In the last two years, the US federal and state-level legislative climate change landscape has become broader, deeper and more complex. The current US administration is reinforcing the notion of low-carbon prosperity as a way of tackling the credit crisis and energy security issues, and this is set to strengthen renewable investment levels, despite the bleak economic outlook.
In the current economic downturn, one increasingly prominent train of thought argues that governments should climate-proof their economies by implementing long-term regulatory regimes as a core hedge to the economic downturn. Government priorities - such as security of energy supply and providing a 'green collar' economic stimulus - are contributing towards the notion of low-carbon prosperity as a way of tackling the credit crisis and energy security issues. Indeed, investors are only likely to crystallize the carbon opportunity if governments recognize the need to create the 'right' regulatory environment.
The fact that Shell and BP have very recently re-directed their renewable investment Stateside speaks very much to that effect and suggests that the US has taken decisive steps towards creating such an environment. Undeniably, the US climate change landscape is shifting as efforts get underway to underpin a market-driven cost of carbon while encouraging the development of renewable technologies. Against a backdrop of proliferating climate programs at the state level, the prospect of a US president signing federal legislation on climate change has never looked so good. As a result, markets are increasingly bullish on new US carbon contracts and expect strong demand for new contracts usable for federal carbon trading.
At the very least, the new US administration has publicly committed to engaging in international negotiations, having agreed to be part of the Bali Action Plan. The fact that President-elect Barack Obama has pledged $150 billion of investment to kick-start a renewable energy transformation in the US over the next 10 years - having only very recently announced his support for emissions cap-and-trade - is likely to have been well received by companies with a stake in renewables, including BP and Shell. Since May 2008, however, climate change and carbon sectors have lost some ground as the credit crisis correction started to set. Over-inflated valuations have since been revised downwards and are now delivering attractive valuations due to the strong regulatory environment. Given these signals, corporations in the US are likely to continue increasing their involvement with carbon - voluntarily and for compliance purposes - despite the tumultuous investment landscape.
Carbon skeptics would argue that the current positioning of the President-elect lacks critical detail in relation to the overall climate change policy that the nascent administration is extolling. However, in the 110th US Congress, more than 12 major pieces of legislation were debated that call for greenhouse gas emission (GHG) reductions, just as California established a comprehensive regulatory and market program for GHG emissions mitigation. Of these, seven propose an economy-wide emissions trading program. The Lieberman-Warner Climate Security Act of 2007 and the Low Carbon Economy Act received the most significant political support and represent an important milestone in US environmental regulation.
In the current context of volatile energy prices - which have become more prominent in discussions relating to the carbon question - and security of supply concerns, some renewables, particularly wind power generation, have moved closer to commercial parity in the US. All the while, climate change and carbon efficiency technologies have developed and broadened - particularly carbon capture and storage. While the US regulatory environment is perhaps less sophisticated and more fragmented than in Europe, the country's well-established culture of innovation will continue driving high levels of investment and development momentum by leveraging a resilient venture capital industry, the prospect of a new 'greener' US administration and strong existing state-level regulatory frameworks and incentives.