The Biden administration is racing to finalize regulations to curb planet-heating emissions from lightbulbs, automobiles and trucks before a key deadline, after which any new rules could be undone by Donald Trump if he retakes the White House.
With just over six months before the election, at least one major Biden proposal appears to be stalled: an update to the federal housing rules that agency experts estimate would save homeowners nearly three times more money on energy bills than it would add to construction costs, spread out over a 30-year mortgage.
Changing those housing rules would impact about 160,000 new houses and condos built each year in some of the nation’s fastest-growing — and most expensive — housing markets. The Biden administration is now looking to the rules as a model for reforming other federal housing programs, which would supercharge the White House’s efforts to curb both emissions and rising utility bills.
But the final rule is inching through the bureaucratic process at an unusually slow rate, taking weeks or months to advance to technical next steps that regulations can typically reach in a matter of days. It’s unclear what’s causing the delay. And due to a legal quirk, if President Joe Biden loses reelection, Trump could have final say over any rule enacted after May or June.
Critics of the greener housing rules say the changes would raise the price of new homes when half of Americans already say they can’t find affordable housing, home ownership rates are stagnating and the bulk of inflation stems from the climbing cost of shelter. Republicans tried to block the rule from taking effect last year.
Requiring new homes to meet stricter energy efficiency standards to qualify for federally-insured loans would add a combined $560 million in building costs, based on a single-year average of construction prices between 2019 and 2021, the Department of Housing and Urban Development found in its preliminary determination last year.
But over the same period a buyer would pay off a house, the thicker insulation and modern windows mandated under the latest model building codes would save the country as much $1.5 billion in energy costs. Some markets could see new homes that save 24% more energy than models built to the previous year’s standards. The 90-page “national blueprint” for decarbonizing the building sector the Energy Department published this month calls HUD and other federal lending agencies to swiftly adopt the latest codes.
A spokesperson for HUD declined to comment on what’s causing the delay.
“HUD is in the process of finalizing the determination, recognizing the interest in doing so as promptly as possible,” the spokesperson told HuffPost in an emailed statement Friday.
The U.S. has no official nationwide building code. Instead, states can choose to adopt model standards written and regularly updated by private code-writing organizations such as the International Code Council, a nonprofit that convenes local governments, utilities and construction industry professionals. Compared to previous rounds of codes, the ICC’s 2021 homebuilding guidelines delivered double-digit improvements on the energy efficiency of new homes.
Yet few states have voluntarily taken up those new, greener benchmarks.
Nearly half the country — most of the Southeast, Midwest and Mountain West — uses the ICC’s energy standards from at least 15 years ago. Eight states — Alaska, Colorado, Kansas, Mississippi, Missouri, North Dakota, South Dakota and Wyoming — have no statewide building codes at all, instead allowing counties and towns to decide for themselves how to impose standards on builderss. Just six states – California, Connecticut, Illinois, New Jersey, Vermont, and Washington – have adopted the standards in line with the latest ICC housing codes, according to Energy Department data updated a week ago.
That number could soon grow. Congress granted Biden $1 billion to give out to states to help them adopt newer and stricter codes. And the U.S.′ Balkanized housing code system is one reason why stricter federal standards for housing loans are critical for cutting back on emissions. Even though the U.S. can’t force states or cities to adopt the latest ICC code, home loans give the federal government another lever to nudge states toward cleaner buildings.
“This has been long overdue,” said Lowell Ungar, the director of federal policy at the watchdog American Council for an Energy-Efficient Economy. “Each month of delay means thousands more homes with poor insulation, leaving residents with high energy bills for decades. Getting this done will lower families’ overall housing costs.”
The National Association of Home Builders, the largest trade group representing construction companies and real estate developers, told HuffPost that “mandating” the use of the 2021 building codes “is certainly not the answer.”
“This move will significantly limit access to federally-backed financing options for many first-time home buyers, rural home buyers, other home buyers with limited financial resources, and also developers of affordable apartments,” the NAHB warned. “In short, this blatant federal overreach is a counterproductive, short-sighted strategy that will exacerbate the nation’s housing affordability crisis and hurt the nation’s most vulnerable house hunters and renters.”
The American Gas Association, which successfully struck key climate provisions from the energy codes due out in 2024, said federal housing regulators should reject the 2021 codes. In an emailed statement, the gas-utility lobby criticized an Energy Department analysis showing that the most recent codes cut back on wasted energy, citing an industry study.
