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Tell SEC to stop its power grab

At the end of June, the U.S. Supreme Court decided in West Virginia v. EPA that the Environmental Protection Agency had exceeded its congressionally mandated authority when it essentially shuttered c



In West Virginia v. EPA, the U.S. Supreme Court ruled at the end of June that the Environmental Protection Agency had gone beyond the bounds of its congressionally mandated powers when it effectively shut down coal power plants nationwide in response to new regulations implemented under the Obama administration. The Securities and Exchange Commission (SEC) has now received a letter from Patrick Morrisey, the attorney general of West Virginia, requesting that the SEC go through with a proposed regulation requiring significant disclosures on greenhouse gas emissions from publicly traded corporations.

Every effort should be made to stop this possible SEC train crash. It is encouraging that Morrisey and possibly others will resist this attempt at grabbing power because of this. Chief Justice John Roberts stated in his decision to reject the EPA’s “Clean Power Plan” regulations that would force the closure of numerous coal-fired power facilities, “It is not credible that Congress gave EPA the authority to create on its own such a regulatory system.”

The SEC’s goal to control public businesses’ disclosure of their greenhouse gas (GHG) emissions falls under the same category. After all, Congress established the SEC with a different objective in mind. The SEC was established, as stated in Section 2 of the 1934 Securities Exchange Act, “to provide for regulation and control of such transactions and of practices and matters related thereto… to require appropriate reports, to remove impediments to and perfect the mechanisms of a national market system for securities and a national system for the clearance and settlement of securities transactions… “

Congress has not given the SEC the responsibility to oversee environmental regulations or monitor GHG emissions from publicly traded corporations since the 1930s. According to Congress, the SEC’s mandate is to control stock trading and safeguard investors. And that is all that ought to count.


Of course, that might not be sufficient to prevent this SEC from overseeing the carbon emissions of American corporations. It’s crucial to remember that the SEC has no practical means of controlling the disclosure of greenhouse gas emissions by publicly traded corporations. Companies would have to report three different kinds of emissions, referred to as Scope 1, Scope 2, and Scope 3, under the regulation.

Public companies would have to report their own greenhouse gas emissions from direct operations (Scope 1), greenhouse gas emissions from utilities used in their operations (Scope 2), and even their indirect greenhouse gas emissions, such as those from suppliers and the transportation of the companies’ products (Scope 3). While estimates of Scope 1 can be offered with some degree of accuracy, predictions of Scope 2, and especially Scope 3, cannot be made.

Most businesses only have significant relationships with a small number of their non-tier-1 suppliers and customers, according to a Harvard Business Review article. The authors state that it is “almost impossible” to measure Scope 3 emissions. Companies that voluntarily report Scope 2 and Scope 3 emissions frequently rely on regional and industry averages for Scope 2 and Scope 3, respectively. Even then, it has been discovered that these businesses report these emissions selectively in order to present the best possible image of themselves.

Even the Securities and Exchange Commission (SEC) admits that it is impossible to expect businesses to constantly report correct figures for their Scope 2 and Scope 3 emissions. It is impossible to account. Because the SEC is aware of this fact, the regulation includes a safe-harbor from any legal action that businesses may take as a result of erroneous Scope 3 reporting. In essence, the SEC is telling that these corporations must invest the time, money, and effort necessary to report their emissions, but without placing any faith in their ability or willingness to do so accurately.


What then is the motivation behind this reporting requirement, and who stands to gain? According to the SEC, the additional disclosure costs brought on by this new regulation will cost a smaller publicly traded company $420,000 year and a bigger company $530,000 annually. These yearly costs are in addition to the up to $10.2 billion in compliance fees that businesses may incur.

That money is going to someone. With no accuracy requirements at least for Scope 3 reporting, the new industry of greenhouse gas emissions auditors will thrive. This law benefits them considerably more than shareholders, the American public, or the environment, whether these are already-existing auditors who are just expanding their businesses or a brand-new cadre of environmental auditors.

Morrisey and his colleagues will be successful in stopping this regulation no matter what measures they adopt.

Ellen R. Wald is the president of Transversal Consulting, a global energy and geopolitics firm, and a senior fellow at the Atlantic Council’s Global Energy Center. She is the author of “Saudi, Inc.,” a history of Aramco that details how the Saudi royal family governs this enormously profitable company. Her Twitter handle is @EnergzdEconomy.


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