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 that person takes on 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 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).
“While such events haven’t often been a factor in negative rating actions on borrowers we rate, we expect the effects that catastrophes will have on corporate credit quality to increase substantially if, as the evidence suggests, we suffer more frequent and extreme events,” S&P stated in the April report.
What’s more, one of the primary reasons conservatives 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.
If the main point of contention regarding climate change and promoting renewable energy as an alternative to fossil fuels between Democrats and Republicans is an increase in government regulation, there are solutions that could be acceptable to both sides.
One of them 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 acquire 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,” Mayer Brown partner Jose Valera 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 the uncertainty that results 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.