Why coal energy is harder to justify
As renewable energy and natural gas costs decline, it’s harder to justify coal energy. Many utilities also are closing coal-generation plants in Indiana and elsewhere.
Dwight Adams, firstname.lastname@example.org
If you say no to doing business with fossil fuel companies, then Indiana will say no to doing business with you, according to a bill that is currently advancing through the Statehouse.
A new bill, House bill 1224, says state government cannot invest or contract with companies that “boycott” energy companies — in the case of this bill, however, energy companies means fossil fuel industries such as coal and gas.
On its surface, the bill is “technically about government investments and contracts,” author Rep. Ethan Manning said during a committee hearing last week. “But what this bill is really about is the reliability of our electric grid,” the Logansport Republican continued. “And this bill is about who sets energy policy.”
It’s also about politics.
Some supporters say this bill is critical to keeping politics out of the market, while critics argue it does just the opposite and directly interferes with the free system.
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Indiana is not alone in the debate. The legislation is part of a growing movement across the country. It started in Texas when a similar bill was signed into law last year. Now the right-wing American Legislative Exchange Council, known as ALEC, is pushing this new piece of anti-fossil fuel divestment legislation. Similar bills have popped up in a handful of other states.
Proponents say this bill is desperately needed to help the fossil fuel industry, which they claim is being discriminated against by banks and financial institutions. In recent years, dozens of banks have announced commitments to be net zero — or negating any carbon dioxide emissions by removing such gases from the air — and plans to divest from fossil fuels as part of that.
In other states, backers have been more blunt. They’ve called the legislation a way to push back against such “woke capitalism.”
Indiana’s fossil fuel industry and several lawmakers agree.
“We want to send the message,” Manning said, “that it’s not okay to boycott fossil fuel companies and do business with the state of Indiana.”
The transition away from fossil fuels is largely market driven, investment experts and environmental advocates say, and inevitable. As cleaner and more cost effective energy sources become available, utilities themselves are choosing to retire coal plants.
Those advocates say this bill is an attempt to keep fossil fuels alive.
This bill “flies in the face of what the markets are doing,” said Kerwin Olson, executive director of Indiana consumer advocacy group Citizens Action Coalition. “It’s not only about sustainability and climate goals, it’s about coal being a bad and risky investment in 2022. But they are trying to use the power of government to force investment into their companies.”
A Senate bill that would have done the opposite, requiring the state to divest from fossil fuels, did not even get a hearing. It was filed by a Democrat lawmaker.
HB 1224 was heard in the House Financial Institutions and Insurance Committee on Tuesday and passed by a vote of seven to five. Both Republicans and Democrats voted against the bill, which has advanced to the full house floor.
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Risking their business with the state
This bill casts a very wide net. It requires the Indiana Board for Depositories to create and maintain a list of all federally-regulated financial companies that “boycott energy companies.” HB 1224 defines boycott as refusing to deal with or terminating business activities, and an energy company as one that is fossil fuel-based.
Companies on the list will have 90 days to cease boycotting — and if they don’t, then state government agencies will sell or divest from that company.
But it’s not just about investments, this bill touches on contracts, too. The final part says that state government bodies may not enter into a contract with a company for supplies or services unless that contract contains written verification that the company does not and will not boycott energy companies.
An amendment was made to the bill on the House floor that said this bill applies only to banks that are regulated at the federal level, such as Huntington, Bank of America, J.P. Morgan Chase, First National and The National Bank of Indianapolis. Another change said it pertains to only those contracts made by state agencies.
The full impact of the legislation, if approved, is unclear. But the state treasurer’s website says the office oversees $10 billion in investments alone. Banks also are contracted to help manage billions of dollars in transactions for the state, according to an Indiana banking official. A review of all investments made by the state, as well as contracts, would be required to determine how much is at stake.
“This bill does not prohibit businesses from doing anything and it does not force them to do anything,” Manning said during the committee hearing. “Businesses are free to make social change if they’d like, they’ll just risk their business with the state if they do.”
Manning did not respond to IndyStar requests for comment.
While the goal is to send the message that the boycotting practice “is not okay,” the author said that there are important safeguards built in. The bill clarifies that fiduciary responsibility to pensioners must be maintained when choosing investments, and that denying to do business for legitimate reasons, such as poor credit, does not count as a boycott.
During the committee hearing, Manning said that the language in this bill is based on one that was passed in 2016, which laid out requirements and a process for divesting from companies that boycott or sanction Israel. That bill passed unanimously in the House and by an overwhelming margin in the Senate.
Such anti-boycott measures related to Israel have proven controversial, and in some cases unconstitutional, elsewhere. Arkansas’ version was struck down by the Eighth Circuit U.S. Court of Appeals as a violation of the First Amendment, which protects the right to boycott.
HB 1224 also mirrors fossil fuel legislation that was passed in Texas last year and now is the subject of an ALEC model bill that the organization approved in December. Called the Energy Discrimination Elimination Act, it directs states to compile a list of firms that boycott fossil fuels and puts in place similar restrictions to do business with those companies.
Both in Texas and at the ALEC level, this fossil fuel legislation is being touted as an “opportunity to push back against woke financial institutions,” according to the leader of a group who pushed this bill in the longhorn state.
Discriminating against fossil fuels
This bill saw several people speak in support of this bill during Tuesday’s committee hearing, almost all with ties to the coal or natural gas industries. They said they are being discriminated against, and they want help to make it stop.
