A weekly five-point roundup of critical events in the energy transition and the implications of climate change for business and finance.
The IRA Keeps Creating New Industries. Now: Domestic Battery Recycling.
What happened: “The [Inflation Reduction Act] includes a clause that automatically qualifies EV battery materials recycled in the U.S. as American-made for subsidies, regardless of their origin. That is important because it qualifies automakers using U.S.-recycled battery materials for EV production incentives.”
Why it matters: We are inundated with news about new battery and electric car manufacturing facilities being built in the U.S. to take advantage of the IRA subsidies. But the EV market existed and was merely accelerated by the law. Battery recycling, save for a few small start-ups, was practically non-existent prior to this newest discovery.
What’s next: Treating the precious minerals that can be taken out of an older electric battery as locally “urban mined” means a load of new loans to domestic battery recyclers and, eventually, a possible inability for foreign buyers to purchase cheap used EVs. (By Nick Carey, Reuters)
American Solar Suddenly Looks Like a Terrible Business
What happened: “Despite the generous tax breaks they are receiving from the Biden administration, many U.S. companies planning to build solar factories can expect to suffer severely or fail altogether…The Inflation Reduction Act gives U.S. manufacturers an ‘uncannily equal’ subsidy to the cost of Chinese products, but limited availability of cheaper materials from Southeast Asia will pressure American companies, some to the point their plants won’t get built.”
Why it matters: Subsidies are no match for supply chains. Whatever cost parity is provided by government intervention can’t make up for the simple fact that North American mining and extraction pales in comparison to what’s available abroad.
What’s next: Even further pressure to reduce the red tape currently ensnaring most new domestic mining projects. (By Cailley LaPara, Bloomberg)
A Big Bet On Carbon Capture as the New Oil
What happened: “ExxonMobil staked out its vision for its transition to a lower-carbon business model when it spent $4.9 billion to acquire Denbury, a smaller Texas oil and gas company with the U.S.’s largest network of pipelines designed to carry carbon dioxide.”
Why it matters: If carbon capture is to truly be a viable part of the green-energy revolution, there will be a need for the boring business of transporting it safely. This is the first step in changing the name of that business from “carbon capture” to “carbon management”.
What’s next: “Exxon, by virtue of its size, is a bellwether,” said Neil Quach, an oil and gas analyst at the think tank Carbon Tracker. “I do think other companies should and will follow suit.” (By Tim McDonnell, Semafor)
U.K.’s New $500 Million Pumped Hydro Storage Plans Now Need Help
What happened: Renewable energy developer Drax wants to spend $500 million and employ up to 1,000 people in order to double the capacity at Scotland’s Hollow Mountain underground power station. Now it needs U.K. approval to change a law that would allow for private investment.
Why it matters: The existing station was opened in 1965 and became the first large-scale reversible turbine storage energy project of its kind. The turbines are powered by excess energy from wind farms, which may be doubly efficient given that currently that energy is often lost because of a lack of energy storage programs.
What’s next: A lot of pressure on U.K. regulatory bodies. Private investment is there, the Scottish government is behind the expansion, now everyone is simply waiting for a green light. (By the BBC)
Record OPEC Revenue Hides a Looming Crisis for Renewables
What happened: OPEC’s export revenue was 50% higher than the year before. That sounds good until you realize it’s still less than what it made in 2014 and much less given OPEC’s population has grown by more than half in the past two decades. All of this hurts OPEC nations attempts to transition away from oil revenue, especially its de facto leader Saudi Arabia.
Why it matters: “We are now halfway through the 14 year period between Crown Prince Mohammed Bin Salman’s announcement of his effort to shift the economy’s fortunes away from oil and its 2030 deadline. Yet fundamental economic progress looks slow. The $500 billion Neom project remains heavy on vaunted prestige but light on discernible purpose. On one simple metric, there has been regression: Including oil and gas-derived petrochemicals and plastics, oil’s broader share of exports was 93% in 2022, higher than in 2015.”
What’s next: Ironically, the worst thing for energy transition in OPEC nations could be a generic oil revenue recession. If that comes to bear, expect the first things to be cut to be those splashy projects that were supposed to reduce oil dependence. (By Liam Denning, Bloomberg)
