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Pragmatism can improve Mexico’s energy outlook

David L. Goldwyn and Antonio Ortiz-Mena — Wed, 31 Jul 2024 21:17:59 +0000

Claudia Sheinbaum’s seismic victory in Mexico’s presidential election is certain to have material impacts on energy and investment in Mexico. Much will depend on her predecessor, President Andrés Manuel López Obrador (AMLO), and his government’s final actions before Sheinbaum takes office, as well as the composition of her cabinet.

It is a crucial time in Mexican energy politics. While there are important challenges to address, Sheinbaum’s initial moves are a promising beginning to maximizing Mexico’s economic potential, which requires significant investment in clean energy.

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Uncertainties complicate investment in clean energy

Under Mexican law, the new Congress takes office on September 1, but the new president takes office on October 1. The current government intends to present constitutional reforms to the new Morena-dominated legislature—the ruling party that will now likely have a supermajority—in a manner that could challenge certain policy adjustments by the new government. To that end, AMLO has stated that electoral and judicial constitutional reforms are his legislative priorities—repealing the 2013 energy reforms, which enabled an influx of foreign and private investment in Mexico’s energy sector during the mid-2010s, is not.

The outgoing government introduced complexities to private investment, especially in clean energy. These include suspending auctions in oil, gas, and clean energy, giving priority to the state electricity system operator CFE’s established fossil-based generation over cleaner and cheaper alternatives, and suspending implementation of the clean energy certificate program, which incentivized conversion to less carbon intensive electricity. Several of these actions are now the subject of disputes under the United States-Mexico-Canada Agreement (USMCA), and have disincentivized foreign investment in manufacturing, due to companies’ strict carbon-emission reduction targets—for them to set up shop or expand in Mexico, they require access to clean energy.

The government has also taken steps to prioritize Mexico’s long-established fossil-based power sector, but production by national oil champion Pemex is at historic lows despite a consistent influx of federal spending to revive the flagging company, which faces a looming debt crisis. Meanwhile, CFE is struggling to power Mexico’s growing economy amid the burdens of extreme heat and other climate-exacerbated energy challenges.

The federal government is in a challenging fiscal position, as its budget deficit is forecast to grow this year. In addition, there appear to be adverse market reactions to controversial, proposed judicial reforms, which include appointing judges by popular vote. Some foreign investors remain cautious, particularly in the energy sector.

Mexico’s golden economic opportunity requires clean energy to sustain it

Despite these investment challenges, Mexico holds vast potential as a nearshoring destination. For Mexico to capitalize on the USMCA and its proximity to the lucrative US export market, it will need to expand its energy supply not only for manufacturing, but also to power artificial intelligence use by data centers, which will increase demand for clean energy exponentially.

It will be in the interest of both US government and energy industry stakeholders to help Sheinbaum find a way to navigate among Morena’s different groups to develop a pragmatic policy approach that moves forward Mexico’s energy security and transition while maintaining a leading role for Pemex and CFE, which remains a central element of Morena’s policy platform. Public-private partnerships of many forms can be part of the solution.

It will be challenging but possible for Sheinbaum to retain the primacy of Pemex and CFE while also giving foreign and domestic investors full confidence that they will receive permits to build and obtain reasonable returns without fear that a popularly elected judiciary and weaker national regulators will undermine their projects.

Serious policymakers will be in charge

Sheinbaum wants to make her own mark on history as the first female president of Mexico, but faces a tough road ahead. The most important benchmarks will be her cabinet appointments, her commitment to a predictable and transparent policymaking process, and her engagement on the USMCA, which comes up for review in 2026.

The composition of Sheinbaum’s cabinet will be an indication of her intent to meaningfully address Mexico’s energy and fiscal challenges. So far, the news is positive, with serious policy professionals being tapped for high-level appointments. Current Finance Minister Rogelio Ramírez de la O, who is familiar with the overall fiscal challenge, including that posed by Pemex and CFE, is slated to remain in his post. Former Foreign Minister Marcelo Ebrard, a highly experienced and capable politician, was named economy minister and will play a steadying hand. Luz Elena González, an economist who until recently was finance secretary of Mexico City, will be the secretary of energy, demonstrating that the government understands the relevance of public finances for energy policy. Finally, current Foreign Minister Alicia Bárcena, who is experienced in environmental issues, will become environment minister and could be a relevant actor on energy transition.

The path forward

Sheinbaum’s commitment to clear, predictable policies will be an important marker of her style of governance. This can send positive signals to investors in areas such as energy import permits and infrastructure investment. Her approach to the 2026 USMCA review—which will be deeply impacted by whoever wins the US presidential election in November—will be another test of the Sheinbaum administration’s ability to navigate a delicate bilateral relationship. That review will be a top-line issue for both the US and Mexican governments, and early consultations are already underway. Energy will loom large in this review; both the US government and private stakeholders have a powerful motivation to ensure that energy disputes do not undermine the USMCA—they need it to remain strong enough to provide certainty for the wider cross-border relationship.

Sheinbaum has much to gain from reassuring investors, capitalizing on Mexico’s advantages in nearshoring, and addressing the country’s slow energy transition. She can creatively design a framework that respects Morena’s political stance on energy while increasing investor confidence. Sheinbaum will be looking for able and willing partners to craft solutions that maximize the potential of foreign investment and job creation in Mexico. Undoubtedly, the energy industry and civil society on both sides of the border all have a major interest in helping her succeed.

David L. Goldwyn served as special envoy for international energy under President Barack Obama and assistant secretary of energy for international relations under President Bill Clinton. He is chair of the Atlantic Council’s Energy Advisory Group.

Antonio Ortiz-Mena is a professor at the Center for Latin American Studies, Walsh School of Foreign Service, Georgetown University, and a partner at DGA Group.

The views expressed are the sole responsibility of the authors and not necessarily those of any institution with which they are affiliated.

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European energy security requires stronger power grids

Andrei Covatariu — Wed, 24 Jul 2024 20:47:50 +0000

In 2022, 63 percent of all energy consumed in the European Union (EU) was imported. Europe’s energy generation gap has come into focus amid the energy security challenges stemming from Russia’s full-scale invasion of Ukraine. But while Europe has weathered the storm, in part by deploying renewables and accelerating electrification, there is a pressing need to strengthen the backbone of a decarbonized energy system—Europe’s power grid.

A mismatch between supply security, climate ambition, and grid capacity

Upgrading electricity grids to enable decarbonization is a worldwide issue. The International Energy Agency (IEA) estimates that global grid investments must double to reach $600 billion per year by 2030 to meet nationally set climate objectives. In Europe, a recent study by Eurelectric suggests that the EU and Norway must invest €67 billion in grids per year to realize carbon neutrality by 2050.

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As the EU aims to reach a 42.5 percent—ideally 45 percent—share for renewables in its total energy mix by 2030, grid capacity must keep pace with rapidly growing clean energy generation.

Europe overall, including the UK, is making progress on renewable deployment, but a mismatch in grid capacity is already causing significant challenges. In Britain, for example, the connection queue for generation, storage, or energy-consuming projects waiting to be connected to the grid is projected to reach 800 gigawatts by the end of 2024. Grid congestion is also a major problem in the Netherlands, with industry and households asked to reduce demand at peak times to avoid blackouts. In Romania, a boom in state-backed prosumers without adequate storage facilities is placing significant stress on the grid.

Building the grid of the future

Currently, cross-border interconnections within the EU limit the amount of electricity that can be imported or exported, creating significant price discrepancies between neighboring states. Expected increases in electricity demand due to electrification will only exacerbate these distortions.

Enabling greater cross-border electricity trade is a must for solidifying energy security and solidarity across Europe. New high-voltage transmission lines could convert intermittent renewable generation into more baseload-like output by quickly moving excess clean electricity to regions in deficit.

To this end, debate continues in Brussels over creating an EU-wide supergrid that would enable high volumes of electricity to be transported across the continent. This would help level energy prices across borders, reduce equity concerns, and improve supply security over the short and long term.

Furthermore, the difficulties in predicting renewable energy generation and adapting consumption accordingly requires the digital transformation of energy grids. Digitalization can further integrate renewable generation through smart meters and smart appliances that can accurately forecast output and match it with flexible electricity consumption. This can help minimize grid congestion and enhance resilience in the face of intermittency.

Additionally, new sensor and software platforms can enable predictive maintenance that reduces the time infrastructure is out of service. Digital twins—virtual representations of physical power grids—use data analytics to model various scenarios, leading to higher operational efficiency, increased asset lifespan, and optimized energy flow. While a highly digitalized energy grid may also increase cyber threats, other sectors have demonstrated over decades that these threats can be mitigated through strategies that include rapid incident reporting to limit malware spreading and investment in threats monitoring systems.

The unavoidable but necessary cost

Upgrading and extending the grid would translate into higher tariffs paid by European end-users, who have already struggled with energy affordability. A spike in network tariffs could lead to negative social, economic, and—eventually—political consequences, as was seen during EU-wide protests in 2022, triggered by increasing energy bills.

Although these investments will impose direct and indirect costs on consumers in the short term, they will unlock over the medium and long term increased electrification and pass decreasing renewable generation costs onto rate payers. Today, onshore wind and solar photovoltaic energy are cheaper than new fossil fuel plants almost everywhere. The average cost of variable renewable energy generation is expected to drop further, from a levelized cost of electricity of $155 per megawatt hour in 2010 to $60 in 2028.

To finance these upgrades while minimizing the negative impacts on rate payers, new earmarked EU funds could complement tariff-based network revenues. While this has not been done before in advanced economies with complex electricity systems, policy innovation is required to keep the EU’s ambitious 2030 targets alive.

Not investing in transmission and distribution would jeopardize both European energy security and climate ambitions. By stalling deployment of renewable generation and thereby the electrification of heating and transport, failing to invest in the European grid would prolong high levels of fossil fuel imports. This would keep energy bills high, leave Europe exposed to fossil fuel supply insecurity, and place at risk Europe’s social and political fabric.

Bottlenecks to be addressed

Beyond financing challenges, building power infrastructure is notably slow. In Europe in particular, permitting procedures cause significant delays. The IEA highlights that the United States and EU have the longest deployment times for distribution—around three years—and transmission lines—between four and twelve years. The COVID-19 pandemic has made the problem worse, creating high demand while constricting supply for power grid components.

Regulatory frameworks are also constraining grid development. While the regulation of these natural monopolies has evolved in Europe to liberalize and unbundle the sector, national regulatory authorities need to deal with greater uncertainty; for instance, the rate of electrification and improvements on energy efficiency are difficult to predict. They will need to manage increased investment while encouraging innovation and keeping tariffs in check. Energy regulators must learn from previous experience, respond to current challenges, and anticipate future trends—all at the same time.

The overlooked factor in European energy security

Energy security in Europe hinges on the state of its power grids. As reliance on renewable energy and electrification grows, existing grid infrastructure is struggling to keep pace, causing congestion and delays. Substantial investments in grid upgrades and modernization are essential for integrating renewables, accelerating the electrification of heating and transportation, building technical redundancies to enhance resilience, combatting cyber threats, and protecting against extreme weather events.

While difficult to sell politically, investments in grid infrastructure will ultimately pay off in lower energy bills for consumers and industry, compared to a business-as-usual scenario. Failing to achieve these objectives will imperil Europe’s security of supply and its capacity to build a resilient energy future.

Andrei Covatariu is a Brussels-based energy expert. He is a senior research associate at Energy Policy Group (EPG) and a research fellow at the Centre on Regulation in Europe (CERRE). This article reflects his personal opinion.

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Despite uncertainty over when the war will end and corruption in Ukraine, international investors should see Ukraine’s energy reconstruction as an opportunity to create a European energy leader.

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What to do about Russia’s energy trojan horse

By Olga Khakova, Charles Lichfield

The future of Gazprom’s piped deliveries to Europe looks bleak. However, Europe has no binding timeline for phasing out Russia’s growing LNG exports. Reducing these import will be critical to bringing Ukraine closer to victory and for securing Europe’s energy system.

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Clean industrial policies: A space for EU-US collaboration

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EU-US tensions over clean industrial policy could derail the energy transition. Collaboration on equal footing would bolster collective security and drive emissions reductions to new levels.

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Chevron deference is dead—and US climate action hangs in the balance

David L. Goldwyn, Andrea Clabough — Thu, 11 Jul 2024 18:56:36 +0000

In a seismic ruling, the US Supreme Court overturned the long-standing “Chevron deference” in its decision for Loper Bright Enterprises v. Raimondo. The ruling was not specifically concerned with energy or climate policy. But its consequences for US decarbonization are profound.

The ruling creates deep complications for the Joe Biden administration’s energy and climate agenda. But it also highlights their significance for the upcoming presidential election.

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The death of deference

The landmark 1984 ruling in Chevron U.S.A., Inc. v. Natural Resources Defense Council centered on the prerogatives of federal agencies to interpret existing—and potentially decades-old—federal laws. Under the precedent enshrined as “Chevron deference,” agencies were allowed a wide berth to interpret federal laws where they were unclear or ambiguous on a specific issue. Chevron deference has proven valuable to administrations of every political inclination for forty years.

The end of deference represents a monumental shift in regulatory authority away from agencies and their technical experts—now merely accorded “respectful consideration”—and toward the hundreds of federal judges seated throughout the country.

Judges are empowered as arbiters if and when a given statute is ambiguous. They thus determine whether an agency’s interpretation of its authorities—as expressed in agency-delivered regulations—is valid. This outcome creates a more complex legal system surrounding every regulatory intervention, potentially creating a patchwork of interpretations across the ninety-four US federal judicial districts.

This development has implications for any future administration. Regardless of the outcome of the November election, both candidates must contend with the new realities of enacting their respective energy and climate visions without Chevron deference.

Overruling net zero?

For the Biden administration, the ruling undermines its sweeping regulatory efforts toward economy-wide decarbonization. Already, key agencies such as the Environmental Protection Agency (EPA) and the Securities Exchange Commission have likely anticipated this court could end the Chevron deference, tailoring their recently finalized regulations accordingly.

But the Biden administration’s marquee regulations could now be challenged in whole or in part for straying too far from the letter of their foundational laws. If so, any federal judge could rule against that perceived overextension of an agency’s statutory authority.

The fate of the EPA’s regulation for fossil-fueled power plants will be a litmus test. Finalized last April, it’s expected to be extensively litigated and eventually reach the Supreme Court. Democratic leaders have anticipated this, confirming within the 2022 Inflation Reduction Act (IRA) that greenhouse gases, including carbon dioxide, are air pollutants, giving the EPA the explicit authority to regulate it.

However, this legislative amendment does not necessarily insulate the EPA from scrutiny of how it regulates the newly labeled air pollutant—for example, by encouraging changes in generation mix, implementing power plant-level regulations not explicit within the original Clean Air Act, or, most recently, mandating the adoption of carbon capture.

This Supreme Court’s string of recent rulings, from West Virginia v. EPA and the stay of the “good neighbor rule” to extending the timeline for a federal rule to be challenged, suggests that the bench views the EPA’s authority as far more limited than the Biden administration does.

Crucially, the Loper ruling has limitations of its own. Per the majority opinion, it will not apply retroactively, meaning that previously decided cases where agency deference was at play cannot be reopened. Perhaps even more importantly, the ruling applies specifically to the federal government and not to local, state, or regional administrations.

Even if the EPA and other agencies find themselves confined to strict readings of their statutory authorizations, state regulations—including clean energy and renewable portfolio standards—cannot be challenged on this basis. On the contrary, a state attorney general could instead leverage the end of Chevron deference as a new opportunity to litigate regulations from the federal government not aligned with their state’s climate and energy goals.

Beyond November, the end of agency deference could destabilize the Biden administration’s climate agenda in a re-election scenario. Implementation of the IRA is likely to be hampered by lawsuits, and agencies may see newly issued regulations and guidelines—such as the controversial hydrogen guidance pertaining to Section 45V—become fodder for litigation. The same could be true for federal permitting and siting procedures.

Federal agencies may find it less cumbersome to simply issue broad, performance-based regulations that set a widely applicable standard, such as to power plants. These could allow for a wide range of approaches to meet a given standard rather than prescriptive rules mandating specific technologies or fuels. Programmatic approaches that concern major statutes, such as the Endangered Species Act, Clean Water Act, and others, may also become the preferred means to simplify environmental reviews and preclude challenges.

Not so clear a victory

The extensive media coverage of the Loper decision has framed the outcome as an unequivocal boon to Donald Trump’s agenda, particularly in the energy and climate landscape. To some extent, this perspective is justified; a new Trump administration will leverage this ruling as justification to back away from addressing environmental or climate challenges beyond the bare minimum mandated by existing statutes.

However, agencies have long been criticized by stakeholder and environmental organizations for hiding behind Chevron deference for inadequate enforcement of environmental laws. A Trump administration, which aims for the floor, but can no longer rely on Chevron deference for protection, may discover that such lawsuits have become more numerous and disruptive.

Moreover, not every congressional statute on energy and environmental matters is ambiguous. A new Trump administration attorney general would struggle to argue that the IRA’s methane fee cannot or should not be enforced, as this requirement is explicit in the law.

There are other, more subtle, pathways to undermine the IRA and other major Biden-era climate achievements if a Trump administration were set on doing so—namely, by doing as little as possible.

The 45V credits are instructive. If a given Internal Revenue Service regulation for this section of the IRA were challenged in court as being outside the letter of the original law, it could be thrown out in a post-Loper world where agency deference is no longer assumed. A Trump administration, gifted this development, could simply refuse or delay issuing new guidance if it were uninterested in abetting the emergence of a US clean hydrogen industry.

This tactic would undermine investment certainty for large, expensive projects across technologies and fuel types while technically keeping the IRA on the books. This approach, however, assumes that federal courts will agree with sharply limited interpretations of ambiguity and not rule against thin regulations or force a Trump administration to issue guidance whether it wants to or not.

If agency deference is no longer axiomatic, then a conservative administration risks similar pushback in interpreting laws to suit ideological preference and policy goals. In a post-deference world, such an administration might face legal challenges in, for example, attempting to extend the lifetimes of operating coal plants, as much as a more liberal administration might face challenges for creative attempts to phase coal out of the US generation mix.

A volatile patchwork lies ahead

Fundamentally, the end of Chevron deference implies a new era of volatility in the legal and regulatory landscape for US energy and climate policy. Everyone from project developers and operators to investors and local stakeholders should prepare accordingly.

While federal judges are newly empowered to intervene, the Supreme Court cannot adjudicate every potential dispute in the handful of cases it reviews in a given year. As a result, it will take any suit years of litigation to reach that level—if at all—making the rulings of lower federal courts more important than ever before. Judicial opinions are likely to vary widely, making the location and timing of a suit paramount to its outcome.

For project developers, this uncertainty compounds an already serpentine US permitting landscape. Depending on which administration is in control after 2024, it is conceivable that environmental and social justice considerations around projects are given less weight than had Chevron deference been maintained. Going forward, an agency may be less inclined to propagate criteria or guidelines that would allow refusal of a permit on the basis of considerations not explicitly prescribed in existing laws. Confined to their statutory foundations, agencies may therefore be inclined to decide on leases and permits more quickly. But with fewer creative tools to mitigate project impacts authorized in their foundational statutes, agencies may simply lean toward faster denials.

Ultimately, however, the Supreme Court is the likely final stop for all major regulations going forward, implying greater uncertainty, circuitous timelines for judicial review, and whiplash aligned to the winds of political change in the executive branch. This could foster a scenario where climate action is largely blocked by the courts, and Congress is unable to meaningfully amend or write new laws to clarify the exact role of the federal government in addressing the climate crisis.

That prospect, and its implications, could exacerbate societal tensions at a time of deepening alarm over our global climate future.

David L. Goldwyn is chairman of the Atlantic Council’s energy advisory group and a nonresident senior fellow at the Atlantic Council Global Energy Center and the Adrienne Arsht Latin America Center.

Andrea Clabough is a nonresident fellow at the Atlantic Council Global Energy Center and a senior associate at Goldwyn Global Strategies, LLC.

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The UK sets a path for clean, affordable energy—and renewed climate leadership

Charles Hendry — Tue, 09 Jul 2024 16:24:21 +0000

The new United Kingdom administration is one that is passionate about clean energy and the energy transition. But first, to understand its approach to energy policy, it is important to understand how this new government will operate.

Prime Minister Keir Starmer’s pitch is that the government will be focused on “mission delivery” with mission delivery boards chaired by Starmer personally. He has said that his approach to all issues will be “country first—party second.”

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Almost all members of the Shadow Cabinet have been appointed to those same portfolios in government and, in addition, Starmer has also brought back some former ministers from the Tony Blair/Gordon Brown years. They are all therefore familiar with their portfolios, widely respected, and able to hit the ground running. It is also clear that the prime minister wants to work closely with the private sector in order to make early progress on the government’s priorities.

Ed Miliband has been appointed as secretary of state for energy security and net zero. This is broadly the role he held when Labour was last in government before 2010, so he knows the issues well and is a genuinely passionate advocate for tackling climate change and delivering net zero.

With the UK government now one the most secure among the large western nations (with a five-year mandate and a very large majority), the United Kingdom is expected to reassume a leading role in the international discussions on climate change. As the only country to have reduced its carbon emissions by over 50 percent since 1990, many will welcome that leadership once again.

In most areas, there will not be a huge difference in UK government energy policy under the new administration, but there will be a few distinct changes.

Labour has set a very challenging target to decarbonize the electricity grid by 2030. Until there is much more detail about how this can be done, industry will understandably be skeptical about the feasibility of such a goal, the costs involved, and how local communities will be brought on board. This will involve a significant further commitment to renewables, including a welcome early announcement to end the ban on onshore wind. The United Kingdom’s success in developing offshore wind will be continued.

There is evident government support for new nuclear, including next generation small modular reactors, and in the longer-term for fusion. The government wants to see a significant role for hydrogen and for tidal power, but these cannot deliver at scale in time for the 2030 target, so expect to see an acceleration of carbon capture utilization and storage programs. Starmer has spoken recently about the continuing role for gas in the mix, to deliver energy security, and this can only happen if its use can be decarbonized.

Labour is committed to ending the granting of new oil and gas licenses for the North Sea, while respecting the licenses that have already been issued. In reality, these would be for field developments that are many years off, so they would not make any significant difference to the United Kingdom’s energy security in the short-term. Of more immediate impact, there will be a new levy on companies operating in the North Sea oil and gas sector, and here the detail will be crucial—if not done carefully, companies may simply choose to leave the United Kingdom, as many have already done.

At the heart of its energy policy, there will be a new government organization, Great British Energy, and although its full details are still to be clarified, its purpose is to drive forward the clean energy sector and accelerate the transition. If done properly, it will help ensure the roll-out of the grid infrastructure needed to harness the wealth of renewable energy that the United Kingdom has in abundance.

Also of value will be greater attention on issues that have not had the attention they deserve, such as energy efficiency, decarbonizing heat, and an acceleration of demand-side response measures that are already starting to transform the electricity market. The government already knows that the success of its energy policy will be judged in large part by whether people can afford their bills.

Sadly, energy rarely seemed to be center-stage under the Conservative government (unless in response to a crisis), and that seems to be changing fast. There is already a sense that energy deeply matters to this administration—not just to deliver energy security but as an economic driver, helping to decarbonize homes and businesses, and creating a mass of new green jobs.

As a former Conservative energy minister, I wish this new administration well. If they can get these policies right, they stand a very good chance of delivering the holy grail in energy terms—clean, and secure energy, at a price people can afford.

Charles Hendry is a distinguished fellow with the Atlantic Council Global Energy Center, a former member of the UK Parliament, and former UK minister of state for energy.

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Bangladesh’s air quality is among the world’s worst. What can be done?

Joseph Webster, Natalie Sinha, and Sarah Meadows — Tue, 25 Jun 2024 22:53:39 +0000

Bangladesh is grappling with a severe air quality crisis. Recent reports highlight pollution’s impact on the nation’s health, economy, and environment. Bangladesh urgently needs to balance growth, sustainability, and energy access to enhance the well-being of its population. But the country faces profound challenges in moving toward a safer and more equitable energy system.

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Bangladesh’s air quality crisis

The air quality index (AQI) measures air pollution through levels of PM2.5, fine particulate matter small enough to penetrate the lungs and enter the bloodstream. This past decade, PM2.5 concentration in Bangladesh’s capital, Dhaka, came in at a yearly average of 77.1 micrograms per cubic meter (μg/m³), more than eight times higher than the US Environmental Protection Agency’s health-based PM2.5 standard of 9.0 μg/m³ per year.

Bangladesh’s alarming AQI has many causes, including vehicle emissions, industrial discharges, and the widespread use of kilns to make bricks. These are all exacerbated by the absence of stringent environmental regulations and enforcement.

This extreme level of air pollution exacts a severe human toll. Particulate pollution has reduced the average life expectancy in Bangladesh by 6.9 years. By contrast, the next-biggest health hazard in the country—tobacco use—reduces life expectancy by 1.6 years, while child and maternal malnutrition in Bangladesh are responsible for a 1.4-year decrease. Pollution in Bangladesh not only has a dire immediate health impact; it poses negative long-term consequences on the well-being and productivity of its population.

Rising incomes, rising emissions

Bangladesh’s level of carbon emissions are also rising, tied to increasing levels of development fueled by hydrocarbons. Between 2010 and 2022, Bangladesh’s annual per capita income rose by three-and-a-half times to reach nearly $2,700 in real terms. Over the same period, Bangladesh’s consumption of oil and coal rose by factors of three and six, respectively. Natural gas consumption also rose by 52 percent.

While greater economic growth has improved living standards in Bangladesh, air quality has worsened. A World Bank study found that average annual PM2.5 concentration levels in Dhaka rose from 84 μg/m³ in 2013 to 106 μg/m³ in 2021.

Bangladesh’s growing use of fossil fuels has not only worsened air pollution, it has also contributed to climate impacts, which will increasingly produce negative economic effects. The United Nations Intergovernmental Panel on Climate Change says Bangladesh could lose 2 to 9 percent of its GDP from more frequent natural disasters like tropical cyclones and severe flooding.

It’s important to note, however, that Bangladesh’s use of coal pales in comparison to other regional actors. According to data from the Energy Institute, China’s consumption of commercial solid coal fuels exceeded Bangladesh’s by more than 325 times in 2023. So, while the world should seek to mitigate Bangladesh’s coal consumption, the country only contributes about 0.4 percent of all world emissions, even as China accounted for about 27 percent of greenhouse gas emissions in 2021, according to Climate Watch.

Nevertheless, if Bangladesh’s use and import of coal remains on its current trajectory, 2024 is poised to break national emissions records—and, more significantly—degrade its air quality and economic goals. Importantly, Bangladesh’s coal use could harm its export abilities as the European Union and other jurisdictions impose carbon border adjustments.

Bangladesh’s difficult transition to clean energy

Bangladesh’s poor air quality is disproportionately large compared to its overall carbon footprint. The country contributes less than 1 percent of global carbon emissions, yet its cities have some of the worst AQI scores in the world. Fifty-nine percent of the country’s energy derives from natural gas, 31 percent from oil, and 10 percent from coal. Renewables are a negligible part of Bangladesh’s energy mix, while coal use has ticked up sharply in both absolute and proportional terms.

Coal-versus-gas competition has great relevance for Bangladesh’s air quality. While natural gas emits carbon dioxide, it produces far fewer particulates than coal, with some studies showing that swapping coal for gas can reduce harmful emissions of sulfur dioxide by more than 90 percent, and of nitric oxide and nitrogen dioxide (NO_X) by more than 60 percent.

Coal-to-gas switching is a quick and relatively easy fix for Bangladesh’s air quality concerns, given the country’s daunting challenges in switching to clean energy. Bangladesh’s solar and wind resources are limited, and it has weak hydropower potential. The country suffers an absence of summertime breezes, reducing wind’s usefulness in meeting peak demand during the hottest months.

The promise of nuclear energy

Given its constrained supply of indigenous renewables, Bangladesh is building two new nuclear power plants, for which Russia, China, and South Korea all provided bids. In 2009, Russia’s proposal was accepted. Bangladesh’s first reactor, which began construction in 2017, is set to begin operation this year.

While nuclear energy produces no emissions or pollutants, Bangladesh’s pursuit of the technology has not been cheap. Russia’s Rosatom is providing technical assistance, but Bangladesh is responsible for financing, for which it received a Russian loan. The Rosatom-led Rooppur project will cost $12.65 billion and is set to have a total capacity of 2.4 gigawatts. While nuclear energy is useful for decarbonization and improving air quality, expanding it further in the near term will prove difficult for Bangladesh. Capital financing costs have risen since Russia’s full-scale invasion of Ukraine, while tie-ups with Rosatom are potentially fraught. Some US legislators have called for sanctions on the state-owned Russian nuclear power giant, although experts generally believe these measures would disrupt Western markets while providing few geopolitical benefits.

How Bangladesh can improve its air quality

A nearer-term and more affordable option for reducing air pollution is liquefied natural gas (LNG). LNG is a fossil fuel, but it burns cleaner than coal and oil, which can help improve air quality.

Other measures to improve Bangladesh’s air quality could target vehicles, a major source of air pollutants. Bangladesh should look to models such as Mexico City’s ‘hoy no circula’ or Beijing’s odd and even days to limit vehicle pollution.

In Mexico City, the last number of a vehicle’s license plate determines which days it can be driven, with only the lowest-emission vehicles allowed to operate seven days a week. In Beijing, a similar program dates back to 2008, when China hosted the Summer Olympics. Beijing’s restrictions limit which weekdays cars with license plates ending in certain digits are allowed on the road.

These measures come at a significant economic cost, which may be too high given Bangladesh’s lower level of economic development compared to Mexico and China. But Bangladesh’s cities may consider such tradeoffs as acceptable given the severity of the country’s air quality crisis.

Over the longer term, Bangladesh can access cleaner electricity and lower its air pollution by integrating its grid with other hydropower-rich countries in the region. In January 2024, India concluded an agreement with Nepal to import 10,000 megawatts of hydropower from the Himalayan country, showing that cross-border electricity deals are possible in the region.

While deeper integration of regional electricity markets will require substantially more political trust than exists today, cooperation is necessary to meet Bangladesh’s energy access and air quality needs.

Bangladesh’s air quality trilemma

There are no easy ways to mitigate Bangladesh’s air quality crisis. Bangladesh has little renewable energy potential and faces difficulties in expanding nuclear energy or adopting vehicular emissions programs given the country’s limited financial resources. Moreover, Bangladesh suffers from substantial energy poverty, making improved energy access a top priority.

It is extremely difficult to balance these concerns, particularly in the short term. But in the longer term, trade in low-emission fuels and clean electricity can help Bangladesh resolve its trilemma of ensuring clean air, economic growth, and sustainable energy access.

Joe Webster is a senior fellow at the Atlantic Council Global Energy Center.

Natalie Sinha is a former young global professional at the Atlantic Council Global Energy Center.

Sarah Meadows is a former young global professional at the Atlantic Council Global Energy Center.

This article reflects the authors’ personal opinions.

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US-Mexico energy cooperation is vital to enable nearshoring

William Tobin — Tue, 18 Jun 2024 18:57:00 +0000

Claudia Sheinbaum’s historic election matters for Mexico’s relationship with the United States, particularly in trade and energy. While Sheinbaum has pledged continuity with the top-line agenda of outgoing president Andrés Manuel López Obrador (AMLO), subtle differences are emerging, opening new areas for cooperation. To make the most of those opportunities, the United States and Mexico must work together to enhance Mexico’s grid for a new industrial era.

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Mexico’s nearshoring opportunity

Mexico features prominently in US ambitions to “nearshore,” whereby companies move their production facilities closer to home and away from far-flung industrial hubs—mainly China. This shift is influenced by the United States’ drive to build more resilient supply chains in the wake of the COVID-19 pandemic and heightened geopolitical competition with China.

Cross-border economic ties under the United States-Mexico-Canada (USMCA) free trade zone are growing. The United States and Mexico are now each other’s largest trading partner. This can be attributed to many factors, including a deteriorating trade relationship between the United States and China, which reinforces the argument for nearshoring.

Mexico presents a supply chain opportunity for the United States. But from the Mexican perspective, support for nearshoring is relatively subdued. The “national project” of AMLO and Sheinbaum’s Morena party emphasizes combatting inequality including by developing the country’s south and strengthening state-owned companies. By contrast, the bulk of nearshoring investments would be made by private companies and go toward Mexico’s industrialized north, along the US border. Perhaps as a result, nearshoring has not progressed as rapidly as many predicted. US investors will need to align with Sheinbaum’s agenda to build a Mexican energy system capable of turning nearshoring into a reality.

Is nearshoring even happening?

A closer look at investment data paints a mixed picture of nearshoring. On one hand, foreign direct investment (FDI) in Mexico—the only measure of whether investment in the country is rising—reached a record $20.3 billion in the first quarter (Q1) of 2024, a 9 percent increase over Q1 2023. Fifty-two percent of total FDI in Mexico originated from the United States. On the other hand, only 3 percent of this increase can be attributed to new investments, contradicting the narrative that large-scale nearshoring is occurring. Furthermore, manufacturing as a share of Mexico’s economy grew to only 21 percent in the first half of 2023, from a pre-pandemic level of 20 percent. Tesla, which in March 2023 announced one of the largest nearshoring projects, has yet to break ground on its facility in Nuevo León. Like other investors, Tesla has encountered rising costs and logistical challenges.

Grid constrains are stifling nearshoring

Nearshoring is being limited by structural issues faced by Mexico’s electricity sector. Mexico’s grid has struggled to keep up with rising demand. The country suffers an “energy deficit,” facing difficulty connecting new manufacturing plants to the grid and—by extension—to renewable energy sources. The latter is a potential sticking point for electric vehicle producers looking to relocate to Mexico such as Tesla, GM, and Ford. The Mexican Association of Private Industrial Parks notes that this issue has postponed some projects and has throttled nearshoring in the years since the pandemic.

Is Mexico’s electricity sector a constraint?

The fragility of Mexico’s grid presents another major nearshoring obstacle. This was made clear in early May 2024 when the electricity demand on the grid nearly exceeded the total available generating capacity, leading the national electric system operator, CENACE, to declare a state of emergency. It has been reported that much of this demand can be attributed to the rising use of air conditioning and electric cooling during a record-breaking, weeks-long heatwave. As Mexico gets hotter courtesy of climate change, demand for cooling technologies—particularly for industrial processes—is set to rise.

Mexico’s electricity sector needs to shape up to meet increased demand from nearshoring.

More competition is needed—US investors can help

Mexico’s electricity sector offers a promising path for the United States to align its nearshoring objectives with Sheinbaum’s agenda. But to do so, it must benefit state-owned companies and free up state funds for social programs aimed at reducing inequality.

Increased private sector participation in the electricity sector is a necessity for achieving greater capacity and connectivity to unlock nearshoring. One analysis from the National Autonomous University of Mexico argues that increasing private sector participation in the electricity sector would not displace the state-owned electricity company CFE, which controls 40 percent of Mexico’s electric generation capacity, produces 70 percent of its power with private partners, and controls the full transmission and distribution network of the national grid.

In fact, CFE could benefit from increased industrial demand driven by nearshoring. Increasing private sector involvement in power generation can even help CFE by freeing it to investment in other areas, such as upgrading its transmission and distribution network and strengthening its balance sheet in the long term.

New president, new opportunities

AMLO has tried to strengthen CFE by passing a measure in 2021 to discriminate against private sector electricity generation and negate the 2013 Electricity Industry Law, which was designed to promote competition in the sector. Although the measure has since been overturned by the Supreme Court, the administration has effectively halted new public auctions for independent power contracts, preventing growth in private sector investment. Despite this, the private sector drove the increase in solar and wind power from 2014-2020.

Reversing course on private investment will be critical to restoring and expanding the capacity of the electric system and lowering costs. In 2019, independent power producers generated electricity 35 percent cheaper than CFE.

Sheinbaum’s election may present an opportunity for greater private sector collaboration with the United States. Facilitating investment can both strengthen Mexico’s grid and bolster the Mexican state, outcomes that are in line with Morena’s socioeconomic justice goals. While Sheinbaum will likely continue to favor state-owned companies, the Wall Street Journal reports that she also aims to “attract billions of dollars in private investment for solar and wind farms, with the government keeping control and a majority share in the electricity market,” citing a close advisor to Sheinbaum.

How the US-Mexico partnership can boost nearshoring and the electricity sector

The United States should seize the opportunity to work with the incoming Sheinbaum administration to strengthen the Mexican energy sector, thereby enabling supply chain security gains through nearshoring. The relationship should uphold the mutually beneficial tenets of the USMCA, including its level playing field for private sector investment.

In addition, the United States should redouble its technical and regulatory cooperation efforts with Mexican electricity regulators as has been conducted through the U.S. National Renewable Energy Laboratory (NREL). The aim of this partnership should be to work toward goals which benefit the Mexican administration’s agenda while strengthening economic ties and boosting Mexico’s manufacturing potential.

US-Mexico cooperation on electricity sector regulation can facilitate private sector investment in generation that could decrease the burden on CFE as the sole entity responsible for expanding the grid. Ceding greater financing responsibility to the private sector—with CENACE retaining control of the national electric system—could enable CFE to expand its business alongside the private sector and permit the Mexican state to focus on investments that promote increased prosperity for all its citizens.

With higher private sector participation conducted in a manner that respects the central role state-owned companies play in Mexican society, the electricity sector in Mexico can be transformed into an enabler of the nearshoring trend.

William Tobin is an assistant director with the Atlantic Council Global Energy Center.

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András Simonyi: Will the EU elections slow its energy transition?

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Will the new Parliament change Europe’s course on energy security and climate?

András Simonyi, Olga Khakova, Pau Ruiz Guix, Andrei Covatariu, and Elena Benaim — Fri, 14 Jun 2024 19:29:18 +0000

The last European Parliament governed as Europe’s energy system withstood unprecedent shocks to global markets and the economy. The shocks were numerous and severe: from negative pricing during the COVID-19 pandemic to all time-high energy costs following Putin’s full-scale invasion of Ukraine; from tensions in the Middle East and cyber and kinetic attacks on energy infrastructure to extreme weather events made more severe by climate change.

While energy was not the driving issue for the majority of the 185 million European voters for this election, the newly elected Parliament will play an important role in determining how to defend the bloc’s energy security, reduce emissions, and boost competitiveness.

Our experts weigh in on the impact of Europe’s elections on these issues.

Click to jump to an expert analysis:

Pau Ruiz Guix: How the EU can stay the course on clean energy goals

Andrei Covatariu: EU elections put climate, energy security, and political capital at risk

Elena Benaim: EU climate and energy agenda hangs in the balance

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Will the EU elections slow its energy transition?

Five years ago, the European Commission under President Ursula von der Leyen set out to make the green transition its top priority. What comes next for the EU’s climate and energy agenda is uncertain. The Parliament’s new composition, and, perhaps even more importantly, the final choice of Commission president (which is up in the air) and members of the Commission, along with the distribution of portfolios, will be reflective of but also critical to the future direction of the EU.

While the gains of the extreme right are mainly a result of the migration crisis, the huge losses suffered by the Greens, plus the economic and political costs of the energy transition, need to be taken into account. These indicate a strong push to “rebalance” green transition and energy security.

Europe’s competitiveness has thus been added to climate and security/energy security concerns—for some member states, it is the number-one priority. Besides the geopolitical realities, as we warned years ago, the “absorption” capacity of European societies increasingly determines the speed with which the green transition can move forward.

There is an overwhelming view that now the next Commission will have to focus on the implementation of previous decisions. There are clearly two competing political trends, however. One aims to speed up the green transition as a panacea to all the issues mentioned above. The other takes a more pragmatic and realistic position to continue the transition, while taking into account the security, cost, and social aspects of that transition.

No matter what, energy security will take center stage. This means that US liquefied natural gas (LNG) will continue to play a major role, particularly as the majority view in Europe is that it will not go back to the status quo ante with Russian energy supplies.

András Simonyi is the former Hungarian ambassador to the United States and a nonresident senior fellow with the Atlantic Council Global Energy Center.

How the EU can stay the course on clean energy goals

The European elections results reflect a sentiment that has already been increasingly apparent: a need to align ambitious climate policy with a competitiveness and resilience agenda that delivers growth and economic security. While the reality of European policymaking means that a clearer picture will only emerge when new leadership is at the helm of the European Commission, the next five years will be all about implementing already-adopted regulation to reduce European greenhouse gas emissions by 55 percent by 2030.

To deliver on deep decarbonization goals, EU countries will need to implement targets to decarbonize hydrogen production at a time when carbon pricing will be extended, and the Carbon Border Adjustment Mechanism will be implemented and potentially expanded.

To deliver on domestic clean technology manufacturing goals, the new European leadership may opt to accelerate a trend toward re-shoring and friend-shoring, requiring new instruments, partnerships, and relationships within the multilateral trade system.

To deliver on clean hydrogen deployment goals, a sector where final investment decisions (FIDs) are struggling to take off, the new mandate should finalize low-carbon hydrogen rules and revise clean hydrogen rules reflecting what works and what doesn’t.

Achieving these three broad goals, which inevitably tackle global and trade-exposed sectors, will require strong climate and energy diplomacy that strengthens global cooperation on increased decarbonization of hard-to-abate industries, supply chain security, and regulatory alignment and certification. The US position and transatlantic cooperation will play a key role in achieving these objectives, and, therefore, not only European elections but American ones in November will inform and influence the realm of possibilities.

All in all, a world of different speeds in the energy transition is a challenging place, and the European experience shows that only by working together is it possible to balance climate, economic, and security objectives to the benefit of the people and the planet.

Pau Ruiz Guix is a trade and international relations officer with Hydrogen Europe.

EU elections put climate, energy security, and political capital at risk

In 2022, after Russia’s full-scale invasion of Ukraine, the European Commission set ambitious energy and climate targets to a significant extent aimed at minimizing social unrest and maintaining political stability in the European Parliament for the 2024 elections. This strategy largely succeeded, with the 2019 political coalition still holding a majority—albeit a narrow one— while public protests have been managed over the last years.

However, overambitious targets may soon backfire. As Commission President Ursula von der Leyen works to secure a strong coalition (which could include the Greens), some of the energy and climate objectives are at risk. Revising the approved 2030 targets is complex and politically risky with a right-leaning European Parliament. This could slow the transition pace, possibly enhancing short-term energy security but undermining long-term climate goals and supply security.

An alternative would be to maintain the existing targets, but this approach would also risk leaving goals unmet. This outcome could hurt energy security and political credibility, especially as the deadline for meeting targets falls right after the five-year term of the newly elected European Commission. Failing to meet the targets could erode the credibility of the leaders who will be in power at the end of this decade.

Looking beyond 2030, negotiations over the unapproved 2040 EU energy and climate targets pose even greater challenges than before, thus creating yet another significant political risk. Additionally, the EU enlargement process may also become less ambitious, which will only continue to generate spillover effects. Prospective countries would remain easily targeted by Russia with physical attacks on critical infrastructure, cyberattacks, or energy supply cuts, which will continue to hurt EU member states.

Andrei Covatariu is senior research associate at Energy Policy Group (EPG) and a research fellow at the Centre on Regulation in Europe (CERRE). This article reflects his own personal opinion.

EU climate and energy agenda hangs in the balance

On June 6, 2024, when called upon to vote for the European Parliament, European voters kept the center-right European People’s Party (EPP) as the leading group with 190 seats—a slight increase compared to the previous elections. However, to hold the majority, which requires 361 seats out of 720, the EPP will need to find working coalitions with other groups to pass legislation.

As announced by the EPP, European Commission President Ursula von der Leyen will again be their candidate for the presidency. With a second mandate, von der Leyen would be expected to protect the Commission’s legacy (including its key initiatives such as Fit for 55 and RePower EU) and to continue focusing on competitiveness, cleantech, innovation, global leadership, and energy resilience. However, coalitions in the European Parliament will heavily determine the direction of climate and energy policies.

With a majority formed by the EPP, Progressive Alliance of Socialists and Democrats (S&D), Renew Europe, and the Greens, the European Green Deal could be safe in terms of ambitions and targets. The coalition would probably maintain a decarbonization agenda strongly focused on energy security and industrial competitiveness and a likely dominant conversation around the social dimension of the energy transition.

With a majority that includes the hard-right group European Conservatives and Reformists (ECR), there could be a serious risk of seeing climate ambition weakened. Right-wing parties in member states have openly criticized Europe’s climate ambition, and this could result in undermining the provisions of the Fit for 55 plan. It might also complicate the already challenging discussion on unlocking investments for the green transition at the EU level.

A move to the right by the EPP would have severe implications for the legacy that the previous Commission built and hinder the possibility for the EU to build a strong industrial competitiveness strategy that supports the energy transition and climate targets.

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

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Generative AI provides a toolkit for decarbonization

Joseph Webster and Shaheer Hussam — Mon, 10 Jun 2024 16:43:13 +0000

Rapidly improving artificial intelligence (AI) capabilities will help accelerate the energy transition. Both established and emergent AI capabilities—such as large language models (LLMs)—can be applied to an array of strategic, technical, financial, and policy challenges posed by decarbonization. It is critical for energy transition stakeholders to monitor, understand, and carefully apply these capabilities to their unique decarbonization challenges, while also addressing the risks involved.

The most consequential new class of AI, generative AI, is able to analyze and create text, audio, code, and even molecular design—doing so faster and often with higher quality than human-created counterparts. Generative AI uses extraordinary volumes of training data and novel data-processing mechanisms which require unprecedented computational power. Data center load growth, driven by a range of factors, is forcing utilities across the United States and Europe to revisit system planning needs. Indeed, this added demand is—in some regions—delaying the retirement of coal-fired power plants. To ensure that climate targets are met, data center growth must coincide with transmission upgrades, energy efficiency improvements, and new low-carbon generation capacity. More broadly, policymakers must also consider how to harness the potential from generative AI while managing complex uncertainties, from inaccurate outputs and data leakage to AI-enabled cyberattacks on critical infrastructure. The deployment of generative AI will require rigorous human oversight, particularly in the early stages.

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Given the capabilities of generative AI, integration into organizational workflows can help energy stakeholders in multiple ways—for example, lower regulatory compliance costs, consider strategic planning options, and evaluate the financial risk around their low-carbon investments, among others.

1. Strategic planning

Recent demonstrations of generative AI capabilities are impressive. Generative AI can already outline, summarize, and draft documents cheaper and faster than many humans. It can also help humans conduct strategic tasks more effectively. A study by Harvard Business School examined the effects of GPT-4—the model behind ChatGPT—on knowledge workers’ productivity, finding that GPT-4 significantly improved workers’ abilities to generate effective ideas and develop implementation plans. Another study from University College London found that a collection of LLMs could give strategic recommendations at a comparable level to human experts. As strategic planning use cases are systemic and across industries, improvements in productivity would apply across the decarbonization value chain.

2. Regulatory compliance

Some generative AI use cases will directly enhance clean energy project developers’ ability to manage cumbersome regulatory processes. As generative AI capabilities are integrated into institutional workflows, they will assist on tasks ranging from simple emails to complex, costly, and time-consuming regulatory processes. The Pacific Northwest National Laboratory, as part of its PolicyAI, initiative, recently found that LLMs could streamline the public comment-review process under the National Environmental Policy Act (NEPA), which is burdensome for many renewables firms.

Importantly, generative AI may aid regulators by accelerating reviews of a variety of environmental impact studies. For instance, after New York State attempted to ease traffic and pollution by passing traffic congestion pricing, an exhaustive environmental review took five years and more than 4,000 pages of analysis. By streamlining portions of these document-intensive regulatory tasks, generative AI can speed up environmental reviews, giving infrastructure projects a quicker go/no-go decision.

3. Decarbonization investment analytics

A range of AI tools, using both existing techniques and generative AI, are being developed to assist with financial and economic modeling, a critical but resource-intensive task for renewable energy projects. While still at the early stages, generative AI tools may be able to partially or even fully build financial models or propose complex scenario plans. In addition, AI is already being used to enhance corporate due diligence by detecting anomalies in financial statements, summarizing earnings call transcripts, or rapidly analyzing trade press. These capabilities will continue to assist both investors and corporate mergers-and-acquisitions teams in their decarbonization investments.

4. Energy asset management

Financial and economic modeling tools overlap with another essential aspect of decarbonization: advanced energy asset management. Currently, communications with energy asset field operators are typically executed via middle management and dashboards with both planned and ad hoc analytics. Generative AI may enable more simplified analytics and communication with the workers physically assessing and repairing assets. At the energy asset management level, generative AI tools could deliver improvements in compiling, summarizing, and communicating asset performance in a customized manner for financial managers.

5. Wildfire risk assessment

In parallel to generative AI, another area of quiet yet significant advancement has been machine-learning (ML) models for weather forecasting, which have produced some extraordinary results. Further advances in weather forecasting could help mitigate the climate change-driven fire season. Wildfires themselves exacerbate the climate crisis—global fires produce emissions of about 2 gigatons of carbon dioxide equivalent per year, equal to 4 percent of total global emissions. These fires can also force large populations indoors for weeks due to health risks and poor air quality. Further investment in AI/ML-based modeling could help manage these risks by predicting the probable location and magnitude of potential wildfires and improving real-time surveillance of smoke, enabling firefighters to combat the over 80,000 wildfires that occur in the United States alone every year.

Despite the current AI hype cycle and the early-stage risks around generative AI, improving the broad range of AI models will be integral to developing a low-carbon economy. The magnitude and pace will be difficult to predict, as models are integrated into institutional workflows. Human oversight, particularly around critical infrastructure, must remain comprehensive. If managed appropriately, these emergent capabilities will yield important advances in regulatory analysis, environmental management, strategic planning, and an array of challenges essential to achieving net-zero emissions.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

Shaheer Hussam is a partner at Aetlan, an energy advisory and analytics firm.

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Brazil is buying lots of Chinese EVs. Will that continue?

William Tobin — Tue, 04 Jun 2024 18:32:48 +0000

In anticipation of growing demand for zero-emission transportation, China has become the world’s largest exporter of electric vehicles (EVs). China’s battery electric vehicle (BEV) industry is at overcapacity, producing an excess of 5 to 10 million vehicles annually beyond domestic demand, forcing China to find new markets to fuel continued growth.

Brazil offers a useful case study of China’s strategy—and whether it’s sustainable.

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Over the course of 2023, the value of Chinese BEV exports to Brazil surged eighteen-fold as automakers like BYD expanded their presence in the country. Chinese BEVs accounted for 92 percent of Brazil’s total BEV imports in this period.

This trend has continued durably thus far. As of April 2024, Brazil has surpassed Belgium as the top export market for China’s EVs.

Those aren’t the only numbers pointing to Brazil’s growing prominence as a market for Chinese BEVs, which constitute 88 percent of China’s total exports of electric vehicles, a category which includes both battery and plug-in hybrid electric vehicles (PHEVs).

