July 18, 2024

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. Ballot Fight Dropped — California Oil Well Setbacks Go Into Effect To Protect Children’s Health.

In a win for the environment and public health, oil companies withdrew their ballot initiative to overturn a 2022 California law banning new oil wells near homes and schools and requiring strict safety plans for existing ones.

• Oil companies spent $20 million to force an initiative campaign to overturn the law. But after a firestorm of opposition, they said they’d challenge it in court instead.

• More than 2.5 million Californians, mostly low-income and non-white, already live close to existing wells, whose pollution leads to dire and persistent health effects like heart and lung disease, child developmental problems, and miscarriages.

• Gov. Newsom on the proposed initiative: “No parent in their right mind would vote to allow drilling next to daycares and playgrounds.”

Mabel Tsang, California Environmental Justice Alliance: “It’s generations of families with cancers, it is people who saw their childhood friend pass away because of oil drilling. A cradle to grave cycle…. We have played their game and beaten them with their own rules.”

2. Steep Cleanup Costs Of Orphaned Wells — A Transition Opportunity, But Who Will Pay?

As California instates new restrictions on drilling, costs mount for addressing a century of pollution and cleaning up abandoned infrastructure.

• At the end of their productive life, dirty and dangerous extraction sites need a proper clean up—and a Carbon Tracker study shows that plugging “orphan” wells in the U.S. will cost the industry tens of billions of dollars.

• In California, where the oil industry has been in steady decline for 40 years, decommissioning will cost more than 3X as much as the industry will ever make in future profit, and in Colorado, costs are projected to exceed future profits within just a few years.

• The scale is vast: Pennsylvania alone has at least 375,000 abandoned wells. When companies default, the public has to pay and states are often left managing the clean-up; and because everyone’s been ignoring the problem, only 2% of the public money needed has been set aside.

• A potential upside: in extraction-heavy states like Pennsylvania, Louisiana, Texas, and Colorado, thousands of jobs will be created to cap wells, remove infrastructure, and restore natural ecosystems, and some federal funding is available now, from the Inflation Reduction Act and other programs, to get hiring started.

Analyst Megan Milliken Biven: “We have allowed companies intentionally to do this…. It is the inevitable consequence of an entire regulatory program that is more red carpet than red tape.”

3. Artificial Intelligence Tests Net-Zero Commitments

AI’s immense energy demand is already putting climate goals at risk.

• Buried in recent sustainability reports from Google and Microsoft are some alarming admissions: despite aggressive 2030 net-zero goals, both companies’ greenhouse gas emissions are spiking. Google’s emissions have increased by almost half since 2019, and Microsoft’s are up 29% since 2020.  Big Tech is pouring billions into AI development, and data centers are driving a once-in-a-generation increase in power consumption that’s straining grids around the world.

• We saw this coming — Google had claimed to be carbon-neutral since 2007, but last year admitted that was no longer true — but the scale of the setback suggests the prospect of companies like these meeting 2030 targets is now much bleaker.

• Ironically, AI has driven demand so high that it’s outstripped the supply of key chips and the ability to build data centers, which may temporarily slow growth. But any reprieve will be brief, and if Big Tech companies are serious about their targets, they’ll need to drive forward accelerated clean energy deployment and data center efficiency, ASAP. Especially in key data center growth states like Virginia, Michigan, Georgia, and Arizona.

Analyst Niklas Sundberg: “The narrative three years ago was very positive…. Now you start to realise that all of these targets are becoming a distant memory and they are really going to struggle to meet these targets with six years on the horizon.”

4. From Phoenix To New York To Houston, Resilience Is No Longer A Choice

“We have built our world for a climate that no longer exists.”

• As practically the entire United States suffers under an unrelenting heat wave — Phoenix surface temperatures hit 160 degrees Fahrenheit this summer — we’re reminded that extreme temperatures, extreme storms, flooding, and wildfires have become increasingly common. Unfortunately, our infrastructure (like roads, bridges, flood control, and power distribution) and our building and zoning codes weren’t developed for this new climate reality.

• Every week seems to bring a new infrastructure failure. Already twice this year, millions of people in Houston have lost power due to weather. A critical bridge in New York City “froze” in place due to heat and had to be closed to traffic. California desert wildfires raged in temperatures so high that firefighters couldn’t safely fight them.

