(Neil Armstrong, Tranquility Base, July 1969 )
June 18, 2014
It has been over two weeks since President Obama announced his own anticipated “giant leap for mankind” with a new regulatory regime to reduce greenhouse gas emissions (GHG) in the battle against climate change. We thought that it would be good to let the dust settle before weighing in on the debate.
The cornerstone of the new plan is cutting the share of electricity generated by coal fired plants. While coal utilities are squarely in the cross hairs of the EPA, energy efficiency, building efficiency, and all forms of renewable energy move to the top of the list of solutions. This is all good news for renewables and certainly a courageous step for the President since he will be under tremendous pressure from many different groups, including some from his own party.
Even though we are financial services veterans, we get it. We get the joke regarding climate change and its negative impact. While we are not adept in measuring political outcomes, there are several other positives to the discussions that we see.
- The President continues to raise awareness regarding the dangers of global warming and climate change, as the EPA recommends a wide range of proposals.
- It is an historic proposal since the President is challenging legislators at the national and local level to stop dragging their feet.
- By seeking greater participation from the U.S., the President’s actions seek to recruit greater participation from China, who uses coal for 67.5% of its power generation, to reduce emissions. Consequently, the U.S. will now be providing more credibility to other foreign leaders.
- While 97% of the scientific studies completed over the last decade have pointed to the damage of GHG’s, this is the first time that a U.S. President has made such an importantcommitment. Last week, he said that, “It’s pretty rare that you’ll encounter somebody who says the problem you’re trying to solve simply doesn’t exist. When President Kennedy set us on a course to the moon, there were a number of people who made a serious case that it wouldn’t be worth it.” He continued, “But nobody ignored the science. I don’t remember anybody saying the moon wasn’t there or that it was made of cheese.”
In the U.S., there are 560 plants that burn coal, provide 39% of our electricity, and contribute to 75% of all power plant emissions. That’s fact! For those who are skeptical about GHG’s, buy a piece of property next to a coal plant and build a house. In fact, make it your primary residence.
While the debate goes on, we continue to point to companies that have skin in the game and are putting capital to work to reduce resource risk on their balance sheets by lowering the impact of climate change and carbon emissions. Each day the list of new companies initiating programs that factor climate change into their business grows. In the last few days, additions include:
- Lowe’s who has committed to reduce GHG’s by 20% by 2020;
- Beer brewer Miller Coors decreased water and energy output 9.1% and 15.6% respectively last year to record lows (Miller uses 3.48 barrels of water to brew one barrel of beer versus six barrels of water used by other brewers); and
- Google continues to push deeper into power generation by creating tools for consumers and companies to manage power lines and other infrastructure. With more power being generated by renewables, Google is looking to transform the antiquated, century old U.S. power system.
Who are the winners? With the new proposals, the big winners are likely to be companies that focus on renewables, energy efficiency, and many companies involved in the broad supply chain of natural gas. The real winners include solar manufacturers, wafer businesses, and specific utilities that embrace renewables. Energy efficiency companies that rebuild the grid, provide power storage, or improve transportation are also expected to come out on top.
SolarCity, an installer of rooftop solar systems starteded in 2006, is a good example. Becoming more vertically integrated, the company just announced that is expanding into manufacturing and may even build a manufacturing plant in New York State. Not Asia, but New York State.
And, the losers? Yes, there will be losers, and it is expected that the losers are the utilities and others who are currently heavy users of coal. Companies that cannot switch fuel use quickly, or choose not to, are likely to remain under pressure. In addition, utilities that are slow to adapt to the new sources of power humming along power lines will also be forced to make changes to the antiquated power grid.
Maybe, that’s just the problem. Maybe some in Washington don’t want to see any losers. Just winners. Unfortunately, the battle of climate change can’t end in a tie. Or, overtime.
After Armstrong landed on the Moon, Mission Control in Houston responded “Roger…Tranquility. We copy you on the ground. You got a bunch of guys about to turn blue. We’re breathing again.”
A lot of people around the world have been holding their breath on U.S. climate policy, and now can breathe a little easier too.