These are the best of times and worst of times for America’s climate change battle — at least judging from last week’s Aspen Ideas Festival in Colorado. The good news? The event was brimming with evidence that private-sector companies are battling global warming by using innovative new technology, financial tools and capital.
But the bad news was a plethora of evidence that America’s Republican party is trying to thwart green reforms. Read our piece today about the significance of Friday’s Supreme Court ruling, as outlined by Sarah Bloom Raskin — the law professor who was set to join the Federal Reserve until her candidacy was blocked by Republicans because of her green credentials. Meanwhile across the Atlantic, as Simon discusses below, the debate continues to swirl about what the war in Ukraine means for the continent’s energy transition. (Gillian Tett)
Supreme Court’s green ruling part of a dangerous backlash, says Raskin
When Joe Biden’s White House announced last year that it wanted Sarah Bloom Raskin to become the Federal Reserve governor in charge of financial stability, she seemed a shoo-in: Raskin has previously served as deputy Treasury secretary and a Fed governor — and on both occasions Congress confirmed her with strong bipartisan support.
Not this time. Raskin, a Duke University law professor married to a Democratic congressman, is an expert on green legislation (among other things) and keen to incorporate climate change analysis into central banking policy and financial regulation. This horrifies some Republicans, it seems. Thus, when her candidacy was submitted to Congress it was blocked.
So how does Raskin view the current state of green policymaking? Last week she spoke to me at the Aspen Ideas Festival — along with Michael Sheren, green policy adviser at the Bank of England — in her first general public appearance since her candidacy was blocked.
Their message was sobering: Raskin says that the current backlash against green policies is not just dangerous, but occurring on a scale that is shocking even longtime Washington insiders. One sign of this can be seen in the Supreme Court’s decision on Friday to curtail the Environmental Protection Agency’s ability to impose greenhouse gas emissions controls on the power plant sector. This makes it hard for America to meet its targets for reducing emissions, Raskin says, since the power plant sector is the second-biggest source of greenhouse gases. It may also prevent other agencies, such as the SEC, from introducing their own green reforms.
“This [Supreme Court decision] is going to limit the ability of the EPA to use policy tools to address climate change,” she said. “So going forward what must Congress do before any agency is allowed to pick up the baton [on climate change]? This is potentially a very broad ruling that could affect rulemaking that is in the works at other agencies.”
What is even more alarming, Raskin added, is that there are a host of under-the-radar anti-green legislative measures emerging at state level too. “In West Virginia and Texas there are state laws being proposed which would restrict investors from investing in so-called green or renewable assets,” she says. “There is a concerted effort by the fossil fuel industry to thwart the transition [to clean energy]. Here in the US there is a transition happening; we are seeing amazing investment solutions and technology. But we have a thwarting of these laws.”
This creates a challenge for financial companies across America, since it implies that green practices which are popular (if not mandatory) in jurisdictions such as California cannot be used in others. It also creates a transatlantic gulf between America and Europe, since the latter is embracing green policies at an accelerating speed. “This [Supreme Court ruling] is completely shocking,” said Sheren. “America is going further back than where we were 10 years ago [in the UK]. Even China is putting in the laws. America is an outlier.”
That will “put the United States at a great disadvantage along with its pension holders and investors,” Sheren said, since it means that American investors may not price the risks of climate change early enough to avoid future shocks. However, it also means that the onus will be on private sector companies, such as the big American asset managers, to push forward the green agenda — without government mandates.
Will they do this? It is still unclear. All eyes are on what entities such as BlackRock and State Street do next; and on the SEC and whether the Supreme Court’s ruling will now also be used by Republicans to thwart any effort to introduce green accounting. Brace yourselves for more dramas. (Gillian Tett)
Will the Ukraine war slow down Europe’s energy transition?
Since its launch 16 years ago, the UN-backed Principles for Responsible Investment initiative has brought on board well over 3,000 institutional investors, with $121tn under management. Its members have been steadily raising their game, as leading asset owners and managers set out increasingly ambitious plans to slash the carbon emissions linked with their investments.
But it will be impossible for them to achieve these goals if government policy moves in the wrong direction. Such concerns have been surging amid the energy market turmoil that has followed Russia’s invasion of Ukraine — especially in Europe, where governments have been easing up on some climate-related policies in response to the energy crunch. Will this crisis force Europe-focused investment managers to temper their talk of rapid decarbonisation?
It doesn’t have to be that way, according to a new paper from the PRI, which argues that “policymakers do not need to choose between addressing the present energy crisis and tackling climate change. They can do both.”
The paper focuses on the REPowerEU proposals published by the European Commission in May, setting out how it plans to slash Russian fossil fuel imports without sacrificing energy security. It welcomes the plan’s stated focus on “fast forwarding the clean transition” — but finds some areas of concern, which could complicate investors’ efforts to clean up their portfolios.
One of these is around gas infrastructure. In place of piped Russian gas, European politicians are eyeing a significant expansion of facilities to handle liquid natural gas imported from the US and elsewhere. The PRI analysts argue against costly investment in gas import infrastructure that will take years to build and could soon be left redundant as the energy transition progresses. Better, they say, to focus on accelerating progress on energy efficiency, and on green hydrogen production.
Carbon pricing, too, gets a prominent mention. It’s time to toughen the emissions-trading system for European power producers and heavy industry, the PRI says. The free allowances of carbon permits given to companies should be phased out — something that would provide a powerful financial incentive for some of the heaviest polluters to clean up their act. It could also, of course, leave them vulnerable to competition from carbon-belching foreign rivals — so such a move would need to go along with the swift introduction of a long-discussed carbon tax on imports to level the playing field.
It remains to be seen how far the carbon concerns of institutional investors will be taken into account by European politicians, who aim to confirm the details of the REPowerEU plan in the next six months. The implications for the continent’s energy transition — and for investors whose net zero goals are mixed up in it — will be felt for years to come. (Simon Mundy)
The FT’s Brooke Masters has an update on the flood of ESG-related shareholder proposals at US companies this year. The rate of support for such proposals fell to 33 per cent from 37 per cent in 2021, according to new analysis from The Conference Board and Esgauge.