There are certain issues that can be very emotional and divisive; they can also be telling. In the US for example, one can usually gather a lot about a person’s broader political belief system depending on the view they take on particular topics such as gun control, same-sex marriage or the death penalty.
Another issue that can be added to that list is climate change.
A recent example is the Environmental Protection Agency’s Clean Power Plan, the first federal initiative aimed at reducing carbon output in the US. It is expected to be finalised this summer and will require states to reduce carbon pollution from power plants.
In March, Senate Majority Leader Mitch McConnell, a Republican from Kentucky, wrote a letter to the governors of all 50 states, urging them to ignore the new regulation. A month later, Senator Sheldon Whitehouse, a Democrat from Maryland, along with three other Democratic senators and one independent lawmaker, addressed their own open letter to those same governors urging them to ignore McConnell.
It doesn’t get much more partisan than that.
But whether the extreme weather events that seem to be increasing around the globe are due to climate change caused by human activity or whether it’s one of the earth’s natural cycles doesn’t matter. The bottom line is natural catastrophes will affect companies’ credit-worthiness and subsequently their financial health, according to a recent report by Standard & Poor’s (S&P).
Why didn’t you just say so?
One of the primary reasons conservatives in the US tend to reject scientific evidence that climate change is caused by human activity is fear of government regulations, according to research cited by The Guardian. “A majority of Republicans accept the scientific reality when they realise there are free market solutions available,” the article states.
That is easy to believe considering that both Democrats and Republicans seem to agree on the need to invest in the country’s infrastructure yet are slow to take any meaningful action because they disagree on how to fund it.
Several bills aimed at promoting clean energy and adopting measures to mitigate climate change have been introduced but haven’t made it far.
One bill, introduced in February – The Healthy Climate and Family Security Act – by Congressman Chris Van Hollen, a Democrat from Maryland, is a possible solution.
The bill would require first sellers of oil, coal and natural gas in the US market to purchase carbon pollution permits through an auction process. These proceeds would then be distributed as a quarterly “dividend” to every person in the US who has a valid social security number. This “cap and dividend” approach would enable the US to reduce greenhouse gas emissions while supporting economic growth and increasing incomes for American households, according to the press release issued by Van Hollen’s office.
Another solution could be in the form of clean energy certificates, an approach Mexico is taking as part of its energy reform.
These certificates will be issued to clean energy generators. Power marketers and large consumers will be required to obtain a certain quantity of the clean energy certificates by getting a percentage of their power from renewable energy sources. The quantity of certificates they will need to acquire will increase incrementally over time.
“Because the demand must acquire these certificates […] the system is based on market dynamics and not on arbitrary government action setting caps and potentially increasing costs,” Jose Valera, a partner at law firm Mayer Brown, explains.
This model would thus promote the use of clean energy without requiring additional taxes or subsidies for renewables.
It could also eliminate the need for so-called tax extenders – the production tax credit and investment tax credit for facilities that generate electricity from renewable sources – thus putting an end to the suspense and uncertainty resulting from their expiration every one or two years requiring Congressional action to be re-instated.
While politicians may miss the drama, investors in the renewables sector will certainly appreciate the clarity.