Net Zero

1. EV cash injection
2. The cheapest electrons
3. 🟡 Europe’s Russian LNG addiction
4. Subsidy war setbacks
5. Climate and conflict
6. Focus on finance
7. Climate VC bump
8. Green stocks go red
9. 🟡 Record solar shipments
10. Rough week for offsets

EV cash injection

The U.S. Department of Energy will provide $15 billion to legacy automakers to retrofit existing car factories to make electric vehicles. The funding, a mix of grants and loans, should help automakers begin to cover the deep losses that their EV divisions are currently running. And it could assuage some tensions between automakers and the union representing their workers, as the DOE said it will favor applicants offering high-wage jobs with collective bargaining agreements. Meanwhile, Korean firms Hyundai and LG Energy Solutions said they will jointly invest an additional $2 billion in an EV battery manufacturing plant in Georgia, doubling their previous investment.

The cheapest electrons

Solar panels and onshore wind turbines are the cheapest forms of electricity on average globally, according to new data from the International Renewable Energy Agency. Despite rising costs for raw materials for renewables, the levelized cost of electricity — a metric that approximates the cost to generate power from a newly-built installation — has fallen precipitously for all forms of renewables over the last decade, and is now below the cost of the cheapest fossil fuel option for solar panels and onshore wind, with offshore wind close behind.

Europe’s Russian LNG addiction

By Tim McDonnell

THE NEWS

European countries are buying more liquified natural gas from Russia than they did before its full-scale invasion of Ukraine last year, revealing a weak spot in the energy sanctions targeting Russia that is unlikely to be resolved anytime soon.

In the first six months of 2023, EU countries bought 40% more Russian LNG than they did in 2021, amounting to $5.7 billion in revenue for Russia, according to an analysis this week by the advocacy group Global Witness. This makes Europe the biggest customer for Russian LNG; only the U.S. sells more LNG to the bloc.

TIM’S VIEW

After the invasion, European countries quickly cut their dependence on natural gas delivered via pipeline from Russia, which until then had supplied about half of the continent’s principal fuel for electricity production and industrial facilities. But they’ve effectively swapped one fossil fuel import dependency for another that will be harder to kick.

Many European countries are accelerating plans to expand their LNG import infrastructure, while also speeding construction of renewables. Last winter, Russian gas cuts caused record-breaking energy price spikes that the continent is still recovering from: In Germany, the bloc’s top industrial economy, manufacturing activity has contracted for 14 consecutive months largely because of energy costs. This week Germany’s chancellor rejected a call from industry groups for greater energy subsidies, arguing that the government’s plan to boost LNG imports, especially from the U.S., is a better long-term solution.

But a greater reliance on LNG inevitably leads back to Russia, which is seeking to triple exports from its Yamal LNG facility in Siberia. That’s a problem for the bloc’s stated goal to completely eliminate its consumption of Russian fossil fuels by 2027. And it has made LNG a focal point for Ukrainian activists, who are calling for a ban on imports from Russia (and also bemoaning the EU’s weak enforcement of existing sanctions on refined oil products).

“These figures are really horrifying,” said Svitlana Romanko, director of clean energy advocacy group Razom We Stand. “These countries are spending a lot of resources to help Ukraine, so I can’t explain why they’ve become so addicted to Russian LNG.”

That viewed is shared by Spanish Energy Minister Teresa Ribera, who has called the volume of Russian LNG imports “absurd” even as her country has become the top importer, and EU Energy Commissioner Kadri Simson, who has backed a plan, currently stalled in negotiations, to block EU companies from signing new deals with Novotek, Russia’s LNG export company.

But even though European countries are ahead of schedule in storing gas for the winter, there is still a pervasive fear among policymakers of a repeat energy crisis once temperatures begin to fall, dimming the prospects for an LNG ban anytime soon.

“I’m sure they want to cut LNG imports from Russia entirely,” said Ben Cahill, a senior energy fellow at the Center for Strategic and International Studies, “but for now they don’t have the luxury of doing so.”

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

Subsidy war setbacks

India is losing its clean energy subsidy war with the United States. Solar panel manufacturers that had planned to set up shop in India were drawn away by tax credits in the U.S. Inflation Reduction Act, The Wall Street Journal reports. That’s a problem for India’s economy, but also for global emissions, as the coal-reliant country falls behind on its renewable energy installation targets. It’s the latest example of how the protectionist approach to trade taken by the U.S. could be counterproductive for its climate aspirations if not paired with new forms of financial support for countries that can’t afford a “race to the top.”

