Sustainability

California is offering large companies subject to its climate disclosure rule — Senate Bill 253 or the Climate Corporate Data Accountability Act — some flexibility to prepare for compliance deadlines by exercising enforcement discretion for the first year of reporting.

The California Air Resources Board, the agency tasked with enforcing the state’s climate rules, published an Enforcement Notice last week. In the notice, CARB said companies that are required to comply with SB 253 could submit scope 1 and scope 2 greenhouse gas emissions data for 2026 — the earliest reporting deadline under the bill — based on information they “already possessed or [are] collecting at the time this Notice was issued.”

CARB added it would “not take enforcement action for incomplete reporting against entities” in the first reporting cycle, given the companies “make a good faith effort to retain all data relevant to emissions reporting for the entity’s prior fiscal year.”

The California agency said the enforcement discretion will help support companies as they work toward full compliance since emissions data collection and disclosure is a nascent task for some companies that may require some time to prepare for.

“CARB recognizes that companies may need some lead time to implement new data collection processes to allow for fully complete scope 1 and scope 2 emissions reporting, to the extent they do not currently possess or collect the relevant information,” the agency’s Dec. 5 notice said.

However, CARB said its decision is not intended as an interpretation of SB 253’s reporting requirements. The agency encouraged regulated entities to utilize this transition period to “move toward full compliance as quickly as possible.”

KPMG’s U.S. Sustainability Leader Maura Hodge echoed this in an emailed statement to ESG Dive Dec. 12, noting organizations should use this additional time as a “runway to get their emissions data house in order.”

“CARB’s grace period provides companies with valuable time to build their emissions reporting infrastructure, but don’t mistake this pit stop for a green light to idle,” Hodge said. “The transitional period reflects a practical approach to implementation, yet the underlying mandate is clear: comprehensive emissions reporting is becoming a critical business requirement.”

SB 253 was originally approved by California Gov. Gavin Newsom, D, last October and is estimated to impact more than 5,300 companies operating in California. The law requires companies making more than $1 billion in revenue to publicly disclose their scope 1 and 2 emissions to a reporting organization in 2026. Starting in 2027, companies would then need to begin reporting scope 3 emissions. 

The law also requires companies to report their greenhouse gas emissions in a “manner that is easily understandable and accessible to residents of the state,” and requires such public disclosures to be independently verified by a third-party auditor.

CARB’s enforcement notice comes after Newsom signed Senate Bill 219 into law in September, which included a series of amendments to climate bills SB 253 and SB 261. SB 261, not affected by the enforcement notice, requires business entities with revenues exceeding $500 million to publicly disclose their climate-related financial risks and countermeasures.

SB 219 retained the original reporting deadlines laid out in SB 253 and SB 261, with some businesses expected to make disclosures as early as 2026. However, it provided additional flexibility and time for the promulgation of regulations that are to be adopted by CARB, and CARB’s enforcement notice extends that flexibility to companies as well.

Data center operators, hyperscalers, electricity providers, local regulators, municipalities and real estate firms must collaborate on how best to balance environmental, business and societal goals, according to a Deloitte report released Nov. 19. 

That collaboration should involve determining potential strategic colocation needs — where a data center company rents computing and server resources to one or more companies — as well as needs for cooling, recycling, and heat and wastewater managment, according to the report. 

Small and midsized organizations that may find it challenging to harness generative AI data center capacity should work with specialized data center operators and cloud service providers to meet their needs, Deloitte says. In turn, data centers can actively track usage and availability for potential opportunities and demand pockets to help deliver near-term colocation services, per the report. 

As data center energy consumption rapidly accelerates to meet power-intensive generative AI demand, many companies are looking to use a combination of energy-efficient data center technologies and more carbon-free energy sources to reduce environmental impact, the report says. Although data centers are expected to make up only about 2% of global electricity consumption, or 536 TWh, in 2025, annual energy use could roughly double to 1,065 TWh by 2030, Deloitte’s analysis suggests.

In the U.S., data centers are anticipated to represent 6%, or about 260 TWh, of total electricity consumption in 2026, Deloitte says, citing estimates from the International Energy Agency. The nation’s data center market has doubled in size in four years, with vacancy rates hitting a record low of 3% in the first half of 2024, according to a report by JLL released in August. 

The surge in demand for data center capacity comes “against the backdrop of a multi-decade power industry transformation,” as electric companies build, upgrade, and decarbonize electric grid infrastructure, and digitalize systems and assets,” Deloitte says. Utilities are also working to fortify assets against increasingly severe weather and protect networks from rising cybersecurity threats, according to the report. 

