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Emissions reporting requirements have gone from mostly mandatory to quasi-discretionary.
The Securities and Exchange Commission approved a highly anticipated rule on Wednesday that will require companies to disclose information about their climate-related risks to investors. But the final rule differs dramatically from the proposal the Commission released two years ago, with significantly weaker provisions that leave it up to companies to decide how much information to share.
Perhaps the most dramatic change: Most of the climate-related disclosures the rule covers are now mandatory only if they’re considered “material.” Under the original rule, all public companies would have been required to calculate and report the greenhouse gas emissions they are directly responsible for, known as scope 1 emissions, and the emissions from the electricity they use, known as scope 2 — no exceptions. But under the final rule, companies only have to report this information if they deem it material — i.e. if there is “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available,” according to a 1976 Supreme Court decision.
Further, only about 40% of domestic public companies will even be required to consider whether their emissions are material. Smaller companies and emerging growth businesses — generally companies with less than $1.2 billion in annual revenues — are exempt.
Part of the impetus for the rule was to standardize climate disclosures. Though many companies already publicly report information about their emissions and climate-related risks, they do so sporadically, using different methodologies, adopting different formats, and publishing across different forums. Steven Rothstein, a managing director at the nonprofit Ceres, once told me it was like a “climate ‘Tower of Babel.’”
The final rule will still create a more formal, consistent, public reporting system for this information. But the picture it provides to investors will be incomplete. “By shifting to a materiality standard, they are leaving a huge gap in the information available to investors and the public,” Kathy Fallon, the director of land and climate at the Clean Air Task Force told me. “That's going to hurt companies and the climate in the long run.”
This wasn’t entirely unexpected. The original proposal ignited a firestorm from Republican attorneys general and business groups accusing the SEC of trying to pass back-door climate regulations, overstepping its role, and saddling companies with burdensome reporting costs. The Commission received more than 20,000 comments on the proposal, more than any rule in its history. As the pressure grew, reports emerged that the Commission planned to remove a requirement that companies tally up and report a third category of their emissions, known as scope 3, which includes those associated with their supply chains and the use of their products. Then last week, Reuters reported that the SEC would also soften the requirements for disclosing scope 1 and 2 emissions by subjecting them to this materiality test.
Before the vote on Wednesday, Erik Gerding, director of the SEC’s division of corporation finance, emphasized that the final rule struck an “appropriate balance” between investor demand for more consistent, comparable, information about climate-related risks, and “the concerns expressed by many companies and commenters about the potential costs of the proposed rules.”
The Commission voted along party lines, with Democratic chair Gary Gensler and commissioners Caroline Crenshaw and Jaime Lizárraga approving the rule, and Republican commissioners Hester Peirce and Mark Uyeda voting against. But no one appeared satisfied.
Peirce argued that companies were already required to inform investors about material risks and trends, including those related to climate change. She accused the staff of having merely “decorated the final rule with materiality ribbons” while still creating an overly prescriptive rule. “The resulting flood of climate related disclosures will overwhelm investors, not inform them,” she said.
Crenshaw said the rule was a “bare minimum” step forward that would “move a haphazard potpourri of public company disclosures into the Commission's well-developed and standardized filing ecosystem.” But she also worried that it would pass the buck to future commissions to ensure investors are getting the information they actually need. “To be crystal clear, this is not the rule I would have written,” she said. “Today's rule is better for investors than no rule at all, and that's why it has my vote. But while it has my vote, it does not have my unencumbered support.”
There is no specific test to determine whether emissions are considered material. But the climate disclosure rule does discuss some examples of when a company’s scope 1 or scope 2 emissions may be material. One is if there is a transition risk associated with those emissions — for example, if a company anticipates that future regulations would increase their costs. Another is if a company has articulated a climate goal, like an ambition to achieve net-zero emissions, to the public. As with other SEC disclosures subject to a material standard, it will be entirely up to these companies to determine whether their emissions are material, and they will not have to share their analysis with investors.
Experts don’t expect this to lead to a total lack of emissions reporting. If a company fails to disclose its emissions, it could open up the business to fines from the SEC or lawsuits from investors if the information is later determined to be, in fact, material. Many companies, prodded by their lawyers, are likely to play it safe and disclose. “It’s hard to make an argument that scope 1 emissions are not material,” Jameson McLennan, a sustainable finance analyst at BloombergNEF, told me.
But there still may be a spectrum. John Tobin, a professor of practice at Cornell University’s business school and a former managing director of sustainability at Credit Suisse, told me that big, white collar companies like banks and tech companies that don’t directly emit much may not see the need to disclose, whereas manufacturing and industrial companies that directly burn fossil fuels to produce their products, absolutely should. That being said, those white collar businesses should still consider their scope 2 emissions material, Tobin said, as they tend to use a substantial amount of electricity and could be at risk of cost increases if regulations change.
Where Tobin thinks the rule really falls short is in lacking requirements to disclose certain kinds of scope 3 emissions — particularly upstream supply chain emissions. Why would an investor care more about the emissions from the electricity Toyota uses than the emissions from the steel it buys? The latter is more likely to pose a significant risk to the company’s business due to carbon regulations. “A lot of the emissions associated with industrial activity have very little to do with electricity,” he told me.
