This story was originally published by the Guardian and is reproduced here as part of the Climate Desk collaboration.

A handful of wealthy polluting countries led by the US are spending billions of dollars of public money on unproven climate solutions technologies that risk further delaying the transition away from fossil fuels, new analysis suggests.

These governments have handed out almost $30 billion in subsidies for carbon capture and fossil hydrogen over the past 40 years, with hundreds of billions potentially up for grabs through new incentives, according to a new report by Oil Change International (OCI), a non-profit tracking the cost of fossil fuels.

To date, the European Union (EU) plus just four countries—the US, Norway, Canada and the Netherlands—account for 95 percent of the public handouts on carbon capture and storage (CCS) and hydrogen.

“It is instructive that industry itself invests very little in carbon capture. This whole enterprise is dependent on government handouts.”

The US has spent the most taxpayer money, some $12 billion in direct subsidies, according to OCI, with fossil fuel giants like Exxon hoping to secure billions more in future years.

The industry-preferred solutions could play a limited role in curtailing global heating, according to the Intergovernmental Panel on Climate Change (IPCC), and are being increasingly pushed by wealthy nations at the annual UN climate summit.

But CCS projects consistently fail, overspend or underperform, according to previous studies. CCS—and blue hydrogen projects—rely on fossil fuels and can lead to a myriad of environmental harms including a rise in greenhouse gases and air pollution.

“The United States and other governments have little to show for these massive investments in carbon capture—none of the demonstration projects have lived up to their initial hype,” said Robert Howarth, professor of ecology and environmental biology at Cornell University. “It is instructive that industry itself invests very little in carbon capture. This whole enterprise is dependent on government handouts.”

With time running out to curtail climate catastrophe, critics of CCS and hydrogen say public money should be focused on proven, less risky solutions such as plugging leaky oil wells, energy efficiency for buildings, transport electrification, and renewables that will speed up the green transition.

The subsidies are a “colossal waste of money,” according to Harjeet Singh, global engagement director for the Fossil Fuel Non-Proliferation Treaty Initiative. “It is nothing short of a travesty that funds meant to combat climate change are instead bolstering the very industries driving it.”

The US and Canada have spent more than $4 billion to subsidize the capture of CO2 that is then used to extract hard to reach oil reserves, a process known as enhanced oil recovery (EOR), according to the OCI report shared exclusively with the Guardian.

“The history of CCS is depressing…and no significant innovations have improved CCS’s prospects.”

However, proponents argue that more investment is needed in developing CCS and hydrogen technologies, so they can help achieve global climate goals agreed under the Paris accords. “They are all part of the toolset we need to reach net zero,” Astrid Bergmål, state secretary in Norway’s ministry of petroleum and energy, told the Guardian.

Norway has so far approved $6 billion in subsidies for CCS, an energy-intensive process powered by fossil gas—which the country is also expanding.

The new analysis is based on two OCI databases: one tracking public awards distributed to companies from 1984 to 2024 for carbon capture and fossil-based hydrogen research and development, as well as grants for pilot and commercial projects. The other tracks government policies announced since 2020 in the US, Canada, Australia, the EU and countries in Europe that support grants, loans, tax credits, below market insurance plans and other financial incentives.

“Governments are pouring billions of taxpayer dollars into technologies that have consistently failed to deliver on their promises…allowing fossil fuel companies to continue business,” said Lorne Stockman, research director at OCI.

Subsidies from the US, the world’s biggest oil and gas producer where an estimated three-quarters of the CO2 currently captured is used for EOR, could top $100 billion, according to OCI analysis.

This is thanks to new policies from the Biden administration, particularly the landmark climate and infrastructure legislation—the 2022 Inflation Reduction Act (IRA)—which after intense industry lobbying expanded tax benefits for both CCS and hydrogen with few checks and balances.

Yet, experts warn that CCS technology is challenging and unlikely to deliver. “The history of CCS is depressing…and no significant innovations have improved CCS’s prospects,” said Charles Harvey, professor of environmental engineering at the Massachusetts Institute of Technology who co-founded the first private CCS startup 15 years ago.

“Nonetheless, we are again wasting money on CCS that could be used instead to effectively cut emissions, distracting ourselves from the necessity of moving away from fossil fuels, and perpetuating a polluting industry whose local harms often fall on minority and economically disadvantaged communities.”

“I don’t think we should be directly subsidizing CCS ever…but we should directly subsidize clean things that are useful to people.”

Hydrogen, which is currently mostly used for refining oil, fertilizers, and processing metals and foods, could be green if companies chose to use water—not gas or coal—as the raw material, and power the process with renewables not fossil fuel. Yet globally, governments have spent $4.2 billion on projects that aim to produce blue hydrogen from fossil fuels using CCS.

The industry claims to have the technology to capture 90 percent to 95 percent of CO₂, but in reality, it’s closer to 12 percent when every stage of the energy-intensive process is evaluated, according to peer-reviewed research by scientists at Cornell University. “The greenhouse gas footprint for this hydrogen is actually greater than if we were to simply burn natural gas for the energy,” said Howarth, a co-author of the groundbreaking study.

Canada is the second largest funder of blue hydrogen after the US with $1.2 billion spent to date, mostly at an oil refinery in Alberta where hydrogen is used for upgrading dirty tar sands crude. The net CO2 capture rate from the plant is less than 70 percent.

The Canadian and US government’s did not respond to requests to comment.

Globally, governments hand over between $500 billion and $1 trillion in direct fossil fuel subsidies annually, though in 2022 the true figure was closer to $7 trillion—when the climate, environmental and health costs were taken into account, according to the IMF. But more than $1 trillion is now also spent supporting clean energy, according to International Energy Agency (IEA) trackers, so the amount allocated to CCS and hydrogen is relatively small.

Still, after the hottest year ever recorded—and as island nations and other developing countries face an existential threat from sea level rise, desertification, drought, extreme heat, wildfires and floods—only $700 million was pledged by governments to the new loss and damage fund at Cop28—far short of the estimated $400 billion needed annually. The financial shortfall for climate adaptation runs into hundreds of billions—and is rising.

“Companies are designed to make profits, they only consider what is priced, so subsidies should come with conditions.”

Singh, director at the Fossil Fuel Non-Proliferation Treaty Initiative, said: “While investing billions in technologies that further entrench fossil fuel use, developed countries simultaneously neglect their moral and financial responsibilities to fund crucial efforts in vulnerable communities…that’s the grim irony.”

While the decades-long reputation of CCS has largely been one of “underperformance” and “unmet expectations”, according to the IEA in 2023, many experts agree that it could play a role in reducing emissions in polluting industries such as cement, steel and chemicals.

But according to Chris Bataille, an IPCC expert on decarbonizing heavy industry, subsidies must come with conditions and target products, not processes, in order to achieve a just and economically sound green transition.

“I don’t think we should be directly subsidizing CCS ever…but we should directly subsidize clean things that are useful to people. Staggered subsidies for clean iron which is key to making steel, clean ammonia which is key for fertilizers and clean clinker for cement, would channel the market—which is the whole idea of government regulation.

“Companies are designed to make profits, they only consider what is priced, so subsidies should come with conditions, including mandatory net-zero transformation plans,” added Batallie, who is also adjunct research fellow at the Columbia University center for global energy policy.

At Cop28 in Dubai, the Netherlands launched a fossil fuel subsidy phase-out coalition amid growing public pressure to cut its financial support for oil and gas, which is currently estimated to be at least $43 billion a year.

The government has approved $2.6 billion for subsidies requested in 2020, with the vast majority allocated to the Porthos project—that will incentivize some oil majors and chemical companies at the Port of Rotterdam to store captured CO₂ in an empty North Sea offshore gas field. (The figure doesn’t include subsidies approved in 2022 or requested in 2023.)

A spokesperson from the Dutch climate ministry said that the final amount paid out was expected to be substantially lower as it depends on the market price of carbon and project costs, and that these fossil fuel-powered technologies were key to the country’s green transition.

“This money should be used to get away from fossil fuels and making industrial processes green, rather than these false solutions.”

“In the Netherlands, safeguards have been built in for subsidies for CCS, so that these do not come at the cost of alternative, clean energy technologies. Dutch policy aims at minimizing the future role of fossil fuels in the energy system and has set conditions and a time horizon for fossil CCS support.”

Climate advocates say the phase-out is too slow.

“This money should be used to get away from fossil fuels and making industrial processes green, rather than these false solutions that are a cash cow for industry—in part because governments take over the risks from market fluctuations in the price of carbon,” said Maarten de Zeeuw, a climate and energy campaigner at Greenpeace Netherlands.

Norway’s first full-scale heavily subsidized CCS project was attached to the Mongstad oil refinery and described in 2007 by then prime minister, Jens Stoltenberg, as the country’s “moon landing.” The project failed, in part due to rising costs, though it did spawn a CCS test facility the government said is “instrumental in technology development.”

The country’s current flagship CCS project, the Longship, involves capturing CO₂ from waste incineration and cement production that will be shipped and stored offshore. Costs here have also been rising—though, according to state secretary Bergmål, rising inflation and supply chain instabilities are also affecting other climate technologies.

OCI claims that Norway is expanding CCS to justify more oil and gas expansion for use producing blue hydrogen for export to Europe—where it is enjoying renewed interest despite evidence that its viability as an alternative fuel will be limited.

Bergmål said: “Managing CO₂ from hard-to-abate industries has nothing to do with prolonged fossil fuel extraction. On the contrary, it is an urgently needed climate mitigation measure. One of the key goals of Longship is to provide learning and reduce costs for future projects…What matters is to produce enough volumes of hydrogen, with low to zero emissions, and at the lowest possible cost.”

This story was originally published by Grist and is reproduced here as part of the Climate Desk collaboration.

Earlier this year, the e-commerce corporation Amazon secured approval to open two new data centers in Santiago, Chile. The $400 million venture is the company’s first foray into locating its data facilities, which guzzle massive amounts of electricity and water in order to power cloud computing services and online programs, in Latin America—and in one of the most water-stressed countries in the world, where residents have protested against the industry’s expansion.

This week, the tech giant made a separate but related announcement. It plans to invest in water conservation along the Maipo River, which is the primary source of water for the Santiago region. Amazon will partner with a water technology startup to help farmers along the river install drip irrigation systems on 165 acres of farmland. The plan is poised to conserve enough water to supply around 300 homes per year, and it’s part of Amazon’s campaign to make its cloud computing operations “water positive” by 2030, meaning the company’s web services division will conserve or replenish more water than it uses up.

The reasoning behind this water initiative is clear: Data centers require large amounts of water to cool their servers, and Amazon plans to spend $100 billion to build more of them over the next decade as part of a big bet on its Amazon Web Services cloud-computing platform. Other tech companies such as Microsoft and Meta, which are also investing in data centers to sustain the artificial-intelligence boom, have made similar water pledges amid a growing controversy about the sector’s thirst for water and power.

One recent estimate found that ChatGPT requires an average-sized bottle of water for every 10 to 50 chat responses it provides.

Amazon claims that its data centers are already among the most water-efficient in the industry, and it plans to roll out more conservation projects to mitigate its thirst. However, just like corporate pledges to reach “net-zero” emissions, these water pledges are more complex than they seem at first glance.

While the company has indeed taken steps to cut water usage at its facilities, its calculations don’t account for the massive water needs of the power plants that keep the lights on at those very same facilities. Without a larger commitment to mitigating Amazon’s underlying stress on electricity grids, conservation efforts by the company and its fellow tech giants will only tackle part of the problem, according to experts who spoke to Grist.

The powerful servers in large data centers run hot as they process unprecedented amounts of information, and keeping them from overheating requires both water and electricity. Rather than try to keep these rooms cool with traditional air-conditioning units, many companies use water as a coolant, running it past the servers to chill them out. The centers also need huge amounts of electricity to run all their servers: They already account for around 3 percent of US power demand, a number that could more than double by 2030. On top of that, the coal, gas, and nuclear power plants that produce that electricity themselves consume even larger quantities of water to stay cool.

Will Hewes, who leads water sustainability for Amazon Web Services, told Grist that the company uses water in its data centers in order to save on energy-intensive air conditioning units, thus reducing its reliance on fossil fuels. 

“Using water for cooling in most places really reduces the amount of energy that we use, and so it helps us meet other sustainability goals,” he said. “We could always decide to not use water for cooling, but we want to, a lot, because of those energy and efficiency benefits.”

In order to save on energy costs, the company’s data centers have to evaporate millions of gallons of water per year. It’s hard to say for sure how much water the data center industry consumes, but the ballpark estimates are substantial. One 2021 study found that US data centers consumed around 415,000 acre-feet of water in 2018, even before the artificial-intelligence boom. That’s enough to supply around a million average homes annually, or about as much as California’s Imperial Valley takes from the Colorado River each year to grow winter vegetables. Another study found that data centers operated by Microsoft, Google, and Meta withdrew twice as much water from rivers and aquifers as the entire country of Denmark. 

