Energy innovation, SEC 10-K climate disclosures & price carbon now
The newsletter for independent thinkers on carbon and climate.
Issue No. 84
Welcome to the latest issue of Carbon Creed - a curated newsletter for independent thinkers on carbon and climate.
A federal energy tax credit wins the support of (wait for it...) the Environmental Defense Fund and the American Petroleum Institute.
That’s right. An energy tax proposal was introduced in both the House and the Senate aimed at encouraging technology innovation across the energy sector, including solar, wind, hydrogen, energy storage, as well as fossil fuels and nuclear.
The Energy Sector Innovation Credit (ESIC) Act would incentivize clean energy innovation to scale up and compete. The credit is designed to scale down as technologies’ market penetration grows, a device intended so that taxpayer dollars do not subsidize market-mature technologies.
The bill was introduced with overwhelming bipartisan support. Among its provisions:
Allows up to a 40% percent ITC or 60% PTC for low market penetration technologies across a range of energy sources.
Phases out credits as technologies mature, intended to provide an on-ramp for technologies to get to market and compete on their own.
Groups technologies that are different from one another as determined by the Department of Energy (DOE), national labs, and other stakeholders.
Allows for “unforeseen” clean energy technologies to be eligible by including an expedited-consideration provision for Congress to take up new technology recommendations from DOE.
The bill is supported by groups that include the Evangelical Environmental Network, the Nuclear Energy Institute, The Nature Conservancy, Clean Air Task Force, Long Duration Energy Storage of California, Environmental Defense Fund, Carbon Utilization Research Council, Clean Hydrogen Future Coalition, American Petroleum Institute, and National Rural Electric Cooperatives Association.
Looks like frozen congressional climate negotiations are starting to thaw. We’ll keep you posted on the latest carbon policy and market insights as they happen.
If you have an opinion on any topic covered in this newsletter, please feel free to send me an email at mcleodwl@carboncreed.com.
Thank you for your viewpoint and the value of your time.
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QUOTES
Climate quotes and sayings that will inspire you
“Everything on the earth has a purpose, every disease an herb to cure it, and every person a mission. This is the Indian theory of existence.” – Mourning Dove, Salish
Credo: Live life in sync with nature, and you will prosper. Good health to you.
(source: SAGA)
“Yesterday we obeyed kings and bent our necks to emperors. Today we kneel only to truth.” - Kahlil Gibran
Credo: Information has the power to liberate. Know the truth about climate.
“It’s not an investment if its destroying the planet.” - Vandana Shiva
Credo: Perspective - the ability to understand what is important and what isn't.
MARKETS
(source: CNBC)
SEC Weighs Mandatory Climate Disclosures
In what could only be admired as a bold policy move, SEC Chairman Gary Gensler has asked agency staff to consider whether climate-related disclosures should be filed in companies’ annual reports, known as Form 10-K, along with financial data and other information considered crucial to investors. That would require them to provide statements that are both complete and accurate, making it easier for SEC enforcement attorneys to investigate firms or their directors for fraud or disclosure failures.
The SEC has broad authority to require disclosures by companies selling securities, and the Biden administration has made addressing climate change a central priority across the federal government. But because climate change doesn’t affect every company’s bottom line in the same way, the planned SEC rules have become politically controversial and have set off a wave of lobbying in Washington.
Energy firms, airlines and groups including the U.S. Chamber of Commerce have argued in comments filed to the SEC that the agency should allow climate-related disclosures outside of regulatory filings. They have also called for liability protection for companies as long as they make good-faith efforts to follow the rules.
Advocates of stricter disclosure rules warn that, in the absence of third-party audits and potential liability for company officers, some companies will continue to either play down their climate-related risks or exaggerate their sustainability efforts.
Companies have increasingly mentioned climate-related risks in their annual reports. In 2009, the average firm mentioned climate-related risks 8.4 times in its 10-K form. In 2020, that number was 19.1, according to a paper by researchers at the Brookings Institution.
[This post was adapted from the original written by Paul Kiernan for the WSJ]
Creed Comments: Gary Gensler is a baller. This climate proposal is on point. While it is true that some companies currently provide limited information on climate risks, those disclosures can be inconsistent and difficult to compare. We believe more consistent climate data is in the public good.
INSIGHTS
(source: Yale E360)
The Time is Now to Price Carbon
Sooner or later, everything old is new again. In their new budget plan, Senate Democrats call for a tax on imports from high-emitting countries. For many of us, this feels like deja vu.
