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In a dramatic change from President Trump’s policies, Biden’s Build Back Better campaign policies are the most expansive U.S. climate plan in history, with a headline figure of $2 trillion in new investment. Biden has also promised a return to the Paris Agreement and to the global negotiating table on climate change. But what impact will the Biden Administration have on climate finance—the flow of public and private sources of financing that address climate change—and the overall transition needed to a more resilient economy?

Without Democratic control of the Senate (which hinges on two run-off elections in Georgia set for January 5), it will be challenging to pass sweeping climate legislation. However, even if many of Biden’s biggest pledges are left on the campaign drawing board, the incoming administration still has powerful tools to accelerate investment. These include policy incentives and frameworks, tougher rules and regulations for private finance, and using the U.S.’ sizeable influence on the international stage. Even without comprehensive legislative change, the impact on climate finance is likely to be dramatic.

Administrative action to drive domestic low-carbon finance

While the federal government makes up a small portion of overall climate finance—nine in every ten dollars in annual climate investment that originate and stay in the U.S. are private investments according to CPI’s Global Landscape of Climate Finance—its policies, subsidies, and price signals play a massive role in investors’ decisions. Therefore, the federal government can have a significant impact by catalyzing domestic private investment. Low-carbon energy and transport are sure targets, as they account for a majority of U.S. greenhouse gas emissions.

One likely area of administrative action that does not involve passing new legislation is significant policy changes at the EPA. Biden’s EPA will almost certainly impose stronger corporate average fuel economy (CAFE) standards, leveraging the trend of rising household spending on electric vehicles (EVs), which has spiked in recent years. Household spending on EVs would grow even faster if stricter CAFE requirements drove a move toward more, and more affordable, EV models. As household and corporate EV purchases increase, investments in facilitating infrastructure will become more attractive.

Another potential lever is to renew the EPA’s focus on regulating power sector emissions.

The EPA is likely to impose (or re-impose) various restrictions on fracking on public land, methane emissions from gas production, and fly ash disposal practices at coal power plants. Increased regulation of natural gas production may be an area of particular focus, as effective decarbonization of the power system will require a halt to financing for new natural gas plants.  Without a price on carbon, these regulatory steps are the best bet for addressing negative externalities associated with fossil fuel investments.

Expanding regulations could also accelerate market pressures that already favor clean energy. Private investment in renewable energy capacity and advanced renewable energy technologies could gain momentum, as levelized costs of renewable energy and advanced renewable energy technologies continue to fall and utilities aggressively expand their renewables portfolios in response.

The Biden Administration is also likely to revamp the Department of Transportation’s grant-making priorities. Under Trump, USDOT expanded funding for roads and highways while delaying approval of $1.4 billion in grants for urban transit systems. Biden’s climate plan indicates the future Administration’s intention to expand the flow of federal funding for public transit projects, and also highlights flexible grant funding that cities can use for sustainable infrastructure.

A noted train enthusiast, “Amtrak Joe” is also likely to push for expanded passenger rail service as well as expedited permitting for infrastructure projects benefiting both passenger and freight rail like bridges, tunnels, and track replacement. Increased federal transportation spending is expected for intercity rail in addition to commuter and rapid transit systems, while streamlined permits for private projects like the Texas high-speed rail venture could boost private-sector finance for low-carbon transport.

Tax credits

Regardless of who controls the Senate in 2021, one significant legislative move that could come to the fore early is a new or revised clean energy tax credit scheme. The Production Tax Credit (PTC) and Investment Tax Credit (ITC) provide tax breaks for wind power output and solar construction expenditures, respectively. Both the PTC and ITC have been instrumental in driving massive deployment of utility-scale renewables over the past two decades, with utility-scale solar and wind each receiving over $225 billion in private investment since 2004, adding a combined 148 gigawatts of renewable capacity and hundreds of thousands of jobs. As solar and wind are now providing electricity at record low prices, these aggressive tax credits, which are scheduled to expire by the end of 2020 and 2022, can be retired.

However, the successful and bipartisan PTC and ITC experience could be a model for new tax credit legislation to support the next generation of clean technologies and strategies, including long-duration energy storage, EV charging infrastructure, long-range transmission projects, grid modernization, and advanced energy efficiency programs. These technologies represent key pieces of the enabling infrastructure required to achieve a fully decarbonized domestic electricity sector. The market opportunity is huge: Through 2030, incremental U.S. transmission and distribution needs alone are projected to be up to $9 billion per year, with an estimated additional $200-$600 billion total required from 2030-2050.

