Impact of Proposed SEC Climate Disclosures on Utilities

 By Cecilia Bremner, Law and Policy Clerk

NASA on The Commons 2017

All companies face great physical, transitional, and legal risks from climate change. For utilities specifically, these risks are numerous. They include exposure to natural disasters; regulatory uncertainty as environmental compliance requirements change; customer base variations; and inherent technology, supply, workforce, and cybersecurity threats. These risks also overlap with concerns over fuel uncertainty, asset divestment, business model overhauls, decommissioning, safety, and geopolitics. 

Stakeholders are becoming increasingly aware of such climate-related risks and are increasingly requesting more detailed climate-related disclosures from SEC registrants, including investor-held utilities. This has led to the current situation where utility companies are all at different stages of their environmental, social, and governance (ESG) journey and climate reports are inconsistent and potentially include greenwashing. In response, on March 21, 2022, the U.S. Securities and Exchange Commission (SEC) proposed a new rule to enhance and standardize climate-related disclosures. 

Adopting this new SEC rule “would require registrants [to] provide certain climate-related information in their registration statements and annual reports.” The rule proposes numerous climate-related disclosures broadly aligned with accepted climate disclosure frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD). The disclosures proposed include reporting potential risks and material business and strategy impacts; Scope 1, 2, and 3 (if material or if the registrant has a Scope 3 target) greenhouse gas (GHG) emissions; other qualitative and quantitative climate risks such as financial impacts of severe weather events and natural disasters; and climate-related risk governance and risk-management processes. In addition, the rule would require registrants to provide plans to comply with their publicized environmental claims and would phase in assurance requirements for certain SEC filers. 

These reporting requirements signal that all public companies need to transition to investor-grade reporting, and quickly. Such a transition would involve accelerating climate-related reporting processes and building or transitioning to effective reporting controls. PricewaterhouseCoopers (PwC) identifies five actions that every company should consider now for this transition: 1) form a cross-functional team for ESG performance accountability; 2) ensure expected data is appropriately collated for regulators; 3) establish an ESG strategy; 4) upskill corporate leadership; and 5) prepare for independent, third-party assurance. 

In addition to these five generally applicable actions, PwC also identified three considerations for utilities specifically. First, utilities should consider how they will delineate between routine costs of supplying reliable energy to customers and recovering from typical weather incidents versus the proposed SEC climate-related disclosures. Second, utilities should consider how they will deal with Scope 3 emissions that are material or for which they have set GHG targets. Even with decarbonization efforts, Scope 3 emissions will likely be material for utilities in “industry-specific, high-emitting categories such as ‘fuel and energy-related activities’ and ‘use of sold products.’” Third, utilities should consider how they will address the challenge of providing accurate and reliable data by zip code in the proposed rule’s accelerated timeline. 

Despite such challenges, adopting the proposed SEC rule is likely to drive real action in the transition to a low-carbon economy and utilities can be a major player. Utility operations result in Scope 2 emissions which are indirect emissions from purchased electricity, steam, heating, and cooling. In 2020, Scope 2 emissions accounted for 25 percent of U.S. GHG emissions. Transitioning to low-carbon power can therefore have a significant impact on reducing overall U.S. GHG emissions. 

Reducing Scope 2 emissions is also one of the initial and increasingly more economical decisions. Utilities focused on clean energy and low-carbon energy will have a competitive advantage over higher carbon footprint companies. Stakeholders will trend towards supporting companies responsible with their emissions and other climate impacts, as we are already seeing. Thus, utilities that take the initiative to transition to a renewables-based grid and build resilience against climate change will capture a significant portion of the market in transition while also protecting their business in the long-term. 

Furthermore, U.S. investor-owned utilities are in a good position to incorporate the proposed SEC rule. The industry already has an ESG sustainability reporting template. This template was last updated in May 2021, after the SEC announced its plans to release the proposed rule. It seems the energy sector has therefore, seriously considered how to properly report climate information for the industry and that those utilities already using the industry template are in a good position to adapt their climate reports to any final SEC rule.

