The US Senate has approved a $3.5 trillion Budget plan that will cover climate change, health care and family-service programmes. What are the contours of the proposal as far as climate change is concerned and which sectors could possibly be impacted? CNBC-TV18’s Sonal Bhutra has more details.

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Senate Democrats announced in July that they would reach a Budget agreement envisioning spending an enormous $3.5 trillion over the coming decade, paving the way for their drive to pour federal resources into climate change, health care and family-service programmes, sought by President Joe Biden and now the first step has been taken and it has been approved by the Senate.

What is this proposal all about?

As there are many social aspects of the proposal, let us focus on the environmental aspects. The proposal included redirection of subsidies away from fossil fuels, tax on imports from high greenhouse gas emission countries, the clean energy requirement for utilities, clean energy standard and also the creation of the civilian climate corps, investments in renewable and new electrical systems and also tax credit for electric vehicles (EVs).

Now if it is executed the way it is intended, it will have an impact on different sectors/businesses and the economy. Jefferies has listed out the potential impact of this move by the democrats.

The Budget includes resources and support for several sectors. They expect the outsized impact on industrials as more utilities will move to renewables. Build-up and upgrade of the electrical system should provide another tailwind.

Autos should benefit as tax incentives for electric cars and trucks should support the faster replacement of the existing fleet. This should lead to higher revenues, as purchases will go up. Solar as renewable energy will see a big push.

On the other hand, sectors like metals and mining, oil and gas utilities could see an impact. For utilities, there could be cost implications, as to meet the clean energy standards utilities will have to invest capital in either equipment to capture and/or mitigate emissions. They will have to invest in new sources of electricity. Both may have a negative impact on free cash flows.

As utilities move to lower emission points, lower demand for coal could be seen. This could result in lower revenues for metals and mining. For oil and gas, a visible shift from fossil fuels will impact economies of scale and also there could be lesser subsidies for this sector, which could increase costs.

This is another major move towards climate change policy after the carbon border tax announcement by the EU. In days to come, we could see more and more such announcements/proposals by the countries to achieve a sustainable future.

Watch the video for more.

(Edited by : Bivekananda Biswas)

First Published:Aug 12, 2021 3:45 PM IST