“HUD and USDA should not accept the revised code or standard provisions that negatively affect the availability or affordability of new construction of single and multifamily housing,” the AGA told HuffPost.
Federal law requires regulatory agencies to routinely ramp up the criteria for housing loans as more efficient codes come out. Yet the only time the codes for federal housing were updated was in 2015, when the Obama administration required that new homes meet the ICC’s 2009 codes. The Trump administration briefly gutted the guidelines for adopting new codes, a move Biden promptly reversed.
By the time Biden took office, building codes had quietly become a new battleground in the fight to transition to cleaner energy.
One benefit of greener homes is that they leave homeowners less vulnerable to energy price swings from war or extreme weather disrupting supplies.
“The most predictable and common cause of people leaving their homes is the energy burden and cost that can go up in such an unpredictable manner based on geopolitics or weather,” said Amy Boyce, senior director of buildings and energy at the Institute for Market Transformation, a think tank focused on decarbonizing buildings.
Utility debt swelled to a record of over $20 billion last year as ratepayers struggled to catch up on electricity and heating bills in arrears. One survey found nearly one-third of Americans in October said they had cut back on or skipped necessary expenses in the past year to cover energy bills. Now states across the country are allowing utilities to jack up rates to help pay for modernizing the grid.
“It’s so dangerous to say, ‘OK, we’re worried about this one aspect of cost, but we’re just going to leave that much more unpredictable aspect for people to figure out later on their own,’” Boyce said.
In the wake of the United Nations’ dire 2018 climate science report, cities and towns across the U.S. enacted laws mandating emissions cuts. But they could only do so much: Local governments have little control over the power plants and automobiles that produce the bulk of carbon pollution. They do, however, control what kinds of houses, offices and storefronts go up.
The ICC, which was formed in the 1990s as the U.S. sought to consolidate disparate code-writing organizations, provided an opportunity for local leaders to influence how houses are built in the whole country. While industry representatives could weigh in on updates to the ICC’s codebook, only officials from elected governments could vote on the final product.
For years, the ICC codes became only barely more energy-efficient with each update. But the ICC codes governments voted to enact in 2021 saw gains of as much as 14%.
Environmentalists, architects and green builders hailed the new codes. Industry groups balked. Trade associations representing gas utilities lobbied the ICC to strip key climate-friendly provisions, like rules that would require new homes to include the circuitry for electric appliances, car chargers and solar panels.
After the backlash, the ICC eliminated governments’ right to vote on codes altogether, moving instead to a “consensus” committee system that granted builders and fossil fuel companies more influence over the process. The Biden administration warned that those changes harmed the ICC code-writing process’s democratic legitimacy.
Promising to enshrine the wins of the latest code, Kevin Bush, HUD’s deputy assistant secretary for grant programs, told advocates in a July 2021 letter that the agency expected to take the first major step toward enshrining the newest codes into regulations “later this year.”
HUD did not submit its draft to the White House’s Office of Management and Budget until August 2022. It took OMB eight months to complete its review of the determination — a process that appeared to have ended only hours after HuffPost contacted the agency about the stalled regulation in March 2023.
The proposal to update the housing loan standards then went to the White House’s Office of Information and Regulatory Affairs. The OIRA completed its review and sent the regulation back to HUD last month.
At other agencies, such as the Energy Department, finalized regulations typically appear on the Federal Register — the crucial last step before a regulation goes into force — within days of returning to the regulators from OIRA review.
After nearly four weeks, HUD has yet to publish its final rule on the Federal Register.
There’s no obvious reason for the rule to be stalled. While the final draft is not out, the language on the OIRA’s website indicated that the agency returned the proposal to HUD without any major changes. Some advocates privately speculated that HUD could be facing internal upheaval since HUD Secretary Marcia Fudge stepped down and retired last month, leaving her temporary replacement in charge.
Unlike mortgages backed by HUD or the Agriculture Department, loans issued under the Federal Housing Finance Agency don’t require homes to follow any specific energy codes, nor do the mortgages purchased by the federally related Fannie Mae and Freddie Mac lenders. An activist campaign launched in November is calling for those agencies to implement similar standards to those HUD uses. The administration told E&E News it would consider the move in December.
“If HUD doesn’t move forward, that [effort] faces an almost insurmountable hurdle,” Boyce said.