As demand for high-power computing capability intensifies, a significant price gap between new data centers and legacy facilities has also emerged, with existing data centers lacking the infrastructure to support the demanding workloads required, according to a CBRE report released in August. 

Liquid cooling, despite its potential to support more data-intensive server racks, potentially eliminating the need for chillers, is still at a nascent stage and yet to be widely adopted or integrated into AI data centers globally, Deloitte notes, citing a March 2024 article on the website of engineering and consulting firm Ramboll. 

The urgency and geographic concentration of data center demand, along with the need for round-the-clock, carbon-free energy, exacerbate challenges for technology companies and electricity providers, compounded by new demand from electrification, manufacturing and other sources, Deloitte says. 

To expedite the jump to carbon-free energy sources for data centers, major tech industry players like Amazon and Google continue to be aggressive in boosting their use of renewable energy-sourced electricity and establishing power purchase agreements. The technology sector “consistently dominates” U.S. corporate renewable procurement and accounted for more than 68% of the nearly 200 deals of associated capacity tracked between February 2023 and February 2024, Deloitte’s report notes. Deloitte relied on information gathered from multiple reports by S&P Global Market Intelligence, published during March and August. 

The 24/7 carbon-free electricity that many tech companies seek can be hard to come by, however, “especially in the short term,” with many electricity providers announcing plans to build carbon-emitting natural gas-fired power plants, Deloitte says. “This could potentially make it more challenging to meet utility, state, and even national decarbonization targets,” the report notes.

Deloitte suggests that stakeholders form strategic partnerships to serve local and cluster-level AI data center needs. 

The technology industry should also work closely with electricity providers to determine how to fund and scale new energy technologies, “which is a vital step to bring more clean energy to the grid,” the report states. 

Deloitte also suggests optimizing generative AI uses and shifting processing to edge devices, which can help save network and server bandwidth, while supporting applications where response times are critical or where sensitive data is involved.

Sustainable investing and clean energy experts are bracing for a change in atmosphere and priorities under a second Donald Trump administration, after the former president’s reelection Nov. 5.

A Trump administration is expected to negatively impact the business prospects for the renewable power, transport and industry markets, as well as sustainable finance, according to a pre-election outlook by BloombergNEF. In emailed comments sent to ESG Dive Nov. 6, Sustainable Investments Institute Executive Director Heidi Welsh said Trump’s reelection is also “likely to have significant impacts on regulation of investors’ consideration of environmental and social factors.”

“Climate change risks will only be heightened by [the] U.S. deregulation that is certain to arrive with another Trump White House,” Welsh said. “Ignoring the biggest systemic risk the planet faces is not going to be good for the markets in the long-term.”

Trump has pledged to once again pull out of the Paris Agreement, expand U.S. oil production and to repeal President Joe Biden’s landmark climate action legislation, the Inflation Reduction Act. Despite Trump’s rhetoric and stances on energy and climate, professionals expect private sector action on climate, sustainability and clean energy to continue to accelerate, albeit at a slower pace.

Christiana Figueres, who served as the chief negotiator of the Paris Agreement in her role as the United Nations executive director for climate change from 2010-16, said in a LinkedIn post Nov. 6 that while Trump’s reelection “will be seen as a major blow to global climate action … it cannot and will not halt the changes underway to decarbonise the economy and meet the [Paris Agreement] goals.”

Continued investor demand for more action on sustainability is expected to help drive that push, as well as increased regulatory action on both the home front — in California — and abroad — in the European Union, among others — which already require large companies to make climate-related disclosures, according to William Theisen, CEO of sustainability consultancy EcoAct North America. These laws will require large companies to comply with climate-risk reporting requirements, regardless of what the Securities and Exchange Commission does with its own climate rule under Trump.

Additionally, a global push in other countries to cut emissions will propel U.S. companies to reduce their own emissions in pursuit of international growth, Theisen said in emailed commentary Nov. 6. However, any decarbonization-related policies and incentives are not expected to come from any further legislation, which will decrease the need for U.S. companies to implement decarbonization measures on a wider scale.

“We do expect sustainability efforts in the U.S. private sector to accelerate, but not at the level if we had an incoming administration who was committed that climate change adaptation and emissions mitigation was a top priority,” Theisen said.