By telling companies they only have to report emissions that are material, the Commission is essentially saying that a company’s emissions are not inherently material to an investor’s understanding of risk. Allowing companies to opt out of emissions reporting “misses the whole point of climate disclosures,” said Fallon. “The whole point is to make available the information that investors want, not just the information that companies want to give.” Investors want to know how exposed a company may be to changes in climate policies, energy prices, or shifts in consumer sentiments.
At the same time, tying the list of required disclosures to a materiality test could be what ultimately preserves the rule when it inevitably ends up in court. Many groups have already threatened to sue the commission if it exceeds its legal authority. These include the National Association of Manufacturers.
“The NAM has been clear that a failure to bring the rule back within the agency’s statutory authority could invite legal action. On the other hand, a balanced, workable rule could obviate the need for litigation,” said the group’s vice president of domestic policy, Charles Crain.
The rule will still likely surface valuable information for investors and others keen to get their hands on more consistent, comparable data about certain companies’ emissions and vulnerability to climate change. But it will also leave huge reporting gaps that dilute the overall utility of that information.
“The fact that the SEC is providing uniform requirements for reporting is still an improvement upon what we had before,” said Fallon. “But the final rule doesn’t go far enough to give investors the information they need to make informed decisions.”
Editor’s note: This story has been updated to reflect the result of the SEC’s vote.
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Renewables developers may yet be able to start construction before the One Big Beautiful Bill deadlines hit.
The Trump administration issued new rules for the wind and solar tax credits on Friday, closing the loop on a question that has been giving developers anxiety since the One Big Beautiful Bill Act passed in early July.
For decades, developers have been able to lock in tax credit eligibility by establishing that they have officially started construction on a project in one of two ways. They could complete “physical work of a significant nature,” such as excavating the project site or installing foundational equipment, or they could simply spend 5% of the total project budget, for instance by purchasing key components and putting them in a warehouse. After that, they had at least four years to start shipping power to the grid before stricter work requirements kicked in.
Shortly after signing the OBBBA, however, Trump issued an executive order directing the Treasury Department to revise its definition of the “beginning of construction” of a wind or solar project. Under the new law, this definition can make or break a project. OBBBA established new deadlines for wind and solar development, allowing projects that start construction before the end of this year to qualify for the tax credits as they currently stand. But projects that start construction between January 1 and July 4 of 2026 will have to follow stringent new rules limiting the use of materials with ties to China in order to qualify.
The start construction date also affects how long a developer has to complete a project and still qualify for credits. Projects that start before July 4 of next year have at least four years, while those that start after must meet an impossibly short timeline of being up and running in just a year and a half, by the end of 2027.
Some worried the new guidance would narrow that four year timeframe or affect project eligibility retroactively. Neither happened. The only major change the Treasury department made to the existing guidance was to get rid of the 5% safe harbor provision. While this is not nothing, and will certainly disqualify some projects that might otherwise have been able to claim the credits, it is nowhere near as calamitous for renewables as it could have been.
Projects can still establish they have started construction by completing “physical work of a significant nature,” and the definition of physical work still includes off-site work, such as the manufacturing of equipment. That means it’s still possible for a company to simply place an order for a custom piece of equipment, like a transformer, to establish their start date — as long as they have a binding contract in place and can demonstrate that the physical production of the equipment is underway.
The new guidance also contains a carve-out that allows solar projects that are less than 1.5 megawatts to use the 5% rule, which will help rooftop solar and smaller community-scale installations.
Trump’s executive order came after a reported deal he made with House Freedom Caucus Republicans who wanted to axe the tax credits altogether. The order directed the Treasury to prevent “the artificial acceleration or manipulation of eligibility” and restrict “the use of broad safe harbors unless a substantial portion of a subject facility has been built.”
Treasury’s relative restraint, then, comes as something of a relief. “It’s not good, it’s not helpful, but from my perspective, the guidance could have been a lot worse,” David Burton, a partner at Norton Rose Fulbright who specializes in energy tax credits, told me. “Utility-scale solar and wind developers should be able to plan around this and not be that harmed.”
That doesn’t mean clean energy groups are happy about the changes, though. “At a time when we need energy abundance, these rules create new federal red tape,” Heather O’Neill, president and CEO of the industry group Advanced Energy United, said in a statement. “These rules will make it more difficult and expensive to build and finance critical energy projects in the U.S.”
The changes don’t go into effect until September 2, so for the next two weeks, all projects can still utilize the 5% safe harbor.
Even though the rules are not the death-blow for projects that some anticipated, there’s still one big unknown that could squeeze development further: The Treasury department has yet to put out guidance related to the new foreign sourcing rules created by the OBBB. One of the big fears there is that companies will have to prove their lack of ties to China so far up their supply chains that compliance becomes impossible.
We probably won’t be left wondering for long, though. Trump’s executive order asked for those rules within 45 days, putting the due date on Monday.
