Legislation & Regulation

US Climate Policy May Alter Some US Corporate Business Models

Compliance cost will rise as a result but should be manageable

Fitch Ratings considers how these policies may effect credit profiles over time. Learn more here.

Fitch Ratings-Chicago-12 March 2021: Early executive orders signed by President Joseph Biden to tackle the effects of climate change are neutral to US auto, energy and utility issuer credit profiles, but the push toward a 100% clean energy economy and net-zero emissions by 2050 could alter business models over time, says Fitch Ratings. Directives outlined a focus on fuel economy standards, vehicle electrification, fossil fuel subsidies, methane emissions and the social cost of carbon.

The social cost of carbon metric change points to stricter climate regulation. Compliance cost will rise as a result but should be manageable. The auto industry is generally supportive of better fuel economy and has already been investing in electrification. Energy issuers’ ratings already incorporate medium-term effects of the transition to net-zero emissions. Climate policy has broad implications for the utility sector, with the transition to a zero-carbon grid by 2035 expected to be challenging but credit implications should be limited over the near-to-medium term.

The executive orders could be catalysts for regulation that drives business model changes in order to adapt to growing social and political concerns about environmental issues. The absence of a filibuster-proof congressional majority suggests that the energy sector may not reach its goal of full decarbonization by 2035 via federal legislation but increased movement toward this goal could still occur with additional executive orders and state and private sector initiatives.

Climate Policy Executive Orders – Summary of Select Directives