According to economists on the right and the left, taxing carbon domestically is the best weapon against climate change. Accounting for the price of pollution would incentivize the prompt development of affordable technologies necessary to lower emissions. But the idea of pricing carbon in America still receives political pushback. Properly understood, however, this solution doesn’t require conservatives or liberals to sacrifice their principles. In fact, a comprehensive carbon tax is the best way to simultaneously slash global emissions and spur U.S. competitiveness.
Liberals have supported pricing carbon stateside before. But many on the left are now deriding a carbon tax as a half-measure. On the left there’s an understandable temptation to regulate and mandate to a cleaner future. But regulations and mandates are subject to lengthy litigation and can even be outperformed by the market alone.
Consider the Obama administration’s Clean Power Plan. It aimed for a 32 percent reduction of power sector emissions by 2030, yet it ran into legal obstacles (a common problem for regulations) and was never implemented. Regardless, because of market forces and the clean-energy transition already underway, the power sector beat that target before 2020!
Regulations and mandates also can’t be exported. Climate change is a problem for the whole world — not just the United States. So, any proposal for reducing emissions must provide a way to lower them everywhere, not just within our borders.
That’s the beauty of pricing carbon and using a border adjustment to hold other countries accountable. The border adjustment would add the same carbon tax to imports from countries that don’t price pollution, ensuring that foreign producers own up to their emissions, too.
Some on the left also say the market can’t be trusted for equitable outcomes. Yet it’s hard to argue with the market’s ability to hasten the arrival of desperately needed products. Just look at the remarkable vaccines, produced in record time, that are lifting the world out of the pandemic’s grim shadow. The innovative energy technologies that will dramatically and affordably lower global emissions haven’t been invented yet. But a tax on carbon in the United States will accelerate their arrival.
All of this talk about innovation sounds great to Republicans, yet many are reluctant to embrace pricing carbon — which would optimize it. Some on the right say that taxing carbon will hurt American competitiveness and raise the cost of energy.
Far from harming American competitiveness, pricing carbon would ensure that the United States is rewarded for what it is already doing. America is the least carbon intensive producer of many goods.
A new study provided by the Climate Leadership Council quantifies this fact: “The U.S. steel industry is 75% - 320% more carbon efficient than global producers, depending on the product segment.” The study even concluded that adding a carbon tax and border adjustment would decrease imports and increase sales of U.S. steel.
American leadership extends beyond steel. The Department of Energy found that Russian exports of natural gas to Europe emit over 40 percent more than U.S. LNG exports to Europe. That’s Russian gas traveling a short distance and American gas crossing an ocean!
On top of helping U.S. manufacturing and exports, pricing carbon doesn’t have to raise costs. That’s because a carbon tax could be paired with reducing income or payroll taxes. Americans wouldn’t be worse off if we priced carbon; they could benefit from bigger paychecks, a stronger economy and healthier environment.
Liberals worry about a carbon tax’s efficacy and the free market’s equity. But pricing carbon here is a global solution that will expedite energy breakthroughs faster than government alone ever could — and a tax will avoid the lawsuits and endless delays that cling to regulations.
Conservatives fear that pricing carbon could harm U.S. industry and increase energy prices. But a carbon tax would reward America’s remarkably low-emitting products and could be offset by eliminating other taxes.
It’s time to listen to what economists on both sides of the aisle have to say: a price is right for carbon in this country.
Former U.S. Rep. Bob Inglis (1993-1999; 2005-2011) leads republicEn.org, a growing group of conservatives who care about climate change.
[This post was adapted from the original op-ed written by Bob Inglis for The Hill.]
Creed Comments: Bob Inglis has been vilified by the left and right for his views on carbon and climate. But he makes a compelling argument for pricing carbon in this op-ed. While I may not agree with every detail (e.g., payroll tax offset), I do think we must stop making this a partisan issue. The U.S. must put a price on carbon - now.
RESOURCES
The Keeling Curve a daily record of global atmospheric CO2 concentration.
Congressional Policy Tracker a summary of current federal energy legislation.
Click Clean your favorite apps and tech company clean power rankings.
Advancing Inclusion Through Clean Energy Jobs a report by the Brookings Institute.
Understanding ESG a series of ESG-focused thought leadership webinars for business and investors, presented by Baker McKenzie.
Temperature Check, a weekly podcast about climate, race, and culture hosted by Andrew Simon.
Matter of Fact, a weekly newsmagazine that focuses on socioeconomic and climate issues in America, hosted by veteran journalist Soledad O'Brien.
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