Although as of this writing, the 2020 election is still being disputed, Joe Biden’s team has already moved forward with a transition team.
One of the top items on the agenda is green energy and climate change. Leading that part of the agenda as the (assumed) administration’s climate czar is former Secretary of State John Kerry. A Biden administration sees this item as so important, there has even been discussion of formally creating a Cabinet-level position specifically to oversee U.S. climate-change policy.
While there were some conflicting comments during the campaign over whether Biden would move to ban fracking in the U.S., the full scope of the administration’s environmental policy is far more sweeping than just fracking. For that reason, investors should take note.
The Biden plan aims for the U.S. to transition from fossil-fuel-based energy to “green,” or renewable, energies. That would involve a 30% reduction in fossil fuel emissions by 2030, and a 100% renewable energy strategy by 2050.
Biden’s camp has estimated that Phase I of its energy transition plan would cost about $2 trillion over 10 years. It’s tactfully tried to spin it as a net economic expansion that will grow jobs. Of course, even if it is a net-positive growth story, it will still cause economic destruction for the people and businesses the plan adversely affects.
New research from BloombergNEF estimates a total net investment requirement of about $20 trillion over the next 30 years. And that’s just investment in new energy-generation plants, new energy grid components, consumer/commercial charging stations for vehicles, massive energy storage and battery systems, and so on.
The group also estimates significantly higher net energy costs per household and for businesses, with the average household paying as much as 233% higher net energy costs to power/heat an average home. The average business could see net energy costs increase by as much as 300%.
Such costs are that much higher because the infrastructure costs to support 100% renewable energies from a grid perspective are a lot higher than for fossil-fuel-based energy production. Most notably, the cost of storing the energy produced by renewables such as wind, solar, and sea-based hydroelectric, all of which have wildly variable energy production per hour compared to gas, coal, and oil.
Wind power works only when the wind blows. The sun shines only part of the day, and there are fewer daylight hours in winter than in summer. Waves and ocean action also vary based on tides, storms, and other difficult-to-predict factors.
Conversely, a natural gas or coal-based power plant can burn more fuel to generate more energy upon demand. When demand is lower, it can simply burn less, removing the need to store produced energy.
So either taxpayers (if it’s government-funded investment into these technologies and infrastructure upgrades) or consumers buying electricity will bear the costs of “green energy.” Either way, someone will have to cover those costs.
The Heartland Institute, another think tank analyzing the potential costs of a transition to 100% renewables, estimates the infrastructure Biden’s plan requires to move to renewables would also consume vast resources of iron, steel, rare-earth minerals, copper, and other raw materials.
It says this hasn’t been factored into production costs and timelines. Not to mention the cost of such commodities could rise significantly due to increased demand. Furthermore, there is the environmental impact of using those resources, and how that squares with the ideals of the so-called Green New Deal.
Perhaps we’re getting ahead of ourselves. But if you’re a long-term investor looking to read the tea leaves for how Biden’s policies might impact major U.S. sectors, his energy plan and environmental policies are certainly worth keeping an eye on.
If what the Biden team promised during the campaign were to actually happen, energy costs would most certainly go up by multiples compared to today. And it would impact numerous U.S. industries, costing some sectors hundreds of thousands of jobs. Not to mention the cost to U.S. households each year.
Given that this year saw total carbon emissions fall globally by as much as 17% compared to 2019, and that average global temperatures haven’t gone down but instead have gone up, many question the wisdom of rushing headlong into a net-zero-emissions strategy. That’s especially so given the size and scope of the costs – costs that would be larger than the entire U.S. GDP for last year.
In short, investors should take note. There no doubt will be a continued shift towards more green energy. Already, nearly one-fifth of U.S. energy consumption relies on nuclear and renewable fuels. That will increase. The question is by how much and how quickly.
It’s one thing to identify an opportunity. It’s quite another to back the right “horse.” It’s an investment opportunity we’ll continue to watch closely.