The clock is ticking. Under a little-known statute called the Congressional Review Act, lawmakers can undo federal rules up to 60 days after they’re put in place. House Republicans have already repeatedly held votes against the Biden administration’s proposed regulations. But these have so far amounted to nothing but symbolism, since Democrats still control the Senate, and Biden would almost certainly veto any legislation passed in protest of his climate agenda.
Still, since the 60 working days covered by the law aren’t necessarily consecutive, the period always stretches out over more than two months and could eclipse the end of Biden’s first term in office. If Trump wins the presidency and Republicans win the Senate and keep the House, Biden-era climate rules would likely be rolled back.
Legal experts disagree on when the CRA deadline will actually land. Based on the House of Representatives’ calendar, the law firm Hunton Andrews Kurth estimated it will be on May 22, while based on the Senate calendar, the deadline would be June 7, according to the law firm Venable.
The ICC is due out with its 2024 codes in the next few weeks. It had looked poised to put out landmark climate provisions designed to make going electric easier and cheaper for homeowners. Up to 90% of experts involved in writing the code supported the green measures. But gas companies once again appealed. At the last minute, the ICC’s board intervened last month, and granted all the fossil fuel firms’ requests.
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Major cities are not alone in feeling the effects of climate change. Small vacation towns are starting to get the brunt of sea-level rise—as evidenced by one home listing in Nantucket, Massachusetts.
In September 2023, a three-bedroom, two-bath waterfront home in Nantucket—a “beautiful seaside retreat” as described by the sellers—was listed at $2.3 million. Looking at the comparable homes in the area, it was somewhat of a steal. Some listings in the area are as high as $8.2 million, according to Zillow. But after a few months on the market, the price plummeted a whopping 74% to just $600,000—well below Nantucket’s median home sales price of $3.2 million.
During the past two years, we’ve heard nothing but news of home prices increasing, so how could such a seemingly desirable property lose so much value so quickly?
Climate change is to blame. The shoreline surrounding the home lost 70 feet due to erosion in just a few weeks, according to a Boston Globe report. While the 2,625-square-foot property was located at what’s long been considered a prime location in Nantucket, its value was completely washed—literally. While Florida, California, and Texas are primarily the focal points of how climate change is impacting housing, other coastal areas and islands like Nantucket are in danger.
“As sea levels continue to rise, we’re also seeing land areas sink, both due to the increased temperatures from human caused climate change,” Kathleen Biggins, founder and president of non-partisan climate change education organization C-Change Conversations, tells Fortune. “This heavily impacts coastal areas, especially as they become either uninsurable or extremely expensive to insure, because the risk of damage is just too high for market tolerance.”
Despite the risk of future damage, longtime Nantucket visitor Brendan Maddigan, who lives in New York, submitted an all-cash offer in February for the property when he saw the incredible price drop, according to the Globe.
“The home is amazing. The location is amazing,” he said. “And the price mitigates the risk to a good degree. I’d like to think that it’ll be there for a while, but I was definitely aware of the risk of any particular storm causing a problem in the future.”
The risk in buying coastal properties
Vacation homes are meant to be an oasis, but that doesn’t mean they’re immune from the effects of climate change. Indeed, vacation destinations like Nantucket are typically located in “environmentally sensitive areas” and are likely to be the first communities significantly affected by climate change, Biggins says.
That “will definitely lead to fluctuating property values as the risks and impacts become more evident,” Biggins says. “Millions and millions of people live and work in coastal counties, and will be severely impacted by the effects of climate change over time.”
Not only is there inherent risk in purchasing coastal properties that could lose value, but many of these climate-change ridden communities are uninsurable. Indeed, a recent ValuePenguin survey showed more than one in four American homeowners with insurance worry their homes will become uninsurable in 2024—and 72% of home-insurance policyholders reported rate hikes in 2023.
“Climate change goes well beyond the weather in choosing a home,” Tracy Ramsay, a RE/MAX Results real-estate agent, tells Fortune. “In addition to thinking about comfort, climate change can drastically affect your housing stability—as well as your wallet.”
For the wealthy, it can be nearly irresistible to purchase vacation homes—ones with “an ocean backdrop or rolling hills with vineyards,” Ramsay says. “You can’t help dreaming of living an idyllic life in such a setting.”
But the harsh reality is that many of these homes are too “unstable” or even dangerous to live in, Ramsay says. Those who have extra cash to burn may not be too concerned with rebuilding or refurbishing their homes if something were to happen, but without insurance the cost can become insurmountable.
