A month after the SEC’s clarification on climate risk, little is clarified.
All in all, the guidance seems to require a level of ambiguous prognostication that would make an astrologer proud. Even looking at the basics, the guidance requires more speculative than concrete reporting, including the:
- Impact of legislation and regulation, both existing and potential
- Impact of international accords and treaties relating to climate change
- Indirect consequences of regulation or business trends, including legal, technological, political and scientific.
- Physical impacts of climate change.
The latter is particularly intriguing, since many in the US have denied that climate change exists and so measuring potential physical impacts may be measuring the weight of ghosts. Yet in the end, the guidance acknowledged that the global response to climate change will impact business, and that technology–especially energy–will lead to a fundamental changes in the way business operates.
Enter the EPA
Adding to all this uncertainty is the Supreme Court ruling which mandated that the EPA must regulate carbon dioxide and other green house gasses as pollutants. Those opposed to the EPA actually doing anything are sure that Congress will pull the EPA’s funding should they take action. Although the likelihood of that happening in a timely manner is slim, business still has to plan for EPA actions, as well as for Congress nullifying those actions or a new administration changing them entirely.
Utilities
Utilities have been assigning resources to report and monitor carbon emissions for some time. As Ronald Drewnowski, Director of Environmental Strategy and Policy at PSEG (Public Service Enterprise Group), said of their emissions reporting:
“The comparative emissions information included in the report helps us understand how our environmental performance stacks up against competitors and also helps us integrate environmental targets into comprehensive business strategies. We share the view that our industry requires clarity and certainty about future environmental requirements so that we can rationalize investment decisions on behalf of shareowners.”
The American Energy Group has been monitoring and looking at solutions for a variety of possible legislative actions. For a company that stretches from Louisiana through Texas and up to Ohio, they have to look at both potential Federal and State regulations. As they said in a recent release:
“[A]n independent subcommittee of our board of directors did a report to shareholders back in 2004 about the impact of proposed federal legislation and regulations for reducing regulated emissions and carbon dioxide. It reviewed the actions available to control those emissions, provided economic analysis of the various control scenarios, and recommended actions for AEP to take going forward.”
Next?
For utilities, whose carbon exposure is only matched by petroleum companies, the need to assign resources to developing alternative scenarios is a part of their costs of doing business. How these additional costs will impact other businesses, especially those with high energy costs and tight profit margins, is yet to be seen. How much to allocate to energy efficiency proposals that will reduce carbon exposure? Is a fleet of trucks becoming a liability unless offsets are found for older, more polluting vehicles? Will the need to report risk lead to new initiatives or just to greater efforts at reducing exposure? Is this the start of a new wave of insurance, designed to protect boardrooms from shareholders?
The price of uncertainty about carbon legislation is mounting. We would be better off with legislation that might not be perfect, but that but allows business to make plans. The continuing costs of the “what if” game are just beginning to show.
