Starting a Fire


Utilities cut support for climate-change deniers.

Fortnightly Magazine - October 2009

This summer marked the 40th anniversary of a pivotal event in the environmental movement. On June 22, 1969, the oily surface of the Cuyahoga River caught fire, drawing national attention to the plight of America’s lakes and rivers.

It wasn’t the first time the Cuyahoga caught fire, but the timing of the blaze—two years after the summer of love, in the middle of the Vietnam War, and just a few months into President Richard Nixon’s first term—turned the Cuyahoga fire into a catalyst for change. It galvanized public opinion on environmental issues, inspired Nixon to propose the Environmental Protection Agency (EPA) in 1970, and drove Congress to enact the Clean Water Act in 1972.

However, clean water standards didn’t begin with the Cuyahoga River fire, the EPA or the Clean Water Act. A series of common-law nuisance lawsuits, combined with a patchwork of state laws and (weak) federal statutes, preceded the comprehensive legislation that emerged from the smoke of the Cuyahoga.

Today we’re seeing a similar progression in greenhouse gas (GHG) regulation, with civil suits, state initiatives and marginal federal actions apparently marching toward a national climate policy. Most recently, on September 21 the 2nd Circuit Court of appeals granted standing to a group of states in Connecticut v. AEP, and said the trial court should hear the case to determine whether GHGs represent a public nuisance under common law. The following day, the EPA finalized its rules requiring large emitters of GHGs to measure and report their emissions—a clear precursor to federal regulation, whether promulgated by Congress or EPA, or through a court ruling.

Nevertheless, public opinion remains decidedly lukewarm on the issue. Opinion polls consistently put climate change near the bottom of citizens’ priorities, right below same-sex marriage and right above stem-cell research. And during the past year people have become increasingly jaded about climate change. A Gallup poll in August reported that 41 percent of respondents said climate change risks were exaggerated—up from 35 percent last year. Nearly 60 percent of respondents to a Bloomberg poll in September said they consider climate change to be either a minor threat or no real threat.

As a result, GHG regulation poses a risky proposition for elected officials—especially now, with the economy in its current fragile state, and with mid-term elections scheduled for one year from now. Without an in-your-face object lesson like the Cuyahoga River fire, and with lobbyists spreading doubt about climate science, the public never will give lawmakers a mandate to enact comprehensive legislation. The industry and its investors are caught in the middle, understanding that green energy investments are needed to address climate change, but powerless to act without clear direction from the government.

What we need is a good fire.

Regulating by Degrees

After sitting on the back burner all summer, energy policy legislation is starting to move forward in Congress. Specifically, Sen. Barbara Boxer (D-Calif.) and Sen. John Kerry (D-Mass.) are circulating a revised version of the Waxman-Markey American Clean Energy and Security Act, which the House passed in June. And the Senate Energy & Natural Resources Committee approved legislation sponsored by Sen. Jeff Bingaman (D-N.M.) that would create a national renewable electricity standard (RES) similar to that in the Waxman-Markey bill. Democratic lawmakers seem to be hedging their bets, advancing the RES bill separately in hopes of giving the American delegation something to bring to the Copenhagen Climate Change Conference in December—even if Republicans and Blue Dog Democrats stymie the GHG legislation in the Senate.

This all would seem like typical party politics, except for an ironic twist: business interests traditionally supported by conservative lawmakers are lining up to support GHG regulation—and breaking ties with groups that are working to delay it.

In recent weeks, three major utilities—Exelon, PG&E and PNM—withdrew their support from the U.S. Chamber of Commerce over its opposition to climate-change legislation. “If Congress does not act, the EPA will,” said Exelon Chairman John Rowe, explaining the company’s decision at an environmental conference in mid-September. “The result will be more arbitrary, more expensive, and more uncertain for investors and the industry than a reasonable, market-based legislative solution.”

Of course, Exelon’s actions aren’t altruistic. With one of the country’s largest nuclear generating fleets and a mostly depreciated coal fleet, the company is well positioned to deal with GHG restrictions—and in fact to benefit from them by investing in new assets. That’s the whole point.

Uncertainty has become intolerable to companies and investors who stand ready to begin the big green build. Companies like Exelon are responding to this intolerable situation by starting a metaphorical fire, torching their support for advocacy groups that are prolonging the agony of uncertainty.

This isn’t a new trend—such companies as DuPont and GE threw in with the green movement years ago, and even coal-burning utilities like AEP and Duke (through its predecessor Cinergy) have pushed for GHG regulation since at least 2004. Even banks have gotten into the act; in 2007 Citibank said it would invest “$50 billion over the next 10 years to address global climate change.” Such institutions as KeyBanc and Barclays are building businesses around green energy finance. And now, with growing clarity around the science, policy direction and investment opportunity, the sparks of dissent are growing into a bonfire.

Investors’ enthusiasm for the industry’s future is reflected in oversubscribed bond issues and premiums that have returned nearly to pre-crisis levels (see “Fragile Foundation”). Utilities have responded to this enthusiasm by refinancing debt that won’t mature for another year. In Wall Street parlance, the industry’s powder is dry, with companies well prepared for the big green build. Yet utilities still are guarding their capital budgets, and investors are starting to wonder: Why isn’t the big build moving forward?

Burn On, Big River

The big build can’t move forward as long as government policy remains so unpredictable—and at this writing, all we’ve got is unpredictability. Despite the EPA’s new GHG reporting rule, the Obama administration won’t impose constraints under the Clean Air Act as long as there’s a chance Congress will enact climate legislation. But Senators who now are considering the legislation don’t want to give their opponents ammunition on the campaign trail, so they’re reluctant to enact strong, unambiguous policy without clear support from voters. That support never will arrive, especially with America’s leaders delaying and dissembling, and with professional skeptics spreading distrust and disinformation.

We can end this right now. By following the examples of Exelon, PG&E and PNM—by calling for a bankable climate policy and cutting off support for the opponents of that policy—utilities and financial institutions can clarify the issue for lawmakers.

When it comes to climate change, all the melting permafrost and disappearing polar bears in the world won’t turn public opinion. We are the equivalent of the Cuyahoga River. The fire has already started. It’s time to stoke the blaze.