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Concerns over national energy security and rising costs have led governments across multiple jurisdictions to relax certain environmental and climate regulations.1,2 In the US, for example, the executive order to withdraw from the Paris Agreement, along with the US Environmental Protection Agency’s (EPA) proposal to repeal greenhouse gas (GHG) emissions standards for fossil-fueled power plants, marked a major shift in US environmental policy.3,4 This article provides an overview of the insights from our recent report examining the potential challenges and risks environmental deregulation may pose to utilities companies.
Deregulation Offers Short-Term Savings but May Amplify Long-Term Risks
Environmental deregulation and climate policy rollbacks are occurring across regions. In our recent analysis, we focused on key trends and risks within the utilities sector in the US, given the global significance of regulatory developments in the region. Deregulation is expected to lower compliance costs for US utilities in the short term. By repealing GHG standards, the US administration estimated annual regulatory cost savings of approximately USD 1.2 billion for the power sector.5 However, environmental and climate deregulation may present operational and financial risks to US utilities over the medium to long term. Assets benefiting from deregulation, particularly heavy polluters, are exposed to costly retrofit mandates or challenging capital recoveries if stricter policies are reinstated by future administrations. Furthermore, the increasing electricity demand for data centers places additional pressure on utilities to develop reliable solutions, which may prompt the extension of fossil fuel operations. This, in turn, heightens financial risks if future administrations reintroduce stringent climate measures.
Slight Decline in US Utilities' Management of Relevant MEIs
A company’s ESG risk score, specifically on the material ESG issues (MEIs) Carbon – Own Operations (COO)6 and Emissions, Effluents and Waste (EEW),7 serves as an effective proxy for evaluating its capacity to manage risks stemming from the volatility of the environmental regulatory landscape. Our research shows that between 2022 and 2024, US utilities’ management of COO improved slightly each year while their management of EEW remained steady. However, as shown in Figure 1, management of both issues declined slightly in 2025, indicating a potential shift in the sector’s approach to environmental initiatives and disclosures.
Figure 1. US Utilities Companies’ Average COO and EEW Management Scores (2022 – 2025)
.png?sfvrsn=b49fe213_1 "US Utilities Companies’ Average COO and EEW Management Scores (2022 – 2025)")
Source: Morningstar Sustainalytics. Data as of January 1, 2026. For informational purposes only.
Note: The analysis covers US-based utilities within the subindustries of independent power production and traders, electric utilities and multi-utilities engaged in power generation (33 companies), all of which are part of Morningstar Sustainalytics’ comprehensive universe.
Leaders and Laggards in the Industry
Additionally, our research demonstrates an overall positive relationship between COO and EEW risks, suggesting that companies with low COO risks tend to also have low EEW risks. Companies that effectively manage carbon risks often can similarly effectively manage other meaningful environmental indicators as well. Some of the leaders and laggards in this area are presented in Figure 2.
Figure 2 Leaders and Laggards Based on COO and EEW Risk Scores
| Company | Carbon - Own Operations Risk Score | Emissions, Effluents and Waste Risk Score | ESG Risk Score | Highest Controversy Rating |
| Edison International | 1.9 | 1.4 | 20.8 | Category 3 |
| Consolidated Edison, Inc. | 2.5 | 0.9 | 21.2 | Category 2 |
| PG&E Corp. | 0.4 | 2.1 | 26.9 | Category 4 |
| FirstEnergy Corp. | 6.2 | 5.3 | 33.5 | Category 3 |
| NRG Energy, Inc. | 7.2 | 6.0 | 38.6 | Category 1 |
| The Southern Co. | 5.4 | 6.5 | 38.7 | Category 2 |
Source: Morningstar Sustainalytics. Data as of January 1, 2026. For informational purposes only.
