Letters to Regulators: The Inflation Reduction Act Bolsters the Case for SEC’s Climate Disclosure Rule

AFREF submitted a supplemental comment to Securities and Exchange Commission (SEC) highlighting market reactions to the passage of the Inflation Reduction Act (IRA).

December 1, 2022

Dear Ms. Countryman:

This letter is a supplement to prior comments submitted by Americans for Financial Reform Education Fund (AFREF).

By passing the Inflation Reduction Act (IRA) in September 2022, Congress has created a package of financial incentives that will fundamentally reshape the economy over the next eight years and beyond. The goal of the climate portion of the effort was two-fold: to lower Greenhouse Gas (GHG) emissions and to create an abundance of low carbon energy that lowers costs for consumers over the next decade.

Investors will need the information outlined in the Securities and Exchange Commission’s (SEC’s) climate risk disclosure proposal–including full scope GHG emissions and trends over time–to determine which companies and sectors are best positioned and ready to capitalize on the IRA’s GHG reduction incentives over the coming decade, and to analyze the progress towards and profitability of companies’ transition strategies in this new investment context.

Models of the IRA predict an incredible 32 percent drop in economy-wide GHGs from 2021 to 2030 (compared to an expected 14 percent drop without the IRA). Notably, the IRA prioritizes GHG reductions and removals rather than focusing exclusively on zero-carbon technologies–similar to the Obama-era “all-of-the-above” energy strategy. The bill provides tax incentives and direct finance for renewable energy, electric vehicles, and energy storage as well as domestic manufacturing and carbon capture deployment which may affect the profitable

lifetime of carbon-intensive assets in the fossil fuel and heavy industrial sectors. Seizing emissions reduction opportunities may be especially important for fossil fuel firms, as recent research using remote sensing and satellite imagery shows that oil and gas GHG emissions are three times higher than producers currently claim.

Importantly, the law creates powerful financial incentives to lower GHG emissions that will begin showing up in the financial statements of public companies next year, as they are already making their way into the forecasts and recommendations of financial analysts, investors, asset managers, credit rating agencies, and banks:

  1. Credit Suisse noted the “IRA will have ‘profound effect across industries in the next decade and beyond’ and could ultimately shape the direction of the American economy, the bank said….The report shows how even after the bonanza of climate-bill coverage earlier this year, we’re still only beginning to understand how the law works and what it might mean for the economy.”

Click here for a PDF version of the full letter.