Comment: ‘Anti-woke’ Republicans ignore climate’s business sense

By Liam Denning / Bloomberg Opinion

Republican Speaker-in-waiting Kevin McCarthy’s reported snub to the Chamber of Commerce marks a milestone of sorts in the growing schism between his caucus’ avowed opposition to meaningful climate policy and spreading facts on the ground.

With anti-wokeness now GOP dogma at both state and federal levels — and for likely presidential contender Gov. Ron DeSantis of Florida — the House of Representatives is about to become a base from which to attack all things environmental, social and governance, or ESG, related. Republican displeasure with the Chamber isn’t unprecedented — there was a similar spat in the early 1990s — and isn’t confined to ESG issues. The environmental bit of ESG is, however, likely to be a growing source of friction.

There’s both a philosophical and physical contradiction in Republican opposition to companies incorporating climate change into their operations and targets. The philosophical one is that climate change, and government efforts to address it, are now concepts established virtually everywhere outside of GOP committee rooms. Companies would be nuts — or, put another way, fiduciary derelicts — to simply ignore them on principle. In turn, Republicans are nuts to expect companies to do so and, by putting pressure on them, also trashing the party’s reputation for letting businesses run things as they see fit. The physical contradiction is that, even as Republican representatives oppose action to mitigate climate change, most of the country’s clean energy infrastructure gets built in their districts; including McCarthy’s.

Those contradictions will widen as environmental considerations become bedrock elements of corporate strategy, including at companies in the business of fossil fuels. There is a clash here of ideological fundamentalism and corporate pragmatism, exemplified by Texas’ blacklist of companies held to be hostile to fossil-fuel producers. Is a lending officer reluctant to extend financing to frackers a woke tree-hugger or just managing exposure to risks around demand and regulation?

In seeking to punish the alleged intrusion of politics into financial matters, Republican politicians are intruding into financial matters. Similarly, Republican anger at the Chamber’s statement this summer that it would work with the Securities and Exchange Commission on mandating climate disclosures — precisely in order to limit their scope — represents a triumph of pique over practicalities.

One likely dynamic at play here, and one that has troubled Republicans’ relationship with the Chamber in the past, concerns the divide between big business and small and medium-sized business owners. The Chamber’s long-standing support for globalization — also a Republican position before former president Donald Trump took over the party — was an affront to smaller domestic companies less able to compete internationally. This extends to environmental matters: While Big Oil publicly supports a carbon tax and a crackdown on methane leaks as a means to manage longer-term regulatory risks, smaller exploration and production firms do not. This has opened a divide in an industry traditionally allied with the GOP, and the party’s populist bent these days makes it more inclined to voice support for (and seek donations from) the little guy.

Meanwhile, as cleantech reaches critical mass in more states, that constituency will demand more public support from Republican politicians, and help with the sorts of things that side of the aisle is famous for: easier permitting, looser labor laws, lower taxes. Eventually, the greater geographical dispersion of cleantech, compared with the inherently concentrated nature of fossil fuel production and processing, should see more states challenge the GOP orthodoxy on climate. The incentives provided by the Infrastructure Investment and Jobs Act and the Inflation Reduction Act (IRA) will accelerate that dispersion, not just in terms of cleantech deployment but also manufacturing and the jobs that go with that.

It will even, ultimately, complicate things in fossil fuel redoubts: Texas is, after all, not just the biggest producer of conventional fuels but also produces more electricity from wind and solar power combined than any other state. It also happens to be home to the country’s biggest electric vehicle maker, Tesla Inc.

One constituency to watch on this front: utilities. That industry has traditionally been an obstacle to faster deployment of renewable and distributed energy because they threaten the monopoly position of utilities. But the IRA contained several utility-friendly measures, such as subsidies for existing nuclear power plants. Moreover, the legislation made several tweaks to how utilities can treat tax credits for renewable energy projects, allowing them to be transferred to third parties and to be recognized upfront, putting utilities on a more level playing field with independent developers. Given the outsize influence utilities tend to have in statehouses, local Republican officials may find themselves caught between supporting a powerful constituent doing well from climate policy and maintaining unity with party leaders opposing it at the federal level.

Indeed, one unintended consequence of House Republicans’ anti-ESG push could be to accelerate the deployment of those IRA billions. A narrowly controlled House can block further legislation but it doesn’t have nearly the power required to revoke the climate-related laws just passed. (Indeed, the slightness of the GOP majority may yet doom McCarthy’s bid for the gavel.) Instead, it can try to derail initiatives with legislative riders on must-pass funding bills — say, stipulating no new SEC climate disclosure rules — or slow things down with endless oversight hearings (other than those about Hunter Biden’s laptop). Faced with that, and with a wary eye on 2024, agencies that have a decade to disburse funds in legislative terms may conclude they only have two years in political terms.

Efficient? No. As it is, even before pumping in hundreds of billions in short order, the IRA’s intertwining of climate policy with reshoring and geopolitical rivalry threatens inflation in a cleantech sector whose calling card is spectacular deflation. We can probably expect some House oversight hearings on that, too, even if useful plans to ease it are conspicuously absent.

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.