On the worsening transformer shortage, China’s patent boom, and New York’s nuclear embrace
Current conditions: Tropical Storm Erin is still intensifying as it approaches the Caribbean • Rare August rainstorms are deluging the Pacific Northwest with a month’s worth of precipitation in 24 hours, threatening floods • Hong Kong has issued its highest-level “black” rainstorm warning multiple times this month as Tropical Storm Podul lashes southern China.
President Donald Trump’s order to keep large fossil-fueled power stations scheduled to retire between now and 2028 operating indefinitely will cost ratepayers across the United States $3.1 billion per year, according to new research from the consultancy Grid Strategies on behalf of four large environmental groups. If the Department of Energy expands the order to cover all 54 fossil fuel plants slated for closure in the next three years, the price tag for Americans whose rates fund the subsidies to keep the stations running would rise to $6 billion per year.
The problem may only grow. The agency’s existing mandates “perversely incentivize plant owners to claim they plan to retire so they can receive a ratepayer subsidy to remain open,” the report points out.
With electricity consumption hitting new records in the U.S., demand for transformers is surging. The years-long supply shortage for power and distribution transformers is now set to hit a deficit below demand of 30% and 10%, respectively, in 2025, according to a new report from the energy consultancy Wood Mackenzie. Complicating matters further for manufacturers scrambling to ramp up supply, Trump’s One Big Beautiful Bill Act is throwing clean-energy projects into jeopardy and sending mixed signals to factories on what kinds of transformers to produce. At the same time, tariffs are raising the price of materials needed to make more transformers.
“The U.S. transformer market stands at a critical juncture, with supply constraints threatening to undermine the nation's energy transition and grid reliability goals,” Ben Boucher, a senior supply chain analyst at Wood Mackenzie, said in a statement. “The convergence of accelerating electricity demand, aging infrastructure and supply chain vulnerabilities has created constraints that will persist well into the 2030s.”
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A worker in a Chinese electric vehicle factory. Kevin Frayer/Getty Images
For years, China was known for ripping off the West’s technology and patenting cheaper but more easily manufactured copies. Not anymore. China applied for twice as many high-quality clean energy patents as the U.S. in 2022, according to a New York Times analysis of the most recently available public data. The European Patent Office, which supplied data to the Times, defines a “high quality” patent as one that has been filed in two or more countries, indicating that the company or individual involved has a strong competitive interest in protecting its idea.
The growth in China’s intellectual property ambitions is a sign that Beijing’s strategic push to ramp up academic research and industrial innovation is maturing. “It is the opposite of an accident,” said Jenny Wong Leung, an analyst and data scientist at the Australian Strategic Policy Institute, which created a database of global research on technologies that are critical to nations’ economic and military security, including clean energy.
In June, New York Governor Kathy Hochul directed the New York Power Authority, the nation’s second-largest government-owned utility after the federal Tennessee Valley Authority, to support the construction of the state’s first new nuclear plant since the 1980s. Albany has plenty to sort out between now and the 15-year deadline for completing the project, including selecting a site, picking from one of the many new reactor designs, and finding a private partner. But one thing isn’t a problem, at least for now: Public support.
New Siena polling I covered in my Substack newsletter yesterday shows that 49% of registered voters in New York support the effort, with just 26% opposed. Both sides of the political spectrum are largely in lockstep, with Republican support outpacing that of Democrats by a margin of 55% to 49%. That’s lucky for Hochul, who will need support from the more politically conservative upper reaches of the state where the facility is likely to be built. For more on the technical and political considerations in play, here’s Heatmap’s Matthew Zeitlin on the plan.
It seems like everyone is abandoning their net zero goals. But not insurer Aviva. The company’s chief executive, Amanda Blanc, said the British giant remained committed to its carbon-cutting goals in the U.S. and the United Kingdom, The Guardian reported. With rising profits propelling shares in the company to their highest level since the 2008 financial crisis, Blanc said, “extreme weather conditions, climate change, and the impact that that has on our insurance business that actually insures properties” meant Aviva needed to “remain committed to our ambition.”
The red-headed wood pigeon once seemed on the verge of extinction. The population, endemic to Japan’s Ogasawara Islands, fell to below 80 individuals in the 2000s. But once its main predator, the feral cat, was removed, the bird made a remarkable comeback. A team of researchers at Kyoto University set out to find out why the expected problems from inbreeding never occurred. Per a press release: “Their results revealed that the frequency of highly deleterious mutations in the red-headed wood pigeon was lower than in the more widespread Japanese wood pigeon. This suggests that, rather than hindering it, the pigeon's success was likely rooted in its long-term persistence in a small population size prior to human impact.”
And more on the week’s most important conflicts around renewable energy projects.
1. Lawrence County, Alabama – We now have a rare case of a large solar farm getting federal approval.
2. Virginia Beach, Virginia – It’s time to follow up on the Coastal Virginia offshore wind project.
3. Fairfield County, Ohio – The red shirts are beating the greens out in Ohio, and it isn’t looking pretty.
4. Allen County, Indiana – Sometimes a setback can really set someone back.
5. Adams County, Illinois – Hope you like boomerangs because this county has approved a solar project it previously denied.
6. Solano County, California – Yet another battery storage fight is breaking out in California. This time, it’s north of San Francisco.