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To manage the clean energy transition, it may have to get into the leveraged buyout game.
The United States produces more natural gas and crude oil than any other country ― it isn’t even a contest. But these “molecules of U.S. freedom” aren’t free: They’re extracted and transported through a network of rigs, drills, pumps, and pipes that are, increasingly, controlled and operated by myriad private equity companies. As a society, we have a strong interest in winding down these climate-polluting assets in a swift yet orderly fashion. But as businesses, their private equity owners don’t.
Over the past decade, pressure from shareholders and activists has succeeded in pushing many fossil fuel majors to consider how best to reduce their emissions. (Although that, too, has come at a cost.) But rather than winding down or cleaning up their most polluting and least profitable assets, many have instead simply divested. Coal companies in West Virginia have sold off their mines to undercapitalized vulture firms, which rely on continued coal sales to (in theory) pay for expensive environmental remediation costs. The same is happening in the oil and gas industry, where private equity firms have rolled up many of the drilling sites and pipelines, the capillaries and veins of the country’s energy infrastructure.
Shielded from the scrutiny of public markets, private equity funds have thus become some of the country’s top methane emitters by asset ownership in the natural gas sector. These opaque owners, capitalizing on other companies’ disinterest in holding high-emitting assets, are betting that fossil fuel infrastructure will keep paying out for quite some time; recent massive increases in expected energy demand have only juiced this trend toward industry consolidation.
Private equity firms and private debt funds, with their short-term profit horizons, concealed balance sheets, and seeming imperviousness to tighter financial regulation and shareholder activism, work well with fossil fuel assets, particularly those sold at fire-sale prices by publicly traded fossil fuel majors. Despite those assets’ long-term market value instability, their near-term cash flow prospects are what matter.
But what’s been good for fossil fuel majors’ balance sheets has been bad for the planet. Many of these buyout firms — well-capitalized private equity funds and scrappy vulture funds, alike — are not budgeting anywhere near enough for environmental remediation. One company, Diversified Energy Co, has been purchasing the rights to operate almost-depleted natural gas wellheads at scale, extending many of their lifespans by decades; far too few wellheads are closed each year to stem the methane spewing unimpeded into the atmosphere.
Rather than accept a situation where utilities and fossil fuel majors toss their liabilities to unaccountable vulture funds, sustainability-conscious investors and shareholder groups have begun screening transactions for responsible asset phaseout plans. But the lack of a binding set of transition standards has revealed a huge coordination problem: What counts as a responsible phaseout, particularly when private asset owners get to decide? The federal government has put down guidelines, but not its foot. A disorganized drawdown of assets under a patchy regulatory framework, without a doubt, leaves vulnerable communities on the hook for the financial, environmental, and health damages.
Progressive analysts have long argued that nationalizing fossil fuel assets and folding them into a state holding company is the best solution to sidestep this particular problem. The federal government is well staffed with energy and electricity experts who, operating under a public mandate to preserve grid reliability, can phase out fossil fuel assets on a unified, coherent timeline responsive to community needs while continuing to operate those assets as the “peaker” or “reserve” capacity required to ensure grid stability. A series of climate shocks has even convinced conservative leaders in Texas of the importance of public power for grid resilience, achieved through state ownership of “peaker” gas plants. This course of action is far worse than investments in, say, battery capacity ― California, for instance, is now reaping the benefits of massive battery deployment, which reduces the state’s need for gas ― but the logic behind building public reserve capacity is sound.
What advocates of a state holding company-type model do not often discuss is how exactly a government goes about acquiring all these soon-to-be-stranded fossil fuel assets. As just one example, a recent proposal from the Roosevelt Institute suggests that a state holding company should be “free to engage in debt financing, make equity investments, and acquire assets.” Sure, proposals like these are meant to buttress the case for why nationalization is a far better way to achieve a managed phaseout than surrendering that process to yield-seeking investors, not to detail the financial mechanics of a buyout. But still: this is vague!
Actually thinking through the specifics suggests that, interestingly enough, a comprehensive state-led buyout program could work a lot like an existing private equity transaction, for two key reasons.
