Now that the Democratic party has control of both the US Senate and House of Representatives, the way is paved for the world's largest economy to again be a leader in combatting climate change. New president Joe Biden can turn his Plan for Climate Change & Environmental Justice into law.

The political change allows the US to re-engage with the international climate diplomacy of the Paris Agreement, which the country formally left last year but which the Biden administration pledged to re-join on its first day in office.

Mr Biden's Plan for Climate Change, unveiled during his election campaign, pledges to achieve net-zero emissions by 2050 and invest USD2 trillion of over his first term. It covers clean energy, electric vehicles, agriculture and bio-diversity.

The Trump administration took several deregulatory steps on the environment that the new president may seek to overturn, but there are numerous other catalysts for nationwide decarbonisation, including the climate-change strategies of US states and cities. The political commitment may also spur US companies to innovate on areas such as low-carbon energy and transport or green-buildings.

We also now see transition in other sectors happening more quickly – including clean industry, supported by a nascent green-hydrogen economy, and broader protection for natural capital as support is given to more sustainable agriculture and land use.

However, we expect replacing coal in power generation to be a focus because the cost of building low-carbon power technologies has come down so dramatically they can compete.

In December, US Congress passed a bill that extends deadlines for developers of renewable energy projects to start construction in order to qualify for investment tax credits. The bill particularly favours offshore wind and solar and should support Mr Biden's agenda for decarbonising power generation rapidly. Any offshore-wind project whose construction begins before 2026 will qualify for the tax break but any project started since 2017 also now attracts a 30 per cent tax credit.

Deadlines for solar projects have been extended by two years. With rapidly falling solar prices, the tax support should ensure solar becomes the dominant renewable technology in the US. Deadlines for developers of fuel-cell, geothermal, biomass, incremental hydroelectric and other renewable energy projects have also been extended.

As the impacts of climate change worsen, we think popular pressure on leaders and decision-makers to take meaningful action will sharply increase. The socio-economic impacts of extreme weather events exacerbated by global warming are growing fast, so voters may increasingly seek a resilience-enhancing response to the climate crisis.

This could potentially lessen the partisan nature of US climate politics. Indeed, we believe there will be a trend towards consensus that the nation must face this crisis in solidarity.

The COVID-19 pandemic is yet to peak in the US and could sideline climate-change action in the first months of the Biden presidency, but we believe that change will now come. With federal momentum seemingly now assured and with local action across the country well under away, the coming years allow the US to address climate change domestically, and on the international stage.

First published 7 January 2021.

Would you like to find out more? Click here to read the full report (you must be a subscriber to HSBC Global Research).

Disclosure and disclaimer

More, collapsed
Join the conversation?

Join our Linkedin group to get an unparalleled view of macro and microeconomic events and trends from a bank that is a leader in both developed and emerging markets.