Industry executives claim that banks are denying financing to fossil energy companies, not because they are no longer creditworthy, rather because they are trying to decarbonize their lending portfolios. By doing so, those financial institutions are setting energy policy, according to Matt Bell, a former state representative who now is the head of Reliable Energy, Inc., a trade group supporting coal.
“Today, the fossil fuel industry is under attack,” Bell said during the hearing, adding that financing is less available and more expensive. The responsibility of setting energy policy “doesn’t belong in board rooms on the east or west coast driven by agendas,” he continued.
Many large banks, including J.P. Morgan Chase and Bank of America, have started to shift their investments as they assess the risks of climate change. In 2020, the founder and chief executive of investment behemoth BlackRock told shareholders that the firm would make climate change “a defining factor” in its investment strategy.
The public also is increasingly wanting to hold companies accountable for climate change and encouraging them to act. The question then becomes if that shift equates to a boycott.
These bills — like the one in Indiana and from ALEC — show the emerging argument that policy geared towards reducing emissions is discriminatory. Proponents of the bill also argue that the decision to divest from fossil fuels is being driven by politics, and this legislation is needed to take politics out of the equation.
Coal and gas production are enterprises that require substantial capital investment, and the pool of banks they can get that from has been shrinking, according to an executive with Alliance Resources, an Indiana coal company.
Industry executives take it one step further, and say this shift is threatening energy supply and production in Indiana and beyond. If fossil fuel companies struggle to get funding, or it’s more expensive to do so, they say that will trickle down to consumers.
“Their actions will cause every American and Hoosier to pay more for the energy they consume,” said Brian Cantrell, the senior vice president and chief financial officer for Alliance Resources. “They will make your energy grid less secure by limiting the resources available to produce reliable baseload power.”
Inserting politics into market
Those opposed to this bill — including city and state governments, environmental advocates and the finance industry — find those arguments ironic. If the goal of the bill is to keep politics out of the market, this does the exact opposite, they say.
“This bill most certainly inserts politics into the free market and into the business of banking,” said Dax Denton with the Indiana Bankers Association.
It would force financial institutions to prioritize certain industries regardless of the traditional risks or concerns that are considered. Rather, Denton said, it would create a new standard that banks must now be aware of when making business decisions with the fossil fuel industry.
“That standard is the perception we will be viewed as boycotting a fossil fuel business regardless of prudent business decisions and risk in the marketplace,” Denton continued.
The marketplace seems to be moving away from fossil fuels on its own.
Large segments of the utility sector are ditching coal and gas for economic reasons — more than one-quarter of currently operating coal plants are set to be retired by 2035. To replace them, many utilities are building out their renewable options, which are increasingly cost effective. In fact, the U.S. Department of Energy estimates that renewable energy has the potential to provide 80% of the country’s power generation by mid-century.
In the financial sector, ESG assets — or environment, social and governance investments that are geared toward being more socially conscious — are expected to exceed $50 trillion by 2025.
“I believe Wall Street’s move away from coal is being guided by where the energy markets are going and where the utilities themselves are going,” Olson with CAC said. “Coal is done, and Wall Street recognizes that. They want to finance the future, not the past.”
And finance is still available for the industry, Denton adds. The world’s biggest 60 banks have provided nearly $4 trillion of financing for fossil fuel companies since the Paris climate deal in 2015, according to a report last year by a group of NGOs.
Hurting Indiana governments
Still, Sen. Shelli Yoder, D-Bloomington, said she thinks shifting away from the inevitable decline is a sound financial decision. She proposed a bill this session that would have done the opposite of HB 1224: It would require the board of Indiana’s public retirement system to divest in the largest fossil fuel companies.
HB 1224 “is a step backwards,” Yoder told IndyStar. “As states across the nation finally take long overdue steps to divest their pensions from fossil fuels, Indiana seems to be headed full steam in the opposite direction.”
That direction is going to hurt Indiana governments at both the local and state level, according to individuals who testified. A representative from Indiana’s Department of Administration — responsible for procuring goods and services for the state — said there already are a limited number of banks that are willing and able to meet the state’s financial needs.
“The restrictive measures proposed in this bill would further minimize the number of institutions able to provide those critical services, resulting in increased expenditures,” Matthew Robinson with IDOA testified.
Many of the agency’s contracts are used across the state, including by local governments, he added. Thus they still could be impacted by limitations at the state level.
Rep. Terri Jo Austin, the ranking minority member on the House Financial Institutions committee, echoed concerns about how it could impact local governments and state-level business.
The Democrat from Anderson said she appreciates concerns about grid reliability, but said this isn’t the way to do it. That should come from the utility sector and investments to the grid itself, added Austin, who voted against the bill.
“I think this bill is way too-heavy handed,” she told IndyStar. “We shouldn’t be telling companies what their corporate policies should be and, equally important, we shouldn’t be telling state and local governments, pension funds, etc. who they should be able to invest with.”
This bill will be heard on the House floor for third reading next week.
Call IndyStar reporter Sarah Bowman at 317-444-6129 or email at email@example.com. Follow her on Twitter and Facebook: @IndyStarSarah. Connect with IndyStar’s environmental reporters: Join The Scrub on Facebook.
IndyStar’s environmental reporting project is made possible through the generous support of the nonprofit Nina Mason Pulliam Charitable Trust.