The Supreme Court on Climate Change

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Jul 18, 2022

On June 30, 2022, the US Supreme Court prevented the EPA to regulate GHG emissions as per the Clean Power Plan. The plan involved an approach that would have ruled capped carbon dioxide emissions at levels low enough to further shift electricity generation toward greener sources. It involved coal and natural-gas-fired plants transitioning to wind or solar production. It also included a cap-and-trade scheme.

In rejecting the EPA’s claimed authority to set emissions caps based on that “generation shifting” approach, the Court demanded clearer congressional authorization for any agency action on “major questions”. This far-reaching decision from the US Supreme Court also raises issues for the Securities and Exchange Commission’s recent proposed rules regarding climate-related disclosures. Requiring legislative authorization for regulation on “major questions” may a priori sound right, but it does pose a major challenge for the US government to address any new policy issues. It also leads to a status quo when action is needed to deal with “major questions” such as climate change.

Reducing GHG emissions is vital for any sustainable business but could be expensive in the short term. Many companies will not be doing it in a substantial way unless they are either held accountable to it or are encouraged via various financial incentives such as a cap-and-trade system. Delaying taking action could be calamitous for the long-term profitability of a business and could lead to being exposed to future lawsuits as regulations addressing climate change are unavoidable in a not-so-distant future.

Taking action now would also be good for the planet and the society. We, as impact investors, encourage companies to go green, but it is not our role to be the “environmental police”. This lies in the hands of the regulators. Regulators should be allowed to act when their action are massively supported by the scientific community. This particular “major question” should not be left to political quibbling and posturing.

 

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