Welcome back to Energy Source. Derek Brower here, writing from New Jersey, which, after Governor Phil Murphy’s announcement yesterday, boasts one of the US’s most ambitious statewide clean energy targets: 100 per cent by 2035.
It is six months to the day since the Inflation Reduction Act was signed into law. Amanda and I wrote a Big Read to take stock.
Data Drill looks at the oil market, which is still showing remarkable restraint in the face of tightening supply and demand balances. How come? Share your ideas: [email protected]
The Inflation Reduction Act: 6 months old
With each day that passes, it becomes clearer that the IRA is among the most consequential laws passed in the US in decades: an entire industrial policy designed to revive the American economy, reorder the world’s clean energy supply chains, and of course slash emissions. Here are our takeaways.
1. The US still lags behind China and even Europe
The IRA, Chips Act, and Infrastructure Investment and Jobs Act are the trio of laws designed to drag US infrastructure, its manufacturing sector, and its energy system into the 21st century.
But as anyone who drives on American roads, makes use of its sparse public transport, or has become accustomed to blackouts caused by the country’s rickety electricity grid — hello, those of you reading by candlelight in Austin, Texas — knows, the country has lots of catching up to do.
China invested $546bn in the energy transition in 2022, nearly four times the amount the US spent, according to BloombergNEF. The US Energy Information Administration estimates nearly 30 per cent of Beijing’s electricity was generated from renewables in 2021, compared to roughly 21 per cent in the US.
China is the global powerhouse for clean tech manufacturing too, producing 96 per cent of wafers for solar panels, 83 per cent of offshore wind blades, and three-quarters of the world’s batteries, according to the International Energy Agency.
The country also dominates the processing of critical minerals for these clean tech components, processing 59 per cent of the world’s lithium and 69 per cent of all copper, according to the IEA. North America, meanwhile, has less than 5 per cent of the market share.
In Europe, clean energy makes up a much bigger share of electricity generation — 42 per cent in the UK, for example. The continent is also ahead of North America when it comes to manufacturing for offshore wind parts and batteries.
2. So if the US is still so far behind, why is Europe so upset?
President Emmanuel Macron of France believes the IRA will “fragment the west”. Valdis Dombrovskis, the EU’s trade commissioner, says it discriminates against the bloc’s automotive, renewables, battery and energy-intensive industries.
It’s been quite the tantrum from politicians in a region that has long tried to take the moral high ground on climate change.
But Europe has real reasons to be scared. The tax credits on offer in the US will be difficult to match. Credit Suisse believes that because the tax credits are uncapped, the $370bn worth of subsidies, grants and loans in the IRA could morph into $800bn worth of total federal spending — amounting to $1.7tn once private investment is included.
That’s why European companies are rushing across the Atlantic.
But Europe’s politicians are missing the larger point, argues Leah Stokes, professor of environmental politics at the University of California, Santa Barbara.
“You had decades to be ahead of the United States. You didn’t do what’s necessary. That’s on you . . . Don’t whine because someone else is actually taking the climate emergency seriously.”
3. Investments are piling up. And there’s much more to come
At least $90bn in clean tech projects have been announced since the IRA’s passage, in theory creating more than 100,000 jobs, according to Climate Power, a climate advocacy group.
Just this week, Ford announced plans for a $3.5bn factory in Michigan to build batteries, and Siemens Gamesa unveiled plans to build a $500mn offshore nacelle factory in New York.
“The day the IRA passed, the tone and tenor intensity of conversations changed overnight,” said Bob Harvey, president of the Greater Houston Partnership, which has received 35 clean tech or energy transition proposals since the IRA’s passage.
Clean energy investments could total nearly $1tn by 2030, creating more than 1mn jobs, according to the Rocky Mountain Institute.
“It is a historic change. For the first time ever, we have in this country a tax code that leads into the clean energy transition,” said Gregory Wetstone, president of the American Council on Renewable Energy.
