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Equipment at a fracking well in Culberson County, Texas.
Paul Ratje/AFP via Getty Images
Energy may represent a declining portion of the
S&P 500,
but it’s a big theme in the coming presidential election. The first debate on Tuesday night made that clear.
In some ways, the debate showed a classic Republican-Democratic split between the candidates: President Donald Trump opposes limits on fossil-fuel production and doesn’t accept the scientific consensus on the role of man-made emissions in climate change. Former vice president Joe Biden wants to quickly phase out the use of energy sources like coal and bet big on renewable energy.
For markets, the most important thing to watch was how Biden discussed the transition from fossil fuels to renewables. Early in his campaign, the former vice president wasn’t clear about his position on fracking, sometimes making it seem like he would ban it entirely. He’s since made it more clear that he would ban fracking only on federal lands, which makes up less than 10% of the land used for drilling in the U.S.
During the debate, Biden touted renewables but drew a hard line between his plan and plans pushed by Rep. Alexandria Ocasio-Cortez (D., N.Y.) and Sen. Bernie Sanders (Ind., Vt.), whose Green New Deal is more ambitious and far-reaching.
Some market observers called that good news for traditional energy companies.
“The one encouraging thing for markets may be that Joe Biden seemed to want to slightly tilt away from his base, separating himself from the Bernie Sanders health care plan and the Green New Deal,” wrote David Bahnsen, chief investment officer at the Bahnsen Group, an investment firm in based in Newport Beach, Calif., with $2.5 billion in assets under management.
That’s not to say a Biden presidency wouldn’t change the calculus in energy policy. It would still mark a dramatic shift and be a boon for solar- and wind-power companies in particular. Federal support for those technologies has been waning, with tax credits already starting to decline.
Biden said during the debate that wind and solar are now cheaper than fossil fuels, which isn’t entirely true. In many parts of the country, natural gas is still a cheaper source of electricity absent subsidies for renewables (though coal is generally more expensive than renewables). As for coal, Biden made one thing clear in the debate: “Nobody’s going to build another coal-fired plant in America,” he said.
That’s likely true even though Trump has rolled back restrictions on coal mining—including weakening rules on mercury emissions—in the hope that coal would come back. Natural gas is simply cheaper these days, and coal emits more pollution at a time when most states are trying to curb emissions.
In the Obama-Biden administration, both fossil fuels and renewables thrived. Some of this had to do with federal policy, but much of it was simply a factor of technology. U.S. companies used new fracking techniques to unlock billions of barrels of oil in areas that companies had previously thought were tapped out. Renewables were helped by federal subsidies, but were impacted even more by a plunge in the cost of solar panels and wind farms brought on by advances in technology—much of it in China.
That kind of win-win for fossil fuels and renewables is unlikely to be repeated, no matter who wins. The bigger issue in the industry is how quickly the transition happens to new energy sources.
Under Biden, it would likely accelerate, helping companies like solar installer
Sunrun
(ticker: RUN) and renewable-focused utility
NextEra Energy
(NEE). His plan to put 500,000 electric-vehicle charging stations on highways would help vehicle makers like
Tesla
(TSLA) and
General Motors (GM).
Under Trump, the transition would happen more slowly, offering support to fossil-fuel companies like
Continental Resources
(CLR),
Pioneer Natural Resources
(PXD), and
Halliburton
(HAL).
Write to Avi Salzman at avi.salzman@barrons.com
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Read More: Biden’s Energy Plan Isn’t a Green New Deal. Why That’s Good News for Oil Stocks.