Before we get there, we should separate private equity’s deserved reputation as an opaque asset owner from the way the industry works. Private equity’s calling card, the “leveraged buyout,” is little more than the act of raising debt to 1) purchase equity in and, therefore, ownership over an asset, and 2) refinance the asset’s liabilities. To do so, private equity funds work with banks or, more commonly these days, private debt or private credit funds, to raise debt that is generally backed by the combined assets of the purchaser firm and purchased asset.
But leveraged buyouts themselves are technically something that any financial institution could do. Take the federal government, the country’s most liquid debt issuer, whose debt anchors the global economy and backstops private financial institutions. It could raise debt (leverage) to finance a buyout of fossil fuel assets at interest rates far lower than private investors could. And because private credit funds, like other institutional investors, already buy loads of government bonds to match their liabilities and hedge their risks, this kind of nationwide leveraged buyout ― which would require substantial new debt issuance ― could actually help stabilize the financial system against potential shocks from within notoriously inscrutable private markets. The government can do exactly what private equity does, only a lot better, and with wider benefits.
The government has already planted the seeds of a leveraged buyout program across the country’s coal ash heaps. The Loan Programs Office, thanks to the Bipartisan Infrastructure Law and the Inflation Reduction Act, now offers far-below-market-rate loan guarantees to developers, including state governments and utility companies, seeking to repurpose fossil fuel assets through its Energy Infrastructure Reinvestment program. This program’s authority allows borrowers to use their financing for “refinancing outstanding indebtedness directly associated with eligible Energy Infrastructure.” All policymakers have to do now is scrap the program’s 2026 end date and, ideally, endow a federal institution with the power to borrow from this authority to purchase and refinance fossil fuel assets, rather than leave that task solely in the hands of state governments and utilities, with their varying capacities for and interest in coordinating a coherent phaseout plan. And now that interest rates are poised to fall, this refinancing becomes much cheaper.
That’s reason number one. Reason number two has to do with private equity funds’ ability to shield the assets in their portfolio from valuation volatility on publicly traded stock markets. Private equity funds need not publicize how much their portfolios are worth, except at infrequent intervals and when they sell assets. But thanks to private equity’s reputation as a high-return investment, fund investors pay a premium for the illiquidity of not always knowing the value of their assets. Purchase assets, juice returns, sell, and repeat ― this is the conventional private equity playbook.
But macroeconomic conditions today are such that private equity companies are now struggling to sell their portfolios. High interest rates have made leveraged buyouts of new assets and refinancing debts on unsold assets much more costly, and have tempered rapid asset value growth. As this once-frenetic industry slows down, funds are anxious to get assets off their books ― hence the recent wave of consolidation.
This is an opportune moment for the Feds to step in. It’s not just that the government’s capacity for undertaking leveraged buyouts is the greatest; more importantly, it never needs to sell. The valuation volatility that first prompts fossil fuel majors to divest from dying, dangerous assets yet incentivizes private equity funds to pump as much as they can out of them to resell them later at a profit is simply not something the federal government needs to worry about. A state holdingcompany can siphon distressed assets off public markets and shut down the “merry-go-round” of asset sales and resales.
Objections to government intervention here are likely premised on the fact that, well, it’s the government. But the government would still be purchasing assets from private owners on financial markets, just like any market actor would. Today’s uncoordinated constellation of private fossil fuel firms and funds, on the other hand, cannot manage a coordinated phaseout, especially not under binding profitability constraints ― which the federal government does not share.
Local communities can’t finance phaseouts or cleanups themselves, and leaving hundreds of billions of dollars worth of stranded assets in the hands of under-regulated private firms will only accelerate climate catastrophe. The government must use the financial techniques that private equity funds have already pioneered to bring them to heel, in service of public goals.
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The Environmental Protection Agency just unveiled its argument against regulating greenhouse emissions from power plants.
In federal policymaking, the weight of the law can rest on a single word. When it comes to reducing planet-warming emissions from the power sector, that word is “significantly.” The Clean Air Act requires the Environmental Protection Agency to regulate any stationary source of emissions that “causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.”
The EPA has considered power plants a significant source of dangerous greenhouse gases since 2015. But today, Trump’s EPA said, actually, never mind.