In Pennsylvania, one Amazon data center consumes about 20 percent of the electricity capacity of the nuclear power plant nearby.

It’s almost certain that this number has ballooned even higher in recent years as companies have built more centers to keep up with the artificial-intelligence boom, since AI programs such as ChatGPT require massive amounts of server real estate. Tech companies have built hundreds of new data centers in the last few years alone, and they are planning hundreds more. One recent estimate found that ChatGPT requires an average-sized bottle of water for every 10 to 50 chat responses it provides. The on-site water consumption at any one of these companies’ data centers could now rival that of a major beverage company such as PepsiCo. 

Amazon doesn’t provide statistics on its absolute water consumption; Hewes told Grist the company is “focused on efficiency.” However, the tech giant’s water usage is likely lower than some of its competitors—in part because the company has built most of its data centers with so-called evaporative cooling systems, which require far less water than other cooling technologies and only turn on when temperatures get too high. The company pegs its water usage at around 10 percent of the industry average, and in temperate locations such as Sweden, it doesn’t use any water to cool down data centers except during peak summer temperatures. 

Companies can reduce the environmental impact of their AI business by building them in temperate regions that have plenty of water, but they must balance those efficiency concerns with concerns about land and electricity costs, as well as the need to be close to major customers. Recent studies have found that data center water consumption in the US is “skewed toward water stressed subbasins” in places like the Southwest, but Amazon has clustered much of its business farther east, especially in Virginia, which boasts cheap power and financial incentives for tech firms.

“A lot of the locations are driven by customer needs, but also by [prices for] real estate and power,” said Hewes. “Some big portions of our data center footprint are in places that aren’t super hot, that aren’t in super water stressed regions. Virginia, Ohio—they get hot in the summer, but then there are big chunks of the year where we don’t need to use water for cooling.” Even so, the company’s expansion in Virginia is already causing concerns over water availability.

To mitigate its impacts in such basins, the company also funds dozens of conservation and recharge projects like the one in Chile. It donates recycled water from its data centers to farmers, who use it to irrigate their crops, and it has also helped restore the rivers that supply water-stressed cities such as Cape Town, South Africa; in northern Virginia, it has worked to install cover crop farmland that can reduce runoff pollution in local waterways.

The company treats these projects the way other companies treat carbon offsets, counting each gallon recharged against a gallon it consumes at its data centers. Amazon said in its most recent sustainability report that it is 41 percent of the way to meeting its goal of being “water positive.” In other words, it has funded projects that recharge or conserve a little over 4 gallons of water for every 10 gallons of water it uses. 

But despite all this, the company’s water stewardship goal doesn’t include the water consumed by the power plants that supply its data centers. This consumption can be as much as three to 10 times as large as the on-site water consumption at a data center, according to Shaolei Ren, a professor of engineering at the University of California, Riverside, who studies data center water usage. As an example, Ren pointed to an Amazon data center in Pennsylvania that relies on a nuclear power plant less than a mile away. That data center uses around 20 percent of the power plant’s capacity.

“If they are able to capture some of the growing water and clean it and return to the community, that’s better than nothing.”

“They say they’re using very little water, but there’s a big water evaporation happening just nearby, and that’s for powering their data center,” he said.

Companies like Amazon can reduce this secondary water usage by relying on renewable energy sources, which don’t require anywhere near as much water as traditional power plants. Hewes says the company has been trying to “manage down” both water and energy needs through a separate goal of operating on 100 percent renewable energy, but Ren points out that the company’s data centers need round-the-clock power, which means intermittently available renewables like solar and wind farms can only go so far.

Amazon isn’t the only company dealing with this problem. CyrusOne, another major data center firm, revealed in its sustainability report earlier this year that it used more than eight times as much water to source power as it did on-site at its data centers. “As long as we are reliant on grid electricity that includes thermoelectric sources to power our facilities, we are indirectly responsible for the consumption of large amounts of water in the production of that electricity,” the report said.

As for replenishment projects like the one in Chile, they too will only go part of the way toward reducing the impact of the data center explosion. Even if Amazon’s cloud operations are “water positive” on a global scale, with projects in many of the same basins where it owns data centers, that doesn’t mean it won’t still compromise water access in specific watersheds. The company’s data centers and their power plants may still withdraw more water than the company replenishes in a given area, and replenishment projects in other aquifers around the world won’t address the physical consequences of that specific overdraft.

“If they are able to capture some of the growing water and clean it and return to the community, that’s better than nothing, but I think it’s not really reducing the actual consumption,” Ren said. “It masks out a lot of real problems, because water is a really regional issue.”

This story was originally published by Grist and is reproduced here as part of the Climate Desk collaboration.

Earlier this year, the e-commerce corporation Amazon secured approval to open two new data centers in Santiago, Chile. The $400 million venture is the company’s first foray into locating its data facilities, which guzzle massive amounts of electricity and water in order to power cloud computing services and online programs, in Latin America—and in one of the most water-stressed countries in the world, where residents have protested against the industry’s expansion.

This week, the tech giant made a separate but related announcement. It plans to invest in water conservation along the Maipo River, which is the primary source of water for the Santiago region. Amazon will partner with a water technology startup to help farmers along the river install drip irrigation systems on 165 acres of farmland. The plan is poised to conserve enough water to supply around 300 homes per year, and it’s part of Amazon’s campaign to make its cloud computing operations “water positive” by 2030, meaning the company’s web services division will conserve or replenish more water than it uses up.

The reasoning behind this water initiative is clear: Data centers require large amounts of water to cool their servers, and Amazon plans to spend $100 billion to build more of them over the next decade as part of a big bet on its Amazon Web Services cloud-computing platform. Other tech companies such as Microsoft and Meta, which are also investing in data centers to sustain the artificial-intelligence boom, have made similar water pledges amid a growing controversy about the sector’s thirst for water and power.

One recent estimate found that ChatGPT requires an average-sized bottle of water for every 10 to 50 chat responses it provides.

Amazon claims that its data centers are already among the most water-efficient in the industry, and it plans to roll out more conservation projects to mitigate its thirst. However, just like corporate pledges to reach “net-zero” emissions, these water pledges are more complex than they seem at first glance.

While the company has indeed taken steps to cut water usage at its facilities, its calculations don’t account for the massive water needs of the power plants that keep the lights on at those very same facilities. Without a larger commitment to mitigating Amazon’s underlying stress on electricity grids, conservation efforts by the company and its fellow tech giants will only tackle part of the problem, according to experts who spoke to Grist.

The powerful servers in large data centers run hot as they process unprecedented amounts of information, and keeping them from overheating requires both water and electricity. Rather than try to keep these rooms cool with traditional air-conditioning units, many companies use water as a coolant, running it past the servers to chill them out. The centers also need huge amounts of electricity to run all their servers: They already account for around 3 percent of US power demand, a number that could more than double by 2030. On top of that, the coal, gas, and nuclear power plants that produce that electricity themselves consume even larger quantities of water to stay cool.

Will Hewes, who leads water sustainability for Amazon Web Services, told Grist that the company uses water in its data centers in order to save on energy-intensive air conditioning units, thus reducing its reliance on fossil fuels. 

“Using water for cooling in most places really reduces the amount of energy that we use, and so it helps us meet other sustainability goals,” he said. “We could always decide to not use water for cooling, but we want to, a lot, because of those energy and efficiency benefits.”

In order to save on energy costs, the company’s data centers have to evaporate millions of gallons of water per year. It’s hard to say for sure how much water the data center industry consumes, but the ballpark estimates are substantial. One 2021 study found that US data centers consumed around 415,000 acre-feet of water in 2018, even before the artificial-intelligence boom. That’s enough to supply around a million average homes annually, or about as much as California’s Imperial Valley takes from the Colorado River each year to grow winter vegetables. Another study found that data centers operated by Microsoft, Google, and Meta withdrew twice as much water from rivers and aquifers as the entire country of Denmark. 

In Pennsylvania, one Amazon data center consumes about 20 percent of the electricity capacity of the nuclear power plant nearby.

It’s almost certain that this number has ballooned even higher in recent years as companies have built more centers to keep up with the artificial-intelligence boom, since AI programs such as ChatGPT require massive amounts of server real estate. Tech companies have built hundreds of new data centers in the last few years alone, and they are planning hundreds more. One recent estimate found that ChatGPT requires an average-sized bottle of water for every 10 to 50 chat responses it provides. The on-site water consumption at any one of these companies’ data centers could now rival that of a major beverage company such as PepsiCo. 

Amazon doesn’t provide statistics on its absolute water consumption; Hewes told Grist the company is “focused on efficiency.” However, the tech giant’s water usage is likely lower than some of its competitors—in part because the company has built most of its data centers with so-called evaporative cooling systems, which require far less water than other cooling technologies and only turn on when temperatures get too high. The company pegs its water usage at around 10 percent of the industry average, and in temperate locations such as Sweden, it doesn’t use any water to cool down data centers except during peak summer temperatures. 

Companies can reduce the environmental impact of their AI business by building them in temperate regions that have plenty of water, but they must balance those efficiency concerns with concerns about land and electricity costs, as well as the need to be close to major customers. Recent studies have found that data center water consumption in the US is “skewed toward water stressed subbasins” in places like the Southwest, but Amazon has clustered much of its business farther east, especially in Virginia, which boasts cheap power and financial incentives for tech firms.

“A lot of the locations are driven by customer needs, but also by [prices for] real estate and power,” said Hewes. “Some big portions of our data center footprint are in places that aren’t super hot, that aren’t in super water stressed regions. Virginia, Ohio—they get hot in the summer, but then there are big chunks of the year where we don’t need to use water for cooling.” Even so, the company’s expansion in Virginia is already causing concerns over water availability.

To mitigate its impacts in such basins, the company also funds dozens of conservation and recharge projects like the one in Chile. It donates recycled water from its data centers to farmers, who use it to irrigate their crops, and it has also helped restore the rivers that supply water-stressed cities such as Cape Town, South Africa; in northern Virginia, it has worked to install cover crop farmland that can reduce runoff pollution in local waterways.

The company treats these projects the way other companies treat carbon offsets, counting each gallon recharged against a gallon it consumes at its data centers. Amazon said in its most recent sustainability report that it is 41 percent of the way to meeting its goal of being “water positive.” In other words, it has funded projects that recharge or conserve a little over 4 gallons of water for every 10 gallons of water it uses. 

But despite all this, the company’s water stewardship goal doesn’t include the water consumed by the power plants that supply its data centers. This consumption can be as much as three to 10 times as large as the on-site water consumption at a data center, according to Shaolei Ren, a professor of engineering at the University of California, Riverside, who studies data center water usage. As an example, Ren pointed to an Amazon data center in Pennsylvania that relies on a nuclear power plant less than a mile away. That data center uses around 20 percent of the power plant’s capacity.

“If they are able to capture some of the growing water and clean it and return to the community, that’s better than nothing.”

“They say they’re using very little water, but there’s a big water evaporation happening just nearby, and that’s for powering their data center,” he said.

Companies like Amazon can reduce this secondary water usage by relying on renewable energy sources, which don’t require anywhere near as much water as traditional power plants. Hewes says the company has been trying to “manage down” both water and energy needs through a separate goal of operating on 100 percent renewable energy, but Ren points out that the company’s data centers need round-the-clock power, which means intermittently available renewables like solar and wind farms can only go so far.

Amazon isn’t the only company dealing with this problem. CyrusOne, another major data center firm, revealed in its sustainability report earlier this year that it used more than eight times as much water to source power as it did on-site at its data centers. “As long as we are reliant on grid electricity that includes thermoelectric sources to power our facilities, we are indirectly responsible for the consumption of large amounts of water in the production of that electricity,” the report said.

As for replenishment projects like the one in Chile, they too will only go part of the way toward reducing the impact of the data center explosion. Even if Amazon’s cloud operations are “water positive” on a global scale, with projects in many of the same basins where it owns data centers, that doesn’t mean it won’t still compromise water access in specific watersheds. The company’s data centers and their power plants may still withdraw more water than the company replenishes in a given area, and replenishment projects in other aquifers around the world won’t address the physical consequences of that specific overdraft.

“If they are able to capture some of the growing water and clean it and return to the community, that’s better than nothing, but I think it’s not really reducing the actual consumption,” Ren said. “It masks out a lot of real problems, because water is a really regional issue.”

It’s fair to say that Michelle Obama stole the show at the Democratic Convention on Tuesday. (Husband Barack was on point in noting how hard an act she was to follow.) And to a journalist like me who covers wealth and inequality, one line in particular stood out. Listen:

Michelle Obama: She understands that most of us will never be afforded the grace of failing forward. We will never benefit from the affirmative action of generational wealth. pic.twitter.com/ywBjdwZl3E

— Acyn (@Acyn) August 21, 2024

The affirmative action of generational wealth. That’s a smart reframing of a longtime conservative hobby horse.