In fact, Brazil imported $735 million worth of Chinese BEVs in 2023, nearly three times the value of Mexico’s imports of these Chinese vehicles. Despite increasing attention on Mexico as a destination for exports of Chinese BEVs, 2023 marked the second straight year that Brazil has ranked as Latin America’s largest importer of Chinese BEVs.

Furthermore, growth in Chinese exports of BEVs to Brazil far exceeded the overall rate of increase in exports across China’s “new three” industries—electric vehicles, lithium-ion batteries, and solar photovoltaic cells—that are critical pillars of China’s export-driven manufacturing plans. In 2023, China’s worldwide exports of these three industries increased by 30 percent—a significant jump amid sluggish global GDP growth overall, suggesting limited ability for markets to absorb this export growth.

Whether Brazil can continue to absorb China’s overproduction of BEVs, similarly, is increasingly in doubt.

Strong domestic sales, slacking foreign competition

In recent years, EV sales in China have been robust, with BEVs—which are almost entirely produced domestically—accounting for 25 percent of total car sales in 2023. It is worth noting that this includes foreign firms, however, such as Tesla and Volkswagen.

China’s manufacturing of BEVs has outpaced domestic demand. While this might have resulted in millions of cars sitting unsold in Chinese lots, the overproduction has coincided with Western automakers such as General Motors, Ford, and Volkswagen tempering their EV ambitions amid weakening demand growth in their core markets.

This confluence of trends created an opportunity for Chinese BEV makers to boost sales abroad, as demonstrated by the 70 percent jump in BEV exports during 2023. Chinese BEV firms, and BYD in particular, are making a concerted effort to expand outside of mainland China, offering products that outcompete peers on price, and sometimes compete strongly with internal combustion engine vehicles.

China’s growth ambitions cause concern

Rather than incentivize consumption, China is doubling down on its investment-driven growth model with an upcoming manufacturing stimulus program. Investment, expressed in World Bank data as gross capital formation, already represents 40 percent of China’s GDP, far above the global average of 25 percent and exceeding the emerging market average of 30 to 34 percent, illustrating China’s reliance on sectors like manufacturing to fuel growth.

China’s decision to expand its export-driven manufacturing sector is causing handwringing in target markets. The Brazilian government has opened a number of probes into China’s alleged “dumping” of goods. The European Union has also opened investigations into potential “non-market practices and policies” adopted by China.

China’s exports of its record surplus of manufactured goods beyond current levels will depend on other countries’ willingness to let China take market share from domestic industry. In an increasingly protectionist era, that seems far-fetched.

Will Brazil absorb China’s manufacturing surplus?

The surge in imports of BEVs from China has been rapid, offering little time to react. However, for Brazil, the stakes for its industrial competitiveness are high, and its tolerance for China’s encroachment on its automotive industry may be limited.

For one, automobiles are a critical cog in Brazilian industry. As of 2020, 89 percent of vehicles sold in the country were domestically produced, although this may have decreased slightly amid a surge of Chinese BEV imports. The car sector accounts for about 20 percent of industrial GDP, an area of critical importance to Brazil, where value-added manufacturing’s share of GDP has declined from 26 percent in 1993 to 11 percent in 2022.

Second, Brazil does not want to deepen its reliance on imports of high-tech and value-added products. In 2021, Brazil’s imports of capital, consumer, and intermediate goods accounted for 93 percent of total goods imports, a symptom of the country’s increasing trade specialization in the export of raw materials, which represented 55.7 percent of Brazil’s exports of goods. The government has expressed its discontent with this status quo, seeking to avoid trade arrangements that “condemn our county to be an eternal exporter of raw materials,” in the words of President Luiz Inácio Lula da Silva.

Furthermore, Brazil has made supporting the domestic auto sector a priority. In May 2023, the Lula administration unveiled a series of measures to promote domestic auto manufacturing via credit lines, tax breaks, and incentives for the use of domestic content.

A continued rise in cheap Chinese EV imports would not align with Lula’s top-down push for re-industrialization, designed to foster formal high-wage employment, innovation, and economic diversification. In fact, his administration has announced new tariffs on electric vehicles, which will ramp up to a 35 percent import tax by 2026.

As such, China will likely need to find more willing buyers of its surplus EVs. Although it is difficult to forecast where the next surge in imports will take place, South and Southeast Asian markets such as India, Indonesia, and Thailand could begin to exhibit stronger uptake, as could markets in Latin America such as Colombia and Mexico.

William Tobin is an assistant director at the Atlantic Council Global Energy Center.

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From Vilnius to Warsaw: How to Advance Three Seas Goals Between Summits

Olga Khakova — Thu, 23 May 2024 19:30:27 +0000

Leaders at the ninth Three Seas Summit and Business Forum, held in Vilnius in April, raised the need for creating a permanent body that would institutionalize regional cooperation on digital, transport, and energy integration. While there is little disagreement among participating countries that such an office is needed, their views diverge on the location of this coordinating body, reporting structure, and coverage of its operating costs.

Solving these administrative problems is one of the biggest impediments to formalizing a secretariat. To ensure that the Three Seas Initiative (3SI), which convenes at the annual summits, can effectively and quickly address the unique challenges facing its thirteen Southeastern, Central, and Eastern European member states, associate states, and strategic partners in reaching common goals, its leaders must now agree on a structure.

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More than 900 participants joined this year’s summit, which every year aims to explore ways to tap members’ vast economic potential while fortifying against mounting security threats. They discussed ways to advance connectivity, economic growth, and broader security by overcoming shared regional barriers via the 3SI mechanism. However, making progress between summits requires institutionalization of the 3SI through a permanent secretariat body to maintain momentum and focus between the annual events.

How a 3SI institution could work

The secretariat could be launched and housed in a neutral, non-3SI city in Europe, preferably a financial hub, like Brussels, with a small permanent team whose operating costs would be covered by the 3SI country hosting the summit that year. The 3SI team’s initial guidance could include exchange of information between 3SI stakeholders, outreach to private investors, and the promotion of cross-border digital, energy, and transportation projects in the region, with a particular focus on the project priority list. In a sense, the secretariat would serve as a library of projects for inquiring investors. The 3SI platform can play a meaningful role in helping resolve top priority issues in the region, which were raised repeatedly at the summit, ministerial, and in private events (including those jointly hosted by the Atlantic Council, Clean Air Task Force, and Amber Infrastructure Group). These issues include:

Access to finance
Fragmented market
Supply chains risks
Russian aggression in Ukraine and the broader region
Commercialization of new technologies and innovative solutions
Workforce shortages

By addressing these challenges throughout the year (through the work between the summits), the 3SI stakeholders would create compounding benefits, securities, and efficiencies for Europe, particularly through 3SI’s unique power to connect traditionally siloed sectors and geographies and its magnifying platform for bringing attention to the top challenges in the region.

Leaning into the 3SI mission

Once a 3SI body is created, it can rapidly get to work on actualizing steps toward achieving its goals, including regional integration of resources, coordination of workforce development, optimization of external partnerships, and raising finance. Dialogue at the Three Seas summits has yielded broad consensus and support for these priorities.

Goal 1: Integrating the regions, markets, and innovation

Despite gigantic leaps in connectivity across Europe, regional integration is hampered by the lack of cross-border coordination, regulatory hurdles, supply chain risks, and market fragmentation. These gaps create diverging prices, inefficient routes, and lags in information sharing. 3SI would not be a one-fix-fits-all in resolving these issues, but the presidential-level platform has untapped potential to alleviate some of these challenges. 3SI is uniquely positioned to highlight the regional cost and security threats of insufficient energy interconnection, transportation routes, and digital integration. Priority-project lists should be frequently updated and expanded, something the secretariat can manage, to provide ample options for potential investors with projects’ bankability and other relevant details included.

Moreover, 3SI has a unique opportunity to embrace a technologically neutral approach while focusing on solutions-driven criteria: competitive pricing, carbon emissions, environmental impacts, and secure and diversified supply chains. To scale new technologies, the 3SI secretariat could support existing regional coordination on regulatory alignment to forge an easy-to-navigate investment environment. Cooperation on cyber security and kinetic threats across 3SI stakeholders can enhance protection for these technologies and infrastructure in the region.

Goal 2: Investing in a workforce that will transform the region

In addition to the work dismantling regulatory barriers, 3SI can contribute to forging an innovation ecosystem through building a talented workforce for the future. The Three Seas economies have a unique opportunity to exchange data around the current labor force and the anticipated talent gap in energy, digital, and transportation sectors. The region is already leading in science and technology education in Europe and can build on this competitive advantage by scaling the number of trained professionals through coordinating programs and forging an efficient education-to-workforce placement pipeline. The annual 3SI summits could include programming dedicated to student engagement, recruitment, and education on key opportunities in the growing sectors.

Goal 3: Optimizing collaboration with 3SI associated and strategic partners

Japan’s inclusion as a 3SI strategic partner this year is a testament to the value of global partnership on commercialization of new technologies and diversified supply chains. Several summit panels touched on driving Japanese companies’ investments in the region, particularly rail and communications sectors development.

3SI countries also have an opportunity to develop strategic priorities in support of associate members Ukraine and Moldova (complementary to the existing efforts), while exploring the potential to build additional energy and transport interconnections, as well as collaboration in the digital space.

Goal 4: Financing a secure, competitive, and low-carbon Three Seas region

An enormous barrier to achieving 3SI priorities is the trillion-dollar gap between where infrastructure stands today and where the region agrees it needs to be. National budgets are insufficient. EU funding is challenging to access and excludes some infrastructure and technologies. The Three Seas Fund, 3SI’s investment arm, can play an important role in leveraging private finance and helping match public and private capital to realize the projects. As the next round of the 3SI fund is established, attracting private equity will be crucial for reaching scale of impact. Cross-country coordination creates efficiency and minimizes risk for cross-border investments, particularly in addressing the grid infrastructure gaps and preparing roads for a safe, low-carbon transportation future.

Achieving a shared vision of the future

No similar coalition exists with focus on security and economic prosperity through integration. This shared vision of a secure, digitized, integrated, low-carbon, resilient economy is refined every year at the Three Seas Summit as new ideas are shared on stage, discussed during coffee breaks, and put to the test following the conference. With the formalization of a 3SI institution to build on the work between summits, 3SI could be an unstoppable platform for realizing the region’s rich potential and talent.

Olga Khakova is the deputy director for European energy security at the Atlantic Council Global Energy Center

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Without tariffs, the EU faces a flood of Chinese imports of the ‘new three’

Joseph Webster — Thu, 23 May 2024 18:49:40 +0000

Washington’s recent tariffs against Chinese products all but ensure a flood of these exports to Europe, necessitating a response from Brussels. The products include China’s “new three” cleantech exports—lithium-ion batteries, electric vehicles (EVs), and solar panels—posing undeniable dilemmas for Brussels as it balances security, economic, and climate interests. To head off a deluge of Chinese products while also allowing some to support decarbonization goals, Brussels should selectively and thoughtfully apply greater tariffs and restrictions. Concurrently, European industrial policy should prioritize the development of indigenous battery and EV supply chains and manufacturing capacity.

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The European Union’s imports of the new-three cleantech export categories have skyrocketed in recent years. Over the course of 2023, China’s exports to the EU totaled $23.3 billion for lithium-ion batteries, $19.1 billion in solar panels, and $14.5 billion for electric vehicles.

Sources: PRC General Administration of Customs, Author’s Calculations

Europe’s imports of these cleantech products have fallen in recent months, partly because of the global glut in solar panels and constraints on installations. The EU’s anti-subsidy investigation into electric vehicles, launched in October, has also cooled shipments.

Europe’s most consequential tariff decisions concern EVs and batteries, as these products hold economic and strategic relevance.

With the automotive sector indirectly providing 6.1 percent of total EU employment and 7 percent of GDP turnover, EVs and batteries are a key future driver for the EU’s economy. This sector is at risk due to China’s heavily subsidized auto exports.

While transitioning to EVs from internal combustion engines will necessitate disruptions, ceding Europe’s auto industry would deliver a “second China shock” of mass economic dislocations, all but ensuring a fierce political blowback with potentially calamitous implications for the European project.

Reasonable people could disagree about the wisdom of allowing cheap Chinese imports to undercut domestic industries in the 1990s and 2000s. At the time, many believed that greater economic linkages between the West and China would produce rising living standards across the board, reduce geopolitical frictions, and potentially even lead to constructive political changes within China itself.

That didn’t happen. While trade with China led to complicated, often ambiguous impacts for Western economies, Beijing threatens global democracy more than ever, and the Communist Party continues to rule mainland China with an iron fist.

Recognizing this dynamic, various European Union bodies have characterized the Chinese government as a “systemic rival”—as well as a partner.

While European threat perceptions of Chinese exports largely center around economic and political concerns, security dimensions shouldn’t be overlooked.

China’s exports of sensor-laden connected vehicles pose potential espionage and sabotage risks. Chinese security services could use these vehicles to monitor European military and political facilities, as well as collect real-time economic and mobility data. In a worst-case scenario, these vehicles’ software systems would be vulnerable to hacking.

China’s lithium-ion battery complex also has latent military potential, as batteries are critical components for diesel-electric submarines, unmanned maritime platforms, and aerial drones. Moreover, technological advances in solid-state batteries could offer significant, potentially game-changing performance improvements for military use cases.

Given the economic and security risks, Europe should impose tariffs on Chinese exports of EVs and lithium-ion batteries. To balance decarbonization goals with these other needs, however, Europe could follow the US approach by phasing in certain tariffs, such as on Lithium-ion non-electrical vehicle batteries. These batteries are useful for grid decarbonization but pose few direct security threats.

China is unsubtly hinting it will respond to any European tariffs with countermeasures, including against wine and dairy exports.

Yet Europe is better off accepting short-term pain than allowing the formation of a clean energy cartel overseen by a systemic rival.

In other cases, such as solar panels, Chinese clean tech exports pose few economic and security risks to Europe. This industry has left Europe and isn’t coming back, especially since European solar potential is limited. Although inverters should be monitored closely, there are no known security risks for solar panels, which cannot communicate with the grid. Consequently, Europe should accept Chinese solar imports while still ensuring that global supply chains are not held hostage to a single supplier.

Importantly, the West should continue to emphasize to Beijing that it seeks to de-risk rather than decouple supply chains. While Western trade with China has not fundamentally improved ties, commercial ties nevertheless can provide ballast for the relationship, mitigate security dilemmas, and provide economic benefits.

To stop political ties from deteriorating further while maximizing trade and climate benefits, Europe and its partners should identify products where commerce can be conducted with China without damaging economic or security interests.

Still, Europe should rapidly employ tariffs and fiscal support to bolster critical industries and technologies, including EVs and batteries. Balancing decarbonization objectives with economic and security needs is no easy task, but Brussels must find sure footing on this tightrope, and quickly.

Joseph Webster is a senior fellow at the Atlantic Council and editor of the independent China-Russia Report. This article represents his own personal opinion.

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What US tariffs on Chinese batteries mean for decarbonization—and Taiwan

Joseph Webster — Mon, 13 May 2024 21:29:39 +0000

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On one hand, lithium-ion (li-ion) batteries, including those made in China, the world’s largest li-ion manufacturer, are useful for decarbonizing the US grid, improving the economics of solar deployment, and providing a key input for electric vehicles. On the other hand, ceding a new and important clean tech industry could pose long-term economic damages. Allowing China to dominate this sector hollows out US manufacturing capacity and know-how, while giving China’s battery complex the opportunity to grow in capacity and provide synergies with its submarine and drone-making capabilities, which are increasingly important in modern warfare. This rise in industrial capacity could prove significant in military contingencies involving Taiwan.

Managing these battery dilemmas will be challenging, but not impossible. Most immediately, the United States and its allies, friends, and partners should rigorously investigate where Chinese-made batteries do—and, significantly, do not—pose security risks. Most importantly, however, they should accelerate development of their own battery supply chains.

Chinese li-ion battery exports and US decarbonization objectives

China’s global lithium-ion battery exports reached $65 billion in 2023, up nearly 400 percent from pre-COVID levels in 2019. More than half of these 2023 exports were shipped to the European Union and the United States-Mexico-Canada (USMCA) free trade zone.

Chinese li-ion battery exports are largely bound for the European Union and North America.

Source: PRC General Administration of Customs, author’s calculations

Chinese battery exports to USMCA are highly correlated with EV manufacturing capacity and solar installed capacity, which are often paired with battery energy storage systems. In North America, these facilities are overwhelmingly concentrated in the United States, which accounts for the lion’s share of USMCA’s lithium-ion battery imports, according to Chinese trade statistics. (Note: the United States and China report slightly different total trade figures, due to reporting lags and the timing of international shipments.)

Chinese exports to USMCA are largely routed through the United States.

Source: PRC General Administration of Customs, author’s calculations

According to the US Census Bureau, in 2023, the United States directly imported $13.1 billion in lithium-ion batteries from China, accounting for 70 percent all US li-ion battery imports in 2023, as measured in value. US li-ion imports are split between storage and batteries for electric vehicles.

US lithium-ion batteries derive primarily from China, both directly and indirectly.

Source: US Customs Data, author’s calculations

It’s worth noting that China’s share of all US li-ion batteries is understated in official statistics, in both absolute and relative terms. Chinese battery companies, as well as big battery players based in South Korea and Japan, often have manufacturing facilities in third-party countries that export to the United States.

In other words, China is currently an important player in US decarbonization, particularly when it comes to energy storage. China exported $10.8 billion of Li-ion storage batteries to the United States in 2023, accounting for 72 percent of all US imports of the product.

Chinese imports are particularly important in the storage market.

Source: US Customs Data, author’s calculations

These li-ion storage batteries are useful for decarbonizing the US power sector and complementing solar generation. As recent research shows, California and other western states have significantly increased their uptake of storage batteries on the grid, enabling solar’s percentage share of all generation to rise, advancing state and national decarbonization objectives.

The security risks from China’s battery complex

While mainland China’s li-ion batteries are useful for decarbonization, its battery complex poses often-overlooked security risks, especially in the event of a contingency over Taiwan. Batteries figure increasingly prominently in military affairs, including for diesel-electric submarines and unmanned platforms. Critically, US restrictions on Chinese li-ion batteries or of electric vehicles, another end use of li-ion batteries, will limit China’s industrial capacity that could readily be repurposed from the civilian industry to its defense industrial base. Just as crucially, by diminishing China’s battery business, US tariffs could constrain Beijing’s ability to secure technological breakthroughs with military uses.

China’s battery complex complements its military capabilities in multiple ways. Take aerial drones, which often employ lithium-ion batteries for propulsion. These weapons are already a critical element in Russia’s full-scale invasion of Ukraine, as both sides are estimated to field at least 50,000 first-person-view suicide drones per month.

Drone technology could play an even larger role in any confrontation over Taiwan. Mainland China’s industrial capacity in aerial drones and batteries could loom large in any confrontation, as its manufacture of dual-use drones dwarfs production seen in both Ukraine and Russia. There are limitations to the role batteries could play in the aerial domain due to constraints in energy density and range. Still, advances in battery technology could increase the potency of aerial drones in a potential Taiwan contingency.

Batteries are also useful for unmanned underwater vessels, unmanned surface vessels and, critically, conventional (i.e. non-nuclear powered) submarines. Diesel-electric submarines are powered by batteries charged by onboard diesel generation. Those with li-ion batteries offer performance improvements over those with lead-acid batteries, including quieter operations, and higher speeds for sprinting and cruising. Japan’s Maritime Self-Defense Force is the only navy known to operate diesel-electric submarines with li-ion batteries.

But the possibility that China could also develop li-ion submarines is a concern. Its battery complex has made undeniable technical advances in recent years and is, in many ways, technologically ahead of advanced economies, including Japan and South Korea. It is likely only a matter of time before China’s navy develops advanced li-ion diesel-electric submarines—if it is not doing so already.

Another risk posed by China’s battery complex is its development of solid-state batteries (SSBs), which enjoy further performance advantages over li-ion batteries, including greater density, capacity, range, and no risk of fire. While SSBs have yet to be commercialized, their development could offer substantial performance improvements for both diesel-electric submarines and unmanned systems.

The massive industrial scale and growing technological sophistication of China’s battery complex could therefore not only enable Beijing to secure the commanding heights of a global industry, but also enhance its military capabilities in ways that threaten US interests.

Finding a balanced approach

Because the Chinese battery complex presents decarbonization opportunities, but also security risks for the United States and other constitutional democracies, policymakers should adopt a balanced approach to batteries, working together with allies, friends, and partners to take risk mitigation steps when necessary.

Similar to its investigation into connected vehicles, Washington should comprehensively study where batteries pose potential security risks and take countermeasures where appropriate. Given the need to decarbonize the electricity system, Washington should act against existing installations or near-term imports of Chinese batteries for grid storage only when there is a compelling reason. Despite concerns about the security of Chinese-made grid storage batteries, any efforts by China to destabilize the grid appear far more likely to emerge from offensive malware operations or China’s cryptocurrency mining assets. As an interim measure, however, the United States and its allies should increase resiliency against potential grid subversion by undertaking more spot checks of battery imports and by booting Chinese-made batteries from sensitive locations, such as military bases.

The best way to mitigate battery-related risks, however, is to develop a US and “friend-shored” supply chain. Washington, Brussels, and other allies and partners should de-risk the entirety of the battery supply chain. The coalition should focus on potential supply chain chokepoints, especially graphite, as the United States has no existing production sites for this key battery material. Fortunately, the United States has already made substantial progress on developing its battery industry, as nearly $34 billion in actual investment into battery manufacturing has occurred in 2023 alone.

But more can be done. Washington should enact policies to speed up clean energy deployment to both reduce emissions and enhance national security. This includes permitting reform, which is critical for connecting clean energy to the grid. Also, deployment of more US-made batteries could provide synergies with key defense industrial capabilities, including for unmanned platforms and manned submarines. Similarly, the United States should continue to build out its domestic charging infrastructure for electric vehicles, which are an important use for lithium-ion batteries. Finally, the United States and its treaty allies—Japan, South Korea, and the Philippines—should explore siting battery manufacturing capabilities in areas relevant for contingences involving Taiwan and the South China Sea.

Striking a responsible balance between the competing imperatives of national security, economic interests, and decarbonization is challenging. Many actors fail to grasp that multiple things can be true at once: climate change poses a massive threat to our shared global future—but so does mounting clean energy dependence on the Chinese Communist Party. US tariffs on Chinese batteries aim to take a balanced approach to managing this complicated dilemma.

Joseph Webster is a senior fellow in the Global Energy Center and the editor of the independent China-Russia Report. This article reflects his own personal opinion.

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China builds more utility-scale solar as competition with coal ramps up

Joseph Webster — Thu, 09 May 2024 18:40:41 +0000

By virtually any metric, China is undeniably the world’s solar superpower. It deployed more solar capacity in 2023 than the United States has installed in its history; it also dominates the manufacturing supply chain, especially for wafers. These achievements are remarkable. Yet China’s track record on solar, a critical decarbonization tool, is hardly above criticism, including in its domestic market.

Owing to its deployment patterns and underlying resource constraints, China’s solar usage rates, known as capacity utilization factors, are among the lowest in the world. But this could be about to change. Recent data suggest that China may be shifting from distributed solar to utility-scale solar, which would, all things being equal, raise the overall efficiency of its electricity grid while aiding decarbonization. Given that China is by far both the world’s largest greenhouse gas emitter and coal consumer, its domestic solar deployments will have global consequences. However, several hurdles hindering the country from reaching its domestic solar potential have emerged.

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Utility-scale versus distributed solar

China’s domestic solar choices matter because distinct types of solar installations have vastly different generation potentials. Distributed solar, which is typically found on rooftops, lacks the capability to track the sun’s movements and optimize sunlight reception. It therefore has a lower capacity factor than utility-scale solar, which is generally ground-mounted with single- or dual-axis tracking.

Tracking systems typically entail securing bulky frames and motors, and drilling holes to hold the system in place. This type of solar installation is generally not suited for rooftops. Buildings can struggle to structurally bear the weight of tied-down panels, while high winds pose additional risks for rooftop panels. Consequently, rooftop panels typically do not have tracking, which limits their ability to receive optimal amounts of sunlight.

Case in point, in the United States, utility-scale capacity factors in the best locations and with the latest technology, including tracking capabilities, often exceed 30 percent; utilization factors for residential solar average nearly 16 percent. China doesn’t provide a comparable data breakout for its own utility-scale versus distributed solar. It does, however, provide information about its nationwide solar capacity factors. In 2023, China’s solar capacity factors stood at 14.7 percent, versus 23.3 percent in the United States.

China’s lower capacity factors are due, in large part, to its disproportionately high deployment of distributed solar generation relative to utility-scale deployment. There are several potential reasons for China’s tilt toward disturbed solar. China’s best solar resources are in the northern and western parts of the country, relatively distant from the coastal population centers to the south and east, where much of its solar is deployed. Additionally, China has limited interprovincial electricity transfers. These transmission-related factors, along with China’s higher electricity prices for coastal provinces, incentivize rooftop solar deployment in coastal areas, as seen in the chart below.

China’s solar strategy may be shifting away from distributed solar, although the evidence is mixed. In the last quarter of 2023, China reported 58 gigawatts (GW) of utility-scale solar capacity installations, an all-time high and a massive increase from prior periods. In the first quarter of 2024, China once more installed greater amounts of distributed solar capacity than utility-scale solar.

China’s utility-scale breakout?

Some features of China’s potential turn to utility-scale deployments are worth examining. In both 2022 and 2023, China’s utility-scale installations surged in the final quarter, potentially to meet year-end construction deadlines and capacity targets set by national and provincial governments.

Additionally, some provincial-level trends are noteworthy. Hebei, for example, enjoys good solar irradiance, while its proximity to Beijing’s substantial electricity load limits transmission costs. And Yunnan, in southwest China, installation of major utility-scale capacity began at the end of 2023 and continued through the first quarter.

Xinjiang is a striking anomaly. It reports virtually no distributed solar capacity despite having good solar potential, moderate per-capita income, and 34 GW of installed utility-scale capacity (including solar that China attributes to the Xinjiang production corps). Xinjiang’s deployment patterns constitute a major outlier in a country where rooftop deployment has been encouraged through official policy.

The most plausible explanation for this anomaly emerged from a solar expert on China. In written comments to the author, the expert suggested that “If you live in a low rainfall area with dust storms then somebody must keep the panels clean or wipe them down every so often. With a multifamily dwelling a ’crisis of the commons’ issue is quick to emerge.”

While Xinjiang’s lack of distributed solar capacity may be related to several factors, it is also hard not to wonder if the Communist Party’s pervasive repression of the province’s Uyghur population weakens social trust and, consequently, disincentivizes rooftop solar deployments.

Finally, Inner Mongolia’s modest deployment of utility-scale solar has major climate consequences. The sun-soaked, windy province enjoys some of China’s best renewable energy resources, and it is also a coal bastion. In 2023, Inner Mongolia produced 1.21 billion tons of coal supply, of which 945 million tons were supplied to coal-fired power plants, as the renewables-rich province incongruently supplied over 25 percent of China’s coal production last year. Since Inner Mongolia’s thermal coal and solar production compete to provide electrons for the Chinese grid, this province will play an outsized role in shaping China’s climate trajectory.

It’s too soon to say if China is shifting solar deployment into a more efficient model: namely, utility-scale solar in the northern, more sun-soaked regions of the country. Encouraging signs include the planned construction of over 225 “renewable energy bases” across the Chinese interior, comprising total wind and solar capacity of 455 GWs, along with associated transmission lines. Some Chinese provinces are also siting solar panels on land repurposed from mining. These steps are constructive.

Yet there are also reasons to temper expectations. China’s solar utilization rates actually fell in 2023. That may be attributable to the type and regions of deployment, or bad luck from weather, but other factors are possible. With China exhibiting sudden year-end deployment surges to meet construction targets, the long-term performance and sustainment of its panels could degrade if maintenance needs rise. Finally, solar faces economic headwinds in Shanxi, Inner Mongolia, and Shaanxi—some of China’s most sun-soaked provinces. These regions also have an abundance of coal, some of which is used for steel production rather than electricity generation. Still, the fossil fuel keeps electricity prices low, disincentivizing solar.

China is showing signs of a shift toward more utility-scale solar in suitable regions, and it is making substantial progress in deploying massive volumes of solar capacity, but powerful structural hurdles to the technology’s domestic adoption are coming into focus.

Joe Webster is a senior fellow at the Atlantic Council Global Energy Center, and editor of the China-Russia Report. This article represents his own personal opinion.

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Amid competing pressures, will Ukraine quit its transit of Russian gas?

Sergiy Makogon and Daniel Stein — Tue, 07 May 2024 18:58:09 +0000

Despite Russia’s ongoing war in Ukraine, Russian gas continues to transit Ukraine on its way to European buyers. By and large, both sides continue to adhere to the 2019 EU-brokered gas transit agreement. Under that agreement, Gazprom is obliged to ship a minimum volume of gas—65 billion cubic meters (bcm) in the first year and 40 bcm in subsequent years—under ship-or-pay conditions. But there has been much speculation about what happens to transit when the 2019 agreement expires at the end of December 2024.

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Ukraine’s gas transmission system has traditionally played a major role in delivery of Russian gas to Europe. As late as 2019, transit volume was about 90 bcm, accounting for one half of Russia’s total gas exports to Europe. After Moscow’s full-scale invasion, the continuation of Russian gas transit through Ukraine provided EU member states energy security while also buying them time to arrange for alternative natural gas supplies. And by 2023, the transit volume had fallen to less than 13 bcm, with most of the gas being delivered to Austria, Italy, Hungary, and Slovakia. Other major consumers, including Germany, Poland, and the Czech Republic, have managed to end their dependence on Russian pipeline gas and Russian gas in general, although Russian LNG exports to Europe have continued to rise. But since 2022 the United States has emerged as a main LNG supplier to Europe, accounting for nearly half of total EU LNG imports in 2023 and helping to blunt Europe’s need for Russian LNG.

Of the countries most likely to be directly affected by the expiration of the 2019 agreement, Slovakia and Hungary have been the most vocal in calling for the continuation of Ukraine transit. Italy already has been able to largely replace Ukraine transit gas with LNG and pipeline gas from other sources, including Azerbaijan, and has been silent on the future transit issue. Austria presents a mixed picture. Some Austrian politicians have expressed concerns over its growing dependence on Russian gas, while others have signified their reluctance to break existing supply contracts.

For its part, the EU has expressed the view that there is no need to extend the current transit agreement, although it has not commented on the prospects for transit in the absence of an agreement. This could take the form of capacity bookings by European traders who would take delivery of Russian gas at Ukraine’s eastern border. This possibility has been discussed with little interest for many years until recently, presumably because European traders were not willing to take the attendant risk.

Meanwhile, the view from Kyiv is muddled at best. The minister of energy has completely ruled out future transit, but the prime minister has nixed an extension of the current agreement, while suggesting that transit still might continue under the right circumstances. The head of the Ukrainian gas transit company has similarly expressed willingness to continue transit at least through 2027, the proposed target date for EU countries to phase out imports of Russian fossil fuels.

The arguments in favor of Ukraine continuing to offer transit are weak, premised on the revenue Ukraine earns from transit and concerns over the availability and price of replacement gas. The first concern is overblown. Although Ukraine currently collects about $800 million per year from transit, that does not account for the costs of operating the system. Given the (EU-style) tariff methodology employed by Ukraine, the actual financial benefit is much less, and in the context of Ukraine’s economy, relatively insignificant at 0.46 percent of GDP.

Concerns about replacing Ukraine transit gas are equally overblown. Countries now dependent on Ukraine transit can easily source replacement gas, particularly LNG. Increases in US and Canadian LNG production in 2025-2026 alone would more than replace Russian gas currently being transited via Ukraine.

Meanwhile, the EU has added around 50 bcm of LNG regasification capacity since 2022. Further capacity expected to come online by the end of 2024 will result in total capacity of about 235 bcm, able to meet over 55 percent of European annual gas demand based on the gas consumption average of the last five years.

The argument that the end of transit would lead to much higher gas prices in Europe is likewise questionable. The EU gas market has currently stabilized and returned to its pre-war price range, and Ukrainian transit accounts for only 4 percent of total European demand.

So why the pressure to continue transit once the agreement lapses if Ukraine transit gas can economically be replaced with gas that doesn’t originate in Russia? In the case of Slovakia, and to a lesser extent Austria, purely financial considerations may be at work. The end of Ukraine transit could hit Slovakia hard, since most of the Ukraine transit gas also transits Slovakia through the Eustream pipeline system. However, Eustream has a ship-or-pay contract with Gazprom extending to 2028, obligating payment by Gazprom even in the absence of transit (although force majeure might excuse non-performance). The economic damage to Austria is likely smaller, since it also earns revenue from non-Russian gas transiting its Baumgarten hub.

However, Russia’s continued aggression and the war’s potential to escalate into a NATO-Russia or EU-Russia conflict underline the need for European unity and solidarity, particularly in reducing the export revenues of the aggressor. Billions of dollars in gas revenues from NATO and EU members should not be used to fuel Russia’s military capabilities. In fact, the EU is now considering a complete ban on Russian LNG imports.

Moreover, the continued reliance on Russian pipeline gas gives Russia undue political leverage and creates disunity among EU member states, weakening the West’s overall response to Russian aggression. Ending transit via Ukraine after 2024 would enhance the region’s energy security and diminish Russia’s export income with minimal disruption in gas supplies.

The Ukrainian government may face political pressure from some EU member states to maintain gas transit, with or without an agreement. To counter this pressure, the United States should: (1) discourage its EU allies from continuing to import Russian gas via Ukraine and (2) urge Ukraine to resist this pressure, while also encouraging the EU to support Ukraine in its stance.

Sergiy Makogon is the former CEO of GasTSO of Ukraine (2019-2022).

Daniel D. Stein is a former senior advisor with the Bureau of Energy Resources at the US Department of State.

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G7 pledges to end coal—but only inclusive action will make a real climate impact

Elena Benaim — Fri, 03 May 2024 20:13:34 +0000

Energy ministers from the Group of Seven (G7) met in Turin, Italy, on the 29th and 30th of April for the first time since the United Nation climate summit in Dubai. Two days of discussion at the Climate, Energy, and Environment Ministerial meeting resulted in a series of shared commitments to address climate change and energy security. The 35-page long joint communiqué includes a historic pledge to phase out coal power plants by 2035.

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The commitment of “phasing out coal by 2035 or on a timeline consistent with the 1.5 temperature limit” marks a further step in the direction indicated last year by the UN climate summit, known as COP28, to reduce the use of fossil fuels, of which coal is the most polluting. Mentioning the IEA’s Net-Zero Roadmap report, G7 countries say that “phase-out of unabated coal is needed by 2030s in advanced economies and by 2040 in all the other regions, and that no new unabated coal power plant should be built.” This represents the first agreement on a timeline for phasing out coal after the initiative had previously failed due to opposition by some members. However, it should be noted that, despite the positive step towards a common goal, by using the term “unabated” in the communication, members of the G7 leave open a potential path for the use of coal beyond the indicated timeline.

In addition to the importance of ending coal reliance, it is now widely recognized that the success of the energy transition is linked to a technology-inclusive approach both for reaching climate neutrality and strengthening energy security. The communication of the G7 promotes members’ increasing use of diverse low-carbon energy technologies including renewable energy, energy efficiency, hydrogen, carbon management, storage, nuclear energy, and fusion.

Energy ministers fully committed to the “implementation of the global goal of tripling installation of renewable energy capacity by 2030 to at least 11 terawatts (TW)” and to “double the global average annual rate of energy efficiency improvements by 2030 to 4%,” signaling the intention to create a strong connection with COP28 pledges.

On energy storage, G7 members agreed to a global goal in the power sector of 1500 gigawatts (GW) in 2030, a more than six-fold increase from 2022. Introducing this target for storage is very important to support renewable implementation and ultimately reach the installation capacity target set in Dubai.

The communication highlights the importance for countries to reduce reliance on civil nuclear technologies from Russia and commits to strengthening the resilience of the nuclear supply chain. Countries opting for nuclear energy would work to deploy next generation nuclear reactors.

Fusion made it in the final text with a strong emphasis on the potential of this technology to provide a lasting solution to the global challenges of climate change and energy security in the future, marking an important addition to the G7 joint communication, since in the Hiroshima Communique, fusion was not mentioned.

In order to implement these targets and scale technologies, the G7 countries this year also reaffirmed their commitment to jointly mobilize $100 billion per year until 2025 and their intention to scale up public and private finance. “We stress the need to accelerate efforts to make finance flow consistent with a pathway towards low greenhouse gas emissions and climate-resilient development,” and “we acknowledge that such efforts involve the alignment of the domestic and international financial system.” Attention is now directed toward the upcoming G7 finance meeting, the G20 in Brazil, and the “finance COP” in Azerbaijan.

Finally, convergence and cooperation with countries outside the G7 will play a crucial role in the success of the transition. The joint communication acknowledges that developing countries represent “an important partner in the just energy transition” and recognizes “the great potential of the African continent in becoming a global powerhouse of the future.”

At this year’s energy ministerial meetings, Azerbaijan’s Deputy Minister on Energy Elnur Soltanov (representing the 2024 COP29 presidency), Brazil’s Minister of the Environment and Climate Change Marina Silva (representing the 2024 G20 presidency), and Kenya’s Principal Secretary on Energy Alex K. Wachira, participated along with the G7 partners. This approach shows recognition of the fundamental role that inclusivity plays in a successful transition and the willingness to create strong synergies with the upcoming multilateral forums.

It would be difficult to overstate just how critical pragmatism and convergence are to the energy transition. But this message, in addition to being successfully incorporated in the communication was further reinforced during the Future of Energy Summit, a half-day event hosted by the Atlantic Council Global Energy Center, Politecnico di Torino, and World Energy Council Italy as part of Planet Week on the sidelines of last weekend’s G7 ministerial meeting. Experts and speakers at the Summit emphasized the need to strengthen a technology-inclusive, not exclusive, approach and cooperation among countries.

The IEA’s Net Zero Emissions by 2050 Scenario (NZE) envisages that by 2030, advanced economies would end all power generation by unabated coal-fired plants, making the new G7 historic commitment unfit for purpose. However, the overall success of the transition will not be determined by pledges, but more so by the will of countries to transform pledges into action. Whether G7 countries will be able to succeed in the energy transition will depend on their capacity to create resilient clean energy supply chains, implement diversified energy mixes, promote collaboration with developing countries, scale up public and private finance, and it seems like many steps are being taken in the right direction.

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

EnergySource

EnergySource Apr 3, 2024

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By Pawel Czyzak and Nolan Theisen

The upcoming Three Seas Initiative Summit is an opportune time for Central and Eastern European leaders to pivot toward clean, affordable, and local renewables to build energy security.

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David Goldwyn: Energy markets will hinge on Israel’s response

The post G7 pledges to end coal—but only inclusive action will make a real climate impact appeared first on Atlantic Council.

What Iran’s attack on Israel means for global energy

Atlantic Council experts — Tue, 16 Apr 2024 19:34:36 +0000

Energy markets have shown a muted response to Iran’s unprecedented attack on Israel over the weekend, despite the threat this escalation poses to global oil supplies. But, as Israel weighs its response, the risks to fuel prices and global energy security are extremely high. Our experts comment on what to watch for as tensions rise.

Click to jump to an expert analysis:

Ellen Wald: Will Iran close the Strait of Hormuz?

Brenda Shaffer: Iran-Israel direct confrontation will last months, not days

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Energy markets will hinge on Israel’s response

Energy markets have been pretty sanguine about rising tensions in the Middle East for some weeks. This may not last. The baseline assumptions have been that the Strait of Hormuz will remain open because it is in Iran’s interest to keep them open. Trade in liquefied natural gas (LNG) has been rerouted to avoid Houthi attack in some cases, but Qatar has had a fast pass to deliver to market. Even this week, markets were relieved at the ability of Israel and its allies to repel the Iranian drone and missile attack, and continue to assume that Israel’s response will not attack Iranian oil production.

But the key question is what comes next. Pressure in Israel to respond to the Iranian attack is intense. There is a high risk of confrontation with Hezbollah in the north to mitigate the risk of a short-range missile attack on Israel. And the Israelis are not done with their Gaza operation. Iran has taken what it thinks is a well previewed and measured response to Israel’s strike on its consulate in Syria to end the cycle of response, but neither Israel nor the United States can tolerate Iranian attacks on Israel as the new normal.

Key issues to watch in the next two weeks are: 1) what measures the United States and allies will take to try to forestall an Israeli escalation that could lead to a wider war; 2) whether new sanctions on Iran will target insurance clubs, Chinese banks, or both; 3) whether the United States will dramatically increase targeting of Houthi strongholds as a way of reducing the threat to shipping and retaliating against Iran; and 4) whether Israel will exercise restraint, or whether it will trigger a new round of kinetic activity.

At minimum, shipping costs are likely to increase based on the increased risk of military action in the Persian Gulf, pressure on US and European insurance clubs to avoid any transactions—including those with China—that involve Iranian crude and additional rerouting of oil and gas shipments in response to Houthi threats, or Allied responses. Cooler heads in the United States, Europe, Jordan, Saudi Arabia, and hopefully China will try to head off confrontation that will drive oil and gas prices into triple digits. But they may not prevail….

David L. Goldwyn served as special envoy for international energy under President Obama and assistant secretary of energy for international relations under President Clinton. He is chair of the Atlantic Council’s Energy Advisory Group and a nonresident senior fellow with the Council’s Global Energy Center.

Will Iran close the Strait of Hormuz?

As the conflict between Iran and Israel intensifies, the big question is “will Iran close the Strait of Hormuz”? This narrow waterway must be traversed by all ships exiting and entering the Persian Gulf. According to the EIA, about 21 percent of the world’s liquid petroleum (crude oil, condensate and petroleum products) travels through the Strait of Hormuz, making it the most important oil transit chokepoint.

If Iran shut down transit through the strait, oil supplies would be immediately and significantly impacted. Asia would feel the effects most acutely, as 80 percent of the crude oil and condensate that leaves the Persian Gulf through the strait is shipped to Asian customers.

Iran has threatened this action in the past, but never followed through. Iran isn’t likely to close the strait to Saudi, Kuwaiti, Iraqi, and Emirati oil, because if it did, the United States would immediately deploy naval forces to prohibit ships carrying Iranian oil from exiting the Persian Gulf. Iran is completely dependent on revenue from its illicit oil trade, and if it could not export oil, the government would become immediately insolvent.

Even though Iran’s oil is technically under heavy US sanctions, those sanctions are applied on the buyers of Iranian oil, and those buyers have ways of evading sanctions by masking the origin of the oil they purchase. In addition, the Biden administration has not enforced sanctions violations against Iran’s largest customer, China, in ways significant enough to deter Chinese refiners from buying Iranian oil.

Sanctions enforcement and the security of the Strait of Hormuz go hand in hand. If the United States starts enforcing its oil sanctions more strictly and Iran cannot not find buyers for its oil, then Iran could be motivated to close the strait to shipping, because it has nothing to lose. But if sanctions are not as strictly enforced and Iran continues to generate significant revenue from its oil sales, then it will be motivated to keep the Strait of Hormuz open to all shipping.

At the same time, Iran uses revenue from its oil industry to fund terrorism and unrest throughout the Middle East and beyond. Iran isn’t going to close the Strait of Hormuz unless it has nothing to lose. Insurance costs on transporting oil through the Persian Gulf will likely rise, as the potential for an oil tanker to get caught in the crossfire is now more likely. The risk of short-term spikes for oil prices will remain, but the risk of long-term, elevated oil prices owing to a supply shock from the Middle East is still low.

Ellen R. Wald is a nonresident senior fellow with the Atlantic Council Global Energy Center and the co-founder of Washington Ivy Advisors.

Iran-Israel direct confrontation will last months, not days

The Iran-Israel direct confrontation is not over. Currently, the oil market does not correctly reflect the risks to disruption of oil supplies, especially to Iran’s oil production and exports.

Israel will respond to Iran’s April 13 massive aerial barrage. The timing of Israel’s response will depend on when the proper target emerges. States do not pick a date to attack and then look for targets, rather the opposite. When the proper target is identified, the attack will take place.

Iran’s oil production and export is an attractive potential target, because a severe disruption of Iran’s oil infrastructure will be a strategic loss to Iran—and can be accomplished with few human casualties. Yet, clearly the United States would oppose an attack that would reduce Iranian oil exports. The Biden administration wants as many barrels on the market as possible in an election year to keep the global oil prices low, and has not been enforcing US sanctions on Iranian oil exports. Iranian oil production and exports have grown significantly under the Biden administration. In new Iran sanctions that the administration announced on April 18, reference to oil was conspicuously missing.

An illustration of the administration’s tenacity in keeping foreign barrels in the market, Washington asked Ukraine to refrain from attacking Russian oil refineries, despite the effectiveness of these attacks to slow Russia down. If Israel decides to attack Iran’s oil infrastructure, it will likely wait to do it until after the US November elections. Thus, in assessing the impact of the Iran-Israel confrontation on the global oil market, it is important to assess impact over months and not over days.

Iran’s decision to attack Israel from its own territory, and not via proxies as it has done for over twenty years, is exceptional. The regime in Iran is quite calculating and strategic and this decision to attack Israel does not fit its normal mode of behavior. Iran essentially has no modern navy, no serious air defense, and no air force (most of the planes in is inventory were purchased from the United States and France in the 1970s). In this state, it is surprising that Tehran launched the massive aerial attack on Israel, opening itself up to a counterattack. There are two potential explanations to Iran’s decision. One, Iran may be very close to developing a nuclear weapon (or has succeeded), thus has increased confidence, despite its conventional military inferiority. Or, Tehran may have underestimated US support for Israel and the mobilization of most Arab states to challenge the Iranian attack.

Brenda Shaffer is a nonresident senior fellow with the Atlantic Council Global Energy Center.

EnergySource

EnergySource Feb 21, 2024

Escalating Middle East conflict means North America must bolster global energy security

By Julia Nesheiwat

The Houthi attacks on ships in the Red Sea have raised shipping costs and caused delays for certain traded goods. While global energy supply has remained uninterrupted, the threat of a broader conflict in the region raises the chances that there will be disruptive attacks on energy and transport infrastructure, putting energy security at risk.

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By Atlantic Council experts

Atlantic Council experts share their insights about the strikes and about what to expect next—including how Iran might respond.

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The post What Iran’s attack on Israel means for global energy appeared first on Atlantic Council.

Central and Eastern Europe needs to rethink its approach to energy security

Pawel Czyzak and Nolan Theisen — Wed, 03 Apr 2024 16:35:37 +0000

With the annual Three Seas Initiative Summit fast approaching and in the wake of the recent joint visit of Poland’s Prime Minister Donald Tusk and President Andrzej Duda with President Joe Biden in Washington, Central and Eastern European (CEE) countries have an opportunity to reframe their energy security outlook—still dominated by natural gas diversification—and increase the role of local green solutions. Analysis of the regional energy landscape finds that CEE countries are planning to expand gas import infrastructure beyond what is needed to replace Russian gas and meet future demand, neglecting abundant renewables potential in the process.

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Navigating outside interests

Historically dependent on Russian fossil fuels, CEE now plays a crucial role as the eastern flank of NATO and a logistics hub for Ukraine aid. Additionally, China has been active in CEE trade and investment through its 14+1 format (formerly 17+1), which includes battery, wind, and solar energy supply chains, while the United States promotes close cooperation with its gas and nuclear industries.

As the largest inter-governmental organization in the region, the Three Seas Initiative (3SI) is uniquely positioned to define CEE’s role among these interests. It includes member countries Estonia, Latvia, Lithuania, Poland, Czechia, Slovakia, Hungary, Slovenia, Croatia, Bulgaria, Romania, Austria, and Greece with the participation of Ukraine and Moldova as partners. However, despite 3SI’s original goal of enhancing North-South collaboration and connectivity, of its forty-one energy priority projects, only one is dedicated to cross-border electricity interconnection and one to an offshore wind farm grid connection, while twenty are linked to gas infrastructure expansion.

CEE’s appetite for gas is no longer growing

Enabling natural gas in CEE is becoming increasingly untenable. Data suggest that by 2025, LNG import capacity across 3SI countries is likely to exceed historical imports of Russian pipeline gas. To use this expected growth in supply, LNG consumption in the region would have to grow well beyond past demand.

Furthermore, evidence is mounting regarding the adverse climate and environmental impacts of LNG. Reflecting global concerns along these lines, the Biden administration suspended approvals for liquified natural gas (LNG) exports, in an effort to better align US foreign policy with its climate ambition.

The potential for stranded assets

Forecasts by European power and gas grid operators estimate that total gas demand in 3SI countries will stabilize around the 2023 level of 70 bcm and reach between 61 and 73 bcm by 2030, depending on the scenario and the displacement of coal in the power sector. Over the same period, LNG import capacity in 3SI countries is expected to reach 53 bcm (by 2030), complemented by 17 bcm from the Baltic Pipe, Balticconnector, and Trans Adriatic Pipeline, as well as 15 bcm of domestic gas production (16 bcm in 2023), reaching 85 bcm in total. This means that by 2030, across 3SI members, the sum of domestic production and gas import capabilities through LNG terminals and pipelines from North and South directions will exceed demand of 3SI countries by 17-40 percent (12-24 bcm).

The outlook varies at the country level, but outsized gas facilities funded by EU taxpayer money in Poland or the Baltic States in particular risk becoming stranded assets. By 2040, demand is expected to decrease due to intensified energy efficiency measures and growth in heat pump installations replacing gas boilers.

The energy security risks of LNG reliance

While LNG has played an indispensable role filling the Russian supply gap, security concerns remain for certain landlocked CEE and 3SI countries with unequal access to market-based LNG. The reality is that all importers and consumers of LNG face risks from global fuel price fluctuations, contract renegotiations, and competition from buyers willing to spend more. Pakistan’s experience in 2022 and 2023 highlights these challenges. Whenever China’s economic recovery arrives, it will have major ramifications across the global LNG market. The EU’s gas import bill ran close to €400 billion in 2022 alone—more than three times the level in 2021, showing how high the price of energy security can be.

The Three Seas Summit is an opportunity to pivot from gas to renewables

This year’s Three Seas Summit provides a unique opportunity for CEE governments to articulate a long-term vision pivoting away from fossil fuel interests toward clean, affordable, and local renewables, enabled by an expanded interconnector network. The new pro-Europe and pro-climate government in Poland, the largest 3SI member, could lead the charge for 3SI to transition away from gas use.

The opportunity to implement this change is significant, especially for the Lithuanian 3SI presidency and its Baltic Sea neighbours, which are on track to deploy 15 GW of offshore wind by the early 2030s. Capitalizing on the wind and solar potential would increase the share of renewables in 3SI’s electricity generation from 39 percent today to 67 percent by 2030, and lead to a 27 percent reduction in power prices compared to a current policy scenario.

