Transition Finance Weekly - January 10, 2025
Deadly Fires, Anti-ESG Cowboys, Power-Hungry Data Centers
TOP STORY: LA Wildfires Rage On, Threatening More Than 9 Million People
In what should be Southern California’s rainy season, 10 people have died and more than 9,000 structures have been destroyed or damaged — with evacuation orders impacting nearly 180,000 people as a result of climate-change exacerbated fires raging in Pacific Palisades and Altadena, two LA suburbs.
Los Angeles’ 9 million inhabitants, representing 1 in 34 Americans, are also at risk from wildfire smoke — which caused more than 50,000 premature deaths in California between 2008 and 2018.
Rebuilding and recovering after the disaster will be costly, as JPMorgan placed insured losses at $20 billion, which is expected to rise even higher. 70% of Pacific Palisades residents were dropped by State Farm last year, as insurance giants scrambled to cancel policies in disaster-vulnerable areas. State Farm also bought excessively expensive reinsurance coverage from its own parent company.
Structural problems plague California’s insurance market, as more insurance companies dump policyholders onto the publicly-mandated, but privately-operated FAIR Plan, which faces potential insolvency.
1. 2025 Wyoming State Session Opens with Costly Anti-ESG Bill
As legislatures open around the country, we’ll be seeing more extremist anti-ESG activity, and Pleiades will keep you updated.
With Wyoming’s “Freedom Caucus” firmly in control of the state legislature, members are first turning to culture war issues, including attacks on responsible investing. Members introduced HB 80, the “Stop ESG-State Funds Fiduciary Act,” which would prohibit the state from working with asset managers that take climate risk into account in investment decisions. Like other anti-ESG measures in the states, HB 80 is modeled after the Heritage Foundation’s State Pension Fiduciary Duty Act.
HB 80 puts public civil servants’ retirement at risk. State analysts estimate it could cost pension beneficiaries more than $1.16 billion in decreased returns over the next three years, according to the bill’s fiscal note.
Follow anti-ESG bills around the country on the Pleiades State Legislation Tracker.
2. A Mass Exodus from the Net-Zero Banking Alliance
Major U.S. banks backtrack on their voluntary climate commitments, putting emissions reductions in jeopardy.
Under pressure from Republicans and the incoming Trump Administration, Goldman Sachs, Wells Fargo, Citigroup, Bank of America, Morgan Stanley, and JPMorgan Chase have all abandoned the Net-Zero Banking Alliance (NZBA), leaving the once-lauded global climate financial alliance in shambles.
The withdrawals are a troubling indicator of potent anti-climate political headwinds harbingered by the incoming anti-climate, pro-fossil fuel expansion administration.
Thursday, BlackRock likewise exited the Net Zero Asset Managers Alliance (NZAM), signifying a retreat in the face of right-wing pressure.
The banks’ commitment to emissions reductions was already in doubt; they remain heavily invested in fossil fuels. But the real risks posed by the climate crisis, illustrated this week in LA’s extreme fires, demonstrates the human and financial dangers of failing to take action.
Vanessa Fajans-Turner of Environmental Advocates NY: “These exits reveal the inadequacy of voluntary commitments and underscore the urgent need for state-level leadership and regulation."
3. New York’s Climate Superfund Law Takes Effect, Forcing Polluters to Pay
The state’s biggest polluters will have to pony up to mitigate climate damage.
Governor Kathy Kochul signed New York’s Climate Change Superfund Act into law on December 26, after an aggressive end-of-year advocacy campaign by a wide coalition of supporters. The state has now taken a step toward transferring the costs of climate change from the public to the companies that knowingly contributed to it.
This is part of a paradigm shift in environmental liability, and making polluters pay enjoys broad popular support, even among Republicans. But New York’s law will likely face legal challenges, just as Vermont’s has.
Gov. Hochul: “With nearly every record rainfall, heatwave, and coastal storm, New Yorkers are increasingly burdened with billions of dollars in health, safety, and environmental consequences due to polluters that have historically harmed our environment.”
4. End of the Road: Manhattan Congestion Pricing Launches, At Long Last
Lower emissions, reduced congestion, healthier communities, more transit funding: everybody wins.
At 12:01am last Sunday, New York State began charging a congestion toll to enter the densest part of Manhattan, with most drivers paying $9 during the day and $2.25 overnight. The program, modeled on similar policies in places like London, will incentivize drivers to cut emissions and pollution by shifting to public transit or consolidating trips – while generating billions of dollars in capital funding to improve and upgrade the MTA, the nation’s largest transit system.
Like a carbon tax, congestion pricing relies on simple logic: charge a fee for something that was formerly free, and some people will change their behavior. The public health and financial benefits of reducing vehicle miles traveled (VMT) are well understood. And because transportation generates 28% of U.S. emissions, and the per-trip carbon footprint of transit is low, the climate benefits are substantial.
For the program to work, New York and New Jersey will both have to expand bus and rail access to the congestion zone. New York officials have already announced a major investment in upgrading the Metro-North Railroad’s Hudson Line, which serves the city’s northern suburbs.
Brown and Northeastern University researchers are tracking the traffic reductions resulting from the congestion toll at the Congestion Pricing Tracker.
5. Clean Energy Lifts Legacy Companies, Too
Supercharged demand for electric vehicles drove strong end-of-year sales for big automakers.
Major carmakers, like GM, Ford, and Honda, saw strong sales in Q4 2024, largely due to surging electric vehicle sales and aided by low interest rates and buyer incentives. Greater domestic battery production, partly subsidized by the Inflation Reduction Act, is helping, too.
The boost in EV sales is more evidence that the clean energy transition isn’t just for startups and new-economy innovators; it’s profitable for big corporations, too. In contrast, Toyota, which lobbied against pollution rules and delayed EV production, was one of the few automakers that reported declining sales in 2024.
Cox Automotive’s Jonathan Smoke: “Wages are growing, vehicle incentives have risen, loan approval rates are up. As we enter 2025, momentum is back on our side.”
6. Energy Impact of Data Centers Cascades Through State Economies
Data centers help drive revenue for Big Tech, but everyone else sees higher energy prices and backsliding on emissions reductions.
Data centers are causing an energy crisis in Virginia, which is home to the largest concentration of data centers in the country and where legislators have showered data centers with tax incentives . Virginia’s Joint Legislative Audit and Review Commission (JLARC) warned that providing energy for planned data centers will be a challenge even if utilities bypass Virginia Clean Economy Act requirements.
The benefits of data centers for residents and state economies are limited – once construction is complete, they don’t generate many jobs – and the environmental impact of new fossil fuel generation extends over decades. The JLARC study also warns that energy costs will rise in Virginia for ratepayers as Dominion Energy rushes to spend billions supplying datacenters with power, all while abandoning its legal mandate to comply with the VCEA.
Nevertheless, states across the country, like Michigan, are clamoring for new data centers and offering strong competitive incentives, which mean Big Tech companies pay less to offset negative externalities and leave the public to pick up the tab over time.
Virginia Mercury’s Ivy Main: “The fact that so many legislators nonetheless remain wedded to the data center buildout testifies to the ability of the human mind to compartmentalize.”