Republican opposition to corporations integrating climate change into their operations and goals is philosophically and physically contradictory. The philosophical one is that climate change, and the government’s efforts to address it, is now an established concept almost everywhere outside Republican committees. Companies would go crazy — or, in other words, be abandoned — and simply ignore them on principle. Republicans, in turn, are crazy to expect corporations to do this, and by putting pressure on them, they are ruining the party’s reputation for letting corporations run things the way they see fit. The real paradox is that even though Republican representatives oppose action to slow climate change, most of the country’s clean energy infrastructure is built in their districts—including McCarthy’s district (see here for details).
These tensions will amplify as environmental considerations become a cornerstone element of corporate strategy, including among companies operating with fossil fuels. There is a clash of ideological fundamentalism and corporate pragmatism here, exemplified by the blacklisting of companies in Texas as hostile to fossil fuel producers. Are loan officials reluctant to provide financing to frackers, are they a waking environmentalist, or are they simply managing demand and regulatory risk? To punish so-called political meddling in financial affairs, Republican politicians are meddling in financial affairs. Likewise, Republican anger at the Chamber’s announcement this summer that it would work with the SEC to mandate climate disclosures — precisely to limit its scope — represents anger over reality.
A dynamic that could be at play here, and one that has plagued Republicans’ relationship with the Chamber of Commerce in the past, involves divisions between big business and small and midsize business owners. The chamber’s longstanding support for globalization — and the Republican Party’s position before former President Donald Trump took over the party — is an insult to small domestic companies that are less able to compete internationally. This extends to environmental issues: while big oil companies publicly support carbon taxes and crackdowns on methane leaks as a means of managing long-term regulatory risk, smaller exploration and production companies do not. That has divided an industry traditionally aligned with the Republican Party, and the party’s recent populist slant has made it more inclined to express support (and seek donations) for the little man.
Meanwhile, if clean tech reaches critical mass in more states, the district will demand more public support from Republican politicians and help with the kinds of things that this side of the aisle is known for: easier licensing, looser labor laws, lower taxes. Ultimately, the greater geographic dispersion of cleantech (see here) should see more states challenge Republican orthodoxy on climate issues than the inherently centralized nature of fossil fuel production and processing. The incentives provided by the Infrastructure Investment and Jobs Act and the Reduce Inflation Act will accelerate this decentralization, not only in clean technology deployment, but also in manufacturing and the jobs that follow.
Ultimately, this even complicates the fossil fuel issue: After all, Texas is not only the largest producer of conventional fuels, but also generates more wind and solar power combined than any other state. It also happens to be home to Tesla Inc., the largest electric car maker in the country.
One constituency to watch in this regard: Utilities. The industry has traditionally been a barrier to accelerated deployment of renewable and distributed energy resources, as they threaten the utility’s monopoly. But the IRA includes several measures that benefit the utility, such as subsidies for existing nuclear power plants. Additionally, the legislation makes some adjustments to how utilities treat tax credits for renewable energy projects, allowing them to be transferred to third parties and pre-approved, putting utilities on a more level playing field with independent developers. Given that utilities often wield outsized influence in state legislatures, local Republican officials may find themselves caught between supporting a powerful constituency that has done a good job on climate policy and remaining united at the federal level with party leaders who oppose it. contradiction.
In fact, one unintended consequence of House Republicans’ anti-ESG push could be to accelerate the deployment of billions of dollars in these IRAs. A narrowly controlled House can block further legislation, but it has little power needed to undo just-passed climate-related laws. (Indeed, the slim Republican majority could doom McCarthy’s bid for the gavel.) Instead, it could try to sabotage the legislative rider’s initiative of a funding bill that must pass — for example, not prescribing new SEC climate disclosure rules — or Slow things down and end the endless oversight hearings (except for the one on Hunter Biden’s laptop). Faced with this, and cautious about 2024, agencies with a decade to spend on the legislative front may conclude they have only two years on the political front.
Efficient? Do not. In fact, even before spending hundreds of billions of dollars in the short term, the IRA intertwined climate policy with reshoring and geopolitical competition, threatening inflation in the cleantech industry, whose calling card was staggeringly deflationary. We can also expect some oversight hearings in the House on this, even with a conspicuous lack of useful plans to mitigate it.
More views from Bloomberg:
• What’s next for Biden’s green agenda after the midterms?Liam Denning
• Democrats are screwing over debt ceiling: Jonathan Bernstein
• Can MAGA Republicans Learn to Love Democracy? Francis Wilkinson
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Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s “Voices of the Street” column and a reporter for the Financial Times’ Lex column.
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