4. A win for red states
Four of the five states that secured the most in climate investments since President Joe Biden signed the bill into law in August have Republican governors. In the four red states, investment totals more than $45bn and more than 33,600 jobs have been announced, according to Climate Power data.
Georgia stands out. Its Republican governor, Brian Kemp, has been especially vocal in his criticism of the IRA, leading 22 Republican governors in a statement that called it a “reckless tax and spending spree”. He railed at the legislation again in Davos last month.
And yet Georgia has secured $15bn in clean energy projects in recent months, more than any other state.
Does it matter that Republican states are winning America’s own intramural race to win the big projects? Yes, say political analysts, because cementing a clean energy stake in red areas of the country will embed clean energy into local communities and workforces long after the Biden administration leaves office.
The IRA is “going to reshape the political economy of climate policy, so that Republicans are going to be representing employers of clean energy technology”, says Stokes, at the University of California, Santa Barbara.
5. The clean energy jobs are coming in fast and furious
Before Biden can create a domestic supply chain for clean energy, he needs workers to build the factories.
The US will need an additional 546,000 construction workers on top of the normal hiring pace to meet demand, according to the Associated Builders and Contractors. Construction job openings averaged 391,000 in 2022, the highest on record, according to the US Bureau of Labor Statistics.
“You can scare yourself by looking at what the demand is really going to be on this workforce,” said Anthony Johnson, head of the industrial business unit at Clayco. The company is building Vietnamese carmaker VinFast’s first battery plant in North Carolina and hiring as many as 40 people a month.
More than 70 per cent of construction groups reported difficulty finding workers, according to a survey from the Associated General Contractors of America. Seventy-two per cent reported increasing wages in 2022.
The tight labour market has added fuel to the debate between climate justice groups and construction companies over the IRA’s prevailing wage and apprenticeship requirements for tax credits. Supporters say the provisions will ensure a sustainable workforce — the “good-paying union jobs” Biden has promised. Construction groups say the provisions make it even more difficult to find workers and ultimately slow the rollout of clean energy.
“Why in God’s name is anyone trying to limit how people get into the industry?” said Ben Brubeck, ABC vice-president of regulatory, labour and state affairs.
Sonia Aggarwal, a former climate adviser to Biden who now runs the Energy Innovation think-tank, says the effort is necessary to secure popular support.
“Without including worker policies . . . we wouldn’t have the climate policy at all.”
6. More hurdles ahead
Developers are still waiting for guidance from federal tax authorities to understand how tax credits for, say, domestic manufacturing and local content or basing a project in an energy community will actually work.
And permitting is an even bigger issue. Without reforms, developers say it remains too easy for states and local authorities to block development of the kind of infrastructure the IRA is trying to promote. Conservationists say the rules are there to stop developers running riot. Either way, according to analysts, the IRA’s clean energy deployment — and resulting decarbonisation — will happen more slowly without reform. (Amanda Chu, Derek Brower)
Russia’s full-scale war on Ukraine is nearly at its one-year mark, but western governments just last week tightened sanctions on the world’s biggest petroleum exporter. US shale oil output growth remains modest. Opec supply dipped last month. And the IEA believes global oil demand will rise this year by another 2mn barrels a day, to another record high of almost 102mn b/d. It sounds like a recipe for a very tight oil market.
Yet as the International Energy Agency said in its monthly oil market report yesterday, “global oil markets are trading in relative calm”. The international benchmark settled almost flat, at $85.38 a barrel — lower than its level on the eve of Russia’s invasion.
What gives? OECD oil stocks fell sharply in December, according to the IEA, leading the world’s estimated stockpile into a steep drop too. They remain low by historical measures. So the market’s placidity isn’t because it is oversupplied, at least if inventory is the measure.
A better answer may lie in Russia, where oil exports remain robust despite the embargo, Moscow’s pledge to cut production, and the dip in supply just after the invasion. In fact, they almost hit a record high just before the EU oil embargo took effect this month. For now, the big drop in Russian oil output many analysts have been predicting remains, well, a prediction.