Nine Northeastern and mid-Atlantic states and the District of Columbia plan to spend 2019 hashing out the details for a cap-and-trade-style program that would put the brakes on transportation-sector carbon dioxide emissions.
Source: AP/Richard Vogel
Action on pending legal battles and federal rules, pressure from investors, and efforts by states to curb transportation emissions will help determine whether the U.S. makes headway in addressing climate change in 2019.
The U.N. Intergovernmental Panel on Climate Change found in October 2018 that the world will need to act quickly to slash carbon dioxide emissions and make substantial new investments in low-carbon infrastructure to limit and mitigate the impacts of climate change. And while global carbon emissions had not climbed in recent years, researchers recently reported that those emissions likely rose during 2018.
"We have a mere 12 years to turn around our actions in a radical way as it relates to climate change, to change our energy systems, our transportation systems, so we've got some real challenges," said Mindy Lubber, president of Ceres, a nonprofit sustainability advocacy organization.
Some of those changes are already in motion. Despite the absence of climate leadership by the U.S. — President Donald Trump has pledged to pull the U.S. from the Paris Agreement on climate change — a number of state governors, financial institutions and businesses have said they will continue to pursue the goals of the Paris accord. Moreover, Lubber expects many corporations, local and state governments in the U.S. and global investors to increase their climate-related activities in 2019.
Investor pressure, corporate action
Hundreds of investors have pledged to continue to pressure companies to address climate risks through actions such as the Climate Action 100+, which is backed by investors with nearly $30 trillion in assets under management.
The five-year initiative, which began in 2017, has targeted 161 companies, a number of which during 2018 issued climate reports and/or pledged to ratchet up their climate-related ambitions. Those companies include Royal Dutch Shell PLC, Dominion Energy Inc., AES Corp., Duke Energy Corp. and Southern Co. In addition, American Electric Power Co. Inc. met with a group of Climate Action 100+ investors in November 2018. Looking forward, FirstEnergy Corp. and Ameren Corp. are among the utilities expected to issue climate risk reports in 2019.
"I suspect that over the next year given the traction we have ... we will see more corporate action addressing climate change and other sustainability issues and doing so in a more focused, concentrated, systemic way," Lubber said in a Dec. 21, 2018, interview.
Heading into the 2019 corporate annual meeting proxy season that begins in late spring, investors have filed more than 30 climate-related resolutions with companies, according to a database maintained by Ceres. Not all of those will necessarily go to a vote as some may be withdrawn in exchange for companies pledging to take action on the issue, which is what happened with resolutions before a number of energy companies in 2018.
Evolving regional carbon markets
The state-level focus on decarbonization is expected to go beyond energy resources and include transportation emissions in 2019.
Building on the success of a regional cap-and-trade program for electricity emissions, nine Northeastern and mid-Atlantic states and the District of Columbia plan to spend 2019 hashing out the details for a program to reduce transportation-sector emissions.
In recent years, transportation emissions, primarily from motor gasoline combustion, have climbed even as emissions from electric generation plummeted thanks largely to slow electricity demand growth combined with cheap natural gas and declining costs of wind and solar generation. Climate experts have suggested that the goals of the Paris Agreement on climate change cannot be achieved without tackling transportation emissions.
"Climate change is really about all hands on deck," said Lynn Scarlett, vice president of policy and government affairs at The Nature Conservancy and a former U.S. Interior Department deputy secretary. "The emissions come from multiple sources, whether it's energy use, fuel use in transportation, building design and materials, agricultural practices, the list goes on."
Meanwhile, two states are expected to move forward with plans to link to or join the Regional Greenhouse Gas Initiative, or RGGI. New Jersey's Department of Environmental Protection in December 2018 proposed two rules to enable the state to re-enter the RGGI in 2020. The agency is holding two public hearings on the rules in January and is accepting written comments through mid-February. And the Virginia Air Pollution Control Board is expected in 2019 to finalize its proposed rule to link the state's power plant emissions reductions with RGGI.
