Going for the green diagonal

Original Content: AXA IM

Key points

• We look at an understated aspect of the US administration’s green conversion, the role of the federal regulatory agencies, in the context of the US attempt to assert global leadership in the fight against climate change.

The US administration’s green investment plan is spectacular and understandably grabs global attention, but we think a more discrete thread of US activism in the fight against climate change deserves some attention: federal regulatory agencies are stepping up their efforts in embracing green issues. The legal ramifications of their approach are often complex, but it can be an effective accelerator of the ecological transition in the US.
The EPA is reconsidering a petition to include CO2 emissions in the scope of the National Ambient Air Quality Standards framework, which would force all 50 states to design a carbon strategy, with penalties in case of non-attainment, without the need of congressional action. In practice, it could be a cumbersome approach and may not be the simplest way to advance the fight against climate change in the US, but it may convince moderate Democratic and Republican Senators to reach a compromise with the White House on the green investment plan. At the same time, the SEC is stepping up its efforts in the field of green finance regulation, an area in which the US has traditionally been a laggard.
Joe Biden has convened a meeting of 40 heads of government this week to build momentum ahead of COP26. The US clearly wants to assert some leadership on the green transition. They probably see China as their main competitor on this, as on many other issues, after Beijing’s unexpected pledge last year to reach net zero by 2060. However, on the regulatory aspects, and especially on green finance, the real competitor may well be the European Union. The EU is ahead, but the US clearly want to catch up fast. An issue, in terms of collective welfare, is whether some harmonization towards a common benchmark will be possible to build.
Also, this week we look at the progress in the European vaccination programme, exploring some of the supply constraints ahead. We continue to think that ensuring collective immunity at the beginning of Q3 will be difficult and provide some quantification of the tourism crash of last summer.