How SEC's new rule will make disclosures more -- and less -- reliable
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The annual checkup on Earth’s carbon cycle, called the Global Carbon Budget, shows CO₂ emissions from fossil fuels rose again in 2023 to reach new record levels. Above, a visualization from NASA’s Earth Observatory shows the flow of CO₂ into, around and out of Earth’s atmosphere based on most recent data.
By far the most interesting take on the Securities and Exchange Commission’s climbdown on climate disclosures this week came from former acting Commissioner Allison Herren Lee, who said that the new rules could lead to more greenwashing by companies, not less.
Lee, speaking as a private attorney for Kohn, Kohn & Colapinto after leaving the SEC in 2022, said the decision not to include Scope 3 reporting in supply chain emissions means companies can avoid reporting “the bulk” of their emissions.
“It paves the way for greenwashing which, in capital markets, is just shorthand for a very bad outcome: mis-priced risk and misallocation of capital,” she said.
SEC Chair Gary Gensler did his best to dance around the climbdown on a call with journalists after the commissioners voted along party lines 3-2 to pass the new rule Wednesday, noting that the 886-page rule elicited the most comment from the public and businesses of any the SEC had considered. More than 24,000 comment letters were submitted in the two years since the securities regulator had initially proposed the rules, including 8,100 in the past three days. No doubt the expected lawsuits won’t be far behind.
But for all the controversy, the SEC has at last enshrined into securities law that companies will be required to disclose climate risk. They will have extra time, as the new rule requires they disclose the previous year’s risks by the end of the second quarter of the following year, instead of the first. But they will have to disclose.
And those disclosures will be materially more accurate — under threat of investigation — than the press releases and marketing campaigns we’ve all become used to and which have led to the muddle of debate about whether climate risk is even a risk.
The U.S. is now aligned with the rest of the world on climate disclosure. Better late than never. Bring on the reports.
Don’t forget to contact me directly if you have suggestions or ideas at dcallaway@callawayclimateinsights.com.
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Mark Hulbert: For electricity, the price is wrong
. . . . Everywhere we turn this year, we’re hearing about soaring capacity of renewable electricity coming from wind and solar energy — and yet stock prices of the renewable companies remain in the tank. How come? Mark Hulbert, citing a new book about the challenges of climate finance, argues that investors are misreading the value of lower renewable prices compared to fossil fuels. Instead, it is return on investment that utility customers value most, and that in this case fossil fuels still clearly come out on top. . . .
Thursday’s subscriber insights
Asia’s new superpower: PV solar
. . . . Plummeting costs for utility-scale PV solar has beaten coal power to emerge as the cheapest power source in the Asia-Pacific region, says a new report from Wood Mackenzie. The cost of electricity generated from renewable sources, known as the levelized cost of electricity, is declining significantly and reached an all-time low in 2023, according to Wood Mackenzie’s latest analysis of LCOE for the Asia Pacific region. The decline is making renewable energy increasingly competitive with conventional low-cost coal power, driven by a significant reduction in capital costs for renewable power, the report says. Renewable energy costs in 2023 were 13% cheaper than conventional coal and are expected to be 32% cheaper by 2030.
China is leading the way in lowering the cost of renewables, with utility PV, onshore wind, and offshore wind being 40 to 70% cheaper compared to other Asia Pacific markets. China will maintain a 50% cost advantage for renewables out to 2050, allowing the country to maintain its lead in renewables deployments, the report says.
But the news isn’t sunny all over. “This trend has made distributed solar increasingly attractive for end-users in many markets in Asia Pacific, with costs already 30% below rising residential tariffs in China and Australia. However, some markets like India with subsidized residential power tariffs will need to wait until 2030 or later to achieve competitive distributed solar prices,” said Sooraj Narayan, a senior research analyst at Wood Mackenzie. The report also notes that cost expectations for green hydrogen and ammonia technologies have nearly doubled since last year, making them significantly more expensive than conventional coal and gas power even out to 2050.
But there’s another energetic forecast from the report: Onshore wind in the Asia-Pacific region is expected to become cheaper than coal after 2025.
JPMorgan and Exxon part ways on climate resolutions
. . . . In the pantheon of evil climate villains often cited by environmental advocates, banks are usually right up there with fossil fuel companies. After all, they are the ones doing the financing of the oil and gas projects. So it was interesting to see this proxy season how two of the biggest examples from such industries handled the threat of shareholder action.
JPMorgan JPM 0.00%↑ this week agreed with three New York pension funds to disclose its ratio of clean energy investment to fossil fuel finance, to provide investors (and advocates) with an idea just how much it may or may not be moving in the direction of a climate transition to clean energy. The agreement reportedly headed off resolutions that had already been filed against most Wall Street banks this proxy season.
For its part, Exxon Mobil XOM 0.00%↑ sued a financial firm last month ahead of an expected climate proxy to keep it off annual meeting agenda, adopting a hardball approach to what it claims are continuing nuisance suits from environmental advocates.
How JPMorgan chooses to show its newfound transparency remains to be seen, but we’d expect that CEO Jamie Dimon wouldn’t have agreed to the deal if he didn’t think the nation’s largest bank had good news to share. We expect others to follow. . . .