Realization of this renewable potential would bring major economic and security benefits. The expansion of offshore wind in the region is already creating hundreds of jobs, and lower electricity prices will attract further manufacturing and industry investments. Examples from Ukraine show that distributed energy generation and interconnection provides better resilience in times of war than a traditional, centralized power system.

However, grid expansion and upgrades have to keep pace with the electrification of the economy. The European Commission estimates that by 2030, €584 billion in investments are necessary to modernize the aging grid infrastructure, making it fit for variable renewables and new demand from electric vehicle charging points and residential heat pumps. This presents a vast investment opportunity for the next phase of the Three Seas Initiative Investment Fund, especially in the area of cross-border interconnection.

With the expansion of wind and solar, the CEE region can become a model for reduced dependency on fossil fuel imports—and transform into a European clean energy hub.

Pawel Czyzak is Central and Eastern Europe lead at Ember.

Nolan Theisen is a senior research fellow at Slovak Foreign Policy Association.

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The post Central and Eastern Europe needs to rethink its approach to energy security appeared first on Atlantic Council.

US ratification of the ocean treaty will unlock deep sea mining

Alex Gilbert and Morgan Bazilian — Tue, 02 Apr 2024 18:13:47 +0000

Hundreds of former political and military leaders are calling for the US Senate to ratify the UN Convention on the Law of the Sea (UNCLOS), the impetus being to open up deep sea mining to supply critical minerals needed for clean energy and military technologies. UNCLOS, adopted in 1982, is the primary international treaty governing state activities in oceans, particularly in areas beyond national jurisdiction that hold seabed minerals. Deep seabed resources include highly valued minerals such as cobalt, nickel, and rare earths. Recent technological advances and new companies are making their extraction economically feasible for the first time.

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The United States has yet to ratify the UNCLOS due to historic opposition toward its international regulation of seabed resources in the High Seas. This lack of participation bars US companies from directly participating in what could be a significant new industry. It has already led to dominance of deep sea exploration permits by geopolitical competitors—China and Russia have together won nine permits, including in areas historically claimed by the United States. By ratifying the Law of the Sea treaty, the United States can bolster critical mineral supply security, enter deep sea markets, and enhance national security.

Governments and private industry have long worked to enable the extraction of minerals from the deep seabed for a range of resources, including cobalt crusts, hydrothermal sulphides, and polymetallic nodules. Of these, polymetallic nodules are the most sought after—ocean processes create these billiard-ball-sized clumps of valuable metals. Ore grades in nodules significantly exceed those on land, making their extraction both cost and emissions efficient. The largest collection of nodules is located in an area called the Clarence Clipperton Zone (CCZ), which stretches the Eastern Pacific between Hawaii and Mexico. Recent technological developments, particularly in remotely operated vehicles and underwater vehicles, mean that deep sea resources are potentially economical today.

Reliable critical mineral supplies are increasingly important for the global economy and security. They are needed to meet clean energy needs, including electricity infrastructure, electric vehicles, and renewable energy. Many advanced technologies for defense applications, particularly electronics, require stable and growing supplies of these rare minerals. China dominates extraction and processing of most critical minerals, while the United States is a major importer for all minerals that deep sea mining might supply.

Governance of deep sea mining depends on location. Under UNCLOS, seabed resources within exclusive economic zones are governed by the relevant nation. Norway recently became the first country to authorize mining of such resources in their jurisdiction, but most resources are outside such zones. Resources in the remaining half of the ocean, called the High Seas, are governed by the International Seabed Authority (ISA). Although the United States played an active role in negotiating UNCLOS and considers most of it customary international law, it has not ratified the treaty due to Senate opposition to the role of the ISA. Among other reasons, some senators historically opposed the ISA’s international royalty mechanism, and expressed concerns about precedent for other domains like outer space. Without ratification, the United States cannot directly participate in the ISA’s governing process, and American companies cannot receive ISA mining permits.

These criticisms are not unfounded. The ISA has existed for decades and yet is struggling to establish a governance framework. The small nation of Nauru is forcing the issue legally, and the ISA is close to finalizing its mining permit system, without clear environmental protection. Global environmental groups have called for a moratorium on deep sea mining until scientists can conduct more research on environmental impacts.

Still, one of the primary objections (that an ISA-like royalty mechanism would be created for space exploration) to ratifying the law of the sea is no longer valid. In the last decade, the United States and many other countries have passed domestic legislation legalizing space mining without a space equivalent to ISA. This approach has been legitimized by the multilateral US-led Artemis Accords, which now has thirty-five signatories including all major space powers except China and Russia. The United States has secured a governance pathway forward for space resources that does not repeat the limitations of the ISA.

The letter calling for ratifying the Law of the Sea is the culmination of a growing bipartisan agreement around securing critical minerals in the face of an ongoing trade war with China. A group of bipartisan senators led by Senators Lisa Murkowski, Mazie Hirono, and Tim Kaine introduced a resolution explicitly calling for ratification. Congress, in both informal letters and directed reports, is pushing for studies on deep sea resources in US waters and the ability to establish domestic processing infrastructure. In late 2023, the US State Department initiated an extended continental shelf claim into the Arctic and Pacific oceans, exerting jurisdiction over seabed mining for certain areas beyond its exclusive economic zone, a practice explicitly outlined in UNCLOS. However, China and Russia have challenged this new assertion, arguing at ISA that the US cannot make the claim because it has not signed UNCLOS.

Ratifying UNCLOS would also bolster US diplomatic power. The Houthi campaign in the Red Sea is disrupting 20 percent of global maritime trade. Multiple submarine telecommunications cables in the Baltic Sea and Red Sea have been severed in the last year, threatening global internet connectivity. For more than a decade, China has been violating the principles of the LOS with their actions in the South China Sea and elsewhere. UNCLOS ratification would greatly strengthen US credibility in seeking international coalitions to push back against these challenges.

The future of deep sea mining remains uncertain. The burgeoning industry faces technical, economic, regulatory, environmental, and political challenges. The abyssal plains of the deep seabed hold unique biodiversity and are fragile, so mining activities must readily incorporate environmental best practices to limit impacts and gain social license to operate. Nevertheless, its potential benefits to meeting critical mineral supply are substantial, as are the geopolitical stakes of establishing a leadership position. The urgency of securing critical mineral supply means the time is right for the United States to reconsider its formal participation in UNCLOS.

Alex Gilbert is a PhD student in space resources and a fellow at the Payne Institute for Public Policy at the Colorado School of Mines.

Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines.

EnergySource

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The post US ratification of the ocean treaty will unlock deep sea mining appeared first on Atlantic Council.

Peacemaking through curbing Russian oil and gas exports

Svitlana Romanko and Oleh Savytskyi — Wed, 20 Mar 2024 13:22:59 +0000

Ukraine seems to have found an effective asymmetrical response to the massive waves of deadly missile attacks that Russia has unleashed against Ukrainian cities since early January. A number of Russian oil refineries and oil terminals have been hit with precision strikes, attributed to new Ukrainian long-range drones.

By targeting fossil fuel exports—the financial lifeline of the Kremlin’s regime—this response has had an impact. In January Russia’s seaborne oil product exports fell 8.6 percent from a year earlier and 2 percent from the previous month to 10.8 million metric tons, owing to lower processing capacity and unplanned repairs.

Drone strikes at critical processing and export facilities bring financial pain to Russia. Repairs are costly and time-consuming, especially because of sanctions that limit access to Western technology, which is making the replacement of destroyed equipment difficult.

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However, Ukraine’s efforts to repel Russian attacks would be made less challenging if Europe and the United States did even more to throttle Moscow’s oil and gas exports by utilizing the full power of sanctions.

The tragic loss of human life in Ukraine, including hundreds of children, is still too often paid for by cash that Russia receives from the export of oil and gas enabled by loopholes that persist in the sanctions regime imposed on Moscow by the United States and the European Union. Amid the ongoing struggle for peace and sovereignty in Ukraine, governments that believe in the rule of international law must do more. The United States, EU, and the Group of Seven (G7) industrialized nations should be consistent and strict in enforcing sanctions against Russian fossil fuels.

Western governments have strong tools to dry up the Kremlin’s war budget. They can do this by plugging the gaps in sanctions against Russian oil and gas exports, strengthening them further, and thereby severing the critical revenue stream supporting the Kremlin’s oppressive regime and its brutal war machine.

There are five specific actions that the G7 and EU can take in this direction: enforce price caps on Russian oil and oil products; prevent the expansion of Russia’s shadow fleet of oil tankers; close the refining loophole; fully ban Russian liquefied natural gas (LNG) imports; and take decisive actions to reduce demand for oil and gas in the long-term.

Civil society organizations are urging Western leaders to take these steps. More than 290 groups from across the globe addressed the G7 and EU leaders with this call in February, as Ukraine marked the tragic two-year anniversary of the full-scale invasion.

There is an urgent need to eliminate loopholes in sanctions against Russian fossil fuels to prevent further escalation of the Kremlin’s aggression in Europe outside of Ukraine.

The shadow of Russia’s military plans looms ominously. This is evident in the 2024 federal budget, with a staggering allocation of resources to the military-industrial complex, not seen since Soviet times. This is a startling shift in budgetary focus, with a third dedicated to the army. This militarization signifies a perilous path toward conflict intensification, threatening regional stability. In 2024, Russia’s “national defense” budget will expand to 10.8 trillion rubles ($110 billion), marking a 70 percent increase from 2023 and more than doubling from 2022. It is three times higher than the pre-war 2021 allocation.

Regrettably, Europe and the United States inadvertently contribute to this war chest. The refining loophole in Western sanctions against Russian oil exports, meticulously highlighted by Global Witness, remains a massive funding source feeding Russia’s aggression, a fact that should not be overlooked.

While Western governments have banned the imports of crude oil, petrol, diesel, and jet fuel that originate in Russia, their countries can still import refined oil products produced from Russian crude in other nations, like India, China, Turkey, or the United Arab Emirates. In 2023 sales of Russian crude oil to refineries in India went through the roof. These Indian refineries capitalized on selling the refined products to G7 markets, where direct supplies of Russian oil were banned. The refining loophole increases the demand for Russian crude oil and enables higher sales in terms of volume, while keeping its price up. As a result, the price of Russian crude oil does not collapse in the global market even with the Western sanctions.

OPEC members’ decision to restrict exports of additional volumes of oil to world markets benefits Putin, and contributes to Russia’s strategy to weaponize energy supply. The refining loophole also creates a space for cooperation between Russia and OPEC countries, which can import Russian oil to refine or mix it with other blends of crude to conceal origin and profit from it.

Similarly, Europe still buys significant volumes of Russian natural gas, not so much through pipelines, but increasingly in the form of LNG. Key Russian LNG importers such as France, Spain, and Belgium have little excuse for continuing to do business with Russia. The gas storage in Europe is ample, and projections indicate an energy surplus bolstered by record-breaking clean energy expansion and alternative LNG supplies set to come online in 2024.

In total, since the start of the full-scale invasion in Ukraine on February 24, 2022, Russia has amassed more than $650 billion in profits from fossil fuel exports. Yet, if international sanctions on Russia’s fossil fuel industry are maintained and rigorously enforced, the International Energy Agency projects that the Kremlin’s profits from oil and gas could plummet by 40 to 50 percent by 2030.

The West has to act collectively to cripple the Kremlin’s fossil fuel export lifeline to help end the war in Ukraine faster. The future of Ukraine’s security and human dignity hinges on this critical moment of action, and world leaders must take action now to stop funding Russia’s aggression.

Svitlana Romanko, Founder and Director of Razom We Stand

Oleh Savytskyi, Campaigns Manager at Razom We Stand

EnergySource

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The post Peacemaking through curbing Russian oil and gas exports appeared first on Atlantic Council.

Hydrogen challenges in a post-45V world

Matthew Blieske and Joseph Webster — Thu, 14 Mar 2024 19:05:55 +0000

Recently, the US Treasury released its critical hydrogen guidance, called 45V, but the domestic hydrogen ecosystem has yet to see major positive final investment decisions (FID). While 45V is an undeniably important element in determining the future of the industry, and its related emissions, insufficient attention is being paid to the substantial technical, commercial, and regulatory challenges that must be overcome if hydrogen is to realize its potential as a key decarbonization vector.

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45V is a tax credit for the production of what the US Treasury terms “qualified clean hydrogen.” The US Treasury released its 45V draft guidance in late December, imposing strict guidance on the so-called “three pillars” of temporal matching, additionality, and deliverability.

Critics of the 45V guidance argue it is too restrictive and will prevent the industry from reaching scale, or even cede the sector to China. Conversely, environmental groups and academics are broadly supportive of the Treasury’s decision, holding that hydrogen’s ambitions must match its thermodynamic and technoeconomic realities, as insufficient restrictions could actually increase US emissions at the cost of tens of billions of dollars.

While 45V will have enormously consequential impacts on US hydrogen’s scalability, as well as emissions, it’s not the only factor affecting the industry. These challenges include the following:

Elevated interest rates and lengthy permitting times for new clean infrastructure are slowing capital-intensive energy deployment, including clean hydrogen.
Technology and supply chain issues are also impacting hydrogen development. While hydrogen production tax credits will improve project costs, they do not address persistent issues with integration of the supply chain and onsite systems. Hydrogen suppliers are inexperienced, with many having just come out of a technology-development phase. They often lack operations support and robust system design around the core technology.
Poor technical integration due to the lack of robust modern digital platforms that can communicate with and manage assets across the supply chain impairs a project’s ability to pass FID. Hydrogen generation projects will not pass FID unless offtake is secured. Integration challenges will continue to delay FIDs.
Technical scope will be highly project dependent, making economies of scale difficult to achieve. Hydrogen production projects will change significantly in scope—and cost—depending on the offtaker.

For instance, mobility end users will require significant hydrogen storage, compression trains or liquefaction trains, and export systems. Conversely, industrial customers will seek to develop systems designed specifically to avoid potential unintended consequences of hydrogen blending in gas pipelines. These technical requirements from the offtaker impose significant scope change to the production project.

Infrastructure limitations will result in market inefficiencies, adding a commercial hurdle to scaling hydrogen. Due to limited pipeline infrastructure, hydrogen markets have virtually no inter-regional connectivity with one another, limiting the number of buyers and sellers in each market.

To wit, there are only 1,600 miles of hydrogen pipelines in the United States, mostly along the Gulf Coast. In comparison, nationwide there are about 3 million miles of natural gas pipelines. Additionally, existing hydrogen networks are typically private-carrier pipelines, which are used by incumbents but not necessarily open to new producers.

Limited inter-regional trade in clean hydrogen means that the number of buyers and sellers will be highly constrained in local markets, especially in parts of the United States where there is little or no existing merchant trade in hydrogen. This could create considerable market distortions in places where industrial-scale clean hydrogen consumers will be the dominant—if not sole—offtaker in their local market. Markets where there is a sole buyer—a monopsonist—are prone to inefficiencies.

With some hydrogen markets unable to rely on fully competitive market structures, which rely on many buyers and many sellers, the development of the technology may be constrained. Notably, credit conditions for projects seeking to sell to a sole offtaker may be challenging.

The US hydrogen hubs, supported by funding from the Department of Energy, aim to solve this foreseeable problem by building an ecosystem of many buyers and sellers, aggregating demand and supply to create a more efficient market. Indeed, in existing ports and industrial zones, there will be few risks of a monopsony problems due to varied potential customers. Still, less developed H2 markets will be subject to this risk.

Most importantly, a lack of reliable demand exists for green hydrogen in any volume outside the heavy mobility market in California, and grey hydrogen producers will not be incentivized to switch until price parity is achieved, either via carrots (such as incentives in 45V), or sticks (such as pollution fees or regulatory measures). The issue is one of price, and it’s not clear that the combination of carrots and sticks in enough to achieve a switch from grey hydrogen to lower carbon products.

In sum, while the Treasury Department’s guidance on 45V is grabbing a lot of attention, multiple other factors impacting the clean hydrogen industry must be addressed. Industry and policymakers need to grapple with these challenges and identify effective solutions.

Matthew Blieske is the former CEO and co-founder of LIFTE H2, which develops and deploys novel end-to-end hydrogen supply chains. Blieske sold his stake in the company in October 2023 and is now an independent hydrogen consultant.

Joseph Webster is a senior fellow at the Atlantic Council. This article represents their own personal opinion.

EnergySource

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The post Hydrogen challenges in a post-45V world appeared first on Atlantic Council.

Toward harmonizing transatlantic hydrogen policies: Understanding the gaps

Joseph Webster and Pau Ruiz Guix — Mon, 04 Mar 2024 21:37:11 +0000

The United States and the European Union are taking different approaches to the development of clean hydrogen, a critical technology to decarbonize hard-to-abate sectors, from industry to maritime and aviation, among others. Divergent hydrogen policies can limit the emergence of the competitive, transatlantic marketplace necessary to accelerate the deployment of clean molecules and eventually facilitate regional and global trade. Consequently, US and EU policymakers must coordinate hydrogen rules to the maximum extent possible while ensuring that hydrogen uptake reduces carbon emissions. The following analysis identifies key distinctions between the transatlantic partners’ hydrogen strategies.

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Common pillars for clean hydrogen—with different rules

In December 2023, the United States published draft guidance on hydrogen standards, used to determine eligibility for tax credits under the Inflation Reduction Act (IRA). The guidance, called 45V, is built around what is termed the “the three pillars” of hydrogen: temporal matching, additionality, and deliverability. These three general requirements are also tacked in the EU Delegated Act, which defines renewable hydrogen for compliance with EU targets as renewable fuels of non-biological origin (RFNBOs). While in the US framework, tax credits go toward clean hydrogen that is produced using any clean electricity source, including nuclear energy, and in the EU, compliance with EU RFNBO targets requires that hydrogen be generated with renewables only, the three pillars can be generally understood as:

Temporal matching: These rules aim to ensure hydrogen is produced when clean electricity is available. This means that any amount of electricity used in hydrogen production must be matched with the same amount of zero-carbon electricity produced within a given time period. Shorter time intervals reduce electrolyzer capacity factors, increasing the levelized cost of hydrogen but achieving greater emissions reductions. Temporal matching periods are typically conducted on an hourly, daily, monthly, or annual basis.

Additionality/incrementality: Rules around this pillar aim to ensure hydrogen production goes hand in hand with new clean electricity generation capacity, making hydrogen producers add renewable electricity to the grid, rather than repurpose existing clean energy already on the grid.

Deliverability: This set of rules aims to ensure hydrogen is produced using clean electricity in the same region where that electricity is produced. There must be a direct physical interconnection between the clean energy source and the electrolyzers producing green hydrogen.

The chart below features a comparison between the EU and the US approaches to hydrogen across the three pillars, as well as other key areas of clean hydrogen policy. While US regulations are a proposed draft, the EU framework is considered final despite tweaks that may take place during its scheduled revision period in 2028.

Table 1. US and EU approaches to green hydrogen

While certain elements of the US rules might suggest they are stricter than the EU approach, this would be an oversimplification, as each contains elements that could be considered stricter—or looser—than the other in certain areas. While both approaches ultimately mandate hourly temporal correlation and strict additionality rules, the EU does not switch to hourly correlation until 2030—whereas the United States switches in 2028. Also, the EU allows for grandfathering of additionality, which is not permitted in the US proposed guidelines. Nonetheless, the draft US framework allows for the use of subsidized clean electricity for hydrogen production, takes a technology-neutral approach to clean electricity, and accepts energy attribute certificates to comply with hydrogen rules, diverging from the EU framework and allowing for greater flexibility for hydrogen producers. Importantly, differences in approach mean qualifying for the US 45V credit does not automatically qualify a facility as producing EU RFNBO-compliant renewable hydrogen.

Beyond these significant technical variations, US and EU strategies for developing clean hydrogen markets differ in their economic approach: the United States follows a supply-incentive model, while the EU is predominantly relying on a market-pull mechanism. The United States incentivizes production of hydrogen with uncapped tax credits that give lower or higher support depending on emissions thresholds but does not mandate clean molecule uptake. In this sense, it rewards greater wholesale emissions reductions without requiring it. In contrast, the EU employs a demand-side mechanism: regulation imposes the consumption of renewable hydrogen (i.e., 42 percent of hydrogen used in industry must be renewable by 2030), and strictly defines which hydrogen (RFNBOs) is available to meet legally binding targets. This mechanism prioritizes the use, rather than production, of hydrogen, and thus the decarbonization of end users. While the EU has put in place a Hydrogen Bank to support production, support is capped and auction based, whereas the United States’ effort is uncapped and direct. The Hydrogen Bank’s results are yet to be seen.

To maximize clean hydrogen’s potential to contribute to energy security and decarbonization, the EU and the United States will need to balance environmental, economic, and security concerns—and they must coordinate these efforts together. While the two markets have different resource endowments, legal regimes, and more, the EU and the United States should ensure the maximal harmonization and interoperability of hydrogen regulatory frameworks, as this will simplify investment and trade. The two sides should also plan carefully to ensure that their respective approaches to hydrogen development reduce carbon emissions. The next Trade and Technology Council in Belgium is an opportunity for both sides to learn from each other’s best practices and develop common approaches to hydrogen development.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

Pau Ruiz Guix is Officer on Trade and International Relations at Hydrogen Europe.

This article reflects their own personal opinions.

EnergySource

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COP28 and the growing Europe-MENA hydrogen connection

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Africa Energy & Environment

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The post Toward harmonizing transatlantic hydrogen policies: Understanding the gaps appeared first on Atlantic Council.

How to finance net zero in developing economies: Beyond the existing investment framework

Ken Berlin, Frank Willey — Thu, 22 Feb 2024 16:39:13 +0000

The International Energy Agency’s (IEA) analysis of commitments to reduce carbon emissions by 2030 made both before and at the United Nations Climate Change Conference (COP28) concludes that the world is on a path to achieving only one-third of the reductions in carbon emissions needed to limit global warming to 1.5 degrees C.

Achieving the needed reductions, according to the IEA, requires reducing fossil fuel emissions and tripling clean energy investments. The need for increased financing is even greater in emerging markets and developing economies. Current investment in clean energy in these markets is around $260 billion per year, but the IEA concludes that around $2 trillion a year must be invested by 2030.

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Reducing emissions in developing countries is critical to achieving the goal of net-zero greenhouse gas emissions by 2050. Although developing countries have contributed a very low percentage of historical greenhouse gas emissions, today, they emit nearly half of all greenhouse gas emissions and one-third of energy sector emissions. Failure to provide the needed finance would make achieving the 1.5-degree goal almost impossible.

Historically, the World Bank Group and other multilateral development banks (MDBs) have played the principal role in financing investment and providing guarantees to developing economies. They have supported catalytic projects, built capacity, provided grants, loans, and equity financing and guarantees to the poorest countries. They also developed the concept of blended finance where the public and private sector work and invest together.

Despite these important results, however, the MDBs have not been able to attract a significant level of private investment in developing countries. Their processes are too slow, their financial regulations too narrow, and their bureaucracy too great to attract the needed trillions of dollars of investment that governments cannot afford and that only private investors can provide to reach emission reduction goals. The MDBs are working to reform their processes, but unless they develop innovative new financing structures, their existing structure, mandates, and limitations make it very unlikely that these reforms will sufficiently open the spigot of private investments.

Thus, innovative new approaches and institutions are needed to achieve emission reduction goals. There is a growing consensus that the best way to attract private investment in developing countries is to reduce the real and perceived risks of those investments by providing guarantees at a level that makes projects investment grade in the minds of the private investors. Guarantees provide the most efficient way of leveraging public financing since the cash needed is only the amount necessary to cover expected losses in the investments. Unexpected losses are protected against by balance sheet backups to the cash provided to cover expected losses.

There are many guarantee proposals being considered and implemented. To achieve the needed impact, one or more of the proposals should establish a facility that provides over a ten-year period at least $500 billion in financing guarantees for loans and possibly for equity. Sovereign nations and perhaps very large foundations and private corporations would fund the facility.

This proposal is very ambitious, but not as costly as it sounds. If, for example, the facility concludes that the risk of loss is very high, say 10 percent, the nations providing funding would have to put up $50 billion in cash over a ten-year period, or $5 billion a year. If ten sovereign funds contribute to the facility, each country would have to put up an average of $500 million a year. This is a significant commitment, but a doable amount, particularly given developed countries’ pledges of $100 billion a year in financing to the developing world. Moreover, the facility could ramp up slowly, requiring lower contributions in the early years.

The facility would structure itself to attract private institutional investors by setting up a simple and efficient process of evaluating their investments and approving the guarantees. It would guarantee projects in a portfolio of investments by an investor, setting standards in advance on due diligence, environmental reviews, and involvement of local communities (ESG). Investors would be responsible for conducting due diligence and implementing the standards. The facility would spot check due diligence and implementation, but not conduct its own reviews. It would require a very small fee on investments to raise funds for capacity building in EMDEs.

The facility would comprehensively guarantee all risks necessary to make the project viable, including political and operational risks. It would provide guarantees in the amount necessary to ensure that investors can internally rate a project as investment grade. It would not guarantee currency risks but would work with a partner organization to cover that risk. It would charge interest and fees at very low concessional rates.

This structure would thus allow an investor to make an investment in the manner it normally invests, without additional layers of review, approval, and bureaucracy. Because the guarantees would lower the risk of an investment, investors would be able to provide loans at a much lower interest rate and equity without a premium on return to cover risk. This would lead to more financially viable projects and lower costs to consumers.

Lower interest rates would also significantly contribute to ensuring that the developing world can compete economically since it is cheaper, often much cheaper, in most of the world to generate renewable energy than fossil fuel-based energy. Lower interest rates would also contribute to achieving equity between advanced economies and emerging and developing economies since the cost of investments would converge instead of investments being significantly more expensive in developing countries.

Reaching 2030 carbon reduction targets in developing countries will require support from many different types of financial institutions. Working with Ian Callaghan, the founder of the UK Climate Finance Accelerator, we have proposed, along with co-author George Frampton, distinguished fellow with the Atlantic Council Global Energy Center, a new facility, the emerging market investment compact (EMCIC), that meets all the above criteria. EMCIC or a similar type of facility would complement the financing provided by multilateral development banks and governments and would play a crucial role in enabling developing countries to achieve their carbon reduction goals.

Ken Berlin is a senior fellow and the director of the Financing and Achieving Cost Competitive Climate Solutions Project at the Atlantic Council Global Energy Center.

Frank Willey is a program assistant at the Atlantic Council Global Energy Center.

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Mobilizing climate finance at COP28: Improving enabling environments in emerging and developing countries

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The IRA’s best kept climate secret: Moving oil and gas toward operational net zero

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The post How to finance net zero in developing economies: Beyond the existing investment framework appeared first on Atlantic Council.

Escalating Middle East conflict means North America must bolster global energy security

Julia Nesheiwat — Wed, 21 Feb 2024 22:18:22 +0000

In recent weeks, attacks on ships in the Red Sea have significantly raised shipping costs and caused delays for traded goods, from hospital supplies to food and clothes. Though the global energy supply is so far uninterrupted, a broader conflict in the region would mean disruptive attacks on energy and transport infrastructure, whether through Iranian naval action or Iranian proxies. North America must prepare itself for a coming crisis in the global energy supply, particularly the United States—where President Biden recently announced his decision to pause the approval of new liquefied natural gas exports.

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Red Sea attacks continue to threaten shipping

In November 2023, Houthi rebels began attacking commercial ships in the Red Sea and surrounding waters. The Houthis, a Fiver Shiite political faction and the de facto government of western Yemen, are a US-designated terrorist group closely aligned with Iran. They are targeting commercial vessels as a way to oppose Israel’s war against Hamas. In response, the United States helped launch a multinational naval coalition to safeguard navigation in the Red Sea, and it has since struck Houthi military targets several times. However, this has not yet stopped Houthi attacks.

The Red Sea conflict has forced ships to reroute around the Cape of Good Hope. This has disrupted the trade of commodities, including oil and gas, by raising freight rates, increasing shipping times, and reducing the number of ships available. Despite these disruptions, key oil prices such as the Brent benchmark have not yet spiked. Natural gas prices also remain relatively low, as overall demand is still being mitigated by full European gas stocks, a relatively warm winter in some places, and a slowdown in the Chinese economy and other economies, such as Japan and Germany. According to Reuters, US gas exports have played a key role in maintaining global price stability, especially in Europe, but also in Asia.

However, if the disruption in the Red Sea continues unabated, it will invariably drive up global costs for oil and liquefied natural gas (LNG). Freight rates for oil and petroleum product tankers continue to climb—in some cases by nearly 500 percent since November. Additionally, transport times and costs have gone up for oil and LNG shipments from the Middle East to Europe and Asia.

The near future remains uncertain. A wider conflict in the Middle East capable of physically interrupting oil or gas supply is increasingly likely. Recent press reports claim a war between Hezbollah and Israel may be “inevitable,” which in turn would force Iran to act. Iran’s military could easily disrupt the key shipping routes, forcing many countries to seek out supplies shipped via alternative means, notably from North America.

Iran’s actions will be key to the energy outlook

How Iran would respond to all-out conflict between Hezbollah and Israel remains an open question, but historical trends give no reason for optimism.

Primarily, Iran’s past actions in the Gulf mean more frequent harassment of Western-linked tankers is almost guaranteed. This strategy may have already started. In January, Iranian forces seized a Greek tanker off the coast of Oman, though they claim the seizure was reprisal for US sanctions against Iranian oil. The Iranian military is also building up its capabilities. In December, the Revolutionary Guard announced the establishment of a new, volunteer naval force intended to carry out “deep sea missions.” Iran’s navy is building a drone carrier intended for “long-range strike[s].”

There are two obvious ways for Iran to militarily act: the Iranian navy attacks or seizes commercial ships; or Iran-aligned militias attack a major Gulf energy producer, such as Saudi Arabia. Iran has previously resorted to both tactics.

During the Iran-Iraq War of the 1980s, the Iranian armed forces sank and seized tankers leaving Iraqi ports. In 2019, Iranian-led Houthi forces used drones and missiles to damage an oil processing plant in Abqaiq, Saudi Arabia. In 2021, Houthi rebels carried out a similar attack against a Saudi oil terminal in Jazan. The Houthis also attacked energy facilities in the United Arab Emirates with drones.

Broader conflict would severely impact energy supplies

To what extent Iranian military action would cut off the flow of oil and gas is beyond the scope of this analysis. But the impact on the global economy would be swift, including for major economies like China, Japan, South Korea, Taiwan, and India, who all significantly rely on crude oil, refined products, and LNG from the Gulf states. Altogether, around 25 percent of crude cargoes and 20 percent of LNG cargoes pass through the Strait of Hormuz. The EU also relies on oil imports from the Gulf states although less so than Asian countries.

Any large disruption to the Gulf states would leave North America as the most reliable, significant supply of energy. The United States alone exported 91 million tons of LNG in 2023, ahead of Australia and Qatar, which both exported about 80 million tons. Crude oil exports averaged nearly 4 million barrels per day. By one estimate, up to 40 percent of US LNG exports are destination-flexible, meaning they could be easily redirected to buyers in case of a Middle East supply disruption.

North America must bolster global energy security
Every day, it becomes likelier that there will be an escalation of conflict in the Middle East, particularly between Hezbollah and Israel. Such a war and the ensuing Iranian response would jeopardize the global supply of oil and gas due to trade disruptions not only in the Gulf, but also via the drought-affected Panama Canal, which has seen a drop in trade since November 2023. Countries would be left scrambling and forced to turn to reliable production in the United States, Canada, and Mexico. Altogether, the future of the global energy market may soon depend on how North America chooses to respond. The World Bank has estimated that up to 8 percent of global crude supply would be interrupted in case of a conflict. Such an event would also raise the price of LNG and other commodities. Inaction would be easy, and perhaps even politically expedient, but would further strain supplies. Given the risks, it would be best to allow a full development of North American energy possibilities.

Julia Nesheiwat is a distinguished fellow with the Atlantic Council’s Global Energy Center, a member of the Atlantic Council board of directors, vice president for policy at TC Energy, and former US Homeland Security Advisor.

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Houthi attacks in the Red Sea hurt global trade and slow the energy transition

By William Tobin, Joseph Webster

Recent attacks on commercial shipping in the Red Sea are a reminder that a major disruption to freedom of navigation would hold many negative consequences.

Economy & Business Energy & Environment

New Atlanticist Dec 20, 2023

What’s behind the attacks on ships in the Red Sea

By Ellen Wald

Houthis have increased drone and missile attacks against commercial ships in the area, and companies are suspending routes through the Suez Canal.

Economy & Business Energy & Environment

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Energy & Environment Energy Transitions

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Charles Hendry: Russia’s invasion of Ukraine forced the West to confront lessons unlearned

The post Escalating Middle East conflict means North America must bolster global energy security appeared first on Atlantic Council.

Two years on, what the Russian invasion of Ukraine means for energy security and net-zero emissions

Atlantic Council experts — Wed, 21 Feb 2024 20:17:58 +0000

Russia’s full-scale invasion of Ukraine on February 24, 2022 has reverberated throughout the global energy landscape, significantly impacting both energy security and the ongoing transition towards sustainable energy sources. Swift action is needed to mitigate risks, strengthen resilience, and ensure that energy remains a driver of stability and prosperity in the face of geopolitical uncertainty. Our experts share their insights on the second anniversary of the war.

Click to jump to an expert analysis:

Ellen Wald: US LNG helped keep Europe’s lights on—future resilience isn’t guaranteed

Olga Khakova: Delays in aid to Ukraine could erase energy security wins from the last two years

Robert F. Ichord: Europe reduced Russian energy—but created a solar energy paradox

Joseph Webster: War dims Gazprom’s future as China doubles down on homegrown energy

Jennifer T. Gordon: Nuclear power remains a crucial pillar of global energy security and decarbonization

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Russia’s invasion of Ukraine forced the West to confront lessons unlearned

There’s a Winston Churchill quote for every occasion and as he (supposedly) said about energy: “Security comes from diversity and diversity alone.” That’s as true today as it was more than one hundred years ago. The harsh lesson from Russia’s illegal invasion of Ukraine was that Europe had allowed itself to be overly reliant on a single source of gas supply. The actions by European governments since then—and especially Germany—to end that reliance have been extraordinary, but the clear lesson is that we must never again allow such dependence.

The move in the last two years to bolster energy security had led to greater focus on indigenous sources of power and an accelerated commitment to low-carbon sources of generation. And for once, the answer to the questions of what is best for security, for climate, and for affordability is mostly the same —go low carbon. Our governments are rightly focused on how we can enhance our energy resilience, yet still meet our net-zero commitments.

In the longer term, we can also see where the next threat of over-dependence comes from. It is not healthy for the West to be so dependent on China for so much of the low-carbon supply chain—for example, around 90 percent of the lithium chemicals we need for electric vehicles comes from China. Such overreliance is not good for China either, so we need to act now to build up our own industries, to make sure that we have supply chain security. The United States is leading the way on this through the Inflation Reduction Act, and it is now for the EU and UK to respond accordingly.

–Charles Hendry is a distinguished fellow with the Atlantic Council Global Energy Center, a former member of the UK Parliament, and former UK minister of state for energy.

US LNG helped keep Europe’s lights on—future resilience isn’t guaranteed

The real story behind European energy security post-Russian invasion of Ukraine is the incredible growth of the US LNG industry. According to the US Energy Information Administration (EIA), the United States exported more liquefied natural gas (LNG) than any other country in the first half of 2023. US LNG exports to European countries in the first six months of 2023 more than doubled compared to pre-war exports in 2021. Without this incredible expansion, both in US LNG exports and in regasification terminals in Europe, the continent would not have been able to reduce Russian natural gas and oil, and maintain electricity and fuel supplies as it did.

The US energy industry’s role in ensuring European energy security cannot be stressed enough—no other LNG exporting country in the world was in the position to expand its exports as rapidly as the United States was when the Nord Stream pipeline was destroyed and sanctions against Russian energy were put into place. For this, among other reasons, the Biden administration’s decision to suspend authorizations for new LNG export terminals must be questioned. If the EU and the US do not foresee an end to the Russia-Ukraine war in the near future, how can Europe continue to secure sufficient natural gas to meet growing energy demands without more LNG from the United States?

Although sanctions against Russian crude oil and petroleum products caused temporary disruptions on the global oil trade, the market has responded in resourceful ways. Without European countries to purchase their crude oil, Russia expanded sales to China and opened a new market in India. According to data provided by TankerTrackers.com, India has become the second largest importer of Russian crude oil and the largest importer of Russian seaborne crude oil. In 2023, India imported an average of 1.7 million bpd of Russian crude oil, whereas prior to the invasion of Ukraine it imported next to none. Countries like India and Turkey have found new business opportunities importing Russia crude oil and refining it into petroleum products that European customers are eager to purchase. Russia has also developed its own shipping fleet and insurance network to work around the US-EU price cap policy that is designed to limit their oil revenue.

Two years later, it can be concluded that the energy sanctions and price cap policies are not hurting Russian revenue significantly enough to impact its ability to wage war in Ukraine. As US policymakers consider whether to continue aiding Ukraine, the efficacy of these sanctions and price cap policies should also be examined. At the same time, the resiliency of the global energy oil market to accommodate such major changes without incurring serious shortages should be applauded.

–Ellen R. Wald is a nonresident senior fellow at the Atlantic Council Global Energy Center and the president of Transversal Consulting.

Delays in aid to Ukraine could erase energy security wins from the last two years

For two years, Russia has carried out indiscriminate, exceptionally cruel attacks on Ukraine’s civilian energy infrastructure. Included in these attacks have been acts of ecocide, such as the destruction of the Kakhovka Dam. However, Ukraine’s energy system and the sector workforce have showcased unparallel resilience and innovation in withstanding Moscow’s aggression, with robust technical, financial, and capacity support from the allies.

Beyond Ukraine, the war also profoundly and rapidly reshaped energy throughout Europe. Europeans have optimized homegrown production and efficiency measures to reduce reliance on imports, built out additional interconnectors to secure alternative energy supplies, and spent billions to minimize economic hardships on businesses and households.

As the war drags on, the West must learn to see Ukraine not as a charity case—but as a symbiotic energy partner contributing to European energy security and decarbonization. Ukraine offers important lessons in repelling cyber security attacks, fixing destroyed energy infrastructure, operating energy markets under volatile conditions. It also has valuable expertise in oil and gas, renewables, and civil nuclear energy. Ukraine has integrated into the European electricity market in record time, houses a critical gas storage system that is currently utilized by European gas traders, and is taking bold steps on reform and regulatory changes necessary for EU integration. However, these advantages are at high risk. War and political uncertainties are keeping new large-scale investments away; human capital shortages are placing additional strains across all levels of Ukrainian systems; and the delay in aid from the United States is impacting the recovery and defense of Ukraine’s energy generation. Western support is needed more urgently now than ever to ensure that Ukrainians can continue defending European territories, democratic values, and energy security.

–Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

Europe reduced Russian energy—but created a solar energy paradox

The war in Ukraine has spurred profound changes in Europe’s energy system and fostered concerted efforts like REPowerEU to improve energy security. Not only has it reoriented and reduced dramatically Europe’s gas supplies from Russia and cut gas consumption, but it has boosted Green Deal transition efforts to develop renewable and zero-carbon energy (including nuclear) and improve energy efficiency. It has motivated the forging of stronger energy links both among European countries and with the United States, which supplied about 50 percent of the EU’s LNG imports in 2023.

But in doing so, these overall efforts have created a paradox. The rapid growth in solar energy that is reported to be 40 per cent higher in 2023 than the 41 GW of solar added in 2022, has made the EU dependent on China for over 95 percent of its solar photovoltaic (PV) modules and threatens domestic EU manufacturers due to the much lower price of Chinese modules. Renewables constituted 23 percent of the EU primary energy consumption in 2022, of which solar was about 6 percent and was the fastest growing share providing 12 percent of EU electricity in the summer months. The EU Council has raised the binding target to 42.5 percent in 2030 with the ambition to achieve 45 percent. The EU Solar Strategy aims to increase solar PV capacity to 320 GW by 2025 and up to 600 GW by 2030, compared with 260 GW in 2023.

The EU and its member governments are debating various options to increase domestic solar PV production and limit imports from China. There is some consensus on setting a 40 percent non-binding self-sufficiency target but there are divergent interests between the domestic manufacturing companies and installers and assemblers of systems. Faced with a similar situation, the US placed high tariffs on Chinese modules, diversified suppliers and temporarily waived tariffs on imports from Southeast Asia and provided credits for solar PV manufacturing under the Inflation Reduction Act. Such an approach by Europe would be expensive for Europeans, who are already experiencing high costs of energy. In his February 12 speech to the European Parliament, EU Council President Charles Michel stressed the importance of energy affordability in efforts to improve EU energy security, noting that EU energy prices were 4.5 higher than its main competitors.

But there is a path for reducing dependence on China’s solar supply chain. The market is currently flooded with solar PV panels as Chinese manufacturers overproduced in 2023 and European companies imported more than they installed. Stockpiling panels, for example, could be part of a less expensive strategy for reducing vulnerability to market manipulation or politically inspired supply cutoffs. Although the energy security implications from this growing dependence on Chinese solar panels are quite different from Russia’s use of gas as a political weapon against Europe, current overall geopolitical and trade tensions with China suggest that China’s global market monopolization of this important energy technology requires serious consideration and coordination among Western allies.

–Robert F. Ichord, Jr., is a nonresident senior fellow with the Atlantic Council Global Energy Center.

War dims Gazprom’s future as China doubles down on homegrown energy

Russian gas giant Gazprom will never recover from Putin’s invasion of Ukraine. Gazprom’s exports to Europe stood at just 28 billion cubic meters (bcm) in 2023, down from 200 bcm in 2019, before the invasion and COVID. The Russian pipeline export monopolist is exceedingly unlikely to offset this loss of demand via other markets, including China, as its long-planned Russia-to-China Power of Siberia-2 pipeline has gained little traction since the invasion despite Gazprom’s desperation to clinch a deal. The reasons for the delay are manifold and include high interest rates, financing disagreements, elevated steel costs, and geographic realities.

Perhaps more importantly, Putin’s invasion and the resulting shock to global energy prices reinforced Beijing’s energy security anxieties. China is constructing massive amounts of renewables while also doubling down on coal plant construction (although throughput across its coal fleet will likely decline in future years). China added nearly 300 gigawatts of wind and solar capacity in 2023 and could very well replicate that pace—or even accelerate it—for another decade. Chinese deployment of clean electricity generators, paired with batteries, heat pumps, hydrogen (eventually)—and, incongruously, coal—is sharply reducing its need for Russian natural gas. In sum, while Putin may yet prevail in Ukraine, Gazprom’s exports will almost certainly never approach pre-war volumes.

–Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and editor of the China-Russia Report. This article represents his own personal opinion.

Nuclear power remains a crucial pillar of global energy security and decarbonization

From the earliest days of Russia’s brutal invasion of Ukraine in February 2022, nuclear energy has been a flashpoint in the war. Russia shelled and subsequently occupied the Zaporizhzhia Nuclear Power Plant, and a key part of the response from the US government and non-governmental organizations has focused on efforts to provide relief to Ukrainian nuclear power plant workers.

Even while under attack, Ukraine has recognized that the nuclear energy sector is a crucial part of its power sector, its ability to rebuild its industrial sector, and its long-term economic prosperity. Even with the loss of the Zaporizhzhia Nuclear Power Plant, roughly “55 percent of all electricity production in Ukraine is still from [nuclear reactor] units at Khmelnytskyi, Mykolaiv and Rivne.” Furthermore, Ukraine has ended imports of nuclear fuel from Russia and has relied on US-based Westinghouse Electric Company for its nuclear fuel needs. With an eye toward eventual reconstruction in Ukraine, US Special Presidential Envoy for Climate John Kerry and Ukraine’s Minister of Energy German Galushchenko announced in November 2022 “a two-to-three-year pilot project aimed at demonstrating the commercial-scale production of clean hydrogen and ammonia from small modular reactors in Ukraine using solid oxide electrolysis.”

Ukraine’s regional partners—especially Poland and Romania, which are deeply involved in Ukraine’s energy future—also understand the extent to which the nuclear energy industry must play a crucial role in Ukraine’s reconstruction. Romania is currently the only country in Central and Eastern Europe that is operating North American reactors, with its Canadian CANDU reactors having generated electricity since 1996. Romania also plans to build a first-of-a-kind small modular reactor, in partnership with the United States. Poland is dedicated to establishing a civil nuclear program, with plans for large lightwater reactors and small modular reactors.

Finally, Russia’s unprovoked war in Ukraine has had a major impact on the global nuclear energy industry. Problems that may have been papered over prior to February 2022 have been brought to the fore. For example, US and global dependence on Russian enrichment and conversion capabilities for nuclear fuel is finally being addressed as the US has started ramping up domestic capacity for enrichment and conversion. However, more remains to be done. As Russia continues to make inroads into emerging markets for nuclear energy technologies, the United States and its allies must redouble their efforts to outcompete Russia, in order to ensure that new-to-nuclear countries are able to uphold the highest standards of safety, security, and nonproliferation.

–Jennifer T. Gordon is director of the Atlantic Council Global Energy Center’s Nuclear Energy Policy Initiative.

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European Energy Security Dec 7, 2023

Energy security as the foundation for Ukraine’s formula for peace

By German Galushchenko

Rebuilding Ukraine’s energy sector in line with the world’s best practices in sustainable development and decarbonization will help to finally break the grip of the fossil fuel dictatorship and strengthen the new energy model of the world.

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COP28’s legacy will be measured by emissions reduction, not ‘historic’ text

Landon Derentz — Fri, 15 Dec 2023 16:33:59 +0000

The final declaration from COP28, “the UAE Consensus,” is transformational in its reflections on fossil energy’s role in contributing to climate change, but with time this climate conference won’t simply be remembered for “landmark” text. If all goes to plan, the COP28 Presidency’s efforts to foster an inclusive platform for promoting private and public actions that reduce global emissions will be its legacy.

The “success” of COP28 was never going to be measured by unrealistic expectations around “phasing out” fossil fuels—a benchmark promoted by the European Union and small island nations severely at risk of global temperature rise. Despite over $3.5 trillion in financing for renewable energy over the past decade, oil, gas, and coal remain stubbornly anchored in the global energy mix, representing around 80 percent of energy consumed. The high reliance on conventional energy resources for their economic growth and political stability unequivocally placed China, India, and Saudi Arabia at the vanguard of a block of countries opposed to any negotiated outcomes at COP28 that locked in a “phaseout” or “phasedown” of specific energy sources.

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Behind the scenes, however, the feverish and ultimately successful push for a diplomatic compromise temporarily overshadowed what COP28 has already accomplished—a global reduction in energy-related greenhouse gas emissions by 2030 of around 4 gigatonnes of CO₂ equivalent. This achievement is the product of around 130 countries signing up to triple global renewable power capacity by 2030 and double the annual rate of energy efficiency improvements every year to 2030, coupled with commitments by the oil and gas industry to zero-out methane emissions and eliminate routine flaring.

Admittedly, the potential emissions reductions achieved during COP28 fall short of the ambitions outlined in the Paris Agreement (the International Energy Agency assesses commitments at COP28 represent 30 percent of what is necessary to “keep 1.5 alive”), but the fabric of the United Nations Framework Convention on Climate Change process has been permanently altered. Attendance at the conference exploded, growing to nearly 100,000 at COP28—a far cry from the approximately 4,000 participants in 1995 during the first COP and a more than threefold increase since the Paris Agreement was reached in 2015. The vibrant business environment in Dubai represented a growing subtext to the formal climate negotiations and, while met with mixed reviews, the inclusion of industry hints at the fact that the economics of the energy transition are beginning to catch up to policy.

As one senior European official expressed to me, COP is the “new Davos” for the energy transition. It took only one lap around Expo City Dubai, the venue for COP28, to confirm her intuition. COP28 was brimming with C-suite executives, technologists, financiers, and project developers—those who will have to deploy an estimated $150 trillion necessary to achieve the 1.5 degree Celsius goal by 2050 and whose support is critical in overcoming the infrastructure, regulatory, and workforce challenges inhibiting an accelerated energy transition.

The inclusivity on display at COP28 marks the beginning of a new phase for climate action. Industry has the resources, finance, and technical prowess to realize the ambitions set out by policymakers. By acclimating the private sector to civil society’s expectations for transforming our energy system, a new social license to operate is beginning to form.

There is little doubt that, like the UAE, President Ilham Aliyev will welcome industry to the conference when Azerbaijan hosts COP29 next year. The onus is on businesses to demonstrate their sincerity about addressing global emissions, starting by matching their commitments with investments and projects that signal they belong at the heart of global climate dialogue.

It took twenty-one COPs for countries to universally commit to reducing greenhouse gas emissions, and twenty-eight to bring along industry. My suspicion is that between now and when COP35 is hosted in 2030 we’ll make progress in closing that gap, starting next year in Baku.

Landon Derentz is the senior director and Richard Morningstar chair for global energy security of the Atlantic Council Global Energy Center

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EnergySource Dec 5, 2023

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By David L. Goldwyn, Andrea Clabough

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By Robert F. Ichord, Jr.

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By Willow Fortunoff, Maia Sparkman

Centering cities as enablers of both climate adaptation and mitigation is absolutely critical. In light of this, COP28 will include, for the first time, a summit dedicated to localized efforts to curb climate change.

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The US and NATO must clamp down on Russian fossil fuels to end the war in Ukraine

Svitlana Romanko and Oleh Savytskyi — Wed, 13 Dec 2023 14:35:07 +0000

Last Wednesday, Russian President Vladimir Putin landed in the United Arab Emirates for a short visit before heading to Saudi Arabia. His trip outside of Russia, a rare occurrence since Russian forces began their full-scale invasion of Ukraine in February 2022, is evidence that Putin is strategically wielding his country’s influence among OPEC+ nations—this at a time when the United States and European Union are attempting to tamp down Russia’s fossil fuel exports that help fund its war. Efforts to do so have yielded mixed results, and with Russia’s military budget set to dramatically increase in 2024, the West must do more to staunch the flow of Russian oil and gas—and restore peace for Ukraine.

The connection between Russia and oil-and-gas-producing countries in the Middle East has undeniably strengthened in the nearly two years since the invasion of Ukraine and Russia’s hybrid energy warfare against Europe began. Following the imposition of a price cap on Russian oil by the Group of Seven (G7) and the subsequent reluctance of most Western nations to consume Russian crude, international traders seeking unhindered dealings with Russia flocked en masse to Dubai.

But preventing financial actors from capitalizing on these resources is imperative. Attempts to do so thus far have largely been thwarted. International sanctions on Russian exports of fossil fuels—its primary financial resource—aimed to deal an economic blow to the Kremlin. Initially impactful, these measures soon faltered due to various loopholes and insufficient enforcement, rendering them ineffective, with Russian fossil fuels ending up in unexpected places. Investigations by the Washington Post and Project on Government Oversight reveal that shipments of Russian oil have continuously made their way to a refinery that supplies fuels to US military bases in the Mediterranean Sea. And, as the authors found in their report, “The carbon war: Accounting for the global proliferation of Russian fossil fuels,” the share of tax proceeds from fossil fuel exports in Russia reduced this year but still represents nearly a third of all federal income.

