Clean Energy & Climate: 2023 Review and 2024 Predictions

2023 witnessed significant strides in the clean energy and climate space. Corporates and institutions continue to drive clean energy adoption. First-of-a-kind deployments came online. And governments took meaningful steps to codify and encourage carbon disclosure and reduction efforts.^[1]

Given Verse’s current focus on the U.S. and EU, we’re restricting this blog to a handful of achievements. Those include legislative developments in California, the Carbon Border Adjustment Mechanism (CBAM) in the EU, and the first round of funding for carbon capture demo projects and clean hydrogen hubs in the U.S. We’ll also explore a few anticipated events, including SEC rule changes for climate disclosures, U.S. Treasury Department rules about green hydrogen, and revisions to the Science-Based Targets initiative (SBTi) and Greenhouse Gas Protocol (GHGP) standards for Scope 1, 2, and 3 reporting.

^[1] The public can access a version of CEBA’s clean energy deal tracker, which “identifies the total annual volume of clean energy procured by energy customers, as well as companies that have led clean energy procurement announcements” here: https://cebuyers.org/deal-tracker/

2023 Clean Energy & Climate Milestones

1. California SB 253 & SB 261

California continued its climate leadership with Senate Bills 253 (the Climate Corporate Data Accountability Act) and 261 (the Climate-Related Financial Risk Act). 

Beginning in 2026, SB 253 requires businesses with more than $1B in revenue operating in California to provide annual Scope 1, 2, and 3 emissions reports. Notably, the law includes an accountability mechanism by requiring companies to provide third-party confirmation of their reports. 

SB 261 requires companies with more than $500M in revenue operating in California to provide public annual climate-related financial risk disclosures (and how they plan to address those risks). 

These laws are important because of their trans-border impact. Companies that meet the legal parameters and wish to do business in California (one of the world’s biggest economies) must comply, regardless of where they are based. The rules also serve as a model for other jurisdictions seeking robust policy frameworks.

2. EU Carbon Border Adjustment Mechanism

The European Union’s implementation of the Carbon Border Adjustment Mechanism (CBAM) in 2023 marked a paradigm shift in global trade dynamics. 

CBAM is the EU’s effort to “put a fair price on the carbon emitted during the production of carbon intensive goods.” The rule imposes carbon costs on certain imports — cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen — to incentivize cleaner production methods and prevent carbon leakage (the transfer of carbon emissions from EU-based facilities to other locations around the world). 

As with the California legislation, CBAM has implications for businesses far beyond the EU’s borders. By internalizing the external cost of carbon, the EU is encouraging businesses worldwide to adopt more sustainable practices, helping foster a race to the top in environmental standards.

3. U.S. Funding for Carbon Capture Demonstrations & Clean Hydrogen Hubs

In 2023, the Biden Administration began awarding $2.5B in funding through the Bipartisan Infrastructure Law for carbon capture demonstration projects. Verse customers Climeworks  and Heirloom were among the 2023 awardees. The Biden Administration also announced a whopping $7B for regional clean hydrogen hubs (H2Hubs) around the country. And it’s not just funding: we’re also seeing deployments. Heirloom announced the first commercial plant in the U.S. to use direct air capture (Climeworks’ project in Iceland began operations in 2021).

Both technologies are still pre-widespread commercial scale, so the government’s financial support will help establish track records, lower costs, and support a cleaner and more resilient energy infrastructure. The International Energy Agency (IEA)’s 2023 Net Zero Roadmap update suggests we can still avoid the worst effects of climate change, in large part due to record growth of clean energy technologies. We should use all tools available, from reducing emissions through clean power procurement to removing carbon dioxide already present in the atmosphere with direct air capture. 

2024 Predictions

1. SEC Rules on Climate Disclosure

The Securities and Exchange Commission (SEC) is expected to change its rules regarding climate disclosure, which will help reshape corporate reporting. The move towards more standardized and comprehensive climate-related disclosures will empower investors to make informed decisions based on companies’ environmental performance. This shift aligns financial markets with the imperative of addressing climate risks and opportunities — a key catalyst for continued clean energy & climate investments.

2. Treasury Ruling on 45V for Green Hydrogen

The U.S. Treasury was expected this past fall to issue a ruling on Section 45V of the Inflation Reduction Act that addresses financial support for the green hydrogen sector. A large portion of the energy sector is waiting with bated breath for the Treasury to provide guidance on key issues related to tax credits for green hydrogen production.

One of these issues is the concept of additionality, and whether the Treasury will require “green” hydrogen to be produced with clean power that would not otherwise have been built. If the recent leak about the rules is accurate, green hydrogen producers will have to be smart about how they configure their plants to meet clean power goals. That includes not only how they source clean energy, but also how they invest in flexible electrolyzers that can act as grid resources.

3. SBTi Rule Changes & GHG Protocol Guidance Updates

The Science-Based Targets initiative (SBTi) is expected to undergo rule changes in 2024, refining the criteria for setting and validating science-based emission reduction targets. Companies that have committed or are considering committing to science-based targets should keep an eye out for updated rules.

In 2023, the GHG Protocol began the process of updating its corporate standards and guidance for Scope 1, 2, and 3 emissions (direct emissions, indirect emissions from purchased energy, and indirect emissions from the value chain, respectively). So many businesses are seeking to measure, report, and reduce their carbon footprint (for voluntary reasons and to stay ahead of emerging regulations) that the secretariat decided its rules needed a refresh. These updated guidelines, drafts of which are expected in 2024 (with final standards/guidance in 2025), will help foster a more transparent and accountable approach to sustainability.

Clean Energy & Climate Collaboration

As we reflect on the achievements of 2023 and peer into 2024, it is evident that the global community – including corporates and policymakers — is making strides toward a more sustainable and resilient future. The convergence of legislative actions, international collaborations, and financial incentives is paving the way for clean energy & climate progress. Onward and upward as we move into the new year!