The brewing fight between Big Oil and SEC

Welcome back to another Energy Source.

If you thought that, after the ExxonMobil activist investor win and a court ruling against Royal Dutch Shell, Big Oil would just roll over in the face of climate pressure, think again. Submissions to the US Securities and Exchange Commission on the topic of climate disclosures suggest the oil industry is gearing up for another fight. It’s the topic of our first note today.

Our second is on utility-scale storage. Texas and California will see a huge increase in battery capacity over the coming months. Will the back-up power arrive quickly enough to ease the expected stresses on their rickety electricity systems as temperatures rise?

Don’t miss the FT Commodities Global Summit over the next two days, where the theme asks if a new supercycle in commodity markets is under way.

Thanks for reading. — Derek

Big Oil warns regulator not to ‘stray beyond its authority’

As US regulators mull tougher climate disclosure requirements from industry, Big Oil is pushing back, cautioning officials against overstepping their jurisdiction. 

The Securities and Exchange Commission yesterday published a flood of submissions from investors, industry and stakeholders in response to a call for input on how it might update the way it regulates climate-related disclosures.

The letters underscored a sharp contrast between industry positions on new disclosure requirements, with Silicon Valley fully on board and Big Oil much more sceptical.

While perhaps not surprising, the correspondence offers some insight into the fossil fuel industry’s position as regulators look to beef up requirements on climate filings under the Biden administration. It suggests a fight is brewing and that Big Oil is preparing to dig in.

Industry wants regulators to stay within their remit

Many of the oil industry’s objections to additional climate disclosures claimed new requirements risked reaching beyond what is currently considered “material” to investors. 

Katie Tubb, senior policy analyst for energy and environment at conservative Washington think-tank the Heritage Foundation, laid out the industry position succinctly:

“The SEC should not use climate change or executive order as occasions to significantly alter or expand the definition of ‘material’ information that must be disclosed,” she said. “To use climate change as a proxy for deeper philosophical economic change is well outside the mission of the SEC.”

A 1976 Supreme Court ruling defined information as material “if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote”.

The industry argues certain climate disclosures would not meet this bar — a sentiment echoed by the submissions of a host of oil companies and industry groups.

“Any effort by the SEC that seeks to impose a major new climate disclosure regime but deviates from the well-established grounding in materiality could raise significant concern about whether the SEC has strayed far beyond its authority to regulate the securities markets,” wrote Frank Macchiarola, senior vice-president for policy, economics and regulatory affairs at the American Petroleum Institute, Big Oil’s powerful Washington lobby group.

“In addition, a significantly expanded disclosure requirement beyond the well-established doctrine of materiality could raise serious First Amendment issues under recent precedent applying strict scrutiny to content-based laws compelling speech.”

An undue burden on producers

The industry’s objections also homed in on the idea that the burden imposed by far-reaching new requirements would be simply unmanageable for many in the industry — especially if they were imposed rapidly. 

The API said:

“The potential cost of compliance with a new reporting regime, that could go well beyond what may already be reported to other government agencies or voluntarily to stakeholders, can be dramatic even when considered against experiences with other financial reporting rules.” 

Small and midsized companies, the API said, would lack the capability and resources to comply with sweeping new requirements. 

ConocoPhillips advocated for basing any new regime on existing frameworks and standards in order to minimise the new disclosure and compliance burdens. Chevron called for a “phased approach” to any new requirements, imposing them gradually in order that companies can adjust. 

For its part, the API suggested new regulations should at least initially focus just on scope 1 emissions (those directly attributable to a company’s operations) rather than scope 2 or scope 3 (those from its power suppliers and customers, respectively). 

“Some issuers, within the industry and in other industries, may be providing shareholders GHG emissions information beyond their direct, or scope 1, emissions. This presents additional complexities and data gathering that currently may not be adoptable by all issuers,” the API said in its submission to the SEC.

The lobby group also called for liability protection for any plans companies might publish on cutting emissions in case “unplanned events could alter the trajectory for reaching planned reductions”.

The industry submissions come against a backdrop of the regulator signalling it will be taking a tougher line on climate under the Biden administration. Chevron recently lost an investor vote requiring it to increase its scope 3 emissions disclosures, after the motion was forced on to the ballot by the SEC.

The regulator looks set to increasingly flex its muscles as part of this process after the president last month used an executive order to direct the Financial Stability Oversight Council — of which the SEC is a part — to come up with a plan to address climate risk.

The letters published yesterday suggest Big Oil is ready to push back.

(Myles McCormick)

A race against time for more battery capacity

Energy storage on America’s grid is set for a bumper summer, with battery capacity expected to more than double because of new infrastructure projects. Texas and California are expected to see the biggest gains. But will it come in time to help their strained electric systems avoid another round of blackouts?

Yesterday, Texas’s grid operator, Ercot, warned of potential electricity shortfalls this week as temperatures rise and demand surges. The company asked residents to trim their power use by turning off lights and swimming pool pumps and avoiding using their washers and ovens.

The warning came just a couple days after California’s grid operator, California ISO, issued a similar alert ahead of a heatwave that is set to blanket much of the state.

It is an inauspicious start to the summer for the US’s two largest economies. Both states are on edge after natural calamities over the past year triggered blackouts that left millions without power and inflicted a deadly and economically damaging toll.

Large-scale energy storage has been seen as key to bolstering the grid’s reliability, especially as intermittent wind and solar generation expands.

While the main causes of the tight grid conditions in Texas this week are tied to high demand and a higher than usual number of offline thermal plants, winds are also blowing more gently than expected for this time of year. It’s the kind of gap in the grid proponents say batteries can fill.

An analysis by S&P Global Market Intelligence shows that energy storage is starting to show up in a big way. The amount of storage hooked up to the grid, mostly from lithium-ion batteries that can store four hours of electricity, is set to surge to 5,600 megawatts by August — 185 per cent higher than the same time last year. Most of that is coming in Texas and California.

California will have 2,800MW of utility-scale battery storage installed by September, five times more than the year before, S&P said. Texas could have 1,400 megawatts installed by then, eight times more than the year before.

It’s part of a boom in utility battery storage. The Energy Information Administration, a federal government forecaster, expects battery storage on the grid to rise to around 25,000MW by 2030 as billions of dollars are ploughed into new projects and grid operators look to back up grids with more renewables.

The stakes are high for California and Texas, which will be sweating through a summer on the edge. (Justin Jacobs)

Power Points

• France’s EDF is seeking a data review on report of a possible China radiation leak.

• Lex weighs in on reports that Shell may be selling its Permian assets.

• Carbon counter: an FT series on personal choices and what they mean for emissions.

• Orsted’s chief executive, Mads Nipper, says governments must make more of the seabed available to wind power developers if global climate targets are to be met.

• Aid to the developing world is key to fighting climate change, argues the head of the UK’s Environment Agency.

• Biden’s green push is a boost to US fossil fuel producers, says John Dizard, an FT columnist.

Endnote

The International Energy Agency, the US Energy Information Administration and Opec have all released their monthly oil-market reports. Here is our round-up of what matters and what changed in the June numbers: