lags far behind China and other advanced economies – the Jobs Plan proposes $10bn per annum over eight years. That, as the fine print states, should allow America to “address Amtrak’s repair backlog; modernise the high-traffic Northeast Corridor; improve existing corridors and connect new city pairs”. It will no doubt create good jobs. What it will not do is catapult the US into an age of high-speed rail travel to match that pioneered by Japan and China. The latter currently has 19,000 miles of high-speed track; America boasts 500 miles.

It is indicative of the lack of transformative ambition that the proposed spending on electric cars is larger than that targeted at public transport. Car culture, one of the symbolic essentials of the American way of life, is clearly non-negotiable. A total of $174bn is allocated to the electric vehicle sector, including spending on the motor industry, purchase subsidies and car-charging infrastructure.

The programme expects to build 500,000 charging ports by 2030. By the same date, Germany aims for one million and China at least three million. The last time the numbers were compared, Americans completed five times as many vehicle miles per annum as Germans. There will be tax incentives for the purchases of new electric vehicles, but there is nothing in the plan for getting the internal combustion fleet off the road. In 2020 there were around 287 million registered vehicles in the US, practically all of which need to be retired as soon as possible, which is why the Sanders-McKibben plan allocated $2trn of its $17trn to a giant “cash for clunkers” programme.

Every day a wheezing fleet of diesel- powered yellow school buses carries 25 million children to school. It is one of the rites of passage of American childhood. Collectively, these pupils travel four billion miles every year, belching diesel fumes all the way. The Biden administration proudly announces it will electrify 20 per cent of them by 2030. What of the rest?

***

The American Jobs Plan is not a paradigm-busting vision. That impression is confirmed when we consider the funding side. It is significant, in fact, that the Jobs Plan has a funding component at all – the Relief and Cares Acts did not, other than to simply borrow the money. By contrast, the Jobs Plan is tied directly to revenue raising. It is covered by what Washington jargon refers to as “pay-fors” – offsets or savings from other government programmes.

Viewed within the narrative of Bidenomics, which supposedly marks the dawn of a new era, this is puzzling. On the basis of America’s fiscal track record in recent decades of running up a succession of huge deficits with no adverse consequences, it is hard to see how anyone can argue for the need to balance taxes and spending. If there is such a thing as Bidenomics, it is an outlook founded precisely on the rejection of that equation: spend what is necessary to get the US economy to full speed, worry about finances later.

But you don’t need to be any kind of radical to think financing an investment programme with debt makes sense. That’s how any business or household with good credit does it. Borrow now and pay later, as the investment pays off. But that’s not how the Biden administration is selling the investment programme. After the initial surge of unfunded relief spending, it is now linking investment to revenue, and the logic is not economic but political.

The centrist Democrat Joe Manchin, elected incongruously in the Trump country of West Virginia, is digging his heels in. He demands “pay-fors”, so the social justice technocrats of the Biden administration have come up with a plan: link the long-term investments of the infrastructure programme to the right kind of tax increases; restore America’s corporate tax rates to their pre-Trump levels. One can see the progressive logic in this: taxes are clearly a key tool for influencing income and wealth distribution. But given the furious lobby fight that such tax increases will entail, the effect has been to limit the overall size of the investment package. If the top priority is to drive forward the energy transition with maximum speed and minimal resistance, raising corporate taxes – which is bound to face howls of protest from big business – is not advisable.

The original Green New Deal vision had it right. Spend at the scale demanded by the climate emergency, take care of the funding when the macroeconomic balance dictates it. If large deficits produce inflationary pressure, that can be contained by raising interest rates or by raising taxes to withdraw income and demand. Don’t make the level of your climate spending dependent on how much revenue you can raise, however progressive the proposed taxes may be.

Most plans for a rapid energy transition suggest that getting to net zero by 2050 will involve investment of 5 to 7 per cent of GDP per year. Only somewhere between a quarter and a third of that, 1 to 2 per cent of GDP, needs to be additional investment – the rest has to be diverted urgently from further investments in fossil fuel systems. As Jörg Haas, of the German Green Party, likes to say, we need to floor the accelerator and slam on the brake at the same time, as you do when you’re hurling a high-speed rally car around a sharp corner. In terms of investment, the Biden plan gently squeezes the accelerator. Without a steep increase in carbon prices, there is no market incentive to cut fossil fuel investment. Other than through regulations, it is not clear how the Biden administration proposes to turn this corner.

