SustainAbility’s Trends blog series provides you with updates on important signals from our What’s Next for Business? Sustainability Trends for 2017 report. The first blog in this series looks at emerging opportunities for leadership for American companies in relation to recent changes in United States climate and energy policy.
US government action on climate change has been gutted. In March 2017, the Trump Administration announced sweeping changes that would scrap the Clean Power Plan, weaken ambitious emissions fuel standards for the automotive sector, lift the moratorium on federal coal leasing and reduce regulation on methane leaks.
In this new regulatory environment, will companies continue much needed progress towards keeping global warming below two degrees celsius?
There are encouraging signals from the private sector, and we are likely to see continued progress by companies on greenhouse gas (GHG) reductions.
In his comments to SustainAbility John Weiss, Director of Ceres Corporate Program made a strong case that they will: “You might think that the shift in the U.S. political landscape is creating an opportunity for companies to back off from their climate goals and related strategies, but there’s no evidence that’s happening. In fact, companies are reaffirming their commitments because they need to be responsive not only to the growing number of investors who understand the bottom-line implications of climate action (or inaction) but also to a global marketplace where climate remains at the top of the agenda.”
And this has been playing out in boardrooms around the country. Since the November election, over 1,000 companies and investors, with combined revenues of more than US$1.2 trillion, have signed a statement calling on President Trump to continue Obama-era climate policies and stay committed to the Paris Agreement.
These are encouraging signals from the private sector, and we are likely to see continued progress by companies on greenhouse gas (GHG) reductions. At this point, global companies face a critical number of pressure points to reduce emissions, with Emissions Trading Schemes already in operation in Europe, California, and Canadian provinces, and a price on carbon due to come into effect in China in 2017. Companies also face growing pressure from institutional investors, such as BlackRock, to take action to limit climate risk.
Even if the Obama Administration’s regulations were fully implemented, the U.S. would be unlikely to deliver on its Paris commitment. Now the country is likely to miss its 2025 goal by a wider margin.
But Trump’s policy changes will make the next steps for reducing greenhouse gas emissions murkier and jeopardize U.S. Paris climate commitments. According to many experts, even if the Obama Administration’s regulations were fully implemented, the U.S. would be unlikely to deliver on its Paris commitment. Now the country is likely to miss its 2025 goal by a wider margin.
In the following sections we discuss opportunities for continued climate action in the electric utilities and automotive sectors. Combined, these two sectors are responsible for close to half of total U.S. GHG emissions, and the decisions they make will be pivotal for the U.S energy agenda moving forward.
Opportunities for electric utilities
Electricity production is responsible for around 30% of total U.S. emissions. Here are key opportunities for the utility sector to continue meaningful GHG reductions in 2017 and beyond:
- Keep transitioning to natural gas and renewables: While Trump has promised to end the “war on coal” and reduce emissions reduction targets for utilities, coal is unlikely to make a comeback, due to a massive increase in low-cost domestic natural gas production and the falling cost of renewables. Utilities need to continue their rapid transition from coal to natural gas and renewable energy, which offer substantial GHG emissions savings, longer-term price stability, and air quality benefits for American communities.
- Reduce fugitive methane emissions: Limiting methane emissions in natural gas supply chains was a core focus of the Obama administration, but the policy is likely to be revoked by President Trump. Methane, a greenhouse gas with a global warming potential of more than 20x that of CO2, is a significant contributor to total U.S. GHG emissions. Continuing to reduce fugitive emissions from utility distribution pipelines will provide important cost savings for utilities as well as providing much-needed reductions in GHG emissions.
- Work to boost state and private sector research and development funding for renewable energy: One of the biggest impacts from Trump’s changes to climate regulation will be a significant reduction in federal spending on renewable energy research and development (R&D). Some experts estimate that renewable energy research could lose as much as $1 billion in funding. This could have major impacts on the speed of the U.S. transition to affordable renewable energy. It would also impact America’s ability to compete against China, Germany and other renewable energy heavyweights in global markets.
Opportunities for the automotive industry
The transportation sector is the second-largest producer of U.S GHG emissions, responsible for around 26% of total emissions. More than half of of transportation-related GHG emissions come from passenger vehicles. Average fuel economy for vehicles has been improving in the US, although not as rapidly as in Europe.
The next twelve months offers a window of opportunity for U.S. automakers to demonstrate leadership on climate change.
Obama-era fuel economy standards which set a mileage standard for 2025 of 54 MPG, were going to be a pivotal driver of increased innovation for the U.S auto sector. And even with federal policy changes, states may continue to drive progress. The Clean Air Act allows California, to set its own tougher-than-federal emissions standards for automobiles, and twelve other states have followed suit. It’s extremely inconvenient for car companies to create two product lines, so the future of U.S car efficiency will likely be decided by states’ ability to set emissions standards.
The next twelve months offers a window of opportunity for U.S. automakers to demonstrate leadership on climate change. Key opportunities are:
- Don’t attack states’ rights to set emissions standards: U.S. auto manufacturers were historically supportive of Obama’s fuel emissions standards. Ford was a leader in setting science-based climate goals. If companies want to maintain a public image of taking strong action on climate change, they will need to avoid joining the Trump Administration’s attack on states’ rights to set climate policy.
- Increase R&D budgets for low-emissions vehicle technology: Current low oil prices may support increased sales of large, fuel inefficient vehicles, but the pipeline necessary to create the next era of zero emissions vehicles will take time. If U.S. companies scale back R&D investment now, in 10 years they will be out-competed by European and Asian car companies that have the benefit of more supportive domestic markets and regulatory environments.
China is heavily outspending the U.S. on investment in renewable energy. The country invested $287.5 billion in clean energy in 2016, compared to U.S. spending of $58.6 billion. China plans to spend more than $360 billion on renewable power through 2020, which will result in more than 13 million jobs. We are at a pivotal moment in history that could see the U.S. economy follow the Trump Administration on a backwards-looking energy agenda. More than ever we need forward-looking CEOs investing in an innovative clean energy economy that will build a foundation for the U.S. economy to remain competitive in the coming decades.