The next great financial crisis — uninsured homes
. . . . Shout out to Bloomberg News and reporters Leslie Kaufman, Saijel Kishan and Nadia Lopez for a fabulous special report this week on the potential hidden costs of individual states stepping in as insurers of last resort when large insurance companies pull out of the homeowner business because of threats from fire and flood.
In a piece headlined “Uncovered: A Hidden Crisis in U.S. Housing,” the journalists detail how insurers pulling coverage has led to a six-fold increase in insurance burdens on several states in the past five years, with more than $1 trillion in exposure. It specifically cites Florida and California, which have the most exposure in their state plans, though they claim they are adequately funded.
Whenever a big financial crisis breaks, many in the media and in Washington are quick to publicly wonder where the watchdogs were. The perils of climate change are well known, but the particulars of how extreme weather can turn into major financial risk are not as closely explored. Here’s one great example of a red flag being raised before it’s too late . . . .
Editor’s picks: Whale watching and climate change; plus, Xcel says equipment may have caused Texas fire
A whale of a climate change tale
In what scientists described as “an incredibly rare event,” the New England Aquarium aerial survey team found a gray whale off the New England coast last week — a species that has been extinct in the Atlantic for more than 200 years. “I didn’t want to say out loud what it was, because it seemed crazy,” said Orla O’Brien, an associate research scientist in the Anderson Cabot Center for Ocean Life at the New England Aquarium, and who has been flying aerial surveys since 2011. Gray whales are regularly found in the North Pacific Ocean, the aquarium says. The species disappeared from the Atlantic Ocean by the 18th century, but in the past 15 years, there have been five observations of gray whales in Atlantic and Mediterranean waters. So how did this whale get to Nantucket? Climate change is a likely explanation. “The Northwest Passage, which connects the Atlantic and Pacific through the Arctic Ocean in Canada, has regularly been ice-free in the summertime in recent years, partly due to rising global temperatures. The extent of the sea ice typically limits the species range of gray whales, experts say, as the whales cannot break through the thick winter ice that usually blocks the Passage. Now, gray whales can potentially travel the Passage in the summer, something that wouldn’t have been possible in the previous century,” the aquarium said in a news release.
Xcel Energy says equipment may have cause Texas blaze
Xcel Energy said Thursday that its equipment appears to have caused a massive wildfire in the Texas Panhandle that has destroyed homes and killed thousands of cattle. The Texas A&M Forest Service said its investigators have concluded that the Smokehouse Creek fire was ignited by power lines, as was the nearby Windy Deuce fire. Xcel Energy XEL 0.00%↑ said in a statement that its equipment appeared to have played a role in igniting the Smokehouse Creek fire, though it did not believe its equipment was responsible for the Windy Deuce fire, according to a report from the Associated Press. “Based on currently available information, Xcel Energy acknowledges that its facilities appear to have been involved in an ignition of the Smokehouse Creek fire,” the Minneapolis-based company said in a statement Thursday. Xcel is the parent company of Southwest Public Service Company, which provides electricity to the Panhandle.
EPA expands Superfund sites
The Environmental Protection Agency this week added five sites and is considering adding another three to its list of highly contaminated areas in line for cleanup. A report from E&E News notes more than 70 million people live within three miles of one of the more than 1,300 Superfund sites awaiting cleanup. According to the report, Tuesday's announcement furthers the Biden administration’s environmental justice goals. Each of the five sites is situated in disadvantaged communities historically overburdened by pollution. The five sites added to the Superfund National Priorities List are the former Exide Technologies Laureldale, Laureldale, Pa.; Acme Steel Coke Plant, Chicago; Exide Baton Rouge, Baton Rouge, La.; Lot 46 Valley Gardens TCE, Des Moines, Iowa; and the Lukachukai Mountains Mining District, Cove, Navajo Nation. The three sites proposed to be added are Gelman Sciences, Ann Arbor, Mich.; Afterthought Mine; Bella Vista, Calif.; and Upper Columbia River, Washington. Under the Superfund program, the EPA deploys federal resources to remove toxic waste causing environmental harm and adverse health effects to the nearby community.
Latest findings: New research, studies and projects
Optimistic green expectations and better financial performance
More optimistic expectations for the energy transition, or climate transition beliefs, are associated with higher green expected financial performance and investments, especially for investors without strong pro-environmental preferences. The authors of this Swiss Finance Institute research paper titled Climate Transition Beliefs studied expectations about the energy transition as drivers of green investment decisions and financial performance expectations. They document “considerable heterogeneity in climate transition beliefs at different horizons. … A pre-registered information provision experiment provides causal evidence of the role of climate transition optimism in investment behavior. By influencing the availability of capital for green projects, the prevailing narratives and beliefs around the energy transition can have important self fulfilling properties.” Authors: Marco Ceccarelli, VU University Amsterdam; Stefano Ramelli, University of St. Gallen - School of Finance, Swiss Finance Institute
More of the latest research:
Destroy, Rebuild, Repeat: How to Break the Climate Disaster Cycle
Behavioral Economics and Climate Change: A Bibliometric Analysis
Words to live by . . . .
“It’s important for me to have hope because that’s my job as a parent, to have hope, for my kids, that we’re not going to leave them in a world that’s in shambles, that’s a chaotic place, that’s a dangerous place.” — James Cameron.