Mindy Lubber, CEO of environmental nonprofit Ceres, said in a Nov. 5 release that the private sector will be “critical” to keeping U.S. and global climate goals within reach, but the nation “stands at a crossroads in maintaining its world standing as a clean energy and economic leader.” Lubber urged the president-elect to “accept that Americans want to remain in the Paris Agreement” and fulfill its commitments.

“President-elect Trump needs to hear the urgent business call for government action to ensure the U.S. remains one of the best places in the world to build and deploy the innovative technologies that will grow the U.S. economy, create jobs and reduce energy costs in communities across the country,” she said.

As far as Trump’s pledges to repeal the IRA go, experts expect any changes to the law to be more targeted in nature, rather than a full or retroactive repeal. Eighteen congressional Republicans have already publicly opposed such a measure, and Crux — which operates a central platform for companies and clean energy developers to utilize the transferability function of the credits — said in a new report it expects any changes to the law to be “surgical” in nature.

Ernst & Young Global Tax Policy Leader Aruna Kalyanam told ESG Dive before the election that any IRA changes would likely come from “nipping and tucking,” rather than broader repeals or clawbacks. This view is shared by John Gimigliano, a principal at KPMG and former counsel to the Republicans on the House Ways and Means Committee. 

“A full-scale repeal of the IRA is not going to happen,” Gimigliano is quoted as saying in the Crux report. “Congress rarely does that. It is going to be more surgical in the end.”

Jon Powers, CEO of clean energy investor Clean Capital and a former federal chief sustainability officer in the Obama administration, said that the renewable energy industry will need to “aggressively educate the incoming administration” on the strides the clean energy sector has made in the past four years.

“With the continued implementation of the Inflation Reduction Act and the Bipartisan Infrastructure Bill, the clean energy industry will need to continue lobbying against political headwinds and fighting misinformation,” Powers said in an email. “Additionally, it will be up to us to hold Congress accountable to ensure clean energy programs continue to receive the funding promised and to defend critical legislation like the IRA.”

One of the year’s flashiest developments in the power sector is Constellation Energy’s plan to restart Unit 1 at its infamous Three Mile Island nuclear facility by 2028 in order to provide 24/7 carbon-free energy to fuel Microsoft’s growing data center fleet across the Mid-Atlantic. For many industry observers, however, this news did not come as a surprise.

The ravenous electricity demands of hyperscale data centers needed for artificial intelligence, coupled with the deep pockets and aggressive sustainability goals of Big Tech companies like Microsoft, Google, Amazon and Meta, have led them not only to become the leading buyers of renewable power — accounting for more than 50% of deals nationwide — but also to disrupt the renewable energy landscape in ways that are simultaneously encouraging and disconcerting.

After two decades of flat electricity demand, the proliferation of AI has fueled unprecedented load growth expectations across much of the country. The Electric Reliability Council of Texas, the power region for most of Texas, expects a staggering 60% increase in demand from data centers within five years. PJM Interconnection earlier this year tripled its forecast for electricity demand, with the highest load increase expected to come in Virginia, home to the world’s largest data center market. Booming demand translates to higher prices for power generators, particularly in regions that are flush with new data centers, like West Texas, which has historically been known for cheap and abundant electricity. Capacity prices across PJM spiked nearly ten-fold in the most recent auction.

Given Big Tech’s ambitious decarbonization goals — by 2030, Microsoft intends to be carbon negative and Google plans for carbon-free energy usage — there is soaring demand for clean energy, a great boost for renewable project developers. Brookfield, a major renewable power generator, recently announced the largest-ever renewable energy deal, agreeing to sell over 10.5 gigawatts of clean power to Microsoft between 2026 and 2030; nearly three times New York State’s current solar and wind capacity.

Another advantage of Big Tech’s thirst for energy is the growing trend of data centers locating adjacent to contracted renewables or nuclear facilities, often referred to as a “behind-the-meter” arrangement. These setups allow data centers to receive physical delivery of green power that might otherwise be curtailed, improving the utilization of renewable capacity.

Finally, Big Tech companies are leveraging their financial strength to invest in innovative power generators and storage systems, such as nuclear fusion and enhanced geothermal. Google and Microsoft, for example, have formed a coalition to accelerate the adoption of novel clean technologies, aiming for around-the-clock carbon-free energy.