Republican politicians and right-wing media have regularly attacked programs designed to counter the generational impacts of government-sanctioned discrimination in housing, education, and veterans benefits. Now they’re targeting diversity, equity, and inclusion programs—see JD Vance’s recently introduced “Dismantle DEI Act“—and trying to brand Kamala Harris a “DEI hire.” That’s a laughable assertion. (New York Times columnist Lydia Polgreen argues that the moniker applies more aptly to Vance.)

But the critics of DEI and affirmative action want to have their cake and eat it too. For example, if you, like our Supreme Court, think the use of race as a factor in college admissions should be illegal, that’s your prerogative. But I hope you are similarly inclined to outlaw the practice of elite colleges giving an admissions boost to children of alumni and to students (like Jared Kushner) whose parents are major donors. Because isn’t that, too, a kind of affirmative action?

In just a handful of words, Michelle Obama managed to convey a simple truth, says Dedrick Asante-Muhammad, president of the Joint Center for Political and Economic Studies, a Washington think tank that focuses on the racial wealth-and-opportunity gap: “It is not those asking to break up concentrated wealth and opportunity that are asking for an unfair advantage, but rather those who are hoarding concentrated wealth.”

“Most of us,” as Obama noted, “will never benefit” from generational wealth. And that’s true of everyone, but even truer when you are Black or Hispanic. In the Federal Reserve Board’s 2019 Survey of Consumer Finances (SCF)*, about 47 percent of white respondents said they’d either received an inheritance or expected to receive one. Their median inheritance expected was $195,500 (in 2019 dollars).

Only 16 percent of Black respondents had received or expected an inheritance—and their median expectation was about half the white figure. Less than 12 percent of Hispanic respondents had received or expected an inheritance.

The disparities are similar when you look at federally subsidized retirement savings, which, according to the congressional Joint Committee on Taxation (JCT), will cost US taxpayers a whopping $1.9 trillion from 2020-2024. Most of that cash goes to the wealthiest 10 percent of Americans, who tend to be, yep, pretty white.

In 2021, the JCT identified 8,000 Americans with Individual Retirement Account (IRA) balances in excess of $5 million who were still getting tax breaks for their annual contributions—which is “shocking but not surprising,” noted Senate Finance Committee chair Ron Wyden. Peter Thiel, ProPublica reported, even managed, using questionable tactics, to amass a Roth IRA worth $5 billion.

Affirmative action for the rich.

According to the latest (2022) SCF, only 35 percent of Black families and less than 28 percent of Hispanic households even had a retirement account, compared with 62 percent of white families. The accounts of those white families were worth over $380,000 on average, more than triple the Black and Hispanic savings—and again, these numbers don’t account for the fact that a large majority of Black and Hispanic households have no private retirement accounts at all.

Then there’s land ownership—see “40 Acres and a Lie,” our acclaimed multimedia package exploring how the few Black families who received land reparations after the Civil War then had their acres cruelly rescinded a year and a half later. And consider these passages on the Homestead Acts, from a chapter of my 2021 book, Jackpot, titled “Thriving While Black.”

The two acts, passed during and after the Civil War, granted 160-acre parcels of public land—a foundation for generational wealth—to families willing to stake out the plots and make improvements. But the timing and circumstances made it extraordinarily difficult for Black Americans to participate:

It was a once-in-a-lifetime bonanza for white fortune-seekers. “The acquisition of property was the key to moving upward from a low to a higher stratum,” wrote author Everett Dick. “The property holder could vote and hold office, but the man with no property was practically on the same political level as the indentured servant or slave.” […]

Between the two acts, about 270 million acres of farmland—14 percent of the total landmass of the continental United States—was granted to 1.6 million white families, but only 4,000 to 5,000 Black families. [University of Michigan professor Trina] Shanks calculates that more than 48 million living Americans are direct descendants of those Homestead Act beneficiaries. Which means there’s a greater than one-in-four chance your forebears benefited directly from the biggest public-to-private wealth transfer in American history—if you’re white, that is. 

Affirmative action for the rich.

Obama hit the nail on the head. Asante-Muhammad says he was struck by her simple acknowledgement “that affirmative action for the privileged happens,” though “I wish there could have been a follow up to re-emphasize why programmatic affirmative action to advance more equal opportunity is necessary.”

But “it felt good,” he adds, “to hear a political speech that connects so personally with my political ideals, and to the challenges of the racial wealth divide and the action and ideals needed to bridge it.” 

*I used 2019 numbers here because the 2022 inheritance data was only available in raw form.

This story was originally published by the Guardian and is reproduced here as part of the Climate Desk collaboration.

More than half of the world’s population lives under an energy system that its advocates say can tackle fuel poverty, improve crumbling housing stock, and reduce energy demand. And to cap it off—when properly designed—it would not cost the taxpayer anything.

The so-called rising block tariff or national energy guarantee system (NEG) are almost unknown in Europe but operate successfully in many other countries and regions—from Japan, South Korea, and China, to Bangladesh, India, and California.

The idea is simple: The first block of energy, which is calculated to meet essential needs from heating to cooking and lighting, is either given at a reduced rate or free. The cost per unit then rises in additional blocks, meaning wealthier homes with excessive or nonessential consumption pay more.

According to its champions, the benefits that flow from this system are numerous: Fuel poverty is reduced or eradicated with those on the lowest incomes getting affordable energy to cover the essentials, from heating to cooking and light. Excessive consumption, overwhelmingly linked to wealthier households, is charged at a higher rate, subsidizing the cheaper tariff. And everyone is incentivized to reduce consumption and improve their homes through insulation, smart technology, and other energy efficiency measures in an effort to stay within the cheapest block.

A further advantage, its backers say, is that the lowest tariff could be directly linked to the rollout of renewable energy. In this scenario cheap wind and solar power would determine the size of the lowest tariff, which would then be split between all consumers, giving the public a direct stake in the transition to a low-carbon energy system.

Experts say the current energy pricing system in Europe and the UK needs an urgent overhaul, after the energy crisis caused by the Russian invasion of Ukraine drove tens of millions of people into fuel poverty.

The crisis forced countries across Europe to pump billions of pounds into the energy markets. In the UK alone the government introduced an energy price guarantee costing about $25 billion—thought to be the most expensive energy policy in the country’s history.

Michael Pollitt, an energy expert professor from Cambridge university, said: “We had one of the most expensive energy policies ever implemented. But this cap applied to all consumption, which was crazy, because you were subsidizing people with swimming pools whereas, actually, we could have done something more sophisticated and targeted and cheaper, which has all these other benefits.”

“If we get this right the transition to renewables, energy efficiency, is the answer to a lot of problems people are experiencing.”

Governments in the UK and across Europe are now looking at wholesale reform of the energy market to reduce exposure to the international fossil fuel fluctuations, encourage a reduction in demand and rally support for renewable energy.

Enter the rising block tariff—also known as the increasing block tariff or the national energy guarantee. According to Alex Chapman, a senior economist at the thinktank the New Economics Foundation, who recently published a paper on the potential for a National Energy Guarantee scheme, there is growing interest in the idea in the UK and across Europe. “Over the next few years large amounts of cheap, new renewable energy will be connected to the grid, in the UK that is particularly thanks to the new government’s plans for onshore-wind and solar.”

He argues that rather than seeing this energy disappear into the mix of national consumption, it should be directed into a new rising block tariff. “An initial block of ultra-cheap energy should be offered to every household in the country as a dividend on our national mission to net zero,” he adds.

However, some assessments of the system, which is widely in use for water and energy utilities around the world, have been less sure of its benefits. A World Bank paper that looked at different kinds of water tariffs argued that “they are a blunt instrument at best and at worst can produce perverse outcomes,” citing large poor families that use more water and end up paying the higher rates.

The report concluded that a “(simple) uniform volumetric tariff where water provision is charged at its full cost could improve social welfare by removing price distortions and would be easier for households to understand.”

Jörg Mühlenhoff, the head of the European energy transition program at the German thinktank the Heinrich-Böll-Stiftung, said there was a growing interest in a radical reform of the energy market in the EU. He backed some sort of rising tariff reform but said the “devil would be in the detail.”

“We need to think carefully about how you define the right quantity of electricity for the lowest block, what is a household, is it based on the number of adults, do you take health vulnerabilities into account—there is a lot still to work out.”

He said the ideal model would have a reduced cost block to cover the essentials, with the higher rates linked to fluctuating market rates and energy generation to incentivize not just energy efficiency but also to steer consumers away from using electricity at times of high demand or when renewable generation is low.

“We need to have a system that as well as tackling the cost of living crisis enables people to tap into the potential of renewables, meaning they have access to enough electricity for the essentials but that they also know that when there is a lot of wind, a lot of sun, there will be lower wholesale market prices, so that is the time to switch on your electric devices, your electric vehicle, your electric heat pump etc,” he says.

Mühlenhoff said there could be wider benefits to a reformed energy system in the context of the rise of populist parties across the EU and in the UK.

He says: “You really need to ensure that the benefits of the switch to renewables come to households and that people can see it on their bill. Otherwise, as we saw during the European election campaign, the far right, the populists will pick it up and campaign against the energy transition, when in reality if we get this right the transition to renewables, energy efficiency, is the answer to a lot of problems people are experiencing.”

In the UK Chapman said the reform of the energy markets is also on the cards under the new Labour government. “Labour realize that the offer of a green dividend is paramount if they are to get the public behind their clean power mission. The NEG offers that and what’s more, it can do so in a cost-neutral way, not upsetting the chancellor in the process,” he says.

This story was originally published by the Guardian and is reproduced here as part of the Climate Desk collaboration.

More than half of the world’s population lives under an energy system that its advocates say can tackle fuel poverty, improve crumbling housing stock, and reduce energy demand. And to cap it off—when properly designed—it would not cost the taxpayer anything.

The so-called rising block tariff or national energy guarantee system (NEG) are almost unknown in Europe but operate successfully in many other countries and regions—from Japan, South Korea, and China, to Bangladesh, India, and California.

The idea is simple: The first block of energy, which is calculated to meet essential needs from heating to cooking and lighting, is either given at a reduced rate or free. The cost per unit then rises in additional blocks, meaning wealthier homes with excessive or nonessential consumption pay more.

According to its champions, the benefits that flow from this system are numerous: Fuel poverty is reduced or eradicated with those on the lowest incomes getting affordable energy to cover the essentials, from heating to cooking and light. Excessive consumption, overwhelmingly linked to wealthier households, is charged at a higher rate, subsidizing the cheaper tariff. And everyone is incentivized to reduce consumption and improve their homes through insulation, smart technology, and other energy efficiency measures in an effort to stay within the cheapest block.

A further advantage, its backers say, is that the lowest tariff could be directly linked to the rollout of renewable energy. In this scenario cheap wind and solar power would determine the size of the lowest tariff, which would then be split between all consumers, giving the public a direct stake in the transition to a low-carbon energy system.

Experts say the current energy pricing system in Europe and the UK needs an urgent overhaul, after the energy crisis caused by the Russian invasion of Ukraine drove tens of millions of people into fuel poverty.

The crisis forced countries across Europe to pump billions of pounds into the energy markets. In the UK alone the government introduced an energy price guarantee costing about $25 billion—thought to be the most expensive energy policy in the country’s history.

Michael Pollitt, an energy expert professor from Cambridge university, said: “We had one of the most expensive energy policies ever implemented. But this cap applied to all consumption, which was crazy, because you were subsidizing people with swimming pools whereas, actually, we could have done something more sophisticated and targeted and cheaper, which has all these other benefits.”

“If we get this right the transition to renewables, energy efficiency, is the answer to a lot of problems people are experiencing.”

Governments in the UK and across Europe are now looking at wholesale reform of the energy market to reduce exposure to the international fossil fuel fluctuations, encourage a reduction in demand and rally support for renewable energy.

Enter the rising block tariff—also known as the increasing block tariff or the national energy guarantee. According to Alex Chapman, a senior economist at the thinktank the New Economics Foundation, who recently published a paper on the potential for a National Energy Guarantee scheme, there is growing interest in the idea in the UK and across Europe. “Over the next few years large amounts of cheap, new renewable energy will be connected to the grid, in the UK that is particularly thanks to the new government’s plans for onshore-wind and solar.”

He argues that rather than seeing this energy disappear into the mix of national consumption, it should be directed into a new rising block tariff. “An initial block of ultra-cheap energy should be offered to every household in the country as a dividend on our national mission to net zero,” he adds.

However, some assessments of the system, which is widely in use for water and energy utilities around the world, have been less sure of its benefits. A World Bank paper that looked at different kinds of water tariffs argued that “they are a blunt instrument at best and at worst can produce perverse outcomes,” citing large poor families that use more water and end up paying the higher rates.

