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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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How To Spot A Carbon-Free Con

  • Nearly every company on earth seems to be setting themselves net-zero targets, but a majority of those pledges have very little substance behind them
  • One major issue is that companies set these targets so far in the future that there is next to no accountability for those in charge
  • Another thing to look out for is the wording of these commitments, with companies (and countries for that matter) often moving responsibility for their emissions elsewhere

The full-page ad was a glorious spread of green and blue, green leaves against a blue sky. “Where clean energy lives”, it declared in a small inset in the middle of the page. An ad for the botanical garden, maybe? No, for New York electric utility, Con Edison. Near the bottom of the page in smaller letters, the advertisement stated, “Con Edison is committed to net zero for our direct emissions by 2040.” 

Our first thought was, “WOW! That is a lot earlier than most companies.” Then we read the carefully crafted wording, “…net zero for our direct emissions…” Then the message sank in tempering our initial enthusiasm. But first, the background. Con Edison provides electric, natural gas, and steam service in the New York metropolitan area. (The company, through affiliates, also owns shares in solar energy projects and natural gas pipelines.) Con Edison does not generate electricity itself. It just delivers energy in various forms. It uses fossil fuel to generate the steam that it sells and obviously uses gasoline and diesel in its considerable vehicle fleet. The independent system operator (NYISO) is responsible for the fossil fuel content of the generating mix in the state (only 40% from fossil fuel combustion now) and intends to reach 100% zero-carbon power generating sources by 2040. In the immortal words (more or less) of a former Con Edison CEO who was being questioned about a gigantic service outage, “We are like the milkman. We only deliver the product.” 

Con Edison has, then, committed to eliminating the carbon emissions from its own operations, but not those of its suppliers or customers. That makes the 100% claim, as stated, correct but misleading. And possibly trivial as well. Why should it take 19 years to reach such a modest goal for an electric utility with no meaningful power-generating assets whatsoever? Where is the sense of impending climate emergency? But before one becomes too cynical, look behind the 100% claim, and we discover that the company does have plans that go beyond its own direct CO2 emissions. They include programs to reduce consumer consumption of natural gas, reduce leakage from gas transmission, replace natural gas with renewable gas and encourage electrification of transportation.   Related: U.S. Strategic Oil Reserves Could Fall By 50% Over The Next Decade

Plenty of projects are on the planning board. Many of them are somewhat aspirational, vaguely timed, and awaiting partners. Given that the warnings about global warming trace back over 50 years, and that New York’s mayors and governors have been banging away at the theme of getting ready for at least 20 years, the content of this recent ad says something about corporate priorities. Kind of reminds us of a story told by an Irish folk singer. Someone noted to him that Dublin celebrated its thousandth anniversary a decade or more late and was asked, “Is there an Irish equivalent to the word “mañana”? To which the singer replied, “No, we don’t have any word with that sense of urgency.”

Three final observations. First, as financial analysts, when we hear a typical corporation’s CO2 or emissions target date of 2050, our first thought is this. “OK, your assets have a 30-year depreciable life so that compliance date means no write-offs, no financial pain”. We can think of this as the “no financial pain” target date. Second, given the decade plus longevity of most CEOs and top corporate officers, a compliance target date of 2050 for emissions reductions also means it’s not even the next CEO’s worry. It’s the CEO after them. If ultimate compliance is that far in the future there is little incentive for rapid compliance especially if this implies any economic impairment (which in turn implies decreased CEO compensation). Lastly, these lengthy CO2 emissions compliance dates may simply reflect a belief that a future political administration, like the Republicans, will be far more lenient in these matters—so that a corporation will be able to reduce emissions at their own pace or not at all. These all suggest to us why lengthy CO2 emissions compliance dates decades away make sense from a corporate perspective. Maybe not from a societal perspective. But that’s another matter. 

Okay, Con Edison has a two-decade horizon, not three decades. But it is in the same ballpark. 

By Leonard S. Hyman and William I. Tilles for Oilprice.com

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