Maine announces floating offshore wind research array plans

Maine Governor Janet Mills has announced the state's plan to develop a floating offshore wind research array in the Gulf of Maine.

Analysis by the National Renewable Energy Laboratory and others has demonstrated that Maine's ocean waters and the broader Gulf of Maine have significant potential as sites for wind turbines to generate renewable electricity. As described by one NREL study which quantified Maine's offshore wind technical resource potential at 94,468 megawatts, "the offshore wind resource potential is 36 times greater than the state’s electric energy demand, which is proportionally greater with respect to load than any other state in the country." 

On November 20, 2020, Governor Mills announced that Maine plans to designate "a small-scale research array in the Gulf of Maine" to "engage the fishing industry’s expertise to minimize potential harms and maximize the benefits to Maine people from offshore wind". The announcement describes a research array expected to contain up to 12 floating wind turbines, spread over up to about 16 square miles of ocean space. It lists research project partners including "the University of Maine, whose floating foundations will be utilized in the array, and New England Aqua Ventus -- a joint venture of Diamond Offshore Wind, a subsidiary of Mitsubishi Corporation, and RWE Renewables, one of the world’s largest offshore wind energy companies -- which will lead the array’s development."

Indicating that the site will be located in federal waters "some 20 to 40 miles offshore into the Gulf of Maine," the announcement states that Maine "intends to file an application for the research array with the Bureau of Ocean Energy Management" which manages offshore wind site leasing. The announcement describes the Governor's directive to the Governor's Energy Office to collaborate on project siting with the commercial fishing industry, the Maine Department of Marine Resources, and other interested parties.

In describing the planned research array, the announcement also Maine offshore wind "critical to meet the state’s climate goals of moving Maine to using 80 percent renewable energy by 2030, and 100 percent by 2050, in order to curb harmful greenhouse gas emissions." It notes that offshore wind development "represents a significant opportunity for Maine’s energy future and economic recovery from COVID-19, as outlined in Maine’s 10-year Economic Development Strategy and a recent Clean Energy Economy report from the Governor’s Energy Office."

The announcement ties the research array plans to Governor Mills's ongoing Maine Offshore Wind Initiative. In March 2020, Governor Mills announced the designation of the Port of Searsport for a study of port opportunities related to offshore wind, including transportation, assembly, and fabrication of offshore wind turbines. Maine is also participating in regional offshore wind discussions, including through a Gulf of Maine Task Force established by BOEM in 2019 at the request of New Hampshire Governor Christopher Sununu.

At present, the 30-megawatt Block Island Wind Farm off Rhode Island is the region's only operating offshore wind farm. Numerous developers have proposed much larger projects in federal waters offshore New England, in response to state laws which collectively call for the purchase of gigawatts of offshore wind by 2030.

Federal Reserve Bank cites climate risks in Financial Stability Report, for the first time

On November 9, 2020, the Federal Reserve Board issued its latest Financial Stability Report, which for the first time addresses the threat of climate change to the stability of financial systems. 

Twice per year, the Federal Reserve Board issues a Financial Stability Report summarizing the Board’s framework for assessing the resilience of the U.S. financial system and presenting the Board’s current assessment “to promote public understanding and increase transparency and accountability for the Federal Reserve’s views on this topic.” The 80-page report released in November includes a section, “The Implications of Climate Change for Financial Stability”, featuring discussion of how climate risks affect the stability of the U.S. financial system:

Opacity of exposures and heterogeneous beliefs of market participants about exposures to climate risks can lead to mispricing of assets and the risk of downward price shocks. Similarly, uncertainty about the timing and intensity of severe weather events and disasters, as well as the poorly under-stood relationships between these events and economic outcomes, could lead to abrupt repricing of assets. Climate risks thus create new vulnerabilities associated with non-financial and financial leverage. In regions affected by severe events, households and businesses could become overlevered if the value of their assets or income prospects become impaired. Levered financial institutions may be exposed to losses from disasters made more likely by climate change that are not accurately reflected in current financial models; for example, financial models may lack sufficient geographical granularity to accurately connect local physical damages to financial exposures. The financial system is also vulnerable to amplification effects of these damages if contracts are incomplete and do not capture all damages and if poorly understood financial exposures cause spillover effects or financial contagion. 

Within the financial system, increased transparency through improved measurement and disclosure could improve the pricing of climate risks, such as an increase in the frequency and severity of extreme weather events, thereby reducing the probability of sudden changes in asset prices. Continued research into the interconnections between the climate, the economy, and the financial sector could strengthen knowledge of transmission, clarify linkages and exposures, and facilitate more efficient pricing of risk. Outside the financial system, efforts to mitigate or adapt to the physical effects of climate change through technological advances and policy changes could also reduce climate risks in the long run.

The report also included illustrations of how climate risks can affect financial systems:

In a parallel statement, Federal Reserve System Governor Lael Brainard addressed the issue:

I welcome the introduction of climate into the FSR. Climate change poses important risks to financial stability. A lack of clarity about true exposures to specific climate risks for real and financial assets, coupled with differing assessments about the sizes and timing of these risks, can create vulnerabilities to abrupt repricing events. Acute hazards, such as storms, floods, or wildfires, may cause investors to update their perceptions of the value of real or financial assets suddenly. Chronic hazards, such as slow increases in mean temperatures or sea levels, or a gradual change in investor sentiment about those risks, introduce the possibility of abrupt tipping points or significant swings in sentiment. Supervisors expect banks to have systems in place that appropriately identify, measure, control, and monitor their material risks, which for many banks is likely to extend to climate risks. At present, financial markets face challenges in analyzing and pricing climate risks, and financial models may lack the necessary geographic granularity or appropriate horizons. Increased transparency through improved measurement and more standardized disclosures will be crucial. It is vitally important to move from the recognition that climate change poses significant financial stability risks to the stage where the quantitative implications of those risks are appropriately assessed and addressed.

Through the report, the Federal Reserve did not directly require banks to plan for climate-related shocks, but it did express an expectation that banks will “have systems in place that appropriately identify, measure, control, and monitor all of their material risks, which for many banks are likely to extend to climate risks." 

The Financial Stability Report follows the September 2020 report by a Commodity Futures Trading Commission subcommittee which identified climate change as a "major risk" to financial system stability.