The report concluded that a “(simple) uniform volumetric tariff where water provision is charged at its full cost could improve social welfare by removing price distortions and would be easier for households to understand.”

Jörg Mühlenhoff, the head of the European energy transition program at the German thinktank the Heinrich-Böll-Stiftung, said there was a growing interest in a radical reform of the energy market in the EU. He backed some sort of rising tariff reform but said the “devil would be in the detail.”

“We need to think carefully about how you define the right quantity of electricity for the lowest block, what is a household, is it based on the number of adults, do you take health vulnerabilities into account—there is a lot still to work out.”

He said the ideal model would have a reduced cost block to cover the essentials, with the higher rates linked to fluctuating market rates and energy generation to incentivize not just energy efficiency but also to steer consumers away from using electricity at times of high demand or when renewable generation is low.

“We need to have a system that as well as tackling the cost of living crisis enables people to tap into the potential of renewables, meaning they have access to enough electricity for the essentials but that they also know that when there is a lot of wind, a lot of sun, there will be lower wholesale market prices, so that is the time to switch on your electric devices, your electric vehicle, your electric heat pump etc,” he says.

Mühlenhoff said there could be wider benefits to a reformed energy system in the context of the rise of populist parties across the EU and in the UK.

He says: “You really need to ensure that the benefits of the switch to renewables come to households and that people can see it on their bill. Otherwise, as we saw during the European election campaign, the far right, the populists will pick it up and campaign against the energy transition, when in reality if we get this right the transition to renewables, energy efficiency, is the answer to a lot of problems people are experiencing.”

In the UK Chapman said the reform of the energy markets is also on the cards under the new Labour government. “Labour realize that the offer of a green dividend is paramount if they are to get the public behind their clean power mission. The NEG offers that and what’s more, it can do so in a cost-neutral way, not upsetting the chancellor in the process,” he says.

This story was originally published by Grist and is reproduced here as part of the Climate Desk collaboration.

Proponents of the voluntary carbon market say it’s a mechanism not only to advance sustainability goals, but also to funnel much-needed cash to some of the world’s poorest countries. 

The idea is that companies seeking to “offset” their climate footprint will help pay for the development of projects that sequester or prevent greenhouse gas emissions—endeavors like planting trees to suck carbon out of the atmosphere, or protecting forests that were ostensibly in danger of being chopped down. These projects, which generate exchangeable “credits” representing 1 metric ton of greenhouse gas emissions each, come with the promise of jobs for local residents, and project developers often pledge to devote part of their revenue to public infrastructure like schools.

In Africa, the voluntary carbon market is “a powerful means to address climate change and uplift communities,” according to one nonprofit that writes nonbinding standards for the sector.

It’s increasingly unclear, however, whether that narrative holds up to scrutiny. A series of reports published since last November by the nonprofit Carbon Market Watch, or CMW, has highlighted a near-total lack of published research on how much money flowing into the carbon market actually winds up supporting climate mitigation projects or reaching local communities. One report called attention to a lack of fair and transparent benefit-sharing agreements, clauses in projects’ design documents that detail how they will distribute revenue and nonmonetary benefits to people they affect. 

Most recently, an analysis published by the group last week found that, while most carbon credit projects are located in poor countries, they are largely controlled by companies based in wealthier North American and European countries. The authors said there is “no evidence” that the voluntary carbon market, or VCM, brings economic benefits to communities where projects are based, a point that human rights and environmental groups have long been making.

“Rich countries are passing the burden of climate action from rich to the poorest countries.”

“When it comes to knowing if the VCM is actually working as a tool to channel finance from the Global North to the Global South, there’s no information there,” said Inigo Wyburd, a policy expert for Carbon Market Watch and the author of the newest report. “It raises serious questions as to, well, are these communities really benefiting?”

The most recent report looks at two samples of carbon credit projects: one composed of 30 from around the world, and another of 39 projects just in Africa. Only 13 percent of the projects in the global sample are located in countries with the highest level of “human development,” based on a UN metric encompassing education, health, and living standards. But nearly 60 percent of the companies that own, develop, monitor, and vet the projects are based in the world’s most developed countries.

The numbers are even more pronounced for the African sample, which shows that less than 10 percent of projects are based in countries with the highest UN development index. Sixty-two percent of all the projects’ developers and 63 percent of their owners are located in the most highly developed countries outside of Africa. 

According to Wyburd, this doesn’t necessarily mean that companies based in rich countries aren’t directing revenue to local communities. In a way, it makes sense that there would be more companies from wealthy countries participating in carbon credit projects, since they have better access to capital and technology. But paired with the lack of transparency on financial flows, the geographical disparity is concerning.

“As many companies are not based in the same region where their project is carried out, any money that is not directly assigned to project implementation is potentially diverted to become profit for actors located in the Global North,” the report says. Notably, the analysis found that at least 10 projects across both samples were missing documentation on things like monitoring and verification.

The CMW paper only hints at what African rights and environmental groups have been saying much more forcefully. Last year, a coalition of organizations across the continent published a scathing critique of the Africa Carbon Markets Initiative, an effort to develop the continent’s voluntary and government-run carbon markets and bring it $6 billion in annual revenue by 2050. 

While the Africa Carbon Markets Initiative has promised to share revenue equitably and transparently with local communities, the environmental groups called the program “a new form of colonialism,” saying it would exacerbate climate change and obstruct “the attainment of genuine African development pathways.” More broadly, they criticized all carbon credit projects, which they said would commodify Africa’s land and other resources in order to benefit foreign corporations.

“Rich countries are passing the burden of climate action from rich to the poorest countries,” the authors wrote, “in return for which African countries are asked to package up projects that fit the demands of the Northern companies to deliver tons of carbon.”

This problem has already played out across Africa, Asia, and South America, where communities have repeatedly reported being fleeced by companies seeking to generate carbon credits. In one instance, the Switzerland-based company South Pole and Carbon Green Investments—a firm founded by a wealthy Zimbabwean businessman to receive proceeds from South Pole—sought to generate credits by ostensibly preventing deforestation around Lake Kariba in Zimbabwe. Like other projects, part of its allure was that it would also raise money for local communities.

But an investigation from the news site Follow the Money, the Germany newspaper Die Zeit, and the Swiss broadcaster SRF could only account for a tiny fraction of the funds that were promised to support schools, health clinics, and vegetable gardens. Dozens of village chiefs, local politicians, and villagers told the outlets they had doubts about the project; some said there was no money reaching them.

Farai Maguwu, director of a Zimbabwean research and advocacy organization called the Centre for Natural Resource Governance—which was not one of the groups involved with the critique of the Africa Carbon Market Initiative—told Grist in an interview last year that the Kariba project developers had made the local community out to be “ignorant people” who would “destroy their environment” if not for the carbon credits. He said projects like Kariba were “shortchanging” locals: “using them to generate millions of dollars which are never plowed back into those communities.”

“It’s quite irritating when they present these self-serving projects as an opportunity for Africa,” he added.

South Pole told Grist it could not comment on “the actions of other organizations,” and that it had only acted as a “consultant” to the Kariba project; the responsibility for distributing funds to stakeholders “was never with South Pole.” The company said in a press release last year that the Follow the Money investigation had been published “out of context,” and that the company’s intention has always been to “do well as a business by doing good, including creating lasting impact in some of the world’s poorest places.” Several months later, the company cut ties with the Kariba project, though it said it “continues to believe in the significance” of the project for local communities.

The Africa Carbon Markets Initiative did not respond to Grist’s request for comment, and Carbon Green Investments could not be reached.

Meanwhile, carbon credit activity on the continent seems to be growing: Based on Carbon Market Watch’s analysis of publicly available data, 841 projects based in Africa issued 17 percent of global carbon credits between 2020 and 2024, up from 433 projects issuing 7 percent of credits between 2010 and 2020. 

Wyburd, with Carbon Market Watch, said he isn’t against carbon credits necessarily. “I think there are good projects,” he said. “I think there are developers and implementers trying to make a real difference. But it’s difficult to differentiate them from the bad, and that is inherently because of this lack of transparency.” 

Although the voluntary carbon market is not formally regulated, Wyburd called for stronger disclosure requirements from bodies like the Integrity Council for the Voluntary Carbon Market, a nonprofit governance body that aims to provide oversight for the sector. His report recommended that companies make project-level financial reports publicly available, and that standards bodies conduct regular audits to make sure documents are accurate and up to date.

Some environmental groups are less optimistic. In its publication last year, the coalition of African environmental groups asked African governments to “withdraw from and take no further interest” in any carbon market mechanisms. To fund sustainable development, they said African nations should: create a “polluters pay fund” that charges companies per ton of carbon they emit, demand that wealthy countries send more climate finance and cancel “odious debts,” and redirect fossil fuel subsidies toward renewable energy.

This story was originally published by Guardian and is reproduced here as part of the Climate Desk collaboration.

Shell’s profits have climbed to $14 billion for the first half of 2024 after its decision to focus on fossil fuels over low-carbon energy delivered stronger than expected earnings for a second consecutive quarter.

Europe’s biggest oil and gas company rewarded its shareholders with a further $3.5 billion in share buybacks after reporting adjusted earnings of $6.3 billion in the three months to the end of June.

The latest results, which have taken the company’s total profits for the first half of the year to $14 billion and its share buybacks to $7 billion, have angered climate campaigners as Shell continues to grow its global gas business and pull back on investment in low-carbon energy.

“People in the Caribbean devastated by the impacts of Hurricane Beryl are left to pick up the pieces, while rich shareholders and fossil fuel CEOs get to rake in the profits, removed from the chaos they’ve played a leading role in creating,” McIntosh said.

Shell delivered its results days after BP topped forecasts by reporting profits of almost $2.8 billion for the second quarter and set out plans to develop an oil hub in the Gulf of Mexico.

Together the companies have reported combined profits over the last year amounting to £31.2 billion, or more than the combined gross domestic product of six of the Caribbean countries affected most by the record-breaking destruction of Hurricane Beryl, according to the NGO Global Justice Now.

Izzie McIntosh, a climate campaigner at Global Justice Now, said Shell’s profits laid bare “the shameful inequity at the heart of the fossil fuel economy”.

“People in the Caribbean devastated by the impacts of Hurricane Beryl are left to pick up the pieces, while rich shareholders and fossil fuel CEOs get to rake in the profits, removed from the chaos they’ve played a leading role in creating,” McIntosh said.

Shell watered down a climate pledge this year by reframing a target to reduce the carbon emissions intensity of the energy it sells by 15-20 percent by the end of the decade, compared with its previous target of 20 percent.

This will enable Shell to slow the pace of its emissions reductions while growing its global liquified natural gas (LNG) business in a decade that climatologists have warned is crucial in averting a climate catastrophe.

The new targets emerged months after Shell’s chief executive, Wael Sawan, said the company would cut hundreds of jobs from the oil company’s low-carbon division as part of a plan to increase the company’s profits.

Shell, which is headquartered in the UK, revealed this week that it plans to retreat from the ageing North Sea oil basin in favour of more lucrative opportunities in its global portfolio.

The company said it has sold 11 North Sea gas fields – which it owned alongside US giant ExxonMobil – to independent North Sea operator Viaro. It has also sold one of the UK’s most important gas import terminals.

Sawan said the strong financial results, coupled with the decision to hand shareholders $3.5 billion in buybacks, demonstrated the company was “delivering more value with less emissions”.

Shell had warned investors to expect an impairment charge of up to $2 billion in its quarterly results after it was forced to halt work on Europe’s largest biofuel project, in Rotterdam, which was expected to convert waste into sustainable aviation fuel; and sell off a Singapore refinery.

This story was originally published by Guardian and is reproduced here as part of the Climate Desk collaboration.

Shell’s profits have climbed to $14 billion for the first half of 2024 after its decision to focus on fossil fuels over low-carbon energy delivered stronger than expected earnings for a second consecutive quarter.

Europe’s biggest oil and gas company rewarded its shareholders with a further $3.5 billion in share buybacks after reporting adjusted earnings of $6.3 billion in the three months to the end of June.

The latest results, which have taken the company’s total profits for the first half of the year to $14 billion and its share buybacks to $7 billion, have angered climate campaigners as Shell continues to grow its global gas business and pull back on investment in low-carbon energy.

“People in the Caribbean devastated by the impacts of Hurricane Beryl are left to pick up the pieces, while rich shareholders and fossil fuel CEOs get to rake in the profits, removed from the chaos they’ve played a leading role in creating,” McIntosh said.

Shell delivered its results days after BP topped forecasts by reporting profits of almost $2.8 billion for the second quarter and set out plans to develop an oil hub in the Gulf of Mexico.

Together the companies have reported combined profits over the last year amounting to £31.2 billion, or more than the combined gross domestic product of six of the Caribbean countries affected most by the record-breaking destruction of Hurricane Beryl, according to the NGO Global Justice Now.