The climate and conflict feedback loop

Countries with fragile governments are disproportionately affected by climate disasters and more likely to experience deadly conflicts as a result of them, a study from the International Monetary Fund concluded. The study found that countries with high levels of poverty and debt, and weak public institutions, are trapped in an escalating feedback loop with climate disasters, which exacerbate pre-existing social and economic tensions. This makes it harder for these countries — many of which are in Africa — to bounce back, and can lead to increased conflict: The report estimates that in a high-emissions scenario, conflict-related deaths in fragile countries may increase 8.5% from today’s levels.

Focus on finance

Money is at the top of the agenda for Africa’s inaugural climate summit, which will take place next week in Nairobi. Activists, entrepreneurs, and diplomats from African countries are expected to make the case for why the continent deserves more private and public investment from the U.S., Europe, and other wealthy regions. Hundreds of millions of dollars in deals for carbon credits, debt swaps, and local renewable energy and sustainable agriculture startups are anticipated, according to Reuters. Also up for discussion: How protectionist trade policies adopted in the climate policies of the U.S. and EU harm African countries.

“There’s a green squeeze at the moment rather than an opening up of new opportunities,” said Jodie Keane, senior research fellow at the U.K. development think tank ODI.

Climate VC bump

Global venture capital investment in clean energy startups in the second quarter of 2023, the highest level since 2021. Driving that bump were a handful of $200 million-plus deals for solar panel manufacturing and installation startups in the U.S. and China, according to Pitchbook, as well as an unusually high level of support for green hydrogen startups. The largest single deal of the quarter was $629 million for Chinese energy storage startup Hithium.

Green stocks go red

Shares of Danish company Ørsted, the world’s largest wind farm developer, plummeted 25% this week after it announced it will write down the value of its U.S. portfolio by $2.3 billion. Supply chain delays and difficulty extracting better federal tax benefits will cause several of the company’s U.S. offshore wind projects to be delayed. Shares of Avangrid, another major wind developer, have also fallen in the last month as the offshore wind industry as a whole sees its profit margins eaten by rising costs and interest rates.

Record solar shipments

THE NEWS

Solar panel shipments in the U.S. grew 10% in 2022 to a record 31.7 million peak kilowatts, data released by the Energy Information Administration shows. The volume of shipments has grown by more than sixfold in the past decade, as the price of photovoltaic cells have fallen, while incentives and subsidies for installing solar panels have increased.

INSIGHTS

• Solar panel installations have risen this year as existing tax breaks were expanded and extended with the passing of the Inflation Reduction Act in 2022. The IRA includes almost $100 billion in tax credits. Buyers are now eligible for a 30% tax break on installation costs. “It’s a great time to be thinking about adding solar,” the head of the Energy Department’s Solar Energy Technologies Office said.
• Some, however, have criticized the U.S. government for pursuing seemingly contradictory goals when it comes to solar energy. Earlier this month, the Commerce Department slapped tariffs on solar imports from Southeast Asia — where Chinese solar cell manufacturers have shifted final assembly — raising the costs for solar energy projects that the White House has focused on incentivizing. “The U.S. Department of Commerce is out of step with the administration’s clean energy goals, and we fundamentally disagree with their decision,” the Solar Energy Industries Association said.

Watchdogs

It’s been a rough week for the carbon offset market. First came a study in the journal Science from economists at Cambridge University showing that out of a group of 89 million carbon credits derived from forest conservation projects in Africa, South America, and Southeast Asia, 94% likely had no impact whatsoever on emissions. Instead they were essentially junk that high-emitting companies including British Airways and Eni purchased to justify emitting more. Verra, the carbon offset broker that sold the questionable credits, disputed the findings and said the sample size isn’t representative.

Forestry-based offsets have repeatedly come under fire in academic and media investigations over the last few years. The Science study prompted the U.K.’s Advertising Standards Authority, an industry watchdog group, to say that it would more closely scrutinize green claims made by companies that purchase offsets, following a similar commitment by the U.S. Commodity Futures Trading Commission in June. And on Thursday, oil and gas major Shell confirmed that it will scrap its previous plan to buy up to $100 million per year in carbon offsets after finding that it was essentially impossible to source a sufficient volume of credits that met its minimum quality and integrity standards.

Carbon offsets, in theory, can drive finance to conservation and clean energy projects that otherwise wouldn’t happen, and give carbon-intensive companies a way to make a dent in global emissions while the technology they need to decarbonize directly catches up. But for now there are a myriad of ways for offset accounting to go wrong, little independent oversight, and too many companies willing to unscrupulously spend a few bucks rather than confront their carbon footprint head-on.