Since February 24, 2022, Russia has amassed around $600 billion in profits from fossil fuel exports, and is rushing to develop Siberian and Arctic fields. If, however, international sanctions on Russia’s fossil fuel industry remain in place and are rigorously enforced, the International Energy Agency projects that the Kremlin’s profits from oil and gas could plummet by 40 to 50 percent by 2030.

Anything short of a unified approach among Western nations to curb the export of Russian fossil fuels and hinder the country’s expansion of LNG exports would reveal a vulnerability that the United States, EU, and all G7 nations cannot afford in a destabilized world. Reaping profits from oil and gas exports, the Kremlin has sponsored more than 112,000 registered war crimes in Ukraine since February 2022. Russia has alarming plans to escalate the brutal war in Ukraine even further. These plans are starkly visible in its recently adopted budget for the coming year. For the first time since the Soviet era, the Kremlin allocated almost a third of all expenditures to the army and the military-industrial complex. In 2024, the national defense budget will swell to 10.775 trillion roubles, which is 70 percent more than in 2023, 2.3 times more than in 2022, and three times higher than in pre-war 2021. The army and private military companies will account for 30 percent of the 2024 budget, with all security forces together receiving 40 percent.

Frankly put, for the United States and NATO to maintain credibility concerning international security, it’s high time they earnestly consider dismantling the Russian oil and gas business. Putin’s recent trip to Middle East shows that Russia is increasingly becoming politically and economically invested in the key region that stirs in Russia’s oil and gas into world markets. Controlling profit-driven traders, banks, shippers, refineries, and all intermediaries sustaining the Kremlin’s financial lifeline is no simple feat. However, it’s an imperative task that the Biden administration and other Western leaders can’t afford to dodge.

Svitlana Romanko is the Founder and Director of Razom We Stand.

Oleh Savytskyi is the Senior Campaigns Manager of Razom We Stand.

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Ukraine can become an energy and minerals hub for European. Investing in Ukraine’s renewable energy industry is vital for European decarbonization.

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John Kerry unveils a ‘critical’ new US strategy to expand fusion energy

Katherine Walla — Wed, 06 Dec 2023 07:03:51 +0000

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The eighth Forum will be held in Dubai as energy and climate decision-makers converge for COP28.

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US Special Presidential Envoy for Climate John Kerry on Tuesday announced a new strategy for international cooperation on the development of nuclear fusion, which he said would be—alongside other energy sources, such as wind, solar, and nuclear fission—”a critical piece of our energy future.” The strategy, Kerry explained at the Atlantic Council’s Global Energy Forum at COP28, focuses on research and development, supply-chain improvements, regulation, workforce development, and education.

If “all of our countries are threatened, and they are, [and if] all life is threatened, and it is, then we need to pull ourselves together with every strength we have,” Kerry said. “We cannot realize this grand ambition—perhaps not at all, but certainly not at the pace we need to—doing it alone.”

The need for alternative fuels such as fusion is apparent because “science clearly tells us, without any question whatsoever, that the cause of this crisis… [is] emissions. It’s the way we burn fossil fuels,” Kerry said.

Kerry noted that “we’ve had a little debate in the last few days about what the evidence shows or doesn’t show,” a reference to controversies during the United Nations Climate Change Conference in Dubai over what role oil and gas will play in the global energy future.

“We have two options,” Kerry explained. “Either capture the emissions or don’t burn [fossil fuels].”

Kerry explained that the evidence of warming across the planet makes it “clear” that the world needs to “move faster” to limit global temperature rise. “We need to figure out what we’re going to do at a critical pace,” Kerry warned.

Below are more highlights from Kerry’s remarks and the panel that followed, which touched upon the role fusion can play and how best to foster international collaboration on it.

The huge potential

Kerry recounted having heard, as a senator for Massachusetts, that nuclear fusion—which joins two atoms together, producing energy—would be thirty years away, only to talk with scientists a decade later and be told that it was still thirty years away. But “the cadence of new and exciting fusion announcements has obviously increased over time,” he added.

Now, he said, “there is potential in fusion to revolutionize our world and to change all of the options that are in front of us” for providing abundant clean energy to the world.

Former US Secretary of Energy Ernest Moniz, who moderated the panel that followed Kerry’s remarks, said that “in this decade, there is a very high probability that… the conditions for sustained fusion will be demonstrated.” This, he added, “is truly a game changer—assuming this all comes to pass.”

Designer Gabriela Hearst, former creative director of fashion house Chloé, noted the environmental impact caused by the garment industry. “We really need to focus on moving away from the fossil fuel addiction that we have,” she said. At Chloé, she explained, she had designed a collection inspired by visits to fusion labs. Fusion, she said, could help “the survival of our species.”

The accelerating pace

Several speakers pointed out how new technologies and materials are helping realize the commercialization of fusion at a faster pace than expected. Bob Mumgaard, chief executive officer of the commercial startup Commonwealth Fusion Systems, explained that new technologies are “accelerating innovation.”

“It’s just going faster and faster” with the help of technologies such as artificial intelligence and machine learning, Mumgaard explained. “In the last five years, it’s unrecognizable.”

Six decades of government research and development has helped too, explained the White House’s Costa Samaras. “Now,” he added, “the challenge here is [that] energy technologies have long taken decades to get from the starting place to the market; and we do not have decades.”

“International collaboration,” Samaras argued, will “supercharge” fusion energy development and quicken the pace toward establishing a commercial fusion plant. “That enables the advancement of fusion power… along the timeline that we need to deal with climate change.”

The remaining challenges

Michelle Patron, senior director of global sustainability policy at Microsoft, noted that in order to meet growing energy demand, and to do it in a decarbonized way, “we need a multi-technology approach” that includes fusion and other renewable energy sources, including wind, solar, and geothermal. She added that electricity grids are local, so the mix of energy sources that countries deploy will depend on local political, economic, and social circumstances.

Youth Survival Organization Chairman Humphrey Mrema, who is from Tanzania, said that if he were an African leader approached about supporting fusion development, he would “say no.” That’s because fusion is “hard to start” and “difficult to maintain” with the financial architecture across the continent, which has invested heavily in fossil fuels, he explained.

In Africa, “we have to change the investment and channel it to renewables,” Mrema said. In addition, for Africa to pursue fusion, he explained, it will need technology, capacity building, and more financial resources.

For Hearst, part of the challenge is awareness. “We live in a silo community,” she explained. “The science community has this information” about fusion’s potential, “but not the fashion community or other communities. So it’s time to cross-pollinate information to bring more hope.”

Katherine Walla is an assistant director on the editorial team at the Atlantic Council.

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The world’s biggest energy exporters plot out the next steps toward net zero

Nick Fouriezos — Wed, 06 Dec 2023 07:01:35 +0000

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A day after more than fifty oil and gas companies pledged to cut methane emissions to nearly zero by 2030, key leaders of the Net-Zero Producers Forum laid out a significant collaborative vision from some of the world’s largest energy exporters for making significant progress on the world’s sustainability goals.

“We have a lot of what we need to make the progress that is essential,” Rachel McCormick, director general of International and Intergovernmental Affairs at Natural Resources Canada, said at the Atlantic Council’s Global Energy Forum at COP28.

“My hope is that the next time we’re together on this stage, we’ll say that we’ve gotten where we want to go: to 75 percent reduction. That there is no question on whether or not we’re on that pathway [to net-zero emissions] by 2030.”

McCormick wasn’t alone in that belief. She was joined at the Global Energy Forum in Dubai by Andrew Light, assistant secretary of International Affairs at the US Department of Energy, and Khalid al-Mehaid, chief negotiator for the climate agreements for the Kingdom of Saudi Arabia.

Their nations, plus Norway, Qatar, and the United Arab Emirates, comprise the Net-Zero Producers Forum, a not-yet-three-year-old collaboration of six nations that collectively represent more than 40 percent of global oil and gas production. The group is designed to work together on pragmatic net-zero emission solutions—everything from methane abatement to clean-energy and carbon capture/storage technologies to advancing the circular carbon economy approach.

Their work is particularly meaningful in light of Monday’s launch of the COP28 Global Methane Pledge Ministerial, which announced more than one billion dollars in new grant funding for methane action (more than triple current levels of spending). plus new data tools and new membership that grew participation to 155 governments worldwide.

Read on for more highlights from their conversation with Angela Wilkinson, secretary general and chief executive officer of the World Energy Council.

The challenge and opportunity of tackling methane

Light said that the pledges made at the ministerial wouldn’t have been possible without the relationships built through the Net-Zero Producers Forum, which forged unlikely partnership opportunities between the six energy-exporting nations. “Bringing our countries together was a necessary condition for something like that making it over the finish line just a few years later.”

One of the key efforts of the Net-Zero Producers Forum, originally launched at US President Joe Biden’s first Climate Leaders Summit in April 2021, has been the creation of the Upstream Methane Abatement Toolbox. The toolbox provides information on measures taken so far, and lessons learned, in implementing methane-abatement technologies and policies, creating a roadmap for others to follow.

Establishing a global framework around addressing methane emissions is particularly difficult. Past initiatives to curb extreme pollutants were plugged into ready-made global frameworks, such as the efforts to eliminate hydrofluorocarbons (HFCs): “There we were very lucky because we had the [1987] Montreal Protocol that was already tailor-made,” Light said. “Reducing methane is a way you can get near-term relief on global warming, but… we don’t have a working agreement, and so it’s much more difficult to take on from a global political perspective.”

Weighing economic competitiveness against net-zero goals

The stakes around sustainable energy couldn’t be higher, Light said: “If we get it right, then we get a solution to the biggest problem that we all face today. We get the creation of hundreds of thousands, if not over a million, new jobs. We get a cleaner planet. We get a more sustainable future.” And if they get it wrong? “We lose everything we have gained. We lose all developmental gains we’ve had since World War II.”

Particularly when it comes to major energy-exporting economies, it’s important to craft widely inclusive climate change strategies. “If it wasn’t for the way that the Paris Agreement was inclusive enough and wide enough for all of us to manage our national circumstances, we wouldn’t have been party to that dream,” al-Mehaid, the Saudi Arabian chief negotiator, said.

Saudi Arabia and other oil-rich nations like it have adopted broad diversification strategies that innovate how oil and gas are used, including diverting those resources into noncombustion-focused products, such as replacements for cement and aluminum. “It gives you a long-term hedge,” al-Mehaid said, against the uncertain energy economy that a net-zero future could bring.

Other advances for fighting global warming

Canada has passed tax credits and other financial incentives for companies willing to reduce their emissions, from a carbon price set across its entire economy to 65 percent expenditures returned for carbon-dioxide removal (CDR) efforts and 35 percent returned for energy-efficient transportation and other measures. “Carbon capture is really important because we know it works, we just need to scale it,” McCormick said.

She added that it was important for the Net-Zero Producers Forum to consider its strengths when working together, rather than trying to tackle every climate-related challenge all at once. “There is a reason these countries came together. You don’t want to do everything. You want to do what is special to you. What are the results that can drive actions [and] send signals to the international market? The fact that we are all net exporters is important.”

That mindset is one reason why all the countries in the Net-Zero Producers Forum have agreed to support direct air capture initiatives that extract CO2 from the atmosphere, but may not necessarily work together on proposing nature-based solutions, such as protecting forests or wetlands—particularly since the six nations have significant geographic and environmental differences. “Everything that comes together has to justify itself in this incredibly crowded landscape we see now on cooperation. The virtue here is that we have a similar approach,” Light said.

Nick Fouriezos is a writer with more than a decade of journalism experience around the globe.

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The Oil and Gas Decarbonization Charter is a start, but more work remains

David L. Goldwyn, Andrea Clabough — Tue, 05 Dec 2023 17:19:40 +0000

A cornerstone of the United Arab Emirates’ COP28 presidency has been its proposed commitment to meaningfully bring the oil and gas industry to the table for the first time in order to negotiate a comprehensive, concrete strategy for emissions reductions in the controversial sector. The Oil and Gas Decarbonization Charter is the scorecard for that gambit. Does it succeed, and what can (or should) come next?

What it accomplishes

Perhaps most notable in the charter is the aspiration to “reach net-zero CO₂eq emissions (Scope 1 and 2) for operations under our control…by or before 2050.” In addition, signatories publicly pledge to eliminate routine flaring and achieve “near-zero” methane emissions by 2030. The charter achieves corporate commitments to methane reductions that theoretically parallel the country-level commitments of the Global Methane Pledge. It requires each company to sign the charter, a public (albeit voluntary) commitment that includes “required mechanisms” for transparency. Among these are the development and publication of company strategies to achieve scopes one and two emissions reductions by 2030. If not already published, companies must do so no later than 2025, with an update and potentially increased aspiration by 2028, adoption of a to-be-determined “measuring, monitoring, reporting, and verification” system to score progress, and annual publication of their emissions levels.

As of now, fifty oil and gas companies have signed the agreement, publicly committing to its net-zero and other aspirations, representing about 40 percent of global production. Among these are a number of international oil companies (IOCs) such as ExxonMobil, BP and Shell but also several major national oil companies (NOCs) which, as a broad category, have historically been hesitant to make overarching climate commitments. NOC signatories include Saudi Aramco, ADNOC, Petrobras, Sonangol, Libya National Oil Company, and Petronas.

Given the vast diversity of the global oil and gas industry (and challenges/incentive structures therein), this is a significant accomplishment. In this respect, the charter has materially broadened the level of commitment of the upstream oil and gas industry to emissions reductions, both carbon dioxide and methane. While these commitments are voluntary, they are public and now subject to measurement and verification.

What it does not accomplish

Despite an impressive effort to coalesce a wide range of industry stakeholders around a shared ambition, there are significant shortcomings to the charter as it stands. These areas represent opportunities for strengthening the agreement as the Global Decarbonization Accelerator (GDA) takes clearer shape. The GDA is a plan launched by the COP28 presidency to speed up system-wide emissions reductions across a range of key sectors, including the oil and gas industry.

Limited breadth

Unfortunately, the charter only addresses a part of the oil and gas value chain and a minority share of oil and gas production. Despite the dozens of signatories, dozens more companies have not signed on to this initial charter; some of these include major developing country NOCs (such as Qatar Petroleum or Mexico’s Pemex) as well as some Western majors including American companies Chevron and Conoco-Philips.

Undoubtedly, there are manifold reasons why individual companies were unable or unwilling to agree to this first iteration of the charter; reluctance to sign on may not necessarily represent a repudiation of its goals or sentiment. However, it is in the interest of the oil and gas sector writ large, as well as major consumers of oil and gas industry products and services, to incentivize those companies not yet aligned with the charter’s laudable goals to reconsider.

Limited commitments

The charter itself places a relatively limited commitment on its signatories that leaves important areas minimally or not addressed at all. For example, the charter addresses the emissions of “upstream” or producing companies, not including the “midstream” companies that transport hydrocarbons or the “downstream” or refining and processing companies that turn them into products (such as liquefied natural gas exports). Within this framing, the agreement only addresses scope one and two emissions and is silent on “scope three emissions” (i.e., emissions from the use of oil and gas products) altogether—for both carbon dioxide and methane. For the oil and gas industry, the use (overwhelmingly combustion) of its products constitutes the vast majority of the industry’s carbon footprint.

In another example, signatories pledge to work with partners (such as technology companies and data centers) that consume massive amounts of power, but those partners make no commitments under this particular agreement. Likewise, charter members address “operations under their control” but pledge to work with their partners on non-operated projects, ones where NOCs or non-signatories control operations. This is a recognition of the massive volume of oil and gas production by companies that, so far, have refused to spend what would be required to achieve significant reductions (e.g., such as tools to prevent flaring).

A differentiated approach

Importantly, the charter speaks to “differentiated approaches” many times, a recognition that the IOCs that signed the agreement are already on a faster track to emissions reductions than many of their NOC peers. The charter also understandably refers to the need for supportive governmental policies, the importance of a full suite of emissions reducing technologies from direct air capture to carbon capture and sequestration, and the need for permitting reform to expedite the siting and construction of infrastructure. It also speaks to the importance of energy security and alleviating energy poverty in line with the UN Sustainable Development Goals, which remains a significant challenge in many low-income countries. All of these are key acknowledgments given the salience of the energy trilemma in a world attempting to fundamentally transform its energy systems.

Is this meaningful?

The charter achieves three meaningful contributions. It significantly broadens the commitment to emissions reductions, especially methane, by bringing a wider range of companies into the fold. It has secured highly public commitments by fifty companies, a commitment weighty enough to have given pause to many IOCs and NOCs that might be concerned that the targets are out of reach. It unequivocally extracts recognition by major members of the oil and gas industry of responsibility to address emissions quickly while meeting obligation to provide security of supply.

Although laudable, the pace of change for this industry (as represented in this charter) is not fast enough, deep enough, or broad enough to materially address the yawning gap between the Paris commitments and the present Dubai reality. After months of negotiations to achieve this charter, it is now time for governments, consumers, and other stakeholders worldwide to push even further. The oil and gas industry is, after all, a business; it responds to its buyers. The mounting pressure on this industry to begin to change, combined with the perseverance of the COP28 leadership, resulted in this important step forward in addressing its role in climate change. But this charter should be the beginning of a conversation since we are nowhere close to its end.

Andrea Clabough is a senior associate at Goldwyn Global Strategies, LLC, and a nonresident fellow with the Council’s Global Energy Center.

Note: Three companies mentioned in this article—ExxonMobil, BP, and ADNOC—are donors to the Atlantic Council’s Global Energy Center. This article, which did not involve these donors, reflects the authors’ views.

EnergySource

Global Energy Center at COP28

The 28th annual United Nations Climate Change Conference takes place from November 30-December 12, 2023 in Dubai, United Arab Emirates. The Atlantic Council Global Energy Center will be on the ground to work alongside government, industry, civil society, and public stakeholders to discuss key issues and outcomes.

Meet the author

Fellow

Andrea Clabough

Climate Change & Climate Action Energy & Environment

Fellow

David L. Goldwyn

Adrienne Arsht Latin America Center Global Energy Center

Caribbean Climate Change & Climate Action

EnergySource Nov 21, 2023

Beyond promises: Pathways to deliver on methane commitments

By David L. Goldwyn, Andrea Clabough

The Global Methane Pledge has committed over one hundred adherents to collectively reduce their methane emissions by 30 percent by 2030. The challenge however, seems as intractable as ever.

China Climate Change & Climate Action

EnergySource Nov 29, 2023

How COP28 can help cities drive climate action

By Willow Fortunoff, Maia Sparkman

Africa Americas

New Atlanticist Nov 30, 2023

Expert analysis: The successes and shortcomings in the fight against climate change at COP28

By Atlantic Council experts

Our experts dispatched to Dubai, where they analyzed how global leaders responded to the greatest challenges posed by climate change.

Climate Change & Climate Action Energy Transitions

Check out all our COP28 programming here.

The post The Oil and Gas Decarbonization Charter is a start, but more work remains appeared first on Atlantic Council.

Expert analysis: The successes and shortcomings in the fight against climate change at COP28

Atlantic Council experts — Thu, 30 Nov 2023 20:21:06 +0000

This year, the world has seen a slate of devastating weather events—and geopolitical tensions that have raised global concern about access to reliable energy. Did global leaders at the United Nations Climate Change Conference, also known as COP28, respond with enough to meet this moment?

Experts from across the Atlantic Council, from on the ground in Dubai and elsewhere around the world, analyzed how global leaders responded to climate change’s greatest challenges and offered expert insight on the biggest developments in everything from climate finance to the energy transition to the global stocktake.

Get a sense of whether negotiators have proven COP’s value, courtesy of our experts below.

THE LATEST AFTER NEGOTIATIONS

COP28’s legacy will be measured by emissions reduction, not ‘historic’ text

The takeaway from COP28: Gas and nuclear are part of the energy transition

The final report card for COP28

Don’t chalk this conference’s success up to text alone

COP28 gave nuclear power a seat at the table

See day thirteen analysis

DECEMBER 15 | 10:02 PM GMT+4

COP28’s legacy will be measured by emissions reduction, not ‘historic’ text

By Landon Derentz

Behind the scenes, however, the feverish and ultimately successful push for a diplomatic compromise temporarily overshadowed what COP28 has already accomplished.

EnergySource

Dec 15, 2023

COP28’s legacy will be measured by emissions reduction, not ‘historic’ text

By Landon Derentz

The COP28 final declaration is transformational in its reflections on fossil energy’s role in climate change. The conference’s real legacy, however, will be the efforts undertaken to foster the inclusive platform necessary to promote private and public actions and reduce global emissions.

Climate Change & Climate Action Energy & Environment

DECEMBER 15 | 9:58 PM GMT+4

The takeaway from COP28: Gas and nuclear are part of the energy transition

By Ana Palacio

Standing at the epicenter of the United Nations Climate Conference in Dubai, also known as COP28, it was clear that this year’s event was qualitatively different from previous ones. What started in Berlin in 1995—convened by Angela Merkel, then the German environmental minister, as a private meeting of experts seeking to draw the attention of leaders and the media to the increase in global average temperatures—has become a prominent and massive gathering. Over the course of two weeks, more than 150 heads of state and government walked the halls of Expo City Dubai, compared to 112 who attended COP27 last year in Sharm El Sheikh, Egypt. There were also reportedly more than 90,000 participants at COP28, compared to less than 50,000 at COP27.

With the increase in size, COP’s center of gravity shifted away from the formal management structure of the convention. Instead, the focus was on disparate and scattered initiatives in which nonstate actors—including from the private sector—play a prominent role. There are several ways to interpret this conference: a holy pilgrimage for those who are devoutly green, a new Davos attended by executives of the same corporate giants who frequent the World Economic Forum gathering in Switzerland, a photocall of politicians from around the world, a theater with armies of lobbyists, a mix of consultants and media. “Inclusion” was an oft-repeated theme this year. And although it may seem provocative, the meeting’s most notable decision may have been to include the oil and gas sector, which had been previously sidelined—a decision that spotlighted a larger confrontation at COP28 between ideology and pragmatism.

New Atlanticist

Dec 15, 2023

The takeaway from COP28: Gas and nuclear are part of the energy transition

By Ana Palacio

The concept of a “transition” in the energy transition is too often lost: specifically, the idea that it will extend over time and require overlap.

Climate Change & Climate Action Energy & Environment

DECEMBER 14 | 1:48 AM GMT+4

The final report card for COP28

After fourteen days in the desert, it ended with a “beginning.” On Wednesday, the 2023 United Nations Climate Conference in Dubai, also known as COP28, concluded with nearly two hundred countries agreeing to “transition” away from fossil fuels. UN Climate Change Executive Secretary Simon Stiell called the decision the “beginning of the end” of the fossil fuel era. But the agreement text was only one of many outcomes from the conference, including the activation of the loss and damage fund and pledges to abate methane emissions and triple renewable energy. Atlantic Council experts who were on the ground in Dubai share their insights on the agreement and the road ahead.

Fast Thinking

Dec 13, 2023

The final report card for COP28

By Atlantic Council

Atlantic Council experts who were on the ground in Dubai share their insights on the agreement and the road ahead.

Africa Climate Change & Climate Action

DECEMBER 13 | 11:43 PM GMT+4

Don’t chalk this conference’s success up to text alone

By Reed Blakemore

COP28 finally came to a (late) conclusion today, following a frenetic race to the finish.

The final agreement managed to address nearly all of the key items on the COP28 agenda—the loss and damage fund, tripling renewable energy deployment, and global carbon markets with varying levels of strength. But debate over whether this COP was a success or failure will gravitate toward the agreement’s treatment of fossil fuels.

Despite early optimism from the climate community earlier in the week that “phasedown” in some form or fashion might be an ultimate landing spot, the final text on Wednesday, settled on “transitioning away from fossil fuels in energy systems.” That language reveals not only how hard it is to find consensus on the oil and gas industry’s role in climate action; it also shows the complexity of interests that are often misunderstood by climate observers and played out over successive drafts leading up to the final agreement. On one hand, major oil-producing delegations at the COP have been unwilling to accept sweeping or overly broad language that undercuts their still-transitioning economies. Relatedly, many developing economies (particularly in Sub-Saharan Africa) see a phasedown or phase out, in the absence of financing for alternative energy sources, as an unfair deal. They make this point by criticizing how Western countries built their own economies by consuming fossil fuels for decades (and at the same time that many Western countries still produce and use fossil fuels themselves). Meanwhile, small island nations have been adamant that fossil fuels cannot be omitted from COP text, whether this one or in the future.

The result is a bit of a word salad that may not meet the expectations many in the climate community brought to Dubai. But expecting the United Nations Framework Convention on Climate Change (UNFCCC) to address the tricky issue of fossil fuel emissions in one fell swoop may actually be unhelpful for efforts to drive multilateral climate action.

Indeed, the treatment of fossil fuels and their role in global emissions is an urgent area of attention—and it will remain so for COPs to come. But when evaluating the success of this gathering in Dubai, don’t put too much faith in the power of the COP’s signaling abilities through its text. Unlike loss and damage funds or carbon market rules, for which multilateral structures or mechanisms are created through UNFCCC agreement, it’s harder to draw a straight line between strong phaseout language in the text and the drawdown of a resource that remains an intrinsic part of the global economy. This perhaps is what made the alternative phrasing to a “phase out” proposed over the weekend—which listed several options for countries to cut emissions including upping renewable energy capacity—an imperfect but more thoughtful way to use the signaling power of the COP. (This wording, for example, is similar to what was used in the Sunnylands agreement in November between the United States and China). The final COP28 agreement, though also imperfect, is an important starting point to build from.

Regardless, the increasing utility of the COP to build an inclusive ecosystem that effectively integrates industry, civil society, and policy is something to celebrate. Numerous accomplishments—from nuclear energy commitments to a new renewables fund—highlight COP’s value as a necessary platform to align action and commitment.

Bringing the oil and gas industry into this platform is a tricky but necessary part of that process, and an area in which this COP will leave a legacy even outside of the official text. The United Arab Emirates’ (UAE) establishment of Global Decarbonization Accelerator and its Oil and Gas Decarbonization Charter provided that, and while it needs to both grow in participation and ambition, it can be a space where the UAE can push for shared action even once its COP presidency concludes. Holding the oil and gas industry accountable for their role in the climate crisis begins with bringing that industry into the fold, in order to hold it accountable for providing solutions rather than for existing. This COP managed to do that.

What remains to be seen, however, are the tricky bits of climate action. Major tasks ahead for the UNFCCC include effectively de-risking private investment in clean energy projects; establishing clarity on how to allocate “shared pools” of funding for resiliency efforts, such as the loss and damage fund; and navigating the nuance of a trade system that is evolving rapidly in response to energy transition. Arguably, these are just as (if not more) “make or break” for the energy transition and climate action than the language chosen to articulate the future role of fossil fuels.

The ink may still be drying on the final agreement, but much more work remains.

—Reed Blakemore is director for research and programs with the Atlantic Council Global Energy Center.

DECEMBER 13 | 10:43 PM GMT+4

COP28 gave nuclear power a seat at the table

By Jennifer T. Gordon

From the start, it was clear that this COP could justifiably be called “the nuclear COP.” COP28 kicked off with the pledge of more than twenty countries to triple nuclear energy by 2050, which was soon followed by an industry pledge. Additionally, the US Export-Import Bank (EXIM) and the US Department of State announced a “suite of EXIM financial tools” to jump-start small modular reactor deployments around the world. The United States, Japan, Canada, France, and the UK pledged to mobilize at least $4.2 billion in government-led investments to “enhance uranium enrichment and conversion capacity over the next three years.”

Perhaps just as important as the specific announcements on nuclear energy at COP28 was the unprecedented centrality of nuclear energy in conversations at the conference. The International Atomic Energy Agency (IAEA) and the Nuclear Energy Institute hosted a pavilion in the Blue Zone called “Atoms4Climate,” while the Emirates Nuclear Energy Corporation and World Nuclear Association hosted Net Zero Nuclear pavilions in the Blue Zone and Green Zone, along with a two-day Net Zero Nuclear Summit in downtown Dubai. Nuclear energy was present in all these platforms, and conversations around nuclear energy took place in spaces that were dedicated to the energy transition writ large (for example, at the Global Decarbonization Accelerator Connect pavilion, run by the Atlantic Council). The United Nations Framework Convention on Climate Change’s Draft Decision on the Outcome of the Global Stocktake included nuclear energy in its list of “zero- and low-emission technologies,” a move that the IAEA praised for making history.

The importance of nuclear energy becoming part of the climate conversation goes far beyond rhetoric. As countries move to unlock financing for technologies that are considered green, the inclusion or exclusion of nuclear energy could determine whether the industry succeeds or fails. For example, Canada’s inclusion of nuclear energy in its Green Bonds framework is enabling greater funding for nuclear and faster deployment of nuclear technologies. As a zero-emission energy source, nuclear deserves a seat at the table at the world’s premier climate conference, and COP28 was a watershed moment for the inclusion of nuclear in the climate discussion.

—Jennifer T. Gordon is the director for the Nuclear Energy Policy Initiative at the Atlantic Council’s Global Energy Center.

Note: The Emirates Nuclear Energy Corporation is a sponsor of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

DAY THIRTEEN

Watch how final negotiations balance energy opportunity with climate insecurity risks

Will the findings of the global stocktake unite or divide the world?

See day twelve analysis

DECEMBER 12 | 11:45 PM GMT+4

Watch how final negotiations balance energy opportunity with climate insecurity risks

By Thammy Evans

As COP28 draws to a close, the usual frantic bargaining is taking place. This year’s conference has seen several innovations and firsts that show an evolving global and societal response to the climate crisis at hand. More than ever before, themes beyond climate change are attracting more focus, which was seen in announcements such as the launch of the Alliance of Champions For Food Systems Transformation. The day 11 Majlis organized by the United Arab Emirates aimed to bring a more inclusive feel to the negotiations, while the conference’s many official gatherings have earned this COP the name “Conference of Partners.” The findings of the global stocktake, although still not finalized and released, is a first attempt at a comprehensive, transparent inventory of climate action, but gaps remain.

A look at the themes of each COP across the years is a stocktake in itself that shows how negotiations have developed and the topics that have made it into negotiations over time. To date, much of the negotiations (on topics such as food, agriculture, oceans, tourism, health, finance, gender equality, indigenous peoples, youth, nature, land use, urbanization, fashion, adaptation, and loss and damage) have been attempts to make progress on climate mitigation via indirect sectors and to create a means to make it up to developing countries that are suffering the most from climate change. But much of the negotiations have also fallen short on the real elephant in the climate-mitigation room: fossil fuels.

This conference, however, marks the first time the term “fossil fuels” made it into the end-of-COP deal—or at least the draft text of it. Inclusion of the term “fossil fuels” is a sign of how much traction climate science has finally made. It is also recognition that discussions around climate security have adequately—and powerfully—conveyed the risks at stake. If the term “fossil fuels” remains in the final text, and depending on how it is mentioned, it could be a win for the COP28 president, Sultan al-Jaber, who has advocated for the need to have buy-in from all parties and partners, even (and especially) the oil industry.

Efforts to turn global focus toward turning the tap off for fossil fuels (i.e. a complete phase out), on ecosystem and economic regeneration and on a policy switch to regenerative capitalism (rather than merely mitigation, resilience, and adaptation) have not yet succeeded. Some sectors in many developed countries, with a sense of optimism for technological determinism, argue that technological innovations will somehow help achieve climate goals, just in time to keep hard-to-abate sectors alive for just that bit longer. But climate modeling simulators don’t show any scenario in which global warming can be kept to 1.5 degrees or even 2 degrees Celsius by keeping fossil fuels alive (by supporting fossil fuel infrastructure and production) while offsetting by innovation scale up, offsetting, or abatement by 2100, or even by 2050.

It is true that a gradual phase down will keep certain transition challenges more tolerable, especially for those countries whose economies have yet to put a realistic economic transition diversification plan in place. But the lack of a fast enough phase out plan will exacerbate physical climate insecurity risks for the 3.5 billion deemed already to live in climate hot spots. The resulting increased risk of violent conflict, forced migration, and death will raise humanitarian disasters to a level unseen, keeping government institutions, emergency services, and the option of last resort—the armed forces—ever more occupied with responses to climate hazards. As the COP28 negotiations draw to a close, watch this balance of energy opportunities and insecurity risks.

—Thammy Evans is a nonresident senior fellow of the GeoTech Center of the Atlantic Council. She is also a senior research fellow of the Climate Change & (In)Security Project, a collaboration between the Reuben College of Oxford University and the UK Army’s Centre for Historical Analysis and Conflict Research. Her co-authored chapter entitled Ecological Security: The New Military Operational Priority for Humanitarian and Disaster Response, was published in Climate Change, Conflict, and (In)Security: Hot War on December 1.

DECEMBER 12 | 8:14 PM GMT+4

Will the findings of the global stocktake unite or divide the world?

One of the most pivotal items being discussed at COP28 is the global stocktake, a “report card” of the world’s progress on climate action and a key indicator of the implementation of the Paris Agreement.

Two years ago, countries began assessing their progress on climate targets, or nationally determined contributions (NDCs), and submitted their findings to the United Nations (UN) Framework Convention on Climate Change. According to the UN Environment Programme’s Emissions Gap report, with current NDCs and climate targets, the world has little chance of keeping below the 1.5-degree-Celsius warming limit and could see temperatures rise by 2.9 degrees Celsius above preindustrial levels by the end of the century.

Under a three-degree warming scenario, the Amazon rainforest could dry out and ice sheets would melt at exponential rates. To meet the 1.5-degree warming threshold, countries will need to cut their greenhouse gas emissions by at least 42 percent by 2030, the UN says. According to the World Meteorological Organization, the world is slated to reach 1.4 degrees Celsius of warming above preindustrial levels in what remains of this year, making it the hottest year on record. “Greenhouse gas levels are record high. Global temperatures are record high. Sea level rise is record high. Antarctic sea ice is record low,” the World Meteorological Organization’s secretary general warned. Scientists have said that next year could be worse, with an El Niño weather pattern that is expected to cause temperatures to rise.

COP28’s success depends on the global stocktake’s ability to push countries to implement three changes.

First, drastically cutting emissions and having countries increase the ambition of their NDCs, including by committing to reduce emissions by 43 percent by 2030 and by 60 percent by 2035, as recommended by the UN.

Second, a complete phaseout of unabated fossil fuels with a clear timeframe that keeps global warming below 1.5 degrees Celsius. Going forward, countries should set their ambitions even higher than this recommendation by phasing out all fossil fuel use: “abated” fossil fuel, achieved with the help of carbon capture and storage, can take away from the real action that needs to be done. All countries must also commit to triple renewables, double energy efficiency, and make clean energy available to all by 2030.

Third, increasing climate finance to ensure that the Global South doesn’t struggle to reach climate targets and that developing countries are not devastatingly impacted by climate-related disasters they did not cause or only minorly fueled. As negotiations on the way forward come to a close, it is important that countries are acutely aware of the consequences of their shortcomings and the need to ensure climate justice for all.

—Lama El Hatow is a nonresident fellow with the empowerME Initiative at the Atlantic Council’s Rafik Hariri Center for the Middle East. She is also a professor and program coordinator at Johns Hopkins University in the Environmental Science and Policy and Energy, Policy, and Climate departments.

DAY TWELVE

The Inflation Reduction Act set off waves still felt at COP28

COP28 is talking about how to finance Africa’s green transition. Green banking is a big part of that.

See analysis from day eleven

DECEMBER 11 | 5:41 PM GMT+4

The Inflation Reduction Act set off waves still felt at COP28

By Charles Hendry

The introduction of the Inflation Reduction Act (IRA) in the United States has transformed European thinking about the industries Europe needs if it is to achieve net-zero emissions by the middle of the century.

Political leaders in Europe and elsewhere had long been encouraging the United States to do more to tackle climate change and bring forward the industries needed to do so. But when the IRA was announced, the initial reaction in European capitals was one of shock. The IRA was criticized as being unfair in subsiding companies to invest in the United States and making it more difficult for Europe to compete.

As time has progressed, harsh words have changed into measures that would also attract investment into the United Kingdom and the European Union. Governments realized that their only response was to raise their game and make Europe as attractive a place to invest in low-carbon industries as the United States. Game on!

The mistake in those early reactions was that it suggested that this is a battle between the United States and Europe. But the reality is that if both are to deliver the changes that are needed, and do so in the timeframe needed, then this needs to be the United States and Europe—and China and other countries across the world. This is not a zero-sum game in which if one country does well, then other countries have to do badly. It is one where we all need to win.

The same is true of Chinese dominance of supply chains. The West needs to secure more of those supply chains, as businesses want their supplies closer to them and as they look to have stricter control over manufacturing processes, environmental sustainability, and transparency. Sometimes that is seen as a threat to Chinese industries, but the reality is that China will need the output from those factories to supply its own fast-growing clean industries.

The mood of businesses present at COP28 has been one of realizing ambition, a sense that more can be done, that the necessary funding is there, that the right skills can be developed, and that companies can do all this faster than previously thought. In every panel I took part in, business representatives said that they are ready to deliver on the ambition.

There will be much debate about government policies to reach the United Nations Climate Change Conference commitments, but there has seemed to be little debate at COP28 about the enthusiasm of the business community to rise to the challenge. Sixteen months on from the signing of the IRA, the United States and Europe and countries around the world are starting to realize that they have to deliver together.

—Charles Hendry is a distinguished fellow of the Atlantic Council Global Energy Center. Previously, he was a Conservative member of the UK Parliament for Wealden from 2001 to 2015, the minister of state for energy from May 2010 to September 2012, and the Conservative Party’s spokesperson on energy issues from 2005 to 2010.

DECEMBER 11 | 9:25 AM GMT+4

COP28 is talking about how to finance Africa’s green transition. Green banking is a big part of that.

By Jean-Paul Mvogo

On the ground at COP28, the issue of climate finance, particularly in Africa, has been a big topic of discussion. This is due in part to the magnitude and urgency of the issue. Even with the commitments made here in Dubai and earlier, the amount Africa needs to face climate change—three hundred billion dollars per year, at least—is around ten times the amount of disbursements and pledges made to African countries so far for this purpose.

Beyond the amount of financing needed, the discussions at COP28 have also focused on the topic of the green financial architecture—that is, the logistics to bring green financial services and products closer to African households, businesses, and communities. A major question is how to provide climate insurance to the millions of African farmers, including farmers in Sub-Saharan Africa, who could lose 5-17 percent of their crop yields by 2050 due to climate change and who live on the fringes of traditional financing circuits. Another concern is how to finance the upgrade of African businesses to greener standards, when today only 18 percent of their financing needs are covered. There is in addition the question of how to provide greener transport, energy, and housing solutions to the hundreds of millions of young, urban workers, who earn their living on a daily basis and do not have collateral.

If the need for deployment of climate finance for all is self-evident in countries with developed financial systems, these questions highlight the importance of green financial architecture for Africa to achieve a successful green and inclusive transition. Hence the decision of the Atlantic Council’s Africa Center to launch a reflection on that topic in a new report that I wrote and presented at COP28.

Report

Dec 5, 2023

How green banking can unlock climate solutions in Africa

By Jean-Paul Mvogo

In order to succeed in its transition to a green and inclusive economy, Africa must ramp up its green banking ecosystems and mobilize resources needed to finance climate mitigation and adaptation while also addressing deforestation, pollution and biodiversity loss.

Africa Economy & Business

This report explains how green financial systems can turn Africa into a champion of the green economy by mobilizing its ecosystems. Africa’s ecosystems are among the most efficient carbon sinks on the planet. African countries represent an exceptional renewable energy technical potential that accounts for a little less than half of worldwide capacity. And the continent contains large deposits of numerous critical minerals essential to the green revolution.

The report presents cooperative models for creating alliances of financial intermediaries able to mobilize their respective advantages to efficiently deliver green financial services to the “last mile”—to local communities and small businesses, for example. It also emphasizes issues that the international community must quickly address to resolutely engage Africa in the transition to a green and inclusive economy that would be a benefit to all as a source of stability.

To unblock the African green intermediation pipeline, the report advocates finding solutions to the difficulties faced by African financial actors when they wish to access international green funds. The dysfunctions of African carbon markets, which hinder the rise of pan-African green finance engineering initiatives, also call for resolute action. Finally, the report pleads for curbing the debt bottleneck that prevents African countries from devoting more resources to capacity building and training, which are needed to structure countries’ green ecosystems and attract more private investment. Indeed, private investment represents just 14 percent of green financing in Africa, highlighting a strong growth potential.

With the end of COP28 nearing, these issues, and the report’s twenty-one recommendations, deserve more attention. As COP28 attendee said to me, action, in addition to discussions, is needed to prevent the international community from heading toward “a climatic and societal hell” and allow the construction of a more desirable alternative.

Jean-Paul Mvogo is a nonresident senior fellow with the Atlantic Council’s Africa Center.

DAY ELEVEN

For the global stocktake and beyond, accessible and trusted data are the foundations for progress

Is carbon capture and storage a solution to emissions—or is it a ‘carbon bomb’?

See analysis from day ten.

DECEMBER 10 | 8:15 PM GMT 4

For the global stocktake and beyond, accessible and trusted data are the foundations for progress

By Lloyd Whitman and Raul Brens Jr.

Negotiations on the highly anticipated COP28 global stocktake have already started for the nearly two hundred countries gathered at the climate change conference. This stocktake, the first in a five-year cycle, will determine how far the world has come in trying to meet the goals of the Paris Agreement and where it has come up short. To quote the United Nations Framework Convention on Climate Change (UNFCC), “It means looking at everything related to where the world stands on climate action and support, identifying the gaps, and working together to agree on solutions pathways (to 2030 and beyond).”

During the first week of COP28, a theme heard again and again across discussions on climate science, mitigation, and adaptation is the importance of data and the challenges to making accurate, comprehensive, and trusted data easily accessible to all stakeholders. While the Enhanced Transparency Framework is the foundation for the UNFCC’s data collection and reporting, there is a rapidly growing array of public and private sector resources being devoted to data collection, sharing, and use, including artificial intelligence (AI)-enabled applications.

The power of data was vividly illustrated at COP28 in a presentation by former US Vice President Al Gore and Gavin McCormick, co-founder of the Climate TRACE coalition. They revealed how comprehensive data on sources of greenhouse gas (GHG) emissions can provide actionable insights into how to target emissions reductions more effectively. This global-scale monitoring system uses satellites and other remote sensing methods, combined with ground-truth measurements and AI, to provide an open and accessible global inventory of emissions.

The data from Climate TRACE also demonstrate the importance of space for providing critical climate-related data—the topic of a discussion at COP28 moderated by one of the authors. The panel was hosted in the Blue Zone by the World Green Economy Organization and titled “Space for Sustainability: Contribution of Space-Based Capabilities to Sustainability Research and Climate Science.” It featured Aarti Holla Maini, director of the UN Office of Outer Space Affairs; Salem Butti Salem Al Qubaisi, director general of the UAE Space Agency; Andrew Zolli, chief impact officer at Planet; and David Roth, director of international public policy at Amazon. This discussion made clear that whether looking inward at the Earth, outward at other planets and beyond, or providing global network connectivity, space should not be an afterthought and, instead, should be embedded into climate policy making.

These are just two of a multitude of conversations at COP28 on the importance of trusted and accessible data for the entire climate ecosystem. Some of the other data-related projects and resources discussed include:

A partnership between UNFCCC and Microsoft to use AI and advanced data technology to track global carbon emissions and assess progress under the Paris Agreement.
A partnership between the UAE Space Agency and Planet Labs to use satellite data to construct a loss and damage atlas to inform the Loss and Damage Fund first announced at COP27.
A tool developed by Google to forecast life-threatening floods up to seven days in advance using publicly available data sources and AI.
A centralized and open source private sector climate data repository co-developed by France and Bloomberg enabling investors and regulators to track and compare climate commitments for hundreds of companies.
The full launch of the Methane Alert and Response System, a satellite detection and notification tool to accelerate data gathering and notification to countries of this potent GHG.
The Global Renewals Watch, a longitudinal atlas observing solar and wind renewable resources on Earth and how they are growing to better inform the transition to clean energy.

A diverse set of data collection methods are important to accurately assess emissions across different sectors, but data sources also offer opportunities beyond tracking emissions. Data collection methods across different areas are crucial to our growing understanding of holistic impacts of climate change, including that of deforestation, biodiversity loss, and impact assessments of natural resources such as melting ice caps, oceans, and water systems. It is key to transparency in government and business commitments related to sustainability and to reveal “greenwashing.” To ensure a global benefit and ease of utility across data sets, it is important to underscore robust data and reporting standards. Data need to be trustworthy, accessible, and interoperable to ensure access and ultimately action. Standardized reporting can breathe transparency into a system mired with distrust, and it can facilitate global collaboration, allowing for an acceleration of insights and ideas on how to address climate change.

The effective use of climate-related data requires global collaboration and cross-sector engagement, even where geopolitical tensions hinder other bilateral activities. The democratization of data will be a requirement to ensure that data sets are not only available but also accessible in usable formats for those who need it the most across sectors and countries. The effort will require the involvement of governments, international organizations, the private sector, philanthropic foundations, and civil society. They must work together to build capacity for knowledge-sharing and facilitate the strategic deployment of resources necessary to optimize the use of cross-functional data. A multi-stakeholder approach is the best way to prioritize and implement the most effective and economical solutions.

As the negotiations for the global stocktake move closer to the finish line, it is important to highlight one thing everyone should agree on: Accessible and trusted data are the foundations for progress on decisive climate action and achieving a sustainable future.

—Lloyd Whitman is the senior director at the Atlantic Council’s GeoTech Center.

—Raul Brens Jr. is the deputy director and a senior fellow at the Atlantic Council’s GeoTech Center.

Note: Amazon is a sponsor of the Atlantic Council’s work at COP28.

DECEMBER 10 | 12:29 PM GMT+4

Is carbon capture and storage a solution to emissions—or is it a ‘carbon bomb’?

To meet the Paris Agreement’s goal of limiting the global average temperature increase to 1.5 degrees Celsius, the world will need to cut fossil fuel production by an estimated 40 percent within this decade, according to the International Energy Agency. In an effort to reach the Paris Agreement goal, several countries—including Saudi Arabia, the United Arab Emirates, Canada, and the United States—have proposed the use of carbon capture and storage (CCS) technologies to abate carbon emissions from fossil fuels and heavy industry, and store them back in the ground, either offshore or on land.

However, several groups have criticized the technology and its implications on the wider project of achieving climate goals. A report by the Center for International Environmental Law (CIEL), for example, states that the oceans are already plagued with ocean acidification and pollution from offshore oil and gas installations, and the seabed should hence not be turned into a storage site for carbon dioxide (CO2) waste. In addition, the CIEL report mentions that CCS projects have repeatedly fallen short of capture targets and encountered financial and technical hurdles, raising doubts about their feasibility and safety. Offshore CCS experience has been limited so far to only two projects in Norway, both of which encountered unpredicted problems, raising questions about the technology’s risks.

Similarly, another report by Climate Analytics states that a reliance on CCS could be dangerous for the planet, since its impacts and ramifications are still not well known or studied. The report argues that for the world to achieve the Paris Agreement’s 1.5 degrees Celsius limit, a near-complete phaseout of fossil fuels is needed by the middle of the century. The Intergovernmental Panel on Climate Change, too, has stated that a fossil fuel phaseout is necessary to meet the 1.5 degrees Celsius limit target, but that a small amount of CCS can be utilized in this pathway with capture rates of 95 percent. The Climate Analytics report suggests, however, that if carbon capture rates only reach 50 percent rather than 95 percent, and upstream methane emissions are reduced to low levels, this outcome would pump 86 billion tons of greenhouse gas emissions into the atmosphere, equivalent to more than double the global CO2 emissions in 2023. The report calls this a “carbon bomb.”

Some scientists and climate experts have raised concerns that the use of CCS to abate fossil fuels would reduce pressure to completely phase them out, shifting the focus instead to “phasing down” their use. The concern is that, as a result of CCS, both emissions mitigation efforts and an energy transition to renewables would be slowed considerably, and that the technology would therefore in effect promote the expansion of oil and gas projects globally instead of limiting them. The Climate Analytics report, for example, states that CCS is “heavily promoted by the oil and gas industry to create the illusion we can keep expanding fossil fuels with dismal capture rates to count as climate action.”

Here at COP28, as countries are reportedly discussing the wording of an “abated” versus “unabated” fossil fuel phaseout in the text, the consequences of allowing a technology with unknown risks to make its way into the calls for “climate action” remain a concern.

—Lama El Hatow is a nonresident fellow with the empowerME Initiative at the Atlantic Council’s Rafik Hariri Center for the Middle East. She is also a professor and program coordinator at Johns Hopkins University in the Environmental Science and Policy and Energy, Policy, and Climate departments.

DAY TEN

Getting private capital off the sidelines for the Global South

COP28 turns out the private sector to solve the climate crisis

Ukraine’s path to victory and European integration is paved through war-insured decarbonization investments

COP28 is different from every other COP. Here’s why.

AI is generating a lot of attention at COP28—and predictions about the climate’s future

See analysis from days eight and nine

DECEMBER 9 | 11:47 PM GMT+4

Getting private capital off the sidelines for the Global South

By Racha Helwa and Hezha Barzani

Check out this untapped opportunity: Africa has 60 percent of the world’s best solar resources, but only 1 percent of installed solar capacity. That lack of commitment from the private sector is due to perceived and real investment risks, stemming from concerns about weaker institutions in these countries.

But for the world to meet its energy-transition objectives, the private sector must increase its investments fourfold, according to the Independent High-Level Expert Group on Climate Finance.

One mechanism available to help minimize those investment risks—whether real or not—is the global suite of multilateral development banks. These banks can take on this challenge by offering insurance or guarantees to investors, or through other means. But, as discussed in a GDA Connect event we hosted today, those de-risking instruments appear insufficient to many investors.

That’s why there’s so much chatter about sovereign wealth funds and green funds. They are equally crucial when it comes to attracting investments for renewables in Africa, parts of the Middle East, and other countries facing similar challenges. It could be argued that, out of the variety of funding initiatives and deals to take place here at COP28, the Alterra fund is the one most likely to have an immediate and significant impact on climate action.

At the GDA Connect event, UAE Minister of State for Foreign Trade Thani bin Ahmed Al Zeyoudi unpacked the new $30 billion climate-focused fund, highlighting that it aims to mobilize an additional $250 billion globally by 2030 and increase investment flows to the Global South. What’s important here is that the fund could radically alter the dynamics and pace of the energy transition in Africa and the Middle East, helping to sustain momentum over time.

