Who’s Afraid of Federal Action on Climate Change?

In financial reports that publicly traded companies file to their investors and the Securities and Exchange Commission (SEC), the words "material adverse effect" are often found.

US_regulate_national_auto_emissions.jpgAutomakers are bracing for new fuel-efficiency standards more than any coming climate bill. (Photo: TreeHugger)

Put simply, the phrase is a red flag for any factor that could significantly hurt a firm’s profits or condition. But "material adverse change" clauses can also be written into deals to give businesses an escape hatch if disaster strikes, as the public learned during the congressional probe of the Bank of America-Merrill Lynch merger.

So with Congress weighing national emissions limits — and potential fuel taxes — as part of a climate change bill, and the Obama administration vowing to step in via new regulations if lawmakers do not act, it’s worth asking which of the country’s top carbon-generating companies are truly concerned that pollution caps would hurt their business.

Automakers, for the most part, foresee problems if the administration’s recent move to raise U.S. fuel-efficiency standards is not extended beyond its current 2016 expiration date. Ford’s year-end financial report openly fretted about the consequences of individual states, such as California, acting on their own to hike fuel standards in 2017 in the absence of another national agreement:

Compliance with [multiple fuel-efficiency] regimes
would at best add enormous complexity to our planning processes, and at worst be
virtually impossible.  If any of one these regulatory regimes, or a
combination of them, impose and enforce extreme fuel economy or GHG standards,
we likely would be forced to take various actions that could have substantial
adverse effects on our sales volume and profits.

General Motors released its financial report today, declaring itself "committed to meeting or exceeding" the new fuel-efficiency minimums but warning that adverse consequences could result if consumers fail to embrace electric cars:

We expect that
to comply with these standards we will be required to sell a
significant volume of hybrid or electrically powered vehicles
throughout the U.S., as well as implement new
technologies for conventional internal combustion engines, all at
increased cost levels. There is no assurance that we will be able to
produce and sell vehicles that use such technologies at a competitive
price, or that our customers will purchase
such vehicles in the quantities necessary for us to comply with these
regulatory programs.

The auto industry, however, expressed far less concern about the prospects of a congressional climate bill or federal emissions regulations, which are expected to focus largely on stationary sources such as power plants. When carmakers reference climate change in their communiques to investors, it is often to provide context for the growing interest in governmental limits on pollution.

Coal companies, by contrast — generators of nearly half of the nation’s electricity — are warily watching on the "material adverse" consequences of climate action. Peabody, ranked No. 1 among U.S. coal producers, wrote in its 2009 annual report that:

The potential financial impact on us
of future [emissions] laws or regulations will depend upon the degree to
which any such laws or regulations forces electricity generators
to diminish their reliance on coal as a fuel source.

More openly apprehensive of climate legislation was Massey, the coal company now facing blowback even on Wall Street after a fatal explosion Monday at one of its West Virginia mines. From Massey’s annual report:

Further
developments in connection with legislation, regulations or other limits on
greenhouse gas emissions and other environmental impacts from coal combustion,
both in the United States and in other countries where we sell coal, could have
a material adverse effect on our cash flows, results of operations or financial
condition.

ALSO ON STREETSBLOG

Should a Climate Bill Even Try to Fight Sprawl?

|
The potential for a cap-and-trade climate bill to set aside significant amounts of money for reforming local land use and transportation planning is often touted by Democrats, environmental groups, and this particular Streetsblogger. Should the approach California used in SB 375 (being signed into law above) be applied to a congressional cap-and-trade climate bill? (Photo: […]

Could a New Kind of Fuel Tax Help Break the Senate Climate Deadlock?

|
Even before the Senate environment panel pushed through a GOP protest to approve its climate change bill, Sens. Lindsey Graham (R-SC), Joe Lieberman (I-CT), and John Kerry (D-MA) were working behind the scenes on a so-called "tripartisan" plan that can win enough votes in Congress’ upper chamber to make nationwide emissions cuts a reality. (from […]

Senate Climate Bill to Feature Transport Carbon Cap — But No Trading

|
Sens. John Kerry (D-MA) and Joseph Lieberman (I-CT) are set to roll out their long-awaited, somewhat delayed climate change bill tomorrow without onetime co-sponsor Lindsey Graham (R-SC). The legislation no longer includes its originally conceived "linked fee" on motor fuels — which was quickly branded as a gas tax increase, alarming Graham and the White […]

Transportation Allowances in the Climate Bill: A Tale of Two Modes

|
To understand why the climate change bill is a top priority for urbanists, it’s crucial to understand the emissions allowances that the legislation distributes. The allowances essentially put the "trade" in "cap-and-trade" — whichever industry or state government holds them can benefit from their monetary value or use them to emit pollution under the "cap." […]