Even if this proposed SEC rule does not go through, U.S.-based companies with entities abroad will likely have to comply with equivalent international climate-related reporting and measures like the European Commission’s Corporate Sustainability Directive (CSRD). In addition, although the concept of materiality does not create a specific duty to disclose climate-related matters, as climate issues become increasingly significant for business and investment decisions, public companies may find they need to report climate matters to the SEC under the agency’s materiality principle. Whether or not this proposed SEC rule is adopted, climate-related disclosure requirements are coming. Utilities should prepare for this inevitability by ensuring their own internal climate reporting mechanisms are investor-grade and that they are transitioning their product to reliable clean and low-carbon energy. 

The blogs posted on Charged Debate reflect the writers' opinions in their individual capacities, and do not necessarily reflect the perspective of the Green Energy Institute, Lewis & Clark Law School, Lewis & Clark College, or the writers’ past, present or future employers or other associations. Any information in any blog on Charged Debate is meant purely for general educational purposes, does not constitute legal advice and should not be relied upon for any purpose. No representations or warranties, express or implied, are made with respect to any content in any blog posted on Charged Debate.

Supreme Court Setback in West Virginia v. EPA Doesn’t Mean the End of U.S. Climate Action

By Denny Franzkowiak

By Alex Guillot, Law and Policy Clerk

The Supreme Court’s decision in West Virginia v. EPA is a blow to the EPA’s ability to regulate greenhouse gas emissions from power plants. However, the EPA retains significant authority over the regulation of greenhouse gas emissions, and other efforts to tackle climate change across the country continue. 

What the Supreme Court said

In a 6-3 decision, the Supreme Court held that the EPA exceeded the authority granted by Congress under the Clean Air Act (CAA) in placing limits on greenhouse gas emissions from power plants using “generation shifting.” “Generation shifting” refers to the approach under which EPA required the power sector to shift electricity production from coal to natural gas, and then to even cleaner energy sources such as wind and solar. This process would have required operators to either reduce the plant’s own production of electricity, build or invest in lower-emitting electricity production, or purchase emission allowances or credits as part of a cap-and-trade regime. By focusing on the power sector generally, generation shifting would have been a stronger, more effective tool to reduce emissions and to reach national climate goals. 

To make the determination that the CAA did not authorize EPA to use “generation shifting,” the Court relied on the “major questions doctrine” (MQD). According to that doctrine, the conservative justices assert that in certain “extraordinary cases,” where an agency seeks to regulate in new ways on issues with major economic or political consequences, the agency “must point to a clear congressional authorization for the power it claims.” However, the Court’s majority opinion did not provide a specific test or standard for when the doctrine applies. Instead, the Court’s guidance on the doctrine’s application consisted of highly subjective criteria such as whether an agency’s action qualifies as “extraordinary,” whether the agency’s “expertise” matches the problem, or whether a statute is “long-extant” or not.

Finding that the MQD applied, the Supreme Court required EPA to point to a “clear congressional authorization” that allowed it to use generation shifting as a “best system of emission reduction” under Section 111(d). Concluding that there was no such clear statement, the Court held that EPA lacked the authority to use generation shifting to reduce emissions under the CAA. 

EPA’s Authority

The West Virginia decision is undoubtedly a setback to EPA’s ability to regulate greenhouse gas emissions from the energy sector. However, the ruling did not remove EPA’s authority to regulate greenhouse gas emissions at power plants altogether and the agency retains substantial authority to do so. EPA can still set standards for existing power plants under Section 111(d) of the CAA so long as the new “best system for emission reduction” does not require generation shifting from fossil fuel to clean energy. In other words, future EPA rules will likely stick if they are based on a more narrow interpretation of the agency’s authority. In terms of Section 111, the Court recognized EPA’s authority to regulate carbon emissions from existing coal plants based on a “technology-based approach” which the agency had previously used that “focuses on improving the emissions performance of individual sources.”