“Even the wealthy will have their tipping point and will flee if the inconvenience and danger become too much,” she says.
American homeowners may have been unfairly tarred with the NIMBY brush, with new research showing that wind turbines have a far smaller effect on house prices across the country than previously feared.
Using data from 300 million home sales and their proximity to 60,000 wind turbines, researchers found an impact of just 1% in value for houses that have a view of turbines within 6 miles.
The study, published today in the Proceedings of the National Academy of Sciences (PNAS) shows that only houses within 1.2 miles of a turbine saw their value significantly affected, at up to 8%. Beyond 1.2 miles, the impact rapidly tailed off.
The researchers note that fewer than 250,000 buildings in the U.S. sit within 2.5 miles of a wind turbine, with 8.5 million homes and structures within 6 miles of one.
“Our research responds to some arguments of local opposition against wind turbines, the classic ‘not in my backyard’ problem that is a hot topic not only in the U.S. but also in Europe and Germany,” says Leonie Wenz, a co-author of the study from the Potsdam Institute for Climate Impact Research (PIK), who suggests the findings could also be used as a basis for compensating affected homeowners.
“Our study also underlines that these impacts have been small in the last two decades, and that we can expect them to become even less of an issue in the future,” she adds.
The U.S. is investing heavily in renewable energy generation, with the Department of Energy describing wind power as “one of the fastest growing and lowest-cost sources of electricity in America.” But even as the Inflation Reduction Act helps incentivize the development of clean energy generation across the country, negative perceptions about wind turbines have in some areas led to strong local opposition to wind projects, causing them to be abandoned.
Notably, the study is the first of its kind to take into account not just of the proximity of homes to turbines, but whether the turbines were within sight of those homes. That’s significant, as Wei Guo of the Italian Centro Euro-Mediterraneo sui Cambiamenti Climatici (CMCC), and a co-author of the study, explains.
“Unlike previous studies, we did not only consider proximity, but also the actual visibility of wind turbines,” Guo says. “We calculated whether you can see the turbine, or whether there is a mountain in the way, for example, and if so, how the house value changes compared to other houses in the same area where residents cannot see the wind turbine.”
That consideration reveals an important detail: any negative economic effect of a wind turbine was found to decrease rapidly as distance from the turbine increased. Furthermore, the researchers say, the effect diminished over time, with any reduction in value peaking at three years following the installation of the turbine, and subsequently falling away.
“What really surprised me is that the house value bounces back to the original price over the years,” says Maximilian Auffhammer, a professor of agricultural and resource economics at the University of California, Berkeley, and a study co-author, who also notes that for turbines installed after 2017, any negative effect was “indistinguishable from zero.” In sum, Auffhammer says, the findings show that “the impact of wind turbines on house prices is much smaller than generally feared.”
From Storm Agnes to Henk, there have already been eight named storms between September and early January.
According to the National Centre for Atmospheric Science, this is the most the UK has witnessed since the Met Office’s storm naming scheme started in 2015.
The storms have caused widespread flooding, landslides and damage to critical infrastructure, with the south of England and Wales worst affected. The intensity of these events is expected to increase due to anthropogenic climate change, with more extreme weather on the horizon.
In its 2023 annual climate summary, the European Union’s Copernicus Climate Change Service confirmed that 2023 had replaced 2016 as the warmest year in “global temperature data records going back to 1850”, with 2024 expected to exceed it. According to the Met Office, 2023 is provisionally the second warmest year on record for the UK, with 2022 being the warmest so far.
Ground engineering consultants and contractors are at the forefront of devising solutions for the built and natural environments, as well as for ageing infrastructure, to make them resilient in the face of more extreme weather.
As highlighted by International Coalition for Sustainable Infrastructure executive director Savina Carluccio at the 2023 BGA Geo-Resilience conference, there is an urgency “for implementing climate resilience and adaptation measures, alongside climate mitigation”.
Engineers must thus design with sustainability and resilience in mind. This is reflected in GE’s very first Early Careers Challenge (ECC), which highlighted the importance of sustainability in ground engineering. The winning entry is presented in GE’s January/February 2024 edition.
We will also continue these discussions at the second GE Sustainability conference, which returns on 18 September. Also, keep an eye out for the launch of the 2024 ECC.
Investing in nature to address climate change, support biodiversity, and protect ocean health—and more—is expected to reach record levels this year in response to more regulation and market demand, according to Cambridge Associates, a global investment firm.