But with much more financing needed—in the trillions, not the billions—it will take additional bold initiatives to push the energy transition in the Global South to where it needs to go.

—Racha Helwa is the director of the empowerME Initiative at the Atlantic Council’s Rafik Hariri Center for the Middle East.

—Hezha Barzani is an assistant director at the Atlantic Council’s empowerME Initiative.

DECEMBER 9 | 10:38 PM GMT+4

COP28 turns out the private sector to solve the climate crisis

By Frederick Kempe

This entry is part of the “Inflection Points Today” newsletter. To receive more quick-hit insight on a world in transition, subscribe here.

There are different theories about how this city, the most populous in the United Arab Emirates, got its name. My favorite is that it came from an Arab proverb that says “Daba Dubai,” meaning, “They came with a lot of money.”

Dubai was established in the eighteenth century as a fishing village, where a good living could be made from trade and pearl diving. By the time the COP28 climate conference kicked off here, it had become one of the world’s richest cities, with the world’s tallest building and more five-star hotels than any city except London, the result of oil revenue, tourism, real estate, and sovereign investment.

Dubai was host to climate action over the past week, gathering almost one hundred thousand people from nearly two hundred countries. The public and private sectors drew closer than ever before to a consensus that addressing the perils of a warming planet was both a matter of urgency and business opportunity.

That does not fix the problem, but there is no solution without vast amounts of private-sector financing and investments in climate solutions from renewables to nuclear energy, and from decarbonization to green tech.

Many climate activists opposed opening the doors to industry, particularly those producing fossil fuels, but the result has been a flurry of unprecedented agreements that, if executed and sustained, have the potential for tens of billions of new dollars to address the climate crisis.

For example, there is the $700 million in loss and damage support for the Global South. There is also the $30 billion “Alterra” fund, launched by the United Arab Emirates—and with private-sector giants Blackrock, Brookfield, and TPG—whose aim is to generate $250 billion of capital by 2030 for climate investments in the Global South.

Some fifty oil and gas companies, including Saudi Aramco and twenty-nine national oil companies, agreed to reduce their emissions to zero by 2050 and to reduce methane emissions to zero by 2030. At other points of the convening, countries joined together in agreeing to triple renewables, also by 2030, and to triple emissions-free nuclear energy by 2050. Achieving both goals will require the participation of the private sector.

Negotiators are squabbling over the text of the final COP28 agreement. Politico reports that a draft it has seen has expanded to twenty-seven pages and includes five different options on how to manage disputes over “phasing down” or “phasing out” fossil fuels. The battle could get ugly before the conference closes Tuesday.

Whatever the outcome, veterans of the UN climate process believe this year’s sharply increased level of private-sector engagement could be the game changer to address challenges beyond the capacity of governments alone. Says Jorge Gastelumendi, a veteran of sixteen COPs who runs the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center: “After twenty-eight COPs, we have finally seen the private sector arrive in the climate space with full force and commitment. Without them, we will not be able to solve the climate crisis.”

DECEMBER 9 | 3:55 PM GMT+4

Ukraine’s path to victory and European integration is paved through war-insured decarbonization investments

By Olga Khakova

Ukraine’s COP28 pavilion hosts sobering evidence that Russia’s full-scale invasion of the country has included an environmental assault on Ukraine’s nutrient-rich soil, interconnected watershed systems, and diverse wildlife, in addition to Russian forces’ attacks on civilians and their communities. But Ukraine’s COP28 pavilion is also a stage for showcasing the country’s resilience, innovation, and resolve to decarbonize, despite ongoing Russian attacks. Allies from around the world stopped by to demonstrate their support, including US climate envoy John Kerry and European Commissioner for Energy Kadri Simson. Victoria Hallum, New Zealand’s deputy secretary of multilateral and legal affairs, and Marco Vinicio Ochoa, Guatemala’s vice minister of natural resources and climate, also stopped by the site. Continued engagement from international partners will be critical to rebuilding the country and transforming its energy systems toward net-zero emissions.

Ukraine is already making strides to cut carbon emissions and strengthen energy security, from local small-scale initiatives to record developments. One of the news-making announcements at the Ukrainian COP28 pavilion was the signing of a memorandum of understanding between DTEK, Ukraine’s biggest private energy company, and Vestas, a company with more than a hundred gigawatts of wind turbine installation and service under its belt. They agreed to expand the Mykolaiv wind farm in southern Ukraine into the biggest wind project in Eastern Europe. Cities across Ukraine are also doing their part to meet climate targets. In the North, Nizhyn (which was covered in a death blanket of Russian rockets at the onset of the Russia’s February 2022 invasion) is now installing photovoltaic cells and storage at local utilities and maternity wards, as well as ramping up heat pump integration ahead of the winter.

But to reach momentum and scale, Ukraine will need war risk insurance for Ukrainian and foreign investors and project developers. Initial efforts are on the way through the World Bank’s Multilateral Investment Guarantee Agency; the US International Development Finance Corporation; and the European Bank for Reconstruction and Development; as well as national insurance solutions from Poland, Germany, and France for protecting exports and investments in Ukraine. However, a comprehensive war risk mechanism is missing for clean energy projects that could be accessible to global companies of all sizes seeking to invest in the transformation of Ukraine’s energy system. Such mechanisms could be partially funded through state guarantees combined with support by allied governments and bolstered by engagement from private sector insurance companies and reinsurance schemes.

Ukraine is showcasing unwavering commitment to decarbonization even in the midst of war. Sufficient war risk insurance would unlock private sector investments in the clean energy economy. Moreover, these efforts will contribute to defeating Russia, to Ukraine’s economic development, and to closer integration with European energy systems.

—Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

DECEMBER 9 | 9:50 AM GMT+4

COP28 is different from every other COP. Here’s why.

By David L. Goldwyn

After twenty-eight official gatherings, the Conference of the Parties to the UN Framework Convention on Climate Change has evolved to the Conference of the Partners. Whatever the result of the final communique, the more lasting contributions will come from what is happening outside the tent. The real tests of this COP boiled down to a handful of crux issues: whether meaningful reductions in methane emissions would be accomplished, whether real money would be committed to promote the energy transition in the Global South, and whether credible pathways to net-zero emissions would be charted given the dismal results of the global stocktake. The Emirati leadership of COP28 has largely met this test.

First, the Oil and Gas Decarbonization Charter (OGDC) has done what governments could not: gotten 40 percent of global oil production committed to measurement and verification of their greenhouse gas emissions and near-zeroing of methane emissions, complete with public reporting and transparency guarantees. While the OGDC has not really deepened the commitments of the international oil companies that have signed on, it has greatly broadened these commitments to many more companies, especially national oil companies. If the OGDC proves a transformative effort, those companies that do not participate will miss out on the opportunity to have their environmental, social, and governance qualifications significantly improved.

Second, the announcement of the United Arab Emirates’ Alterra Fund commits thirty billion dollars to hard-to-finance projects in the Global South. This is nowhere close to closing the universally acknowledged climate finance gap between the needs of developing countries and emerging markets to meet their climate goals and the current financing for these needs. Theoretically, the Alterra Fund could spur as much as $250 billion in investments by 2030 to close this gap—a force multiplier by any definition. Moreover, these funds are likely to be more flexible and credible than the commitments of governments and some other private institutions thus far, as well as more effective than the sclerotic Global Environment Fund.

But the greatest legacy accomplishment may be to transform the COP process itself. For years, COPs have been caught within unrealistic and polarized debates, such as how fast net-zero emissions can be achieved, how fast renewables can be scaled up, and what role (if any) fossil fuels should play in a decarbonizing world. It seems that COP28 has, for the first time, brought a wide breadth of fuels and technology types to front-and-center roles: nuclear energy, various “colors” of hydrogen, carbon sequestration and carbon removal (as well as more ambitious renewables pledges). Even US climate envoy John Kerry is speaking positively for the first time about the need for carbon management—strongly implying that governments are recognizing that all of these strategies will play a role in reaching net-zero emissions.

While some stakeholders will be understandably skeptical of this “all of the above—and more” approach, it is a welcome recognition of the heterogenous pathways most countries (especially emerging economies) will take to reach net-zero emissions. This historic presence of diverse investors, technology companies, and even oil and gas companies that will develop and deploy these tools is what makes this (and hopefully future COPs) a gathering for partners, not just a gathering for parties. All of this, to be sure, is just a first step—but it is a hopeful one.

—David L. Goldwyn served as special envoy for international energy under President Barack Obama and assistant secretary of energy for international relations under President Bill Clinton. He is chair of the Atlantic Council’s Energy Advisory Group and a nonresident senior fellow with the Council’s Global Energy Center.

DECEMBER 9 | 9:30 AM GMT+4

AI is generating a lot of attention at COP28—and predictions about the climate’s future

Here on the ground, there’s been a lot of chatter about the role technology, including artificial intelligence (AI), plays in the climate crisis. One event at the Technology for Innovation Hub highlighted how 4 percent of global emissions come from the tech industry, which can be attributed mostly to data centers and devices (such as smartphones and computers). For countries to meet climate goals, tech leaders will need to find efficient ways to reduce these emissions.

But tech can also be used in various applications to assist in solving the climate crisis. AI could be especially useful, for example, for monitoring irrigation, offering insights into how to conserve water. AI could also help map the ocean environment and aquatic ecosystems to assess how warming seas are impacting aquatic life.

There’s more: For example, a new chatbot called ChatNetZero can help determine whether decarbonization plans designed by corporations, governments, and other institutions are credible. Scientists have been calling for sustainability reporting and corporate transparency in climate data, which often has been met with opposition due to claims of privacy and security concerns—AI may offer a way to satisfy the needs for transparency and security. Google’s DeepMind, an AI research lab, has recently uncovered 380,000 new stable materials, which have the potential to be used to power electric-vehicle batteries, superconductors, and supercomputers.

AI, with the help of data from sensors, can also help cities predict water leakages in city distribution networks in cities to avoid water losses, which account for an average of 20 percent of water losses globally in the networks.

AI, with its predictive capabilities, could be a resourceful tool in fighting climate change. But the question is how to get it to everyone. As participants have been able to glean at the Technology for Innovation Hub, organized by the COP28 Presidency, there is an urgent need to strengthen the Global South’s climate-tech ecosystems, democratize access to knowledge and capacity building, and spur climate-tech innovation. There is hope: For example, showcased at the Hub, four Palestinian startups have overcome hurdles, such as lack of access to funding and support systems, even under the dire conditions of war.

DAYS EIGHT AND NINE

What the Global South needs for a just energy transition

The White House’s Amos Hochstein on ensuring energy security amid global crises

Global consensus on climate action is harder amid geopolitical strife

Faith at COP, or faith in COP?

City-led solutions have power—but they need funding

Fusion is the future (these energy experts mean it this time)

See day seven analysis

DECEMBER 8 | 2:35 PM GMT+4

What the Global South needs for a just energy transition

By Katherine Walla

Achieving a just energy transition for the Global South may require a complete reversal in the way the world has operated for centuries.

According to Caribbean Development Bank President Hyginus Leon, who spoke at the Atlantic Council’s Global Energy Forum in Dubai on Thursday, the Global North has long benefitted from being the destination for flows of goods, money, and people from the south. “Now,” he explained, “you need a reversal” to “generate equity” and “allow the Global South to grow.”

Herbert Krapa, Ghana’s deputy minister of energy, explained that despite African countries being the source of both fossil fuels and vast critical mineral deposits—both crucial for meeting energy demand—the continent hasn’t been able to leverage them for its own development. “A just transition,” he explained, will require “taking advantage of these resources.”

But for the sake of the climate, he added, it will also require “significant financing” for renewable energy.

Read more highlights from this discussion

New Atlanticist

Dec 8, 2023

What the Global South needs for a just energy transition

By Katherine Walla

Achieving a just energy transition for the Global South may require a complete reversal in the way the world has operated for centuries.

Africa Climate Change & Climate Action

DECEMBER 8 | 12:22 PM GMT+4

The White House’s Amos Hochstein on ensuring energy security amid global crises

By Daniel Hojnacki

Energy security is “not just something we talk about in the context of Russia and Europe on gas,” said Amos Hochstein, senior advisor to the US president for energy and investment, on Thursday. Speaking at the Atlantic Council’s Global Energy Forum in Dubai, he explained that the priority of energy security “has to be the same when it comes to EVs [electric vehicles], lithium, solar panels, and wind turbines.”

Hochstein, who was formerly the US assistant secretary of state for energy resources, discussed the United States’ vision for the future of energy security, the importance of building supply chain resilience as part of the energy transition, and the path forward for regional integration in the Middle East.

Atlantic Council CEO and President Frederick Kempe asked Hochstein whether he thought the United Nations climate change conference known as COP28 in Dubai was divisive or inclusive for its large number of participants, including members of the oil and gas industries. “It’s okay to have disagreements,” Hochstein said. “I don’t think that we should expect that if somebody came here and didn’t agree, then that’s a failure. I think it’s a success that we’re having a conversation.”

Read more highlights from this discussion

New Atlanticist

Dec 7, 2023

The White House’s Amos Hochstein on ensuring energy security amid global crises

By Daniel Hojnacki

At the Atlantic Council Global Energy Forum in Dubai, Hochstein discussed the United States’ vision for the future of energy security.

Economy & Business Resilience & Society

DECEMBER 7 | 9:48 PM GMT+4

Global consensus on climate action is harder amid geopolitical strife

By William Tobin

At COP28, hundreds of countries have gathered to work together to address the climate crisis. Seeing them, here on the ground, one might momentarily forget about much of today’s geopolitical friction and global fragmentation.

But for the sake of the planet and humanity, we must not forget that reality: Meaningful progress on climate goals will only be feasible by accounting for our global context and important issues such as economic and national security.

To achieve the financial infrastructure, investment environment, and supply-chain resilience required to achieve net-zero emissions—all hard to come by with geopolitical friction—it will be important to quickly and widely deploy the full suite of decarbonization technologies that are available: from solar and wind to carbon capture, utilization, and storage. That was a big takeaway from the second day of our Global Energy Forum in Dubai today. On that stage, the White House’s Amos Hochstein argued that such a vast deployment will require both cooperation and economic competition—the latter achieved by better trade systems—ultimately lowering prices and fostering resilience.

There’s more to the context that must be considered, too. High interest rates and persistent inflation around the world are creating headwinds, slowing the deployment of (capital-intensive) clean energy tools. As financial experts and leaders from the Global South explained today at the Forum, counteracting those headwinds—and expanding access to affordable and reliable energy—will require more climate finance.

There is reason for optimism. Every COP is rightly branded as a moment with existential consequences, and COP28 was widely anticipated as the last best chance for action in key areas such as reducing methane emissions, spurring political momentum for the deployment of carbon-management technologies, improving energy finance, and more. There has been progress across these areas, such as the UAE’s launch of a thirty-billion-dollar fund (which aims to, in part, incentivize further investment into the Global South) or through the launch of the Oil and Gas Decarbonization Charter, which has significant potential for emissions reduction (equal to that of the global aviation sector), but does not address emissions from fossil fuel end use.

With war in Ukraine, the Middle East, and Sudan, and with tense relations between countries such as the United States and China, it is clear that consensus among the 198 parties at COP will be elusive. Against this frayed backdrop, the urgency to employ inclusive, science-based climate solutions is higher than ever.

—William Tobin is an assistant director at the Atlantic Council Global Energy Center, where he focuses on international energy and climate policy.

DECEMBER 7 | 6:32 AM GMT+4

Faith at COP, or faith in COP?

For the first time ever, the COP presidency launched a Faith Pavilion this year. This decision signals the responsibility of religious leaders to promote efforts to care for the environment through their faiths. Although absent from COP28 for health reasons, Pope Francis helped set the tone for the Faith Pavilion in a message inaugurating it, stating that “climate change is a religious problem.” Additionally, representatives from various faiths produced the “Interfaith Statement for COP28,” in November, which expressed their shared concern over escalating climate impacts, as well as a joint commitment to address the crisis.

The Faith Pavilion aims to bring together religious leaders, officials, and scientists to discuss the role of faith communities and religious institutions in addressing the climate crisis. Several side events in the Faith Pavilion have demonstrated how various religions, including Islam, Christianity, and Judaism, enforce the notion of being “stewards of the earth.” Other panels looking into faith-based communities globally, including into indigenous communities, spoke about the spiritual connections to nature as humans’ teacher, and humans as nature’s protector. These panels also expressed the idea that nature should have a voice, and that including nature as a stakeholder with legal and legitimate claims is imperative for equity.

The application of these beliefs can have practical consequences; several countries and their lower courts have passed laws ascribing legal rights to nature or individual lands and bodies of water, including Mexico, New Zealand, and India. Ecuador enshrined the rights of nature, or Pachamama (a goddess worshipped by indigenous peoples of the Andes) in its constitution. Other countries are calling for this to be done internationally. Giving nature legal rights internationally would open greater possibilities for holding actors responsible for devastating the environment through pollution from fossil fuels and suing perpetrators for ecocide and crimes against nature.

Religious leaders have also weighed in on some of the most important issues in ongoing climate negotiations. For instance, a group of Catholic nongovernmental organizations came together to create a joint statement calling on leaders of all faiths across the world to show their support for action on loss and damage. The statement stressed the moral case for action on loss damage, drawing on church teaching, scriptures, and ancient wisdom.

This first-ever inclusion of faith at COP in this way is a positive step toward inclusion of all impacted communities and helps provide a voice to the environment through faith and through the communities that aim to preserve it. However, one must pose the question: Have people turned to faith to save them, as they lose faith in the COP process and their governments to do so?

DECEMBER 7 | 4:56 AM GMT+4

City-led solutions have power—but they need funding

By Katherine Walla

Over the course of the first days of COP28, the Local Climate Action Summit took place and the leaders approved plans to operationalize the loss and damage fund—including a commitment to allocate some of the resources to subnational governments.

Those two events are exciting for cities; but they “will never be able to effectively tackle climate change without proper access to finance,” argued Mauricio Rodas, senior advisor for city diplomacy and heat at the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center and former mayor of Quito, Ecuador.

“Now, we need to make sure that cities will be participating in the discussions and decisions about how to make the loss and damage fund operational,” Rodas said.

Get up to speed on the role of mayors and city leaders

In recognition of the power of locally-led solutions, @BloombergDotOrg and the COP Presidency hosted the #LocalClimateActionSummit. @MauricioRodasEC explains its impact and what it means for city-led solutions. https://t.co/AuunaoGlz7 pic.twitter.com/pLkKxAxMMt
— Arsht-Rock Resilience Center (@ArshtRock) December 5, 2023

—Katherine Walla is the associate director of editorial at the Atlantic Council.

DECEMBER 7 | 1:26 AM GMT+4

Fusion is the future (these energy experts mean it this time)

By Frederick Kempe

This entry is part of the “Inflection Points Today” newsletter. To receive more quick-hit insight on a world in transition, subscribe here.

Charles de Gaulle is reported to have wryly said, “Brazil is the country of the future and always will be.” Energy tech geeks have long said the same about fusion—a miraculously clean and safe potential energy source whose breakthrough was always an unchanged thirty years in the future.

But here at the eighth annual Atlantic Council Global Energy Forum (at COP28 in Dubai this year), I witnessed that longstanding claim change in real time as John Kerry, the US special presidential envoy for climate, declared that fusion’s time had come, when the dangerously warming world needs it most.

He announced what he called a US International Engagement Plan for Fusion Energy, which he said would involve thirty-five nations and would focus on research and development, the supply chain and future marketplace, regulation, workforce issues, and public engagement.

“There is potential in fusion to revolutionize our world,” Kerry said, adding, “We are edging ever closer to a fusion-powered reality.” Though no one was willing to set an exact time frame for that, the panel of experts that followed Kerry’s remarks shared his optimism that the time for “the holy grail” of clean energy—as Commonwealth Fusion Systems CEO Bob Mumgaard called it—was growing closer.

As I understand it, fusion (the melding of two or more atomic nuclei to create energy) powers the sun and other stars, so the theory is that earthly scientists and investors ought to be able to replicate that with heat, pressure, lasers, and magnets, producing massive energy. “We are really entering a new era,” said Costas Samaras, who champions this work in the Biden White House; according to him, the private sector has spent six billion dollars trying to take fusion from the lab to the world.

One former fusion skeptic, former US Secretary of Energy Ernest Moniz, told the Global Energy Forum that he has been “blown away by the progress.” At the very least, he said smiling, “I believe the word ‘fusion’ was pronounced from a stage at COP for the first time.”

—Frederick Kempe is the president and chief executive officer of the Atlantic Council.

DAY SEVEN

Why COP28 is right to prioritize global methane and flaring reduction

Climate change and national security can’t be disentangled

Empowering women leaders can open a gateway to cooling solutions

The loss and damage fund is a step forward, but far short of what climate justice demands

John Kerry unveils a ‘critical’ new US strategy to expand fusion energy

How countries are gearing up to cool the planet down

The declaration on climate-smart agriculture is a crucial—but underfunded—step forward

John Kerry unveils a ‘critical’ new US strategy to expand fusion energy

See day six analysis

DECEMBER 6 | 10:50 PM GMT +4

Why COP28 is right to prioritize global methane and flaring reduction

By William Tobin

COP28 has yielded major announcements on lowering methane emissions, particularly from the oil and gas sector. The attention placed on methane at this COP is prudent, because methane is a far more potent greenhouse gas than carbon dioxide, and abating it is cost-effective with current technologies and business models. There is a clear pathway and a necessity to take action now.

Listen below and here for more on methane, then read this recently published report.

—William Tobin is an assistant director at the Atlantic Council Global Energy Center, where he focuses on international energy and climate policy.

DECEMBER 6 | 9:03 PM GMT +4

Climate change and national security can’t be disentangled

By Jonathan Panikoff

It was fitting that both COP27 last year—and now COP28—were hosted in the Middle East. The region is likely to be hit harder by climate change and its impacts than potentially any other across the world. Since 2000, on average, Middle East temperatures have risen by 1.5 degrees Celsius, twice the global increase of 0.7 degrees Celsius. And given the region’s initially hotter and drier climate, in parallel with dwindling water access and rising sea levels, that rise in temperature reflects that the mean global temperature increase of 1.5 degrees Celsius that COP has long highlighted and is fighting to avoid has already hit the Middle East.

Threats to security in the Middle East are often thought of first in the context of Iran or terrorists such as Hamas, Hezbollah, or Shia groups in Iraq and Syria. That is unlikely to change, yet climate change is also coming into the spotlight as a significant.

On Monday and Tuesday, the Atlantic Council’s Scowcroft Middle East Security Initiative joined with Abu Dhabi-based Trends Research and Advisory for our third annual conference, but this iteration was unique. Held in the Green Zone of COP28, this year’s conference was entitled “Sustainable Security: The Soft and Hard Implications of Climate.” The resounding theme that panelists kept coming back to was the fundamental link between climate and the future of US and allies’ national security.

Over the two days of panels and insights from keynote speakers, the impact of global warming on the military, war fighting, operational capabilities, and broader strategic national security was abundant. Sessions that started broad, by addressing political and strategic issues challenging international climate action, and those that delved into the future of climate-financing and the energy transition, all led back to the same result: a need to fundamentally recognize climate change as a broad strategic threat, not just an environmental one.

Changes in weather patterns that are creating stronger, more frequent, and more dangerous hurricanes and storms are a threat to both facilities and operations in the Middle East. The erosion of coastlines is a threat to both US and allied naval facilities. And climate change could drive changes to great power competition with China as Indo-Pacific tensions rise over potentially climate-related changes to fishing stocks, river basins shared by China and a variety of southeast Asian countries, and the requirement for greater humanitarian assistance due to increasing numbers of weather-related natural disasters; assistance that will be fiercely competed for and required by Middle East states as well.

As a result, while US national security is directly impacted by climate change, so too is the economic and national security of Middle East allies who will have to confront rising temperatures and, by extension, dwindling resources, such as storms and drought that create unstable food supply chains, something that Middle East leaders are quite cognizant from recent history can lead to political consequences and even revolutions.

The insights from our conference broadened our understanding of the impact of climate change on national security, but also enabled us to contribute to strengthening efforts aimed at elevating for policymakers the need for sustainable security.

—Jonathan Panikoff is the director of the Scowcroft Middle East Security Initiative at the Atlantic Council’s Middle East Program.

DECEMBER 6 | 2:01 PM GMT+4

Empowering women leaders can open a gateway to cooling solutions

By Katherine Walla

As countries and cities hurriedly search for cooling solutions to protect their populations amid extreme heat, North Dhaka, Bangladesh, is employing a tree planting program in neighborhoods of predominantly informal settlements.

Bushra Afreen, chief heat officer of North Dhaka at the Adrienne Arsht-Rockefeller Foundation Resilience Center, explained that these areas are densely populated, often hosting climate migrants. “These people are already very vulnerable; they have limited resources [and] limited access to shade, income, and trees.”

“Women,” Afreen continued, “are the most vulnerable in these communities; they are on the frontlines of their families when facing extreme heat because they are taking care of everybody else and then themselves.”

“So, I wanted to make them the front line of the solution,” Afreen said. North Dhaka worked with women, she explained, to decide which trees to plant and where to plant them—and to find ways to motivate the community to grow and protect the trees.”

“In doing so,” she said, “we opened a gateway to more cooling solutions and more strategies that will eventually be implemented.”

Dive into how North Dhaka is cooling its community.

Hear from our Chief Heat Officer for Dhaka North Bushra Afreen. She explains how community-led afforestation can protect the neighborhoods most exposed to heat.

Want to hear more? You can watch our Chief Heat Officers talk about climate resilience now: https://t.co/AuunaoGlz7 pic.twitter.com/fa3dSmpUMm
— Arsht-Rock Resilience Center (@ArshtRock) December 5, 2023

—Katherine Walla is the associate director of editorial at the Atlantic Council.

DECEMBER 6 | 1:01 PM GMT+4

The loss and damage fund is a step forward, but far short of what climate justice demands

By Lama El Hatow

On the first day of COP28, the parties agreed to operationalize a loss and damage fund, with initial pledged contributions reaching $725 million as of December 5. While the decision to operationalize the fund was historic, it remains to be seen whether this plan, hurriedly agreed to on the first day of the conference, will provide the necessary support to the affected communities it is meant to help. There is much to be done going forward, including holding polluters accountable and establishing a mechanism for reliable long-term funding that meets the scale of loss and damage that must be addressed.

Much of the language in the decision was watered down by developed countries to escape their responsibility for historical emissions. Going forward, it is essential that polluters be held accountable. There were no references to equity or to Common but Differentiated Responsibilities in the decision. The decision also places developed countries—those most responsible for the emissions changing the climate—in control of almost 50 percent of the fund’s board. Moreover, the pledges for developed countries’ contributions to the fund are “voluntary” rather than obligatory, as the fund only “urges” developed countries to contribute. This raises serious questions about how the fund will be replenished once the initial contributions are disbursed.

Even if developed countries meet their voluntary commitments to the fund, however, it must be noted that the millions pledged for loss and damage so far are a mere drop in the bucket. Billions are needed globally to ensure climate justice to vulnerable communities facing the most severe loss and damage. A report from the International Institute for Environment and Development estimates that up to $580 billion will be needed to help countries facing extreme weather by 2030. Developing countries have argued that the new fund should provide at least one hundred billion dollars annually by 2030. To raise funds more commensurate with the scale of the problem and help ensure this financing can be replenished, Barbados Prime Minister Mia Mottley proposed taxing polluting industries as a source for the fund. She has estimated that her proposed tax rates would provide two hundred billion dollars from oil and gas profits, seventy billion dollars from the value of international shipping, and forty to billion dollars from the international air travel industry annually for the fund. She has also argued that a financial transaction tax could help build resilience in frontline communities.

The fund’s operationalization is a step toward progress, but still falls short of promoting climate justice and placing human rights at the forefront of the climate debate.

DECEMBER 6 | 11:27 AM GMT +4

John Kerry unveils a ‘critical’ new US strategy to expand fusion energy

By Katherine Walla

“We have two options,” Kerry explained. “Either capture the emissions or don’t burn [fossil fuels].”

Read more highlights from Kerry’s remarks

New Atlanticist

Dec 6, 2023

John Kerry unveils a ‘critical’ new US strategy to expand fusion energy

By Katherine Walla

“We need to pull ourselves together with every strength we have,” Kerry said on the first day of the Global Energy Forum.

Africa Climate Change & Climate Action

DECEMBER 6 | 9:35 AM GMT+4

How countries are gearing up to cool the planet down

By Katherine Walla

On Tuesday, sixty-three countries signed a pledge to raise the level of ambition on cooling, as the planet’s temperature continues to rise, and heatwaves become more frequent.

The pledge commits countries to cutting cooling-related emissions and improving access to cooling for people across the globe.

“Cooling is not a luxury. It is a life-saving necessity,” explained Owen Gow, associate director of the Extreme Heat Initiative at the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center.

When expanding access to cooling, countries will need to ensure that it is “sustainable and efficient cooling,” Gow added. “If we increase access to cooling, we need to make sure that it doesn’t accelerate climate change at the same time.”

Eleni Myrivili, global chief heat officer with UN-Habitat and Arsht-Rock, noted that the pledge incorporates subnational governments as well “to make sure the type of cooling they do in their cities is sustainable and efficient.”

Get up to speed on the Global Cooling Pledge.

The pivotal moment for cooling has arrived! @COP28_UAE Presidency, supported by @UNEP & @ActOnCooling, launched the #GlobalCoolingPledge, a commitment to reduce cooling-related emissions. Learn what the Pledge means for #COP28: https://t.co/vkCyErMsCL pic.twitter.com/SWfhJ34YRT
— Arsht-Rock Resilience Center (@ArshtRock) December 5, 2023

—Katherine Walla is the associate director of editorial at the Atlantic Council.

DECEMBER 6 | 5:52 AM GMT+4

The declaration on climate-smart agriculture is a crucial—but underfunded—step forward

By Raul Brens Jr.

While everyone was fixed on the loss and damage breakthrough, few headlines mentioned a global commitment, signed just a day later, to address global food systems and their impact on the climate. Over 130 world leaders signed the COP28 UAE Declaration on Sustainable Agriculture, Resilient Food Systems, and Climate Action; the leaders represent countries that, altogether, are responsible for 76 percent of global food systems emissions. Also announced: a $2.5 billion fund to support food security while the climate-change fight continues.

That there isn’t more attention on this declaration is surprising, considering that the agri-food system counts for a third of all human-induced greenhouse gas emissions. But it is worth noting: The declaration is only the latest sign that the topic of food systems, and the role they play in the climate crisis, is becoming more and more prominent at COPs.

In addition, the declaration has managed to unite countries despite geopolitical tensions today, showcasing global solidarity around the health of the planet and the wellbeing of future generations. For example, the United States and China are signatories—however, some key significant emitters, such as India, have not signed on, indicating that challenges remain in ensuring broader alignment.

Succeeding in the commitment to future-proof the food system will require countries to focus on climate-smart agriculture techniques that improve crop and land resilience and reduce greenhouse gas emissions from farming—all while increasing agricultural output. Climate-smart agriculture harnesses technologies ranging from Earth observation satellite systems (to monitor crop conditions) to genome editing tools that help develop resilient crop varieties.

Deploying these climate-smart technologies raises challenges around access and cost, especially for low- and middle-income countries. The signatories must work together to ensure that technology is shared and developed fairly and collaboratively. It is especially important that developed and developing nations join in this work, to achieve truly sustainable and resilient global food systems.

But the declaration may need to reassess one thing: its funding. While $2.5 billion is a noteworthy start, it doesn’t accurately match the scale of the challenge the world faces in reforming global food systems—especially if the sum winds up being spread over several years. In comparison, a United States and United Arab Emirates joint initiative called Agriculture Innovation Mission for Climate (AIM for Climate) has mobilized over eight billion dollars in investment across fifty-five partner countries.

The declaration represents a crucial step forward in global climate efforts. However, the journey ahead demands sustained commitments and increasing financial investment to truly realize the goals of the Paris Agreement.

—Raul Brens Jr. is the deputy director and a senior fellow at the Atlantic Council’s GeoTech Center.

DAY SIX

A familiar concern—but with new urgency

See day five analysis

DECEMBER 5 | 5:14 PM GMT+4

A familiar concern—but with new urgency

By Jorge Gastelumendi

COP28, with its many pledges and announcements, certainly has plenty that is new. But there’s also a sentiment here on the ground that is rather familiar: Concern about the fact that public finance is not even close to covering worldwide needs for adaptation funding.

Reaching the levels of financing necessary to do so will require “unlocking global capital markets.” Putting all those technical terms aside, what it really comes down to is having policies that support the development of adaptation and resilience markets and having policymakers and private finance leaders that talk to each other. Bringing together these actors will drive transformative collaboration.

Yesterday, with our partners, the Adrienne Arsht–Rockefeller Foundation Resilience Center launched the first-ever Call for Collaboration, calling upon policymakers and the banking, investment, and insurance sectors to work together to improve the investment environment and, in so doing, mobilize more private finance. It is backed by five governments from developed and developing countries; on top of that, leaders and thinkers from private finance, academia, and over thirty governments helped shape this call.

Like many issues related to the changing climate, adaptation and resilience funding requires all hands on deck. Fortunately, with all the momentum on this issue that I’ve seen here in Dubai, there has never been a better moment to collaborate and advance urgent action on this front.

And here’s a sneak peek at next year’s COP: We will mobilize even more players in the climate finance space—private finance actors, regulators, policymakers, and philanthropic organizations (who launched a Call to Action at this COP for accelerating climate adaptation). Their participation will be needed to create public policies that support adaptation finance and set much-needed standards.

—Jorge Gastelumendi is the interim director of the Atlantic Council’s Adrienne Arsht–Rockefeller Foundation Resilience Center.

Get up to speed on the Call for Collaboration

DAY FIVE

Trade is starting to have its say in the COP process—at last

A big idea to address the biggest killer of the climate crisis

Solar is surprisingly out of the spotlight at COP28, as Saudi Arabia and China show

See day four analysis

DECEMBER 4 | 11:12 PM GMT+4

Trade is starting to have its say in the COP process—at last

By Reed Blakemore

If you want a “watch this space” recommendation coming out of COP28, look no further than Monday’s theme, “Trade Day”—the first time a COP thematic day has been devoted to the role of trade in the energy transition. Smatterings of urgently needed conversations on critical minerals and decarbonizing trade value chains have begun to find their place this year.

These “operating system” features of a Paris-aligned world are going to demand more attention. Yet outside of these issues being highlighted through panels and discussion (an important start), the inaugural Trade Day yielded few real action items.

It’s still the early days of the conference, but the trade space must be front and center, as World Trade Organization President Ngozi Okonjo-Iweala said on Saturday at COP28. Global trade is directly responsible for 20 to 30 percent of global CO2 emissions (strictly as a reflection of international freight), while embodied carbon in widely traded goods (specifically energy-intensive trade-exposed goods) remains a huge challenge for industry to curb. Reaching climate targets requires the development of a new resource base to build clean energy technologies, demanding that markets in which those resources are traded mature. International carbon markets, meanwhile, remain a long-awaited, but unfulfilled ambition of the Paris Agreement.

The challenge, however, is that the economic opportunities of the energy transition have overlaid a competitiveness agenda on top of the climate action imperative. Many in the United States and the European Union are wary of what China’s dominance in mineral supply chains means for economic and national security in a net-zero world. In the absence of global markets for carbon, countries are seeing carbon border adjustments (or similar mechanisms) as ways to nominally support low-carbon industries, but in doing so, they are throwing up barriers to trade. The opportunities inherent in the “global green economy” are creating a race for countries to lead in clean tech industries to seize both emerging labor and export markets, bringing an increasingly protectionist hue to energy policy.

Perhaps most critical is whether the lack of attention to these issues is complicating efforts of a “just and equitable energy transition.” Concerns that Europe’s Carbon Border Adjustment Mechanism, and the proliferation of other similar measures, might undercut the economic development of the Global South where many energy-intensive trade-exposed goods are manufactured, but decarbonization is still very much underway. Many mineral-rich nations are eager to shed the “resource-client” relationship with the Global North, yet they are concerned (if not frustrated) with the possibility that they will end up exporting cheap ores that are transformed and re-imported as expensive renewable energy technologies.

Simply put, whether the energy system is being transformed or built anew, geoeconomics matter. And even if it doesn’t take center stage at COPs to come, trade will have its say in the climate future.

—Reed Blakemore is director for research and programs at the Atlantic Council Global Energy Center, where he is responsible for the center’s research, strategy, and program development.

On Tuesday, December 5, at 2:00 pm in Dubai (GMT+4) (5:00 am ET) check out “Remaking trade for a clean energy future,” a discussion on this topic live from the Green Zone at COP28.

DECEMBER 4 | 10:56 PM GMT+4

A big idea to address the biggest killer of the climate crisis

By Frederick Kempe

This entry is part of the “Inflection Points Today” newsletter. To receive more quick-hit insight on a world in transition, subscribe here.

Where former US Secretary of State Hillary Rodham Clinton goes in Dubai this week, she draws a crowd.

People from all corners of the world packed the room, and it was standing room only at our COP28 Resilience Hub, where she held court as the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center (Arsht-Rock) ambassador for heat, health, and gender.

“Extreme heat has to be viewed as one of the most dangerous results of the changing climate,” she said, recounting a trip to India, where she saw the harm done to livelihoods, particularly those of women working outdoors as farmers, street vendors, waste collectors, and salt pan and construction workers. “This is not just a health issue,” Clinton warned. “It’s an economic issue, a social issue, [and] a political issue.”

Working with Clinton and with Reema Nanavaty, director of the nearly three-million-member Self-Employed Women’s Association, the Atlantic Council has been implementing a parametric insurance program as a part of Arsht-Rock’s Extreme Heat Protection Initiative. This program protects women working in India’s informal sector from having to make an impossible choice: pausing their work during heat waves (to protect their health) or continuing to work and earn money, while putting their wellbeing at risk.

What has been winning the headlines here so far at this twenty-eighth United Nations Climate Change Conference has been the announcement on the first day of a landmark, $400-milllion loss and damage fund, a mechanism that provides financial assistance to the countries most affected by, but often least responsible for, the climate crisis. There has also been media attention on the hydrocarbon companies that have come to this conference in greater numbers than ever before—many with concrete commitments and plans to reduce emissions.

With over seventy thousand delegates and observers at COP28, actions that aim to improve lives—such as insurance programs to support workers in the informal economy, many of them women—deserve notice. For these workers especially, “their lives and livelihoods are at stake,” said Eleni Myrivili, the global chief heat officer for United Nations-Habitat and Arsht-Rock.

—Frederick Kempe is the president and chief executive officer of the Atlantic Council.

DECEMBER 4 | 10:10 PM GMT+4

Solar is surprisingly out of the spotlight at COP28, as Saudi Arabia and China show

By Joseph Webster

Until recently a star at climate-focused conferences, solar energy is being upstaged at COP28 in Dubai by other decarbonizing technologies: namely, nuclear energy and methane abatement. Deploying more nuclear energy and cutting methane emissions will help reduce carbon emissions, but the world should not lose sight of solar’s transformative potential. The global glut of solar panels and the Middle East’s lack of solar deployment presents an enormous opportunity to quickly achieve huge climate benefits. While government leaders at COP28 pledged to triple the world’s renewable energy capacity by 2030, it will be very difficult to reach this target without Middle Eastern participation, especially from Saudi Arabia, the region’s largest economy.

Saudi Arabia is arguably one of the world’s best places to build solar, given its abundant solar irradiance, deep financial reserves, and significant land mass. Yet the country has traditionally been a laggard at deploying the technology.

Saudi Arabia generated only 0.8 terawatt hours of solar electricity in 2022, about as much as the US state of Iowa. Saudi Arabia will not even approach its modest 2023 renewables capacity target of 27.3 gigawatts (GW) (20 GW of solar photovoltaics and 7 GW of wind), according to S&P Global, as less than 3 GW of renewables capacity were operational in August 2023.

The obstacles to Saudi solar deployment appear to be political, not technical. While deploying solar in the desert is not without challenges, including distance from demand centers, transmission siting, and dust storms, these obstacles have not prevented desert projects from taking shape across the world—including in China. Earlier this year, the first phase of a massive solar project in the Tengger Desert started generating power.

If Saudi Arabia turned to solar, the kingdom and the world could reap immense benefits. Solar farms tend to require little water after installation, especially compared to other resources; renewables don’t produce air pollutants; and some studies show that utility-scale solar in the desert can increase precipitation and vegetation coverage. Finally, Saudi Arabia’s failure to deploy solar harms its own economic interests, as it could allow fuel oil to be exported rather than burned for the domestic power market. Astonishingly, fuel oil accounted for 39 percent of Saudi Arabia’s power mix in 2021. At the Green Initiative Forum at COP28, the Saudi Minister of Energy identified carbon capture technology and renewables, apparently in that order, as the kingdom’s net-zero priorities.

There is some movement. For example, Saudi Arabia is launching more utility-scale solar and is in advanced talks to open a solar factory. Still, the kingdom’s solar ambitions remain very limited. The region’s dawdling pace of solar deployment comes at a huge cost—most of all for itself, but also for the world.

Even more surprising is that the lack of buzz around solar at COP28 extends to major solar producers. Despite its own dominant position in solar value chains, China doesn’t appear to be advertising its solar exports at COP28 in Dubai. China’s pavilion at COP features the China State Construction Engineering Corporation, which has weak ties to solar project development. The pavilion at COP doesn’t prominently showcase China’s solar suppliers, and so far, the author hasn’t seen Chinese solar companies represented (although the convening is very large).

—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center, where he leads the center’s efforts on Chinese energy security, offshore wind, and hydrogen.

DAY FOUR

This is the biggest COP ever—for more reasons than one

Fifty oil and gas companies just announced plans to cut methane emissions. Can they do it?

A plan to triple nuclear energy was just announced. Here’s what to know.

Hillary Clinton, Reema Nanavaty, and Eleni Myrivili on gender-responsive solutions for extreme heat

See day three analysis

DECEMBER 3 | 11:24 PM GMT+4

This is the biggest COP ever—for more reasons than one

By Aubrey Hruby

On the fourth day of COP28, I can’t help but notice how big the convening has become. Over seventy thousand people (me included) have descended on Dubai for a week of meetings—official and unofficial—on climate and the future of finance. This is about a 40 percent increase from COP27 in Sharm el Sheikh, Egypt, and about an 80 percent increase from COP26 in Glasglow, Scotland.

There’s some irony to the fact that so many people who gathered here to talk about global climate change and environmental damage arrived by plane (some even by private jet) and are now sitting in cars in heavy traffic and squinting through pollution in Dubai. On the ground, it has been suggested that countries—particularly big ones with large populations (and COP delegations)—should limit the number of representatives they bring so as to not overwhelm and disadvantage the smaller nations that cannot field such large teams.

Another thing that is big about this COP: The United Arab Emirates’ (UAE) announcement yesterday of a thirty-billion-dollar fund that will invest in climate-resilient infrastructure projects with a focus on the Global South. This will likely help offset criticism the UAE received in the leadup to the convening for planning to use COP as a platform to discuss future oil deals. But, importantly, the new fund overshadows the smaller commitments made by developed countries to help developing countries address the loss and damage caused by climate disasters

In addition, at this COP, the list of topics is bigger. For example, more than twenty countries committed to triple nuclear energy production, and discussions about the future of critical mineral supply chains are currently underway, highlighting the critical role that African countries play in ensuring that green-energy industries are more resilient and diversified globally.

In global climate discussions, the issues of justice and hypocrisy are at the forefront as those countries that have emitted the least greenhouse gases historically—particularly African nations—are suffering the most from the carbon-intensive growth that fueled wealth accumulation in developed markets. Calls to completely phase out fossil fuels fail to recognize the economic and social realities of many developing countries that have a dual imperative: They must grow green while somehow simultaneously reducing poverty through job creation and increasing reliable access to electricity for hundreds of millions of people. It’s a complex challenge that requires respect, reframing, and massive resources.

—Aubrey Hruby is a nonresident senior fellow with the Atlantic Council’s Africa Center and leader of the Center’s work on climate and energy issues.

DECEMBER 3 | 10:41 PM GMT+4

Fifty oil and gas companies just announced plans to cut methane emissions. Can they do it?

By William Tobin

At the opening of the COP28 conference, United Nations Framework Convention on Climate Change Executive Secretary Simon Stiell said this was the “most significant COP since Paris,” referring to COP21, where 196 parties signed a legally binding treaty to address climate change and keep global warming levels to below 2 degrees Celsius.

In order to keep the vision of Paris alive and reach net-zero by the middle of the century, COP28 is being viewed by many here in Dubai as the absolute last opportunity available to tackle one of the most potent contributors to global warming: methane, particularly from the oil and gas sector.

Methane is responsible for at least 30 percent of global warming in the past two hundred years, and perhaps more. Cutting methane emissions from all sectors—including oil and gas, agriculture, and waste—could avoid over 0.2 degrees Celsius of warming by 2050. This is because methane is a short-lived climate pollutant, meaning its shelf life in the atmosphere is rather brief, but its warming impact is more than eighty times that of carbon dioxide in a twenty-year time span.

Thankfully, methane emissions from oil and gas can be brough to near-zero with available technologies and business models—in fact, around 40 percent of reductions can be achieved at no net cost.

The opening weekend of COP28 presents a moment for celebration, as perhaps the most impactful initiative in years of pledges has been launched: the Oil and Gas Decarbonization Charter (OGDC).

While the value of such a charter may be counterintuitive, remember that emissions from oil and gas operations account for 15 percent of all emissions—more than all emissions from cars globally, for example—roughly half of which is methane. The OGDC, through its fifty signatories, covers 40 percent of global oil production, offering a window to make substantial, tangible, and verifiable greenhouse gas emissions reductions. The OGDC commits signatories to end routine flaring (wasteful combustion of methane gas) and achieve near-zero upstream methane emissions by 2030. Achieving these emissions reductions from charter signatories would be approximately equivalent to zeroing out emissions from aviation worldwide. Furthermore, the OGDC signatories have committed to being transparent through monitoring, reporting, and independent verification of emissions.

The OGDC is no less significant in the substance of its commitments, however, versus its reach. Critically, the group of fifty signatories includes twenty-nine national oil companies. These entities control more than half of global oil production and a higher proportion of methane emissions. Through signing this pledge, the national oil companies are articulating a desire to play a constructive role in emissions mitigation, several for the first time. Having these companies at the table is a significant expansion in ambition within the sector. It paves a way to constructive engagement and sharing of best practices to realize the goal of bringing methane emissions to near-zero, as is required to reach net-zero by the middle of the century.

Achieving net-zero emissions will require the deployment of vast amounts of renewable and clean electricity generation, the electrification of end uses, reform of land use, rapid increase in carbon capture and removal, increases in energy efficiency, and much more. However, in the short term, slashing methane emissions from oil and gas is a highly constructive deliverable, and this announcement at COP28 has shown a reason to be optimistic. However, as is always the case with ambitious plans, implementation is what matters most.

—William Tobin is an assistant director at the Atlantic Council Global Energy Center, where he focuses on international energy and climate policy.

DECEMBER 3 | 8:28 PM GMT+4

A plan to triple nuclear energy was just announced. Here’s what to know.

By Jennifer T. Gordon

With energy demand projected to triple by 2050, the recent pledge at COP28 by the United States and more than twenty countries to triple nuclear energy is a welcome development in the fight against climate change. Although nuclear energy only accounts for 10 percent of global electricity generation, it provides 30 percent of global low-carbon electricity. The amount of nuclear energy generation will have to increase in order to meet increased energy demand through clean, baseload power. Looking beyond the grid, nuclear energy has a crucial role to play in decarbonizing so-called “hard-to-abate sectors”—areas such as hydrogen production, desalination, process heat, mining, and shipping—in which it is particularly difficult to reduce emissions.

Furthermore, the significance of this announcement occurring at COP28 cannot be underestimated. Previous COP meetings have tended to leave nuclear energy on the sidelines, and an announcement of this magnitude in the early days of the world’s premier climate conference can be interpreted as recognition of nuclear energy’s tremendous decarbonization benefits. This international recognition could help gain support in various countries for technology-neutral policies that incentivize the use of zero-carbon energy, with nuclear energy continuing to be included in legislation such as the Inflation Reduction Act in the United States or the European Union’s Green Taxonomy.

However, while the pledge to triple nuclear energy is a positive step, more needs to be done in order to deploy nuclear reactors globally and at scale. For example, the United States and like-minded countries will need to cooperate on financing to compete effectively against state-owned nuclear enterprises in Russia and China; regulatory collaboration is also key to minimizing time and costs. Ultimately, for the fight against climate change to succeed, more barriers to nuclear energy deployment must fall.

—Jennifer T. Gordon is the director for the Nuclear Energy Policy Initiative at the Atlantic Council’s Global Energy Center. She was a co-director of the Atlantic Council Task Force on US Nuclear Energy Leadership, and she currently runs the Atlantic Council’s Women in Energy and Climate Fellowship.

DECEMBER 3 | 5:17 PM GMT+4

Hillary Clinton, Reema Nanavaty, and Eleni Myrivili on gender-responsive solutions for extreme heat

By Daniel Hojnacki

“Extreme heat has to be viewed as one of the most dangerous results of the changing climate,” said former US Secretary of State Hillary Clinton on Sunday at a COP28 Resilience Hub discussion on the need for gender-responsive climate solutions to address extreme heat. The panel was hosted by the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center (Arsht-Rock).

Clinton was joined by Reema Nanavaty, director of the Self-Employed Women’s Association (SEWA), a trade union promoting the rights of independently employed female workers in India. In February, the Clinton Global Initiative and SEWA, along with several other organizations, launched the Global Climate Resilience Fund to empower women to combat climate change and adapt to extreme heat. The panel was moderated by Eleni Myrivili, the global chief heat officer for United Nations-Habitat and Arsht-Rock.

Clinton said that as the world works to advance climate mitigation efforts, “we have to worry about what’s happening on the ground with so many people, in particular women.”

Hillary Clinton, Reema Nanavaty, and Eleni Myrivili on gender-responsive solutions for extreme heat

By Daniel Hojnacki

At an Atlantic Council event at COP28, the former US secretary of state discussed the importance of empowering women to develop innovations for extreme heat resilience.

Economy & Business Resilience & Society

DAY THREE

Africa’s priorities at COP28, from climate finance to a brand-new narrative

A landmark thirty-billion-dollar fund for global climate solutions

See day two analysis

DECEMBER 2 | 9:47 PM GMT+4

Africa’s priorities at COP28, from climate finance to a brand-new narrative

By Africa Center experts

On the first day of the United Nations Climate Change Conference (also known as COP28) in Dubai, global leaders reached a deal on where to house and how to fund loss and damage costs for the countries most vulnerable to climate change. It’s an important development for African stakeholders, who are concerned about the escalating impact of climate change on the continent. As African heads of state and government wrote in their Nairobi Declaration—adopted at the Africa Climate Summit in September—the continent is warming faster than the rest of the world, despite it being responsible for a small fraction of global carbon emissions. These changes will gravely impact the continent’s economies and societies.

