Kentucky’s Anti-ESG Attack Is Anti-Reality
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Even as the Republican firing squad was unleashed in Washington this week, a counterpart in Kentucky threw the year opener in the ongoing fight against ESG. State Treasurer Allison Ball, acting under a pro-fossil fuel state law passed last year, released a list of 11 financial companies, including BlackRock Inc., Citigroup Inc. and a smorgasbord of Scandinavian institutions. They are supposed to be involved in the “boycott of power companies,” which means they “deliberately choke off the lifeblood of capital in Kentucky’s popular industries.”
Do they, though? It’s a valid question with all these anti-boycott Republican boycotts, where state politicians take on the garb of the thought police for financial institutions, threatening them with forfeiture if they don’t change their ways. But especially so in the case of Kentucky, because its energy industry is anything but “signature.”
You wouldn’t know it from Ball’s press release, which says that “the energy sector represents 7.8% of total state employment or 143,994 jobs.” The source for this is the US Energy and Employment Jobs Report, or USEER, published by the Department of Energy. The thing you should know about USEER, however, is that it includes the production, sales and maintenance of vehicles in total. In the case of Kentucky, this accounts for 57% of the jobs cited by Ball. It also includes Kentuckians employed in power generation and distribution, as well as energy efficiency; none of which are necessarily related to Ball’s nominally champion fossil fuels.
Indeed, in the most comprehensive reading of USEER’s figures, approximately 12,000 jobs in the state can be directly linked to fossil fuels, representing all of 0.6% of Kentucky’s workforce. Coal mining, once a prominent industry in the state, now employs fewer than 5,000 people (it peaked at about 76,000 in 1949). This is reflected in other data. While Kentucky is the sixth largest coal producer in the US, it accounts for less than 5% of total tonnage. … California.(2) In total, fossil fuel production and processing adds up to 2% of Kentucky’s GDP on average; 16th in the country and just below the overall figure for the US.(3)
To borrow the linguistic novelty of a certain congressional student waiting to be sworn in, Kentucky Republicans may feel like fossil fuels, but that doesn’t match reality.
Perhaps, you might think that car payrolls should be included as energy work because the product runs on fuel. But where do you draw the line? Wouldn’t it also mean including every worker engaged in, say, logistics or working in any factory, warehouse or office – or home, these days – that uses fuel or electricity? This is further complicated by the fact that cars increasingly do not have to use petrol. Indeed, the state development office itself makes the very ESG-friendly Kentucky boast of being “America’s electric vehicle manufacturing hub.” Ford Motor Co. is building a giant EV battery plant there, and EV-related investments in the state so far promise 8,500 new jobs, roughly double the remaining coal mining workforce.
One area in which fossil fuels are dominant is energy production. Almost 95% of Kentucky’s generating capacity burns fossil fuels, of which more than half uses coal. Ball specifically mentioned that in her announcement, as well as boasted that the state had the 12th lowest average electricity prices in 2021. Kentucky dropped to 18th in 2022, based on data through October , most likely due to a sharp increase in the price of coal. However, this matters for several reasons.
First, regulated utilities tend to be powerful political actors in any state and have historically resisted efforts that penalize coal power, such as clean energy policies or environmental, social and governance, or ESG, portfolio reviews. Moreover, as the economy has moved against coal power, not least because of cheap shale gas over the past decade, the facilities that remain open often function as regulated assets. This means they can recover their costs through tariff bills and are shielded from wholesale electricity market dynamics to a large extent, giving utilities even more incentive to push state politicians to maintain the status quo.
Second, Kentucky’s relatively strong manufacturing base, with all those auto plants, makes it an energy-intensive economy and, given its high share of coal power, an emissions-intensive economy as well. To put that in perspective, the impact of a hypothetical carbon price on Kentucky’s wallets would be about twice the national average and second only to neighboring West Virginia, according to calculations by ClearView Energy Partners, a Washington-based analytics firm. (4).
While Kentucky can hardly be described as an “energy” economy, therefore, the decarbonization that ESG predicts would appear to pose a threat. However, as the opening of new EV-related factories shows, this ignores the investment opportunities that come with it. Opportunities that ESG-related investing could potentially fund, alongside the Inflation Reduction Act dollars that Republicans also oppose, despite most of them likely ending up in red circles. As it is, the numbers Ball cites show that more people in the state are employed in the solar energy sector (1,739) than in coal-fired power plants (1,550), and many thousands more work in energy efficiency and electricity distribution. which both also stand. to take advantage of ESG-related trends.
To a large extent, none of this actually matters. The anti-ESG stance is now developing — from Texas, the nation’s largest wind power state; in Florida, home to America’s largest renewable energy developer—is a culture war dance, not a thoughtful weighing of facts and results. In that sense, Kentucky choosing to cast itself as the victim is a perfect addition to the meme.
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(1) According to production data for the first nine months of 2022 (source: Energy Information Administration).
(2) This is calculated using production data from the Energy Information Administration, converted to exajoules for comparison. Oil and gas production for 12 months to May 2022; coal for six months to March 2022 (annual). Coal production is converted to 45 million tons per exajule.
(3) This is calculated as the average total share of mining, oil and gas extraction, oil and coal products, and pipeline transportation in GDP over the five years prior to 2020 or 2021 (timing depends on availability of data from the Bureau of Economic Analysis) .
(4) ClearView calculates a proprietary metric called Consumer Carbon Leverage, which estimates the state-level per capita impact on personal disposable income of a $10 per ton carbon price. For the 12 months ending June 2022, this equates to 0.22% of disposable personal income in Kentucky, 0.11% in the US as a whole and 0.24% in West Virginia. Source: “Yes, An ‘Energy Choice,'” ClearView Energy Partners, 3 Nov. 2022.
This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.
Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’ Lex column.
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