Three weeks ago, I wrote about President Biden’s decision to “pause” approvals for construction of new liquified natural gas (LNG) export terminals on the East and Gulf coasts (Earthward, 8 February). The President announced that the Department of Energy would reevaluate how it looks at these proposed facilities, including their impacts on climate change and the environment. This was greeted as a huge victory by healthy climate advocates, who immediately cancelled a planned sit-in at the DOE. This spared the administration the bad optics of a high-profile protest by progressive and youth groups, key parts of the coalition that the President needs for his reelection effort.
The attacks on this decision made by Republicans and energy-state Democrats revealed the high stakes: for the first time, a federal agency was poised to set up criteria under which significant new fossil fuel infrastructure might be systematically blocked on grounds of climate change. When the announcement was made about a month ago, expert observers opined that the DOE’s review would certainly not be completed before the election. It also seemed clear that LNG exports had struck such a nerve that the issue would become a proxy for how candidates up and down the ballot stand on climate change. I suggested that the issue is well worth following for what it reveals about what it will really take for the US to get serious about climate change.
As it has turned out, we did not have to wait long for the administration to show its stripes. Responding to persistent questions about the LNG pause after her address last week to the National Press Club, Energy Secretary Jennifer Granholm went to great lengths to assure the audience that all existing contracts with allies will be honored, and that the pause is temporary and in no way constitutes a “ban.” Secretary Granholm stated that 48 billion cubic feet per day (bcfd) of export capacity is “still happening,” implicitly confirming that all of the projects listed as “Approved – Not Under Construction” on the Federal Energy Regulatory Commission’s (FERC’s) website are also already approved by the DOE (by law, both FERC and DOE must sign off on exports from new LNG terminals). This means that present export capacity is already set to triple, no matter what. The Secretary also ducked behind the Natural Gas Act, asserting that the law requires that DOE periodically do these reviews – as if the timing of the pause had nothing to do with the threatened public protests in an election year.
Granholm is technically and politically savvy, and was careful to strike the right notes in her comments about dangerous methane lifecycle emissions and higher US gas prices if exports continue to mount. She also refused to set a clear timeline for the DOE review, and deferred questions about the potential of climate change analysis to limit gas exports – stating that she will wait for the results of modeling experiments, which will “take time.” It is obvious that the Secretary is trying to have her cake and eat it too. She is mollifying moderates in her party, especially those from energy-exporting states like Pennsylvania that are also crucial swing states in the election. At the same time, she is trying to maintain the confidence of progressive climate advocates, hoping that her pro-gas comments (including one about the US maintaining its leading position among gas exporting nations) do not set off another protest. In the meantime, Politico reported this week that President Biden is pivoting to make clean water the signature environmental issue for the election, hoping to draw a sharp contrast with Republicans on an issue that is not internally divisive for his party.
It would surely have been expecting too much for Secretary Granholm to do better than this, but that is just the point. When a real threat to fossil fuel dominance emerges – and the potential for systematic federal rejection of new LNG terminals certainly qualifies – then a no-holds-barred eruption of attacks is sure to follow. Not a single Republican in Congress voted for the Inflation Reduction Act, but the carrots it offers for renewable energy remain tolerable to fossil fuel companies in light of the expanding global demand for energy. But try to enact a policy that actually penalizes fossil fuels, like an aggressive carbon tax or a restriction on exports, and the reaction is swift and not limited to Republicans alone.
Another example of this dynamic on recent display concerns the connection between climate change and finance. The Securities and Exchange Commission is an independent federal agency that enforces US securities laws, protecting investors from illegal market practices by banks and other financial entities. With few exemptions, the SEC requires that US firms register their securities, providing financial statements as well as information on the nature of the business, the type of securities on offer, and the management of the company. In March of 2022, the agency proposed a new rule that would require all registered companies (that is, all public companies and all large privately held firms) to include climate-related disclosures in their regular required reports. The idea is simply that potential investors ought to be able to find out, before buying securities, whether particular firms might be particularly exposed to risks from climate change. Such risks would include the potential for supply chain disruptions, infrastructure damage, repair and recovery costs and macroeconomic instability arising, for example, from climate impacts to regional housing or insurance markets. The reports would also include the requirement that firms disclose their own greenhouse gas emissions – and therein lies the rub.
The required disclosures are not as straightforward as they might seem, and would have widely varying impacts on different firms. Greenhouse gases that are emitted directly by a company’s operations fall under a category labeled “Scope 1,” while those emitted indirectly by the generation of electricity or other forms of energy that the company purchases from other firms are called “Scope 2.” The major controversy concerns so-called “Scope 3” emissions, which involve emissions from anywhere in the company’s value chain. This means that a firm that extracts, refines and sells petroleum would be required to report the downstream emissions that arise when the end user burns the fuel. As you might expect, the Scope 3 category dominates emissions from fossil fuel companies.
