California’s gift to Gensler's SEC

Sep 26, 2023

THE BIG IDEA

Gary Gensler testifies.

California's climate disclosure legislation gives SEC Chair Gary Gensler cover for his agency's own rules. Will he take it? | (Evelyn Hockstein-Pool/Getty Images)

SACRAMENTO TO SEC — California played its hand on compelling companies to come clean on carbon emissions. Now it’s up to the Securities and Exchange Commission to decide whether to follow the Golden State’s lead or go its own way, Jordan and Declan report.

Landmark legislation passed in Sacramento this month requiring corporations to disclose both their emissions and the business risks they pose is reverberating in Washington as SEC Chair Gary Gensler weighs one of the agency’s most controversial rules.

California’s legislation, which Gov. Gavin Newsom has said he will sign, might give the SEC political and legal cover to go strong in finalizing the agency’s own climate disclosure rule — but it’s not clear whether Gensler will take it.

The main sticking point at the SEC is how to handle Scope 3 emissions, those generated throughout a company’s supply chain. While California would require both publicly traded and privately held companies to report those emissions, the initial SEC rule proposed 18 months ago would only apply to public companies and only compel Scope 3 disclosures where they are deemed material or are specific to an emissions reduction goal.

Scope 3 emissions have drawn criticism from business interests and political opponents of the SEC rule, who have complained that they would be difficult to track and would impose undue financial burden on farmers and other small suppliers. California’s legislation will eliminate a significant part of that argument, according to John Coates, a former acting head of corporation finance at the SEC who now teaches at Harvard.

“For every $1 billion company operating in California — which is a lot of them — the costs of complying with whatever the SEC will require in effect falls,” Coates said. “So in some ways that makes it easier as a pure cost-benefit analysis matter for the SEC to justify doing something that either matches or maybe is modestly looser than the California rule.”

“But on the pure politics, I don’t know,” Coates said.

The pure politics means the SEC is likely to come under fire from Republicans and the business groups whenever it issues its final rule and is almost certain to face legal challenges to whatever it releases. And the track records of both Gensler and the agency he leads suggest that they are unlikely to be swayed significantly by Democrats in Sacramento and will go their own way.

“I don’t think that will move the needle at all in anybody’s mind at the SEC,” Coates said.

And then there’s this: If the SEC adopts a weaker rule, some analysts expect it would set off a wave of business lobbying for California and other states considering similar efforts like New York to water down their rules to align with the federal agency.

WASHINGTON WATCH

MINERALS MANIA — The State Department is working to shore up critical minerals supply with African nations to break Beijing’s dominance over raw materials key to the Biden administration’s clean energy agenda, Ben Lefebvre and James Bikales report.

The department’s Bureau of Energy Resources is organizing workshops in Zambia and the Democratic Republic of Congo this month to help establish supplies of cobalt, copper and other minerals needed for everything from electric vehicle batteries to solar panels.

The diplomatic outreach is part of a U.S. strategy to procure critical minerals from any country that is willing to work with Washington, a senior administration official said in an interview.

Africa is home to 85 percent of the world’s manganese, 80 percent of platinum and chromium, 47 percent of cobalt and significant amounts of other key minerals such as copper and graphite, according to the Center for Strategic and International Studies. Congo alone accounts for 60 percent of the world’s cobalt — a key mineral for EV batteries. Most African mining is controlled by Beijing, which sends the raw minerals back to China for processing.

AROUND THE NATION

ALL WRAPPED UP — Ford is halting construction on a planned electric vehicle battery plant in Michigan that Republicans have criticized over the company’s plans to use licensed Chinese battery technology, James Bikales and Kelsey Tamborrino report.

United Auto Workers President Shawn Fain, who is leading a strike against the Big Three U.S. carmakers, was quick to pounce on the news just days after praising Ford for making strides in negotiations.

“Closing 65 plants over the last 20 years wasn’t enough for the Big Three, now they want to threaten us with closing plants that aren’t even open yet,” Fain said. “We are simply asking for a just transition to electric vehicles, and Ford is instead doubling down on their race to the bottom.”

The Michigan project has been in hot water among local officials and national Republicans alike. Some of the criticism has focused on the fact that the project could be eligible for tax subsidies under the Inflation Reduction Act, though Ford has maintained that it would own and control the plant and that the Chinese firm involved would receive no taxpayer funds.

ESG FTW — A Trump-appointed federal judge in Texas handed the Labor Department a win in court last week, upholding a rule clarifying that fiduciaries can consider environmental, social and governance factors in selecting investments.

U.S. District Judge Matthew Kacsmaryk rejected arguments from a coalition of 26 red-state attorneys general who sued the department in January, arguing that its reversal of Trump-era restrictions was “arbitrary and capricious” and would open the door to politicized investments.

“This is a big deal,” said Bryan McGannon, managing director at US SIF, which advocates for sustainable investing. “He’s a very conservative judge, so it’s a powerful statement that he upheld the rule. DOL did a really good job of staying within the bounds of fiduciary duty.”

Rich Piatt, a spokesperson for Utah Attorney General Sean Reyes, a plaintiff in the lawsuit, said in a statement that Reyes’ office is “disappointed” in the outcome and that it is “evaluating next steps, including potential appeal.”

AROUND THE WORLD

CCS ACROSS THE POND — U.K. energy experts have big hopes for carbon capture and storage, which some insiders see as a potential Swiss Army knife of decarbonization technologies, but political upheaval and bureaucratic delays are threatening to derail progress, Abby Wallace reports.

The government will miss the target of capturing 20 megatonnes to 30 megatonnes of carbon dioxide annually by 2030 unless it works more quickly through the complex, multistep process CCS requires, industry leaders tell POLITICO.

Officials have selected four industrial ‘clusters’ to organize the capture, transport and storage of carbon emissions across different regions of the U.K., but companies operating as part of those initial clusters are still waiting for the government to decide on investment.

“We’ve only got six and a half years to 2030 — so this does need to be a regular cycle of selecting projects, signing contracts [and] starting construction,” said Ruth Herbert, chief executive of the Carbon Capture and Storage Association (CCSA).

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