But will COP28 give Africa the attention it deserves on other climate needs? Our experts, some of whom are headed to Dubai, outline what is at stake for Africa.

Read our experts’ responses

AfricaSource

Dec 2, 2023

Africa’s priorities at COP28, from climate finance to a brand-new narrative

By the Africa Center

Our experts outline what is at stake for Africa at the UN Climate Change Conference in Dubai.

Africa Climate Change & Climate Action

DECEMBER 2 | 8:16 AM GMT+4

A landmark thirty-billion-dollar fund for global climate solutions

By Mahmoud Abouelnaga

On Friday, COP28 host, the United Arab Emirates, launched a thirty-billion-dollar climate fund to bridge the climate finance gap globally and facilitate climate investment flows into the Global South. The new climate fund will aim to stimulate $250 billion by 2030.

This thirty-billion-dollar private investment fund, Alterra, is now the world’s largest private investment fund dedicated to addressing the climate crisis. For comparison, it took the United Nations’ Green Climate Fund (GCF) almost ten years to mobilize less funding through the initial resource mobilization in 2014, the first replenishment in 2019, and the second replenishment in 2023.

Alterra will be split into a large fund of twenty-five billion dollars that will deploy capital globally with the aim to accelerate the transition to a net-zero economy by scaling climate investments, and a smaller fund of five billion dollars that can remove barriers and incentivize investment flows into the Global South.

This announcement came after countries agreed on the operationalization of the loss and damage fund to help the adversely vulnerable developing countries cope with climate impacts. While the $420 million loss and damage pledges gave a good signal for progress, they are not commensurate with the scale of the costly climate disasters borne by poor countries. Unlike the loss and damage pledges, the new private investment commitments are proportional to the needed scale to address the climate crisis.

Going forward, the new climate fund will need a rigorous and transparent climate impact framework to ensure that these investments are deployed at the needed speed and scale to align with global climate targets. This framework should establish clear criteria for these investments (such as emissions reductions, impacts on local communities, deployment of large-scale projects, and the reducing of costs of innovative climate solutions) to align with global climate targets.

—Mahmoud Abouelnaga is a nonresident senior fellow at the GeoTech Center of the Atlantic Council and leads the carbon management portfolio at the Center for Climate and Energy Solutions (C2ES).

Note: This piece was edited to provide more detail on the author’s recommended framework.

DAY TWO

Why India could play a pivotal role as climate mediator

Can climate leaders maintain the momentum?

See day one analysis

DECEMBER 1 | 10:12 PM GMT+4

Why India could play a pivotal role as climate mediator

By Rachel Rizzo and Théophile Pouget-Abadie

As Indian Prime Minister Narendra Modi prepared for a historic visit to Washington, DC this year, Apple CEO Tim Cook made a journey in the other direction: He flew to Mumbai to celebrate Apple’s twenty-five-year presence in the South Asian nation. “I really feel that India is at a tipping point,” Cook declared, joining the ranks of business leaders and economists who have spent the last three decades forecasting that the twenty-first century will belong to India.

If it’s true that this is the “Indian century,” it is not just because the country is now the most populous on Earth and on track to become the world’s largest economy; it is because India will play a central role in the global energy transition.

India’s success in this area will be measured by a few obvious targets: its ability to bring down emissions domestically, the example it sets for how other nations of the Global South can undergo their own successful energy transitions, and India’s ability to partner with other nations on climate solutions.

But there may be another just as important, but less obvious, role for India to play: an unofficial mediator between the United States and China to ensure global international decarbonization targets remain in reach amid intensifying competition. The United Nations (UN) Climate Change Conference, also known as COP28—taking place only months after India hosted the Group of Twenty (G20) Summit in New Delhi—is a good opportunity for India to begin to flex its climate muscles on the world stage.

New Atlanticist

Dec 1, 2023

Why India could play a pivotal role as climate mediator

By Rachel Rizzo, Théophile Pouget-Abadie

COP28 is a good opportunity for India to begin to flex its climate muscles on the world stage.

China Climate Change & Climate Action

DECEMBER 1 | 3:35 PM GMT+4

Can climate leaders maintain the momentum?

By Landon Derentz

After a year of painstaking negotiations and debate, COP28 kicked off with a breakthrough.

That’s because on day one of COP28—and only one year since countries agreed at COP27 to establish a “loss and damage” fund—countries raked together more than $425 million to help developing economies cope with the adverse effects of climate change. The United Arab Emirates and Germany, most notably, each pledged $100 million.

The news of the funding signals that real progress remains possible within the confines of the formal negotiation process. Yet, the fund remains well short of the hundreds of billions—not millions—of dollars that the United Nations estimates will be necessary to address the fallout of inevitable near-term climate disasters. It’s a stark reminder of why it is important to pursue all pathways to keep the global temperature rise within 1.5 degrees Celsius.

With that breakthrough behind us, all eyes should now turn to December 2. Saturday’s announcements are likely to be big: Don’t be surprised to see declarations on tripling the deployment of nuclear and renewable energy, progress on the formation of a global methane fund, and momentum in the establishment of an Oil and Gas Decarbonization Charter. This charter will outline how over fifty oil and gas companies intend to spur climate action for the sector. It’s the best chance for the United Arab Emirates—which has faced skepticism about its ability to galvanize action to reduce the energy sector’s greenhouse gas emissions—to prove the veracity of its vision for COP28. That vision: Industry can breathe new life into the COP process by helping to catalyze action towards achieving national climate goals.

The next few days are an important litmus test for the United Arab Emirates’ credibility in hosting the climate conference.

—Landon Derentz is senior director and Morningstar Chair for Global Energy Security at the Atlantic Council Global Energy Center.

DAY ONE

An early deal brings signs of hope for COP28

Long-term climate financing remains elusive. A NATO-style spending target could help.

Kicking off with a bang on loss and damage

COP28 is here. These are the Global South’s demands and expectations.

NOVEMBER 30 | 8:12 PM GMT+4

An early deal brings signs of hope for COP28

By Sabrina Nagel

The first day of COP28 has opened with a historical deal: The parties agreed on the implementation of the loss and damage fund that was first announced last year at COP27. While parties agreed at COP27 to create the fund, it was unclear where the fund would be located and how much money developed countries would commit to it.

Now, with this new announcement, countries are beginning to commit to the fund. The United Arab Emirates and Germany each committed one hundred million dollars, while the United States and Japan have also contributed. The fund is central to climate justice for the countries that have contributed the least to climate change but are the most vulnerable to its effects.

Only weeks ago, negotiators and world leaders expected COP28 to be a difficult climate conference with uncertainty and disagreements about how the fund should be implemented and operationalized. Nevertheless, this early deal on the loss and damage fund will set the scene for hopeful negotiations as the week continues.

—Sabrina Nagel is senior advisor for global policy and finance at the Adrienne Arsht-Rockefeller Foundation Resilience Center

NOVEMBER 30 | 7:45 PM GMT+4

Long-term climate financing remains elusive. A NATO-style spending target could help.

By Francis Shin and Théophile Pouget-Abadie

At the 2006 Riga summit, NATO leaders made a pledge to spend 2 percent of their gross domestic product (GDP) on defense. This moment marked a significant shift for the alliance, offering a way to both measure political will and ensure that existing and new members meaningfully contributed to the Alliance’s efforts. The target is remarkably simple: It essentially tracks members’ defense ministry budgets. Could the establishment of a spending target for the energy transition spark a similarly significant global shift?

Decarbonizing has emerged as one of most important tools for the European Union (EU) to ensure its long-term security and sovereignty: both to address the physical risks stemming from climate change and to reduce oil and gas dependencies, particularly on Russia. So far, European member states have committed insufficient funds to meet their decarbonization objectives. The European Commission estimates that an additional seven hundred billion euros of combined public and private investment is needed each year across the entire EU bloc to meet its energy transition targets and combat climate change.

Europe is currently far off track, with a spending gap equivalent to 0.73 percent of the EU’s GDP for non-transport investment and public spending, or about 101 billion euros. All but two EU countries (Lithuania and Czechia) have national spending gaps incapable of being filled by EU spending alone due to these members not having enough grants available to them. While the EU has set ambitious energy-transition goals through programs such as NextGenerationEU, the European Green Deal (and the associated Fit for 55 package), and the REPowerEU Plan, it now needs the means to finance them.

To turn the tide, EU members and like-minded allies should set national-level climate spending targets, based on a percentage of their respective annual GDPs, to address these deficits. Within Europe, a climate spending target would put pressure on countries that have expressed reservations about joining in EU-level decarbonization goals. Poland, which retains the most reliance on coal for its energy needs, suggested that it would appeal against the Fit for 55 program, raising concern among other EU members on how staunchly committed Poland might be to cut carbon emissions.

Agora Energiewende and the European Commission concluded the overall annual GDP percentage investments required for hitting existing 2030 carbon emissions targets was 2.5 percent. That’s where discussions should start.

Of course, EU members’ needs will vary. Countries that haven’t spent as much on their energy transitions—or that are still reliant on fossil fuels—will need to spend more to address decarbonization deficits and improve electricity grids. And while some countries have already spent significant amounts and are closer to reaching their decarbonization goals, they should still seek to meet the 2.5 percent target, instead directing the funds to developing countries or international climate-change mitigation projects. This would express solidarity with fellow EU members as well as encourage decarbonization beyond Europe itself.

—Francis Shin is a research assistant at the Atlantic Council’s Europe Center. Théophile Pouget-Abadie is a nonresident fellow with the Atlantic Council’s Europe Center and a policy fellow with the Jain Family Institute

NOVEMBER 30, 2023 | 6:27 PM GMT+4

Kicking off with a bang on loss and damage

What should climate watchers take away from day one of COP28? “Movement and progress,” Jorge Gastelumendi, interim director of the Adrienne Arsht-Rockefeller Foundation Resilience Center, tells us from Dubai.

Before the first day closed, countries were able to reach a deal on a loss and damage startup fund, with both the United Arab Emirates and Germany pledging one hundred million dollars to offset disaster-induced costs in vulnerable countries.

It will also create an “open window” for insurance companies to support developing countries, Gastelumendi notes.

Watch more

WATCH | On the ground in Dubai, @ArshtRock’s @Gasteluj shares the latest insights from #COP28 about the launch of a new loss and damage fund for developing nations on the first day of the conference. #ACatCOP28 pic.twitter.com/rdVUJmj8N5
— Atlantic Council (@AtlanticCouncil) November 30, 2023

NOVEMBER 30 | 10:37 AM GMT+4

COP28 is here. These are the Global South’s demands and expectations.

With the 2023 United Nations Climate Change Conference (also known as COP28) having started, the world is shifting its focus to the United Arab Emirates (UAE) to assess how it will deal with the climate crisis, but with particular attention on the COP presidency…

The COP28 negotiations will prove to be challenging given all the demands and expectations on the table. In order to ensure that the needs of the Global South are met, the global community needs to unite to swiftly implement the recommended actions and the host country and the Emirati COP presidency need to display strong ambitions to address the climate crisis.

MENASource

Nov 30, 2023

COP28 is here. These are the Global South’s demands and expectations.

By Lama El Hatow

The COP28 negotiations will prove to be challenging given all the demands and expectations on the table in this COP.

Civil Society Energy & Environment

The post Expert analysis: The successes and shortcomings in the fight against climate change at COP28 appeared first on Atlantic Council.

Mobilizing climate finance at COP28: Improving enabling environments in emerging and developing countries

Robert F. Ichord, Jr. — Thu, 30 Nov 2023 17:09:16 +0000

The challenges of financing and investment for climate change in emerging and developing economies are coming to a head as the UN Climate Change Conference, known as COP28, in Dubai, gets underway starting November 30.

Advanced economies are not meeting their pledges or are lagging in their disbursements. They are directing large subsidies to their own domestic energy transitions; providing little in new pledges to the Global Green Climate Fund; and stalling payments into the loss and damage fund endorsed at COP27 last year.

To make matters worse, in the face of the continuing debt crisis in many low-income countries, borrowing costs for project finance have risen with higher interest rates, and banks have tightened their loan requirements.

This piece focuses on the need to improve the enabling environment, especially the policy, regulatory, and market frameworks, in emerging and developing economies to mobilize greater climate finance and investment and reduce actual and perceived risks to investors.

The following three propositions lay out what’s needed:

Financing from governments and international financial institutions is inadequate to meet investment needs, and emerging and developing economies must focus on attracting more private sector investment.
Advanced economies should adjust their assistance and financing priorities and give greater attention to partnering with emerging and developing economies to build policy, regulatory and institutional frameworks that are sustainable and can attract private investment.
Beyond partnering with advanced economies, emerging markets and developing countries must take additional steps to improve their investment climate for clean energy projects.

Debt and climate investment needs in emerging and developing economies

The investment needed to accelerate the energy transition in emerging markets and developing countries is large. The annual concessional funding for clean energy that these countries require will need to reach between $80-100 billion by the early 2030s, according to the International Energy Agency’s updated Roadmap to Net Zero Emissions by 2050.

Yet, emerging markets and developing countries, especially low-income countries, are struggling with high debt loads. The IMF Financial Stability Report recently concluded that 56 percent of low-income countries and 25 percent of emerging market countries are in or at high risk of debt distress.

Under increasing pressure, international financial institutions (IFIs) have made strides in increasing their climate finance pool. The World Bank Group reported a record $38.6 billion in climate finance for the year ending July 1, 2023, while overall multilateral development bank (MDB) climate finance increased from eighty-two billion dollars in 2021 to nearly hundred billion dollars in 2022, with about sixty billion dollars of that going to low- and middle-income countries. Finance for mitigation, much of it for clean energy, constituted 63 percent or thirty-eight billion dollars of the flows to low- and middle-income countries. Investment loans ($36.8 billion) and policy-based finance ($8.4 billion) were the largest types of financing in the overall MDB climate portfolio. Given the often-high investment risks, IFIs play an important role in catalyzing private investment through loans and guarantees; an estimated sixty-nine billion dollars in private climate finance were leveraged globally in 2022.

Assessing financing and investment risks

Development banks and private investors alike face an array of energy and climate investment risks in emerging markets and developing countries. Some of these risks are common political, regulatory, economic, and financial ones, while others vary depending on the specific characteristics of the technology or country involved.

The IEA World Energy Outlook 2023 presents a generic framework that identifies the risk level (high, medium, low) in three areas (policy and regulatory, supply chain, and financial) for nine clean energy technologies. Bloomberg New Energy Finance’s Climatescope review has long focused on key elements of the policy environment of countries and scores individual markets in terms of their overall attractiveness and progress in luring clean energy investment. It comparatively assesses the electric power markets of countries on whether they have in place the following six features: targets, auctions or tenders, import tariffs, net metering, feed-in-tariffs, and value-added tax reductions or exemptions.

A focus on the regulatory institutions and their effectiveness is a common dimension of risk assessment tools. RISE (Regulatory Indicators for Sustainable Development) is a robust scheme developed by the World Bank that tracks regulatory and financial incentives, network connection and use, carbon pricing and monitoring, counterparty risk, and credit worthiness of utilities among other indicators.

The RISE 2022 report sees uneven progress over the 2019-2021 period and backsliding in utility credit worthiness. A parallel World Bank effort called the Global Electricity Regulatory Index (GERI) is diving deeper into regulatory performance in considering regulatory governance and regulatory substance factors.

Country surveys using the above frameworks all highlight the basic weaknesses in the clean energy investment environment in emerging and developing countries. BNEL’s Climatescope estimates that in 2021 renewable energy asset finance in emerging and developing counties other than China was about forty-nine billion dollars compared to over three hundred billion dollars globally. But this was highly concentrated, with over 80 percent in fifteen countries. Africa lags other regions and even its best performers—Tanzania, Malawi, Nigeria, South Africa, and Zimbabwe—were not in the top ten developing countries globally.

Enabling environment reform priorities

The response to these internal developing country market constraints has seen new proposals for global climate funding and investment guarantee and enhanced political and economic risk insurance mechanisms such as the US Energy Transition Accelerator and the World Bank’s Scaling Climate Action by Lowering Emissions. These de-risking structures from the advanced countries and IFIs have their place. However, there is too little focus on building the regulatory and institutional capacity in recipient countries that can ensure that project investments are sustainable, efficient, and attractive to private investors.

To address this challenge, the three-pronged approach presented by International Monetary Fund Deputy Managing Director Bo Li in this February blog is useful. This framework includes:

1. Smarter regulation, price signals, and well–targeted subsidies adapted to each country’s unique fiscal and macro-financial characteristics.

2. Strengthened public financial management and public investment management, building the capacity to identify, appraise, and select good quality projects, including fiscal risk mitigation.

3. A revamped financial architecture to include flexible national and regional programmatic as well as project approaches to risk-mitigation and mobilizing private investment.

One approach, the Just Energy Transition Partnerships (JETP), is beginning as a collaborative effort among the United States, Germany, and other advanced countries together with the IFIs to engage with key coal-dominant developing countries, such as South Africa, Indonesia, and Vietnam, in mobilizing investment and overcoming key obstacles. Policy and program approaches to support regional grids and energy trading approaches with groups of nations such as the Association of Southeast Asian Nations or sub-regions in Africa are also prospective.

COP28 outcomes

As nations take stock of national and global efforts to address climate change and finance the clean energy transition at COP28, the dialogue should elevate the issue of how to improve the enabling environments in emerging markets and developing countries. A greater onus should be placed on these countries, as well as the advanced nations in their financing commitments, to make progress in improving the governance of economies and energy systems in recipient countries.

Although greater capital and technical assistance resources (both public and private) from developed countries are essential, a reorientation of some of this funding to augment enabling environment reform efforts is needed. The IMF’s new Resilience and Sustainability Trust, with its packaging of policy reforms, capacity development, and financing arrangements, represents an important step in this direction.

For the United States, the Biden administration has tried to increase international climate funding and achieve the president’s 2021 pledge of $11.4 billion by 2024. The administration’s FY24 request for international climate programs was $4.3 billion, a substantial increase over the $2.5 billion requested for FY23. But Congress has not gone along, appropriating only one billion dollars for FY23. And the prospects for increasing FY24 appropriations are not promising.

US government departments and agencies are working hard to play a leadership role in tacking the global climate crisis and in COP28. It is essential that Congress approve funding levels reflecting this imperative, including the requested $1.1 billion for clean energy that would provide the State Department and the US Agency for International Development with the resources needed to work with emerging and developing economies in improving their enabling environments.

Robert F. Ichord, Jr. is a nonresident senior fellow at the Atlantic Council Global Energy Center

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Robert F. Ichord, Jr.

Nuclear Energy Energy Transitions

EnergySource Nov 29, 2023

How COP28 can help cities drive climate action

By Willow Fortunoff, Maia Sparkman

Africa Americas

EnergySource Nov 21, 2023

Beyond promises: Pathways to deliver on methane commitments

By David L. Goldwyn, Andrea Clabough

The Global Methane Pledge has committed over one hundred adherents to collectively reduce their methane emissions by 30 percent by 2030. The challenge however, seems as intractable as ever.

China Climate Change & Climate Action

EnergySource Oct 13, 2023

COP28 and the growing Europe-MENA hydrogen connection

By Giampaolo Cantini

A key piece of the COP28 plan to double global hydrogen production by 2030 will be connecting hydrogen-hungry Europe to the potential green hydrogen powerhouse of the MENA region.

Africa Energy & Environment

Learn more about the Global Energy Center

The post Mobilizing climate finance at COP28: Improving enabling environments in emerging and developing countries appeared first on Atlantic Council.

How COP28 can help cities drive climate action

Willow Fortunoff, Maia Sparkman — Wed, 29 Nov 2023 22:53:06 +0000

In recognition of cities’ pivotal role in climate action, the United Nations Climate Change Conference, known as COP, will include for the first time a summit dedicated to localized efforts to curb climate change. The Local Climate Action Summit, hosted by the COP28 presidency and Bloomberg Philanthropies on December 1 and 2 in Dubai, will provide an official platform for subnational leaders to highlight their successes toward decarbonizing, building climate resilience, and gaining community buy-in for such efforts. The summit also offers leaders an opportunity to come up with the financial framework needed to scale up initiatives at the city level to fully realize their decarbonization potential.

Why the focus on cities?

While national-level discussions often dominate climate and energy policy decisions, cities, which are responsible for more than three-quarters of global energy consumption and more than half of global greenhouse gas emissions, have emerged as proactive leaders in crafting and implementing innovative strategies to reduce their carbon footprint. To lower emissions, strategies can take advantage of the unique characteristics of cities such as high population density, compact urban environments, and engagement with local communities to maintain societal buy-in. These features lend themselves to efficient public transportation networks, implementing energy-efficient infrastructure, and promoting more resilient cities. For example, Mexico City’s Metrobús public transit system led to an estimated reduction of 326,000 metric tons of CO₂ between 2011 and 2018—equivalent to 72,500 gasoline-powered cars driven in one year.

Further underscoring the importance of cities to climate mitigation is their expected growth. More than half of the global population today resides in cities, and that percentage is expected to rise to 70 percent by 2050. Projections show that during this same time period the world will add at least fourteen new megacities, each with more than 10 million people, creating the need to simultaneously expand and transform cities’ infrastructure, energy systems, and societal habits to foster low-carbon, resilient, and prosperous environments. Vibrant, young populations are vital to these emerging megacities and will need good paying jobs, healthy environments, economic growth, and opportunities to establish secure livelihoods. Navigating this growth within a low-carbon and resilient framework can foster a more equitable and just future. To achieve this, targeted financing mechanisms are essential for empowering cities to invest in sustainability, promote economic prosperity, and address the impacts of climate change on urban populations.

Current state of play

Cities in developing nations, where much of the world’s population growth is projected to occur, have immense potential to drive sustainable growth, offering a significant opportunity to reduce inequality and advance global climate goals. The International Finance Corporation puts a $2.5 trillion annual price tag on urban sustainable investment opportunities in developing nations through 2030, promising not only economic growth, but also impactful reductions in global emissions.

According to the Coalition for Urban Transitions, urban initiatives can feasibly reduce greenhouse gas emissions in cities by nearly 90 percent by 2050 while also generating twenty-four trillion dollars in economic returns. Despite this potential, total climate finance to cities reached an annual average of only $384 billion during 2017-2018, and less than 10 percent was directed to developing economies globally. In contrast, a disproportionate 83 percent of funds were allocated to projects in North America, Western Europe, East Asia, and the Pacific.

What explains this gap in financing?

Like COP, multilateral development banks and financing institutions were designed to cater to national governments, posing a challenge for cities. Despite initiatives by institutions like the World Bank, Inter-American Development Bank, and African Development Bank to provide limited funding for urban sustainability projects, these funds often do not align with the specific needs and capacities of cities. As noted by Mayor Claudia López of Bogotá, Colombia, and Mayor Mar-Len Abigail Binay of Makati City, Philippines, many cities in the Global South need the support of development banks’ financing instruments to access loans and de-risk climate projects.

A primary hurdle to the expansion of financing in developing economies is credit worthiness. The World Bank estimates that only 20 percent of the largest five hundred cities in developing countries meet this criterion. Funding is also often contingent upon a sovereign guarantee from the national government, a condition susceptible to delays due to various political or economic factors. These onerous requirements contribute to the funding disparity between cities in developed and emerging economies, highlighting the need for more tailored and accessible financial mechanisms for cities to drive low-carbon growth.

Recommendations

COP28’s Local Climate Action Summit offers a platform for city leaders and coalitions to amplify their progress toward net zero and present recommendations for improving their ability to meet future climate goals. It’s also an opportunity for national-level leaders and multilateral institutions to realize the role of cities both on the forefront of mitigating the impacts of climate change. Bodies such as the Global Commission for Urban SDG Finance and the Cities Climate Finance Leadership Alliance have been working on proposals to accelerate city climate action. Several recommendations are clear:

To start, multilateral financial institutions, which often support pilot projects in emerging markets, should reform their institutional approach by creating long-term pathways for financing city-level, climate-related projects. Last year, US Treasury Secretary Janet Yellen called on development banks to “target additional resources towards sub-sovereign levels.” The Development Bank of Latin America and the Caribbean (CAF) has made promising steps by pledging to expand their mandate to sub-national stakeholders, yet remain an exception. The broader landscape of financial institutions and development banks have not integrated city lending practices into consistent strategy. For example, in 2022, the World Bank Gap Fund only supported small-scale projects in two countries in Latin America and the Caribbean. These programs must be rapidly scaled across developing nations to meet the demand of city governments.

The private sector should work in tandem with development banks to generate greater investment for urban climate projects. If multilateral climate financing mechanisms reduce risk for companies by pooling projects perceived as too small or speculative, private finance can play a larger role in driving significant shifts in city-level mitigation efforts. The business community can commit to doing business in cities with clear pathways toward decarbonization, promoting a circular economy, and supporting workforce development opportunities. Fostering greater city-to-business collaboration holds the potential to grow green jobs and accelerate the low-carbon energy transition while generating municipal revenue.

Finally, additional research and resources should be devoted to amplifying the role of subnational networks in connecting cities in emerging markets. Such networks, which have become more common with global urbanization trends, serve as platforms for city leaders to exchange strategies, gain access to trainings, and advocate for common priorities, including climate mitigation. While there is little empirical analysis on the topic, a 2021 study found a positive association between membership in city networks and increased reductions in urban greenhouse gas emissions. Currently, networks such as ICLEI – Local Governments for Sustainability, which serves as a focal point for the local government constituency to the UNFCCC, charge annual membership fees. Additional research on the value of participation in global networks could substantiate membership fee waivers or reductions for cities in emerging markets.

Conclusion

City financing mechanisms should be viewed as must-have tools of global climate governance, not nice-to-have options. Centering cities as enablers of both adaptation and mitigation in addressing climate change can help advance the global energy transition, establish low-carbon industries, and importantly, gain and maintain societal buy-in to deliver green and economically advantageous solutions to cities.

Amid the many announcements and commitments expected at COP28, there is potential to drive real progress by supporting—both financially and politically—innovative solutions proposed by cities.

Willow Fortunoff is a former assistant director at the Atlantic Council Adrienne Arsht Latin America Center and Fulbright Research Fellow.

Maia Sparkman is an associate director for climate diplomacy at the Atlantic Council Global Energy Center.

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Global Energy Center at COP28

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Willow Fortunoff

Adrienne Arsht Latin America Center

Americas Caribbean

Former staff

Maia Sparkman

Africa Climate Change & Climate Action

EnergySource Nov 21, 2023

Beyond promises: Pathways to deliver on methane commitments

By David L. Goldwyn, Andrea Clabough

The Global Methane Pledge has committed over one hundred adherents to collectively reduce their methane emissions by 30 percent by 2030. The challenge however, seems as intractable as ever.

China Climate Change & Climate Action

EnergySource Oct 13, 2023

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By Giampaolo Cantini

A key piece of the COP28 plan to double global hydrogen production by 2030 will be connecting hydrogen-hungry Europe to the potential green hydrogen powerhouse of the MENA region.

Africa Energy & Environment

EnergySource Jul 11, 2023

How cities can drive the energy transition in the Western Hemisphere

By Maia Sparkman, Willow Fortunoff

Americas Climate Change & Climate Action

Learn more about the Global Energy Center

The post How COP28 can help cities drive climate action appeared first on Atlantic Council.

Beyond promises: Pathways to deliver on methane commitments

David L. Goldwyn, Andrea Clabough — Tue, 21 Nov 2023 14:20:43 +0000

Two years ago, the announcement of the Global Methane Pledge at COP26 in Glasgow was one of the most intriguing and potentially impactful developments of that conference. The pledge has since committed its now over one hundred adherents, together responsible for 45 percent of global methane emissions, to collectively reduce their methane emissions by 30 percent by 2030. Its announcement was a crucial moment of reckoning with a highly potent greenhouse gas, of which 40 percent of human-caused emissions come from the energy sector alone.

As the proverbial saying goes, that was then. In the here and now, the methane challenge seems as intractable as it ever was. The latest iteration of the International Energy Agency’s Global Methane Tracker estimates that global energy sector methane emissions rose about 2 percent last year to nearly 135 million metric tons (MT) despite more efforts to track, contain, and monitor leaks. Oil and gas production is a major source of energy sector methane emissions, particularly through operational practices like venting and flaring of gas. Although IEA projects that global average methane intensity of oil and gas production has fallen by around 5 percent since 2019, the overall growth in actual methane emissions in the energy sector remains alarming. Despite all of this, methane abatement remains highly cost-effective; an estimated $100 billion in investment (a fraction of oil and gas industry’s profits) are estimated as sufficient to deploy all necessary abatement measures by 2030.

The continuing malaise around methane should galvanize those delegations representing major oil and gas producing countries at COP28. While there are multiple reasons for the limited progress on abating the potent greenhouse gas, the fundamental obstacle to curbing it is that the existing and even proposed frameworks to achieve reductions are overwhelmingly voluntary in nature. Thus far, concrete actions to address the methane challenge have been limited to a handful of wealthy producer countries and have no market-driven enforcement mechanisms.

The Global Methane Pledge Itself is a voluntary commitment made by countries that choose to join. It therefore implicitly relies on the ability of countries to promulgate effective regulations and enforce them among their own local industries, or to disburse donated funds to support measurement and mitigation in countries that cannot afford it. The COP28 presidency is reportedly seeking to elevate the level of commitment through a new voluntary initiative, whereby producing companies would make substantial pledges on methane reduction and subject themselves to self-reporting and measurement.

Some countries are taking enforceable measures to meet their commitment. The United States, for example, is pursuing a number of initiatives to tackle its energy sector methane emissions including a historic methane fee integrated into the 2022 Inflation Reduction Act, in addition to imminent Environmental Protection Agency methane performance standards. The European Union is developing its own binding 2030 methane reduction target for its oil and gas sector, as well as a methane intensity threshold for imported fuels. The United Arab Emirates, host of this year’s COP, has made its own commitments on methane: in July, its national oil company ADNOC committed to achieving zero methane emissions by 2030.

In time, these and similar efforts will likely produce fruit. But while these unilateral and multilateral voluntary measures are important, they are not sufficient to the challenge at hand. Crucially, they do not address the challenge of methane emissions in those countries not party to the Global Methane Pledge (or similar bodies) where energy-sector methane emissions are high and there is far less pressure or incentives to reduce them. Many high-emitting countries have not taken any enforceable measures to meet the pledge. Some of these, such as Russia, have adversarial relationships with the United States and may eschew efforts which are largely Western-led. Others, such as China, have announced aspirational methane strategies, but they often lack concrete targets or clear accountability mechanisms. In the case of oil and gas producers in developing countries, both within and outside the Global Methane Pledge (such as Turkmenistan and Venezuela), the price tag and infrastructure complexity of systemic methane abatement represents an entirely different barrier.

COP28 cannot resolve all these complex, interwoven issues, but those delegations that are mindful of the methane abatement challenge could demonstrate a renewed commitment to addressing it on a global scale.

An obvious starting point is financial support to fund methane abatement in those countries unable or hesitant to expend limited resources. A multilateral financing push for those countries interested in such support need not be a singular fund (such as the in-development Loss and Damage Fund), but it could involve a collective agreement to leverage a certain percentage of foreign investment and development resources for this explicit purpose. Multilateral development banks, particularly those hesitant to engage with any fossil-related financing, might clarify their parameters for such financing and signal which sorts of projects would qualify for favorable loans or other assistance, as many will require technology access to capture gas flared from oil production and covert it to some productive use.

To meaningfully impact the behavior of countries and companies that are not taking action to reduce methane emissions, the world will also need market-based mechanisms that penalize producers who do not adhere to an acceptable standard. Committed delegations should agree to raise the bar on methane abatement by incentivizing highly-efficient, low-emission fossil fuels through regulatory and trade alignment. Flickers of progress in this space are evident: the Joint Declaration from Energy Importers and Exporters, published in November 2022, theoretically aligned the United States, EU, Norway, UK, Canada, Singapore and Japan around the need to reduce methane emissions throughout the fossil fuels sectors. The incoming EU methane threshold for imported fuels takes this approach one step further; a similar approach in any future US border adjustment mechanism remains an open question. However, the US Department of Energy has recently announced a new Measuring, Monitoring, Reporting and Verification (MMRV) Working Group which will “advance comparable and reliable information about greenhouse gas emissions across the natural gas supply chain to drive global emissions reductions.” Notable participants include the United Kingdom, the European Commission, Germany, Japan, Australia and Brazil.

Even an early version of an agreeable gold standard (or agreed group of standards) for the methane emissions of traded fossil fuels products could be a valuable COP28 deliverable, particularly within a wider framework that promotes independent monitoring, reporting, and verification across a range of major stakeholders. A number of existing platforms that could inform such a gold standard (such as those of GTI Veritas Initiative) could be applied or leveraged. If global demand for fossil fuels must necessarily decline in a net-zero outlook, producers and consumers of fossil fuels can collectively lay the groundwork for those supplies with the most sustainable methane profiles to also be the most competitive. Such an approach to trade and regulatory policy could be tailored to favor those oil and gas companies (including both international and national oil companies) that maintain a high standard of emissions reductions across all of their multinational operations, reducing emissions across the full scope of their operational profiles and not just in those countries with robust requirements. Such a trade framework would compel producers who today decline to take methane mitigation measures to do so, in order to remain competitive in the global market.

There are many complex, entrenched challenges to realizing a global energy transition; responsible management of methane should not be among them. Reasonable solutions in this space already exist at scale and could be deployed worldwide at relatively little cost compared to the trillions that must ultimately be expended on deep decarbonization. Any steps forward on this front at COP28 could pay dividends now and for years to come. At a conference where every success is set to be hard-fought, methane is one area where important wins should be achievable.

Andrea Clabough is a senior associate at Goldwyn Global Strategies, LLC, and a nonresident fellow with the Council’s Global Energy Center.

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Global Energy Center at COP28

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David L. Goldwyn

Adrienne Arsht Latin America Center Global Energy Center

Caribbean Climate Change & Climate Action

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Andrea Clabough

Climate Change & Climate Action Energy & Environment

EnergySource Nov 16, 2023

Six steps Guyana can take to avoid the resource curse

By David L. Goldwyn

Guyana is on a rapid path to potentially becoming the fourth largest oil producer in the world. Now, the government has an opportunity to show the world how to do resource development right.

Energy & Environment Geopolitics & Energy Security

EnergySource Sep 11, 2023

The IRA’s best kept climate secret: Moving oil and gas toward operational net zero

By William Tobin

The IRA contains a suite of provisions to help oil and gas move toward scope one and two climate neutrality, potentially comprising some of the law’s most impactful climate measures.

Energy & Environment Energy Transitions

EnergySource Aug 7, 2023

A year after the IRA, industrial policy has gone global. Now what?

By David L. Goldwyn, Andrea Clabough

The domestic impacts of the IRA are undeniable. It is less certain what it means for the global energy transition. One year later, officials must prioritize opportunities to align with like-minded allies overseas.

Energy & Environment Energy Transitions

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The post Beyond promises: Pathways to deliver on methane commitments appeared first on Atlantic Council.

Six steps Guyana can take to avoid the resource curse

David L. Goldwyn — Thu, 16 Nov 2023 16:06:38 +0000

Guyana is on a rapid path to a major transformation in national wealth. A total of forty-six offshore oil discoveries have been found since exploration commenced in 2015, with an estimated 11 billion barrels of recoverable oil and gas in the offing. Industry experts project that by 2035, Guyana’s output could reach 1.7 million barrels of oil per day, which would make it the fourth largest oil producer in the world.

As a result of the transformative influx of natural resource wealth into Guyana’s emerging economy, the World Bank recently reclassified Guyana as a “high income” country on the basis of its gross national income. The country’s per capita GDP rose from $6,863 in 2020 to $18,990 in 2022; and it is projected to reach $35,900 by 2027. Recent estimates suggest that the Guyanese government could soon see $10 billion annually in revenue from the country’s oil resources, perhaps rising to $157 billion by 2040.

Successive governments have worked hard to try to protect Guyana from the fate that has befallen most countries that have seen major increases in resource wealth. The so-called “Resource Curse” is the unfortunate decline in human development and civil society which often befalls countries with exceptional resource wealth. These outcomes are often connected to overvaluation of the exchange rate, atrophy of non-extractive industries, the disconnection between government and citizens that takes place when governments are funded from resource rents rather than taxation, poorly planned and executed spending and, too often, systemic corruption. The sad reality is that only a handful of countries that depend primarily on an extractive industry for national income—such as Botswana, Norway, Chile, and Malaysia—have avoided the “curse.”

In some instances where governments seek outside expertise, the US government has offered technical assistance to mitigate or prevent these outcomes. When I served in the State Department in the early days of the Obama administration, we created an Energy Governance and Capacity Initiative. Its purpose was to identify potential oil and gas producers, then leverage the expertise of the Treasury Department, Interior Department, and USAID to equip new regulatory bodies to manage resource rents. This support encouraged new producers to develop strong regulatory frameworks to govern their new industries before resource development brought in resource rents.

I visited Guyana in 2010 with an interagency team to offer that assistance to then President Bharrat Jagdeo. I returned this month, thirteen years later, on a trip supported by the Centre for Local Business Development, a backer of small-business development in Guyana that receives funding from the consortium of companies engaged in offshore oil and gas production in the country. It was both fascinating and instructive to learn how the country has evolved.

There have been a number of impressive accomplishments, made all the more commendable given the brief timeframe that Guyana has been allotted by circumstances to prepare for a massive influx of resource wealth. Guyana’s headline policies recognize the risk of the curse with sharp clarity and aim to chart a different path. The Natural Resource Fund (NRF) stewards resource rents, caps the amounts that can be used for the national budget and publishes inflows and outflows. A new regulatory reform law aims to make it easier to launch a business. The passage of the Petroleum Activities Bill earlier this year modernized the management of the oil and gas sector.

Similarly, a local content law and policy aims to ensure that Guyanese citizens have a major share of the jobs that will be produced and that Guyanese companies are preferred in forty or so categories where the required capacity and skills are available. Guyana has established an Extractive Industries Transparency Initiative program and, after some negotiations, is on a path to report the reconciliation of company payments with government income. There are robust plans to invest in the Guyanese people through roads, bridges, health, education, and power generation, and to diversify the economy by promotion of agriculture and eco-tourism. These are important, impressive, and laudable steps for phase one of a resource boom.

Looking ahead, President Irfaan Ali’s administration has an opportunity to establish a historic legacy for equitable and efficient growth. There is a clear chance to ensure Guyana joins a very short list of countries that have avoided the “curse” by launching phase two of Guyana’s national development strategy before the steep rise in income arrives in 2027. Six steps are critical:

1. Independent professional management of the natural resource fund. The most successful funds, like Norway’s Government Pension Fund and the UAE’s trio of sovereign wealth funds, insulate their governments from the temptation of risky investments or favoring their preferred partners by independent management. The government appoints a chair of the fund, and national legislation sets the fiscal rules, but the committee is constituted by management professionals charged with maximizing returns. Such a step would support the current and future Guyanese governments and offer a powerful signal of transparency to the citizenry and the investment community.

2. Establish civil service protections and scale up staff. The ministries responsible for managing the oil, gas, and mining industries are understaffed, underpaid, and significantly populated by contract employees and political appointees. Government jobs are therefore high risk (compared to the private sector), and staff are structurally disincentivized to express professional disagreement to political appointees. The country needs deep and stable expertise to fulfill its role in monitoring and regulating the extractive sector. It needs to establish significantly greater capacity (personnel and otherwise) to plan and manage procurement and then monitor the massive public expenditure to come. Civil service reform would be a signal of stability to investors in all industries. One need only look to Norway’s Petroleum Directorate or Brazil’s National Agency for Petroleum, Natural Gas and Biofuels for examples of professional regulators that provide stable investment climates even when political winds shift dramatically.

3. Provide a long-term national development plan. The reality for Guyana is that it will take time, perhaps a decade, to make progress in all the areas announced for development. Citizens are already demanding to see the benefits of the oil boom before the government has the scale of resources it needs to invest. The government might address those legitimate aspirations by announcing a roadmap for national development, with clear priorities and timelines. Planning for national infrastructure such as a national transmission backbone or road system is an extensive process. It can take years to identify routes, address local impact, consider environmental impact and plan for tenders. These efforts should commence immediately.

4. Create the conditions for high quality spending. A major characteristic of the resource curse is poor procurement and uncoordinated spending. Major projects can be steered to unqualified bidders who produce substandard work or often no work at all. Governments need to create the capacity, or hire it, to establish pre-qualification of bidders, fair and open tenders, and then active monitoring that the work is being done at the standards required. Guyana’s government should prioritize developing this capacity, which would assure both citizens and investors that Guyana’s major procurements will meet international standards of quality and transparency.

5. Refresh local content policy. Guyana has wisely established a local content law and a professional secretariat tasked with implementing it. It could evolve in three important ways. First, it needs to include the major tender and procurements for national infrastructure, which are likely to be far greater generators of local jobs than the oil and gas sector. Second, Guyana might examine whether the 51 percent ownership requirement is working. Majority ownership can deter investors if a country lacks partners with the capital to fund their share. Some investors will not risk sharing their best technology without a controlling interest. In some countries a 51 percent requirement is a corruption risk, as “paper owners” who do not really participate in the business sell their name to satisfy a legal requirement. It may be possible to adjust the local content requirements to center workforce training and continuing education, and thus provide ongoing benefits to the Guyanese people. Guyana also might emphasize vocational training (and appropriate wages) for the vast array of local technicians and tradespeople who will have leading roles in transforming their country.

6. Provide financing support for Guyanese businesses. The greatest challenge faced by Guyanese businesses seeking to participate in local content development is the lack of access to financing for short term cash flow or borrowing of equipment. Guyana’s banking system requires physical collateral, like real estate, to borrow. This blocks new market entrants and potential local entrepreneurs. Lack of financing risks undermining the entire local content effort. It may also foster resentment or worry in the business community that it will be unable to participate in the growth of the economy. There can be multiple solutions for this challenge, including creative banking regulations and creative financing options, such as a Guyanese version of the US Small Business Administration or some national enterprise fund.

Guyana has achieved a great deal in an astonishingly short space of time. Now, the government has an opportunity to show the world how to do resource development right. The core elements to its ongoing success are an inclusive, well-planned, carefully monitored and properly staffed effort to promote diversified national development. The Ali administration can create a lasting national, and international, legacy by taking the steps needed to ensure Guyana’s wealth is stewarded well. Many of the steps they must take may not pay benefits until far in the future, but that is how legacy is made. Guyana’s external friends like the United States, Canada, the UK, and the European Union should stand ready to support the Guyanese government if and when assistance is requested. The Ali administration is right to expect patience from its friends and citizens, but the time is ripe to launch phase two of Guyana’s governance.

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New York’s approach to wind power puts its climate reputation on the line

Joseph Webster — Thu, 09 Nov 2023 18:29:56 +0000

The last few weeks may have been the worst in an already tough year for US offshore wind. While the industry reels from high interest rates and rising steel costs, New York state issued a series of decisions that degraded the economic viability of critical first wave projects. While the state ultimately softened its stance, the episode raises concerns about the commitment of New York to the technology—and to climate targets more broadly.

Troubled winds

The Empire State made several critical decisions in October that have dealt offshore wind a severe blow.

On October 12, the state government announced it would not renegotiate contracts with offshore wind providers Ørsted, Equinor, and BP. The companies sought price adjustments to compensate for soaring project costs due to higher interest rates and the elevated price of steel, which accounts for 90 percent of the materials used in an offshore wind farm. After the ruling, project developers hinted they might be forced to cancel projects.

New York issued another pivotal offshore wind decision on October 20, when Governor Kathy Hochul vetoed a bill that expedited permitting of transmission lines for Equinor’s planned Empire Wind II wind farm off Long Island. The governor’s veto was issued on the basis of local concerns, which apparently centered around fears over electromagnetic fields. A 2014 investigation by The New York Times found there is no evidence connecting power lines to health risks.

The Empire State backpedaled by awarding on October 24 three conditional contracts for projects from TotalEnergies, Community Offshore Wind—a joint venture between National Grid and RWE—and Copenhagen Infrastructure Projects. Bending to criticism over its commitment to climate targets, the governor’s office paired those conditional grants with twenty-two land-based renewable projects and investments in wind supply chains, including offshore wind blade and nacelle manufacturing facilities.

Separately, on October 31, Ørsted, citing macroeconomic conditions of high inflation, rising interest rates, and supply chain bottlenecks, announced it would “cease development” of Ocean Wind 1 and Ocean Wind 2, two projects based in New Jersey.

The US offshore wind industry is facing headwinds up and down the East Coast, the epicenter of the first wave of projects. New York will play a pivotal role in determining the success of the technology, it is the largest state by population and GDP, and its target of developing 9 gigawatts of offshore wind by 2035 is the most ambitious of any state in the region.

What’s going on in Albany?

Regardless of the merits of New York’s October 12 decision not to renegotiate contracts, the ruling will unquestionably set back the state’s climate goals.

The Ørsted, Equinor and BP wind farms are in various stages of development. Ørsted’s South Fork wind farm is already under construction and is unlikely to be cancelled. But should any of these projects be cancelled due to cost pressures, US offshore wind deployment timelines will be set back considerably, impacting the region’s climate targets.

Offshore wind is the northeast’s most viable—and valuable—renewable resource. The region’s topography is not supportive of onshore wind. Its solar irradiance is very limited, especially during winter, when electricity demand peaks. The region’s offshore wind, meanwhile, enjoys high theoretical capacity factors, especially during the peak winter heating season. Accordingly, any delays to offshore wind deployment will have negative and major impacts on the region’s emissions, and the region will continue to rely on fossil energy to meet peak demand.

The October 24 ruling is, of course, a boon to clean energy generation targets. However, it is unclear if the decision was a considered policy choice or a knee-jerk response to the onslaught of criticism Hochul received from the climate community after the transmission bill veto.

That veto bodes ominously for New York’s climate future. Opponents of the line failed to articulate scientifically rooted safety concerns, but Hochul nevertheless capitulated. Re-siting the transmission line will impose unnecessary delays and expenses on developers, slowing clean energy deployment.

More troublingly, the veto indicates to investors that New York lacks the political will to address climate change. The governor’s near-immediate award of conditional contracts suggests that Albany understands the risks of signaling to developers that climate is not a high priority in the Empire State. However, considerable damage has already been done.

Worryingly, this is not an isolated incident for the state or the region. New York City and surrounding areas suffer from a chronic housing shortage yet struggle to build new units. A failure to construct dense housing is a major climate loss, since per-capita emissions tend to be dramatically lower in urban areas than suburbs. New York state closed the Indian River nuclear power plant in April 2021 due to fears unrooted in empirical evidence, and carbon emissions rose as a result.

Additionally, in a short-sighted December 2022 ruling, the New York Public Service Commission cut positions and technical support from the budget request of NYSERDA, the state’s lead coordinating offshore wind agency. The measure saved $5 million in spending but almost certainly cost many times that due to project delays.

Maine voters, for their part, rejected a transmission line for renewable hydropower in November 2021 over preservationist concerns, ensuring higher emissions from fossil fuels. While the region talks big on climate, its record is unimpressive.

New York needs to build, build, build

New York—and the rest of the United States—must do better. The Empire State is one of the nation’s most important actors for developing offshore wind. While renegotiating contracts is a technical proposition that reasonable people can disagree over, Hochul’s decision to cancel a transmission project over irrational fears is deeply disappointing and imperils the climate reputation of her state. If New York City is to remain the greatest city in the world, New York state must be a climate leader, not a laggard.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center.

Note: Several companies mentioned in this article—Ørsted, Equinor, BP, TotalEnergies, and National Grid—are donors to the Atlantic Council’s Global Energy Center. This article, which did not involve these donors, reflects the author’s views.

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Atoms for Peace 2.0: The case for a stronger US-Japan nuclear power alliance

Julia Nesheiwat and Shoichi Itoh — Mon, 23 Oct 2023 13:34:35 +0000

Since US President Dwight Eisenhower’s “Atoms for Peace” speech at the UN General Assembly in 1953, the nuclear energy landscape has changed dramatically. Eisenhower envisaged atomic energy as a way to build bridges between nations. Yet today, as an increasing number of countries in the Global South show interest in the carbon-free technology and view its adoption as a sign of geopolitical strength, Russia has capitalized on this opportunity to entrench itself in worldwide nuclear markets, while China waits in the wings to do the same.

The world currently has sixty nuclear reactors under construction, of which more than one-third are Russian-designed. Combined with projects under planning or negotiation, Russia currently enjoys more than 40 percent of the global nuclear reactor export market in various forms, including power plant construction, investments, provision of enriched uranium, and disposal of spent fuel. Russia has also weaponized nuclear power by occupying and refusing to operate the Zaporizhzhia Nuclear Power Plant in Ukraine and is jeopardizing global security by threatening to use tactical nuclear weapons, in spite of its status as a permanent member of the United Nations Security Council and founding member of the Nuclear Non-Proliferation Treaty (NPT).

Russia’s actions compel a thorough review of the geopolitics of nuclear energy. The United States must play a forceful role in ensuring that nuclear technologies contribute to the global order rather than be weaponized against it. In that endeavor, Japan can be an invaluable ally. Facing new challenges for peaceful use of atomic energy against the backdrop of Russian and Chinese-induced geopolitical instability, Tokyo and Washington should redouble their commitment to competing in the international nuclear energy market.

For Russia, nuclear power represents another geopolitical weapon, similar to oil and gas. Its state nuclear company, Rosatom, works analogously to Gazprom in leveraging energy trade for political ends. Rosatom has provided loans for strategic nuclear power projects abroad, including Astravyets in Belarus, Akkuyu in Turkey, El Dabaa in Egypt, and Rooppur in Bangladesh.

China has also identified the nuclear industry as a strategic sector and is gathering market share with its relatively cheap nuclear reactors, including the introduction of its Hualong One reactors in Pakistan and Argentina. Saudi Arabia is also reportedly interested in the Chinese reactor design.

A nuclear reactor race has begun between democracies and authoritarian states, and the latter are currently ahead.

Nuclear projects are capital-intensive with lengthy time horizons, and authoritarian powers’ intention to distribute nuclear reactors in developing countries is motivated by more than commerce. Russian and Chinese state-backed nuclear entities accrue geopolitical influence beyond mere commercial interests. The risk is that a short-sighted approach may inexorably lead to a diminished role for democracies in the growing international nuclear industry.

By contrast, nuclear vendors from democratic states, including the United States and Japan, have engaged the civilian nuclear market with business principles as opposed to geopolitical influence. That approach risks pushing the NPT regime toward collapse if the nuclear industry of the democratic world forfeits market share to authoritarian rivals.

