[Ed. note: I will attending the GreenBiz conference in Boston next week. ESG in the News will be back the following week. If you will be in Boston, send me a note and let’s connect.]
Today’s blog will be a little different in a few ways, but I bet you will find it pretty interesting. Because PracticalESG.com emphasizes, well, practical matters at a company level, I don’t tend to write about global temperature increases. Even so, here in West Texas we are experiencing temperatures that are notable even for us. How hot you ask? In excess of 110 degrees Fahrenheit. So hot, in fact, that I actually cooked an egg in my truck! Yes, the photo above is the actual egg I put on my dash with my truck parked outside. It took a couple hours, but it cooked. This was a followup to my attempt the day before to bake a cake in my truck, which was less successful because I started too late in the day and it had to be finished off in the oven.
Surprisingly, my egg has pragmatic implications for your company’s climate program – perhaps none more direct than with regard to Scope 2 emissions and assumptions. During heat emergencies, energy suppliers need every kW they can produce to keep cooling systems running in houses, hospitals, hotels, businesses, etc. While there has been notable growth in solar and wind power developments, I’ve written before about problems they are having connecting to the grid. Even when connected, they may still fall well short of power demands resulting from extreme heat conditions.
For instance, Texas (to the surprise of many) has more solar and wind generation capacity than any other state – including California according to data published March 9, 2023 by Inside Climate News. Yes, you read that right. Texas’ wind and solar generation capacity in 2022 was more than two-and-a-half times greater than the number two state California. Sounds great and is indeed commendable, but it could be interpreted as indicating we are on the cusp of not needing fossil fuels for power. That is quite far from the truth. According to real time power statistics from the Electric Reliability Council of Texas (ERCOT) – the entity that runs the Texas electrical grid and power distribution – power sources on the afternoon of June 21 (the day I cooked the egg) were approximately:
- 14% solar
- 8% wind
- 0.2% hydro
- 71% fossil fuel
- 6% nuclear
Other grids may have greater hydro or nuclear generation capacity than fossil fuels, so our 71% figure may not be a universal stake in the sand. You can find details about the other US electrical grids and their fuel mixes here, with additional information about green energy market drivers here.
Speaking of California, The Los Angeles Times had an interesting story yesterday about their struggles in meeting power demand as well:
“… state officials are once again preparing to extend the life of three gas plants along the Southern California coast. The natural gas-fired power plants in Huntington Beach, Long Beach and Oxnard were supposed to shut down in 2020, under a regulation designed to protect marine life. But officials voted to let the polluting generators keep churning out power another three years, just a few weeks after California experienced its first rolling blackouts since the early-2000s energy crisis.”
In theory, fossil fuels were supposed to be more expensive than other fuels by now – carbon pricing was expected to have taken hold, and at a level that created meaningful economic disincentives to its use. The costs of green energy technology installation have come down and in some instances can be more attractive than existing fossil fuels. However, oil and gas dropped substantially from their 2022 highs – even resisting attempts by OPEC to shore up pricing. Read more in this short analysis by The Economist from earlier this week.
As I’ve mentioned before, green energy availability is also a problem. Many projects can’t get approval for grid connections and are either on-hold or facing impacts of inflation because of the delays. If delays run too long and administrative costs get too high, these projects run the risk of cancellation as this February article from The New York Times explains.
Excessive heat also creates workforce issues. Heat stress experienced by employees affect illness/injury rates, worker’s comp claims/costs and employee morale. Project schedules – especially involving outdoor construction – can slide based on worker safety risks. Additional cooling equipment may be need for indoor areas like warehouses, distribution centers or manufacturing areas. Shifts may need to be shortened or personnel added to allow for more rotations during these periods.
What This Means
Climate risk is not just one thing. While a lot of attention is spent on carbon offsets or climate as a factor in investment decisions, there are are matters that companies need to consider. Staying up to date on new developments in climate risk and power generation while evaluating those on a regular basis in light of your company’s operations is an important part of climate risk management as I wrote about two weeks ago. All of these matters impact corporate expectations and goals for carbon emissions reductions, which should be revisited. Keep in mind it isn’t just about risks to the company, but also can include impacts on people working for the company.
To answer the “burning” question – no I didn’t eat the egg. Would you?
