The impact of the 2024 elections on the decarbonization theme is of paramount importance, considering that the year marks a significant electoral period globally with 64 countries and the European Union - representing nearly half of the global population - heading to the polls[1]. The US election stands out for its potential to shape future climate policy and the pursuit of decarbonization. On November 5th, US citizens will cast their votes to elect a new president, the entire House of Representatives, and one-third of the Senate.
The Biden administration has made notable strides in climate policy with the passage of the Inflation Reduction Act (IRA), aiming to reduce US greenhouse gas (GHG) emissions by 40% by 2030 compared to 2005 levels. This legislation, with an estimated budget of $400 billion[2], seeks to decarbonize and revitalize the US economy through regulations, tax incentives, and government support. However, the actual cost might exceed initial estimates due to the open-ended nature of the tax credits involved.
The potential for a full repeal of the IRA is low, yet the uncertainty surrounding its future impacts the decarbonization theme. The scenarios vary depending on the election outcomes:
- A Biden victory with Democratic control of the House would likely safeguard the IRA, possibly further extending regulatory support.
- Should Biden win with a divided Congress, the IRA would remain protected, though no additional legislation may be expected.
- A win by Trump with a divided Congress might not result in a complete IRA repeal but could lead to the US withdrawing from the Paris Agreement again - a process that would take four years. Republicans might also restrict the IRA by adjusting IRS regulations, making it harder to access tax benefits.
- A Republican trifecta -winning the presidency, retaining the House, and regaining the Senate- though currently deemed unlikely with a 30-35% chance by oddsmakers[3], would increase efforts to repeal the IRA.
Why a full repeal is unlikely
The difficulty of completely repealing significant legislation in the US makes a full reversal of the IRA improbable. Historical attempts, such as the failure to repeal Obamacare in 2017 and the inability to reverse Trump's tax cuts, illustrate the challenges involved.
The GOP has proposed the "Limit, Save, Grow Act" to curtail the IRA, yet this plan primarily seeks to limit rather than eliminate many of its provisions.
The clean energy money in IRA is going into red states and districts. Certain IRA perks even have Republican support: For example, the South Dakota Senator John Thune, the second-highest ranking GOP senator, is a strong advocate for biofuels.
Electric Vehicles tax credits are probably the most at risk given the ballooning cost and their political significance but the political consensus could change if the perception around EV moves to the competition against China.
Over the long term the economics matter more than policy
Despite Trump’s promise to bring back coal during his first presidency, the fuel’s percentage of US energy generation tumbled from 31% to 20%[4], its fastest decline in any one presidential term. Renewable energy’s share rose to 9% from 6%[5] at the same time and Republican-dominated Texas overtook California as the biggest renewable energy state.
Solar is now the cheapest source of electricity across the globe even without subsidies and battery costs have resumed their inexorable decline. At the end of the day, economics will drive the transition.
In summary, the 2024 US elections will influence the sentiment around the decarbonization theme, with various scenarios impacting the IRA's future and, by extension, US climate policy. Over the long term, the economics matter more than policy and the decline in green technologies costs should remain the main driver of the transition.
[1] Elections Around the World in 2024 | TIME
[2] What’s in the Inflation Reduction Act (IRA) of 2022 | McKinsey
[3] 270toWin - 2024 Presidential Election Interactive Map
[4] Bloomberg
[5] Bloomberg