Yet, these opportunities are intertwined with significant challenges. Big Tech has leveraged its market influence and sophisticated analytical abilities to morph renewable power purchase agreements from simple contracts into complex structures that shift considerable risks onto renewable developers. These novel contracts expose renewable projects to increased spot market exposure, countering the original intent of power purchase agreements, which were designed to limit market exposure and offer revenue certainty.

Under Big Tech’s renewables purchasing dominance, contract terms have become increasingly intricate and tailored to the complex and varied needs of these offtakers. By extension, the embedded risks have also become far more challenging to assess.

Empirically, some of these contractual considerations have already become commonplace across the spectrum of sophisticated offtake counterparties. These can include:

• extremely short contract terms and potential “re-contracting” risk due to uncertain data center demand, chip-set efficiency and forward-thinking offtakers demanding new electricity sources;
• curtailment risk where projects aren’t compensated when forced to limit output;
• price floors that limit negative market price protection for projects; and
• non-settlement provisions (exposing projects to negative market prices during high output).

Some other provisions are markedly quixotic:

• multiple settlement points, which complicate the cost basis for a renewable energy project;
• forced day-ahead settlements opening the project up to price and generation risk between anticipated and real-time outcomes;
• variable offtaker demand causing volatility in a project’s revenues; and
• indexation of a portion of a project’s earnings to the profitability of an on-site, back-up gas generator serving the offtaker’s demand during tight conditions.

Ultimately, these newer contract structures expose renewable project owners to greater risk, which runs counter to the original intent of purchase power agreements of offering revenue certainty to — and lowering volatility for — projects. At the same time, wholesale and retail power market outcomes are becoming more volatile and challenging to forecast, partly driven by the potential for correlated risk.

Under these novel offtake agreements, projects face greater exposure to the whims of the wholesale market — which itself is increasingly influenced by data center dynamics. Given that there are still myriad questions about the extent to which data center demand will materialize, it creates significant uncertainty in wholesale market outcomes. If data center growth projections do not materialize as anticipated, it would adversely impact the profits of energy companies. Google has warned that forecasts for data center growth in certain U.S. power regions could be double-counting demand. As Big Tech dominates energy procurement, the fortunes of renewable project owners are increasingly tied to those of the data center industry.

This concentration of risk could have far-reaching implications for both the energy market and the environment. Google recently reported material increases in its greenhouse gas emissions relative to 2019, as did Microsoft, relative to 2020, primarily due to the supply of renewables not keeping pace with growth in their data center operations. Moreover, the costs associated with upgrading the transmission and distribution system to reliably serve data centers — alongside the elevated wholesale power prices they can induce — are borne, in part, by “regular” ratepayers.

A generational transformation is underway in the renewable energy sector. The days of simply executing a power purchase agreement — to either finance a project or offset carbon emissions — are over. Today, Big Tech’s demands for specific project development plans and contractual provisions can create — or destroy — millions of dollars in value for renewable companies, a daunting prospect for a sector whose health is imperative for combating climate change.

A slim majority of CEOs (54%) feel confident in their ability to achieve net-zero targets by 2030, but two key obstacles preoccupy them: 24% cited the complexity of decarbonizing supply chains, while an equal share pointed to a lack of skills and expertise necessary to implement these solutions, according to a report published by KPMG.

Despite these roadblocks, companies are tying ESG investments to financial returns. Most of the 400 U.S. CEOs surveyed (60%) said they expect to see significant returns from ESG investments in the next three to five years, while 24% said they expect to see returns in the next one to three years.

From the 1,325 CEOs surveyed, 70% said they remained committed to their climate strategies, though they said they are adapting how these strategies were communicated “to meet changing stakeholder needs.”

KPMG surveyed CEOs in 11 key markets in North America, Asia, Europe and Australia covering 11 industry sectors, including banking, asset management, energy, infrastructure, consumer and retail. Respondents represented organizations with annual revenues of more than $500 million, with more than one third accounting for over $10 billion in annual revenues.

The diminishing confidence around meeting net-zero targets while overcoming supply chain challenges identified in the KPMG study is consistent with other recent research on company sentiment. For example, a 2023 Bain & Company analysis of CDP data found that more than a third of companies may not meet their planned target of reducing upstream scope 3 supplier emissions.

“CEOs remain steadfast on their climate-related strategies, which they expect to deliver financial returns in the coming years,” Paul Knopp, KPMG’s U.S. Chair and CEO, said in a press release. “Reaching net-zero goals by 2030 is proving difficult due to challenges operationalizing those strategies, especially decarbonizing supply chains.”

