Net Zero

➚ BUY: Virtual power plants. General Motors, Ford, and Google Nest are among the companies funding efforts to aggregate household and business energy sources to smooth out energy demand and supply. With owners’ permission, virtual power plants use software to address electricity shortages by, for example, switching batteries, like those in electric vehicles, to discharge mode.

➘ SELL: Coal-fired power plants. After India missed its 2022 renewable energy goals by more than 30%, the government expects its power plants will burn 8% more coal in the next fiscal year, according to Reuters. That’s a big step backward for the world’s third-largest emitter of emissions. COVID-19 hurt the country’s ability to meet its renewable goals.

The rate of decline in emissions that Australia’s government wants to see from the country’s biggest polluters in the oil, gas, mining, and manufacturing industries by 2030. But there are some exceptions for sectors that are dependent on trade, like aluminum and liquefied natural gas. It’s part of Australia’s push to cut emissions by 43% in 2030 from 2005 levels.

Fed climate stress tests for big U.S. banks are coming soon

THE NEWS

Federal Reserve Chair Jay Powell declared that the U.S. central bank is not and will not be a “climate policymaker.”

The debate over whether climate change poses risks to the financial system, and therefore is part of a central banker’s purview, has become more politically charged across the world.

Powell made his comments Tuesday in a speech in Sweden on central bank independence as he faces pressure from Republicans allied with the oil and gas industry, and from Democrats who want banks to limit lending to those industries.

“Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals,” Powell said.

GINA’S VIEW

Powell’s vow to stay in the central bank’s lane makes sense to maintain the Fed’s credibility and independence. And while he emphasized that climate policy should be left up to elected officials, he did repeat that the Fed has a narrow role.

That’s why Wall Street firms hoping his comments meant the Fed will put climate on the back burner will likely be disappointed. The central bank is still on track to stress test the biggest U.S. lenders this year to assess their climate-related financial risks and more details will be released soon, people familiar with the matter said.

The banks participating in the pilot program are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.

In December, the Fed also asked for public comment on principles that would apply to banks with more than $100 billion in total assets. The proposal would require banks to ensure board members have adequate experience in managing climate risks, and have lenders incorporate such risks into their business strategy and capital planning.

While the planned stress tests will not affect a bank’s capital requirements or limit which businesses they can lend to, it could set up the parameters for more subjective oversight, which worries lenders.

ROOM FOR DISAGREEMENT

Sarah Bloom Raskin, who was nominated by President Joe Biden to be the Fed’s vice chair for supervision until she withdrew her name last March, has argued that U.S. financial regulators haven’t been creative enough in figuring out how to tackle climate warming.

She also pushed the Fed to exclude the fossil-fuel industry from emergency lending programs established during the pandemic, a stance that drew criticisms from Republicans and moderate Democrats. It forced her to pull her name from consideration for the vice chair spot.

THE VIEW FROM EUROPE

The Bank of England and the European Central Bank have been more aggressive than the Fed when it comes to incorporating global warming in their oversight, and pioneered stress tests based on climate risks.

In 2021, the BoE vowed to crack down on lenders that didn’t hold enough capital to cover climate change risks, something that the U.S. central bank has so far declined to do.

In November, ECB President Christine Lagarde said the impact of climate change on the economy should be considered as part of the central bank’s mandate of maintaining price stability, making it a key part of monetary policy.

Semafor’s Liz Hoffman, Steve Clemons and Ben Smith will be in Davos next week for the World Economic Forum, where many of the most powerful people in the world come to do deals, show off their good deeds, get trapped in the snow and are forced to talk to us.

They’ll be delivering our frank and transparent reporting on global power in all its deal-making, gossipy, productive, and pretentious grandeur from one of its true centers in a pop-up newsletter, Semafor Davos Daily. Sign up here.

For the first time in over 60 years, renewable energy surpassed coal as a U.S. energy source in 2022, according to a new report by the Rhodium Group. But it estimates that greenhouse gas emissions rose 1.3% last year compared to 2021.

One Good Text with... Jackie Chimhanzi

Startup Climeworks says it has come up with a way of making carbon credits more credible. It said today that it now uses a third-party verification process to certify its service of sucking carbon dioxide from the air and storing it underground. It’s the first time a company has achieved that on a meaningful scale using an outside auditor, The Wall Street Journal reported.

It’s an important milestone as carbon markets become more popular even as skepticism grows about the quality of credits. The new Climeworks process helps assure its clients, like Microsoft, Shopify and Stripe, that the credits they are buying to offset their own emissions actually help the environment.

But not every credit is created equal; for example, claiming to preserve trees when local forestry officials were already planning to do so. Other schemes allow companies to market themselves as being environmentally friendly without making any meaningful contributions.

That leaves plenty of room to still be skeptical about carbon markets. But the efforts of Climeworks to obtain outside verification could help validate the hype.

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