Flipping the Script on The Supreme Court

Federal climate regulation may regain its teeth due to the Inflation Reduction Act (IRA). In July, the Supreme Court hobbled the authority of the US Environmental Protection Agency (EPA) to regulate greenhouse gasses (GHG) in the landmark West Virginia v. EPA case. The basis of the Court’s decision was that Congress did not give the EPA explicit authority in the Clean Air Act to regulate greenhouse gas emissions as pollutants. 

It turns out the Inflation Reduction Act may reverse this. The bill signed into law last week explicitly defines CO2 produced by fossil fuels as a pollutant, returning authority to the EPA to regulate GHG emissions. 

In the hours before the bill passed on a party-line vote, Republican staff tried to persuade the Senate parliamentarian that the provision should not be allowed in a budget bill. Ultimately it was allowed to stay in the bill and now the new law provides EPA explicit authority to regulate greenhouse gas emissions from power plants.

Democratic Senator Tom Carper, noted “The language, we think, makes pretty clear that greenhouse gasses are pollutants under the Clean Air Act.” Conservative Senator Ted Cruz raised the alarm with those on the right, saying “The Democrats are trying to overturn the Supreme Court’s West Virginia vs. E.P.A. victory.

ROI of the IRA

Elsewhere in IRA news, the US Office of Management and Budget released a study this week showing that the law could cut the costs from premature illnesses, deaths and property damage by $1.9 trillion by 2050. The agency’s models predict that the emissions reductions resulting from the IRA will reduce climate-related wildfires, crop destruction, and drought - estimated to cost $120 billion annually.

New reports show the IRA will create huge demand for clean energy workers and spur new cleantech opportunitiesPrinceton University’s REPEAT project warned that it will be a challenge for companies to find trained workers in the tight job market.

ESG vs. ‘Anti-Woke’ 

The battle between ESG proponents and the ‘anti-woke’ campaign from conservative US politicians continued this week as Florida’s Republican Governor - Ron DeSantis - banned “social, political or ideological interests” from being considered in the state’s pension fund investment decisions. The resolution directs Florida’s fund managers to prioritize the highest return on investment over ESG ideologies

Asset managers fired back claiming that preventing consideration of ESG factors will put pensions at risk. Sasja Beslik, the chief investment officer at NextGen ESG, described the DeSantis decision as “tragic.” It shows that the governor of Florida and others who share his view “don’t understand that long-term management of pension investments naturally includes material ESG issues that can impact returns,” Beslik said.

The law firm Ropes & Gray has been tracking ‘anti-woke’ policies state by state. Partner Joshua Lichtenstein commented to Bloomberg this week, “Florida and Texas have a lot of money, but it’s not clear we’ll see enough money line up for the red states to change things.” He also noted that ignoring ESG completely could be a risky decision, especially since the European Union has already adopted ESG investing principles in their Sustainable Finance Disclosure Regulation (SFDR)

Back to the ESG Fundamentals

Former CEO of the Principles for Responsible Investment (PRI) Fiona Reynolds weighed in on the debate this week, saying that many voices chiming in “fundamentally misunderstand” what ESG is all about. Reynolds voiced concerns that ESG is being overly complicated, overregulated and over-standardized, leading to its own demise as people think of ESG as a “tick the regulatory box” and move on exercise. She said, “ESG principles can all be boiled down to a few simple truths: we all have responsibilities as citizens, and we should all act ethically, and we should invest in ways that don’t contribute to human suffering or to the detriment of the planet we all inhabit.”

Following a similar tone, BlackRock warned that the Securities and Exchange Commission (SEC) proposed rules on ESG disclosure by fund managers could result in confusion by leading investors to believe their holdings are more ESG-minded than they actually are. Because the SEC’s proposal would require reporting on how ESG factors fit into investment strategies, BlackRock argued it will result in overstating the significance of ESG in the fund’s decision-making process. 

Solar So Good

The price of solar has tumbled in recent years, so much so that it is now the cheapest source of electricity of all timeThe IRA looks set to bring that price down further, with a 10-year 30% tax credit for installing solar panels. Between the new tax credit and property value increases, solar panel installation is now virtually free. Even if you don’t install solar panels on your house, new research shows that the IRA will save the average US household $170 to $220 annually in lowered energy bills.

The EU is also looking to solar as part of their solution to dependency on Russian fossil fuel. Solar power installations in Germany were up 22% last year, and the European Space Agency is looking into the prospect of space-based solar.

No Drought About It

Europe’s drought, the worst in more than 500 years, is shrinking water bodies revealing “Spanish Stonehenge,” WW2 Nazi ships and “hunger stones.”  One hunger stone, which was first carved in the 15th Century, had a fateful warning, "if you see me, cry." And in Texas, severe drought revealed previously submerged dinosaur tracks left in the mud 113 million years ago.

Monsoon rains resulted in a series of flash floods across the Southern US, submerging cars in Texas and sweeping hikers off their feet in Utah. However, meteorologists say the heavy rains are unlikely to be a reprieve from the droughts as the time between rainy periods is too long, and dry soils are less able to absorb moisture.  

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