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| Ed Zaelke |
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| Carl Fleming |
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| Seth Doughty |
Could another four years of the current administration reverse its gains altogether? How much is truly at stake with who sits in the White House?
A Tale of Two Approaches
The distinction the candidates drew at the final presidential debate — with Presidential Donald Trump advocating for fossil fuels and Democratic presidential nominee Joe Biden supporting a shift to renewables — is not new, but it did put a fresh spotlight on their stark differences.
Biden's platform includes a $2 trillion investment for a carbon-neutral power sector over the next four years, new fuel emissions standards, electric-vehicle charging infrastructure and the halving of building emissions by 2035. He also proposes investing $400 billion over 10 years on clean energy research and innovation to advance technologies.
By contrast, Trump has signaled he would largely continue to embed and extend his administration's policies from the past four years. Some of the most notable actions of the Trump administration have included support for the Keystone pipeline, withdrawal from the Paris Agreement, stocking the Federal Energy Regulatory Commission with pro-fossil fuel commissioners, the relaxation of methane release rules, and more than 100 separate environmental rollbacks.
At the same time, the administration put in place new obstacles for renewables and energy efficiency, including a 30% tariff imposed on imported solar panels in 2017, resulting in dramatically increased costs and significant delays in solar projects. The 2019 federal budget also reduced tax breaks for electric vehicles, and did not extend the renewable energy investment tax credit or the required in-service date for the production tax credit. Furthermore, the proposed budget for 2021 includes a 26% cut to the U.S. Environmental Protection Agency.
Public calendars of top officials at the U.S. Department of the Interior further underscore the administration's preferred focus: Between January 2017 and May 2019, meetings with leaders on fossil fuels outpaced those on renewables by 10 to 1.
Despite all of this, however, the renewable energy industry has shown remarkable grit.
The Resiliency of Renewables
In fact, wind, solar and other renewables have continued to grow steadily in recent years. Installed wind capacity has increased over 40% during the past three and a half years, and was estimated to be at 110 gigawatts by mid-2020 (up 82 gigawatts since the end of 2016).
The U.S. solar industry reported that as of the end of the second quarter of 2020, total U.S. solar installations had topped 85 gigawatts, up significantly from slightly over 40 gigawatts installed at the end of 2016. Overall, clean energy investment in the U.S. has grown over each of the past three and a half years, surging to a record of $55.5 billion in 2019.
So how did this happen? A number of factors have come into play, some of which, were even spurred by the administration's actions:
- The prospect of expiring tax credits under a second Trump term prompted a buying spree of renewable energy at locked-in lower rates.
- New and enhanced technologies across renewables are helping to drive down costs, increase efficiencies, improve predictability and make them easier to dispatch. Enhanced battery storage equipment, from companies such as Tesla Inc., have made wind and solar energy a better economic option over conventional energy.
- Heeding the demands of shareholder activists and consumers alike, many top global companies, including Walmart Inc., Amazon.com Inc., Google Inc. and Facebook Inc., have stepped up efforts to "go green." In 2019, for example, Amazon pledged to achieve carbon neutrality by 2040 — a full 10 years ahead of the Paris Agreement.
- State and local governments looking to combat climate change and create jobs have increased their mandate for utility companies to make renewable purchases. In fact, nine states have 100% renewable energy requirements by 2050.
- Overall use of fossil fuels has softened and, in some cases, steadily declined. Over the past decade, power from coal has fallen from 50% of the country's energy production to 30%. An aging coal fleet, increased costs and negative publicity have prompted numerous plant closures by larger utilities, such as AEP Energy Inc., Duke Energy Corp., Excel Energy Group and others. In many cases, these plants are being replaced by renewables.
In short, despite the various knocks, renewables have shown a remarkable capacity to thrive. As is often the case, market forces and public opinion and leanings can win out over government policy.
Thus, in answer to our initial question, all indications suggest that the renewable energy industry should continue to survive, and grow at a healthy pace, even with four more years of the current administration. The challenge for the industry, of course, is to position itself for rapid and significant growth under either administration.
The Best Case for Renewables Is Politically Agnostic
Indeed, the economics at play extend far beyond political partisanship. Environmental, social and governance investments readily attract new capital and, in many cases, outperform the market. Looking ahead, ESG asset managers remain bullish on returns, whether it be under Trump (some projecting 5% above benchmarks) or Biden (some predict 6% to 7% above benchmarks).
Renewable-focused companies, however, fully understand that strong economic performance, while necessary, is just a prerequisite to the much larger mandate. The destructive impact and cost of climate change are already affecting tens of millions of Americans and people around the globe.
With some scientists telling us we have only eight to 10 years to change course or suffer irreversible damage to our planet and future lifestyles, the industry needs to develop a bold strategy that can be embraced across the political spectrum. It's a daunting challenge, to be sure, but there are emerging examples of collaboration across the aisle.
In fact, two unprecedented and, notably, bipartisan reports were recently released that highlight the deep risks posed by climate change. The first is the U.S. Commodity Futures Trading Commission's climate subcommittee report, which states that climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy. The second is the National Climate Assessment warning that that the increased drought, flooding, storms and worsening wildfires caused by the warming planet could shrink the American economy by up to 10% by the end of the century.
Of course, the response to these harrowing forecasts isn't just to protect against the downside, it's to develop growth opportunities — and a large-scale, urgent focus on green energy can help do just this. According to the Global Commission on the Economy and Climate, the return of U.S. leadership to making a dramatic and immediate shift to expand renewable energy and eliminate power from fossil fuels could unlock more of the $26 trillion in economic benefits.
In particular, the International Energy Agency has deemed solar energy as "the new king of the world's electricity market." And Goldman Sachs projects that green hydrogen power may be a "once-in-a-lifetime opportunity" that could create a market value of $12 trillion by 2050.
A Winning Strategy Regardless of the Winner
While the outcome of this year's elections will have a deep impact on the renewable energy sector, it is also not the primary determinant for continued growth and success. Under either a Biden or a Trump scenario, this election presents an opportunity for the industry to work with the administration to promote the business case for a green economy.
Fortunately, the renewables industry has compelling facts upon which to rely in terms of job creation, opportunities for environmental equality, American manufacturing and the lessening of the costs of natural disasters. The industry just has to be prepared and committed to make this case to two very different audiences.
Update: This article has been updated to reflect that one of the authors is affiliated with the Biden campaign.
Ed Zaelke and Carl J. Fleming are partners, and Seth Doughty is an associate, at McDermott Will & Emery LLP.
Disclosure: Zaelke is a member of the Biden for President Clean Energy Transition Committee.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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