As the US re-enters the UN Paris Agreement, a challenge will be to collate the view at the federal and state government level around Net Zero, but it also has high levels of private sector finance and an incredibly active clean tech market.
Political will and public opinion
The US is the world’s second-largest producer of greenhouse gases. Following the election of President Joe Biden, on 19 February 2021, the country formally rejoined the UN Paris Agreement on climate change. In April 2021, Biden announced the US will aim to reduce emissions by at least 50 percent by 2030 compared with 2005 levels, on the way to reaching Net Zero by 2050.1
However, at a federal level progress will likely be slower in terms of regulatory mandates around Net Zero and aligning the full federal government, combined with widely varying attitudes from cities and states. “You have an important political dynamic developing in the US that will be imperative to the country’s ability to make progress towards Net Zero,” says Mikaela McQuade, Director, Energy, Climate and Resources, Eurasia Group. “Many cities and states are pushing forward with decarbonization plans in spite of federal policy uncertainty.”
While many individuals support green infrastructure in principle, these same individuals may oppose nearby projects which they believe would adversely impact their quality of life. However, it is a foregone conclusion that trends around electrification and renewables will continue in the US. Furthermore, many American businesses and consumers increasingly want to buy from suppliers that share their environmental values, contributing to the private sector becoming active on decarbonization. Adding to that impetus, the investor action on decarbonization and climate change has made further progress in the US. This can be seen through the scope and scale of companies setting Net Zero targets, as well as the high numbers of clean tech companies operating across all sectors of the US economy.
Regulation and private sector finance
Among US strengths are investors who are already putting large volumes of capital into projects that support decarbonization, green bonds and loans linked to sustainability. To meet shareholders’ expectations, companies are finding they are now expected to provide tangible evidence that they understand their emissions and are making progress towards cutting them.
“Due to the flows into ESG capital, increasing investor focus on ESG, and the emerging realization that climate risk directly represents financial risk in many sectors, the Securities and Exchange Commission will likely require greater disclosure of climate risk for public companies, and those requirements will take shape in the near term,” says Katherine Blue, IMPACT Advisory Leader, KPMG in the US. “Furthermore, the federal government in the Biden administration is expected to apply a philosophy of using the whole government to drive low-carbon technologies and green infrastructure, which will provide multiple levers through which Net Zero and decarbonization will be pursued. Lastly, the administration has a strong emphasis on climate justice as well, so ensuring that the energy transition does not disproportionately affect minority and under-represented communities in need.”
"Additional progress by state and local governments may continue to accelerate through other tax policies, renewable energy targets and other state requirements and incentives,” she adds. “Even without policy and regulatory drivers, the investor interest in ESG, and in particular climate risk and the importance of Net Zero will continue to be a long-term trend and something to which all sectors will need to evaluate and contribute solutions.”
Electricity and heat
The country is ranked 11th in the Index on the electricity and heat sector, which is responsible for more than a third of US emissions. In 2019, low-carbon generation including nuclear produced 38 percent of electricity and the rapidly dropping cost of wind and especially solar energy production are pushing this percentage upwards. Batteries also have a growing role as they become larger, more energy-dense and significantly cheaper, allowing already-produced renewable electricity to be used when it is needed rather than solely when it is generated. Development of tax incentives and policies that accelerate investment in carbon capture, utilization technologies and direct air capture combustion technologies will play an important role in decarbonizing parts of the energy sector.
For transport and industrial applications that cannot be directly electrified, switching away from legacy fossil fuels can help reduce emissions progressively, from natural gas and first-generation biofuels to green hydrogen produced with renewable electricity, as well as sustainably produced fuels, including next generation biofuels. US companies have helped pioneer the development and manufacture of electric vehicles and although electric vehicles currently make up 0.76 percent of overall stock compared with 1.38 percent in Germany and 1.73 percent in China, these numbers are expected to continue to grow rapidly as the cost of batteries continues to drop and more traditional vehicle manufacturers bring their electric vehicle solutions to market. Electrification will remain a substantial trend.
The US is ranked third in the Index on agriculture, land use and forestry due to a strong policy response to food waste and clean technology innovation, although this sector is responsible for just 7 percent of national emissions. American consumers prefer a high calorie diet which includes large volumes of meat and dairy, as well as fresh fruit and vegetables transported large distances to satisfy demand regardless of season. The food system also generates high levels of end-user waste. All of these issues will pose challenges in decarbonizing the sector.
Partner, Head of KPMG IMPACT
KPMG in the U.S.
IMPACT Advisory Leader
KPMG in the U.S.
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1 ‘Target aimed at creating good-paying union jobs and securing US leadership on clean energy technologies’, US White House, 22 April 2021. https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/22/fact-sheet-president-biden-sets-2030-greenhouse-gas-pollution-reduction-target-aimed-at-creating-good-paying-union-jobs-and-securing-u-s-leadership-on-clean-energy-technologies/