The Year of the Climate Election

A bipartisan path forward for US energy policy is possible—but accurate greenhouse gas emissions measurement and reporting will be an important first step.

Energy Transition Themes in Global Elections

After the hottest year on record in 2023, it is both timely and imperative that 2024 is shaping up as the year of the climate election. As of publication, 57 of the 73 national elections occurring in 2024 have been held, and over 1.5 billion ballots have been cast. From the European Union (EU), the UK, and France to India and Southeast Asia, climate change has emerged as a key voter issue up and down ballots.

Across the globe, issues of climate policy and regulation are coalescing around familiar themes, such as questions over carbon border adjustment mechanisms (CBAM), emissions reductions targets, net-zero timelines, energy security, investment in renewable energy and clean power, and the economics and equity of energy transition policies. The outcomes of these critical decision points will influence the direction and speed of global climate ambitions for years to come.

With the US elections merely days away, it is difficult to imagine a sharper contrast in energy and climate policy choices than the one facing American voters on November 5. Battle lines have been drawn between the potential administrations across numerous issue areas, each of which has the potential to (re)define the trajectory of the US energy transition.

These partisan extremes would seem to suggest a seismic and irreconcilable gap, but the political polarization presents a false dichotomy on energy policy and climate change that obscures pragmatic data- and economics-driven climate solutions that build upon the emerging consensus of a “silent center.”

The political polarization presents a false dichotomy on energy policy and climate change that obscures pragmatic data- and economics-driven climate solutions that build upon the emerging consensus of a “silent center.”

The Silent Center

A January 2024 Pew Research Center study suggests that just 12 percent of Republicans and Republican-leaning independents see climate change as a top priority for the president and Congress, compared to 59 percent of Democrats and Democratic-leaning independents. However, there is far more common ground when it comes to specific climate policy proposals.

 

The 2023 Yale Climate Opinion Map also suggests a growing base of support for energy transition measures, with 74 percent of Americans supporting the regulation of CO2 as a pollutant and 68 percent supporting requiring fossil fuel companies to pay a carbon tax.

However, support for climate change policies comes at a cost. It is entangled with deep-rooted concerns regarding energy prices and inflation, particularly among Republicans. Indeed, 65 percent of Republicans believe that reducing energy production from fossil fuel sources and increasing production from renewable sources would increase the price to heat and cool their homes. Only 22 percent of Democrats hold this view, and 53 percent of Democrats believe that prices will improve.

The difference between these entrenched viewpoints may be one of timescale. Society is faced with managing an energy transition that is inherently expensive today with the promise of cheap and abundant renewable energy in the future. In 2021, we estimated that achieving net-zero power generation would increase the levelized wholesale cost of electricity generation from 2021 to 2035, but that fossil fuel cost savings over the long term would grow to far exceed energy transition investments. A more recent study by McKinsey confirms that levelized system costs of electricity may rise as much as 2.2 percent per year from 2024 to 2030, but that by 2050 the average generation cost is projected to decline, which could reduce the system cost of electricity in some cases. Moreover, upfront capital expenditures are expected to produce operational savings in the long run due to reduced fuel consumption, improved material and energy efficiency, and lower maintenance costs.

A Path Forward

Regardless of the outcome of the US and other global elections, the critical practical question will be how, over time, we manage the heavily front-loaded cost of the energy transition (a challenge for which there is no precedent for the sheer magnitude of clean energy investment that must occur) and build upon the emerging consensus around climate change measures on both sides of the aisle.

Recently introduced US legislation suggests one bipartisan route to managing the energy transition involves linking climate and trade policy through greenhouse gas (GHG) pricing, fees, and/or carbon taxes and tariffs (e.g., last year’s “Prove It Act,” which would lay the groundwork for a tax on high-emission imports). Such measures have gained increasing attention, perhaps partly in reaction to the EU introducing its own CBAM last year.

While most economists agree that a carbon tax is the most economically efficient way to curb a country’s carbon emissions, the precise design of such a tax is the subject of intense debate. Various proposals have focused on CBAMs, as opposed to taxing only domestic production or imported goods. This is because a carbon tax solely on domestic production would be vulnerable to carbon leakage (i.e., domestic producers would simply move their operations to jurisdictions with less-stringent climate policies); and, equally, a carbon tariff on imported products without a domestic carbon price would likely contravene World Trade Organization (WTO) rules regarding equal treatment of domestic and foreign-produced goods. In theory, a well-designed CBAM achieves tax and trade neutrality between goods produced domestically and those produced abroad.

Because a CBAM may increase consumer prices, implementing a carbon tax when inflation is already high is not without its challenges. The latest research suggests that carbon pricing will create inflationary pressures in the short term but that these effects will be modest and will decrease over time. Inflationary impacts could also be mitigated through proactive fiscal policy and redistribution of carbon tax revenue to vulnerable households and firms.

Pragmatically, any linkage of climate and trade policy would require rigorous and transparent measurement of emissions intensity of both imported and domestically produced goods. This will also be required as a growing number of regulations, incentives, and environmental, social, and governance–related disclosure requirements push companies to abate GHG emissions and/or choose cleaner supplies. As such, accurate lifecycle analysis of full supply chain GHG emissions is an imperative first step to navigating the energy transition.