Moreover, EPA can set standards to regulate greenhouse gas emissions under other provisions of Section 111 of the CAA. For instance, EPA can regulate greenhouse gas emissions from new power plants under section 111(b). The agency can also set standards under other sections of the CAA, including from mobile sources under Title II. Additionally, public health rules related to conventional air pollutants were also left intact by the decision. Thus, EPA has ample authority to tackle air pollution and the climate crisis. 

EPA’s next moves on climate action 

Following the ruling, EPA is planning to enact tougher restrictions on coal plants to reduce pollutants like soot and nitrous oxides, and to force the cleanup of water contamination from coal plants. Those rules will have a side-benefit of also reducing greenhouse gas emissions and may make some coal plants too expensive to continue to operate, resulting in more of them closing down. EPA can and should also finalize rules addressing carbon pollution from existing power plants and new power plants under sections 111(d) and 111(b) respectively. 

These rules include strengthening the Mercury and Air Toxics Standards (MATS) rule that limits mercury, arsenic and other toxins from coal plants, as well as the  National Ambient Air Quality Standards (NAAQS) for small particulate matter and ozone. EPA should also finalize the “Good Neighbor Plan,” which addresses soot and smog emissions across state borders by seeking to require “upwind” states to achieve additional nitrogen oxide (NOx) emissions reductions to help “downwind” receptors to meet the 2015 Ozone NAAQS. With a stronger set of regulations and public health rules, EPA can continue its efforts to tackle climate change and air pollution that harms public health and that disproportionately impacts environmental justice communities. 

The role of Congress and the states

In addition to EPA action on climate change, Congress can pass laws addressing carbon emissions or to clearly give EPA the authority to use generation shifting. However, without congressional action, the ruling allows delaying the transition to clean energy. For example, states unwilling to act on climate change that would otherwise have been required to make plans to reduce carbon emissions through generation shifting can now also stall on climate action. 

On the other hand, states aiming to reach their climate goals, such as Oregon, will pursue their efforts to lower their carbon emissions. For instance, HB 2021, Oregon’s clean energy bill that limits greenhouse gas emissions from power plants, will be implemented through state regulation of utilities instead of by the EPA. Additionally, 21 states have now set 100% clean energy goals through the state legislature or governor’s office, in addition to D.C. and Puerto Rico.

While the ruling is a setback at a time when we cannot afford setbacks, it should not prevent us from pursuing ambitious climate action.  

 

The blogs posted on Charged Debate reflect the writers' opinions in their individual capacities, and do not necessarily reflect the perspective of the Green Energy Institute, Lewis & Clark Law School, Lewis & Clark College, or the writers’ past, present or future employers or other associations. Any information in any blog on Charged Debate is meant purely for general educational purposes, does not constitute legal advice and should not be relied upon for any purpose. No representations or warranties, express or implied, are made with respect to any content in any blog posted on Charged Debate.

 

Agrivoltaics: A stabilizing solution for our food and energy needs

The Agrivoltaic energy system. Photo credit: Stacey Kihiu/ICRAF, Feb. 22, 2022

 

By Cecilia Bremner, Law and Policy Clerk

Agrivoltaics combines food production with energy production. The same land that is used to grow crops to produce food is used to hold solar panels which produce energy. With world population growth expected to reach almost 9.8 billion by 2050 and climate warming expected to exceed the 1.5 degrees Celsius threshold established by the IPCC in the 2030s, there is a real and immediate threat that both the global food and energy systems will collapse, and soon! These systems are already struggling with about 45 million people near starvation and 1.1 billion people without access to electricity. Agrivoltaics is a potential solution to both the food and the energy crisis.

Agriculture is highly resource intensive process relied on to feed the global population. About 38 percent of the world’s land surface, or five billion hectares, is used for agriculture. Irrigation of agriculture constitutes about 85 percent of global water consumption. Agriculture also contributes over a third of global greenhouse gas(GHG) emissions and accelerates biodiversity loss. National Geographic has proposed five steps to feed the growing population while accommodating the climate crisis—all five of which boil down to making agricultural practices more sustainable.

