Security and Exchange Commission Chairman Gary Gensler testifies before the Senate Banking, Housing … [+]
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The Securities and Exchange Commission (SEC) is expected to roll out as soon as October expansive new regulations requiring public companies to disclose how their operations contribute to climate change and what they are doing to reduce greenhouse gas emissions.
Members of the U.S. Senate Banking, Housing, and Urban Affairs Committee may want to ask SEC Chairman Gary Gensler about the impact of the new climate regulations on consumer energy prices when he testifies before the committee at Tuesday’s oversight hearing.
The move to strengthen climate-related disclosures by requiring companies to collect and disclose data on all indirect upstream and downstream greenhouse gas emissions that occur outside their core operations, including their supply chains, has long been foreshadowed by the SEC. Still, it represents the latest salvo in the Biden administration’s escalating war on America’s domestic oil and natural gas sector.
President Biden wasted no time leveling the regulatory cannon at the oil and gas industry after moving into the White House. One of his earliest executive orders, “Tackling the Climate Crisis at Home and Abroad,” called on federal agencies to “combat the climate crisis” in “every sector of our economy.”
Since then, the Biden administration has had the oil and gas industry in its crosshairs, and it’s clear their consideration of requiring the reporting of emissions unrelated to a company’s core business operations or even their suppliers – so-called scope 3 emissions – is targeted explicitly at taking America’s publicly-traded producers down a peg or two.
The administration is steamrolling ahead with punitive requirements while at the same time begging Saudi Arabia and the rest of the Organization of the Petroleum Exporting Countries (OPEC) cartel to increase global oil production to keep a lid on prices. If it seems counterintuitive, it is. It’s anti-American.
Requiring companies to account for any greenhouse gases emitted along their supply chains and using their products is an incredibly burdensome standard that will disproportionally affect domestic energy producers, including the financial institutions that underwrite the sector.
Mandatory scope 3 disclosure is discriminatory, putting all the responsibility and pressure to mitigate economy-wide emissions on the oil and gas industry without doing anything to address the underlying demand for the products they produce.
The idea that companies should be responsible for emissions from the use of their products represents a severe threat to the nation’s energy security. These investments are taking place to meet demand in the economy. Until there’s a viable and affordable alternative to satisfy that demand, carbon production will merely be driven into private and state-held companies.
Such an approach will result in greater reliance on foreign sources of oil and gas and higher energy prices for consumers. The administration’s efforts will also slow the transition to cleaner energy sources, despite claims to the contrary by climate activists.
While public investors, regulators, and rating agencies may advocate for the new disclosure rules, public disclosures should not create conditions that discriminate against a single industry by requiring them to shoulder the burden for emissions across the entire economy.
Setting aside the issue of whether the new regulations are fair, they may not be workable. Very little information is available about emissions that are not directly related to a company’s core operations, and there’s currently no universal standard for gathering that information. It’s an area ripe for abuse by overzealous regulators and ambitious environmental lawyers.
From a liability perspective, requiring disclosure of scope 3 emissions in SEC filings is a Pandora’s box that will result in endless legal battles with environmental groups over whether companies accurately disclosed every source of emissions along their supply chains. A company could make a good-faith effort to disclose its emissions accurately and still be penalized and subject to legal challenges. Such a standard will be impossible to meet and will inevitably drive investment offshore.
Organizations other than the SEC with far more environmental reporting expertise also already collect emissions data from sources that are controlled or owned by an organization. The SEC will simply be adding additional costs to the regulatory regime and those costs will inevitably be passed down to consumers.
Companies are already required to provide details regarding business trends and risks posed by climate change in their quarterly management discussion and analysis in filings. They are also required to disclose how their business may be impacted by forthcoming federal and state legislation, as well as treaties and international accords such as the Paris Agreement. Requiring companies to provide prescriptive climate disclosures is redundant and burdensome.
Beyond required disclosures, companies are already extensively voluntarily reporting their climate impacts and plans for mitigation in line with what their shareholders are asking for and in a way that is specifically tailored to their individual organizations.
Rather than requiring prescriptive reporting requirements, the administration should work to ensure that climate-related disclosure standards remain principles-based to provide the flexibility companies need to adjust their disclosure to respond to unanticipated events with a material impact, like they have done for Covid-19 and cybersecurity threats.
The Biden administration is painting a target on the oil and gas industry’s back. The coming SEC’s requirements represent mission creep away from protecting investors and encouraging efficient capital formation into setting energy policy that is the rightful purview of Congress. The new rule will place unnecessary burdens on companies and raise prices for consumers already squawking about increased costs and inflation.