Figure 2 highlights leaders and laggards grouped by the lowest and highest risk scores across both MEIs. Among the leaders, the top three companies featured in the exhibit all have above-average management of both COO and EEW issues. This is despite differences in their own generation energy mix, with Edison International and PG&E Corp. relying primarily on nuclear, natural gas, and renewable energy, while Consolidated Edison generates electricity exclusively from natural gas, based on data found from the companies’ reporting.
The laggards, which exhibit the highest risk scores across the two MEIs, are characterized by a heavy reliance on fossil fuels, particularly coal, and a lack of strong management practices for these issues. FirstEnergy Corp. generates electricity almost entirely (99.8%) from coal, NRG Energy’s generation mix includes 56% coal and 44% natural gas, while The Southern Co. generates electricity from a mix of energy sources, including 18% coal, 49% natural gas, 19% nuclear, and 14% renewable, based on data found from the companies’ reporting. Despite its more diversified energy mix, The Southern Co. demonstrates weak management of EEW, resulting in one of the highest risk scores for the issue at 6.5.
US Utilities’ Decarbonization Progress
As highlighted in our report, in the last three years, a third of US utilities in our research universe have shown a decline in their carbon intensity from generation by 15% or more, suggesting meaningful decarbonization progress. Deregulation in the US may undermine this progress and create long-term challenges, as it may prompt utilities to prioritize short-term cost savings over investments in clean energy or other environmental safeguards. Additionally, utilities’ infrastructure operational lifespan typically lasts decades, which can amplify financial and operational risks by exposing a company to long-term regulatory uncertainty and continual technology advancements.
Stakeholder Scrutiny Remains
Despite federal environmental policy rollbacks, stakeholder expectations for decarbonization and robust environmental management remain strong, driven by investors, customers and communities, including state authorities. We consider companies that have consistently demonstrated strong management of environmental issues, including carbon emissions and air emissions, effluents, and waste to be well positioned to navigate the medium- and long-term risks associated with environmental deregulation.
To learn more, download our report, “Navigating Environmental Deregulation for Utilities.”
References
- Singh, S.C. 2025. “India eases sulphur emission rules for coal power plants, reversing decade-old mandate”. July 12, 2025. Reuters. https://www.reuters.com/sustainability/boards-policy-regulation/india-eases-sulphur-emission-rules-coal-power-plants-reversing-decade-old-2025-07-12/ Zaia, C., Guido, G. and Tonet, C. 2025. “Congress overturns most vetoes on environmental licensing bill”.
- Zaia, C., Guido, G. and Tonet, C. 2025. “Congress overturns most vetoes on environmental licensing bill”. November 28, 2025. Valor International. https://valorinternational.globo.com/politics/news/2025/11/28/congress-overturns-most-vetoes-on-environmental-licensing-bill.ghtml.
- The White House. 2025. Presidential Actions: Putting America First in International Environmental Agreements. January 20, 2025. https://www.whitehouse.gov/presidential-actions/2025/01/putting-america-first-in-international-environmental-agreements/.
- Federal Register. 2025. Repeal of Greenhouse Gas Emissions Standards for Fossil Fuel-Fired Electric Generating Units: A Proposed Rule by the Environmental Protection Agency. June 17, 2025. https://www.federalregister.gov/documents/2025/06/17/2025-10991/repeal-of-greenhouse-gas-emissions-standards-for-fossil-fuel-fired-electric-generating-units.
- United States Environmental Protection Agency. 2025. EPA Proposes Repeal of Biden-Harris EPA Regulations for Power Plants, Which, If Finalized, Would Save Americans More than a Billion Dollars a Year. June 11, 2025. https://www.epa.gov/newsreleases/epa-proposes-repeal-biden-harris-epa-regulations-power-plants-which-if-finalized-would.
- Carbon - Own Operations encompasses the management of risks linked to a company's energy use and greenhouse gas emissions within its operational control, excluding emissions during the use phase and end-of-life cycle of its products.
- Emissions Effluents and Waste encompasses a company's practices to minimize non-greenhouse gas emissions, waste and wastewater discharges across its operations, as well as its preparedness and response measures for potential pollution emergencies.