With its hostage-taking of the Zaporizhzhia plant, Russia has eschewed strict compliance with the NPT principle of peaceful atomic energy use. Given such recklessness, it cannot be ruled out that Moscow is helping non-democratic states develop reactors in contravention of internationally accepted rules regarding management of nuclear fuels, related technologies, and fissile materials. Meanwhile, amid tensions with the West, China is leaning on Russia’s increasing provision of highly enriched uranium to scale up its military and civilian nuclear aspirations.

The United States and Japan should counter these actions in support of a norms-based nuclear energy trade. The United States is the world’s single-largest operator of nuclear reactors with a fleet of ninety-three in operation. Japan—with whom the United States has consolidated one of the strongest bilateral civilian nuclear partnerships—has the fifth-largest fleet in the world with thirty-three reactors.

Such experience and expertise in operating atomic energy assets should be put to use internationally as the global nuclear energy market expands in response to energy security and climate challenges.

Over the past six decades, Japan has become a key US partner with regard to the development of nuclear technologies and facilities. A nuclear partnership between the United States and Japan that promotes research and development and accelerates commercialization of next-generation nuclear reactor innovations—including small modular reactors (SMRs)—could address energy insecurity globally and spread best practices in nuclear safety.

The US-Japan strategic collaboration on supporting deployment of SMRs in Ghana, announced in October 2022, is an example of such a partnership. Following this example, the two allies should pursue commitments to the other countries in agreement with the International Atomic Energy Agency’s standards of nuclear safety, security and nonproliferation for the sake of sustaining the NPT regime.

Re-establishing a visionary nuclear energy strategy should be an economic and geopolitical priority for the democratic world. The US-Japan alliance should assume the leadership in peaceful atomic energy collaboration, along with the International Atomic Energy Agency, lest deeper Russian and Chinese penetration of the global nuclear market erode NPT safeguards.

Shoichi Itoh is a senior fellow at the Institute of Energy Economics, Japan (IEEJ)

Dr. Julia Nesheiwat is a distinguished fellow at the Atlantic Council Global Energy Center

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Quick takeaways on the United States’ historic investment in clean hydrogen hubs

Joseph Webster, William Tobin — Thu, 19 Oct 2023 13:00:00 +0000

This past Friday, October 13, the US Department of Energy (DOE) announced $7 billion in funding for the country’s first clean hydrogen hubs (H2Hubs), as part of the 2021 Bipartisan Infrastructure Law. The announcement represents the single largest public investment in US hydrogen to date and is expected to have a significant impact on the technology’s development. Here are some takeaways from the announcement.

1. California and Texas are the epicenters of US clean hydrogen

California and Texas earned the highest federal cost shares of up to $1.2 billion each from the DOE award. The large amounts are not surprising given the states’ massive clean energy potential and scale; they are the country’s largest states by population, GDP, and—crucially—electricity consumption.

More importantly, the two states have excellent solar and wind resources, which optimizes the economics for producing green hydrogen from renewable electricity. When electrolyzers are sited close to both solar arrays and wind turbines, they can draw from electricity produced from either energy source as it becomes available.

Moreover, Texas’ ample natural gas production and carbon capture potential will likely ensure its leadership in blue hydrogen, which is produced from natural gas with emissions abated via carbon management.

2. The DOE sees a future for blue hydrogen

The DOE’s decision to support four hubs that will produce hydrogen from natural gas is a surprise for some. While the strategy could stand up a new industry and sidestep electrical grid constraints for producing green hydrogen, the decision comes with risks that will require structured oversight to avoid subsidizing emissions. Producing clean hydrogen from fossil feedstock will require the coordination of the upstream sector to deliver cleanly produced natural gas and technology to capture the carbon from gas-based hydrogen production at a sufficient rate.

Abating emissions from hydrogen produced with US natural gas will be challenging. Making hydrogen from natural gas, which in the United States has an average methane intensity of 1.5 percent, will yield 2.5 kilograms of carbon dioxide equivalent (CO₂e) emissions per kilogram of hydrogen produced. Even this number assumes the system will capture 100 percent of the carbon dioxide that the process generates, which remains technically challenging. This level of emissions would not meet DOE’s definition of clean hydrogen, set at less than 2 kg CO₂e. To meet this standard, hydrogen will have to come from natural gas with near-zero methane emissions, and utilize carbon capture process with greater than 90 percent capture.

To be clear, hydrogen from all feedstocks will be required to scale clean hydrogen to the volumes needed to support the decarbonization of industry, transportation, and other sectors by midcentury—potentially 500 million tons per year or more. Still, hydrogen from fossil feedstock with carbon capture can help alleviate renewable energy bottlenecks, preserve and create jobs, and benefit domestic industry.

3. Hydrogen for long-haul trucking remains a missed opportunity

Increasingly, policymakers regard hydrogen for long-haul trucking and heavy-duty transportation as a highly promising use case. The DOE’s hub selection briefing shows that six out of the seven hubs list long-haul trucking, heavy duty transportation, or both, as potential applications for their hydrogen. In fact, long-haul trucking receives more mentions in the longer-form description than any other potential use case, including ammonia, fertilizers, steel, and refining.

Despite the clear potential for this hydrogen application, the DOE’s hub funding overlooks a key trucking node.

States inland from California—the state which is home to the nation’s largest container ports by volume—will require refueling infrastructure if long-haul hydrogen is to enable the transport of those goods eastward. But the application for the Western Interstate Hydrogen Hub, which included Colorado, New Mexico, Utah, and Wyoming, did not receive funding from the DOE’s initial award. A lack of refueling infrastructure along the east-bound trucking corridor from California threatens to slow development of national long-haul trucking efforts.

4. The use case that dares not speak its name: Hydrogen for oil refining

Oil refineries currently use unabated hydrogen to lower the sulfur content of diesel and account for one-third of world hydrogen consumption. Clean hydrogen could therefore substantially reduce emissions at refineries. However, clean hydrogen for oil refining appears to be a taboo subject in the DOE award.

This is clear from the announcement regarding the Gulf Coast Hydrogen Hub, which is centered in Houston, the country’s most important refinery hub. The DOE’s executive summary of the award does not mention that the Gulf Coast will deploy clean hydrogen to its oil refineries. In a more detailed fact sheet, the DOE does envision that the region will employ hydrogen for refining—but the use case is listed after fuel cell electric trucks, industrial processes, and ammonia, rather than oil production.

The politics of using clean technology to produce hydrocarbons remain fraught.

The most strident voices in climate believe any US oil production is undesirable. Even more pragmatic climate hawks feel uncomfortable abating, rather than eliminating, hydrocarbons. Consequently, climate campaigners of all stripes regard the use of clean hydrogen in refineries ambivalently, at best.

Similarly, some actors in the oil and gas complex are deeply opposed to alternative energy sources in the interest of sustaining demand for their own products. Others go so far as to assert that climate change is a myth. These hydrocarbon hardliners will seek to slow the shift to clean hydrogen at refineries.

While clean hydrogen uptake at refineries will likely accelerate due to funding from the infrastructure law as well as from the Inflation Reduction Act (IRA), the DOE’s award suggests that the complex political economy of clean hydrogen at refineries may constrain its uptake.

Recommendations for policymakers

Hub governance structures

Policymakers can support the establishment of governance structures that coordinate hub implementation, facilitate the hubs’ growth through additional investment, and provide quality assurance. In the case of hydrogen produced from fossil fuel feedstock, quality assurance programs should ensure that project partners use natural gas produced with near-zero methane emissions, capture carbon at sufficiently high rates, and store captured carbon permanently.

Long-haul trucking

Given the DOE’s evident interest in facilitating a long-haul trucking economy, we recommend that it and other state and national-level agencies systematically identify optimal routes and potential stumbling blocks such as hydrogen refueling gaps. They should also determine hydrogen safety standards, including for tunnels. Furthermore, the DOE should consider creating a hydrogen trucking “czar” to coordinate US efforts.

H2Hub funding

While the IRA will incentivize cheap hydrogen production, certain projects are not financeable even under the program’s fiscal incentives, particularly on the demand-side, given the IRA subsidy’s focus on the supply-side. Accordingly, H2Hub funding—derived from the Bipartisan Infrastructure Law—should prioritize cost sharing for demand-side projects.

Emissions reductions

The politics of clean hydrogen for refining applications is admittedly complicated. Still, policymakers need to articulate how eliminating methane emissions, managing carbon, and using clean hydrogen at refineries will go a long way towards moving oil and gas towards operational net zero.

Conclusion

The DOE’s hydrogen hub award represents the single largest public investment in US clean hydrogen and marks an important step in reducing emissions in hard-to-decarbonize sectors. While more needs to be done, the United States’ public and—more importantly—private sector investments demonstrate its leading role in developing the world’s clean hydrogen. These investments will create economies of scale and lower equipment and capital costs worldwide.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center

William Tobin is an assistant director at the Atlantic Council Global Energy Center

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The post Quick takeaways on the United States’ historic investment in clean hydrogen hubs appeared first on Atlantic Council.

Policy Memo: How to deepen transatlantic energy and climate cooperation at the US-EU summit

Mon, 16 Oct 2023 14:13:44 +0000

Summary

This Friday, October 20, European Commission President Ursula von der Leyen and European Council President Charles Michel will visit Washington to meet with US President Joe Biden. Energy security and climate action have become an increasingly central part of the transatlantic relationship, as the war in Ukraine continues to disrupt global energy markets, and the resurgence of industrial policy creates a wedge between Washington and Brussels. All eyes will be on the Rose Garden to see how the three leaders chart a course on these important issues.

To that end, the following policy actions at the summit could help guide transatlantic energy and climate relations for the year ahead:

Recommendations

Collaborate on cleantech innovation and workforce development

Friday’s summit is unlikely to produce a breakthrough on green industry policies that have strained the transatlantic relationship since the passage of the US Inflation Reduction Act (IRA). While the thorny issues of subsidies and trade are worked out at lower levels, the three leaders should focus on big-picture initiatives with clear positive-sum gains for the transatlantic energy transition.

The first point of discussion should involve clean energy innovation. New technologies are needed to achieve climate neutrality by mid-century; the International Energy Agency (IEA)’s net-zero scenario predicts that not-yet-commercialized technologies will account for 35 percent of emissions reductions by 2050. Not only does the world need new technologies, it must also improve existing cleantech to provide greater efficiency and to reduce intermittencies.

The United States and European Union (EU) can be impactful partners for ensuring such technological breakthroughs are delivered on-time and in a politically secure manner. The strengths of the US and European research and development systems are matched by few across the world. New presidential-level initiatives for shared energy earthshots, like those already promoted unilaterally by the US Department of Energy, can accelerate meeting common cleantech innovation goals.

The United States and European Union should also advance common initiatives to upskill for the clean energy transition. In the United States, implementing the IRA will require 9 million new jobs over the next ten years. Meanwhile, the REPowerEU target of installing 750 gigawatts of new solar capacity by 2030 will require doubling employment in the European solar sector. By creating fora to exchange best practices for workforce training, the United States and European Union can accelerate the skills growth needed for a just energy transition.

Join forces on addressing China’s unfair electric vehicle practices

European concerns about the IRA’s electric vehicle (EV) provisions missed a very different threat to their auto industry. Today, Chinese EV exports are flooding the European market; China’s share of EVs sold in Europe has risen to 8 percent and could nearly double by 2025, courtesy of Beijing’s own unfair industrial policy practices.

Washington and Brussels should adopt a joint approach to Chinese EV exports. Low-cost Chinese EV exports to Europe can help lower transportation emissions, but these exports also pose a strategic and economic challenge. The United States and European Union should deepen cooperation by standardizing tariffs on Chinese EVs, and sending signals to automakers in democracies across Europe, North America, and the Indo-Pacific that Chinese-made automobiles will not be allowed to exceed a percentage threshold every year. By capping Chinese imports, Washington and Brussels could balance their economic and decarbonization objectives with strategic necessities to avoid falling into the trap of sole-supplier dependency.

Standardize regulations on hydrogen

Washington and Brussels should align their hydrogen policies to the most feasible degree possible. Reducing differences in transatlantic regulations and ensuring common operating standards would not only reduce friction between firms operating in both Europe and the United States, but also incentivize other key hydrogen producers in North Africa and India to align their own regulatory frameworks with that of the United States and Europe.

At the same time, policymakers should take into account the different endowments of green and blue hydrogen resources in Europe and North America. They must also factor in the transport of hydrogen: most international trade will likely be conducted via pipeline, not by ship. Accordingly, the United States and European Union should align hydrogen policies to the maximum extent possible while acknowledging that some differences are inevitable and indeed desirable.

Harmonize industrial decarbonization and climate-aligned trade policies

Ensuring alignment between Washington and Brussels in promoting industrial decarbonization and climate-aligned trade policies will be crucial to make progress towards lowering emissions, ensuring a level playing field between like-minded trade partners, and avoiding global overproduction of emissions-intensive goods.

A report on the two-year-long negotiations of the Global Arrangement on Sustainable Steel and Aluminum is expected to be on the agenda during the summit. These talks were designed to settle a Trump-era tariff dispute, align industrial decarbonization strategies, and address potential trade tensions stemming from the European Union’s new Carbon Border Adjustment Mechanism (CBAM), which will impose charges on imported steel and aluminum for the emissions caused by their production.

There has also been bipartisan discussion in Congress on a US version of CBAM on imports like steel. While there is pressure for the United States and European Union to harmonize their approaches on this trade-based form of a carbon tax, there are fundamental differences between the CBAM already enshrined in EU law and the Biden administration’s forthcoming proposal that arise from their divergent overall climate strategies. The EU’s CBAM relies heavily on a progressively increasing carbon price set by its Emissions Trading System, designed to make emissions unprofitable. By contrast, the United States has focused on government expenditures to incentivize decarbonization. The EU CBAM provides tariff rebates only for imports from countries with an equivalent carbon price, which the United States is very unlikely to adopt.

However, making global progress on industrial decarbonization and promoting climate-aligned trade will require the inclusion of other major industrial countries, especially China and India, which produce most of the world’s steel and aluminum. As Washington and Brussels increasingly align strategies to promote trade of low-carbon goods, the two will need to foster an environment that encourages other countries to adopt ambitious decarbonization goals for the heavy industry sector. The proposed Group of Seven (G7) Climate Club—which shares the goal of uniting ambitious countries toward low-carbon trade in such commodities—may be a better venue to move forward multilateral alignment on industrial decarbonization if the US-EU discussions fail to catalyze an approach that could be extended to other major economies.

Collaborate on European LNG diversification

Europe’s diversification away from Russian gas is a transatlantic success story. However, while the continent has greatly reduced its intake of Russian piped gas, its imports of Russian liquified natural gas (LNG) are moving in the opposite direction, offering the Kremlin a growing revenue stream for its war in Ukraine. The United States and European Union must articulate a shared plan for reducing reliance on Russian LNG and hampering Russia’s ability to expand its maritime gas trade elsewhere. Washington and Brussels should impose sanctions on companies that support LNG development in Russia and limit Russia’s access to LNG equipment via third countries.

Work together to enforce the Russian oil price cap

The price cap on Russian oil imposed by the G7 has succeeded in cutting Russian oil revenue in half. However, Russia’s shadow fleet of illicit oil tankers have blunted its effectiveness in recent months. The three presidents should work on strategies to improve enforcement of the price cap, mandate and verify that oil tankers are carrying sufficient insurance, and increase the costs of operating the shadow fleet by imposing tariffs to drive up the price of additional ships.

Conclusion

This week’s summit comes at a time of profound momentum for transatlantic energy relations, as an increasingly diversified Europe stands strong in the face of Russia’s weaponization of energy. As the transatlantic alliance deals with new energy and climate challenges ranging from supply chain bottlenecks to industrial competition, presidential-level initiatives to maintain that momentum are crucial for achieving shared energy security and decarbonization objectives.

George Frampton is a distinguished senior fellow and the director of the Transatlantic Climate Policy Project at the Atlantic Council Global Energy Center

Olga Khakova is the deputy director for European energy security at the Atlantic Council Global Energy Center

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center

Paddy Ryan is the assistant director for European energy security at the Atlantic Council Global Energy Center and the editor of EnergySource

Maia Sparkman is an assistant director at the Atlantic Council Global Energy Center

William Tobin is an assistant director at the Atlantic Council Global Energy Center

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EnergySource Oct 13, 2023

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COP28 and the growing Europe-MENA hydrogen connection

Giampaolo Cantini — Fri, 13 Oct 2023 13:00:00 +0000

COP28 commences soon and will deal with a number of issues, some of which are controversial, including hydrogen. COP28 president-designate, Dr. Sultan Ahmed Al Jaber, recently announced a highly ambitious plan to double global hydrogen production to 180 million tons per year by 2030. Currently, the bulk of global hydrogen production is “gray”—that is, made from unabated fossil gas or coal.

The core questions for achieving this objective are how to promote green hydrogen development and not just hydrogen production per se, and the feasibility of long-distance transportation from regions with favorable conditions for production to the markets that will consume it.

In that vein, connecting hydrogen-hungry Europe and the potential green hydrogen powerhouse of the Middle East and North Africa (MENA) region is a critical part of this international decarbonization objective.

The state of Europe-MENA hydrogen interdependence

Since COP27 last year in Egypt, countries within the MENA region have adopted national strategies and pursued new projects in hydrogen development aimed at transitioning their economies to clean energy exports.

Yet, with a few exceptions, several memoranda of understanding (MoUs) signed since the conference have not turned into actual investment decisions so far, notably in the case of COP27 host Egypt.

Meanwhile, the European Union (EU) and most of its member states are slowly but surely building their hydrogen supply chains, with plans that in most cases involve interdependence with the MENA region.

The quest for hydrogen

Demand for hydrogen in Europe is growing. The EU as a whole aims to import 10 million tons (MT) of green hydrogen by 2030 per the objectives of REPowerEU, the bloc’s overall plan to cut dependence on Russian fuels.

Germany and some of its companies are particularly active in concluding agreements with the Gulf states to buy hydrogen. Germany foresees importing between 50 percent and 70 percent of its hydrogen demand from abroad, corresponding to 95-130 Terawatt-hours (TWh).

On the whole, investments within Europe appear to be lagging behind its goal of producing 10MT of green hydrogen by 2030. This is due to uncertainties in demand, regulatory frameworks, and the crowding out effect of the Inflation Reduction Act in the United States.

Still, a number of initiatives for Europe to import hydrogen from the MENA region are on the horizon.

The H2 Med project—a hydrogen pipeline that would link Spain, France, and Germany—might be further connected with Morocco and possibly Mauritania to bring solar-produced green hydrogen to Europe.

Similarly, Italy is mulling fresh investments in gas production in Algeria. Gas pipelines running through Italy might be partially repurposed in the future to transport hydrogen from Northern Africa. Algeria, Tunisia and Libya—currently connected through gas pipelines to Italy—are the potential partners for such a scheme. New dedicated hydrogen pipelines might also be built. Italian Prime Minister Giorgia Meloni set out this vision during her visits to Algeria and Libya earlier this year.

According to a recent industry discussion paper, a hydrogen pipeline connecting Qatar to Europe could transport 10TWh or approximately 2.5MT of hydrogen per year at a levelized cost of around €2.7 ($2.9) per kilogram by 2030, later decreasing to €2.3 ($2.46) per kg. Such hydrogen is likely to be carbon-neutral to conform to EU regulations, but may be “blue” rather than “green,” meaning it would be produced from fossil fuels with carbon capture.

Steel to shipping

Demand for green steel and green iron is also poised to grow, in part because of an EU carbon border adjustment mechanism which will require certification of low-carbon production.

The MENA region holds significant potential in this regard, and projects are already under consideration. Oman is planning to set up a plant that would produce 5MT green steel annually by 2026, the year when the EU carbon border tax would come into effect. Egypt, the United Arab Emirates, and Saudi Arabia are also considering investments in green metals production. A company based in Bahrain is involved in a green steel project in Saudi Arabia.

Ambitions to decarbonize maritime transport is also spurring demand for green fuels from the MENA region. The International Maritime Organization has launched a strategy to reduce emissions from shipping between 20 percent and 30 percent by 2030 and between 70 percent to 80 percent by 2040. At the Paris Summit on a New Global Financing Pact last June, 23 countries and regional organizations supported the principle of a levy on greenhouse gas emissions from international maritime transportation.

The MENA region has an opportunity to benefit from these developments. Maersk, a major player in international shipping, is planning an investment in Egypt, worth $3 billion, for the production of green methanol and its derivatives, beginning at 300,000 tons a year in a first phase, set to increase later to 1 million tons per year.

Egypt is positioning itself as a green bunkering hub to attract marine traffic. Last August, the first green methanol-powered container ship transited through the Suez Canal and refueled in East Port Said on its maiden voyage from South Korea to Denmark.

The future of the Europe-MENA hydrogen trade

Despite these opportunities, the road ahead for hydrogen development and new patterns of interdependence between the MENA region and Europe appears bumpy, with many elements of uncertainty, including costs, financing, scalability, and inadequate development of hydrogen value chains.

Nevertheless, a changing dynamic is in motion in the MENA region, with agreements and projects in the process of elaboration and implementation.

The pace of this shift must be sped up. A multi-stakeholder effort is needed, involving both public and private players. Investments will come if there is a steady growth in demand, which in turn, requires incentives to support investors from governments and institutions.

The EU has come up with its own legislation on building its hydrogen industry, although the IRA is widely believed to remain a better model in terms of the simplicity and predictability it offers.

Much remains to be done in terms of demand creation, setting emissions requirements for hard-to-abate industries, and investments in hydrogen-dedicated infrastructure and value chains, among others.

Investments also need clear regulatory frameworks. The certification of green hydrogen products must be made certain, in light of the EU carbon tax coming into force in a few years.

Politics remain a factor on the European side. The task of pursuing the design of this new EU-MENA interdependence will fall to the new European Commission, which will come to office following elections for the European Parliament in June 2024.

None of that must disrupt this emerging partnership. There is far too much at stake for Europe’s security and stability.

Giampaolo Cantini is a nonresident senior fellow at the Atlantic Council Global Energy Center

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EnergySource Mar 14, 2023

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A Ukrainian energy hub will help Europe’s clean transition

Mark Temnycky — Wed, 11 Oct 2023 13:00:00 +0000

This blog is the second in the author’s two-part series on Ukraine’s energy future

As Ukrainians and the international community discuss how to rebuild and strengthen the country after the war, one promising option is to invest in clean energy to help Ukraine become an exporter to Europe. The nation already has the tools, minds, and infrastructure needed to do this, and pursuing this option would strengthen ties between Ukraine and Europe.

Much has already been done in this direction. Beginning in 2019, the Organisation for Economic Co-operation and Development (OECD) created a program to help Ukraine reform and strengthen its energy sector under a two-year plan focused on improving corporate governance within Ukraine’s state-owned energy enterprises, increasing investment in the sector, and strengthening anti-corruption measures. The OECD credits Ukraine with using new finance for wind and solar projects.

The benefits to Ukraine

As Ukraine rebuilds from the devastation brought upon it by Russia’s deliberate targeting of civilian infrastructure, incorporating state-of-the-art energy programs will help the country with its European integration efforts.

Pursuing clean energy will help Ukraine’s economic recovery and create jobs. Moreover, clean power could help Ukraine permanently end its dependence on Russian gas. Finally, it would harmonize Ukrainian’s economy with the European Union’s clean energy strategies, helping Ukraine in its integration with the bloc.

The gains for Europe

Ukrainian decarbonization would contribute to Europe’s overall climate objectives. A recent Atlantic Council report describes the country’s potential to become a European energy hub. While Ukraine diversifies its power mix to strengthen its energy security, the European continent is following a similar path to reduce its dependence on Russian gas. To ensure mutual success, it is vital the two collaborate and push one another toward cleaner energy systems. This includes through robust interconnection of the two partners’ respective energy systems.

In addition to the country’s potential for clean power exports across an interconnected grid, Ukraine has significant reserves of clean energy minerals that can be employed towards Europe’s transition. This would help accelerate Europe’s transition and puts Ukraine in a prime position to contribute to Europe’s fight for energy independence.

A win-win

Since the Revolution of Dignity in 2013, Ukraine has hoped to reap the benefits of partnership with the West. However, the underdeveloped state of the Ukrainian economy and the country’s persistent corruption issues have limited Ukraine’s ability to contribute to the Euro-Atlantic project.

Now, after years of reforms, Ukraine is in a position to become a valued part of the European family. Additional anti-corruption measures are needed to promote greater transparency and can help Ukraine achieve European standards of government. These policies, in turn, will encourage international investors to take a greater interest in Ukraine and further strengthen the Ukrainian energy sector.

Enhancing the renewable energy industry in Ukraine will help the country’s economy grow, as it will create more job opportunities, and it will allow Ukrainians to share their knowledge and expertise with Europe. This, in turn, will help Europe on its path toward its climate targets, with a direct Ukrainian role in these efforts.

The future is bright for Ukraine, and the West should take note. Success in this endeavor would benefit not only Ukraine, but also European and global climate action.

Mark Temnycky is an accredited freelance journalist covering Eastern Europe and a nonresident fellow at the Atlantic Council’s Eurasia Center. He can be found on Twitter @MTemnycky

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The case for investing in Ukraine’s energy future

Mark Temnycky — Tue, 10 Oct 2023 14:55:52 +0000

As Russia’s invasion of Ukraine approaches six hundred days, devastation continues to mount. Throughout the war, Moscow has bombed numerous residential areas, destroying apartment complexes, shopping malls, hospitals, nursing homes, cultural centers, and schools.

As part of this assault on civilians, the Russian military has also attacked Ukraine’s energy infrastructure, leaving many Ukrainians without heat or electricity during winter in what the World Health Organization has referred to as the “largest attack on health care on European soil since the Second World War.”

Experts predict rebuilding Ukraine will cost more than $1 trillion. Some international stakeholders are hesitant to invest in these efforts, put off by uncertainty regarding when the war will end and concerns about corruption, a lingering legacy of Ukraine’s Soviet past.

Despite these concerns, there are numerous reasons why international investors should see Ukraine’s energy reconstruction as a worthwhile opportunity. If done right, a rebuilt Ukraine could become a European energy leader.

Ukraine has the ingredients for a bright and prosperous future. Its population has among the world’s highest levels of literacy and educational attainment. Ukraine’s scientific, engineering, and mathematics professions are highly regarded, and the country‘s tech sector has continued to grow even during the war.

Ukraine’s ability to innovate and adapt will be crucial to reconstruction efforts. Some industry experts predict Ukraine could become one of the world’s most dynamic centers for tech innovation after the war, according to a recent piece by the Financial Times. Ukrainian innovation has been most apparent during the Russian invasion, where Ukrainian technicians successfully operated the energy grid amid repeated Russian bombing campaigns, courtesy of adroit pre-war planning to reduce Russian energy dependence and skillful crisis management during the war.

Ukraine is a rapidly diversifying away from Russian gas, creating an opportunity to remake the country’s energy system and support greater diversification efforts within the European Union (EU). Amid conflict, emergency measures have quickly reduced gas demand and increased domestic production, creating the possibility for increased exports in the future.

Ukraine foresees itself not only as an alternative supplier of natural gas to Europe. The country is actively planning for a green reconstruction of its energy system, allowing Ukraine to end its dependence on Russian gas while also contributing to Europe’s energy transition. The Organisation for Economic Co-operation and Development notes that Ukraine has already undertaken the initial steps in this process, implementing reforms necessary to increase the role of market forces needed to leverage private enterprise for the country’s green transformation.

Should Western investors provide the capital to Ukraine’s innovation ecosystem to propel this transition, they could together create a clean energy hub for Europe and a sandbox for clean energy innovation that can support decarbonization efforts across the continent and beyond.

The idea is not without precedent. After the Second World War, Germany and Japan were left in devastation by their own imperialist policies. Despite the atrocities committed by both countries, the international community chose to invest in and rebuild the two states.

German and Japanese infrastructure was rebuilt and modernized, and reconstruction efforts provided numerous job opportunities and economic growth. It took time, but seventy years later, these efforts paid dividends. Today, these two countries are part of the G7, a group of the world’s largest economies. Germany and Japan are two of the globe’s top ten manufacturing countries, and a recent US News report ranked Japan first and Germany fifth for global technological expertise.

Like Germany and Japan, Ukraine has the education, population, and infrastructure to succeed. There is no reason to believe that a rebuilt Ukraine would not be an economic juggernaut on a similar scale as Germany and Japan.

As Ukraine presses forward, the will and resilience of the Ukrainian people to resist Russia’s invasion suggests they will do whatever it takes to create a better future for their nation. Becoming an energy leader for Europe will assist these ambitions tremendously. Ukraine already has the tools, minds, and infrastructure to make this happen. What it needs is financing and support from international partners.

Mark Temnycky is an accredited freelance journalist covering Eurasian affairs and a nonresident fellow at the Atlantic Council’s Eurasia Center. He can be found on X @MTemnycky

This blog is the first in the author’s two-part series on Ukraine’s energy future

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What’s next in the two-front war against climate change and energy insecurity?

Robert F. Ichord, Jr. — Wed, 04 Oct 2023 14:14:31 +0000

Disruptions to global energy markets from Russia’s war in Ukraine have heightened energy security concerns and stimulated large-scale European gas diversification efforts, including through US liquified natural gas (LNG) supplies. Meanwhile, record high global temperatures and increasingly frequent extreme heat-related events in the United States and Europe have underscored another threat to the energy system, as power grids struggle under severe weather.

Both the United States and the European Union (EU)—which together account for 22 percent of global energy-related carbon emissions—have sought to stay on the path to net-zero emissions by 2050 as their economies feel the strain of both energy inflation and climate impact. This two-front war—against Russia’s disruption of energy supplies on the one hand and climate change on the other—are increasingly intertwined.

Electrification remains a powerful weapon in these battles, one in which the United States and European Union need to work together. To improve overall system reliability and resilience, both partners must decarbonize, meet new consumer and industrial demands, and expand transmission capacity.

The challenges are significant, with electricity-related emissions rising in 2022 and fossil fuels’ share of electricity generation remaining stubbornly high at 60 percent in the United States and 40 percent in the EU. The launch of the Inflation Reduction Act (IRA) in the United States and REPowerEU in the European Union represent historic government initiatives to spur clean electricity development and advance progress toward lofty targets of 100 percent carbon-free electricity by 2035 in the United States and reducing emissions 55 percent below 1990 levels by 2030 in the EU. Now these initiatives must be implemented with the utmost urgency.

Electricity sector developments in 2022

Last year, the United States and European Union continued their recoveries from the pandemic, albeit at slower rates of economic growth than in 2021. US end-use electricity consumption grew by 2.6 percent in 2022 to reach an all-time high of 4.05 trillion kilowatt-hours. In the EU, high electricity prices led to a decline of 3 percent in electricity consumption.

Strong growth in renewables was common to both sides of the Atlantic. Despite lower hydroelectric output, renewables accounted for the largest share of EU electricity generation at 39.4 percent, and solar and wind growth offset emergency increases in coal generation due to gas shortages. EU solar generation grew by 29 percent, with 20 member states achieving record shares.

In the United States, natural gas remained the largest source of utility-generated electricity at 39.8 percent, with an increase of 7 percent in 2022 due to hot weather and lower coal output. However, renewable generation grew faster, increasing by 12.6 percent. The share of renewables (21.5 percent) exceeded coal (19.5 percent) for the first time, courtesy of a doubling of solar capacity.

Despite growing renewable generation, electricity-related emissions increased in both the United States and the EU. US emissions from electricity grew slightly from 2021 but remain almost 40 percent down from their 2007 peak. The electricity sector contributed 31 percent of total US energy-related carbon dioxide emissions. Coal was the largest source of power sector emissions, comprising 55 percent.

While the share of fossil fuel generation declined by 1 percent in the United States due to falling coal use, it increased by 3 percent in the EU due to increased coal consumption, notably in Germany. Higher gas generation, especially in France, Italy, and Spain, also increased power-sector emissions.

The role of natural gas in supporting the electricity system remains contentious as the EU seeks to phase out of Russian gas by 2027, in part through imports of US LNG. For its part, US natural gas generation is expected to increase, but its share in the overall power mix will decline as renewable energy surges.

The essential role of nuclear power

The energy security and climate crises have changed attitudes toward nuclear power, as the essential role this zero-carbon source has to play in meeting future baseload electricity and heating needs becomes increasingly evident. Nuclear power contributed 46.3 percent and 37.7 percent of carbon-free power in the United States and the EU in 2022.

The closure of the Palisades plant in Michigan decreased US nuclear generation slightly in 2022 in both absolute and relative terms. Meanwhile in Europe, technical problems in France and closures in Germany led to falling output in 2022.

Despite last year’s dip, the prospect for a nuclear energy resurgence appears promising. One of two new Vogtle AP-1000 units in Georgia has finally entered operation. New third generation light-water reactors and advanced nuclear reactor projects are underway in both the United States and the EU. The US Congress has approved with bipartisan support billions of dollars in funding for maintaining existing plants and providing investment and production credits for new builds and commercial demonstrations.

Both utilities and industry are showing strong interest in small modular reactors (SMRs), which boast improved passive safety, standardized manufacturing, and operational flexibility. SMRs hold significant potential for producing electricity, high-temperature industrial heat, and clean hydrogen.

Most of these initial SMR projects will not be coming online before 2030 and their cost-competitiveness remains unclear. But just as the scale-up of solar photovoltaics has rapidly reduced costs and revolutionized the electricity industry, the potential for advanced manufacturing of small nuclear reactors to drive down prices, reduce construction times, and expand the scope of both centralized and distributed applications is substantial.

Infrastructure investment requirements

Renewable energy will continue to dominate new capacity additions as the United States and the EU implement ambitious clean energy programs. The impact of these initiatives is already apparent. US solar capacity is expected to grow by 32 gigawatts (GW) in 2023 and 31GW in 2024, overtaking US wind capacity around 2030. In Europe, solar capacity is expected to double by 2026 in line with REPowerEU’s target of 400GW by 2025. Both areas envision large expansion of offshore wind generation, with the US Department of Energy aiming for 20GW by 2030 and European leaders targeting 120GW in the North Sea by 2030.

To support this new renewable capacity, major investments are needed in transmission, distribution, and storage. Moreover, accommodating increased intermittency in the system while integrating electric vehicles, heat pumps, data centers, and microgrids will require measures to improve reliability and resilience.

As much as $90 billion in investment is needed in the United States by 2030 to support transmission. The $2.5 billion Transmission Investment Loan Fund and other measures included in the Bipartisan Infrastructure Law and the IRA will help, but utilities must also ramp up their own investments. Eurelectric, an industry group, suggests up to €425 billion may be needed for distribution alone in the EU by 2030, concluding that 70 percent of renewables are likely to be directly connected to distribution networks.

The financing requirements of the transition in the US and EU electricity sectors are substantial. Yet the costs of severe climate events are increasing daily. Over the past eight years, the United States has experienced ten climate events that have each caused $10 billion or more in damage. Costs from storm damage are estimated at $165 billion in 2022 alone, and over $1.1 trillion over the past decade. These impacts are becoming worse; even with 2023 not yet over, the United States through September 11 has experienced 23 extreme weather events costing over $1 billion each.

Looking ahead

Last year marked an important milestone in the energy transition in the United States and European Union with the passage of landmark energy and climate legislation. The focus now should be to implement these policies effectively and equitably to preserve momentum. Both the United States and the European Union face major political and economic challenges in achieving these goals.

The war in Ukraine and its energy implications will test Western resolve and require a continued focus on helping allies diversify energy supplies. The election season and confrontations over budgets and policy directions will preoccupy US decisionmakers and likely affect energy programs and project support.

Nevertheless, industry and financial institutions in both regions are embracing the clean energy transition. But workforce constraints are proving to be a considerable impediment to implementation, and an internal industrial policy focus on US and European markets may limit pursuing global clean energy opportunities.

Governments and the private sector in the United States and Europe must realize the importance of global sustainable development and climate mitigation efforts, especially in coal-dependent Asia. As US special presidential envoy for climate John Kerry and executive director of the International Energy Agency Fatih Birol recently warned in a Washington Post editorial, efforts to triple renewable electricity generation must be accompanied by a shared, intense commitment to stop the growth of unabated coal use.

Finally, the extreme global heat and flooding experienced in 2022 and 2023 demand greater global investment in clean energy alternatives. The upcoming COP28 climate summit in Dubai presents another opportunity to galvanize and mobilize global action and resources. The United States and Europe must seize this opportunity to persist in their twin struggles against climate change and the weaponization of energy supply.

Dr. Robert F. Ichord, Jr. is a nonresident senior fellow at the Atlantic Council Global Energy Center

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The United States’ edge in the clean energy economy starts with outcompeting China on hydrogen

Landon Derentz — Thu, 21 Sep 2023 16:42:42 +0000

Hydrogen is a strategic opportunity for US leadership of the global clean energy economy. With the right incentives in place, hydrogen can position the United States as a net-zero industrial powerhouse, sustaining momentum the US economy has experienced from abundant natural gas production throughout the shale revolution.

But Washington has yet to capture the fullness of this opportunity. A Congressionally mandated August 16 deadline for the US Treasury to issue guidance on clean hydrogen tax credits came and went without any action from the federal agency. These credits created under the Inflation Reduction Act (IRA) for Treasury-defined “clean hydrogen” are critical to industry’s success.

The delay is a setback for the United States’ growing green industrial competitiveness realized through the IRA, and risks the country’s potential to become a global leader of a zero-emission hydrogen industry. The Biden administration’s momentum on bolstering the United States’ significance in the global green economy must start with an inclusive approach to hydrogen tax credits.

Policymakers have massive incentives to take action. The US National Clean Hydrogen Strategy and Roadmap suggests that clean hydrogen—produced with zero net emissions from any source—could add 100,000 jobs by 2030 and reduce US emissions by about 10 percent by 2050 compared to 2005 levels.

The strategic opportunity presented by hydrogen is apparent, and US adversaries have taken note. China is keen to maintain control of global clean energy supply chains; it is now the world’s largest producer and consumer of hydrogen, and it aims to cement that status through a Hydrogen Industry Development Plan which aims for green hydrogen production of over 100,000 tons by 2025.

The United States is playing catch-up. However, with $9.5 billion in clean hydrogen tax credits available through the IRA and Bipartisan Infrastructure Law, an opportunity exists for the United States to bolster its relevance to the emerging global green economy.

Hydrogen, the most abundant element on earth, is vital to achieving an emissions-free energy system. The International Energy Agency notes that carbon-free hydrogen made from renewable or nuclear electricity or from fossil fuels with carbon capture can help decarbonize the most difficult-to-abate sectors, including the chemicals, metals, and long-distance transport industries.

Clean hydrogen, however, is still not available at commercial scale. Electrolysis that uses clean electricity to split water into hydrogen and oxygen is not yet financially competitive against hydrocarbon-produced hydrogen without subsidies, underscoring why support for this nascent sector is needed to enable the United States to become a global leader in the technology. The IRA’s section 45V hydrogen production tax credit, which awards up to $3 per kilogram of low-emission hydrogen, is an important step to scale up a US clean hydrogen industrial base.

Undoubtedly, requirements that encourage companies to verify hydrogen production and delivery of supply from net-zero emissions sources are necessary in the long term for achieving climate goals. Yet, overly ambitious definitions for what constitutes ”clean hydrogen” could stifle the industry’s growth and negatively impact the strategic interests of the United States.

It is therefore imperative that Congress and the administration support the growth of the hydrogen industry first—and move that industry toward a net-zero pathway second. That is precisely what China is doing, and the United States cannot risk falling further behind, much as it has in other emerging clean industries such as solar cells, batteries, and critical minerals.

China is experienced in asserting control over emerging cleantech industries. China’s share in every stage of the solar energy supply chain exceeds 80 percent. The county’s command of over 85 percent of rare earth element processing places it on the cusp of capturing the advanced materials and battery market at the heart of electric vehicle production.

With hydrogen, Beijing might once again corner the market for another clean energy technology. If principles outpace practicality in the US decision-making process, there is a real risk of repeating these trends.

The market for electrolyzers—the devices that produce hydrogen from water—is primed to experience rapid growth. BloombergNEF predicts world electrolyzer production must increase by a factor of 91 to meet clean hydrogen demand in 2030. Currently, over 40 percent of all electrolyzers produced are made in China. Thanks largely to massive industrial subsidies, Chinese electrolyzers are 72 percent cheaper than those manufactured in the West.

Through the IRA and corresponding legislation, the US government has signaled its commitment to reestablish the country’s industrial competitiveness. As the administration enacts these laws, it must balance environmental objectives with practical economic concerns. Washington must also review the national security implications of dependency on a single country for an increasingly critical industrial input. Doing so demonstrates that a strong hydrogen industry is key to a secure clean energy future.

To maintain the influence the United States has experienced in the global energy system in recent decades, the answer is clear. Washington cannot cede leadership in the hydrogen economy to Beijing.

Landon Derentz is the senior director and Richard Morningstar chair for global energy security of the Atlantic Council Global Energy Center

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Moldova has the chance to break from its Gazprom-dominated past

Jamal Nusseibeh and Branko Terzic — Mon, 18 Sep 2023 13:00:00 +0000

Moldovan President Maia Sandu’s September 3 announcement that an independent audit proved her state did not owe Russia’s Gazprom $800 million was the latest move in the country’s long-running battle for energy independence. Now, Moldova has the opportunity to make good use of the lessons of its past by strengthening regulatory independence, increasing competition, and introducing transparent pricing.

In the late-1990s, Moldova undertook an ambitious plan to modernize its energy infrastructure and transition away from coal and wood. To achieve this, its aging gas system had to be upgraded and extended to previously unconnected parts of the country.

The National Gasification Plan of 2000 and other subsequent legislation facilitated this process and guaranteed returns for private investment through fair and cost-reflective tariffs. The independent National Agency for Energy Regulation (ANRE) was established to follow best practices from US and European counterparts, including a transparent and reasonable regulatory structure to enable cost-reflective tariffs that would provide incentives for private investment.

However, like many regulators across the region, ANRE was never able to achieve the required level of independence or establish due process. As a result, the setting of gas prices remained political tools to decide whether governments stood or fell.

In Moldova, the situation was more complex than regulatory failure. In 1998, through a financial maneuver based on a claim of outstanding debt, Gazprom was able to take a controlling stake in Moldovagaz, the national gas operator of Moldova. By doing so, Gazprom completely captured the Moldovan energy sector.

Through its dubious acquisition of Moldovagaz, Gazprom acquired direct majority control of the entire chain of gas supply, transportation, and distribution in Moldova, thereby determining prices in the country. With that came leverage over Moldovan governments and consumers alike.

By taking over Moldovagaz, Gazprom also took control of virtually the only source of wealth in Europe’s poorest country, giving it significant political and social clout. This meant that—although successive governments from the late-1990s took various measures to liberalize energy markets and move closer to the European Union (EU)—reforms always faced insurmountable obstacles. Cost-reflective tariffs remained elusive, imposing a high cost on the consumer. In the intervening years, Moldova would also be taken to arbitration by two European energy firms over this issue.

In 2012, new legislation required the unbundling of Moldovagaz into separate supply, transmission, and distribution entities to comply with EU law. In 2016, another law reaffirmed this requirement as part of Moldova’s association agreement with the European Union. However, a derogation was applied to Moldova, and the unbundling was put on hold.

Following Russia’s full-scale invasion of Ukraine in 2022, Moldova, led by former World Bank economist Maia Sandu, found itself in a unique position. For the first time, there was international interest in, and support for, ending Russian domination of Moldova’s energy sector. This came mainly in the form of financial assistance aimed at ensuring Moldovan energy security—meaning independence from Gazprom—on the basis of implementing energy market reforms.

Despite paying lip service to the requirements of the law and its international obligations, Moldova has dawdled on unbundling. After much delay, a recent announcement on September 5 indicated that the transmission function of Moldovagaz would now be operated by the Romania’s Transgaz. This is a small step in the right direction but a far cry from what an efficient market would require. It does not separate the ownership of the transmission network from Gazprom’s subsidiary nor does it address independent distribution or competition in gas supply.

Moldovagaz, which has twelve regional distribution subsidiaries, somehow maintained a single nominal distribution tariff for the entire bundled entity since 2018. Over the past year, Moldovagaz applied for separate distribution tariffs for each of its twelve subsidiaries, which were approved by ANRE last July, averaging more than double the previous—likely already inflated—tariffs.

Despite this, Moldovagaz claimed to be accumulating debt to Gazprom once again, to the tune of approximately $800 million. This debt claim was recently taken apart by a Moldovan government audit, and a forensic review conducted by a Norwegian law firm and a London-based auditor.

The battle for the control of Moldova’s energy sector is raging. Moldova has achieved substantial success in switching to alternative, non-Russian suppliers over the past eighteen months. Nevertheless, Moldovagaz—and thereby Gazprom—has maintained a powerful influence.

In fact, new amendments to the 2016 energy law recently proposed by the Sandu government have raised alarm in Europe and the United States, as they seem to aim more at closing the energy market—protecting Moldovagaz’s dominance—than at liberalizing it. The law aims to enshrine the government’s emergency decree from last May which imposes an exit fee on any customer wishing to change supplier from Moldovagaz. This decree effectively killed the nascent competition in supply, leaving the playing field free for Moldovagaz and its subsidiary, Transautogaz, to undercut rival suppliers.

Despite Moldova’s recent unprecedented political and financial support from the West, the government and ANRE have been unable to break the excessive influence of Moldovagaz, threatening Moldova’s ability to garner international sympathy and assistance in the future.

While the audit to undermine Gazprom’s debt claim is a positive step, Moldova also needs to comply with its domestic legislation and international obligations. It must start by finally implementing the unbundling of Moldovagaz and strengthening ANRE as an independent and professional regulator applying cost-reflective tariffs fairly and transparently to all operators.

These steps are essential for Moldova to achieve energy security and open access to cheaper energy for Moldovan consumers. Regulatory reform is absolutely crucial for the next phase of Moldova’s development, as international financial assistance begins to run dry, and Moldova increasingly turns to private foreign investment to sustain its growth.

Jamal Nusseibeh is CEO of Ramla Capital, a US and Swiss-based firm, and is an investor in Rotalin Gas, a competitor to Moldovagaz currently in investment arbitration with Moldova. He has a M.A. from Sciences Po in Paris, is a barrister at law in the United Kingdom, and has a LL.M. and PhD (JSD) from Columbia University in New York.

Branko Terzic is a management consultant and a former commissioner on the U.S. Federal Energy Regulatory Commission and the Wisconsin Public Service Commission. He is also a former managing partner for energy and infrastructure of Deloitte Central Europe and former chief executive officer of Yankee Gas Company in Connecticut. He holds a B.S. and honorary Doctor of Sciences in Engineering (Sc.D.) from the University of Wisconsin-Milwaukee.

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Planning around strategic supply chains will require more than just ‘listing’ of critical minerals

Reed Blakemore — Fri, 15 Sep 2023 13:37:36 +0000

On Wednesday, September 13, 2023, Reed Blakemore, director of research and programs at the Atlantic Council’s Global Energy Center, testified to the US House Committee on Natural Resources. Below are his prepared remarks for the committee on how the US government should approach increasing global dependence on critical minerals and materials.

Chairman Stauber, Ranking Member Ocasio Cortez, and distinguished members of the Subcommittee, thank you for the invitation to appear before you today.

My name is Reed Blakemore, and I am the director of research and programs at the Atlantic Council’s Global Energy Center, a non-partisan, non-profit foreign policy organization headquartered in Washington, DC. My remarks and written testimony represent my observations, and do not necessarily represent the views of my colleagues or institution.

To summarize my more detailed testimony, I would like to provide a broad overview on our understanding of what makes a mineral critical, and how we should approach a global economy increasingly dependent on an ever-diverse set of minerals and materials.

Why certain minerals and materials are ‘critical’

As many of my colleagues today will reiterate, certain minerals, many of which are supply-constrained, are fundamental to strategically important industries of the United States, such as defense, energy, pharmaceuticals and semiconductors.

Access to these minerals is essential to limiting inflation, global economic leadership, and our national security. The security of supply for such minerals has been strategically relevant to the United States for some time and will continue to be so.

Nonetheless, the rapidly expanding mineral requirements of the energy sector are reshaping how much attention is needed to secure these supply chains.

As clean energy deployment accelerates, our energy technologies will become increasingly dependent on copper, nickel, manganese, graphite, lithium, cobalt, and others. The United States’ total combined clean energy-related demand for lithium, nickel, and cobalt may be twenty-three times higher in 2035 than it was in 2021.

These demands are not only reframing how we think about energy security, but new energy technologies open opportunities for exports and resource security is critical to enabling leadership in emerging sectors such as electric vehicles and renewable power.

The United States is not alone in observing this shift. Allies, partners, peers, and rivals are moving quickly to seize the strategic value of influence in mineral supply chains, exacerbating the geopolitical risk and supply concentration which have long been features of minerals markets.

For instance:

Through tariffs or export bans, many mineral-rich countries are enacting policies to push investment towards ‘value-added’ economic activities so they can capture the windfall opportunities beyond simply extracting raw materials for export.

By 2035, it is forecast that as much as 90 percent of all nickel products will be processed by countries that do not hold a free trade agreement with the United States.

Lastly, China controls 40-to-90 percent of key nodes in the supply chain for rare earth elements, lithium, cobalt, and a host of other minerals critical to the global economy.

The risks of inaction abound.

The characteristics of ‘listmaking’ and increasing importance of relative criticality

This is why a priority of the US government across consecutive administrations has been to identify specific minerals that it deems “critical” and focus policy attention on improving access to or the security of those supply chains.

Deciding which minerals are critical is based on dependency (demand), and the ability to access them reliably (supply). However, with fifty minerals now on at least one of the three formal ‘critical minerals’ lists being produced across the USG, policymakers would do well to think through the relative criticality of minerals that are designated to these lists to mature our strategic planning.

There are a number of mineral-specific factors that apply to this notion, though several stand out as useful first steps for consideration.

On the demand side, these include: the growth rate of demand over time, demand elasticity and substitutability, and differing technology deployment scenarios.

On the supply side, I applaud the critical efforts of the USGS to continue to improve our knowledge of the resource base. Nonetheless, the supply picture is increasingly shaped by additional features, including: Difficult project economics and ore quality declines, lengthy project lifecycles and permitting challenges, and new sourcing methods, like recycling, or waste conversion.

Contextualizing these features is an appreciation for the vulnerability of supply to disruption, namely trade exposure and supply chain concentration.

Provided that the United States cannot supply all its mineral needs domestically, mitigating these supply risks requires work to build trusted supply chain partnerships that limit the possibility of physical interruptions, market imbalances, and government interventions.

This balance defines the space for how we should resolve a particular criticality, which is equally if not more important than ‘listing’ a particular mineral in the first place.

Conclusion

To conclude, there are certain minerals that are structurally important to our national and economic security, and our needs for them are diverse, dynamic, and growing.

