How Biden is altering global energy landscape

On the day (January 20, 2021) President Joe Biden was sworn in as the 46th US President, he signed an executive order to return his country to the Paris Climate Accord which Donald Trump had pulled out of. This was just one of several executive orders he was to sign, that are directly and indirectly associated with advancing low carbon agenda which supports reduced production and use of coal, oil, and gas.

And with Secretary John Kerry as Biden’s special climate envoy, the US global climate visibility and action is now back.

During Trump’s four years political absence from the climate agenda, it was Europe and its corporate entities that mostly kept the climate message and action alive. China supported the low carbon agenda only to the extent that it supported China’s economic agenda of keeping pace with global energy technological advances.

Russia, Canada, and Australia seemed to focus on economic opportunities offered by their fossil fuel commodities, and only fulfilled the minimum requirements of the climate accord. Most of the rest of the world (including our Kenya) remained visibly ambivalent to the climate agenda.

It was the climate change lobby groups and activists that mostly maintained high visibility and pressure which they have continued to put on investors and financiers to reduce support for fossil fuel projects. And here in Kenya we witnessed the activist pressure terminally kill the Lamu coal power project.

The emergence of ESG (environment, social and governance) metrics as the new influences on business investments and stewardship, is contributing to climate change attention and action by corporates and their shareholders. ESG is expected to remain a major influence on future energy and related investments, directionally reducing high carbon activities.

Further, in the four years of US political absence from the climate platform, renewable energy and associated technologies have emerged as competitive business options of the future, attracting plenty of research and development capital on their own economic and technological merits.

Biden is therefore stepping into a world that is mostly ready for the next big environmental leap. In USA, he will essentially be riding on his proposed Covid-19 economic stimulus funding that plans to create many new jobs in areas that are mostly green.

And the readiest green project for Biden will be accelerated expansion of electric vehicles (EV) manufacture, and establishment of EV battery charging infrastructure across USA. The EVs are emerging as a major growth economic sector with strong stock market interest. Significant EV research and development funding is focusing on lower cost EV mass production to support increased market penetration.

To discourage increased US activity in new oil and gas, Biden has stopped licensing new oil and gas exploration in US federal lands, and the environmentally sensitive Alaskan Arctic regions. He has already cancelled the controversial Keystone XL pipeline project that was to transport crude oil from Canada to USA. Regulations on oilfield methane emissions will be tightened.

In real practice, Biden’s climate agenda will directionally result in reduced US oil production, reduced US oil exports, and increased oil imports. Reduced oil supply anywhere in the world will strengthen oil prices which have continued to sag under the weight of global oil over-supply.

The US big oil companies (the likes of ExxonMobil and Chevron) which had taken full advantage of Trump’s oil friendly policies, are now accepting the realities of Biden’s climate agenda, and are aligning their future business thinking and planning towards a world of reduced dependence on oil and gas. They will be joining their European counterparts (Total, BP, Shell, ENI) who are already implementing gradual transition to renewable energy.

However, with an evenly held Senate, Biden’s green agenda is expected to face tough political pushback from Republican oil and gas lobbies. The window of opportunity that Biden has is two years, until the 2022 mid-term congressional elections that could see a change in congressional balance of power.

For Kenya and the region, the Biden agenda will influence increased investments in renewable energy (geothermal, solar, wind, hydro) production and applications, while discouraging new oil and gas investments. USAID will likely increase focus and funding for low carbon initiatives and projects. This is also expected to be the general line of approach by multilateral and bilateral funding.