Andrew Obin, a managing director for equity research, begs to differ. He believes the US economy will continue to decarbonize no matter who is elected in November. In February, Mr. Obin spoke at ARC Advisory Group’s Industry Leadership Forum in Orlando. A central theme of the conference was energy transition and industrial sustainability.
One reason for this is that public companies care about these issues. They must. According to Bank of America research, climate is the top reason why shareholders vote for proxies. A proxy allows an investor to vote without being physically present at the annual shareholder’s meeting. Shareholders are giving their proxies to parties they do care deeply about climate issues.
BofA global equity research also suggests that US public companies will spend an extra $2.4 trillion over the next five years over what they were previously going to invest to meet net-zero targets. The energy sector will invest the most. It is projected to spend nearly $500 billion in extra capex during this time period.
Industrial policy is part of the reason for these surges in investment. Before the Inflation Reduction Act and other pieces of legislation were passed, the US spent 0.4% of its GDP on industrial policy. It is now up to 0.8%, the highest among all Western economies. This stimulus peaks in 2026, but it will continue through 2031.
Further, while the new legislation creates roughly $400 billion in subsidies, it creates $1 trillion in tax incentives!
In the Energy sector, net zero can not be achieved without carbon capture and storage. The Inflation Reduction Act creates carbon capture tax credits that are worth $85 per ton of captured carbon. For CF Industries’ Donaldsonville Ammonia Production facility, these credits mean that a $200 million investment in carbon capture will lead to $100 million in benefits per year. And those benefits will continue for many years.
In short, the subsidies and tax credits create real opportunities for some of the industries most responsible for the increase in carbon in the atmosphere.
However, the Inflation Reduction Act was passed without a single Republican vote in 2022. If Trump’s election also leads to a Republican majority in Congress, what will stop Congress from dismantling this bill?
Jobs in the energy sector are primarily in the red states. The new carbon capture plants will create construction jobs, which will also be primarily in red states. It is one thing for Republicans to vote against the Inflation Reduction Act. It is quite another for these representatives to take jobs and investments out of their constituencies. “This legislation was cleverly designed,” Mr. Obin said. Many of the red state benefits are designed to be sticky. Republicans will not be able to kill tax subsidies.”
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