By: Eric Scheriff

October 19, 2021 — Capstone recently held meetings on the policies driving the energy transition with the Biden administration’s Secretary of Energy Jennifer Granholm, Congresswoman Lizzie Fletcher of Houston (D-TX), and sustainability-focused executives from several companies—including First Solar, Delta Airlines, Bloom Energy, Renewable Energy Group, and Hannon Armstrong.

The takeaways from these meetings support Capstone’s long-held view that policymakers at the state and federal levels are increasingly turning to a “broader scope” approach to reduce greenhouse gas (GHG) emissions beyond the power sector, which has been and will remain a key priority. Secretary Granholm notably likened the policy evolution to a broad, economy-wide focus to reduce GHG emissions to that of a “silver buckshot,” rather than a silver bullet. To really move the needle, this broadening must include industrials, manufacturing, waste, refining, petrochemicals, fertilizer production, aviation, and transportation. Of note, emissions from industry and transportation account for roughly 23% and 29%, respectively, of total US carbon emissions. Accelerating the decarbonization of the power sector, which accounts for approximately 25% of US carbon emissions, will and must remain a leading priority. And huge additional investments over time in zero and low carbon power will be critical to meeting US and state climate commitments. But we are seeing policymakers and industry more intently expand their focus to include other point sources of emissions, where comparatively less GHG reduction has been achieved versus the power sector.

Much as we have seen in the evolution of policies around electricity decarbonization, the policies for these non-electricity sources of GHG emissions will end up a patchwork of state and federal regulations, mandates, and incentives. Add to this complex patchwork a panoply of sustainability commitments from major corporations as they also take a “broader scope” approach to decarbonization—decarbonizing their electricity supply and other GHG sources, such as the fuels used in delivery trucks and energy-intensive thermal industrial processes.

This “broader scope” approach of carbon reduction will include industries as diverse as aviation, heavy duty trucks, maritime, energy-intensive industrial processes like steelmaking and refining, as well as methane emissions from oil & gas infrastructure and decomposition of organic wastes (methane is a far more potent greenhouse gas than carbon dioxide).

At our recent event, Granholm discussed the Biden administration’s infrastructure effort—a massive upcoming catalyst for clean energy investment—but also noted that a lot more will need to be done. She noted—as have we for some time—that, while Congress and the federal government are becoming more active than ever in addressing GHG emissions, state-level policies will continue to have a critical role in reducing overall US GHG reductions.

We have seen state and local-level policymakers in many states leading with the “silver buckshot” approach that Sec. Granholm had mentioned. Many states have aggressive renewable portfolio standards to decarbonize electricity. More states are moving towards transportation decarbonization policies like California’s Low Carbon Fuel Standard (LCFS), reducing methane emissions from things like organic waste, and instituting aggressive energy efficiency programs. This evolution to an expanded, broader scope of reducing greenhouse gas emissions across all areas of the economy mirrors the trajectory of how the EU has implemented policies to address climate change. All in all, this bodes well for solutions like carbon capture, renewable natural gas, clean fuels, anaerobic digestion, and electrification.

In the US, we expect states to continue to take a leading role in implementing this sector-by-sector approach to decarbonization, as state policymakers generally move swifter than their counterparts in Washington, DC. The slower pace of federal policymaking reflects the disagreement among policymakers (state and federal), industry, environmental advocates, and other key stakeholders over the details of these policy frameworks. But the direction that the Biden administration and Sec. Granholm is setting at the federal level is influencing corporate decisions today, and will influence how federal energy and carbon policy evolves in the coming years.

Capstone is fortunate to be deeply involved in the energy evolution occurring globally and finally accelerating in the United States. We often hear from clients that our work unpacking the outlook for energy policy and energy markets gives them a significant competitive advantage in underwriting the opportunities and risks in sustainability-focused decisions. The relationships we have built with leading voices on all sides of these issues, including federal and state policymakers, environmental advocates, industry CEOs, sustainability officers, and investors have afforded us a differentiated vantage point on the outlook for the sustainability evolution in the US and EU. We are grateful to our energy investor and corporate clients to have a deeply fulfilling role in helping unlock the transition to a more sustainable economy.