Even without major legislation, the federal government can fast-track low-carbon energy investments by offering long-term incentives, like tax credits or refunds, streamlining permits, and increasing federal R&D budgets for ARPA-E and other agencies working to develop and mainstream these enabling technologies.

Domestic climate adaptation finance

Another likely priority for the incoming Administration will be financing adaptation and resilience to the effects of climate change. Climate change is expected to cause $271 billion of excess costs in the United States by 2025 through hurricanes, property damage, heatwaves, and droughts. The longer adaptation investments are put off, the more expensive disaster relief will be.

There is no unified U.S. approach to economic and environmental resilience. The U.S.’ current investments in adaptation are scarce, accounting for $1.4 billion on average in 2017/18 (2% of total U.S. climate finance), primarily through local government investments, like the recent  DC Water Bond and San Francisco’s stormwater management bond.

If the federal government provides funding to state and local governments to cover COVID-induced budget shortfalls, perhaps through programs like the Community Development Financial Institutions Fund, state and local governments will have more latitude to focus on longer-term problems. For example, New York State’s $3 billion Restore Mother Nature Bond Act, which would provide finance for flood infrastructure and habitat restoration, was delayed for a year due to budget concerns.

Financial system sustainability

In addition to carrots and sticks pointed at the real economy, the Biden Administration will likely seek to accelerate financial sector progress toward understanding and accounting for climate risk.

Without legislation, the Administration’s best tool to accelerate the shift to a more resilient economy is to increase climate risk disclosure. This transparency would give investors and policy-makers a clearer sense of the economy’s weaknesses, clarifying the path that companies and financial institutions need to follow to reduce climate risk and meet climate targets. Private actors have already taken some small steps, for example ending new financing for activity which causes more emissions. However, there is further to go – for instance, major U.S. banks are still the biggest providers of loans to the fossil fuel industry.

The regulatory backdrop is shifting: The Federal Reserve has recently started to acknowledge the risk that climate change poses to financial stability in the U.S., and called for increased climate risk disclosure. Biden’s proposed nominee for Treasury Secretary is Janet Yellen, the former Fed governor and one of the founding members of the Climate Leadership Council, a cross-industry group. Yellen could lean on the Federal Reserve to move towards climate stress-tests for banks, as the Bank of England has been planning, and on the Securities and Exchange Commission to make sure corporations’ financial reporting is in line with recommendations of the Task Force for Climate-Related Financial Disclosures, which Biden pledged during his campaign. A number of U.S.-based companies already adhere to these guidelines voluntarily. Biden could also use appointments to the Fed and the SEC to advance this agenda in both institutions.

International impacts

Even with the onset of the COVID-19 pandemic and the subsequent delay of the UN climate talks (COP26), many countries have announced stricter carbon-neutral goals, including China, Japan, Korea, and the EU. Biden’s victory adds to this momentum and, should the U.S. update its own targets, removes convenient cover for laggards in the international community. The task is steep: Meeting the IPCC’s 1.5 degree Celsius target would require at least a three-fold increase in annual climate finance worldwide in the energy system alone, and that is already the sector with the most climate finance. The U.S. only accounts for 13% of global climate finance, so pushing other countries to commit to and act on stronger goals is crucial to accelerate climate finance worldwide. COVID-19 recovery packages, such as those enacted in the European Union and South Korea, have the potential to drive public and private climate finance to levels much higher than those seen previously.

126 countries representing almost half of global greenhouse gas emissions have already announced their intention to make their Nationally Determined Contributions more ambitious. The full climate finance impact of a U.S. return to climate diplomacy is hard to project, but countries strengthening their ambition may have a snowball effect. Tougher pledges raise the standard for genuine action and set a benchmark against which to hold governments accountable, in addition to giving private actors the message that the low-carbon transition is full speed ahead. The best place to start would be to make COP26 a success in November 2021 and send a powerful signal of intent to public and private actors everywhere.

Through these actions and many more opportunities working independently through the executive branch or in conjunction with Congress, the Biden Administration has an opportunity to accelerate positive trends in climate finance and to re-establish the United States as a global leader of the low-carbon, resilient economic transformation.

This post originally appeared on the Green Finance Platform.

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