Izzie McIntosh, a climate campaigner at Global Justice Now, said Shell’s profits laid bare “the shameful inequity at the heart of the fossil fuel economy”.

“People in the Caribbean devastated by the impacts of Hurricane Beryl are left to pick up the pieces, while rich shareholders and fossil fuel CEOs get to rake in the profits, removed from the chaos they’ve played a leading role in creating,” McIntosh said.

Shell watered down a climate pledge this year by reframing a target to reduce the carbon emissions intensity of the energy it sells by 15-20 percent by the end of the decade, compared with its previous target of 20 percent.

This will enable Shell to slow the pace of its emissions reductions while growing its global liquified natural gas (LNG) business in a decade that climatologists have warned is crucial in averting a climate catastrophe.

The new targets emerged months after Shell’s chief executive, Wael Sawan, said the company would cut hundreds of jobs from the oil company’s low-carbon division as part of a plan to increase the company’s profits.

Shell, which is headquartered in the UK, revealed this week that it plans to retreat from the ageing North Sea oil basin in favour of more lucrative opportunities in its global portfolio.

The company said it has sold 11 North Sea gas fields – which it owned alongside US giant ExxonMobil – to independent North Sea operator Viaro. It has also sold one of the UK’s most important gas import terminals.

Sawan said the strong financial results, coupled with the decision to hand shareholders $3.5 billion in buybacks, demonstrated the company was “delivering more value with less emissions”.

Shell had warned investors to expect an impairment charge of up to $2 billion in its quarterly results after it was forced to halt work on Europe’s largest biofuel project, in Rotterdam, which was expected to convert waste into sustainable aviation fuel; and sell off a Singapore refinery.

This story was originally published by Vox.com and is reproduced here as part of the Climate Desk collaboration.

The day after President Joe Biden said he would not seek reelection, his White House announced more than $4.3 billion in grants from the Environmental Protection Agency to communities to curb climate change, cut pollution, and seek environmental justice.

It’s a big announcement, but easily lost amid the thunderous presidential campaign news.

The grants will fund projects across the country that include decarbonizing freight, installing geothermal systems, and capturing fugitive methane emissions. According to the EPA, these grantees will cut US greenhouse gas emissions up to 971 million metric tons by 2050. That’s equal to the emissions of five million average homes over 25 years.

Amid all the political pandemonium, it’s remarkable that the administration is continuing to pump out new environmental initiatives. Climate has consistently been a high priority for the Biden administration, and this announcement proves a genuine commitment. Biden has the distinction of introducing the earliest bill in the Senate to address climate change, the 1986 Global Climate Protection Act. Humanity, though, has more than doubled its greenhouse gas pollution since then. As president, Biden has made dealing with global warming an even higher priority than it was during his last turn in the White House as vice president.

The United States is the world’s largest historical emitter of greenhouse gasses and is currently second in annual output, behind China and ahead of India. So on the world stage, the US has a significant role, and activists say a responsibility, to nudge the global warming trajectory downward.

When he leaves office in January 2025, Biden will be able to credibly claim that he has done more on climate change than any other president and has been one of the most consequential decision-makers in the world for the future of the planet.

But while he’s done the most, it’s still not enough to get the US in line with Biden’s own climate change goals. Many of Biden’s environmental initiatives are still struggling to get rolling, and some activist groups are not satisfied with what he’s done.

And if Donald Trump wins in November, that progress will stall.

When Biden was one of nearly two dozen Democrats running for the top job in 2019, he proposed an extensive climate plan released in two installments that emphasized cutting greenhouse gas emissions by building up a robust US clean energy sector with $2 trillion in investment. He also laid out a legislative strategy and a list of executive actions he would take on his own, such as imposing tough methane leak restrictions on new oil and gas facilities, requiring federal government operations to procure clean energy, and imposing new efficiency regulations on appliances.

At the same time, Biden’s plan was seen as less ambitious than those of his competitors—Bernie Sanders called for $16.3 trillion in total—and he was criticized for declining to support a ban on fracking and for attending a fundraiser hosted by a natural gas company founder.

But since taking office in January 2021, Biden has demonstrated that at least part of his plan was realistic: He managed to tick many of the items on his to-do list that are directly under the president’s purview or from cabinet agencies.

He brought the US back into the 2015 Paris climate agreement, personally attended international climate talks, and committed the country to a more ambitious goal of cutting carbon dioxide emissions in half from 2005 levels by 2030 while achieving net-zero emissions across the economy by 2050.

His administration enacted new fuel economy regulations for cars and trucks to encourage electrification. It set stringent caps on air pollution and carbon dioxide from fossil fuel power plants. It raised efficiency standards for stoves, refrigerators, and shower heads. It set zero-emissions targets for federal buildings, energy suppliers, and vehicle fleets, including placing orders for at least 45,000 electric mail trucks. It vastly expanded federal protections for public lands and established a Civilian Climate Corps to train workers to maintain them.

Perhaps Biden’s single most impactful climate action was signing the Kigali Amendment, an international treaty to phase out some of the most powerful greenhouse gasses. On its own, the Kigali Amendment would avert almost 1 degree Fahrenheit of warming by the end of the century. On September 21, 2022, it cleared the Senate with bipartisan support, including 21 Republicans.

With Congress, Biden signed the trio of the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act. While climate change isn’t in their names, these laws mobilized billions of dollars in investments in clean energy, infrastructure, battery manufacturing, and building up supply chains. Together, they’re some of the largest investments in climate change mitigation in the world. Additionally, they’re structured as incentives, with no explicit penalties for carbon dioxide emissions.

Getting these laws passed was a bruising fight. Biden’s signature Inflation Reduction Act in its final form—with $370 billion for clean energy deployment—was a fraction of the size of the $1.75 trillion version that passed the House in 2021. The Democrats’ narrow majority in the Senate gave holdouts like West Virginia Sen. Joe Manchin leverage to chip away at its scope while securing more pot sweeteners for his own state. That in turn drew the ire of environmental activists who were anticipating a much more robust law.

Much of the IRA’s costs come in the form of tax breaks rather than new spending. “The IRA’s projected costs to the US federal budget are mostly reductions in taxes owed by US taxpayers or increases in federal payments to those taxpayers,” according to a Treasury Department analysis.

Still, the IRA remains the largest investment to deal with climate change in US history.

Biden has also had to navigate political rapids over the past four years and has ended up getting turned around on occasion.

For instance, Biden campaigned on banning new oil and gas development on public lands (on a page since deleted from his website), but in 2022, the Interior Department opened the door to new drilling lease sales. One example is the Willow project in northern Alaska, which the Biden administration greenlit last year, that could extract more than 600 million barrels of oil over 30 years.

Fossil fuel projects like this have led to some of Biden’s biggest climate contradictions.

On Biden’s watch, the US has become the largest oil and gas producer in history. US exports of natural gas hit a record high, especially after the administration stepped up deliveries to allies after Russia’s invasion of Ukraine. Even though the US is aiming to slash its domestic emissions, the country is on track to double liquid natural gas (LNG) exports by 2030. But Biden also imposed a pause on new liquefied natural gas export terminals 

When desperate to tamp down inflation and smooth over supply chain disruptions stemming from the Covid-19 pandemic, the White House tapped the strategic petroleum reserve to help bring gasoline prices down. Biden has bragged about lowering gasoline prices. These lower prices tend to spur more driving, which in turn increases greenhouse gas emissions.

America’s fossil fuel bounties have put the Biden White House in the awkward position of taking credit for facilitating their production while simultaneously trying to curb their use.

Biden’s policies have also created friction within his climate goals.

His signature legislation, the IRA, has provisions mandating that cleantech companies build their products and supply chains in the US if they want to tap the money in the law. The provision has angered allies in places like Europe that want to sell products like solar panels and efficient appliances to US customers. Biden has also retained many of former President Donald Trump’s tariffs on foreign goods and is imposing new ones on cheap electric vehicles made in China by companies like BYD, currently vying with Tesla to be the largest pure EV maker in the world.

This protectionism for US companies raises prices for American buyers and means that the shift to clean energy is more expensive and slower than it needs to be. On the other hand, if cheaper cars and solar panels did enter the US market, they could get more Americans off of coal, oil, and natural gas at a faster pace.

The question now is whether US climate policies will continue to gain momentum, stall, or reverse. The main hinge point is who wins the next election.

Vice President Kamala Harris, the likely Democratic presidential nominee, has her own history with tackling climate change as California’s attorney general. And with Biden’s endorsement, the Venn diagram of their climate policies will have a lot of overlap.

However, there are some big obstacles. Few Americans grasp how they can benefit from the programs in the IRA, and the money in the law has been slow to trickle out to build things like EV charging stations. Shortages of specialized labor and permitting issues have delayed big clean energy manufacturing projects. Energy demand is poised to grow as well, driven by population growth and technologies like artificial intelligence, and already fossil fuels are feeding some of that new appetite.

Biden’s policies are facing legal setbacks too. Republican state attorneys general are suing the White House to block new fuel efficiency regulations for cars and trucks. The Republican-led Supreme Court has also eroded the federal government’s ability to regulate greenhouse gas emissions, and with the recent reversal of the Chevron doctrine, agencies like the EPA will have much less leeway to craft environmental rules.

It’s also not clear voters will reward the effort. A majority of Americans support addressing climate change and deploying more clean energy, but it ranks as a much lower priority behind issues like crime and inflation. According to the Yale Program on Climate Change Communication in a survey conducted in April 2024, 37 percent of US voters consider climate change to be “very important.”

On the other hand, Trump, the Republican nominee, is openly disdainful of action on climate change. A key focus of his first turn in office was systematically undoing or blocking environmental regulations and promoting fossil fuels, going as far as removing the words “climate change” from government websites. Many of these rollbacks were stalled because they were poorly structured, blocked by courts, or undermined by bad staffing choices.

Conservative activists are working to ensure they don’t squander another opportunity in the White House to achieve their goals. The Heritage Foundation laid out a strategy for this in Project 2025, which aims to staff federal agencies with people who will reduce regulations and increase fossil fuel development. Though Trump has sought to distance himself from the plan, many alumni from his administration and campaign personnel were among the authors.

And there’s always the chance of another shock—a war, a pandemic, a depression—that could take the wind out of the sails of curbing climate change.

Despite this uncertainty, it’s increasingly clear that the turn toward cleaner energy is likely to endure. Worldwide, wind and solar are the cheapest sources of new electricity, and in some cases more cost-effective than existing fossil fuel sources. Market forces and climate policies are starting to have an effect, and according to some estimates, the world may be close to reaching peak greenhouse gas emissions, if it hasn’t already crossed this line.

Even with so many potential setbacks, some of the big changes Biden set in motion are likely to stick, as the cleaner, more efficient technologies become cheaper and more polluting sources of energy enter their final days. Even if Trump were to retake the White House, it’s likely that US emissions will continue to decline, albeit not as quickly as they would under a Democrat.

Changing this course took decades of persistent effort from scientists, engineers, leaders, and activists. Joe Biden deserves some credit for helping turn the rudder.

This story was originally published by Inside Climate News and is reproduced here as part of the Climate Desk collaboration.

A class-action lawsuit against American Airlines filed by employees opposed to Environmental, Social, and Governance funds used in their 401(k)s could redefine how employers handle ESG investing and respond to further litigation. 

The American Airlines suit, filed in federal court in Texas, is one of the first in the private sector to focus on the use of ESG funds in employees’ retirement accounts. The lawsuit’s lead plaintiff, pilot Bryan Spence, alleges that American mismanaged employees’ retirement savings by investing with fund managers who “pursue leftist political agendas” through ESG strategies, proxy voting and shareholder activism. 

The lawsuit, certified as a class action in May, could include as many as 100,000 plan members. American Airlines employees like Spence contribute to their 401(k)s by choosing from a menu of investment options pre-selected by the company. All plan members, whether they decided to invest their individual 401(k) in an ESG plan or not, are included in the class action. 

ESG funds that refrain from owning fossil fuel stocks purely due to moral concerns about climate change may run afoul of the law.

The class is inclusive because the lawsuit argues that, by engaging with investment firms that “pursue pervasive ESG agendas,” American Airlines failed its duty to employees. It claims that firms like BlackRock are prioritizing “socio-political outcomes rather than exclusively financial returns” and accuses American Airlines of failing to safeguard its employees’ financial interests by doing business with such investors.  

The political battle raging over sustainable investing in the US is changing how fund managers use and promote ESG factors in their work, said Chris Fidler, head of the global industry standards team at the CFA Institute, a nonprofit based in Charlottesville, Virginia, that provides investment professionals with finance education. Efforts to define the term as a moral and political tool rather than a financial one has “made asset managers more reluctant to talk about what they’re doing,” Fiddler said. 

