Net Zero

1. Breath of fresh wind
2. ‘Unstoppable’
3. EV growing pains
4. Cruising for a ‘miracle’
5. New offshore oil capital
6. Slower growth, less coal
7. A new lithium queen
8. CCS reality check

Breath of fresh offshore wind

New York Governor Kathy Hochul on Tuesday awarded power supply contracts to three major offshore wind farm developers, potentially revitalizing an emergent industry that has been hammered by rising costs. Offshore wind in New York was on life support this month after regulators denied a request by a group of developers with pre-existing projects to negotiate for better sales terms, which they had argued was necessary because the original terms were too low to be profitable as interest rates and hardware costs rise. Those projects may still get canceled, which would tank the state’s odds of meeting its renewable energy goals. The newly-awarded contracts have their higher costs baked into the rate already — but could face a similar squeeze later on if development costs continue to rise.

‘Unstoppable’

The global clean energy transition is “unstoppable,” the International Energy Agency concluded in its latest assessment. The IEA’s World Energy Outlook is an exhaustive review of the transition, and includes a lot of encouraging data on the deployment of renewables, the downward trend of global greenhouse gas emissions, and the fate of fossil fuels. Global demand for coal, oil, and natural gas will all peak before 2030, the report concludes — but they won’t fade away completely for the foreseeable future. “Continued investment in fossil fuels is essential in all of our scenarios,” the report finds. Still, that’s no carte blanche for producers: To reach net zero by 2050, investment in fossil fuel production needs to fall precipitously in the next few years, with a corresponding burst of new investment in renewables.

The EV transition doesn’t need to be a disaster for workers

THE NEWS

The strike of unionized auto workers in the U.S. that has plagued the Big Three for more than a month expanded to another new plant this week. And General Motors on Tuesday made clear the strike’s toll on its bottom line: $800 million in lost vehicle production so far. EVs are a major factor in the companies’ dispute with the United Auto Workers, with big unsettled questions about whether unionized workers will be included in automakers’ new partnerships with EV battery manufacturers, and the risk that automation and streamlined designs will result in overall lower wages and job opportunities in EV-centric factories.

But it doesn’t have to be that way.

TIM’S VIEW

EVs needn’t be an existential threat to workers, and can lead to net job gains. But automakers can’t achieve that outcome alone, however, and need more government support to cultivate a broader, job-rich EV economy.

A recent study by the World Resources Institute focused on Michigan, and anticipated employment changes under a high-electrification scenario in which EVs reach 62% of new car sales by 2030 (according to Bloomberg, a more realistic estimate is 52%). The WRI analysis described a wide range of possible labor outcomes, from 56,000 auto-related jobs gained in Michigan by 2030, to 47,000 jobs lost. It all depends on whether state policymakers do more to incentivize investments in all the EV-adjacent industries beyond auto assembly per se, especially battery production and installing and maintaining charging infrastructure.

“There are some very legitimate concerns about the downward trajectory of job quality in the auto industry,” said Devashree Saha, the report’s lead author and director of WRI’s U.S. clean energy economy program. “If you do everything right, there is going to be a net job gain. But that’s small comfort to workers or communities who lose jobs because a facility shuts down. So how the state provides support to those communities will be key to sustain public support for the transition.”

Saha recommends that Michigan do more to draw new battery gigafactories away from southern states like Georgia that have attracted most of that investment since the passage last year of the Inflation Reduction Act. More public funding is needed for apprenticeship and retraining programs, as well as grade-school and university engineering programs. Crucially, she said, Michigan needs to do much more to incentivize buyers to purchase EVs, to support jobs in related fields; today, the state ranks near the bottom for EV adoption.

“We shouldn’t underestimate the scale of what is required to build up an entire supply chain,” she said. “This isn’t a zero-sum game, it’s a growing pie.”

Solving disputes with the UAW — some of which predate the EV transition — would also bolster broader investor confidence in the emerging U.S. clean energy manufacturing sector, producing things like solar panels or heat pumps, which is almost entirely reliant on Biden administration subsidies and tax incentives. The possibility that strikes and job losses sap political support for those incentives makes any big investment in clean energy manufacturing seem like more of a risky bet to private equity investors and banks.

