Tuesday, December 13, 2022

Climate disclosures and politics by bureaucracy

One of the most important and under-reported struggles under the radar is the politicization of administrative agencies, and the effort to cement via those agencies policies that Congress will never vote for, but that once enshrined will be very difficult for any administration or Congress to overturn. 

One central part of that is the "whole of government" climate policy, centered around stopping fossil fuel development and subsidizing electric cars, photovoltaics and windmills. Never mind that large scale storage remains a pipe dream, never mind the lessons of Europe. 

SEC

As reported by James Freeman in the WSJ the courageous Hester Peirce is again clarfying just what the SEC's new climate rules really mean. Background: SEC wants to mandate "disclosure" of carbon emissions and "climate risks," not just by each individual business but also each businesses' suppliers and customers. That is transparently impossible, a lawyer and consultant employment act, and a tremendous opening to harass companies for mis-statements. But Hester goes on insightfully: 

... the climate proposal mandates disclosure about board oversight of climate-related risks, including identifying board members or board committees responsible for overseeing climate-related risks; detailing board member climate expertise; describing the processes and frequency of discussions about climate-related risks; explaining how the board is informed about, and how often it thinks about, climate-related risks and whether it considers climate-related risks as part of its business strategy, risk management, and financial oversight; and describing whether and how the board sets climate-related targets or goals and how it oversees progress in achieving them.The proposal also includes a corresponding set of disclosures related to management: who is responsible for managing climate-related risks, what their climate expertise is, how they get informed about those risks, and how often the managers responsible for climate-related risks report to the board...

Shudder. 

All Federal Contracts

Related, all US federal contracting is now going to be put under this regime. As also reported in WSJ 

A little-noticed rule-making proposed by the Department of Defense, NASA and the General Services Administration last month would require federal contractors to disclose and reduce their CO2 emissions as well as climate financial risks. 

Smaller contractors would have to publicly report their so-called Scope 1 and 2 emissions—i.e., those they generate at their facilities and from the electricity and heating they use. Firms with larger contracts would also have to tabulate their upstream and downstream Scope 3 emissions, including those from customers, suppliers and products used in the field.

Just imagine trying to calculate not only your household's carbon emissions but also those of everyone you buy anything from and everyone you work for or sell something to. And "climate risks?" Under penalty of law if someone doesn't like your calculations? 

Large contractors would also have to publish an annual climate disclosure and develop “science-based targets” to reduce greenhouse gas emissions in alignment with the goals of the 2015 Paris agreement. That means contractors will have to aim to zero out emissions and possibly require their contractors to do so.

Actually it means a bonanza for companies that sell fictitious carbon indulgences, which will be the cryptocurrency of the next decade, so you can say "net" zero while producing fighter jets. 

The article emphasizes the military implications which are obvious. But 

The proposed rule would also apply to non-defense contractors, including pharmaceutical, shipping and tech companies, though it curiously exempts universities, nonprofit research institutions and state and local governments.  

Perhaps the latter are woke enough. 

The People’s Liberation Army must be dumbfounded by its good luck. 

Well, yes. And even more.  As the WSJ also points out, the new National Security Strategy puts climate change ahead of "competition with" China and Russia as an "existential threat" that requires cooperation with and by any logical inference some degree of capitulation to ... China and Russia.  

These are formal rules, still in the comment stage. This is clever and important. Executive orders can be overturned by new executive orders. Properly passed rules are much harder to overturn, especially when contractors and companies have figured out how to work the system, please the regulators, hire the right consultants, and use the whole system as a dandy barrier to entry. 

"Disclosure" would seem to require only "we have no bloody idea, and neither do you." The idea behind SEC rules is that companies should not keep anything hidden. Somehow this morphed into legal requirements that companies spend millions of dollars coming up with new numbers, and justifying them in court if need be. How that evolution of the word "disclosure" happened is a question I would love to understand from legal experts. 


9 comments:

  1. "Hester Pierce" should read "Hester Peirce." Source: https://www.sec.gov/about/commissioners/hester-m-peirce

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  2. More substantively, I've tried to become an SEC historian to tackle questions like the one you pose in your conclusion but have only managed to get one article out thus far (with Andrew Smith in the Business History Review) because researchers must file and fight for fulfilment of FOIA requests just to get the box and folder information necessary to pull documents from the National Archives. It takes months and if the specific archival material is not helpful or leads to more questions or lead the FOIA process must begin anew.

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  3. Reminds me of years ago when I was an electronic engineer for a large computer company, we had to generate MTBF numbers (Mean Time Between Failures). The company was big enough that we had a person, Harry, who performed that task for all products. The calculations required MTBF numbers for all the individual components in the product, yet most of these numbers did not exist. So Harry would fudge them. He'd have the MTBF for a transistor, so then he would ask how us many transistors are in a certain chip and come up with a number based on that. Yikes, chips are much different than individual transistors!! Anyway one time a manager several levels up asked if we were certain about the MTBF numbers because they were too high. Harry responded "What number would you like?" He had enough fudge room to pretty much cook the numbers to order. Harry's desk was in the back corner of the building, where the train occasionally passes by. People joked that "Boxcar Harry" would look out at the trains and copy numbers from the boxcars to use for MTBF numbers. Just like those MTBF numbers, these climate numbers, ESG and all that, seem similarly a massive inaccurate waste of time and thus excessively nonsensical.

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  4. Tony Heller and Bjorn Lomborg have been able to completely demolish the global warming climate change silliness. Heller uses articles from scientific publications as well as the archives of newspapers. So far no climate scientists have been able to disprove anything that Heller has presented. These presentations should be used in any discussion of the regulatory process

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  5. To open a factory, build a bridge, repair a railway already needs to meet numerous codes, regulations, laws. This new climate change stuff and ESG will make new business/project less possible and make the existing business less competitive. How can one innovate with so many constraints?

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    Replies
    1. When bureaucrats offer nonsensical proposals (“silliness”) perhaps their intent is missed by the unitiated. Revisiting the consequences of such proposals that destroy free enterprise, one may conclude that is precisely the intent of this government’s (and most): power and control through stifling regulations.

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  6. This is all heading in the same direction... increased privatization of capital. No wonder why private equity and private credit are booming. The SEC et al. will soon (?) have nothing left to regulate. At the margin, probably a good outcome.

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