Earlier this year, Barclays sent ripples through the U.S. electric power industry when it downgraded the entire sector’s credit rating.  Traditionally deemed one of the most reliable investment opportunities, the sector’s downgrade to “under weight” means that electric power providers may have a harder time accessing cheap credit.

Barclays' move didn’t surprise me.  As an institutional investor responsible for safeguarding my state’s $45 billion pension fund, I pay a lot of attention to industry bond ratings.  And over the past several years, I’ve noted mounting challenges to the way electric utilities do business, from the rise of distributed generation like solar PV, and competition from non-utility players, to stronger environmental policies, and resource constraints like water scarcity in certain regions of the country.

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One of those challenges, the rise of solar PV and renewable energy storage technologies, was the reason for Barclay’s downgrade. For the first time in a century, utilities face competition from energy users producing their own clean energy. As these small energy providers generate more electricity, utilities make less revenue selling their own power.

The Environmental Protection Agency’s new Clean Power Plan will help utilities to address these challenges and to transform their century-old business model of selling increasing amounts of energy to increase their revenues. It will hasten the transition, already under way, to a new era in which utilities grow their revenues by helping their customers lower their carbon footprints.

The Clean Power Plan, which reduces carbon emissions from existing power plants, is precisely the kind of long-awaited market signal the electric power industry needs so that it can plan with some certainty for what most know is both necessary and inevitable: the transition to a low carbon economy. Importantly, it does not dictate to them how they must achieve the emissions cuts, and it provides the industry a long glide path for adapting to the shifting landscape by 2030.

Climate change is already reshaping our economy in myriad ways.  The recent National Climate Assessment makes clear that the impacts of climate change are serious and far-reaching, with worse yet to come. In my state of Maryland, climate-related extreme heat, sea level rise, and coastal and river flooding threaten our environmental, social, and economic systems, and vital infrastructure.

We need to make critical investments to improve the resilience of our infrastructure, but we also need to limit carbon emissions to avoid the more severe scenarios.  That’s why reducing carbon emissions from the electric power sector, the single largest source of global warming pollution in the U.S., is so important.

As the Maryland’s State Treasurer, I think a lot about the future and the retirement obligations we have made to our teachers and state employees for generations to come. To keep our investments sound, we need to invest in companies that are prepared to manage the risks climate change poses for their future prosperity and that are developing solutions to climate challenges, such as clean, renewable energy. We need utilities that are deploying clean energy resources and that are embracing the transition to distributed generation and “smart” technologies that let consumers control and reduce their energy use.  

EPA’s Clean Power Plan may not have all of the answers, but it sends a long-term market signal that will expand my state’s options for investing in those kinds of opportunities.  What’s more, it gives investors a framework for evaluating whether or not individual power providers are positioning themselves to thrive in a clean energy future.

Maryland is taking steps to combat climate change. We’ve participated in the Regional Greenhouse Gas Initiative, a multi-state agreement to limit carbon pollution from power plants that began operating in 2009. Since then we have cut our emissions by 27 percent.  We’ve set a goal of reaching 20 percent renewable energy generation by 2022.  Our partnership with the U.S. Department of the Interior to lease 80,000 acres off our coast to commercial wind developers will help us get there.

But without EPA’s Clean Power Plan, it will be more difficult for us to achieve our state climate and energy goals at the pace demanded by science, just as it will be more difficult for the nation to achieve the necessary carbon cuts to prevent the worst impacts of climate change to our environment and economy. 

I am confident that our power sector can cost-effectively meet the emissions cuts called for in EPA’s Clean Power Plan, just as it has met other ambitious air pollution goals established by the Clean Air Act a quarter century ago. And in so doing, it will emerge more modern, more competitive, and more credit worthy.  Such a transformation will generate higher quality investment opportunities for Maryland and the rest of the market.

Kopp is the treasurer of Maryland, and has served in that position since February 2002. She is a member of the Investor Network on Climate Risk.