Debt Ceiling Drama, IRA Rollback, Emissions Scandals – Oh My!
This week, we've got a range of hot topics to discuss, including the US debt ceiling drama and proposed changes to the Inflation Reduction Act.
Hey there, welcome to today's edition of The Green Tea! We've got a range of hot topics to discuss, including the US debt ceiling drama and proposed changes to the Inflation Reduction Act. We'll also be taking a look at the recent First Republic bailout, SEC climate disclosure rules, and concerns over emissions in the Permian Basin.
Basically, the debt ceiling is like a limit on how much money the US government can borrow to pay for things it's already spent. Right now, lawmakers are in a heated debate over how to raise this limit before it expires this summer. Meanwhile, the proposed IRA rollback could cut tax incentives for clean energy projects and electric vehicles, which could be a big blow for the green energy sector.
In other news, First Republic Bank recently failed and was sold to JPMorgan Chase by the US government, which has some folks calling it a bailout. And the SEC is about to finalize rules that will require public companies to report their greenhouse gas emissions, including those from their supply chains. Finally, we'll be diving into the ongoing concerns over emissions in the Permian Basin, where some companies are failing to meet the state's new rules to reduce methane emissions. Environmental advocates are calling for swift and aggressive enforcement action to make sure everyone's following the rules. So grab a cup of tea and let's dive in!
Debt Ceiling Drama
The US government has a limit on how much money it can borrow to pay for things it has already spent. This limit, known as the debt ceiling, needs to be raised periodically to avoid defaulting on the country's debt obligations.
The current debt ceiling is set to expire this summer, which means lawmakers need to act fast to raise it. However, the two major political parties, Democrats and Republicans, are at odds about how to do this. The Republican party has proposed a bill, called the Limit, Save, Grow Act of 2023, which would raise the debt ceiling by $1.5 trillion but also includes significant spending cuts in areas like student loan forgiveness and work requirements for welfare programs. Moody's Analytics economists have estimated that Americans could lose 780,000 jobs by the end of 2024 if the GOP bill is passed.
Democrats, including President Biden, have said they will not support any bill that includes spending cuts and want a clean, bipartisan increase to the debt ceiling. The situation is complicated by the fact that the country is still recovering from the economic effects of the pandemic, and failure to raise the debt ceiling could have severe consequences for the economy, including job losses and higher interest rates. The two parties are currently negotiating, but there is still a risk of a catastrophic default if they can't reach an agreement in time.
Additional Reading
IRA Rollback
Last week, the House of Representatives (which is mostly controlled by the Republican party) passed a bill called H.R. 2811. This bill proposes cutting tax incentives for clean energy projects and electric vehicles. House Speaker Kevin McCarthy claimed that this bill raises the debt limit. However, businesses in the clean energy sector are unhappy with this legislation. Since the original law (Inflation Reduction Act or IRA) was passed, Republican-led districts are projected to create over 77,000 jobs in green energy and make investments of over $337 billion in large solar, wind, and storage products.
Peter Davidson, CEO of Aligned Climate Capital, said that H.R. 2811 is very destabilizing, and that this legislation will influence investment decisions made not only by Americans, but also by investors in Korea and Europe.
The bill is now going to the Senate (which is mostly controlled by the Democratic party), but it's unlikely to pass. Even if it does pass, President Joe Biden said he would veto it.
Additional Reading
Solar, EV firms say Republicans' debt limit a 'stunt' that could cost jobs
Red States to Reap the Biggest Rewards From Biden’s Climate Package
First Republic Bailout
On Monday, First Republic Bank failed and was sold to JPMorgan Chase by the US government. JPMorgan Chase kept most of First Republic's assets and all of its deposits, which protects First Republic's depositors who are now customers of JPMorgan Chase. The government provided $50 billion in financing to JPMorgan Chase to make the deal happen, raising questions about whether it was a bank bailout. If First Republic had failed without a buyer, the uninsured depositors would have lost their funds. The FDIC provided financing to JPMorgan Chase as a condition of the sale, which some experts consider to be a bailout. The government chose JPMorgan Chase because it gave the FDIC more favorable terms than rival offers. The bailout will not cost individual taxpayers since the funds come from the Deposit Insurance Fund, which is paid for by banks through insurance premiums. For now, the Deposit Insurance Fund has enough money to cover the bailout.
Additional Reading
Surveillance: FDIC Charts Difficult Fight Against ‘Bailout Culture’
First Republic fallout: Democrats fume as regulators bail out yet another failed bank
SEC Climate Disclosure Rules
The Securities and Exchange Commission (SEC) is expected to finalize rules soon that will require public companies to report their greenhouse gas emissions, including those that arise from their supply chains. While the rules are not yet in place, many companies are already taking steps to assess and track their emissions in preparation. This is partly due to increasing pressure from investors, advocacy groups, and regulators in other jurisdictions, who are demanding greater transparency around companies' environmental, social, and governance (ESG) practices.
The SEC's proposed climate disclosure rule has faced legal challenges from Republican officials in several states, who argue that the agency has overstepped its mandate. However, about 70% of companies surveyed by accounting firm PwC and reporting software company Workiva Inc. say they intend to comply with the SEC rule regardless of when it becomes final. Many businesses have already pursued carbon-related goals without the government forcing their hand.
While some companies have welcomed the proposed rules, others have raised concerns about the cost and complexity of compliance, particularly around the reporting of Scope 3 emissions. Scope 3 emissions refer to emissions that occur in a company's value chain, including those generated by suppliers and customers. The SEC has estimated that its proposal will raise the cost to businesses of complying with its overall disclosure rules to $10.2 billion from $3.9 billion, an additional cost of about $530,000 a year for a larger business.
Additional Reading
Climate-Disclosure Rules Are Coming. Here’s How Companies Are Adapting.
Guest Post: SEC Steps up Enforcement on ESG Reporting with Climate Disclosure Rules Looming
SEC’s Climate-Disclosure Rule Isn’t Here, but It May as Well Be, Many Businesses Say
EPA Emissions Videos
The oil and gas industry in New Mexico is struggling to comply with the state's new rules to reduce methane emissions. The rules require companies to capture at least 98% of methane from their operations by 2026, and they must report monthly venting and flaring totals and meet annual targets. However, a recent investigation by Inside Climate News found that many companies are failing to meet these requirements, with some venting and flaring more methane than they are reporting.
Optical gas imaging cameras and NASA satellite images have helped to illustrate the scope of the problem and identify emissions that companies have failed to report. In some cases, companies have been caught out by the images and acknowledged that they did not report the methane release within 24 hours, as required by state law.
The New Mexico Environment Department is working with the federal Department of Justice and the EPA to reach settlements with several offending companies. The department has also called on the New Mexico Legislature to increase funding to the agency so that it can better monitor compliance with the rules.
Environmental advocates are concerned that companies cannot be trusted to self-report their methane emissions accurately, and they are calling for swift and aggressive enforcement action to ensure compliance with the rules. While some emissions recorded in flyovers are not necessarily illegal, monitoring helps to document the ongoing extent of the problem in New Mexico despite the new state rules.