Supply chain decarbonization can also face coordination challenges when spread among various stakeholders involved, according to a Boston Consulting Group report released earlier this year.  

Companies also need to navigate the complexity of data gathering, and potentially exert considerable time and effort to ensure data quality and accuracy, a 2023 report from Deloitte noted. Scope 3 emissions data may need to be reviewed by external auditors, amplifying these challenges, the report said.

While last year’s KPMG CEO study highlighted CEO concern with ESG scrutiny risks — 68% of CEOs surveyed at the time said current ESG progress was not strong enough to withstand potential scrutiny from stakeholders or shareholders — this issue was not addressed in this year’s report.

ESG efforts and financial returns

KPMG’s 2024 CEO study highlighted ongoing efforts to connect ESG to financial returns, with 68% of U.S. respondents noting they have fully embedded ESG into their business as a means of value creation. In addition, 74% of CEOs surveyed said they see their ESG strategy having “the greatest impact on driving financial performance in the next three years.” 

A separate study from the accounting firm released earlier this year found a strong correlation between 21 ESG-related indicators and robust financial performance. According to this study, sustainability indicators considered to have a “significant relationship with gross profit margin” included lower carbon dioxide emissions; land environmental impact reduction; business ethics policies; staff transportation impact reduction initiatives; day care services for employees; and a high percentage of female executives. 

Other priorities: AI, cyber and return-to-office

In a shift away from remote work, 79% of U.S. CEOs surveyed said they saw a return to the physical workplace coming in the next three years for traditionally in-office corporate roles, a considerable jump from earlier this year, when only 34% shared that sentiment, according to the study.

The survey also highlighted CEOs’ focus on artificial intelligence investments, with 68% of noting that generative AI was a top investment priority despite economic conditions. CEOs are increasing investments in cybersecurity to protect their operations and intellectual property from AI threats, Knopp said, with 69% saying they are increasing their cybersecurity investments to guard against these risks.

Amazon announced July 10 that it has met a goal to match all of the electricity consumed across its global operations with 100% renewable energy in 2023, seven years ahead of its original 2030 target. This includes energy utilized in its data and fulfillment centers, grocery stores and corporate offices.

The e-commerce giant was able to accelerate its pathway to this sustainability target by investing “billions of dollars” in over 500 wind and solar projects across 27 countries which, collectively, can generate energy sufficient to power 7.6 million homes in the U.S., per its latest sustainability report, released the same day.

The company also reduced its absolute carbon emissions by 3%, emitting 68.82 million metric tons of carbon dioxide equivalent in 2023, down from 70.74 million tons in 2022, according to the report. These emissions include those generated by product manufacturing, purchased electricity, transportation of packages and business travel.

The Seattle, Washington-based tech company — which also specializes in cloud computing, digital streaming and artificial intelligence — reported it had enabled almost 1.7 GW of offshore wind capacity in Europe and supported over 80 renewable energy projects across the Asia Pacific region. Beyond its foreign investments, the company has also incorporated renewable energy into its operations and corporate buildings within the U.S., relying on utility-scale green projects to curb its carbon footprint, according to the report.

Amazon said its renewable energy portfolio aims to avoid approximately 27.8 million tons of carbon annually, once all its projects are operational.

Amazon was the top corporate purchaser of green energy in 2023, according to recent research from BloombergNEF. The tech giant secured 74 individual power purchase agreements signed across 16 markets last year alone, the research found. These PPAs — which include both solar and wind power deals — are estimated to have 8.8 GW of energy production capacity.

These investments build on the company’s goal to reach net-zero carbon emissions by 2040, a goal it committed to when launching its Climate Pledge initiative. The program pushes corporations to achieve net-zero a decade ahead of the Paris Agreement’s 2050 goal.

Though Amazon reduced its overall emissions, it reported a 7% year-over-year jump in its scope 1 emissions. The company attributed the rise to general business growth and an increase in the number of packages delivered by its logistics network versus a third-party transportation provider. The company said over two-thirds of packages were delivered by its in-house logistics subsidiary in 2023.

“Our progress toward a net-zero carbon business will not be linear, and each year as our various businesses grow and evolve, we will produce different results,” Amazon Chief Sustainability Officer Kara Hurst wrote in the company’s sustainability report.

Hurst also said the company was utilizing AI to monitor and optimize energy use and provide solutions to sustainability challenges. She noted that though “much work remains,” Amazon was “uniquely positioned” in finding out how AI could help “address climate change in a more efficient and responsible way.”