BlackRock, American Airlines and Spence’s lawyer, Hacker Stephens LLP, did not immediately respond to requests for comments. 

The lawsuit falls under the Employee Retirement Income Security Act (ERISA). How it’s interpreted has come under serious debate in recent years, especially concerning ESG investments. 

In 2022, the Biden administration released new rules designed to encourage social and policy goals such as renewable energy by making ESG investing easier. The rules were challenged by 26 Republican state attorneys general, but a district court judge in Texas ultimately upheld Biden’s rule. The Biden regulation itself reversed a Trump-era rule that had aimed to limit ESG investing for retirement plans, given fossil fuel companies’ hostility to ESG.

Despite the back-and-forth, ERISA still dictates that an employer should make decisions based exclusively on financial factors, said Max Schanzenbach, Seigle Family professor of law at Northwestern University. Under the new regulations, moral or political ESG considerations cannot be used by employers to select investment funds. 

Only in limited circumstances can non-financial ESG factors be used to pick an investment. A “tiebreaker” rule allows fund managers to use “collateral benefits,” such as greenhouse gas emissions, only when two investments provide equal financial returns otherwise. 

The difference between Trump’s 2020 rule and Biden’s 2022 rule is a matter of nuance, Schanzenbach said. “The Biden administration tried to make ESG investing easier, but they ultimately wound up with a very centrist rule. And Trump tried to make it harder and also wound up with a very centrist rule.” 

“If funds are using ESG factors to evaluate the financial risks and opportunities of the company, they’re going to continue to do that.”

While both rules were painted as watershed attacks or defenses of ESG, Schanzenbach noted that they both upheld “sole financial interests” as the standard dictating retirement investing for American companies. This means that employers are expected to use a financial analysis, rather than ethical or political concerns, to choose investments. 

Under this framework, the American Airlines pilot and his lawyers must demonstrate that the company violated its fiduciary duty—the legal obligation to act in the best interest of its plan members—when it decided to work with BlackRock and similar investment firms. Whether they succeed could have a chilling effect on companies and investment funds’ decisions to engage with, or disclose their use of ESG, Schanzenbach said.  

ESG, as it is used in the US, does not refer to a single type of investment, explained Schanzenbach. The distinction between two types of ESG investments will dictate how American Airlines and other employers navigate ERISA rules and litigation.

First, an ESG investing strategy might screen out industries or companies based on ethical or environmental objectives. For example, ESG funds that refrain from owning fossil fuel stocks purely due to moral concerns about climate change are using non-financial factors to make investment decisions—and could violate federal ERISA law, he said. 

The other way to use the term ESG refers more specifically to how fund managers or individual investors assess risk and returns. It’s a way to value companies and stocks by looking at how environmental or social shifts could make them more or less valuable down the line. This is what Schanzenbach calls “ESG for a profit.”

Susan Gary, professor emerita at the University of Oregon’s School of Law, said the lawsuit against American Airlines alleges that the company is using ESG for the first purpose: as a tool to achieve political and moral ends. The original complaint cited “leftist activist groups” that it claims sought to advance their “ESG agendas” rather than maximizing profits and the interests of workers. The attempts in various states, including Texas, to block the use of ESG for political reasons echo a common misunderstanding about how investment managers do their jobs, she added. 

“It’s much more nuanced, much more complicated than (the lawsuit) is describing,” Gary said of American’s use of ESG funds. Investment managers use ESG information to develop their strategy, she continued. “It’s not that there’s one ESG investment strategy.” 

When deciding to invest in a company, plan managers assess a wide range of information. 

This is where ESG comes in, said Fidler, who led the development of the Global ESG Disclosure Standards for Investment Products at the CFA Institute. When considering where to put money, plan managers might take into account how environmental, social, and governance issues will impact the value of the stock. 

“Not everything about a company is captured in its financial statements or in market data,” he continued. “You can use ESG information as part of a holistic fundamental analysis that looks at all the different risks and opportunities that face a business, and evaluate them through the lens of: Is this a good investment?” 

A real estate investor might, for example, consider whether a property is in a floodplain before buying it. Environmental information like flood risks would potentially diminish or ruin the value of the investment down the line. “If funds are using ESG factors to evaluate the financial risks and opportunities of the company, they’re going to continue to do that,” Fidler said. 

“This is ideology and American cultural wars brought to the financial markets.”

But rising backlash against sustainability and climate considerations has caused companies to go quiet about this. The behavior is so prevalent that a term has been coined for it: “greenhushing.” BlackRock, the asset manager repeatedly mentioned in the lawsuit, stopped using the term ESG last year. The firm’s CEO Larry Fink says the company maintains its stance on issues such as climate change, but that the term “ESG” had become too political. 

Litigation like the American Airlines case might exacerbate the phenomenon and push fund managers to scale down using “ESG” or “sustainable” in names, marketing and advertising. “But I don’t think that means that managers will ignore these sorts of risks or information if it’s helping their analysis,” Fidler added.

Rodrigo Zeidan, a professor of business and finance at NYU Shanghai, agreed. This kind of lawsuit, he added, won’t impact the way fund managers do their jobs. “The environment doesn’t care if the American law decides that American funds cannot call their investments ESG,” he said. “Good fund managers will still try to allocate their portfolio to companies that they believe will survive in the long run.” 

Whether fund managers find a new term for ESG or stop calling it anything at all, these lawsuits won’t bring about a revamping of the financial industry, he said. 

Nonetheless, litigation risk does have an impact on companies. Zeidan said it has already kept management teams and boards of directors away from ESG initiatives. “Board members will claim that they don’t want to make any decisions that deviate from a very narrow reading of what fiduciary duty means,” he said. “And that this narrow reading is mainly to limit the legal risk.” 

The cost of these lawsuits, too, might have a chilling effect on companies’ approach to ESG and sustainability. Employees at companies like Google have recently asked their employers to divest their 401(k)s from fossil fuels, but such a policy could expose companies to similar fiduciary duty lawsuits. 

“I think that’s probably part of the litigation strategy, to make it expensive,” Gary said. “Expensive to engage in anything that appears to be ESG investing.”

Much of the politicization of ESG boils down to pensions and government spending, Gary noted. The American Airlines case is not the first time that Texas has been at the forefront of litigation attempting to restrict these two areas. Last year, Texas Attorney General Ken Paxton co-led the multistate lawsuit against the Biden administration’s ERISA rules. The lawsuit is now on appeal in the northern district of Texas court. 

In 2021, Texas passed two laws to ban municipalities from doing business with banks that have ESG policies. The legislation was aimed at protecting Texas’ reliance on oil and gas and firearm industries, but research from economists at Wharton and the Federal Reserve Bank of Chicago suggests that Texas cities could end up paying $300 million to $500 million in additional interest as a result.

Public pensions in Texas are already barred from investing in funds run by asset management firms such as BlackRock. Supporters of those bills claim that these firms “boycott” Texas energy companies through their ESG policies, despite the banned funds investing a combined $5 billion in oil and gas, according to a Bloomberg News analysis. 

While the lawsuit awaits its next hearings and likely lengthy litigation and potential subsequent appeals, fund managers will continue to do their jobs, Zeidan said.  

“This, for me, is immaterial and has no systemic long-run effect. This is ideology and American cultural wars brought to the financial markets.”

This story was originally published by Inside Climate News and is reproduced here as part of the Climate Desk collaboration.

A class-action lawsuit against American Airlines filed by employees opposed to Environmental, Social, and Governance funds used in their 401(k)s could redefine how employers handle ESG investing and respond to further litigation. 

The American Airlines suit, filed in federal court in Texas, is one of the first in the private sector to focus on the use of ESG funds in employees’ retirement accounts. The lawsuit’s lead plaintiff, pilot Bryan Spence, alleges that American mismanaged employees’ retirement savings by investing with fund managers who “pursue leftist political agendas” through ESG strategies, proxy voting and shareholder activism. 

The lawsuit, certified as a class action in May, could include as many as 100,000 plan members. American Airlines employees like Spence contribute to their 401(k)s by choosing from a menu of investment options pre-selected by the company. All plan members, whether they decided to invest their individual 401(k) in an ESG plan or not, are included in the class action. 

ESG funds that refrain from owning fossil fuel stocks purely due to moral concerns about climate change may run afoul of the law.

The class is inclusive because the lawsuit argues that, by engaging with investment firms that “pursue pervasive ESG agendas,” American Airlines failed its duty to employees. It claims that firms like BlackRock are prioritizing “socio-political outcomes rather than exclusively financial returns” and accuses American Airlines of failing to safeguard its employees’ financial interests by doing business with such investors.  

The political battle raging over sustainable investing in the US is changing how fund managers use and promote ESG factors in their work, said Chris Fidler, head of the global industry standards team at the CFA Institute, a nonprofit based in Charlottesville, Virginia, that provides investment professionals with finance education. Efforts to define the term as a moral and political tool rather than a financial one has “made asset managers more reluctant to talk about what they’re doing,” Fiddler said. 

BlackRock, American Airlines and Spence’s lawyer, Hacker Stephens LLP, did not immediately respond to requests for comments. 

The lawsuit falls under the Employee Retirement Income Security Act (ERISA). How it’s interpreted has come under serious debate in recent years, especially concerning ESG investments. 

In 2022, the Biden administration released new rules designed to encourage social and policy goals such as renewable energy by making ESG investing easier. The rules were challenged by 26 Republican state attorneys general, but a district court judge in Texas ultimately upheld Biden’s rule. The Biden regulation itself reversed a Trump-era rule that had aimed to limit ESG investing for retirement plans, given fossil fuel companies’ hostility to ESG.

Despite the back-and-forth, ERISA still dictates that an employer should make decisions based exclusively on financial factors, said Max Schanzenbach, Seigle Family professor of law at Northwestern University. Under the new regulations, moral or political ESG considerations cannot be used by employers to select investment funds. 

Only in limited circumstances can non-financial ESG factors be used to pick an investment. A “tiebreaker” rule allows fund managers to use “collateral benefits,” such as greenhouse gas emissions, only when two investments provide equal financial returns otherwise. 

The difference between Trump’s 2020 rule and Biden’s 2022 rule is a matter of nuance, Schanzenbach said. “The Biden administration tried to make ESG investing easier, but they ultimately wound up with a very centrist rule. And Trump tried to make it harder and also wound up with a very centrist rule.” 

“If funds are using ESG factors to evaluate the financial risks and opportunities of the company, they’re going to continue to do that.”

While both rules were painted as watershed attacks or defenses of ESG, Schanzenbach noted that they both upheld “sole financial interests” as the standard dictating retirement investing for American companies. This means that employers are expected to use a financial analysis, rather than ethical or political concerns, to choose investments. 

Under this framework, the American Airlines pilot and his lawyers must demonstrate that the company violated its fiduciary duty—the legal obligation to act in the best interest of its plan members—when it decided to work with BlackRock and similar investment firms. Whether they succeed could have a chilling effect on companies and investment funds’ decisions to engage with, or disclose their use of ESG, Schanzenbach said.  

ESG, as it is used in the US, does not refer to a single type of investment, explained Schanzenbach. The distinction between two types of ESG investments will dictate how American Airlines and other employers navigate ERISA rules and litigation.

First, an ESG investing strategy might screen out industries or companies based on ethical or environmental objectives. For example, ESG funds that refrain from owning fossil fuel stocks purely due to moral concerns about climate change are using non-financial factors to make investment decisions—and could violate federal ERISA law, he said. 

The other way to use the term ESG refers more specifically to how fund managers or individual investors assess risk and returns. It’s a way to value companies and stocks by looking at how environmental or social shifts could make them more or less valuable down the line. This is what Schanzenbach calls “ESG for a profit.”

Susan Gary, professor emerita at the University of Oregon’s School of Law, said the lawsuit against American Airlines alleges that the company is using ESG for the first purpose: as a tool to achieve political and moral ends. The original complaint cited “leftist activist groups” that it claims sought to advance their “ESG agendas” rather than maximizing profits and the interests of workers. The attempts in various states, including Texas, to block the use of ESG for political reasons echo a common misunderstanding about how investment managers do their jobs, she added. 

“It’s much more nuanced, much more complicated than (the lawsuit) is describing,” Gary said of American’s use of ESG funds. Investment managers use ESG information to develop their strategy, she continued. “It’s not that there’s one ESG investment strategy.” 

When deciding to invest in a company, plan managers assess a wide range of information. 

This is where ESG comes in, said Fidler, who led the development of the Global ESG Disclosure Standards for Investment Products at the CFA Institute. When considering where to put money, plan managers might take into account how environmental, social, and governance issues will impact the value of the stock. 

“Not everything about a company is captured in its financial statements or in market data,” he continued. “You can use ESG information as part of a holistic fundamental analysis that looks at all the different risks and opportunities that face a business, and evaluate them through the lens of: Is this a good investment?” 