Still, the amount of private capital invested to support natural systems will fall far short of what’s needed, according to the annual “State of Finance for Nature” report published in December from the United Nations Environment Programme.
A big reason is that nearly US$7 trillion in public and private finance was directed to companies and economic activities in 2022 that caused direct harm to nature, while only US$200 billion was directed to so-called nature-based solutions, or NbS—investments that protect, conserve, restore, or engage in the sustainable management of land and water ecosystems, as defined by the United National Environment Assembly 5, or UNEA5, the report said.
“Without a big turnaround on nature-negative finance flows, increased finance for NbS will have limited impact,” it said.
But the report also said that the misalignment “represents a massive opportunity to turn around private and public finance flows” to meet targets set by the United Nations Rio Conventions on climate change, desertification, and biodiversity loss.
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The conventions aim to limit climate change to 1.5 degree Celsius above pre-industrial levels, protect 30% of the earth’s land and seas by 2030, and to reach “land degradation neutrality” by 2030. Reaching those goals will require more than double the amount of current levels of nature-based investing by 2025, to US$436 billion, and nearly triple today’s levels to US$542 billion by 2030, the report said.
Most of the US$200 billion invested in NbS today is by governments, but private investors contributed US$35 billion—including US$4.6 billion via impact investing funds and US$3.9 billion via philanthropy. The largest source of private finance was in the form of biodiversity offsets and credits. [An offset is designed to compensate for biodiversity loss, while a credit is the asset created to restore it].
Many wealthy individuals and families concerned about climate change and the environment so far have focused their investment dollars on climate solutions and innovations in technology and infrastructure, or in technologies supporting food and water efficiency, says Liqian Ma, head of sustainable investment at Cambridge Associates.
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But “increasingly there is growing awareness that nature provides a lot of gifts and solutions if we prudently and responsibly manage nature-based assets,” Ma says.
Investments can be made, for instance, in sustainable forestry and sustainable agriculture—which can help sequester carbon—in addition to wetland mitigation, conservation, and ecosystem services.
“Those areas are not in the mainstream, but they are additional tools for investors,” Ma says.
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Finance Earth, a London-based social enterprise, is among the organizations working to make these tools more mainstream by creating a wider array of nature-based solutions in addition to related investment vehicles.
Finance Earth groups nature-based solutions into six themes: agriculture, forestry, freshwater, marine/coastal, peatland, and species protection. Supporting many of these areas are an array of so-called ecosystem services, or benefits that nature provides such as absorbing carbon dioxide, boosting biodiversity, and providing nutrients, says Rich Fitton, director of Finance Earth.
Each of these ecosystem services are behind existing and emerging markets. Carbon-related disclosure requirements (at various stages of approval in the U.S. and elsewhere) have long spurred demand for carbon markets, the most mature of these markets.
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Cambridge Associates, for instance, works with dedicated asset managers who have been approved by the California Air Resources Board to buy carbon credits, Ma says.
In its annual investment outlook, the firm said California’s carbon credits should outperform global stocks this year as the board is expected to reduce the supply of available credits to meet the state’s emission reduction targets. The value of these credits is expected to rise as the supply drops.
In September, the G20 Task Force on Nature-Related Financial Disclosures released recommendations (similar to those put forward several years ago by the Task Force for Carbon-related Financial Disclosure) that provide guidance for how companies can look across their supply chains to assess their impact on nature, water, and biodiversity “and then start to understand what the nature-related risks are for their business,” Fitton says.
The recommendations will continue to spur already thriving biodiversity markets, which exist in more than 100 countries including the U.S. In the U.K., a new rule called “Biodiversity Net Gain” went into effect this month requiring developers to produce a 10% net gain in biodiversity for every project they create.
Though developers can plant trees on land they’ve developed for housing, for example, they also will likely need to buy biodiversity credits from an environmental nonprofit or wildlife trust to replace and add to the biodiversity that was lost, Fitton says.
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This new compliance market for biodiversity offsets could reach about £300 million (US$382 million) in size, he says.
Finance Earth and
are currently raising funds for a U.K. Nature Impact Fund that is likely to invest in those offsets in addition to other nature-based solutions, including voluntary offset markets for biodiverse woodlands and for peatlands restoration.
The fund was seeded with £30 million from the U.K. Department for Environment, Food and Rural Affairs—money that is designed to absorb first losses, should that be needed. The government investment gives mainstream investors more security to step into a relatively new sector, Fitton says.
