SEC and New York Times May Regret Global Warming Disclosure Rules – RealClearMarkets
The Biden administration is continuing its efforts to discourage investment in fossil fuels, now enlisting the help of the Securities & Exchange Commission with a massive new regulation requiring public companies to disclose their “climate risks.” To the SEC, a firm’s climate risks include the possibility that—because of the effect of its business on the Earth’s climate—a company may be required to take steps that may reduce its activities or profitability.
However, the SEC’s standards for disclosure—all material facts, including those that make the facts disclosed not misleading—will not necessarily advance the Administration’s climate objectives.
For example, when President Biden terminated the Keystone XL Pipeline on his first day in office—because of his concern about alleged dangers associated with burning fossil fuels–that was a strong signal that fossil fuels investment will be riskier and more expensive in the future. That kind of unpredictable “political” climate risk is unlikely to be what the SEC expects to be disclosed. Yet, as long as the Administration continues to claim that fossil fuels pose a danger to the Earth, regulatory and policy decisions of this kind are a significant element of what the SEC refers to as “climate risk.” In order to provide all “material facts” about their climate risk—whether good or bad—companies will be required to disclose these risks.
Another kind of climate risk exists because of the media’s relentless alarmism about the effect of human activities on the Earth’s climate—known as anthropogenic climate risk. Unfortunately, the media has not provided a balanced account on this question, so that companies—in trying to fully describe their climate risk—will be required to question alleged dangers posed by the release of carbon dioxide through the burning of fossil fuels.
Again, companies must disclose all material facts to make the facts disclosed not misleading. Under this standard, it could be risky to tell investors only that fossil fuels are a cause of climate change. At the very least it would be risky without both evaluating whether those dangers are supported by science, along with the presumed consequences of substituting other sources of energy for fossil fuels. All of this would subject the company to legal action by people or groups who sold their shares in the mistaken belief that fossil fuels were on the way to extinction.
Let’s start with facts about the alleged dangers of fossil fuels. It might be risky for a company to include in its prospectus or other reports the computer-generated models that the media usually credits when it describes the dangers of future climate change. These reports are published by the International Panel on Climate Change (IPCC) and suggest that the continued emission of carbon dioxide has caused a warming Earth. But many scientists regard these models as grossly inaccurate and misleading. For example, if actual data on carbon emissions in the past are fed into the same models of the atmosphere used by the IPCC, they do not accurately describe what actually happened in the past. Obviously, something is amiss.
Moreover, there is no evidence that major weather events like floods, wild fires, droughts or hurricanes have been increasing since 1900, when carbon dioxide emissions were at very low levels. As Steven Koonin—a former Chief Scientist at the Energy Department during the Obama administration—has written in his book, Unsettled: “The bottom line is that the science says most extreme weather events show no long-term trends that can be attributed to human influence on the climate.” It would not be prudent, then, to put your company in the position of defending the IPCC’s reports or other claims about the effects of continued used of fossil fuels in a court of law.
What about the possibility that “clean energy” from wind or solar power will substitute in the future for fossil fuels? These “renewables” have drawbacks of their own, which should be disclosed if a company is to provide a balanced account about the “climate risks” it is creating or facing. First, wind and solar are inherently unreliable. There might be days or weeks where clouds obscure the sun or there is no wind. That happened recently in Texas, which was a leader in reliance on “renewables.” When these were unavailable because of atmospheric conditions, homes and hospitals, among others, faced both inconvenience and danger.
Then, too, enough batteries to store the power that is generated by wind and solar are expensive and involve the importation of a great deal of nickel (the world’s largest exporter is Russia) and rare earths from China. Both supplies are subject to political restrictions that are not present for fossil fuels.
Land use for wind and solar power is also a factor that would prevent widespread use of renewables as substitutes for fossil fuels. A 2020 study by the University of British Columbia estimated that to substitute wind power for about all coal-fired power in the U.S. would require a total land area about the size of Nebraska. And by this time everyone has heard about the dangers of those gigantic rotating arms, which are deadly to birds, only have a lifetime of about 20 years, and don’t decay in landfills. They’re also unsightly, and will bring the NIMBYs out in droves.
Then there are the true costs of renewables. Because of their natural unreliability—the sun doesn’t always shine and the wind always blow—it is necessary to have enough base-load capacity, powered by fossil fuels, ready to fill the gap on a moment’s notice. In other words, if there are “climate risks” associated with the use of fossil fuels—and that is still in question—the substitutes for fossil fuels create problems and risks of their own.
In the end, then, the SEC’s new rules, by requiring balanced disclosure of the facts about climate risks, may do more to teach the American people about climate change than The New York Times.
Peter J. Wallison is a senior fellow emeritus at the American Enterprise Institute. His most recent book is Judicial Fortitude: The Last Chance to Rein in the Administrative State.