A real estate investor might, for example, consider whether a property is in a floodplain before buying it. Environmental information like flood risks would potentially diminish or ruin the value of the investment down the line. “If funds are using ESG factors to evaluate the financial risks and opportunities of the company, they’re going to continue to do that,” Fidler said. 

“This is ideology and American cultural wars brought to the financial markets.”

But rising backlash against sustainability and climate considerations has caused companies to go quiet about this. The behavior is so prevalent that a term has been coined for it: “greenhushing.” BlackRock, the asset manager repeatedly mentioned in the lawsuit, stopped using the term ESG last year. The firm’s CEO Larry Fink says the company maintains its stance on issues such as climate change, but that the term “ESG” had become too political. 

Litigation like the American Airlines case might exacerbate the phenomenon and push fund managers to scale down using “ESG” or “sustainable” in names, marketing and advertising. “But I don’t think that means that managers will ignore these sorts of risks or information if it’s helping their analysis,” Fidler added.

Rodrigo Zeidan, a professor of business and finance at NYU Shanghai, agreed. This kind of lawsuit, he added, won’t impact the way fund managers do their jobs. “The environment doesn’t care if the American law decides that American funds cannot call their investments ESG,” he said. “Good fund managers will still try to allocate their portfolio to companies that they believe will survive in the long run.” 

Whether fund managers find a new term for ESG or stop calling it anything at all, these lawsuits won’t bring about a revamping of the financial industry, he said. 

Nonetheless, litigation risk does have an impact on companies. Zeidan said it has already kept management teams and boards of directors away from ESG initiatives. “Board members will claim that they don’t want to make any decisions that deviate from a very narrow reading of what fiduciary duty means,” he said. “And that this narrow reading is mainly to limit the legal risk.” 

The cost of these lawsuits, too, might have a chilling effect on companies’ approach to ESG and sustainability. Employees at companies like Google have recently asked their employers to divest their 401(k)s from fossil fuels, but such a policy could expose companies to similar fiduciary duty lawsuits. 

“I think that’s probably part of the litigation strategy, to make it expensive,” Gary said. “Expensive to engage in anything that appears to be ESG investing.”

Much of the politicization of ESG boils down to pensions and government spending, Gary noted. The American Airlines case is not the first time that Texas has been at the forefront of litigation attempting to restrict these two areas. Last year, Texas Attorney General Ken Paxton co-led the multistate lawsuit against the Biden administration’s ERISA rules. The lawsuit is now on appeal in the northern district of Texas court. 

In 2021, Texas passed two laws to ban municipalities from doing business with banks that have ESG policies. The legislation was aimed at protecting Texas’ reliance on oil and gas and firearm industries, but research from economists at Wharton and the Federal Reserve Bank of Chicago suggests that Texas cities could end up paying $300 million to $500 million in additional interest as a result.

Public pensions in Texas are already barred from investing in funds run by asset management firms such as BlackRock. Supporters of those bills claim that these firms “boycott” Texas energy companies through their ESG policies, despite the banned funds investing a combined $5 billion in oil and gas, according to a Bloomberg News analysis. 

While the lawsuit awaits its next hearings and likely lengthy litigation and potential subsequent appeals, fund managers will continue to do their jobs, Zeidan said.  

“This, for me, is immaterial and has no systemic long-run effect. This is ideology and American cultural wars brought to the financial markets.”

Just when the IRS was starting to get its mojo back, the Supreme Court had to go and throw a wrench into the works.

By now, most civic-minded Americans will have heard about the recent high court rulings that threaten to crush the administrative state, crippling the government’s ability to enact and enforce critical regulations that advance the nation’s interests and protect her citizens.

My colleague Jackie Mogensen recently described how a 2023 Supreme Court decision limiting the EPA’s jurisdiction has made way for polluted rivers. June’s rulings bode far worse, for both the natural environment and efforts to combat climate change. Colleague Nina Martin has examined how the new rulings will be weaponized to gut reproductive rights. The New Republic’s Timothy Noah covered how they may affect the banking sector—and the economy. Others have looked at impacts on health care. And so I set out to determine the extent of the chaos the court’s rulings will unleash on the federal tax system.

Short answer: Nobody knows, but it won’t be pretty.

Loper “unleashes so much chaos,” says Georgetown Law professor Brian Galle. “I think you will see a massive wave of antiregulatory lawsuits.”

Tax law is extraordinarily complicated. So much so that few lawmakers have any hope of understanding its nuances. Attorneys who specialize in tax, as one of my sources points out, tend to go beyond law school to obtain a master’s degree. Tax is also a realm that demands long-term planning by individuals and businesses. Stability is important. But with the Supreme Court latest actions, “what used to be fairly settled law now becomes potentially unsettled,” says attorney Harvey Dale, who has taught tax at the New York University School of Law for more than four decades. “It’s a very, very bad outcome.”

Two rulings in particular “will bring much more litigation into the federal courts. I’m talking hundreds, maybe thousands of litigations trying to take down regulations, some of which may be 50 years old. So that unsettles planning for the entire nongovernmental sector,” Dale says.

First and most notable is Loper Bright Enterprises v. Raimondo, wherein the Supreme Court majority killed the so-called Chevron deference. Chevron is the legal standard that has long guided career experts at federal agencies as they carried out the intent of Congress, translating broad legislative strokes into enforceable regulations related to climate, commerce, energy, health care, and other realms. The demise of Chevron makes it easier for special interests to successfully challenge federal agencies in court—and to tie up pending regulations with nuisance lawsuits.

Adding insult to injury was Corner Post Inc. v Board of Governors, in which the majority stunned observers by ruling that the six-year statute of limitations for challenging federal regulations begins not when a regulation is first enacted, but rather when the party who brought the complaint was first affected. Corner Post puts Loper on steroids, making almost any regulation fair game.

These decisions, Dale says, “emasculate” the rulemaking ability of highly technical federal agencies, “because they’re going to be worried—correctly—about the extent to which litigation will bring them to court, and maybe invalidate their regulations.”

Loper “unleashes so much chaos,” concurs Georgetown Law professor Brian Galle, who teaches courses in taxation, nonprofits, and behavioral law and economics. “I think you will see a massive wave of antiregulatory lawsuits.”

“A rule of judicial humility gives way to a rule of judicial hubris,” Justice Kagan wrote in her Loper dissent. “The majority disdains restraint, and grasps for power.”

Tribune Media Company barely let the ink dry on the Loper ruling before mounting a challenge to IRS guidelines designed to curb what it calls “abusive basis-shifting” by partnerships. Last Wednesday, a lawyer for the IRS commissioner wrote to a federal appeals court contesting the Tribune challenge and pointing out that the agency had not relied on Chevron in its determination.

The Tribune company, the letter said, tried “to abuse federal tax rules to avoid a prodigious tax bill when it sold the Chicago Cubs and related assets. That ran afoul of, among other things, the partnership anti-abuse rule, [which] is supported by a long and unbroken history of judicial doctrines and congressional enactments empowering the IRS to combat the kind of chicanery attempted here.”

The IRS seems to have a solid case here, but that’s not the point. The point is that the agency will be forced to divert more of its hard-won and embattled resources to fend off the coming firehose of legal actions. “There’s such a long list, especially when you start talking about small businesses,” Galle says. Major law firms, Dale points out, have been reaching out to clients and holding webinars on what these rulings might mean for them. (This one highlights various “opportunities” and “avenues for challenge.”)

Lawmakers, too, have taken a keen interest in weaponizing Loper. Also last Wednesday, House Republican committee chairs sent letters to a host of agencies and Cabinet heads—including Treasury Secretary Janet Yellen—asking them to describe how Chevron‘s demise will affect their rulemaking. “We’ve already seen how frequently federal agencies will abuse their authority,” House Majority Leader Steve Scalise (R-La.) said in the announcement. “We intend to ensure agencies are held accountable following the court’s ruling and observe the proper checks on their power.”

“The big picture to me is the court grabbing power,” says Steven Rosenthal, who drafted tax law for Congress as a former staff attorney for the bipartisan Joint Committee on Taxation. “If that goes unchecked, it vastly diminishes the ability of Congress to write statutes and the executive branch to administer them. Everything becomes an interpretive question to be resolved by the courts.”

Justice Elena Kagan had a similar reaction. The Loper majority “flips the script,” she wrote in her scathing dissent (see page 82). “A rule of judicial humility gives way to a rule of judicial hubris…The majority disdains restraint, and grasps for power.”

Tax is a peculiar beast. Lawmakers, recognizing that they often have no clue what they’re doing, give the IRS and Treasury Department an unusual degree of statutory authority to craft workable tax rules and “fill in the details,” as Chief Justice John Roberts wrote for the Loper majority. (See page 17.)

“When the best reading of a statute is that it delegates discretionary authority to an agency,” Roberts wrote, the court’s role is “to effectuate the will of Congress subject to constitutional limits.” These last four words, Rosenthal fears, may signal the court’s future willingness to rule that Congress is delegating more of its power to an agency than the Constitution allows.

Justice Kagan wrote in her Loper dissent that the majority, in killing Chevron, had revived a legal test from the 1944 case Skidmore v. Swift, which held that “agency interpretations ‘constitute a body of experience and informed judgment’ that may be ‘entitled to respect,’” she wrote, but, “If the majority thinks that the same judges who argue today about where ‘ambiguity’ resides [in statutory language] are not going to argue tomorrow about what ‘respect’ requires, I fear it will be gravely disappointed.”

Indeed, the issue for the IRS is that lawyers for corporations and ultrawealthy taxpayers are already starting to throw spaghetti at the wall to see what will stick.

Every time the IRS moves to close an abusive loophole, it is “interpreting the statute to say that can’t be what Congress meant,” Galle told me. Such interpretations, he says—which would include the aforementioned partnership guidelines and the IRS’s warnings about wealthy taxpayers claiming “inappropriately large deductions” for conservation easements—are now more vulnerable to legal challenges.

The justices “had the hubris to believe that they alone can solve problems. They interpret the Constitution in a way that that leaves our government in disrepair.”

Let’s not forget that the IRS has only just begun to recover from decades of Republican-imposed shortfalls, and is still a long way from being fully back on track. “It’s hard to even fathom how far behind their rulemaking is,” says Galle, who is interested in rules around charitable giving. The IRS, for example, has long been mulling rules for donor advised funds, “the new kind of pet charities of a certain group of rich people,” he says. The agency “was supposed to create those rules in 2009, and they haven’t even proposed some of them yet.”

Galle also foresees “upstream pressure” on “the drafters and the general counsel’s office” to make rules that are more resilient to litigation—“which the IRS is not staffed for: They have kind of had their hands over their eyes and their fingers in their ears to warnings that the anti-regulatory tide is eventually going to pull them out to sea.”

Rosenthal finds the notion of so much judicial intervention hard to stomach. If Congress doesn’t have the capacity to deal with the intricacies of tax, he says, “the courts are even worse positioned. Each justice has, like, three or four clerks who are three years out of law school. Congress at least has technical experts like myself—lawyers and economists and others.”

“The court doesn’t have any of those facilities,” Rosenthal continues. “They just had the hubris to believe that they alone can solve problems. They interpret the Constitution in a way that that leaves our government in disrepair, and I think that’s by design. I think that’s what they want.”

Dale predicts the rulings will result in a year or two of gridlock in the federal courts, at which point “Chief Justice Roberts is going to say, this is a terrible problem and in order to allow people to have their rights determined, we need more federal judges. And the Congress is going to say okay. And so we’re going to have an enlargement of the federal judiciary, all of whom serve for life terms.”

If that happens, Dale says, whomever happens to be president will have the opportunity to make lots and lots of appointments, and “we’ll see the policy impact for 40 or 50 years.”

Just when the IRS was starting to get its mojo back, the Supreme Court had to go and throw a wrench into the works.

By now, most civic-minded Americans will have heard about the recent high court rulings that threaten to crush the administrative state, crippling the government’s ability to enact and enforce critical regulations that advance the nation’s interests and protect her citizens.

My colleague Jackie Mogensen recently described how a 2023 Supreme Court decision limiting the EPA’s jurisdiction has made way for polluted rivers. June’s rulings bode far worse, for both the natural environment and efforts to combat climate change. Colleague Nina Martin has examined how the new rulings will be weaponized to gut reproductive rights. The New Republic’s Timothy Noah covered how they may affect the banking sector—and the economy. Others have looked at impacts on health care. And so I set out to determine the extent of the chaos the court’s rulings will unleash on the federal tax system.

Short answer: Nobody knows, but it won’t be pretty.

Loper “unleashes so much chaos,” says Georgetown Law professor Brian Galle. “I think you will see a massive wave of antiregulatory lawsuits.”