Google maintained a global average carbon-free energy rating of 64% across its data centers and offices from 2022 to 2023, despite a 13% year-over-year rise in its total greenhouse gas emissions, according to its 2024 Environmental Report released in July. 

The tech giant attributed the climb in its GHG emissions to a 37% year-over-year increase in its scope 2 emissions, which rose to 14.3 million tons of carbon dioxide equivalent last year, representing a 48% rise over levels seen in 2019, its target base year. The company said its total GHG emissions increased at a slower rate than the previous two years, with 2023 marking the first year it implemented a carbon removal strategy. 

The company completed 14 full or partial office building electrification strategies around the world, and signed its first office leases with electrification provisions, Google said. Last year, the organization also piloted a new demand response capability to shift non-urgent compute tasks to other times and locations, amid efforts to offset the increased electricity usage of its data centers. 

Overall, scope 1 emissions, or the direct emissions from its operations, contributed 79,400 tons of carbon dioxide equivalent emissions, or approximately 1% of its overall emissions, per the report. Another 24%, or 3.42 million tons of CO2 equivalent came from scope 2, or market-based emissions, and the remaining 75%, or 10.8 million tons of CO2 equivalent, came from scope 3 emissions.  

Given that the company has more direct control over its data centers and offices than other parts of the value chain, Google has reiterated its focus on decarbonizing its scope 2 emissions, which mainly come from buying electricity for its operations. Some of its key scope 2 emissions reduction levers include energy management and carbon-free energy procurement, the company says in the report. 

At the end of 2023, Google achieved seven consecutive years of 100% renewable energy matching on a global and annual basis, with a 63% reduction in emissions from electricity use through power purchase agreements, the company says. However, data center electricity consumption outpaced its ability to bring more carbon-free electricity projects online, specifically in the U.S. and Asia-Pacific region, resulting in the 37% increase in scope 2 emissions, according to the report. 

The company attributes this increase to carbon-free electricity contracts being terminated prior to projects becoming operational, and a mismatch between the organizations’ approach to CFE and the GHG Protocol’s scope 2 guidance, which establishes regional market boundaries for sourcing clean energy. Google says it faced significant regional challenges in sourcing clean energy in certain regions like the Asia Pacific, resulting in a discrepancy between its energy consumption and clean energy purchases that led to an increase in its scope 2 emissions. 

To improve the efficiency of its data centers, Google is working to “build the world’s most energy-efficient compute infrastructure,” outfitting each data center with high-performance servers designed to use as little energy as possible, per the report.

While scope 1 emissions contributed a much smaller number to the company’s overall emissions, it has outlined strategies it is taking to cut these emissions. In addition to electrification, which Google calls an essential first step toward decarbonizing its office and shuttle fleet operations, it says it implemented an all-electric central utility plant in Sunnyvale, California, to efficiently deliver heating and cooling services to its nearby offices. 

As a result of these initiatives, the company reduced its scope 1 emissions from 91,200 tons of CO2 equivalent in 2022 to 79,400 tons in 2023, compared with 81,900 tons in the baseline year, 2019. 

The company says it is working to more accurately measure refrigerant leak rates and develop new technologies to reduce them, deploying natural, low global warming potential refrigerants at its data centers. In addition, Google says in 2023 it submitted a follow-on patent that would enable “intelligent diagnostics” to help operators better locate leaks, curbing refrigerant emissions and reducing energy consumption from faulty equipment. 

At the end of 2023, over 300 Google offices have achieved LEED certification, including 71 with a platinum rating and 165 with a gold rating. This includes certifications granted in 2023 for 16 Google facilities, according to the report.

As AI revolutionizes the energy industry, unlocking new opportunities for efficiency, sustainability and innovation, the need for responsible AI, or RAI, practices has never been more critical. The energy sector's unique characteristics demand a tailored approach to implementing RAI.

AI in the energy sector: Balancing potential and risk

The energy industry is rapidly adopting AI across various use cases, with a market opportunity estimated at up to $13 billion. However, the sector faces challenges in balancing AI's potential for optimizing operations with mitigating risks, given energy's classification as critical infrastructure. Stringent regulations, safety considerations and environmental expectations necessitate robust risk management as AI adoption accelerates in this high-stakes domain.