A proposed rule published in the Federal Register on Wednesday argues that U.S. fossil fuel-fired power plants make up “a small and decreasing part of global emissions” and therefore are not significant, and do not require regulation under the law. The rule would repeal all greenhouse gas emission standards for new and existing power plants — both the standards the Biden administration finalized last year, which have been tied up in court, as well as the standards that preceded them, which were enacted by Obama in 2015.
In a separate proposal, the EPA also took steps to repeal limits on mercury and hazardous air pollutants from coal plants that were enacted last year, reverting the standard back to one set in 2012.
The argument that U.S. power plants make up a small sliver of global emissions and thus aren’t worth addressing is like having “a five-alarm fire that could be put out if you send out all the trucks, and you don’t send any of the trucks because no one truck could put the fire out by itself,” David Doniger, a senior attorney and strategist at the Natural Resources Defense Council, told me. “We just think that is a wacky reversal and a wacky interpretation of the Clean Air Act.”
When you add up every plug, power button, and light switch across the country, electricity usage produces 25% of U.S. greenhouse gas emissions each year. Over the past 30 years, American power plants have contributed about 5% of the total climate pollution spewed into the atmosphere worldwide.
In the global context, that may sound small. But in a recent report titled “The Scale of Significance," New York University’s Institute for Policy Integrity estimated that if U.S. power plants were a country, it would be the sixth biggest emitter in the world, behind China, the European Union, India, Russia, and the remainder of U.S. emissions. The report also notes that U.S. actions on emissions make other countries more likely to follow, due to technological spillovers that reduce the cost of decarbonization globally.
In addition to the significance finding, the EPA gave two other reasons for repealing the power plant rules. It argued that “cost-effective control measures are not reasonably available,” meaning there’s no economic way to reduce emissions at the source. It also said the new administration’s priority “is to promote the public health or welfare through energy dominance and independence secured by using fossil fuels to generate power.”
The first argument is an attempt to say that Biden’s standards flouted the law. In 2022, the Supreme Court ruled that the EPA could not simply tell states to reduce emissions from the power sector, which is what the Obama administration had initially tried to do. Instead, the agency would have to develop standards that could be applied on a plant-by-plant basis — so long as those rules were “cost-reasonable” and “adequately demonstrated.”
To comply with that ruling, Biden’s EPA based its standards on the potential to install carbon capture technology that can reduce flue gas emissions by 90%. The regulations would have required existing coal plants to install carbon capture by 2039, or else shut down. (To the chagrin of many energy system observers, the administration chose not to apply limits to existing gas-fired power plants.) But while fossil fuel companies and utilities had, in the past, asserted that carbon capture was viable, they deemed the standards impossible to meet.
Trump’s EPA is now agreeing. “In 2024,” Zeldin said on Wednesday, “rules were enacted seeking to suffocate our economy in order to protect the environment, to make all sorts of industries including coal and more disappear, regulate them out of existence.”
When Trump moved to overturn Obama’s power plant regulations during his first term, his EPA did not contest the significance of the sector’s emissions, and simply enacted a weaker standard. A week before he left office, the agency also finalized a rule that set the threshold for “significance” at 3% of U.S. emissions — which exempted major polluters like refineries, but still applied to power plants.
This time, Trump has a new apparent game plan: Strip the Clean Air Act of its jurisdiction over greenhouse gases altogether. Today’s action was the first step; EPA Administrator Lee Zeldin has said the agency will similarly “reconsider” emissions rules for cars and oil and gas drilling. But the cornerstone of the plan is to reverse what’s known as the “endangerment finding” — the 2009 conclusion that greenhouse gases present a threat to public health and welfare, and therefore are one of the pollutants EPA must address under the Clean Air Act.
“The Trump administration is trying to say, don’t worry about the Clean Air Act. It will never apply, so you can go back to your old ways,” said Doniger. But if the argument that power plant emissions are insignificant is a stretch, appraising greenhouse gas emissions as benign is inconceivable, he said. “The endangerment finding was based, in 2009, on a Denali-sized mountain of evidence. Since then, it’s grown to Everest-size, so there’s no way that they would be able to put together a rational record saying the science is wrong.”
