Net Zero

1. A battered insurance market
2. The U.S.‘s crude record
3. 🟡 Offshore wind doldrums
4. Europe’s cleaner record
5. An LNG strike’s global impact
6. Investigating Aramco
7. A grim climate outlook
8. Peak gasoline in China
9. 🟡 Driving backlash
10. 🟡 Zinc batteries’ potential

Testing a battered insurance market

Hurricane Idalia made landfall in Florida early Wednesday as one of the strongest storms to hit the state in years. More than 140,000 Floridians were without power, and some areas could face a storm surge of up to 16 feet. The storm is the latest test for the state’s embattled insurance market — most private homeowners’ insurers have abandoned Florida, leaving the nonprofit “last resort” insurer Citizens as the largest policyholder in the state. The spate of wildfires and storms across the U.S. over the last several years has set up a dilemma for policymakers, who want to prevent consumers from being ripped off by rising rates but may be forced to let insurers price their products in accordance with the new reality of climate risk if they don’t want taxpayers at large to subsidize damage costs for homeowners in the most vulnerable areas.

A crude record

U.S. crude oil production is likely to hit record highs this year and next, according to the federal Energy Information Administration. That hasn’t constrained gasoline prices, which are now at their second-highest level for the week before Labor Day in at least a decade, and could go higher if Hurricane Idalia knocks out Gulf Coast refineries. And, Politico reports, it hasn’t kept Republican presidential contenders from weaponizing gas prices as an argument against President Joe Biden’s climate agenda.

Why a US offshore wind auction flopped

by Tim McDonnell

THE NEWS

The U.S. held its first auction for leases to build offshore wind farms in the Gulf of Mexico, and all it heard was crickets.

The Interior Department pitched three new lease areas on Tuesday, two off the Texas coast and one off Louisiana, following a dozen increasingly competitive offshore wind auctions last year. Despite high hopes from clean energy advocates that the auction could herald a pivot for the heartland of the U.S. fossil fuel industry, in the end, there were zero bids for the Texas leases. Louisiana’s, meanwhile, went to a subsidiary of German energy company RWE for an underwhelming $13,500 per square kilometer: Leases sold last year in New York, North Carolina, and California went for an average of $1.4 million per square kilometer.

The result “is not wholly surprising,” said Samantha Woodworth, senior wind analyst at energy intelligence firm Wood Mackenzie. “Gulf offshore wind is just not very economic.”

TIM’S VIEW

The lackluster auction turnout shows that the U.S. offshore wind industry still needs government support to scale up, and that the region’s oil and gas companies aren’t as ready to dive into clean energy as many had hoped.

There are a few problems with the Gulf as a venue for offshore wind. Wind speeds are normally low, requiring larger and more efficient turbines to produce a profitable volume of electricity. And occasionally, wind speeds are far too high: Hurricanes routinely disable the region’s offshore oil platforms. The region’s seafloor is also notoriously soft and silty, raising the cost of fixing turbines in place. As a result, a federal analysis projected that the price to produce power from offshore wind from the Gulf will be between $125-150 per megawatt-hour in most cases by 2027, double the national offshore wind average.

That’s especially a problem because Texas and Louisiana already have some of the country’s cheapest electricity, evaporating any potential competitive edge for offshore wind.

New York, Massachusetts, and other states with burgeoning offshore wind industries also have cost problems. But their offshore wind lease prices are much higher than the Gulf’s because most of those states have offshore wind purchasing mandates for their utilities, effectively guaranteeing the market. Louisiana has an offshore wind installation target — five gigawatts by 2035, which the area auctioned this week could cover about 20% of — but no purchasing mandate. Texas has neither (Republican lawmakers in the state have called offshore wind a “boondoggle”).

Since offshore wind isn’t competitive on Gulf-area electric grids, some industry advocates see the local oil and gas industry as an alternative customer. A recent report by the Business Network for Offshore Wind, a trade group, argues the Gulf “is perfectly positioned to be a hub for green hydrogen production.” The idea is that fossil fuel companies could be willing to pay top dollar for electrons from offshore wind that they can use to manufacture low-carbon hydrogen. That fuel can then be employed in their own local refineries and petrochemical factories and sold on to other industrial customers. Green hydrogen producers will also be able to reap one of the most lucrative tax credits in the Inflation Reduction Act.

TotalEnergies, Invenergy, and Avangrid, which had registered as possible bidders in the Gulf, all mentioned the allure of green hydrogen in pre-auction filings to the DOI. But the outcome of the auction shows that a tangible market for green hydrogen is still too far off for them to justify staking a claim, Woodworth said.

To read the Room for Disagreement and View from China, click here.

A clean record

Share of electricity generated by fossil fuels in Europe in the first half of 2023, a record low. That drop is largely due to a record decline in overall energy consumption, as industrial facilities wince at the high cost of natural gas, according to a Wednesday report by the think tank Ember. The findings imply that if demand ticks back up, the share coming from fossil fuels will rise as well, as generation from renewables is rising slowly.