The imperative for responsible AI in energy

The energy sector's role in sustaining reliable energy provisions and safeguarding the nation's well-being sets it apart when implementing AI responsibly. Energy companies grapple with large volumes of sensitive data from diverse sources, and data modernization efforts have lagged, hindering effective AI adoption. Additionally, stakeholders expect energy firms to leverage AI for streamlining operations and offsetting emissions.

Navigating the RAI landscape: Best practices for energy companies

To navigate this complex landscape, energy firms must adopt a comprehensive RAI strategy, adhering to emerging global standards and best practices, including:

Aligning with emerging AI regulation: Comply with President Biden's executive order, which tasks the Department of Energy and the National Institute of Standards and Technology to establish rules and regulatory compliance for AI systems in critical infrastructure. Implement rigorous AI governance standards to ensure safe AI deployment.

Establishing cross-functional RAI governance: Gather teams from IT, data, legal and diversity/inclusion domains to drive RAI strategy at strategic and tactical levels.

Integrating leading and emerging standards: Align RAI objectives and compliance plans with standards like ISO/IEC 42001, the NIST AI Risk Management Framework and sector-specific cybersecurity frameworks.

Building a Responsible AI talent pipeline: Invest in multidisciplinary skills including data scientists, machine learning engineers and cloud architects to complement traditional analytics expertise.

Enabling trustworthy AI operations: Implement robust machine learning operations and data management practices to scale RAI safely and reliably.

Fostering responsible adoption: Encourage explainable AI systems, comprehensive decision logging, ongoing employee training and stakeholder engagement to build trust.

Influencing regulation and ecosystem: Provide input to regulatory bodies, participate in industry initiatives and collaborate with organizations shaping RAI best practices.

Overcoming challenges and emerging as a RAI leader 

The energy sector faces persistent challenges in integrating AI with legacy systems, managing immense data volumes, and addressing the costly environmental impacts of AI. However, by proactively addressing these challenges through a holistic RAI approach, energy companies can mitigate risks and pave the way for transformative applications.

As the world transitions to cleaner energy sources, RAI will be pivotal in optimizing operations, integrating renewables and empowering data-driven customer insights. By prioritizing RAI best practices from the outset, the energy industry can harness AI's full potential while upholding responsible principles, fostering trust and driving sustainable innovation.

The path forward

The path to responsible AI in the energy sector is complex but essential. By aligning with emerging regulations, establishing robust governance, and fostering a culture of responsible adoption, energy companies can emerge as leaders in the RAI landscape. Embracing RAI practices will not only mitigate risks but also unlock the transformative potential of AI in driving a sustainable and innovative energy future.

On March 19, Nucor, Microsoft and Google announced the Advanced Clean Electricity request for information, or RFI, a joint initiative to stimulate development and deployment of reliable, low- or zero-carbon electricity generation technologies like advanced nuclear, next-generation geothermal and long-duration energy storage.

The initiative aims to aggregate the three companies’ demand for clean electricity in a way that “accelerate[s] the development of first-of-a-kind and early commercial projects,” the companies said in a news release provided by Nucor.

Eligible projects have until April 12 to respond to the RFI. The companies will notify selected projects of their intent to proceed by mid-June, with power purchase agreements to follow in early 2025, the news release said.

Each of the Advanced Clean Electricity partners aims to zero out its carbon-equivalent emissions by 2050 at the latest. 

Nucor is working toward its goal of net-zero emissions by 2050 in part through a $15 million strategic investment in NuScale Power, which includes an agreement to supply low-emissions steel for NuScale projects and possible colocation of NuScale SMRs at Nucor steel mills.

Google’s and Microsoft’s emissions-reduction goals are more ambitious than Nucor’s. Google is aiming for net-zero emissions from company operations and a 50% reduction in Scope 1, 2 and 3 emissions from a 2019 baseline by 2030. Microsoft aims to be “carbon negative, water positive and zero waste by 2030,” to match 100% of its electricity generation at all times with zero-emissions resources by 2030 and to remove the equivalent of all its historical emissions by 2050, according to the Advanced Clean Electricity RFI’s website.

Though all three partner companies have invested heavily in building efficiency, solar panels and renewable energy power purchase agreements, those efforts may not be enough to achieve their sustainability goals. The 24/7 resources sought in the RFI can “fill gaps in wind and solar production and support grid reliability … needs that today are still being met by fossil fuel generation,” according to the RFI’s website.

The Advanced Clean Electricity initiative aims to spur the growth of new energy-generation technologies that might otherwise stall due to high upfront development costs and uncertain commercial demand. 