These highly technical questions of whether emissions are “significant” or whether carbon capture is “adequately demonstrated” could soon be determined by a group of people who lack both the expertise to answer them and the inclination to wade through thousands of pages of atmospheric science and chemical engineering documents: judges.
Last year, the Supreme Court overturned a long-held precedent known as Chevron deference. That ruling means that the courts are no longer required to defer to an agency’s interpretation of statute — judges must make their own determinations of whether agencies are following the intent of the law.
When environmental groups begin challenging the EPA’s repeals in court, judges are “going to be bombarded with the need to make these highly technical, nuanced decisions,” Michael Wara, a lawyer and scholar focused on climate and energy policy at Stanford University, told me. He said the reason Chevron deference was established in the first place is that judges didn’t want to be making engineering decisions about power plants. “They felt extremely uncomfortable having to make these calls.”
The conservative Supreme Court overturned the precedent because of a sense that political decisions were being dressed up in scientific reasoning. But Wara doesn’t think the courts are going to like being put back into the role of weighing technical minutia and making engineering decisions.
“It’s a past that the courts didn’t like and they tried to engineer a way out of via the Chevron doctrine,” he said. “I would expect that we’re going to see a drift back toward a doctrine that looks a little bit more Chevron-like, maybe less deference to agencies. But it’s hard to predict in the current environment what’s going to happen.”
Look more closely at today’s inflation figures and you’ll see it.
Inflation is slowing, but electricity bills are rising. While the below-expectations inflation figure reported by the Bureau of Labor Statistics Wednesday morning — the consumer price index rose by just 0.1% in May, and 2.4% on the year — has been eagerly claimed by the Trump administration as a victory over inflation, a looming increase in electricity costs could complicate that story.
Consumer electricity prices rose 0.9% in May, and are up 4.5% in the past year. And it’s quite likely price increases will accelerate through the summer, thanks to America’s largest electricity market, PJM Interconnection. Significant hikes are expected or are already happening in many PJM states, including Maryland,New Jersey,Delaware, Pennsylvania, and Ohio with some utilities having said they would raise rates as soon as this month.
This has led to scrambling by state governments, with New Jersey announcing hundreds of millions of dollars of relief to alleviate rate increases as high as 20%. Maryland convinced one utility to spread out the increase over a few months.
While the dysfunctions of PJM are distinct and well known — new capacity additions have not matched fossil fuel retirements, leading to skyrocketing payments for those generators that can promise to be on in time of need — the overall supply and demand dynamics of the electricity industry could lead to a broader price squeeze.
“Trump and JD Vance can get off tweets about how there’s no inflation, but I don’t think they’ll feel that way in a week or two,” Skanda Amarnath, executive director of Employ America, told me.
And while the consumer price index is made up of, well, almost everything people buy, electricity price increases can have a broad effect on prices in general. “Everyone relies on energy,” Amarnath said. “Businesses that have higher costs can’t just eat it.” That means higher electricity prices may be translated into higher costs throughout the economy, a phenomenon known as “cost-push inflation.”
Aside from the particular dynamics of any one electricity market, there’s likely to be pressure on electricity prices across the country from the increased demand for energy from computing and factories. “There’s a big supply adjustment that’s going to have to happen, the data center demand dynamic is coming to roost,” Amarnath said.
Jefferies Chief U.S. Economist Thomas Simons said as much in a note to clients Wednesday. “Increased stress on the electrical grid from AI data centers, electric vehicle charging, and obligations to fund infrastructure and greenification projects have forced utilities to increase prices,” he wrote.
Of course, there’s also great uncertainty about the future path of electricity policy — namely, what happens to the Inflation Reduction Act — and what that means for prices.
The research group Energy Innovation has modeled the House reconciliation bill’s impact on the economy and the energy industry. The report finds that the bill “would dramatically slow deployment of new electricity generating capacity at a time of rapidly growing electricity demand.” That would result in higher electricity and energy prices across the board, with increases in household energy spending of around $150 per year in 2030, and more than $260 per year in 2035, due in part to a 6% increase in electricity prices by 2035.
