Gilles Moëc, group chief economist at AXA Investment Managers comments on the overall outcome of COP27 and the prospects for climate change action in the US.
COP27 was disappointing: No additional emission reduction ambition has come up. The agreement on providing financial help to developing nations towards their transition is big on principles but light of actual commitments and dependent on yet another future deal. This semi-failure in Sharm-el-Sheikh could reflect a generic “transition fatigue” while governments are dealing with the pressing issues of the inflation shock and energy security.
The outcome of the US mid-term elections means that policy paralysis will likely define the remainder of Joe Biden’s mandate. His Inflation Reduction Act – in reality a Green Transition Act – could well be his last “big package”.
The re-emergence of a domestic oil and gas industry has made the US energetically independent. This produces significant economic benefits and will play in the hands of those who resist the transition in the US. Yet, the US is in a comfortable position to push ahead on decarbonisation. The potential for renewables is massive in the US, and while the EU needs to fund its transition while dealing with the brutal deterioration in the terms of trade triggered by the rise in energy costs, the US is not facing the same external shock while it can leverage its large oil and gas income stream to fund investment towards renewables.
Resources to deal with climate change are scarce everywhere, but they are less scarce in the US. Politics can get in the way, but maybe paradoxically we see the US energy independence as a potential asset for decarbonisation. The “will” may be debated, but the “way” is certainly there.
These comments come from AXA Investment mangers Macrocast.
