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Climate economics and the U.S. election

Leon Saunders Calvert
Leon Saunders Calvert
Head of Sustainable Finance, Lipper and I&A Insights

Joe Biden’s inauguration as president of the United States is expected to result in significant changes in U.S. policy decisions on sustainability — with implications for investors. Refinitiv and Fathom Consulting analyze the future of climate economics, including trends in carbon emissions and decarbonization.


  1. Joe Biden is expected to re-enter the U.S. into the Paris Agreement and may instigate a carbon border tax.
  2. Emerging economies have a large stake in decarbonization should a carbon emissions export tax comes to pass.
  3. There are still huge potential pitfalls in decarbonization, including penalizing emerging economies unfairly, encouraging protectionism, and reducing global trade.

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A recent webinar sponsored by Fathom and Refinitiv focused on the major policy decisions that could be made assuming a Biden win (which has now happened), and their impact on climate economics.

The year of COVID-19 has been an interesting social experiment in sustainability, because we suddenly have an example of what it looks like to do a lot less in our lives. By the end of the year, carbon emissions will be down by about 5 percent due to COVID-19 restrictions.

The implications are striking, because the Paris Agreement essentially calls for reducing carbon emissions by 7 percent each year for the next 10 years. Just doing less, even doing less in an untenable way, is not going to get the world where it needs to be.

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What’s the future for climate economics?

We need mass mobilization of financial markets for the purposes of R&D, real investments in solutions that decarbonize on a mass scale — transport, energy etc. Individual behaviors alone can’t solve the problems.

Global CO2 emissions. Climate economics and the U.S. election

Policy plays an extremely large role. It helps make dirty energy more expensive and make clean energy cheaper. It helps to subsidize, promote financing to the right places, and promote different approaches and new technologies.

We are coming out of the biggest global recession of all time, demonstrating that the climate answer is not de-growth but decarbonization.

The impact of Joe Biden on climate economics

Joe Biden, when he takes office, will have a great effect on the opportunities and challenges ahead, and is expected to take a more proactive stance on climate policy than his predecessor. He has appointed former Secretary of State John Kerry as climate envoy.

The Trump administration formally submitted its desire to leave the Paris Agreement (although 25 U.S. states never left, despite Trump’s federal policy). However, Biden has said the U.S. will immediately re-join the agreement.

Listen to the podcast: The Paris Agreement & International Climate Cooperation: What’s Next?

The U.S. is the second-largest emitter of CO2 after China. However, the U.S. is also a leader in cutting emissions, so its global climate leadership is vital.

U.S. CO@ emissions. Climate economics and the U.S. election

The global stock of carbon emissions, which actually drives global warming, is an international problem. Burning fossil fuel results in carbon emissions that exist for a long time, so the stock of carbon emissions needs to stop growing.

Globally, emissions need to fall faster than they have risen to keep warming to ‘safe’ levels — requiring big changes to economic structures, starting with the way energy is produced. Instead of burning fossil fuels, renewable forms of energy are preferred.

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How are investors adapting to the changes?

Investors are starting to take this trend seriously, anticipating regulations requiring changes to our energy mix. In 2020, global renewable stocks as tracked by the World Renewable Energy Index have significantly outperformed the MSCI Oil, Gas and Fuels Index.

World renewable energy index. Climate economics and the U.S. election

However, there remains a huge gap between what is required to mitigate climate change and what has been formally pledged by the countries that signed the Paris Agreement.

The EU, UK, Canada, South Korea and Japan have all pledged to get to net zero carbon emissions by the middle of this century — and China by 2060.

The question is: will others follow suit? Public opinion is shifting, suggesting further climate action is likely, even in the U.S., where CO2 emissions have been on a downward trend since 2006.

Biden has pledged to get the U.S. to net zero by 2050, and has pledged a $2 trillion climate package to be invested in initiatives that reduce carbon emissions.

The western European countries and North America have partly reduced their carbon emissions over the last few years because they have outsourced them to emerging markets.

This enables those developed countries to look good but doesn’t actually help the overall emissions story globally, as the heavy industry and energy production processes are typically more carbon intensive in emerging economies. So, on a global basis, this exporting of emissions has a negative effect.

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Carbon border taxes

Biden has talked of the possibility of carbon border taxes. There’s no enforcement mechanism in the Paris Agreement, so tariffs on imports from countries not meeting climate goals would coerce them to be more ambition in this area. The EU is discussing something similar.

This could have very significant effects on carbon emissions — exporters of carbon intensive products will have to pay a tax on exporting those goods and services to the U.S. (and possibly the EU).

Exports to the U.S. and CO2 emissions

This would create a massive incentive for emerging markets whose economies are very dependent on exports to adopt low-carbon technology and energy production practices in order to avoid paying extensive carbon taxes.

There are potential pitfalls that need to be managed — penalizing emerging economies unfairly who are busily trying to grow their economies, encouraging protectionism, and reducing global trade as these barriers are erected, etc.

This could also be a greater source of U.S.-China tensions, but NAFTA partners Canada and Mexico could end up adopting a Biden plan.

These trends mean that Refinitiv data can be used in new ways, at the macro-level, to talk from an important and new angle about the issue of sustainable finance and the policy implications of national governments and international bodies.

Register for Fathoms next Climate focused webinar: ‘The economics of climate change, net zero and what should be done’

Refinitiv Datastream is a financial time series database that allows you to identify and examine trends, generate and test ideas, and develop viewpoints on the market


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