Agencies poised to act
Two federal agencies in 2019 are expected to roll out or finalize rules that could impact investors' ability to press companies on climate change or rescind environmental protections.
Even as some states look to reduce transportation emissions, the Trump administration could order a freeze as early as March on Obama-era clean car standards that were set to ramp next decade and revoke California's federal waiver to set its own more stringent standards.
California and a coalition of states that use its standards have already challenged the move in federal appeals court, teeing up a potentially long and messy legal battle. The EPA and U.S. National Highway Traffic Safety Administration estimated the relaxed standards would increase vehicle CO2 emissions by 713 million metric tons over the lifetime of vehicles produced from model years 1979 through 2029.
The EPA is also moving to rewrite the Clean Power Plan, which was a key component of the Obama administration's plan for meeting U.S. decarbonization goals under the Paris accord. The agency is expected to finalize the replacement to the Clean Power Plan, called the Affordable Clean Energy Rule, in early 2019. The new regulation would incentivize efficiency upgrades at coal-fired power plants but, according to the EPA's own estimates, could also cause up to 1,400 premature deaths annually by 2030 due to an increase in fine particulate matter linked to cardiovascular disease.
In addition, the EPA has proposed to alter performance standards for the upstream oil and gas industry, including modifications to the way fugitive methane emissions are measured. The proposed changes would save the industry approximately $484 million through 2025 while allowing an additional 380,000 of greenhouse gas emissions over that span, according to the agency's estimates.
As for investor rights, U.S. SEC Chairman Jay Clayton said in a Dec. 13, 2018, speech that his agenda for the coming year includes reviewing the ownership thresholds investors must meet to file resolutions. He has also directed staff to develop recommendations for a possible rulemaking on the practices of proxy advisory firms that often have an outsized influence on the outcomes of shareholder votes. Clayton's remarks followed the agency's November 2018 proxy process roundtable and reflected many of the suggestions made by groups that have pushed back against the rising tide of environmental and social shareholder proposals.
Shareholder advocates view the proxy process as a key tool for pushing companies to pay attention to emerging issues, and some have worried that making it harder for investors to submit resolutions could hinder that process.
Climate battles rage on in courts
A number of legal battles involving climate change issues are also pending going into the new year.
Perhaps the most consequential of the cases, and one unlikely to be decided for some years, is a lawsuit by a group of youth seeking to force the federal government to take more action on climate change. A federal court ruling that the government must act on climate change could have wide-reaching implications for U.S. energy policy, particularly if the case is resolved during the current administration, which has moved to unwind regulations governing fossil fuel development.
If the group ultimately prevails, it would "really put the federal government through the paces," said Michael Gerrard, director of the Columbia Law School Sabin Center for Climate Change Law.
The federal government during the Obama administration began fighting the case in 2015. After a federal district court judge said the case could proceed to a trial-type hearing, the U.S. Court of Appeals for the 9th Circuit on Dec. 26, 2018, allowed the federal government to appeal that decision before the trial occurs. Regardless of what the 9th Circuit or district court judges decide, the case — United States of America v. U.S. District Court for the District of Oregon, Eugene (No. 18-73014) — will likely be appealed to the U.S. Supreme Court.
Also pending are a number of climate-liability lawsuits against oil majors brought by some states and cities. The New York attorney general also has sued Exxon Mobil Corp. in State of New York v. Exxon Mobil (No. 452044/2018) for allegedly misleading investors on the actions the company was taking to address its potential financial exposure to climate change risks. Exxon is fighting a similar lawsuit — Ramirez v. Exxon Mobil (No. 3:16-CV-3111) — in a federal district court in Texas brought by one of its investors, the Greater Pennsylvania Carpenters Pension Fund. The fund applied Dec. 21, 2018, to turn the case into a class-action lawsuit for all applicable investors.