One Good Text

Nick Rose, head of ESG at Royal Caribbean Group.

New offshore oil capital

When Chevron announced on Monday that it would acquire the independent oil and gas producer Hess, it gained access to a South American oilfield that has exploded from zero production a few years ago to be one of the fastest growing in the world. Oil was discovered off the coast of Guyana in 2015, and in the years since 11 billion barrels in offshore reserves have been identified, the biggest recent find in any country. ExxonMobil and China’s state-owned offshore oil company were the first to pounce, and now control 70% of the reserve. Hess owned the remaining 30%.

The three companies combined have invested $40 billion in Guyanese offshore oil development, according to intelligence firm Rystad Energy, driven by what Rystad analyst Matthew Wilks called “very proactive” government policies and relatively low production costs. Conflict in the Middle East and Ukraine are also driving U.S. majors to stay closer to home. But many Guyanese say they’re unlikely to see any benefit from the oil boom, and on the contrary fear following neighboring Venezuela into oil-fueled corruption and turmoil.

Slower growth, less coal

Annual GDP growth in China from now until 2030, according to the IEA’s latest forecast, a downward revision from last year. That figure holds a major sway over global emissions: Slower growth in China, which in the last decade has been responsible for two-thirds of the increase in global oil consumption, means a significant dip in fossil fuel use and demand for emissions-heavy products like cement and steel. If it were to fall by just one more point, the IEA reports, the country’s 2030 coal demand would fall by a volume equal to the total consumption of Europe. But at the same time, China’s slower growth means less investment in the world’s biggest renewable energy market.

Person of Interest

Gina Reinhart — who became Australia’s richest person on the back of an iron ore mining empire — has set her sights on lithium.

Last week, U.S. chemicals company Albemarle walked away from a $4.2 billion takeover of Liontown Resources, an Australian lithium producer, after Reinhart built a nearly 20% stake in the business, big enough to block the deal. Liontown recently announced a $700 million lithium mining project in western Australia, so Reinhart’s takeover of the company gives her a controlling stake in a critical link in the global clean energy supply chain.

Reinhart’s her backing of climate-skeptic politicians and her support of former U.S. president Donald Trump have made her a divisive figure at home. She has also been a vocal critic of Australia’s mining regulations: “It’s very popular now to restrict mining in the name of the environment, even for dangerous snakes, mice and weeds.”

That hasn’t stopped her from expanding the fledgling mining operation she inherited from her father into one of the largest mining groups in the world. Hancock Prospecting has recorded almost $13 billion in profits in the last four years alone, the Financial Times reported. “A global economy switching away from fossil fuels is creating some weird alliances,” including between climate denialists and eco-warriors, Bloomberg columnist David Fickling wrote on Tuesday. “The only constant is that, regardless of public pronouncements, the sum of dollars being deployed to clean up our power systems keeps rising.”

Carbon capture reality check

More evidence emerged this week calling into question the oft-repeated assumption that carbon capture technology offers a reliable solution to the ongoing use of fossil fuels. Oil executives, and the leaders of COP28, are pushing hard for a global agreement to phase out only “unabated” fossil fuels, essentially resting the long-term trajectory of global warming on technology to capture emissions from power plants and industrial facilities. The trouble, the IEA’s outlook report warned, is that the gap between carbon capture expected to come online by 2030 and what would be required to reach global net zero by 2050 is one of the biggest in the energy transition, and that current policies “are wholly insufficient to support the [carbon capture] outcomes that match government net zero emissions pledges.”

If carbon capture is going to provide a genuine pathway for the consumption of “abated” fossil fuels, in other words, governments and the private sector need to be pushing far harder than they are to scale it up. Just one example: By 2050, the length of CO2-transporting pipelines globally will need to grow to almost the same length as today’s existing network of natural gas pipelines, which took a century to develop with no shortage of bureaucratic obstacles and public opposition.

And in a sign of just how challenging it can be to make carbon capture work, Bloomberg reported this week that one of the biggest projects in the U.S. was quietly shuttered after half a decade in which it captured no more than a third of the emissions it was meant to, mostly because of adverse economics (the project only made sense to run when gas prices were higher than they were). The upshot of all this is that it’s worth asking whether it’s really easier to capture fossil fuel emissions instead of not creating them to begin with.

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