Global costs of Australia LNG strike

Gas prices surged after workers at major liquefied natural gas facilities in Australia confirmed plans to strike next week. The two facilities account for more than 5% of total global LNG production capacity, and the planned industrial action — coupled with worker unrest at another major Australian site — have particular implications for European gas consumers: Though the continent does not itself buy much gas from Australia, it will have to compete with Asian buyers for gas supplies from elsewhere. Already, Europe is importing record amounts of LNG from Russia and increasing its purchases from Moscow faster than the international average, according to Global Witness.

Aramco investigation

The United Nations will investigate whether Saudi Aramco, the world’s largest oil producer, is guilty of human rights violations because of its role in causing climate change. The inquiry was prompted by allegations made by the environmental advocacy group ClientEarth, which also accused the banks that finance Aramco of “contributing to climate change-related human rights impacts.” Although any finding by the UN would have no legal force on its own, it could be a novel basis for other lawsuits; legal challenges to specific fossil fuel companies for their role in climate change have limited success in U.S. and European courts so far.

A grim outlook

Global energy-related emissions are on track to be more than twice as high in 2050 as they need to be to meet the goals of the Paris Agreement, ExxonMobil concluded in its latest energy forecast this week. Energy-related emissions (i.e. excluding agriculture and other sources) are forecast to be about 25% lower in 2050 than their peak around the middle of this decade, which Exxon says is “a testament to the significant progress” it expects on decarbonization, given the huge population and economic growth expected at the same time. But meeting Paris Agreement goals will require much deeper policy intervention and technological innovation. While Exxon’s energy forecasts serve to reinforce perceived demand for its core products, they’ve historically proven to be highly accurate.

Peak gasoline

Gasoline demand in China will peak this year, the country’s top oil company predicted. That’s two years earlier than its previous forecast, and a sign of how quickly electric vehicles are taking hold in the world’s biggest car market. In August, EVs are expected to account for nearly 40% of new car sales in China, according to Bloomberg, driven in large part by ride-hailing vehicles that, in many municipalities, are required to be electric or hybrid. Demand for oil used in transportation has likely already peaked in Europe and the U.S.

Expanding a low-polluting zone

London expanded its Ultra Low Emission Zone (ULEZ) to include all of the city’s suburbs. The program — which requires drivers with non-compliant vehicles to pay a charge of £12.50 per day to drive in the city — was met with opposition from protesters throughout London.

Independent studies have found, however, that the ULEZ has had a statistically significant impact in reducing air pollution, one of the biggest contributors to lung cancer and heart disease across the world.

INSIGHTS

• Air pollution is more dangerous than tobacco or alcohol consumption, according to a study released this week. “Particulate air pollution remains the world’s greatest external risk to human health,” says the report by the Energy Policy Institute at the University of Chicago. According to the report’s authors, people in Bangladesh — the world’s most polluted country — could lose almost 7 years of life on average per person due to air pollution, compared to 3.6 months in the U.S.
• Despite the enormous human toll, low emission areas and a transition from combustion engine cars to electric ones have been rolled out too slowly in much of the West. Although Europe sells 10 times more electric cars today than six years ago, its fleet is making the transition to EV too slowly to meet its climate goals, with many buyers remaining put off by the high upfront costs. “What we have learned is that it’s not enough just to incentivise electric vehicle purchase and ownership,” a clean transport analyst told The Guardian. “You also have to disincentivise the purchase of conventional cars at the same time.”
• The price of EVs, however, is falling fast. Price wars between EV manufacturers, as well as the easing of supply chain issues, mean that the cheapest option for new car buyers in the U.S. is now leasing an electric vehicle. Rising gasoline prices have further widened operating margins between internal combustion cars and electric ones. The same is true in China, where seven of the 10 best-selling cars in June came with a plug.

Zinc batteries

An alternative chemistry for electric vehicle and large-scale power storage batteries is poised to challenge the dominance of lithium. Zinc is one of the world’s most abundant and low-cost mineral resources, already mined and recycled by the millions of tons annually in North and South America, Australia, China, and elsewhere. That makes it an attractive alternative to lithium, which is the current mineral of choice for EV battery makers because of its high energy density but which is expensive and in limited supply.

Zinc is already in wide use for disposable batteries, and has been limited to that kind of use because of mineral deposits that form as zinc-based batteries are recharged and eventually cause them to short-circuit. A small number of startups have been developing ways to limit the growth of these “dendrites,” and are getting close to bringing zinc-based batteries to market. Michael Burz, founder of California-based Enzinc, says his product has run 1,000 recharges without dendrite growth, and recently signed a lease for a 10,000-square-foot manufacturing facility. Stockholm-based Enerpoly, another zinc battery maker, is also aiming to reach commercial-scale production over the next two years.

For the energy transition to play out on time, battery producers “have to be confident that the [raw materials] suppliers are able to scale up quickly,” Enerpoly CEO Eloisa de Castro said. “With zinc there’s more of a fighting chance.”