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U.S. President-elect Joe Biden will come to office in January with the most ambitious climate plan of any U.S. president in history. But investors and corporate executives are wondering how big an impact the Biden administration can actually have on global energy markets—including renewable energy, oil, and gas—if Republicans retain control of the Senate and the Democrats have a narrower majority in the House of Representatives. For answers, one should look not only to Biden’s domestic agenda but also to his foreign policy and choice of former U.S. Secretary of State John Kerry as his international climate envoy.

Given that Biden will be more constrained in passing new legislation if Republicans retain control of the Senate in the Georgia runoff elections on Jan. 5, he may lean even more heavily on areas where the executive branch has existing legislative or constitutional authority. Among the most significant is the conduct of foreign policy. Selecting someone of Kerry’s stature as climate envoy and giving that person cabinet rank and a seat on the National Security Council signal that the Biden administration intends to go far beyond just rejoining the Paris climate agreement to make climate change a top foreign-policy priority. The policy shifts that result—in areas as diverse as international trade, development finance, nonproliferation, and diplomacy—will do at least as much as his domestic agenda to shake up global energy markets and give a boost to clean energy firms and technologies.

First, Biden has promised to use the tools of trade policy to expand clean energy. The scale and pace of the transition required to meet climate goals will result in large increases in global shipments of clean energy technologies and products such as batteries, solar panels, critical minerals including lithium and cobalt, and eventually low-carbon fuels such as hydrogen. By elevating climate change as a trade concern and returning to trade norms weakened by the Trump administration, Biden can pursue bilateral and multilateral agreements that make government subsidies for clean energy companies and products more permissible under trade rules, while still combating China’s damaging practices. Climate change is likely to receive greater attention next year when Congress reauthorizes the Trade Promotion Authority, which sets parameters for the president’s negotiation of trade agreements.

Biden has promised to impose border tariffs on carbon-intensive imports from abroad. The European Union is already planning such a measure, and it would be preferable for the United States and Europe to cooperate rather than subject each other’s exports to tariffs. In the World Trade Organization (WTO), reforms to bolster clean energy might include allowing goods and services with lower carbon content to be treated more favorably even though they are alike in other respects, raising the bar or imposing delays (so-called peace clauses) before national climate measures that restrict trade can be challenged, and allowing greater state subsidies supporting lower carbon energy than permitted under current trade rules. Other possible trade agreement provisions could allow nations greater leeway for public procurement of clean energy technologies and the reduction of tariffs on clean energy products.

Second, no relationship is more consequential for global clean energy markets than that between the United States and China, which together are responsible for nearly half of global emissions. On the one hand, it will be critical to build on bilateral climate diplomacy begun under former U.S. President Barack Obama. China recently pledged to achieve carbon neutrality by 2060 while barely changing its 2030 targets, so a Biden administration can be expected to push China to deliver faster progress. A return to the trade norms of the WTO may also reduce trade frictions between the United States and China and lead to greater trade in energy and clean energy products.

On the other hand, there remain significant issues of contention in the U.S.-China trade relationship, including cybersecurity, intellectual property theft, unfair subsidies, and protectionism. Biden is also likely to confront China over political repression in Hong Kong and human rights abuses against Uighurs in Xinjiang. These issues may undermine trade, including that in energy technologies and products. Yet they may also spur greater U.S. innovation in clean energy as Washington increasingly works to protect the technological leadership of U.S. firms. The Biden administration will be more likely to match China with its own policies to promote certain industries seen to hold competitive and strategic advantages for the United States. Indeed, Biden’s pick for national security advisor, Jake Sullivan, argued last year for just such an approach toward China, pairing economic competition with cooperation on transnational threats such as climate change, global pandemics, nonproliferation, and military escalation.

Third, the Biden administration will have significant influence with multilateral finance institutions such as the World Bank and International Monetary Fund, as well as many regional development banks, to put climate change at the heart of development finance and encourage lending practices that promote low-carbon energy technologies and infrastructure. The United States is now able to bring much more to the table when it partners with other development finance institutions following bipartisan legislation in 2018 that created the U.S. International Development Finance Corporation (DFC). With the DFC, the U.S. government now has much greater leeway to make equity investments and loans, including in local currencies to riskier borrowers, which makes it easier to partner with other countries, multilateral development banks, and private investors.

Since energy is essential for economic development, the electricity sector is by far the largest recipient of loans from development finance institutions around the world. Development finance can also be an important source of U.S. soft power. Biden has consistently said he would “hold China accountable” for its global investments in coal projects through the Belt and Road Initiative. Doing so will require putting cleaner, yet still financially viable, options on the table for emerging-market countries as an alternative to Chinese investments. The newly empowered DFC is a powerful tool to deliver these alternatives, especially in concert with the development finance institutions of like-minded U.S. allies. By elevating climate change to a priority for DFC, a Biden administration can mitigate private sector investment barriers—such as long project timelines and local currency fluctuations—and help unlock the trillions of dollars of capital that will be needed for global clean energy investments.

