Transition Finance Weekly

Exploring the policy, politics, and economics of the clean energy transition

Each week here in Transition Finance Weekly, researchers and analysts from Pleiades Strategy summarize the top stories and trends related to the policy, politics, and economics of the clean energy transition in the states.

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1. Potential Regulatory Earthquake — Supreme Court Ruling on the Chevron Deference Could Shift Responsibilities to States

This week, the Supreme Court is expected to weigh in on the Chevron Deference Doctrine, a precedent that affirms the expert-led rule-making process that has cleaned our water, cleared smoggy skies, made the factory floor safer, and successfully implemented laws to protect our health and safety.

Today, Congress passes laws and Federal agencies carry them out. The Chevron Deference Doctrine affirms that, when there is ambiguity in intepreting a Federal law, the courts defer to the reasonable judgment of expert agency staff.
The two cases, Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, are nominally about fisheries, but at their heart lies foundational questions about the courts’ oversight of EPA’s regulatory powers — and in January’s oral arguments, court watchers saw clear signs that conservative justices would strike the precedent.
Reversing this ruling would insert the courts into a proven and successful regulatory process, allowing them to overrule reasonable actions by expert and politically accountable staff at agencies.
Who is pushing this case forward? The lawyers behind this case have known ties to Charles Koch, petrochemical billionaire and major Republican donor.

Our takeaway? We’re closely watching the details. But if a Chevron Deference reversal hobbles Federal environmental protections, states will be forced to step up to protect our health and safety.

2. As Artificial Intelligence Spikes, Power Use Spikes, Too.

The week’s big energy story was Bloomberg’s coverage of the electricity demands of AI data centers. States are in the driver's seat managing competing demands.

AI electricity use is growing so fast that companies like Microsoft (which is seeing emissions rise by 30%) find their climate goals at risk.
Already, U.S. data centers eat up more power than Italy, Australia, or Spain -- and their demands are growing at a rate of 9% annually. Within 10 years, data centers will use more electricity than India generates.
States are navigating the turmoil: early Thursday morning, Michigan’s State House lacked the votes to approve a data center tax credit package, with environmental legislators and climate advocates insisting that state subsidies should align with Michigan’s 100% clean energy commitments.
In Ohio, utility AEP is asking the regulators to address the system cost of new data centers to protect existing customers and fairly distribute new grid costs. Since 2017, the utility’s central Ohio transmission system has grown to serve 600MW of data center load, enough to power 250k homes.
Per Goldman Sachs: that’s “the kind of electricity growth that hasn’t been seen in a generation.”

The solution: a steep increase in renewables, efficiency, and transmission deployment to meet demand with clean power.

3. Utilities Can’t Get Insurance, So They Go Without

Insurer: “Wildfire risk is the number one issue for utilities.” But there’s no easy answer.

Climate-related disruptions like wildfires are driving public and private utility insurers out of the market and sending premiums up by as much as 100% a year. This leaves some utilities uninsured.
So when —not if — their power lines spark wildfires, they pay damages and fines directly out of the company treasury. Small utilities are particularly vulnerable: a wildfire “would likely bankrupt the utility,” says one California utility GM. But big players are at risk, too: PG&E filed for bankruptcy in 2019 after triggering wildfires that killed 86 and destroyed 18,000 buildings.
Big investors take note: After as much as $8 billion in wildfire claims, Warren Buffett warned Berkshire Hathaway shareholders this year that utility holdings were becoming a bad bet.

State-subsidized climate impact indemnity funds, as California has instituted and Hawaii is planning, are one part of the answer, but additional risk reduction and management tools are needed.

4. Solar Beats Forecasts by 3X, Year After Year

On average since 2000, solar has grown 3X faster than forecasters have predicted. Last year, there were some days with more solar growth than all of 2004.

In the last two years, 120 new U.S. solar projects worth $33 billion have created 57,000 jobs. (At about $50,000 a job, that’s more than the U.S. average, but that ignores the enormous economic value of the production itself.)
Clean energy is driving an economic renaissance, but the awkward part? In 2022, every GOP member voted against clean tech money, but they’re welcoming investments anyway. Rep. Richard Hudson (R-NC) is America’s biggest IRA winner ($13.9 billion for a Toyota battery plant). He may rail against “woke climate and social programs,” but he’s taking the Toyota money and the 5,000 jobs.
$200 billion in clean tech manufacturing subsidies are in motion, and three-quarters of the money is heading to 80 GOP congressional districts in 30 red states.
On the current curve, global solar generation will beat nuclear by 2026, wind by 2027, hydro by 2028, gas by 2030, and coal by 2032.

This solar boom is a classic positive feedback loop: early demand (driven initially by subsidies, less so now) drives sharply accelerating economies of scale, supercharging demand over time. Is a positive feedback loop in Republican politics next?

5. Anti-ESG Campaigns Prop Up Fossil Fuels at the Cost of Tax Revenue and Investor Returns

A long-awaited report commissioned by the North Dakota Legislature shows their ongoing anti-ESG crusade is just cover for fossil fuel favoritism: it calls for fighting federal energy rules and subsidizing coal and gas.
Meanwhile Indiana treasurer Daniel Elliott banned the public retirement system from doing business with investment giant BlackRock, as required by 2023’s blacklist law, House Bill 1008.
Indiana retirement plan participants will likely sue, given that the law will lead to worse investments and lower returns. In a similar suit in Oklahoma, a judge suspended the state’s blacklist law.

In just one year, a Texas blacklist law like Indiana’s was found to have lost the state $37 million in tax revenue, $669 million in lost economic activity, and thousands of jobs; Texas cities saw hundreds of millions of dollars in increased borrowing costs, too.

Spotlight: Anti-ESG Proposals Dead in Arizona, for now

Arizona’s 12 anti-ESG legislative proposals, including two potential ballot initiatives, are dead for the current legislative session. (The 3 bills that passed last year were vetoed by Governor Katie Hobbs.)
One of the proposed ballot initiatives would have prohibited the use of state funds to reduce greenhouse gas emissions, a huge missed opportunity in a state with high solar and wind potential.
Despite this anti-woke posturing, Arizona has rocketed to seventh in the nation in clean energy investment, with $10.5 billion invested since the IRA passed and 14,000 new jobs — including the nation’s biggest battery plant investment.
Benefits are flowing to underserved populations, like $3 billion of investment in low-income communities, solar storage facilities for a rural electrical cooperative, and a cobalt sulfate plant in economically struggling Yuma County.

See the Pleiades state-by-state anti-ESG tracker

Source: Pleiades Strategy

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