“We need the public sector and philanthropy to take a bit more downside risk,” he says. That way Finance Earth can tell mainstream investors “look, I know you haven’t invested in nature directly before, but we are pretty confident we’ve got commercial-level returns we can generate, and we’ve got this public sector [entity] who’s endorsing the fund and taking more risk,” Fitton says.
Since December 2022, when 188 government representatives attending the UN Biodiversity Conference in Montreal agreed to address biodiversity loss, restore ecosystems, and protect indigenous rights, several asset managers began “creating new strategies or refining strategies to be more nature or biodiversity focused,” Ma says.
He cautioned, however, that some asset managers are more authentic about it than others.
“Some have taken it seriously to hire scientists to do this properly and make sure that it’s not just a greenwashing or impact-washing exercise,” Ma says. “We’re starting to see some of those strategies come to market and, in terms of actual decisions and deployments, that’s why we think this year we’ll see a boost.”
Fitton has noticed, too, that institutional investors are hiring experts in natural capital, recognizing that it’s a separate asset class that requires expertise.
“When that starts happening across the board then meaningful amounts of money will move,” he says. “There’s lots of projects there, there’s lots of things to invest in and there’ll be more and more projects to invest in as more of these markets become more and more mature.”
The world’s top management consultancy McKinsey & Company is using its position as a key advisor to the UN’s COP28 climate talks to push the interests of its big oil and gas clients, undermining efforts to end the use of the fossil fuels driving global warming, according to multiple sources and leaked documents.
Behind closed doors, the US-based firm has proposed future energy scenarios to the agenda setters of the summit that are at odds with the climate goals it publicly espouses, an AFP investigation has found.
An “energy transition narrative” drafted by the firm and obtained by AFP only reduces oil use by 50 percent by 2050, and calls for trillions in new oil and gas investment per year from now until then.
McKinsey — whose big oil clients range from America’s ExxonMobil to Saudi Arabia‘s state-run Aramco — is one of several consultancies giving free advice to the United Arab Emirates as it hosts the critical negotiations, which start on November 30.
Controversially, the talks are being presided over by Sultan Al Jaber, head of the Emirati state oil firm ADNOC.
With scientists saying 2023 is certain to be the hottest year on record, and greenhouse gas emissions headed for unprecedented levels, McKinsey is “vocally and brazenly calling for lower levels of ambition on oil phase-out at the highest levels within the COP28 presidency,” said a source who was in the room on confidential discussions with the summit hosts.
McKinsey responded insisting that “sustainability is a mission-critical priority” and that it is committed to helping clients decarbonise.
“We are proud to be supporting COP28 by providing strategic insight and analysis, and sectoral and technical expertise,” it told AFP.
‘Written by oil industry for oil industry’
Some of McKinsey’s rival consultancies operating in Dubai have worked in the spirit of finding genuine climate solutions, according to three sources who have taken part in high-level preparatory meetings, who asked not to be named as the proceedings were confidential.
“But it was very clear from an early stage that McKinsey had a conflict of interest,” said a source who took part in COP28 presidency discussions.
“They would give advice at the highest levels that was not in the best interest of the COP president as the leader of a multilateral climate agreement, but in the best interest of the COP president as the CEO of one of the region’s biggest oil and gas companies.”
Confidential documents seen by AFP back this up.
The McKinsey energy scenario for the COP28 presidency “reads as if it was written by the oil industry for the oil industry”, said Kingsmill Bond, a top equity expert who analysed it.
“This is clearly not a credible pathway to net zero,” Bond, a senior principal at the Rocky Mountain Institute think tank, told AFP.
A COP28 spokesman confirmed to AFP that “McKinsey supports COP28 through providing insights and analysis on a pro bono basis.” But to say the firm presented scenarios incompatible with global climate targets “is just incorrect”, he added.
At odds with net zero
Structured like a law firm, McKinsey employs some 35,000 people worldwide, including 2,500 partners and 700 semi-autonomous senior partners, with revenue last year reported at about $15 billion.
The 2015 Paris Agreement calls on nations to cap warming at 1.5 degrees Celsius, and the UN’s scientific advisory body has said the world economy must be carbon-neutral by 2050 to stay below that.
But analysts said the pathway McKinsey suggested to Jaber for the COP talks would allow fossil fuel firms to continue to pump way too much oil and gas to hit “net zero”.