***

How, then, to make sense of the modest dimensions of the Biden administration’s climate plan? One explanation is the assumption that America, and American business in particular, is headed in the right direction in any case. This is paradoxical given the dramatic rhetoric that the programme is dressed up in. But it perhaps expresses a rather deep conviction running through Biden’s team as a whole. The situation may be dire, the Trump crisis was terrifying, but America is a fundamentally benign and dynamic society that God smiles on. Patriotic voluntarism is the basso continuo of the entire Biden administration: “There is nothing we can’t do when we do it together.”

This is perhaps most manifest with regard to science and technology. The Jobs Plan proposes to allocate much funding to universities; but the core promise on clean energy R&D is to invest $35bn “in the full range of solutions needed to achieve technology breakthroughs that address the climate crisis and position America as the global leader in clean energy technology and clean energy jobs”. This sum, $35bn, is less than Americans spend annually on pet food and will be spread over eight years. Either you don’t dare ask for more, or you underestimate the scale of the technological challenge and believe that “the full range of solutions” needed for the US to make these breakthroughs and become a global leader will be as easy as buying dog treats.

But there may be another assumption built into the Jobs Plan: that the federal government’s investment programme is just the start. There will indeed be more money from elsewhere. Government funds will be multiplied by private finance. Brian Deese, widely credited as the brains behind the programme and the anchor of climate policy on the Biden economics team, spent his furlough out of government at BlackRock. Perhaps that is what we should have in mind when we read that, “President Biden believes that the market-based shift toward clean energy presents enormous opportunities for the development of new markets and new industries.”

[See also: Can Joe Biden’s climate summit keep global warming below 1.5°C?]

That is the mantra of environmentally and socially responsible investment – an opportunity to create markets. And, as so often in finance, it is based on multiplier logic. A modest injection of capital enables the creation of multiples in credit. Green banks have been adopted by several progressive states; this is not an American peculiarity. The EU is not shy about assuming multipliers of as much as ten to boost the predicted investment impact of its programmes.

Perhaps that is the assumption behind the idea tucked into the Biden plan for a “$27bn Clean Energy and Sustainability Accelerator” – business school jargon for a consultancy that helps firms develop bankable projects and access credit – “to mobilise private investment into distributed energy resources; retrofits of residential, commercial and municipal buildings; and clean transportation”. But those lines about market-based transitions are not front and centre in the Jobs Plan. They are buried in sections about “underserved” rural communities. It is nothing like the Cares act in March 2020, which headlined a giant lending facility notionally backstopped by the Federal Reserve’s balance sheet. The Clean Energy and Sustainability Accelerator is stowed in the fine print. If this is the Green New Deal recast in the image of BlackRock, it is a far cry from the bold vision of the original.

***

By contrast to the resolution and scale of the response to Covid-19, and for all the high-flown rhetoric about meeting historic challenges, Biden’s climate programme appears hobbled by constraints, lacking in focus and inadequate in ambition. And this is before the Jobs Plan has even been submitted to the gruelling process of Congressional bargaining. It is not inconceivable that the debate could swing the other way – recently, stimulus bills have grown rather than shrunk in their passage through Congress. The left is struggling to ramp the plan up. But with the centrists refusing to yield and business preparing for battle on taxation, it will be tough to rescue anything even as substantial as the $2trn investment plan.

How should the rest of the world, and Europe in particular, respond to this American drama? Clearly, it is good news to be meeting in Washington, DC to discuss the climate crisis. But the political struggle in the US for a consensual, broad-based push for decarbonisation has yet to be won. And the country bears the scars of its own history, most notably on carbon pricing. There is no reason to doubt the sincerity of the Biden team. But America’s limitations should not set the direction or pace for the rest of the world. Contrary to Biden’s voluntarist credo, America is in fact fundamentally constrained. If the leadership the US aspires to in climate matters is to amount to anything, it should start by recognising that.

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This article appears in the 21 Apr 2021 issue of the New Statesman, The unlikely radical