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Welcome back to Energy Source, which today I’m writing from Pittsburgh, host of the this week’s Global Clean Energy Action Forum, a gathering of cleantech execs and government ministers.
Speaking of clean energy action, US Congress now has a full permitting proposal to discuss. America’s clunky permitting bureaucracy is probably the most important remaining obstacle to president Joe Biden’s plan to decarbonise the American energy system — or at least according to renewable industry bosses, investors and analysts. That’s the topic of our first note.
Meanwhile, oil prices rose again yesterday, fixated once again on — what else? — Vladimir Putin’s escalation in Ukraine. It seems hard to imagine that western sanctions on Russian energy aren’t about to intensify again. That’s the topic of note two.
In Data Drill, Amanda notes last year’s sudden jump in coal use around the world: not good news for emissions.
Thanks for reading. And if you’re in Pittsburgh too, come say hello!
The unexpected permitting reform drama playing out in Washington
Boring and technocratic as it sounds, “permitting reform” may be just about the most significant barrier facing the clean energy revolution Joe Biden wants to bring to America.
Yesterday, Congress began debating it in earnest. A fight is brewing.
When Joe Manchin, the West Virginia Democratic senator, shocked everyone in the summer with his Inflation Reduction Act — legislation stuffed with $370bn in tax giveaways for clean energy, designed to put the US on track to halving its emissions compared with 2005 levels by 2030 — he had a condition. He also wanted America’s notorious permitting regime overhauled. A gas pipeline in Manchin’s own state had been hamstrung by these laws, as had scores of other fossil fuel projects. His deal with Senate Democrats was a straight exchange: he’d get the IRA through; they’d help him reform permitting.
But progressives in Manchin’s own party don’t want to make oil and gas permitting easier. The whole reason permitting laws are in place is to protect the environment, they argue. And Senate Republicans don’t want to give Manchin another win.
But as Myles and I wrote in a piece yesterday, there is more at stake than DC politics. Clean energy bosses, lawyers, investors and analysts sent a clear message: without reform to permitting laws, the swift renewable energy rollout envisaged in the IRA will not happen, compromising the emissions reduction goals. Yes, investment will still pour into American clean energy capacity — the tax incentives will ensure that. But connecting that capacity to consumers depends on building a new grid. And for that, you need permits. Many of them.
“Let’s assume we have factories making solar modules across the USA, thanks to the IRA . . . Then it’s a question of how quickly it takes you to permit a project and get it constructed,” said David Scaysbrook, one of the founders of Quinbrook Infrastructure Partners, a major clean energy developer in the US.
The “broken US domestic energy permitting system” was now delaying all forms of energy infrastructure, including pipelines and clean energy supply, by years — and would compromise the very ambition of the IRA, according to a new paper from the Progressive Policy Institute. But installing transmission, with an approval process that now takes more than four years, is the biggest problem.
One pinch point is states’ ability to halt cross-state infrastructure projects by preventing the use of eminent domain — which would allow companies to buy private land for “public use”.
“Without the eminent domain, we’re nowhere,” said Sean Moran, a partner at law firm Vinson & Elkins. “There’s a graveyard of transmission deals” that died at that hurdle, he said.
It all makes the showdown in Congress crucial to the country’s emissions fight. Get it wrong, and permitting reform may just allow more fossil fuel projects, and give developers their way, while doing little to speed the energy transition. But fix what PPI’s Paul Bledsoe calls the “chronic sclerosis” of permitting and unleash a clean energy sector newly invigorated by the IRA.
“We do have a historic investment in clean energy” coming from the IRA, said Lauren Collins, another partner at Vinson & Elkins. “But do we hit the emissions goals we’ve set out to without the permitting piece? Probably not.”
US lawmakers forge ahead with new Russian price cap proposal
The price cap on Russian oil does not yet exist and has been met with widespread scepticism in the oil market. But as Vladimir Putin escalates the war in Ukraine, there are already calls from within the US Congress for the price cap to be made more stringent.
On Tuesday, two US senators — Democrat Chris Van Hollen and Republican Pat Toomey — published a “framework for new Russia sanctions”. Their proposal goes much further than the existing price cap plan proposed by the Treasury, which so far has not decided on the actual price.
The two key elements of the Van Hollen/Toomey plan would be:
A reduction in the capped price by a third each year until Russia was forced to sell at a break-even price.
Enforcement through sweeping secondary sanctions on countries or people that don’t observe the cap.
“If you want to set a worldwide price cap on Russian oil, you need to ensure that it’s uniformly applied. And to do that, we believe you need a back-up of the secondary sanctions, otherwise, Russia will exploit the loopholes,” Van Hollen told reporters on a call on Tuesday. “It doesn’t do any good to shut the front door if there’s a trapdoor in the back that’s open.”
Toomey added that the plan sought to tackle the “Achilles heel” of the G7 price cap plan, which is that it only applies to transactions that use western services. “Now’s not the time to let up — now is the time to increase the pressure and ultimately crush the Kremlin’s ability to continue to wage this war.”
Will this fly?
The Treasury has so far resisted pushing for broad secondary sanctions on violators of the price cap, but has said it would hit buyers of Russian oil who knowingly flout the cap with sanctions enforcement “actions” as punishment. The Biden administration still fears that a scheme that is too rigid could backfire and inadvertently lead to higher oil prices. But under his plan, Van Hollen said the administration would still retain some “flexibility” in managing the price cap, including when to impose secondary sanctions. And even though congressional leaders had not been briefed on it yet, he expected it to be broadly supported on Capitol Hill.
A Treasury spokesperson gently brushed off the plan, saying the administration believed the current one would be effective. “Our goal remains to work hand-in-hand with our international partners to both keep Russian oil flowing on to global markets at lower prices and to reduce the Kremlin’s revenue for its illegal war in Ukraine.”
After weeks of trying to sell its price cap, meanwhile, the Treasury is beginning to win at least some credibility in the market, where most participants have said that without Chinese and Indian co-operation the plan will not work. Worse, if the plan does work, some argue, Russia would just cut off its own oil supply, driving up prices — exactly what the US governments wants to avoid.
The Treasury circulated a recent report from Deutsche Bank, which cut its oil price forecast “on reduced supply risks”, while adding that “Russian reprisal and deliberate curtailment of supply is a low probability”. A department spokesperson has also pointed to reports of Asian buyers securing deeper Russian oil price discounts again, suggesting the price cap was already forcing the Kremlin to accept lower prices. (James Politi and Derek Brower)
Coal accounted for most power generation growth last year, the first time since 2013, says a new report by BloombergNEF. Coal generation increased 8.5 per cent in 2021, boosting sector emissions by 7 per cent.
China, India, the US and Germany led the growth in coal-fired power, largely driven by high gas prices, growing electricity demand and severe drought hurting hydropower. Half of the countries that committed to phasing out coal at COP26 increased their coal generation in 2021, according to the report.
“The challenges that generated the increase in coal generation in 2021 are still a major problem in 2022,” said Luiza Demôro, head of energy transitions at BloombergNEF, adding that another jump in coal generation this year is possible as European countries seek relief for high gas prices.
On a more optimistic note, countries made notable gains in renewables. Solar and wind generation made up more than 10 per cent of all power generation for the first time. While only 33 countries had more than 20 GWh of solar in 2012, 118 countries had achieved this capacity in 2021.