• Making structural investments to increase resiliency pays off: every dollar invested reduces economic impact and disaster mitigation costs by $13. That’s why New York City is spending billions of dollars on coastal resiliency and flood protection initiatives, like the multiyear East Side Coastal Resiliency project. ESCR, which will protect 110,000 New Yorkers from rising waters and safeguard against economic disruption, is a model for joint federal-state-city collaboration that other jurisdictions can emulate.

Jeff Goodell: “The sooner we stop clinging to the old ways and focus on building a smarter, more sustainable, more equitable future for everyone, the better off we — and every living thing on this planet — will be.”

5. Trump Picks A Climate Change Denier

Despite his pro-labor airs, Trump’s VP choice, Ohio Senator JD Vance, is no friend of the clean energy manufacturing boom.

• As recently as 2020, Donald Trump’s vice presidential pick JD Vance was talking about the dangers of climate change and pushing for faster clean energy adoption, but by 2022 he had aligned himself with climate deniers and personally makes money off oil futures.

• Vance has pushed to repeal the EV tax credit and voted against auto emissions standards. He voted against the Inflation Reduction Act.

• His venture fund, Narya, owns part of Strive Asset Management, an “anti-woke” fund started by former presidential candidate Vivek Ramaswamy that invests in companies like Apple and Disney in order to fight their ESG initiatives as a shareholder.

• Vance is out of step with Ohio’s industrial future. The IRA has meant $8 billion in funding for at least 14 new clean energy projects in Ohio, making the state 8th in the nation in IRA investment. The solar panel industry is rapidly expanding in the state, and new battery plants are bringing good jobs to communities that have lived through the decline of the auto industry.

• Reminder: Trump promised to gut regulations if oil executives raised $1 billion for his campaign.  It would be a “deal,” he said.

Vance is “somebody who understands kind of what we do and how we do it,” according to Mike Chadsey, spokesperson for the Ohio Oil and Gas Association. Vance has received over $300,000 from the industry in support of his Senate campaign.

6. Nebraska Embraces A Sunny Future

Omaha Public Power District puts the state’s largest solar facility online — doubling state installed capacity.

• In 2021, Nebraska, a wind powerhouse, became the first Republican-controlled state to commit to 100% clean energy no later than 2050 — a result driven by Nebraska’s three major utilities.

• As of last week, Nebraska’s second-largest utility is one step closer to making that commitment a reality. OPPD, which serves 846,000 people, cut the ribbon on the 188,000-panel Platteview Solar field, its first utility solar project.

• OPPD, like all three of the biggest Nebraska utilities, is publicly owned, which relieves their decision makers from investor pressure. All three have committed to net-zero, understanding that clean energy deployment helps their ratepayers. Governor Jim Pillen is an advocate for solar, wind, and hydropower.

• OPPD is also considering two more solar projects, but the resource roadmap isn’t entirely in line with OPPD’s 100% commitments. OPPD has plans to build 900 MW of new methane-gas generation, polluting assets that set OPPD’s clean energy goals at risk and risk being stranded assets over their lifetime.

One Nebraska power exec: “We don’t worry about shareholder dividends. We don’t worry about next quarter’s profits. We worry about providing our customers with highly reliable, low-cost electricity and outstanding customer service. That’s our mantra.”

ABOUT TRANSITION FINANCE

The transition to a net-zero economy is happening today and navigating it is a generational challenge. At least $4.5 trillion a year will be needed by 2030 to fund things like clean energy and to help high-emissions industries retrofit themselves for decarbonization.

Financiers are being asked to grapple with protecting their portfolios from physical climate impacts, regulatory change, and pricing shocks as climate impacts accelerate and the world transitions to a net-zero future. Transition finance refers to financing that can enable the decarbonization of hard-to-abate sectors and ensure key sectors are transitioning apace.

Hundreds of financial institutions have committed to aligning their portfolios with net-zero goals, but navigating how to reach these targets remains a challenge. The Rocky Mountain Institute (RMI) Transition Finance Resource Hub can help you understand what transition finance achieves and how to design and deploy a transition finance strategy.