Tax law is extraordinarily complicated. So much so that few lawmakers have any hope of understanding its nuances. Attorneys who specialize in tax, as one of my sources points out, tend to go beyond law school to obtain a master’s degree. Tax is also a realm that demands long-term planning by individuals and businesses. Stability is important. But with the Supreme Court latest actions, “what used to be fairly settled law now becomes potentially unsettled,” says attorney Harvey Dale, who has taught tax at the New York University School of Law for more than four decades. “It’s a very, very bad outcome.”

Two rulings in particular “will bring much more litigation into the federal courts. I’m talking hundreds, maybe thousands of litigations trying to take down regulations, some of which may be 50 years old. So that unsettles planning for the entire nongovernmental sector,” Dale says.

First and most notable is Loper Bright Enterprises v. Raimondi, wherein the Supreme Court majority killed the so-called Chevron deference. Chevron is the legal standard that has long guided career experts at federal agencies as they carried out the intent of Congress, translating broad legislative strokes into enforceable regulations related to climate, commerce, energy, health care, and other realms. The demise of Chevron makes it easier for special interests to successfully challenge federal agencies in court—and to tie up pending regulations with nuisance lawsuits.

Adding insult to injury was Corner Post Inc. v Board of Governors, in which the majority stunned observers by ruling that the six-year statute of limitations for challenging federal regulations begins not when a regulation is first enacted, but rather when the party who brought the complaint was first affected. Corner Post puts Loper on steroids, making almost any regulation fair game.

These decisions, Dale says, “emasculate” the rulemaking ability of highly technical federal agencies, “because they’re going to be worried—correctly—about the extent to which litigation will bring them to court, and maybe invalidate their regulations.”

Loper “unleashes so much chaos,” concurs Georgetown Law professor Brian Galle, who teaches courses in taxation, nonprofits, and behavioral law and economics. “I think you will see a massive wave of antiregulatory lawsuits.”

“A rule of judicial humility gives way to a rule of judicial hubris,” Justice Kagan wrote in her Loper dissent. “The majority disdains restraint, and grasps for power.”

Tribune Media Company barely let the ink dry on the Loper ruling before mounting a challenge to IRS guidelines designed to curb what it calls “abusive basis-shifting” by partnerships. Last Wednesday, a lawyer for the IRS commissioner wrote to a federal appeals court contesting the Tribune challenge and pointing out that the agency had not relied on Chevron in its determination.

The Tribune company, the letter said, tried “to abuse federal tax rules to avoid a prodigious tax bill when it sold the Chicago Cubs and related assets. That ran afoul of, among other things, the partnership anti-abuse rule, [which] is supported by a long and unbroken history of judicial doctrines and congressional enactments empowering the IRS to combat the kind of chicanery attempted here.”

The IRS seems to have a solid case here, but that’s not the point. The point is that the agency will be forced to divert more of its hard-won and embattled resources to fend off the coming firehose of legal actions. “There’s such a long list, especially when you start talking about small businesses,” Galle says. Major law firms, Dale points out, have been reaching out to clients and holding webinars on what these rulings might mean for them. (This one highlights various “opportunities” and “avenues for challenge.”)

Lawmakers, too, have taken a keen interest in weaponizing Loper. Also last Wednesday, House Republican committee chairs sent letters to a host of agencies and Cabinet heads—including Treasury Secretary Janet Yellen—asking them to describe how Chevron‘s demise will affect their rulemaking. “We’ve already seen how frequently federal agencies will abuse their authority,” House Majority Leader Steve Scalise (R-La.) said in the announcement. “We intend to ensure agencies are held accountable following the court’s ruling and observe the proper checks on their power.”

“The big picture to me is the court grabbing power,” says Steven Rosenthal, who drafted tax law for Congress as a former staff attorney for the bipartisan Joint Committee on Taxation. “If that goes unchecked, it vastly diminishes the ability of Congress to write statutes and the executive branch to administer them. Everything becomes an interpretive question to be resolved by the courts.”

Justice Elena Kagan had a similar reaction. The Loper majority “flips the script,” she wrote in her scathing dissent (see page 82). “A rule of judicial humility gives way to a rule of judicial hubris…The majority disdains restraint, and grasps for power.”

Tax is a peculiar beast. Lawmakers, recognizing that they often have no clue what they’re doing, give the IRS and Treasury Department an unusual degree of statutory authority to craft workable tax rules and “fill in the details,” as Chief Justice John Roberts wrote for the Loper majority. (See page 17.)

“When the best reading of a statute is that it delegates discretionary authority to an agency,” Roberts wrote, the court’s role is “to effectuate the will of Congress subject to constitutional limits.” These last four words, Rosenthal fears, may signal the court’s future willingness to rule that Congress is delegating more of its power to an agency than the Constitution allows.

Justice Kagan wrote in her Loper dissent that the majority, in killing Chevron, had revived a legal test from the 1944 case Skidmore v. Swift, which held that “agency interpretations ‘constitute a body of experience and informed judgment’ that may be ‘entitled to respect,’” she wrote, but, “If the majority thinks that the same judges who argue today about where ‘ambiguity’ resides [in statutory language] are not going to argue tomorrow about what ‘respect’ requires, I fear it will be gravely disappointed.”

Indeed, the issue for the IRS is that lawyers for corporations and ultrawealthy taxpayers are already starting to throw spaghetti at the wall to see what will stick.

Every time the IRS moves to close an abusive loophole, it is “interpreting the statute to say that can’t be what Congress meant,” Galle told me. Such interpretations, he says—which would include the aforementioned partnership guidelines and the IRS’s warnings about wealthy taxpayers claiming “inappropriately large deductions” for conservation easements—are now more vulnerable to legal challenges.

The justices “had the hubris to believe that they alone can solve problems. They interpret the Constitution in a way that that leaves our government in disrepair.”

Let’s not forget that the IRS has only just begun to recover from decades of Republican-imposed shortfalls, and is still a long way from being fully back on track. “It’s hard to even fathom how far behind their rulemaking is,” says Galle, who is interested in rules around charitable giving. The IRS, for example, has long been mulling rules for donor advised funds, “the new kind of pet charities of a certain group of rich people,” he says. The agency “was supposed to create those rules in 2009, and they haven’t even proposed some of them yet.”

Galle also foresees “upstream pressure” on “the drafters and the general counsel’s office” to make rules that are more resilient to litigation—“which the IRS is not staffed for: They have kind of had their hands over their eyes and their fingers in their ears to warnings that the anti-regulatory tide is eventually going to pull them out to sea.”

Rosenthal finds the notion of so much judicial intervention hard to stomach. If Congress doesn’t have the capacity to deal with the intricacies of tax, he says, “the courts are even worse positioned. Each justice has, like, three or four clerks who are three years out of law school. Congress at least has technical experts like myself—lawyers and economists and others.”

“The court doesn’t have any of those facilities,” Rosenthal continues. “They just had the hubris to believe that they alone can solve problems. They interpret the Constitution in a way that that leaves our government in disrepair, and I think that’s by design. I think that’s what they want.”

Dale predicts the rulings will result in a year or two of gridlock in the federal courts, at which point “Chief Justice Roberts is going to say, this is a terrible problem and in order to allow people to have their rights determined, we need more federal judges. And the Congress is going to say okay. And so we’re going to have an enlargement of the federal judiciary, all of whom serve for life terms.”

If that happens, Dale says, whomever happens to be president will have the opportunity to make lots and lots of appointments, and “we’ll see the policy impact for 40 or 50 years.”

This story was originally published by the Guardian and is reproduced here as part of the Climate Desk collaboration.

The artificial intelligence boom has driven Big Tech share prices to fresh highs, but at the cost of the sector’s climate aspirations.

Google admitted on Tuesday that the technology is threatening its environmental targets after revealing that data centers, a key piece of AI infrastructure, had helped increase its greenhouse gas emissions by 48 percent since 2019. It said “significant uncertainty” around reaching its target of net zero emissions by 2030—reducing the overall amount of CO2 emissions it is responsible for to zero—included “the uncertainty around the future environmental impact of AI, which is complex and difficult to predict”.

It follows Microsoft, the biggest financial backer of ChatGPT developer OpenAI, admitting that its 2030 net zero “moonshot” might not succeed owing to its AI strategy.

So will tech be able to bring down AI’s environmental cost, or will the industry plough on regardless because the prize of supremacy is so great?

Why does AI pose a threat to tech’s green goals?

Data centers are a core component of training and operating AI models such as Google’s Gemini or OpenAI’s GPT-4. They contain the sophisticated computing equipment, or servers, that crunch through the vast reams of data underpinning AI systems. They require large amounts of electricity to run, which generates CO2 depending on the energy source, as well as creating “embedded” CO2 from the cost of manufacturing and transporting the necessary equipment.

According to the International Energy Agency, total electricity consumption from datacentres could double from 2022 levels to 1,000 TWh (terawatt hours) in 2026, equivalent to the energy demand of Japan, while research firm SemiAnalysis calculates that AI will result in datacentres using 4.5 percent of global energy generation by 2030. Water usage is significant too, with one study estimating that AI could account for up to 6.6 billion cubic metres of water use by 2027—nearly two-thirds of England’s annual consumption.

What do experts say about the environmental impact?

A recent UK government-backed report on AI safety said that the carbon intensity of the energy source used by tech firms is “a key variable” in working out the environmental cost of the technology. It adds, however, that a “significant portion” of AI model training still relies on fossil fuel-powered energy.

Indeed, tech firms are hoovering up renewable energy contracts in an attempt to meet their environmental goals. Amazon, for instance, is the world’s largest corporate purchaser of renewable energy. Some experts argue, though, that this pushes other energy users into fossil fuels because there is not enough clean energy to go round.

“Energy consumption is not just growing, but Google is also struggling to meet this increased demand from sustainable energy sources,” says Alex de Vries, the founder of Digiconomist, a website monitoring the environmental impact of new technologies.

Is there enough renewable energy to go around?

Global governments plan to triple the world’s renewable energy resources by the end of the decade to cut consumption of fossil fuels in line with climate targets. But the ambitious pledge, agreed at last year’s COP28 climate talks, is already in doubt and experts fear that a sharp increase in energy demand from AI data centers may push it further out of reach.

The IEA, the world’s energy watchdog, has warned that even though global renewable energy capacity grew by the fastest pace recorded in the past 20 years in 2023, the world may only double its renewable energy by 2030 under current government plans.

The answer to AI’s energy appetite may be for tech companies to invest more heavily in building new renewable energy projects to meet their growing power demand.

How soon can we build new renewable energy projects?

Onshore renewable energy projects such as wind and solar farms are relatively fast to build—they can take less than six months to develop. However, sluggish planning rules in many developed countries alongside a global logjam in connecting new projects to the power grid could add years to the process. Offshore windfarms and hydro power schemes face similar challenges in addition to construction times of between two and five years.

This has raised concerns over whether renewable energy can keep pace with the expansion of AI. Major tech companies have already tapped a third of US nuclear power plants to supply low-carbon electricity to their data centers, according to the Wall Street Journal. But without investing in new power sources these deals would divert low-carbon electricity away from other users leading to more fossil fuel consumption to meet overall demand.

Will AI’s demand for electricity grow for ever?

Normal rules of supply and demand would suggest that, as AI uses more electricity, the cost of energy rises and the industry is forced to economize. But the unique nature of the industry means that the largest companies in the world may instead decide to plough through spikes in the cost of electricity, burning billions of dollars as a result.

The largest and most expensive data centers in the AI sector are those used to train “frontier” AI, systems such as GPT-4o and Claude 3.5, which are more powerful and capable than any other. The leader in the field has changed over the years, but OpenAI is generally near the top, battling for position with Anthropic, maker of Claude, and Google’s Gemini.

Already, the “frontier” competition is thought to be “winner takes all,” with very little stopping customers from jumping to the latest leader. That means that if one business spends $100 million on a training run for a new AI system, its competitors have to decide to spend even more themselves or drop out of the race entirely.

Worse, the race for so-called “AGI”, AI systems that are capable of doing anything a person can do, means that it could be worth spending hundreds of billions of dollars on a single training run—if doing so led your company to monopolize a technology that could, as OpenAI says, “elevate humanity.”

Won’t AI firms learn to use less electricity?

Every month, there are new breakthroughs in AI technology that enables companies to do more with less. In March 2022, for instance, a DeepMind project called Chinchilla showed researchers how to train frontier AI models using radically less computing power, by changing the ratio between the amount of training data and the size of the resulting model.

But that didn’t result in the same AI systems using less electricity; instead, it resulted in the same amount of electricity being used to make even better AI systems. In economics, that phenomenon is known as “Jevons’ paradox,” after the economist who noted that the improvement of the steam engine by James Watt, which allowed for much less coal to be used, instead led to a huge increase in the amount of the fossil fuel burned in England. As the price of steam power plummeted following Watt’s invention, new uses were discovered that wouldn’t have been worthwhile when power was expensive.