Biden win could boost carbon, REC markets

The use of environmental markets in the US could get a boost if former vice president Joe Biden prevails in today's presidential election.

The Democratic presidential nominee has called for the US to achieve net-zero greenhouse gas (GHG) emission by the middle of the century, with a focus on the electric and transportation sectors. Markets for GHG allowances, renewable energy certificates (RECs), and potentially even low-carbon fuel standard (LCFS) credits, could all contribute to federal policy goals.

Biden has not explicitly called for a national carbon price, but he has left the door open to the use of a policy like cap-and-trade, saying he wants Congress to enact an "enforcement mechanism" to achieve net-zero GHGs that would make polluters "bear the full cost" of their emissions. It would also include "clear, legally binding emissions reductions" and cover the entire US economy.

To meet his goal of a zero-emissions electric grid by 2035, Biden has proposed something akin to a national REC market in calling for setting a technology-neutral "energy efficiency and clean electricity standard" for utilities and grid operators. It would "scale up best practice" from state-level clean energy programs that use RECs or similar credits for compliance.

Biden has said his approach would include a role for zero-emissions power provided by existing nuclear and hydropower generators. Many of the current state renewable energy mandates do not grant RECs for compliance to either resource.

When it comes to fuels, Biden has not said much about what he plans to do with the federal Renewable Fuel Standard (RFS), but he has criticized President Donald Trump's administration's handling of the program and has called for a "doubling down" on ethanol and advanced biofuels in US policy.

At the same time, Biden has said the US needs to do more to promote low-carbon fuels in aviation and other sectors, and he has called for setting aggressive motor vehicle standards that would eventually require the sale of only zero-emission models.

A national LCFS credit trading program could help achieve all of those policy goals.

The RFS as written runs through 2022, after which the US Environmental Protection Agency (EPA) will take more authority over setting the program's biofuel blending mandates.

Biofuel industry supporters in Congress have signaled a desire to update the program before then, while Democrats in Capitol Hill have, to varying degrees, embraced the idea of an LCFS. Senate Democrats say a LCFS should be on the table, while their colleagues in the House of Representatives have more specifically called for transitioning the RFS into a national LCFS along the lines of California's program, which requires a 20pc reduction in the carbon intensity of transportation fuels by 2030.

While the focus in California is on on-road fuels like gasoline and diesel, and alternatives like biofuels and electricity, it also allows sustainable aviation fuel to generate compliance credits that can be sold to regulated fuel suppliers.

A Biden victory would lead to a complete reversal of US climate policy, four years after president Donald Trump's election did the same, especially if Democrats win control of the Senate today.

Senate Democratic leader Chuck Schumer (New York) has promised to make climate legislation a priority next year if his party prevails.

"If Democrats take back the Senate, I promise we will vote on bold legislation," he told the Renewable Energy Finance Forum-Wall Street conference in September.

But of the potential environmental markets that could arise in a Biden administration, carbon pricing may prove to be the most difficult lift. Democrats may come out of the elections with control of both chambers of Congress but likely well short of the 60 votes needed in the Senate to overcome any potential Republican filibusters.

But some supporters remain optimistic that it can be done, as demand for action is growing among voters and the private sector, which could lead to more Republican support.

"I have been surprised by how interested industry is in having something like pricing carbon," US senator Mike Braun (R-Indiana) said in September during the National Clean Energy Week conference.

But he also conceded that is a policy that "politically would be something that would take some time for my side to digest.

Braun suggested his proposal to encourage US farmers to enter the carbon offset market could be the "perfect bill" for bipartisan action by Congress next year.

Even if carbon pricing stalls at the federal level, a Biden administration is likely to allow states to expand the use of markets themselves by eliminating a number of roadblocks Trump's administration has attempted to place in the way of emissions trading.

Trump's administration repealed the Clean Power Plan promulgated under former president Barack Obama's administration, replacing it with the far-less ambitious Affordable Clean Energy rule. That measure

prohibits the use of emissions trading as a compliance mechanism.

The Justice Department under Trump has sought — so far unsuccessfully — to scuttle California's carbon market link with the Canadian province of Quebec.

A course reversal on those fronts would at least give market supporters some confidence that they can play a role in achieving the goals of US and state climate policy.

By Michael Ball