In the near term, there’s likely not much policymakers can do about electricity prices, and therefore utility bills going up. Renewables are almost certainly the fastest way to get new electrons on the grid, but the completion of even existing projects could be thrown into doubt by the House bill’s strict “foreign entity of concern” rules, which try to extricate the renewables industry from its relationship with China.
“We’re running into a set of cost-push dynamics. It’s a hairy problem that no one is really wrapping their heads around,” Amarnath said. “It’s not really mainstream yet. It’s going to be.”
In some relief to American consumers, if not the planet, while it may be more expensive for them to cool their homes, it will be less expensive to get out of them: Gasoline prices fell 2.5% in May, according to the BLS, and are down 12% on the year.
Six months in, federal agencies are still refusing to grant crucial permits to wind developers.
Federal agencies are still refusing to process permit applications for onshore wind energy facilities nearly six months into the Trump administration, putting billions in energy infrastructure investments at risk.
On Trump’s first day in office, he issued two executive orders threatening the wind energy industry – one halting solar and wind approvals for 60 days and another commanding agencies to “not issue new or renewed approvals, rights of way, permits, leases or loans” for all wind projects until the completion of a new governmental review of the entire industry. As we were first to report, the solar pause was lifted in March and multiple solar projects have since been approved by the Bureau of Land Management. In addition, I learned in March that at least some transmission for wind farms sited on private lands may have a shot at getting federal permits, so it was unclear if some arms of the government might let wind projects proceed.
However, I have learned that the wind industry’s worst fears are indeed coming to pass. The Fish and Wildlife Service, which is responsible for approving any activity impacting endangered birds, and the U.S. Army Corps of Engineers, tasked with greenlighting construction in federal wetlands, have simply stopped processing wind project permit applications after Trump’s orders – and the freeze appears immovable, unless something changes.
According to filings submitted to federal court Monday under penalty of perjury by Alliance for Clean Energy New York, at least three wind projects in the Empire State – Terra-Gen’s Prattsburgh Wind, Invenergy’s Canisteo Wind, and Apex’s Heritage Wind – have been unable to get the Army Corps or Fish and Wildlife Service to continue processing their permitting applications. In the filings, ACE NY states that land-based wind projects “cannot simply be put on a shelf for a few years until such time as the federal government may choose to resume permit review and issuance,” because “land leases expire, local permits and agreements expire, and as a result, the project must be terminated.”
While ACE NY’s filings discuss only these projects in New York, they describe the impacts as indicative of the national industry’s experience, and ACE NY’s executive director Marguerite Wells told me it is her understanding “that this is happening nationwide.”
“I can confirm that developers have conveyed to me that [the] Army Corps has stopped processing their applications specifically citing the wind ban,” Wells wrote in an email. “As I have understood it, the initial freeze covered both wind and solar projects, but the freeze was lifted for solar projects and not for wind projects.”
Lots of attention has been paid to Trump’s attacks on offshore wind, because those projects are sited entirely in federal waters. But while wind projects sited on private lands can hypothetically escape a federal review and keep sailing on through to operation, wind turbines are just so large in size that it’s hard to imagine that bird protection laws can’t apply to most of them. And that doesn’t account for wetlands, which seem to be now bedeviling multiple wind developers.
This means there’s an enormous economic risk in a six-month permitting pause, beyond impacts to future energy generation. The ACE NY filings state the impacts to New York alone represent more than $2 billion in capital investments, just in the land-based wind project pipeline, and there’s significant reason to believe other states are also experiencing similar risks. In a legal filing submitted by Democratic states challenging the executive order targeting wind, attorneys general listed at least three wind projects in Arizona – RWE’s Forged Ethic, AES’s West Camp, and Repsol’s Lava Run – as examples that may require approval from the federal government under the Bald and Golden Eagle Protection Act. As I’ve previously written, this is the same law that bird conservation advocates in Wyoming want Trump to use to reject wind proposals in their state, too.
The Fish and Wildlife Service and Army Corps of Engineers declined to comment after this story’s publication due to litigation on the matter. I also reached out to the developers involved in these projects to inquire about their commitments to these projects in light of the permitting pause. We’ll let you know if we hear back from them.