Fourth, the Biden administration has pledged to fulfill the United States’ 2014 commitment to provide climate-related assistance to poor countries, of which $2 billion is still outstanding. The U.S. Treasury Department also has other tools of climate finance at its disposal, such as how it responds to the looming global debt crisis in the wake of COVID-19. Modeled on the debt-for-nature swaps of the 1980s and 1990s that linked debt relief to investments in biodiversity and reforestation, including debt-for-climate swaps in debt restructuring negotiations could drive investment into low-carbon energy, energy efficiency, or conservation of forests and other carbon sinks.

Fifth, the Biden administration has pledged a significant increase in research and development funding and multilateral collaboration on clean energy innovation. Innovation is key to achieving climate goals and attracts bipartisan support across a range of technologies such as renewables, advanced nuclear, and carbon capture. The International Energy Agency projects that to reach net-zero emissions by 2050, half of the cumulative emissions reductions will have to come from technologies that are not yet commercially available. A National Energy Innovation Mission, as recently proposed by scholars at Columbia University’s Center on Global Energy Policy, of which I am the director, would triple federal funding for energy innovation, not only in early stage research but also the deployment and commercialization of technologies. Through its climate diplomacy, the Biden administration can build R&D collaboration with other countries and speed up the development of new technologies by allowing countries with different skills and capabilities to share costs and expertise. Changing the cost profile of clean energy through innovation can speed the pace of transition in other countries and open new markets to clean energy firms.

Sixth, the U.S. nuclear and construction industries may get a boost under Biden. Scenarios for achieving a decarbonized global energy system by 2050 show that significantly more nuclear power is needed. Moreover, U.S. national security interests in nuclear nonproliferation argue in favor of rebuilding U.S. leadership in nuclear energy and strengthening nuclear cooperation agreements with other countries. At present, Russia and China have become the dominant global players in nuclear technology, giving them geopolitical influence to shape and influence the rules and norms in the sector.

Finally, the Biden administration is likely to go beyond negotiations over higher emission reduction targets after reentering the Paris climate agreement and also focus on implementation tools to achieve national commitments. Targets are important, but many nations are already falling short of meeting their initial Paris commitments, let alone higher ones. The Biden administration can use foreign and technical assistance, for example through the U.S. Agency for International Development and the national laboratories, to close the gap between ambition and reality. A key priority should be developing new financial tools, technological innovations, and economic diversification strategies to help China, India, and other countries where emissions are rapidly rising, not only to stop building new coal-fired power plants but also to phase down emissions from existing plants.

Biden’s impact on clean energy firms may be especially pronounced in the United States. That’s because underlying climate policy efforts will be a reeling domestic economy as the coronavirus pandemic continues, with unemployment at 7 to 8 percent and millions of Americans unable to pay their rent and other bills. Indeed, his domestic climate agenda is already aimed at putting Americans back to work. Given what is likely to be a divided government, foreign-policy tools that both curb emissions and spur job growth will thus be particularly appealing. That may strengthen the desire to invest in innovation; use export credits to assist strategic clean energy sectors such as battery storage; direct DFC funding to support U.S. businesses in energy technology, construction, or infrastructure that are competing for overseas investment opportunities (explicitly part of DFC’s mandate); or shape trade rules and competition with China to permit targeted U.S. support for strategic domestic sectors.

While the Biden administration’s impact on global energy markets will be significant for clean energy firms and technologies, it will affect oil and gas markets as well. Perhaps the most significant impact on these sectors would come from a return to the Iran nuclear agreement, which would result in large volumes of Iranian oil returning to an already oversupplied market as sanctions are lifted, thus depressing oil prices further, even if market optimism about getting the pandemic under control with the new vaccines would give commodities a boost. A Biden presidency increases the likelihood of further Russia sanctions that could also target energy companies. Concerns about deteriorating relations with Washington may also drive Riyadh and Moscow toward even stronger cooperation in OPEC+. Biden’s pledge to ban new oil and gas leasing on federal lands would affect domestic production over time as output from existing wells and leases gradually declines. At the same time, policies that curb U.S. gas flaring and methane leaks could make U.S. oil and gas exports more competitive in markets such as the European Union, where energy imports have to meet increasingly high environmental standards. Biden’s biggest impact on oil and gas will come over time as his ambitious efforts to achieve climate goals and promote deep decarbonization would curb the demand for hydrocarbons.

The Biden administration’s ability to drive ambitious climate action abroad is, of course, linked to its domestic agenda. Progress at home will enhance its credibility abroad and effect certain tools like border carbon adjustments. At the same time, domestic policies, even if limited by a divided Congress, can be amplified on the global stage through Biden’s authority in the international realm to use foreign policy tools to help deliver both clean-energy growth and domestic economic renewal. As a result, one of the Biden administration’s most enduring legacies in global energy markets may be how diplomacy and geoeconomic tools in international finance, development assistance, trade, and innovation will have brightened the outlook for clean energy and expanded opportunities for U.S. firms in the sector.

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How Biden’s Climate Plans Will Shake Up Global Energy Markets