The proposed SEC rule is just a disclosure requirement, nothing more. Investors wishing to buy fossil fuel company stocks would remain at perfect liberty to do so. Yet the SEC’s inclusion of Scope 3 emissions in the proposed rule generated a strong negative reaction among business groups and conservative lawmakers. The Business Roundtable has consistently opposed Scope 3 disclosures on grounds that the reporting would be too burdensome for companies, and Congressional Republicans are threatening litigation, claiming that the SEC lacks the legal authority to impose the requirement. The US Chamber of Commerce asserts that the disclosures would be “counterproductive”, while the American Farm Bureau Federation, a national advocacy group for rural communities, echoes the Business Roundtable in urging its members to take action against the rule, claiming that small farms would be excessively burdened by the new reporting requirement, and that it would lead to “further market consolidation and vertically integrated supply chains.”
It now appears that the SEC is caving to this pressure: last week, Reuters reported that the Scope 3 requirements have been removed from the latest draft, and three days ago Politico reported that even some aspects of Scope 1 and Scope 2 disclosure may also not make it into the final rule, which is expected to be issued next month. Ominously, Montana Democratic Senator Jon Tester, who is up for reelection this year, has joined Republicans and Independent Krysten Sinema (undecided about running for reelection) in opposing the inclusion of Scope 3 disclosures. Their opposition carries weight because it shows that the concerns raised are not purely a matter of political partisanship.
Even if pared back, the new SEC rule will nonetheless contain new provisions for reporting on climate-related risks, and the business community does generally recognize that the agency’s key role in promoting smooth market functioning should now include this additional requirement. What, then, drives the intense opposition to Scope 3 disclosures in particular? Reading between the lines, it seems clear enough that many companies, especially fossil fuel firms, fear that including Scope 3 would weaken or eliminate their ability to disguise the true environmental cost of their operations. Because Scope 1 and Scope 2 emissions are connected directly to a company’s own operations, merely improving the efficiency of manufacturing is already enough to enable claims of environmental friendliness. But this greenwashing would no longer be credible if the huge downstream emissions from use of the product are evident in black and white. By providing highly reliable data, a Scope 3 disclosure rule would play a key role in providing the public with information about the true impact of fossil fuel burning on climate change. This would counter ongoing misinformation campaigns funded by industry groups, and could not be as easily attacked as the data that is highlighted by progressive environmental and scientific advocacy groups. Little wonder that the draft SEC rule inspired such furious attacks from the right wing.
Together, the likely fates of the LNG export pause and SEC disclosure rule tell a sober story about the state of climate politics. Once upon a time, the Republican party operated from a center-right, business friendly orientation, honoring its roots in classic liberalism. Its presidents, like George H.W. Bush, would sign off on far-reaching environmental laws. Today, the party’s devolution into populism, hyper-partisanship and disrespect for liberal norms, and its rejection of scientific authority, means that meaningful climate policy can only be enacted when Democrats control the Presidency and both branches of Congress. But while Democrats from rural and energy states support renewable energy on grounds of jobs and economic growth, they will not back the policies needed to definitively leave the fossil fuel economy behind. In a condition where carrots are possible but sticks are not, the green energy transition stutters and the impacts of climate change accelerate.
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Jennifer Granholm, National Press Club: https://www.c-span.org/video/?533706-1/secretary-granholm-discusses-clean-energy-investment. Relevant comments at 37:00 – 47:00.
FERC – LNG facilities: https://www.ferc.gov/media/us-lng-export-terminals-existing-approved-not-yet-built-and-proposed
Clean water investments: https://subscriber.politicopro.com/article/eenews/2024/02/27/biden-admin-touts-water-investments-in-run-up-to-election-00143300
SEC: general information: https://www.sec.gov
1933 Securities Act: https://www.investor.gov/introduction-investing/investing-basics/glossary/registration-under-securities-act/
SEC’s proposed climate disclosure rule: https://www.sec.gov/news/press-release/2022-46
Measuring Scope 3 emissions: https://www.msci.com/www/blog-posts/scope-3-carbon-emissions-seeing/02092372761
Business Roundtable actions: https://www.theguardian.com/environment/2022/aug/19/top-us-business-lobby-group-climate-action-business-roundtable
House Republicans reaction to SEC rule: https://www.esgdive.com/news/house-financial-services-sec-climate-rule-oversteps-agency-authority/705057/
US Chamber of Commerce opposition: https://www.uschamber.com/finance/corporate-governance/effective-material-corporate-disclosure-is-the-cornerstone-of-u-s-capital-markets
American Farm Bureau Federation opposition: https://www.fb.org/action-alert/climate-protect-farmers-and-ranchers-from-sec-rules-and-regulations
SEC likely to drop Scope 3: https://www.reuters.com/sustainability/us-regulator-drops-some-emissions-disclosure-requirements-draft-climate-rules-2024-02-22/
SEC may weaken Scope 1 and Scope disclosure: https://www.eenews.net/articles/sec-expected-to-scale-back-landmark-climate-disclosure-rule/
Centrist opposition to Scope 3 disclosure: https://www.law.com/nationallawjournal/2024/01/25/secs-proposed-climate-disclosure-rule-draws-concern-from-left-leaning-senators/?slreturn=20240128133048