“We hope that our work will catalyze similar initiatives amongst other key offtakers in the energy market or inspire others to join us down the line,” the initiative’s representatives said in an email to Utility Dive.

The partner companies expect to sign offtake agreements for technologies that are not yet cost-competitive compared to existing commercial power sources, lobby policymakers and regulators for favorable “ecosystem improvements,” and partner with utilities and energy providers on supportive rate design, the news release said.

Those ecosystem improvements could include reforms to expand transmission and reduce interconnection bottlenecks, the initiative’s representatives told Utility Dive. 

“Interconnection delays could create a risk, but we are committed to working with all stakeholders, including utilities and [grid system operators], to maximize the odds of success and reduce system-level roadblocks,” the representatives said.

The initiative’s website cites 14 evaluation criteria for clean energy technologies, including maturation of technology, potential capacity factor above 50%, project capacity above 50 MW or the ability to aggregate smaller projects to achieve equivalent output, the ability to trace electricity output and produce hourly Energy Attribute Certificates, the potential to scale the technology’s total output beyond 100 GW by 2040, and a pathway to cost-competitiveness with existing generation technologies over a similar timeframe. Projects must be located in the U.S., “with a preference for projects in [the] PJM” region, according to the website.

“If there is a project or technology that can meet the criteria specified in the RFI to provide the clean, firm power we need, we are eager to hear from them,” the initiative’s representatives said

The 12 largest U.S. electric utility companies have lobbied unevenly for climate policy aligned with the goals in the Paris Agreement — sometimes working against their own interests, says a January report from corporate sustainability group Ceres.

“We've seen a number of examples across Fortune 500 companies and in the utility world where companies are taking strong steps to decarbonize, but their lobbying is not aligned,” said Ceres managing director and report co-author Steven Rothstein. “They say they're for a policy, and then they advocate against it.”

This disconnect is sometimes the result of companies failing to align internally on strategy, and sometimes the result of their membership in a trade association that opposes policies supported by the utility, Rothstein said in an interview.

Of the 12 electric utility companies the report examined, Ceres found that all had advocated for Paris-aligned climate policies in the last three years, but all had also opposed Paris-aligned climate policies in the same timeframe.

“If a company is advocating for something, but then they join a trade association that advocates against it — that's hurting their strategic plans,” Rothstein said. “But the answer isn't always to leave a trade group — though that may be appropriate in some cases.”

In one recent example, investor-owned utility Eversource parted ways with the American Gas Association last August over AGA’s lobbying against electrification.

Dan Bakal, Ceres’ senior program director of climate and energy, said this was a “significant development” for a “fairly sizable company.”

The utility companies studied by Ceres were American Electric Power, Dominion Energy, Duke Energy, Exelon, FirstEnergy, National Grid, NextEra Energy, Pacific Gas & Electric, Sempra Energy, Southern Company, WEC Energy Group, and Xcel Energy.

“For these companies that are primarily electric utilities, they do also have some gas distribution business, but a lot of them are choosing now to focus on the electric side of their business because they recognize that that's what's going to expand two to three-fold over the next couple of decades — whereas gas has a much more questionable, to declining, future,” said Bakal.

Bakal said that it was encouraging to see American Electric Power address this misalignment in an internal assessment, where AEP rated whether or not trade associations it belongs to are aligned with it on policy positions, partially aligned, or misaligned and “undermining AEP’s pursuit of its clean energy strategy,” the assessment said.

Ceres analyzed industry associations that included the AGA as well as the Edison Electric Institute and American Clean Power Association. In a comment, EEI spokesperson Sarah Durdaller said the group and its member companies have been the “strongest supporters” of the clean energy provisions in recent legislation like the bipartisan infrastructure law and Inflation Reduction Act.

“Already, 50 EEI member companies have set ambitious forward-looking carbon emission reduction goals, 40 of which are aiming for net-zero or equivalent by 2050 or sooner,” Durdaller said. “As the owners and operators of the energy grid, we also are making the investments needed to deliver resilient clean energy to sectors across the economy.”

While the report indicated “substantial inconsistencies” in the climate lobbying of utilities, Bakal said he thought it was encouraging that utilities have overall been “very supportive” of the Inflation Reduction Act.

“We do recognize that policies, sometimes at the state level, can be challenging — and we can't expect every company to just support every policy if it might not be a well-designed one, so there can be some disconnects,” he said. “But we do expect companies to be as transparent as possible, and be transparent about why a specific policy proposal might not work for them.”