“On average, 40-50 MMb/d (millions of barrels per day) of oil is still expected to be utilized in 2050,” compared to about 100 MMb/d today, McKinsey’s narrative said.
That is twice the amount allowed in the International Energy Agency (IEA) net zero roadmap, said Jim Williams of the University of San Francisco, a top modeller of decarbonisation trajectories.
The IEA says CO2-removal technologies must scale up 100,000-fold by 2050 to stay on track for a net zero world — a mind-boggling challenge with no guarantee of success.
But the McKinsey scenario would likely require at least double that, experts said.
“It must involve either far more massive levels of negative emissions technologies” that pull CO2 out of the air, “or an even faster phase out of coal and gas”, said former BP geologist Mike Coffin, head of the Oil, Gas and Mining team at Carbon Tracker.
Oil demand to peak
McKinsey’s draft for COP28 says $2.7 trillion a year in new investment will have to be sunk into oil and gas until mid-century, clashing head-on with the IEA net-zero blueprint.
“Even with the current situation and no additional climate policies, we expect that global oil demand will peak in this decade,” said IEA Executive Director Fatih Birol.
Many oil and gas majors — buoyed by high prices and profits in the wake of the war in Ukraine — have backed off commitments to transition to renewables or, in some cases, doubled down on their core business.
“We will stay anchored in what we know we’re good at,” ExxonMobil CEO Darren Woods told McKinsey in an interview published on the firm’s website in September, explaining why his company steered clear of wind and solar power.
Internal revolt
In 2021, McKinsey’s work for fossil fuel clients sparked a rebellion within its own ranks.
More than 1,100 of the firm’s employees signed an internal letter seen by AFP warning that “there is significant risk to McKinsey and our values from pursuing the current course.”
“Our inaction on (or perhaps assistance with) client emissions poses serious risk to our reputation” and “our client relationships”, they wrote.
“We have been telling the world to be bold and align to a 1.5C emissions pathway; it is long overdue that we take our own advice.”
McKinsey told AFP that the firm has committed to help clients reach the 2050 net zero target and this means engaging with “high-emitting sectors”.
“Walking away from these sectors would do nothing to solve the climate challenge,” it added.
‘We need consultancies’
As global warming accelerates, many companies are hiring consultancies to prepare for climate-related risks and opportunities.
“We do need the consultancies to help because we’ve got to get going and move very quickly,” said Bob Ward of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.
“But it’s essential that they actively work for the transition rather than trying to slow it down because of the vested interests of incumbents, such as the fossil fuel industry.”
The big players — McKinsey, Boston Consulting Group and Bain — hire top graduates on six-figure salaries to draw up plans for clients.
A 2022 McKinsey document promoting private carbon markets seen by AFP identified several of its important clients, including oil firms Chevron and BP, power firm Drax, and mining giant Rio Tinto.
The world’s largest oil company, Aramco, declined to comment when asked by AFP about its relationship to the firm.
McKinsey says it has helped healthcare industry clients develop solar capacity, wind energy providers to become more competitive, and at least one developing country to source more electricity with renewables, but does not name the clients.
“If we want to ensure a managed decline of fossil fuel production, we can’t do so if those helping (companies) make money from fossil fuel production continue to have a seat around the table,” Pascoe Sabido, a researcher at the Corporate Europe Observatory think tank, told AFP.
He said there was a regulatory “blind spot” over consultancies’ role in handling the climate crisis.
“The lobbying and the fixing that happens under the radar… is much more dangerous because there’s much less accountability.”
‘Gas and oil consultancy’
McKinsey has weathered tough headlines over recent years.
It was forced to pay out hundreds of millions of dollars over the past two years to settle lawsuits after being accused of fuelling an opioid overdose epidemic by advising drug companies. McKinsey denied any wrongdoing.
Multiple investigations have shown that oil and gas giants were aware of the likely trajectory and impacts of global warming as early as the 1970s based on research by their own scientists, while at the same time sowing doubt on climate science that had come to the same conclusion.
McKinsey is “capable of doing good work helping clients navigate the energy transition, but that work pales in comparison to what it is doing for oil and gas,” said one former McKinsey consultant, who asked not to be named due to a non-disclosure agreement.
“They serve the world’s largest polluters,” he argued. “The firm is best understood as possibly the most powerful oil and gas consulting firm on the planet posturing as a sustainability firm, advising polluting clients on any opportunity to preserve the status quo.”