Welcome back to Energy Source.
One thing to start: BP has followed the other energy majors in reporting record profits for 2022, but the big news from the results is that chief executive Bernard Looney wants more. After receiving a gusher of cash from high oil and gas prices last year he’s scaled back the company’s plans to lower fossil fuel production by 2030 and will allocate more capital to the sector, even while simultaneously raising investments in greener fuels.
US President Joe Biden’s big State of the Union speech is tonight. We’ll be watching closely for what he has to say about some of the energy and climate issues that have figured prominently in his first two years in office, from passing landmark climate legislation to his battle with the country’s top oil producers.
Biden is also sure to discuss Russia’s war in Ukraine. On that front, he will have plenty to tout. US support for Ukraine has helped neutralise Russian forces. Western sanctions on Moscow’s energy business, and the self-sabotage of cutting gas supplies to Europe, meanwhile, are starting to wreak havoc on Vladimir Putin’s economy, my colleagues reported yesterday.
In today’s newsletter, Biden’s climate law is about to send a flood of green-tinged investment across red America. But will it do anything to shake up the climate debate in the US? And Amanda has more on the US Inflation Reduction Act (IRA), including the states that are the biggest winners so far.
Thanks for reading. — Justin
Republicans hold firm in the climate culture wars
The IRA is about to unleash a wave of green funds across red America. But do not expect it to turn Republicans into climate converts.
In the months since Biden’s flagship climate law was passed, tens of billions of dollars in new clean energy projects have been pushed forward to take advantage of the legislation’s generous clean energy incentives. It is likely most of that cash, and the jobs they create, is destined for red America, even though the IRA passed without a single Republican vote.
There are a few reasons for this. Big electric vehicle and battery plants and wind and solar projects need a lot of relatively cheap land. That draws them to more rural areas, which are overwhelmingly controlled by Republicans. Wind and solar developers are also often chasing natural resources, such as their fossil fuel rivals, and building in the windy midwest or southern sunbelt states, both of which are Republican strongholds.
Policy also plays a big role. Some climate activists might wonder how their allies in the clean energy sector can sit down and strike a deal with a conservative Republican governor or lawmaker in rural Oklahoma or Texas who argues climate change is a hoax. But those conversations centre on things such as taxes, logistics and regulations, not emissions.
When I talked to governor Kevin Stitt of Oklahoma — which is a top-five wind power and fossil fuel producer among US states — after the IRA passed he slammed the legislation as a typical Washington Green New Deal giveaway. He also called efforts in California and parts of Europe to ban petrol-fuelled car sales in the future “dumb”. At the same time, he said Oklahoma would continue to court electric-vehicle makers, adding that he was able to win business from Google and other climate-conscious companies because the state has one of the greenest energy mixes in the country.
In Texas, the country’s oil and gas heartland, renewables developers praise how much easier it is to stand up new projects in the state — which has become arguably the US’s clean energy leader. It produces the most wind power of any state and has the fastest growing solar sector. Yet the state not only lacks the sort of supportive climate mandates legislated in more liberal states such as California or New York, but its political leadership is also openly hostile to the idea that emissions need to be reduced to combat climate change.
Some Democrats hope that accelerating the green energy boom will reorder this climate dynamic and enable a broader push to tackle climate change. The Republican party is one of the rich world’s few large political parties that does not back global efforts to reduce emissions, and support for fossil fuels is a front line in the culture wars.
But a big shift in Republicans’ climate stance seems unlikely anytime soon. Even if the IRA accelerates green energy development, renewables have been booming in conservative areas across the US for years and it has done little to shake up the climate debate in the US. Republicans in those areas have long separated the on-the-ground economic benefits of green energy from the broader climate change debate, and there’s little sign of that changing.
Does any of this matter? It might in future legislative battles. But the climate doesn’t care whether the coal-fired power station that is replaced with clean electricity was in Republican Texas or Democratic California. Business is business and emissions are emissions — but for now the business of reducing emissions is booming. (Justin Jacobs)
The energy transition talks heard round the world
The world can’t stop talking about the Inflation Reduction Act. Both sides of the Atlantic will hold high-level talks about the US climate bill this week. Here is your round-up of IRA news.
North America
Expect Biden to tout the $369bn green subsidies package in his State of the Union speech. Nearly $90bn in clean energy projects have been announced since the IRA’s passage, according to a report from Climate Power. Georgia, Idaho, Tennessee and Michigan are leading the country in investment.
The competition is fierce to win these projects, as Derek and I report today. States are rolling out the red carpet for multinational investors, clearing land and offering billions in tax breaks to secure their stake in the clean energy future.
Still, the latest large clean energy project to be announced did not occur in the US, but in Mexico, which is eligible for some IRA tax credits. BMW announced a €800mn investment to expand electric vehicle and battery production in San Luis Potosí on Friday, underscoring the country’s prime position to cash in on the IRA and fuelling Europe’s fears that the subsidies are luring investment away from the continent.
EU
These fears have been the main topic of conversation during France and Germany’s economic ministers’ trip to Washington, which ends today.
On Thursday, the EU will convene to debate the Green Deal Industrial Plan, Brussels’ counter to the IRA. The plan promises to relax state aid rules, speed up permitting, and loosen up €250bn for clean energy manufacturing. While EU industry groups cheered the plan, they’re calling for longer subsidy timelines and more operational cost support.
South Korea
While much of the trade conversation has been focused on the US and EU, the IRA has also inflamed tensions with US allies in East Asia, who have made some of the largest investments in the country’s clean energy supply chain.
“Hyundai Motor Group will continue to advocate for a solution with the US government in the pursuit of our shared emissions reduction and climate goals,” a Hyundai spokesperson told the FT. The company has invested more than $10bn in the US EV sector but won’t be eligible for the $7,500 EV tax credit until 2025.
South Korea is in close talks with the US over the implementation of these subsidies. At a press conference with US secretary of state Antony Blinken on Friday, South Korean foreign minister Park Jin said the countries will work together “to ensure that the Inflation Reduction Act is implemented in ways that address Korean companies’ concerns and benefit both our businesses and industries”. (Amanda Chu)
Power Points
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US gas producers say the EU’s climate goals are deterring buyers from long-term supply contracts.
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Enel’s chief executive defends the state-run utility’s renewable push as he faces potential dismissal from the Italian government.
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US congressional probes over China’s role in the electric vehicle supply chain cloud the sector’s growth. (Axios)