At the same time, electricity generation also needs to become more sustainable. This includes efficient use of land for renewables, like solar which requires a significant amount of land with similar characteristics to land that is also appropriate for agriculture.

Rather than competing for the limited resource of land, solar panels and crops can be placed together for more efficient land use. Currently, the major challenge to combining agriculture and solar is that the ground beneath solar panels is not usually suitable for agricultural purposes. Dual use is the only current exception whereby traditional solar parks are used for beekeeping and for grazing small livestock, such as sheep and chickens, which help to maintain the vegetation beneath the panels. Otherwise, panels are too close together for modern farming equipment to maneuver and they provide too much shade for effective crop yields.

These challenges have solutions. The three basic agrivoltaic setups are currently: 1) solar arrays spaced for crops, 2) solar arrays tilted above crops, and 3) greenhouse solar arrays. These setups increase distance between the panels and adjust the height of the panels to allow different machinery and potentially larger grazing livestock to pass through. Additionally, these setups adjust the transparency and angle of the panels to ensure an efficient amount of light passes through to the crops below the panels.

Studies suggest that combining crops and solar panels actually improves the conditions for both the crops and the panels. Regarding crops, too little light and their ability to photosynthesize and grow is limited. Too much light and the crops can no longer absorb energy and instead evaporate water to get rid of the excess energy; this threshold is called the light saturation point. Regarding solar panels, too high a temperature can decrease their efficiency. When crops and panels are used together, systems have shown a 30 percent improvement with the use of shade-tolerant crops. Additionally, summer crops seem to thrive in the favorable microclimate created with heat and water flow controls. The shade from the panels reduced crop evaporation overall such that they required less watering. The crops were also irrigated by the residual water from cleaning the panels ensuring this water served another purpose. Any evaporation from the crops created a cooling effect for the panels which increased their efficiency. The crops were also protected from the elements allowing them to be sold even after weather that might otherwise have rendered them unfit for the market. Thus, solar panels provide a shady and protective canopy for the crops while the crops help to keep the panels cool and efficient. The benefits of this canopy extend to the workers cultivating and maintaining the crops who are also kept cool and sheltered.

Despite these significant benefits, agrivoltaics do pose some challenges. Because of the shade created by the panels, really only shade-tolerant crops are suitable. The installation costs of panels higher off the ground, especially those with the ability to adjust the panel angle, are also likely to be higher than traditional solar installations. Crop yields may be marginally lower than if the land was purely dedicated to agriculture. The amount of energy generated will also probably be lower than a traditional solar farm as there are fewer panels for the same area. Additionally, farming machinery will need adaptations to protect the panels from damage.

These challenges can be overcome. A recent study by Oregon State University estimated that converting even just 1 percent of America’s existing farmland to agrivoltaics could have significant beneficial impacts such as meeting national renewable energy targets, saving water, and improving future food system reliability. While the upfront investment for such conversion will be significant, Oregon State University’s Vegetable Research Farm estimates that an investment of $1.12 trillion over 35 years will be paid back in just 17 years through the green electricity produced by these systems. Such a conversion to agrivoltaics could also create a much-needed revenue stream for farmers who increased their bankruptcy filings by 23 percent in the past year. Agrivoltaics allows everyone to win.

Agrivoltaics is a realistic option to help stabilize food supplies and decarbonize electricity grids. Both are imperative for our survival. So, let’s embrace agrivoltaics and take a positive step towards our climate resilient future.

 

The blogs posted on Charged Debate reflect the writers' opinions in their individual capacities, and do not necessarily reflect the perspective of the Green Energy Institute, Lewis & Clark Law School, Lewis & Clark College, or the writers’ past, present or future employers or other associations. Any information in any blog on Charged Debate is meant purely for general educational purposes, does not constitute legal advice and should not be relied upon for any purpose. No representations or warranties, express or implied, are made with respect to any content in any blog posted on Charged Debate.