Since the signing of the Paris Climate Agreement in 2015, the European Union has become the government standard-bearer for the climate change movement, focusing headlong on the legislative and regulatory efforts needed to meet the United Nations global emissions targets.
Europe's goal is to Earth's first carbon-free continent It has an aggressive plan to reduce the total emissions of its 27 member countries by 2050. 57% by 2030 based on 1990 reference point. Mirroring the Old Continent, the United States has also increased its net greenhouse gas emissions. 50-52% by 2030 Comparison to 2005 baseline.
To further force the private sector to meet government climate goals, European financial regulators have passed new rules: Corporate Sustainability Reporting Directive and Sustainable Finance Disclosure Rulesrequires climate and other environmental reporting from both companies and financial institutions to ensure that capital funds flow only to so-called sustainable activities.
therefore, According to The Principles for Responsible Investment, a UN-backed advocacy group, says: “The EU is at the forefront of sustainable financial policy.”
Here again, the Biden administration is trying to catch up with the United States.
of Environment, Society and Governance (ESG) The country's investment movement has integrated climate policy into the financial sector and launched countless policies. Net Zero Wall Street Partnership In recent years. We are now moving into a more stringent and prescriptive phase with the power of governments passing regulations that classify virtually every sector of the economy based on carbon emission standards.
President Biden will use a whole-of-government approach to weaponized For the past three years, federal agencies, including financial regulators such as the Securities and Exchange Commission, have been pushing back against the fossil fuel industry.
SEC in March 2024 Final climate disclosure rules This would require most publicly traded U.S. companies to report all climate-related physical and transition risks to their operations, along with the greenhouse gas emissions generated by their operations. By imposing a climate change litmus test on both issuers and investors, the SEC will stigmatize fossil fuel producers and reduce clean energy demand by starving them of the external financing and market access they need to grow their businesses. We are helping to force the transition. As in Europe, cutting funding for oil, gas and coal companies would be an effective means to end shrinking domestic hydrocarbon supplies and reducing national emissions.
But decarbonization is based on dangerous assumptions. There is no evidence that economic growth can be decoupled from fossil fuels and carbon emissions, nor is there any evidence that the current politically-driven transition to clean energy can be completed on time based on current technology. Recent experience in Europe shows that increasing reliance on renewable wind and solar power is destabilize the power grid and increase average cost of electricity.
Europe is currently World's highest household electricity bill. Additionally, by banning hydraulic fracturing (fracking) and shutting down baseload coal-fired power plants, the continent will have to ensure that countries either develop their own natural resource resources or negotiate reliable sovereign supplies. It has proven unsuccessful in securing and controlling the supply of fossil fuel energy. Chains — Increased exposure to global oil and gas price fluctuations and geopolitical developments, the combination of which could weaken domestic industries and increase national security risks.
On the other hand, as hydrocarbons are used to manufacture, transport, and facilitate almost all goods and services in developed countries, higher costs of fossil fuel energy also lead to higher consumer prices. Rising oil and gas prices therefore reduce real personal incomes and living standards.
Germany provides a textbook example of the economic reality of decarbonisation. Over the past decade, aggressive climate policies and mismanagement of energy supplies by the German government have led to downward spiral The impact of deindustrialization and degrowth in the world's fourth largest economy.
Especially since Russia's invasion of Ukraine in February 2022, the rise in electricity prices and natural gas prices has led to negative impact German manufacturing became less competitive, factory jobs were lost, and corporate bankruptcies increased.
Nevertheless, Germany remains committed to closing all remaining facilities in the country. coal And that nuclear power plant By the end of this decade.
Attempts to decarbonize other financial markets will have similar unintended consequences.
Carbon-based financial regulations, such as climate change disclosure rules passed by the SEC and European regulators, will make capital markets even more hostile to traditional energy companies. Similar to the macroeconomic myth of the clean energy transition, there is no empirical data showing that reducing greenhouse gas emissions will improve the financial performance of individual companies or improve returns for investors' portfolios.
Rather than reducing financial market risks through disclosure, these rules further increase volatility by accelerating the shutdown of fossil fuel production, thereby weakening underlying economic fundamentals and reducing investment options. This would further erode personal wealth and retirement savings. The end result of these climate rules may not only shift investment capital away from carbon-emitting companies, but also move capital away from developed financial markets altogether.
It is long past time that government officials were required to demonstrate proof of concept for climate policy and regulation on the clean energy transition, rather than simply rolling the dice and hoping technology would catch up in time. is.
US lawmakers and regulators should press the pause button now and allow Europe to show the world what a low-carbon future looks like. Given Europe's progress to date, decarbonization is a path of decline, not progress.
Paul Theis is a senior fellow at the National Center for Energy Analysis and the author of a new report, “SEC's Climate Change Rule Will Havoc in U.S. Financial Markets.”