Identifying these minerals signifies a need for action and forms the basis for interagency coordination.

But while lists are important, we shouldn’t rely on lists alone. We need to ensure that our minerals policy does not become overly clerkish, prescribing problems rather than solving them.

Capturing the supply/demand dynamism between each critical mineral will illuminate the pathways to build a cohesive minerals strategy.

To be clear, many of the foremost issues in our minerals policy stem from a need for broader reform, be it through permitting or deeper international engagement.

Nonetheless, a properly curated list helps inform decisions on those fronts.

I therefore commend this committee for attention to this issue and look forward to continuing to support its efforts in this area.

Thank you.

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What to do about Russia’s energy trojan horse

Olga Khakova, Charles Lichfield — Thu, 14 Sep 2023 12:00:00 +0000

A year after Russia’s biggest pipeline network to Europe was sabotaged, Europe is making great strides toward its target to terminate Russian gas imports by 2027. Moscow’s energy war has had the unintended consequence of proving to Europe that it can manage without Russian gas, albeit at the considerable cost of having to buy liquefied natural gas (LNG) at high market prices.

The future of Gazprom’s piped deliveries to Europe looks bleak, as the last remaining flows pass through Ukraine and Turkey. However, offshore deliveries tell a different story: Europe has no binding timeline for phasing out Russia’s growing LNG exports. Russia uses its energy revenues—including from LNG—to sponsor the war. Reducing this income will be critical to bringing Ukraine closer to victory and for securing Europe’s energy system.

Meager in comparison to pre-war oil and pipeline gas revenues, LNG is still important for Moscow’s budget and fuels bloody atrocities in Ukraine. Russian global LNG exports stood at $21 billion in 2022 with European consumers purchasing roughly half of these volumes. Left with limited options to replace ground transit, Moscow aims to capture 20 percent of the global LNG market by 2035, more than double its current share. But this can only be achieved with technologies Russia does not possess. Sanctions prevent Western firms from sharing these technologies, but Chinese players could—and seemingly are—stepping in.

While Russia’s own decisions have greatly reduced pipeline flows, current European Union (EU) sanctions have done relatively little to limit the purchase of Russian natural gas, especially in comparison to oil. Attempting to address sanctions’ relative lack of effectiveness on gas volumes, European ministers and commissioners have individually called for a ban on Russian LNG in order to reduce Moscow’s war-sustaining exports. In March 2023, European Energy Commissioner Kadri Simson encouraged firms to stop purchasing Russian LNG. Shortly after, Spanish Energy Minister Teresa Ribera appealed for there to be no new contracts with Russian LNG suppliers.

Europe is well-positioned to terminate consumption of Russian LNG quickly, although prevailing market volatility and nervousness ahead of winter—unlikely to be as mild as the last—could make a ban politically unrealistic before the end of 2023. However, a path toward codified curtailment of Russian LNG purchases is feasible starting in early 2024. Similar to the oil price cap roll-out, maintaining a unified approach is vital for removing incentives for other countries to buy Russian LNG or provide Russian firms with needed technology.

When the EU does ban Russian LNG imports, it should ensure that its current ban on exporting liquefaction equipment is broadened to any kind of LNG technology sharing. The bloc must also limit the export of equipment via third countries by invoking the anti-circumvention tool, a key innovation of the eleventh sanctions package published last June.

The EU could sanction Chinese entities that help Russia build its LNG capacity. So far, however, the bloc has only blacklisted Chinese entities involved in assisting Russia’s war effort. Extending the practice to a small number of entities investing in Russian LNG capacity would signal that, by assisting strategic sectors in the Russian economy, Chinese firms would compromise their ability to work with European businesses.

These expanded sanctions would curtail Russian LNG exports to Europe and impact the country’s large-scale natural gas liquefaction capabilities. To keep selling its gas to European markets, Moscow would be forced to send more supplies through Ukraine’s transmission system, which charges transit fees. While this is not a desired long-term outcome for the region, as long as Europe is buying any natural gas from Russia in the immediate future, Ukraine should capitalize on those sales until full decoupling is achieved.

Sanctioning Russian LNG would undermine the country’s goal to grow its exports, diminishing its ability to weaponize another energy supply and bankroll the assault on Ukraine. A tiered approach to hamstringing Russia’s LNG industry would achieve this goal while maintaining market stability.

Olga Khakova is the deputy director for European energy security at the Atlantic Council Global Energy Center

Charles Lichfield is the deputy director and C. Boyden Gray senior fellow of the Atlantic Council GeoEconomics Center

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The IRA’s best kept climate secret: Moving oil and gas toward operational net zero

William Tobin — Mon, 11 Sep 2023 14:04:34 +0000

The United States’ flagship climate law received—perhaps counterintuitively—a publicly warm reception from the oil and gas industry. Executives lauded the lavish incentives the Inflation Reduction Act (IRA) provides for carbon capture, utilization, and storage (CCUS), zero-emission hydrogen, and even minerals production, activities which some oil and gas majors believe fit their core competencies.

Even so, clean energy accounted for less than 5 percent of the industry’s upstream investments in 2022. Decarbonized energy is dwarfed by dividend payments, which represented 40 percent of total spending in the sector that same year.

Other climate mitigation measures remain necessary to reduce operational emissions. The IRA contains a suite of provisions to help oil and gas move toward scope one and two climate neutrality, potentially comprising some of the law’s most impactful climate measures.

The climate case for scope 1 and 2 net-zero

Reducing scope 1 and 2 emissions—those from production and transport of oil and gas products—is increasingly vital for managing the energy transition. Such emissions contribute more to climate change than all cars worldwide. In certain cases, they are among the lowest-cost and most impactful to abate, and can potentially even reverse future warming.

While not a substitute for investing in clean energy and electrification, decreasing operational emissions from oil and gas provides a tangible climate impact. Globally, eliminating waste emissions can abate roughly 5 gigatons of CO2-equivalent—equal to 60 percent of the world’s transportation emissions.

The United States accounts for 10 percent of emissions from oil and gas operations. Consequently, IRA programs to cut such emissions are a valuable climate tool, alongside the bill’s other provisions to decarbonize and electrify the US economy.

Methane abatement

Some of the easiest emissions to address economy-wide involve oil and gas operations. Chief among these are fugitive methane emissions—leaks from faulty equipment—as well as intentionally vented or incompletely combusted releases of the potent greenhouse gas.

The oil and gas industry is responsible for 20 percent of human-caused methane emissions. Methane produces a warming factor 80 times that of carbon dioxide over a 20-year period. Given its short atmospheric lifespan, reducing methane emissions can actually reverse warming. Coordinated action across the fossil energy, waste, and agriculture sectors could avoid nearly 0.3 degrees Celsius of global temperature increase, a critical buffer to help limit climate change to 1.5 degrees.

The IRA provides $1 billion in financial and technical assistance for reducing methane emissions and establishing a waste emissions charge, the nation’s first tax on greenhouse gas emissions. The charge starts at $900 per metric ton in 2024 and increases to $1,500 from 2026.

The carrot and stick approach to abating methane is merited. The technologies, expertise, and funding to virtually eliminate emissions already exist in the United States. If the country is to remain on track to reach net-zero by 2050, methane emissions from oil and gas must fall by 75 percent. Of those emissions, 80 percent come from upstream production.

Nearly all abatement measures cost less than $20 per ton of carbon dioxide-equivalent to deploy. That investment can yield significant returns, since captured methane is marketable as natural gas.

Numerous exemptions in the IRA limit the scope of the methane fee. However, it provides impetus for operators to dedicate capital expenditure to abatement. This includes the elimination of routine flaring and venting, leak detection and repair, replacement of pneumatic pressure management devices with leakproof ‘no-bleed’ alternatives, and building infrastructure to capture methane and distribute it as natural gas.

Carbon management

IRA investments in engineered carbon removal also position the industry to lower its emissions. But bringing CCUS and direct air capture (DAC) technologies to commercial application is not quite the low-hanging fruit that methane abatement is. Investment in the technology has yielded limited results, with several megaprojects suspended or canceled despite notable successes including the Sleipner Project and Century Plant. In any case, bringing the technology to maturity promises to be resource intensive.

Nevertheless, nearly every climate-neutral framework relies on CCUS and DAC technologies scaling dramatically. The IEA’s net-zero scenario requires the technology to grow to 5 gigatons of CO2 sequestered yearly by 2050, a 125-fold increase in capacity.

The IRA increases the pre-existing credits for CCUS and DAC under Section 45Q of the Internal Revenue Code. The law raises incentives for carbon sequestration from $50 to $85 per ton, for utilization of carbon sourced from DAC from $50 to $130 per ton, and for direct air capture with permanent storage from $50 to $180 per ton. These credits come as the United States is deploying two DAC hubs in Texas and Louisiana.

To date, oil and gas companies have been at the forefront of deploying CCUS technologies, and contribute 90 percent of operational capture and storage capacity. Despite this, oil and gas sector CCUS projects have historically underperformed stated sequestration plans—often by factors as much as 50 percent.

Nevertheless, the sector is currently the primary user of CCUS and is driving the technology’s progress. Fifteen large CCUS gas processing projects currently operate, and additional areas for deployment exist including refining and liquefaction. Implementing these measures should be marketed by officials as a smart business decision. For climate-conscious markets such as Europe, lowering the carbon intensity of exports increases competitiveness. More broadly, this will aid in driving down costs and developing the infrastructure and expertise needed for broad deployment of carbon management technologies.

Low-carbon hydrogen and oilfield electrification

Lastly, the IRA provides investment and production tax credits for dedicated renewable power facilities to electrify upstream equipment like pumps, rigs, and compressors, further reducing operational emissions.

Lowering emissions in refining, which conventionally uses fossil-derived hydrogen as a feedstock, is incentivized through the 45V clean hydrogen production tax credit—which awards up to $3 per kilogram of low-emission hydrogen produced—alongside the 45Q tax credit which supports low-emission hydrogen produced from natural gas with CCUS.

The road to COP28

COP28 in the United Arab Emirates will heavily influence the climate trajectory of the oil and gas industry. The conference will test the sector’s credibility in adjusting to the energy transition, even as energy security concerns seem to throw it a lifeline.

The IRA could help the US oil and gas industry make the case that it is adjusting to a world of rapid clean energy development, electrification, and heightened scrutiny of the fossil fuel sector’s emissions. However, that depends on the industry’s ability to capitalize on IRA incentives for cleaning up operations.

While not a full-fledged climate solution, oil and gas decarbonization is crucial to achieve rapid emissions reductions. Eliminating waste and greening operations can allow the climate mitigation effects of the IRA’s clean energy and electrification program to come into effect sooner.

William Tobin is an assistant director at the Atlantic Council Global Energy Center.

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A Three Seas Chamber of Commerce could enhance energy diversification across Central and Eastern Europe

Olga Khakova, Paddy Ryan, and Bailee Mathews — Thu, 31 Aug 2023 13:31:23 +0000

The Three Seas Initiative (3SI) Summit in Bucharest next week takes place at a pivotal moment for Central and Eastern Europe. The nations that comprise the initiative–EU member states between the Baltic, Adriatic, and Black Seas–stand at the frontlines of Russia’s energy war against Europe. The war highlights the urgency of decarbonizing and developing new 3SI energy interconnections to diversify the region away from Russian fossil fuels. But it also exposed a state of energy underinvestment in Central and Eastern Europe that hinders diversification.

In Bucharest, leaders will take stock of the region’s progress and chart the next steps towards the region’s energy diversification. Doing so requires strong collaboration between regional and partner governments, as well as with the private sector. To catalyze investment to diversify the region from Russian energy, the summit should establish a Three Seas Chamber of Commerce to congregate private sector stakeholders, maintain momentum between summit meetings, and ensure robust public-private cooperation toward regional energy security.

Energy underinvestment in Central and Eastern Europe predates the war, but the crisis has exposes the necessity around strong collaboration between regional public and private partners to address these challenges. The Three Seas Initiative is an increasingly valuable forum to coordinate regional energy and climate investment efforts. The 3SI enables Central and Eastern Europe to speak with a unified voice, highlight important projects of common interest, and synergize energy, digital, and transportation policies to create a resilient, efficient, and low-carbon economy.

Yet, without continuity between annual 3SI events, the initiative’s potential has been stifled. Leaders at past summits considered remedies to sustain momentum, including the creation of a secretariat and the formation of designated issue-oriented working groups. Follow through, however, has limited.

While these intergovernmental bodies could prove invaluable for turning summit pledges into action, the establishment of a Three Seas Chamber of Commerce could be instrumental in marshaling private capital towards 3SI objectives.

A Three Seas Chamber of Commerce would offer multiple tools for galvanizing economic diversification. First, its ability to convene private sector stakeholders on a regional–rather than national–basis would create a powerful information clearing house for cross-border projects.

Perhaps more importantly, the chamber would act as a conduit to connect regional projects with outside capital. The organization could intercede with counterpart businesses in Western Europe, North America, and elsewhere to help companies navigate the varying policies and incentive structures across different countries in the region.

In addition, the chamber could act as a private-sector liaison to the The Three Seas Initiative Investment Fund–a financial institution established to invest in priority projects in the region. The chamber can articulate how private sector interests can invest in the fund and propose potential projects for it to consider.

Finally, the chamber could coalesce industry insights to identify supply chain bottlenecks obstructing diversification and work with regional and transatlantic institutions to address them. For example, to close workforce gaps in the clean energy economy, the chamber could support skills development programs needed to advance the 3SI region’s green and digital transformation.

While the chamber would ultimately become a private institution, the public sector can take the first step to establish this important new tool for ensuring regional energy security. Grants from the European Union and 3SI member states would provide the initial funding for the chamber. After this, the organization would transition toward a membership-based funding model, relying on dues from chamber members and other established chambers in the regions.

As the summit in Bucharest commences next week, leaders must consider how to sustain the progress being made on the region’s energy security and decarbonization. The establishment of a Three Seas Chamber of Commerce is one of the most effective ways to unleash the region’s full energy potential.

Olga Khakova is the deputy director for European energy security at the Atlantic Council Global Energy Center

Paddy Ryan is the assistant director for European energy security at the Atlantic Council Global Energy Center and the editor of EnergySource

Bailee Mathews is a fall 2023 young global professional at the Atlantic Council Global Energy Center

EnergySource

Meet the authors

Staff

Olga Khakova

Geopolitics & Energy Security Europe & Eurasia

Former staff

Paddy Ryan

Energy & Environment Energy Transitions

EnergySource Aug 25, 2022

European energy sovereignty is tied to Ukraine’s independence

By Olga Khakova

Energy & Environment Energy Markets & Governance

EnergySource Apr 29, 2022

Keeping Europe united: A roadmap for avoiding Russia’s trap

By Olga Khakova

Russia’s shutoff of its gas exports to Poland and Bulgaria presents a major test of European unity. But the EU has several options for defending its energy security and lessening the impact of the Russian energy threat.

Eastern Europe Energy & Environment

EnergySource Jun 30, 2022

The war in Ukraine and gas in the Western Balkans

By Robert F. Ichord, Jr.

Russia has made inroads in the Western Balkans with its promises of plentiful gas supply. The EU and NATO must grasp the region’s strategic value and work to promote efforts to diversify gas imports from alternative suppliers and build an expansive network of gas infrastructure.

Energy & Environment Europe & Eurasia

Learn more about the Global Energy Center

Director, Research and Programs

The post A Three Seas Chamber of Commerce could enhance energy diversification across Central and Eastern Europe appeared first on Atlantic Council.

One year after the IRA, the hard work to build resilient mineral supply chains is only beginning

Reed Blakemore, Paddy Ryan — Wed, 16 Aug 2023 13:00:00 +0000

The largest climate investment in US history is transforming clean energy value chains. But one year later, efforts to build capacity and resilience have proven longer and more complex than previously imagined.

The Inflation Reduction Act (IRA) endeavors to make the United States a clean technology powerhouse. To do so, it seeks to strengthen critical mineral supply chains–with an eye towards defusing the geopolitical risks posed by Chinese command over the midstream in particular–through incentives to onshore processing and manufacture electric vehicles (EVs) and their batteries in North America with minerals from US free trade partners.

The IRA’s critical mineral provisions are equally reflective of the need to de-concentrate clean energy supply chains as they are of broader skepticism of China within Washington. The IRA incentivizes partnerships with trusted countries–defined as those with a US free trade agreement (FTA)–whose minerals count towards the escalating domestic battery content requirement for EVs to qualify for one-half of the $7500 consumer tax credit.

Despite initial unease from partners left out in the cold by these provisions, the administration has found a solution to these concerns through the semantic flimsiness of what constitutes an FTA. A US-Japan minerals-only agreement was concluded last March, and negotiations continue between Washington and Brussels for a similar agreement to provide access to IRA incentives.

This “diet FTA” strategy, however, is not yet achieving the results needed to improve the resilience of mineral supply chains.

It was relatively easier work to conclude agreements with like-minded partners equally interested in de-risking mineral supply chains away from China. The more difficult task of engaging less like-minded but more mineral-rich nations is only beginning.

The Biden administration’s reluctance to promote new domestic mining activity while pursuing value-add industries in the mid- and downstream leaves heavy diplomatic lifting for the administration’s reshoring goals with upstream partners.

Profound increases in demand for essential clean technology minerals offer a generational economic opportunity for countries in the upstream. Resource-rich nations are eager to ensure the transition to a more minerals-intensive world does not simply entrench their extractive periphery status. Instead, they desire to grow the value-add potential of processing and manufacturing at home.

Indonesia’s late-2020 ban on raw nickel exports provides a model. The embargo compelled foreign firms to invest in processing to Indonesia, and is responsible for Indonesia’s burgeoning battery manufacturing industry.

Other mining nations are following suit. Within the last nine months, Zimbabwe and Namibia have both outlawed exports of raw lithium and other critical minerals.

Even among US FTA partners, disquiet is apparent. Mexico is ramping up efforts begun in April 2022 to nationalize lithium, while Chile’s new president announced moves to strengthen state involvement in the lithium sector last April.

A new paradigm is taking shape. Despite diplomatic wins with allies in Tokyo and Brussels–likewise destined be net-importers of minerals–the bulk of mineral production is found in developing world nations ambivalent about being enlisted in a minerals alliance that forces them to choose between China or the United States.

It is difficult to blame them–a Western-led response to the Belt and Road Initiative’s developing world investment strategy has yet to materialize.

In a supply-constrained clean energy value chain, mineral-producing nations are unlikely to jump into a US-led alternative purely based on concerns related to China. Ultimately, the success of the United States developing a ‘de-risked’ supply chain will hinge on the effective engagement of currently reticent partners in Jakarta, Buenos Aires, and other developing world capitals.

To achieve the legislation’s de-risking goals, an approach that engages mineral-producing countries as equals is needed. Doing so may require concessions from the United States to ensure that upstream nations can grow their domestic manufacturing, too.

To be fair, the IRA is just one piece of the Biden administration’s strategy to improve the capacity and resiliency of mineral supply chains. The Minerals Security Partnership (MSP), for example, leverages the United States’ political heft to engage partners to build sustainable and well governed supply chains for the energy transition.

As useful a starting point as the MSP and other multilateral initiatives are, supply chains follow the money. The IRA has proven a consequential tool in channeling US demand-side leverage to reshape mineral supply chains through robust tax incentives. In this, the IRA provides an interesting parallel—albeit demand-focused—response to Beijing’s vigorous foreign investment strategy. But more is needed, and new partnerships to de-risk the mineral supply chain will go nowhere without tangible economic benefits behind them.

To viably de-risk clean energy supply chains as the IRA intended to one year ago, the United States must form critical mineral partnerships with equity at their core. That process may be more challenging than even the incentives of the IRA alone can overcome.

Reed Blakemore is the director for research and programs at the Atlantic Council Global Energy Center

Paddy Ryan is an assistant director and the editor of EnergySource at the Atlantic Council Global Energy Center

Global Energy Center experts respond to the Inflation Reduction Act

The IRA of 2022 marks the biggest climate investment in US history, and it will likely send reverberations around the world. Our experts offer their thoughts on its provisions and its consequences.

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Reed Blakemore

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The Inflation Reduction Act places a big bet on alternative mineral supply chains

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A year after the IRA, industrial policy has gone global. Now what?

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In an ecosystem of growth for batteries, a diversity of options is key

By William Tobin

In the current battery market, much of the demand—and much of the supply chain stress—falls on lithium, whose electrochemical properties make it ideal for energy storage. But other battery technologies could play their own roles, particularly in grid-scale storage. An all-of-the-above approach would allow them to contribute significantly to the energy transition.

Energy & Environment Energy Transitions

Learn more about the Global Energy Center

The post One year after the IRA, the hard work to build resilient mineral supply chains is only beginning appeared first on Atlantic Council.

Post-IRA, offshore wind has become a partisan lightning rod. Here’s how to fix that.

Joseph Webster — Tue, 15 Aug 2023 16:30:00 +0000

US offshore wind is becoming an increasingly fraught political issue, demonstrated by recent party-line opposition to offshore wind projects in New Jersey and Maryland.

One year after the Inflation Reduction Act (IRA), political polarization threatens US climate targets and clean energy jobs, and offshore wind has become a major battleground.

Reducing political polarization over offshore wind is crucial for deploying this key energy source. A strategy linking offshore wind to complementary industries, such as steelmaking and the US military and civilian naval fleets, may help de-politicize the technology. The most important way for the offshore wind industry to ensure bipartisan buy-in, however, is to reduce consumer costs.

The IRA is not as polarizing as it appears

The IRA’s passage highlighted the highly partisan nature of US politics. Every Democrat in Congress voted for it, and every Republican against.

Regardless, elements of the IRA are popular among both parties’ voters. Recent polling found 65 percent of Americans support its tax credits for installing solar panels and 54 percent approve of the IRA’s expanded solar and wind manufacturing tax credits. Majorities also endorse its consumer tax credits for heat pumps and electric vehicles.

Although most US voters like the IRA’s central provisions, only 39 percent approve of the legislation overall.

Currently, fiscal support for many clean energy technologies is not highly polarized. While Democrats overwhelmingly favor tax credits for manufacturing solar panels and wind turbines, a 41 percent plurality of Republicans also back the measure.

Offshore wind is uniquely politicized

Offshore wind is an exception. Other post-IRA polling shows public perception of offshore wind is splitting along partisan lines.

A recent survey of New Jersey residents found 53 percent of Democrats support building offshore wind in the state, while 62 percent of Republicans prefer stopping their development. The poll also found that respondents were swayed by the claim that offshore wind projects could increase the number of whale deaths, for which there is no evidence.

At the local level, offshore wind projects in two cities—both named Ocean City—in New Jersey and Maryland are experiencing significant pushback. The New Jersey offshore wind project is facing blowback from the local tourism industry and out-of-state interest groups, while the Maryland project is also facing well-organized opposition, including from the town’s official website. While these entities cannot necessarily thwart offshore wind projects, they can slow them down considerably, undermining projects’ viability.

How to reduce polarization on offshore wind

The political polarization of offshore wind was not inevitable. The majority of new clean energy projects and jobs are being created in Republican-majority constituencies. Red states like Texas, Iowa, and Oklahoma are national leaders in onshore wind generation.

Offshore wind also holds significant job-creating potential in GOP-leaning rural areas, both along the coast and further inland.

For instance, US steelmaker Nucor’s new mill in Brandenburg, Kentucky employs 400 workers to supply low-carbon plates to the offshore wind industry. The local county sent 72 percent of its votes to the Republican candidate in the 2020 presidential election.

Bolstering the US steel industry–and steel-consuming industries such as offshore wind and shipbuilding–is a bipartisan priority where the two parties could work together.

Since steel accounts for 90 percent of the materials used in an offshore wind farm, reducing steel costs is vital for the efficient deployment of the technology.

Controlling steel costs is a priority for both decarbonization and for national security. Reducing steel costs could improve the prospects for US military shipbuilding, enabling the US Navy to better compete with its peer adversary, the People’s Liberation Army (Navy) in building new surface and subsurface platforms.

Accordingly, both Democrats and Republicans may have a shared interest in bolstering the US steel industry by expanding domestic production and importing more from allied and friendly economies.

Finally, both parties share an interest in lowering interest rates and inflation. One way to do so is to reduce the budget deficit and aggregate spending by ensuring that foreign nations pay for the emissions associated with their exports to the United States.

The bipartisan duo of Senators Kevin Cramer of North Dakota and Chris Coons of Delaware have proposed the Providing Reliable, Objective, Verifiable Emissions Intensity and Transparency (PROVE IT) Act, which bill seeks to measure the emissions intensity of industrial materials produced in the United States with the aim of ultimately imposing tariffs on carbon-intensive tariffs via a carbon border levy. Such a tax could help slash the deficit and thereby ease interest rates, which would—all else being equal—improve the profitability of capital-intensive renewables projects.

The politicization of offshore wind is neither desirable nor inevitable. Ultimately driving down offshore wind costs is the surest way to make the technology more acceptable across the political spectrum.

While tackling abstract ideas such as climate change is not an attractive proposition for large segments of the US public, everybody likes lower electricity bills.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center. This article reflects his own personal opinion.

Global Energy Center experts respond to the Inflation Reduction Act

The IRA of 2022 marks the biggest climate investment in US history, and it will likely send reverberations around the world. Our experts offer their thoughts on its provisions and its consequences.

EnergySource

Meet the author

Staff

Joseph Webster

Global Energy Center Indo-Pacific Security Initiative

Central Asia China

EnergySource Aug 14, 2023

The IRA is strengthening the United States as a low-emission oil and gas superpower

By Joseph Webster

The lRA not only strengthens US leadership in global decarbonization efforts—it also makes the United States an even more powerful actor in oil and gas geopolitics.

Energy & Environment Geopolitics & Energy Security

EnergySource Aug 8, 2023

To deliver on IRA objectives, expand the clean energy workforce

By Paddy Ryan, Maia Sparkman

Upskilling and growing the US labor force for the clean energy transition is a must for delivering the economic and climate objectives of the Inflation Reduction Act.

Climate Change & Climate Action Energy & Environment

EnergySource Oct 25, 2022

Does the IRA make US offshore wind the “next big thing?”

By Joseph Webster and Elina Carpen

The Inflation Reduction Act sets the US clean energy industry up for rapid expansion, and offshore wind is no exception. Additional legislation could close remaining gaps and drive US offshore wind to the head of the energy transition.

Climate Change & Climate Action Energy & Environment

Learn more about the Global Energy Center

The post Post-IRA, offshore wind has become a partisan lightning rod. Here’s how to fix that. appeared first on Atlantic Council.

The IRA is strengthening the United States as a low-emission oil and gas superpower

Joseph Webster — Mon, 14 Aug 2023 16:30:00 +0000

The Inflation Reduction Act’s (IRA) elevation of clean energy technologies will erode domestic hydrocarbon demand. Counterintuitively, the law will also bolster US oil and gas exports.

The law not only strengthens US leadership in global decarbonization efforts—it also makes the United States an even more powerful actor in oil and gas geopolitics.

The IRA’s impact on oil markets

The IRA has had little real impact on US oil production—so far. Since last August, US crude production has risen only slightly, by 0.68 million barrels per day (bpd) to 12.67 million in May. Over time, however, the IRA will lower oil product demand for light-duty vehicles.

US gasoline demand totaled 7.9 million bpd in 2022 and almost certainly peaked in 2018. Recent declines are largely a function of prices and the increasing fuel efficiency of the US light duty vehicle fleet. Still, IRA provisions for electric vehicles (EVs) will curb gasoline demand further, especially as older, less efficient models exit the US vehicle fleet.

Since US EVs typically displace fuel-efficient sedans, their impact on overall gasoline demand has been modest to date. As EVs reach other parts of the fleet, such as light-duty trucks and sport utility vehicles, their impact could be more significant.

One study from June 2022—before the IRA–found EVs would reduce US gasoline demand nearly 1 million bpd by 2030. If the IRA is successful in boosting EV uptake, the implications for gasoline demand could be profound.

Domestic demand down, exports up

Declining US demand makes oil exports more attractive for industry. A Princeton study found that, because of the IRA, US crude and refined product exports could increase 18 to 62 percent by 2030. By reducing domestic consumption and expanding exports, the IRA could ensure the United States and Canada—the number-one source of US oil imports—become even more powerful actors in global oil markets.

US officials may have taken note. Federal regulators approved the Sea Port Oil Terminal (SPOT) project in Texas last November, boosting US oil export capabilities by a massive 2 million bpd. SPOT’s ability to service very large crude carriers (VLCCs), which enjoy lower per-unit transportation costs, will enhance the competitiveness of US exports.

The construction of SPOT–and potentially other VLCC-capable terminals–will do more than improve US oil export capabilities. It will make the United States a hydrocarbon export superpower to the benefit of US partners and allies.

The IRA will free gas molecules for export, too

The IRA will also increase US influence in natural gas markets. The United States is already a major gas exporter, via liquefied natural gas (LNG) shipments and pipeline exports to Mexico and Canada.

By reducing US natural gas demand through decarbonization, the IRA will encourage further exports. Furthermore, the IRA’s charge on methane emissions will improve the emissions profile of US gas, making cargos more competitive in climate-conscious markets like Europe.

US natural gas is used almost entirely in electricity, industry, and heating. The IRA’s impact will be felt most acutely in the power sector, as support for clean energy chips away gas’ share of the energy mix.

The IRA will also accelerate clean hydrogen adoption, displacing gas consumption for industrial processes. Finally, IRA incentives for heat pumps and building retrofits will curtail natural gas demand for heating. In 2022, heat pump sales exceeded gas-powered furnaces for the first time–even before the IRA went into effect.

In the near-term, however, US natural gas is riding high. Production has increased by 3.8 billion cubic feet per day (Bcf/d) since the IRA’s passage, now standing at 103.1 Bcf/d. Consumption shows continued signs of strength.

Expectations that the IRA would curtail domestic demand, thereby motivating LNG investment, have been borne out. Three US LNG projects with nameplate capacity of 5.1 Bcf/d reached final investment decision in 2023, an annual record.

While the viability of US LNG exports has been shaped first and foremost by Russia’s invasion of Ukraine and the corresponding impact on European gas markets, the IRA offers medium and long-term support for natural gas exports, incentivizing LNG investment.

The IRA is reducing emissions while improving allies’ energy security

The IRA is supercharging US decarbonization efforts. While much work remains, the United States is taking massive strides to decarbonize its electricity, heating, industrial, and transportation sectors.

The IRA’s geopolitical consequences, while less prominent, are just as important. By reducing domestic hydrocarbon demand, the IRA is encouraging the US oil and gas industry to seek out more lucrative export markets in Europe and the Indo-Pacific. The IRA will therefore increase US influence in global oil and gas affairs, ensuring other democracies are less reliant on competitors and adversaries.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center. He also edits the China-Russia Report. This article represents his own personal opinion.

Global Energy Center experts respond to the Inflation Reduction Act

The IRA of 2022 marks the biggest climate investment in US history, and it will likely send reverberations around the world. Our experts offer their thoughts on its provisions and its consequences.

EnergySource

Meet the author

Staff

Joseph Webster

Global Energy Center Indo-Pacific Security Initiative

Central Asia China

EnergySource Oct 31, 2022

The Inflation Reduction Act’s impact on the US oil and gas industry

By Joseph Webster

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Energy & Environment Energy Transitions

EnergySource Oct 25, 2022

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By Joseph Webster and Elina Carpen

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By David L. Goldwyn, Andrea Clabough

Energy & Environment Energy Transitions

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The post The IRA is strengthening the United States as a low-emission oil and gas superpower appeared first on Atlantic Council.

The IRA is transforming the US energy system—starting with homes

Julia Pyper — Mon, 14 Aug 2023 13:00:00 +0000

The sheer scale of the Inflation Reduction Act (IRA)—the single largest climate and energy investment in US history—has fixated public attention. IRA incentives are spurring innovation, expanding domestic manufacturing, and accelerating the development of large-scale renewable energy projects. But much of the law’s success will rest on the individual purchasing decisions made within homes across the country.

The collective actions of households are powering a historic effort to modernize the US energy system. If the right steps are taken now, homeowners will have the power to unlock their transformative potential to increase system resilience, accelerate decarbonization, and bolster economic stability.

One year after President Biden signed the IRA into law, the United States is on the precipice of an unheralded clean energy revolution that will transform the US economy and deliver meaningful benefits within US homes.

Harnessing the home to reduce costs and boost resilience

Decisions made in the home are critical to US decarbonization efforts. Households account for 42 percent of US energy-related emissions, driven by machines used on a daily basis, including cars, washers and dryers, air conditioning, and kitchen appliances.

Clean technologies to reduce households’ carbon footprint are readily available, but have long been out of reach for millions of US homeowners due to real and perceived cost barriers.

To address this challenge, the IRA provides the average household in the United States up to $10,600 to reduce emissions and lower energy costs.

The law includes an electric vehicle (EV) tax credit up to $7,500 for eligible models and income-qualified customers, which offsets more than half the price difference between the average new EV and a car of any variety in the United States. The law also includes a $1,000 tax credit for home charging stations, which can often cover the entire cost.

A 30 percent tax credit is available for residential solar, offsetting both the price of panels and installation costs. This tax benefit, available through 2032, can help families achieve significant energy savings over the next decade. Since the credit was made retroactive to the beginning of 2022, a record 700,000 customers saw even more substantial savings at a time when electricity prices were increasing rapidly due to inflation. The law also provides tax credits up to $3,200 each year for efficient home upgrades, and nearly $9 billion in rebates for electric and energy saving retrofits.

Combined with financing options that allow consumers to pay for products over time, residential clean energy solutions are becoming more accessible than ever before. Capitalizing on the incentives available under the IRA could save the average US household $1800 on its energy bills each year.

These incentives not only save households money—they make them more resilient. The IRA includes a 30 percent tax credit for standalone home battery systems that provide backup power and grid services.

This summer’s extreme heat has highlighted the importance of resilient and sustainable energy systems in our homes. More than 300,000 households across the Southern United States lost power in June, as severe temperatures strained the power grid.

Increasingly excessive heat over recent summers has already prompted many US households to install rooftop solar and battery storage systems to keep the lights on and air conditioner running. These systems, in turn, help ease pressure on the broader electricity system.

In Maricopa County, Arizona—where residents recently suffered through 31 straight days of 110-degree Fahrenheit heat—data from 2022 shows that the biggest cause of indoor heat-related deaths were broken air conditioning units. Clean, efficient, and reliable home energy solutions do not simply provide comfort—they can be truly lifesaving.

A report by the Adrienne Arsht-Rockefeller Foundation Resilience Center finds that, while more than 8,500 deaths are expected in a typical year because of extreme heat, without adaptation—including greater access to reliable air conditioning—this is projected to increase more than sixfold to nearly 60,000 deaths per year by 2050.

The need for greater public awareness

The IRA is designed to drive demand for machines that shrink the carbon footprint of homes while providing greater resilience. However, relatively few consumers are aware of the incentives the IRA provides to do so, which could limit their overall impact.

A recent nationwide survey found 88 percent of respondents would consider installing solar, but believe it is too costly for them the make the switch. It also revealed that nearly 250 million Americans have either never heard of the IRA, do not know that it offers tax credits for making energy efficient improvements to their home, or do not believe they are eligible for credits.

These findings underscore the critical importance of increasing awareness of the IRA to ensure US households can reap the benefits and take part in the move towards a clean energy future.

To help address this gap, states need to ramp up their efforts to ensure families can access IRA incentives.

The law offers states $9 billion in home improvement rebates and $7 billion for state-level clean energy programs under the Greenhouse Gas Reduction Fund. Unless those programs are effectively implemented, US consumers will miss out on a major opportunity to save money and make their homes more resilient.

Households are at the forefront of the transition

The IRA’s role in facilitating the transition to a clean energy economy cannot be understated. The individual actions of US families are already starting to drive large-scale change to the energy system, and the one-year-old law is poised to accelerate that trend. However, much work remains to ensure that actions taken within US homes can be fully harnessed to meet the nation’s growing resilience and sustainability needs.

Julia Pyper is the vice president of public affairs at GoodLeap and a nonresident senior fellow at the Atlantic Council Global Energy Center

Global Energy Center experts respond to the Inflation Reduction Act

The IRA of 2022 marks the biggest climate investment in US history, and it will likely send reverberations around the world. Our experts offer their thoughts on its provisions and its consequences.

EnergySource

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Fellow

Julia Pyper

Climate Change & Climate Action Energy & Environment

EnergySource Aug 10, 2023

Launching the IRA’s Greenhouse Gas Reduction Fund could lessen the energy burden for low-income communities

By Ken Berlin, Frank Willey

To maximize the benefits of the GGRF, stakeholders should prioritize projects that most reduce the energy burden in low-income communities and address the barriers to investing in low-income communities.

Climate Change & Climate Action Energy & Environment

EnergySource Aug 9, 2023

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By William Tobin

Climate Change & Climate Action Energy & Environment

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Can IRA spending really throttle energy inflation?

By Charles Lichfield

Expanding the federal deficit risks exacerbating inflation, regardless of the long-run cost savings wise energy investments could bring.

Economy & Business Energy & Environment

Learn more about the Global Energy Center

Deputy Director and C. Boyden Gray Senior Fellow

The post The IRA is transforming the US energy system—starting with homes appeared first on Atlantic Council.

Can IRA spending really throttle energy inflation?

Charles Lichfield — Thu, 10 Aug 2023 16:30:00 +0000

A casual observer of the Inflation Reduction Act (IRA)’s first year might perceive its spending commitments to be more substantial than its earnings.

The second legislative incarnation of the Biden administration’s Build Back Better program, the act authorized $891 billion in total spending—including $783 billion for energy and climate—over ten years. Still, the act also contains very substantial revenue generating commitments: $738 billion, according to the Joint Committee on Taxation. Nevertheless, the price tag for the IRA’s energy and climate provisions could climb even higher; the more popular the electric vehicle (EV) or home retrofit subsidies prove, the more the US Treasury will have to forego in tax revenue.

Expanding the federal deficit risks exacerbating inflation, regardless of the long-run cost savings wise energy investments could bring. However, the IRA is neither as inflationary nor as expensive as its detractors would suggest.

But nor is there clear proof that the investments in renewables and energy efficiency will reduce the exposure of US households to price fluctuations to the extent that headline inflation is durably reduced.

For now, the budget neutrality argument carries a similar weight to one defending the IRA’s inflation-busting credentials. Shortly after the act became law, the Congressional Budget Office (CBO) published optimistic analysis claiming the IRA would reduce the deficit by $238 billion in the long term. This argument relied on heroic predictions of the positive externalities of IRA-funded investments.

According to the CBO, the IRA’s much publicized allocation of $80 billion for modernizing the Internal Revenue Service (IRS) should pay for itself several times over. Households earning less than $400,000 a year can relax, however—Treasury Secretary Janet Yellen was quick to instruct the IRS to focus its new resources on “high-end noncompliance.”

Some more lucrative changes to the tax code—like the new minimum tax rate on corporates earning above $1 billion—have been in place since early 2023. Others, like the commitment to negotiate lower drug prices for Medicare, will not be fully in place until 2026.

New tax and spending commitments alike can all be changed in upcoming sessions of Congress, though it is noteworthy that the Democrats’ overperformance in the 2022 mid-terms has made such changes unlikely before 2024.

Suffice to say, the fiscal expansion of the Inflation Reduction Act is here to stay, at least for now.

That funding angle is also key to understanding European frustrations with the IRA. The local content requirements nested in the provisions on EV batteries have generated the most headlines, and rightly so. Yet, the European Union (EU)’s struggle to come up with a commensurate response to the IRA—when clichés would otherwise suggest European policymakers are much more experienced in tackling problems through subsidies—requires some explanation.

The EU has managed to re-allocate €225 billion from its post-pandemic Recovery and Resilience Fund (RRF) to REPowerEU, the European Commission’s plan to diversify away from Russian fossil fuels.

However, the €750 billion-strong RRF was designed as a one-off initiative. It cannot simply be expanded or duplicated without triggering acrimonious debates among member states—especially because the terms of borrowing will now be much less attractive, with European Central Bank interest rates at a nearly quarter-century high.

The cost of borrowing for the US government has also been increasing, which could limit the clean energy investment aspirations of the IRA. Few believe the recent downgrade by Fitch of US federal debt from AAA to a still respectable AA+ will exacerbate this, but the event itself should be seen as a warning. Fitch justified their decision by the “steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters” and “repeated debt-limit political standoffs.”

Even if most optimistic projections on the IRA’s fiscal returns are true, the act is not immune from political meddling.

Charles Lichfield is the deputy director and C. Boyden Gray senior fellow of the Atlantic Council GeoEconomics Center

Global Energy Center experts respond to the Inflation Reduction Act

The IRA of 2022 marks the biggest climate investment in US history, and it will likely send reverberations around the world. Our experts offer their thoughts on its provisions and its consequences.

EnergySource

Meet the author

Staff

Charles Lichfield

GeoEconomics Center

Economic Sanctions Economy & Business

EnergySource Aug 9, 2023

The IRA supercharged US R&D. But does it go far enough?

By William Tobin

Climate Change & Climate Action Energy & Environment

EnergySource Aug 8, 2023

To deliver on IRA objectives, expand the clean energy workforce

By Paddy Ryan, Maia Sparkman

Upskilling and growing the US labor force for the clean energy transition is a must for delivering the economic and climate objectives of the Inflation Reduction Act.

Climate Change & Climate Action Energy & Environment

EnergySource Aug 7, 2023

A year after the IRA, industrial policy has gone global. Now what?

By David L. Goldwyn, Andrea Clabough

Energy & Environment Energy Transitions

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The post Can IRA spending really throttle energy inflation? appeared first on Atlantic Council.

Launching the IRA’s Greenhouse Gas Reduction Fund could lessen the energy burden for low-income communities

Ken Berlin, Frank Willey — Thu, 10 Aug 2023 13:00:00 +0000

Last August, the Inflation Reduction Act (IRA) authorized $27 billion for a Greenhouse Gas Reduction Fund (GGRF) designed to provide affordable financing for local energy projects across the United States, with more than half of its funds intended for low-income communities. Within the past two months, the Environmental Protection Agency (EPA) has announced three grant competitions to determine which organizations will administer the GGRF, finally setting the goals of the program into motion.

Activating the GGRF presents an opportunity for green banks, community development finance institutions, credit unions, developers, and local communities to scale clean technology investment significantly and empower low-income communities across the country.

To maximize the potential of the GGRF, stakeholders should prioritize projects that most reduce the energy burden—the proportion of income spent on energy—in low-income households and implement strategies to address the barriers to investing in energy projects located in underserved communities.

Challenges for low-income communities

The three program objectives of the GGRF are to invest in projects that reduce greenhouse gas emissions and other air pollutants; to deliver the benefits of those projects to local communities—particularly underserved communities; and to mobilize financing and attract private capital to these projects. Low-income communities, however, face barriers to investing in solar energy and energy efficiency projects.

A California Energy Commission study found that limited disposable income, low home ownership rates, aging infrastructure, difficulty in securing financing, a lack of awareness, insufficient data, and policy issues were the chief obstacles facing communities and potential investors. Low-income households spend three times as much of their income on energy compared to the national 3 percent average. African-American and Hispanic populations are disproportionately impacted by high bills.

Renewable energy can in some cases increase the energy burden borne by disadvantaged communities if local conditions or financing options are insufficient. Even though utility-scale renewable energy is significantly cheaper to generate than fossil-based counterparts, that is not always the case for small community and household projects. In addition, the borrowing costs for these projects can increase energy bills for low-income communities unless the programs are structured in a manner designed to avoid that scenario.

The path forward

To advance the goals of the GGRF, the financial institutions that administer it should implement flexible financing strategies that can multiply the benefits of investment. These institutions should also coordinate closely with community partners to identify the highest-impact projects and ensure that investments build wealth in low-income communities.

Since local institutions, building owners, and residents in low-income communities often lack capital to invest, awardees should provide up to 100 percent loans to eligible projects. These loans should be at very low interest rates and of a long-term nature. Moreover, given the difficulties for people and businesses in low-income communities to take on additional debt, repayment through energy bills is an effective financing strategy. Where the combined cost of such projects and loan repayments would increase the energy burden, the loan recipient should be given a grant to repay enough of the debt so that the cost of the remaining repayments and energy bills effectively lowers the energy burden.

Investments in low-income communities are often considered risky. Awardees could secure investment through guarantees to offset project risk, attracting investors at a high leverage ratio. The US Department of Energy’s loan guarantee program has dispersed over $30 billion in at a loss rate of just 3 percent, a highly efficient use of capital. Educational programs can help lenders identify profitable investments. Moreover, diligent data collection is crucial to measuring outcomes.

Another barrier facing frontline communities is the relatively limited pipeline of investment-ready projects. Institutions administering the GGRF should provide funding for local community organizations that can identify investment needs and facilitate project development. They can also leverage relationships that community development finance institutions and local banks already have on the ground to accomplish this task.

The potential for the GGRF

The GGRF can unlock affordable financing that accelerates clean technology investment in low-income communities at an unprecedented scale. To maximize the impact of the funds, awardees should focus on reducing the energy burden in these communities through flexible financing strategies including guarantees, community-engaged project decision-making, and inclusive development that involves and employs the people where investments are made. One year on from the creation of the GGRF, there is no time to waste.

Ken Berlin is a senior fellow and the director of the Financing and Achieving Cost Competitive Climate Solutions Project at the Atlantic Council Global Energy Center

Frank Willey is a project assistant at the Atlantic Council Global Energy Center

Global Energy Center experts respond to the Inflation Reduction Act

The IRA of 2022 marks the biggest climate investment in US history, and it will likely send reverberations around the world. Our experts offer their thoughts on its provisions and its consequences.

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EnergySource Sep 28, 2022

Establishing a national green bank with the GHG Reduction Fund will reduce emissions, promote environmental justice

By Ken Berlin

The Inflation Reduction Act creates a $27 billion Greenhouse Gas Reduction Fund to accelerate the United States’ energy transition—and ensure that the transition is an equitable one. Capitalizing a national climate bank would provide a long-term, comparatively low-cost solution to reduce the United States’ reliance on fossil fuels and its greenhouse gas emissions.

Climate Change & Climate Action Energy & Environment

EnergySource Aug 2, 2023

New FERC order to accelerate grid transition—but planning reform still needed

By Ken Berlin, Frank Willey

With Congress unable to adequately address permitting reform, FERC has taken the lead. FERC’s new interconnection rule is a good first step to ramp up US decarbonization efforts but should be supplemented with transmission planning reform to optimize future infrastructure deployment.

Energy & Environment Energy Markets & Governance

EnergySource Jun 8, 2023

The debt-ceiling permitting deal misses the real problems holding back the energy transition

By Ken Berlin, Frank Willey

The debt ceiling bill introduces changes to reform the permitting process in the United States. But the legislation will do little to clear blockages in the permitting queue. To meet climate targets, legislators must adopt additional measures that are specific to transmission and renewable interconnection.

Climate Change & Climate Action Energy & Environment

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The IRA supercharged US R&D. But does it go far enough?

William Tobin — Wed, 09 Aug 2023 16:30:00 +0000

The US economy has long been a global leader in innovation, thanks to the vitality of its research and development (R&D) enterprise. The US R&D ecosystem has been on the forefront of bringing pioneering technologies to commercial maturity with resounding benefits felt domestically and around the world. Many transformative energy technologies—ranging from civil nuclear reactors to solar photovoltaic power and seismic monitoring—have been given life in US national laboratories.

As a global race to deploy clean energy accelerates, the impetus to be at the forefront of innovation could never be greater. Technological competition with systemic rivals such as China now permeates the global climate fight, making the urgency to deploy net-zero solutions a matter of economic leadership and not environmental merit alone. The US R&D enterprise remains robust, but it must expand to meet the historic moment.

The Inflation Reduction Act (IRA), intends to stake a claim for US leadership in decarbonization. As such, it provides much needed funding for key clean energy research programs. However, amid a deluge of government incentives, ranging from grants to tax credits, it is instructive to compare the scale of this funding by historical comparison.

In fact, US R&D spending has still not reached parity with historical levels.

In 1978, the US Department of Energy (DOE)’s research, development, demonstration, and deployment spending accounted for two percent of total non-defense discretionary spending in the federal budget. As a share of the US Gross Domestic Product (GDP), federal R&D spending peaked in 1965, at 2.25 percent of GDP, and remained above one percent through the mid-1990s. However, this level has been consistently declining.

From 1982 to 2022, R&D spending was roughly half of the levels seen in 1978, the year in which the Belfer Center for Science and International Affairs begins to track DOE appropriations.

In the 1970s, when R&D spending was elevated, many of the technologies we take for granted today were developed in national labs. Although not deployed with commercial success for decades afterward, the drilling technologies which enabled hydraulic fracturing were pioneered in the DOE’s Eastern Gas Shales project, begun in 1976. This innovation was invigorated by the development of microseismic imaging by Sandia National Laboratory in an unrelated effort.

Between 1973 and 1988, the US government spent $380 million on wind turbine development, eclipsing the investments of Denmark and Germany combined during that period. Technological improvements originating in US national labs, however, ultimately enabled those nations to bring wind power to scale in their markets.

Amalgamating research funding from the IRA, its cognate CHIPS and Science Act, and their 2021 predecessor the Infrastructure Investment and Jobs Act, the Biden administration’s proposed 2024 budget allocates $11 billion for clean energy R&D to the DOE and calls for an 18 percent rise in total R&D spending from 2023 levels. This would put real R&D spending on par with levels not seen since at least the 1970s. However, the 2023 levels of federal R&D funding still account for only 0.76 percent of US GDP, far below previous levels.

R&D funding is one of the clearest cases where public investment delivers substantial returns to the taxpayer and the broader economy. Independent reports commissioned by the DOE’s Office of Energy Efficiency and Renewable Energy (EERE) found that taxpayer-funded investments of $12 billion made by the office have yielded more than $388 billion in total undiscounted net economic benefits to the United States. On an annual basis alone, returns on R&D investments stand at an astonishing 27 percent.

A report by the Information Technology and Innovation Foundation, a public policy organization, argues for increasing public funding for energy R&D to $25 billion. Using the EERE’s undiscounted benefit-to-cost ratio, this would yield $825 billion in net economic benefits for the United States.

Reaching this level would require political support and a clear articulation of the net benefits to the nation, while its implementation would require a calculated and progressive approach. However, there is no better time to begin than the present moment, as the United States’ flagship climate legislation positions it to be a first mover across a suite of decarbonized technologies.

Domestic policy is foreign policy

Equally as evident as the domestic benefits of R&D spending are the international ramifications. The US R&D enterprise articulates our value as a nation in creating the technologies to improve qualities of life globally.

For the United States to lead, it must not allow itself to be overtaken on this front.

China increased its R&D spending from 1 percent to 2.4 percent of GDP between 2000 to 2020, nearly closing the gap with the United States’ real R&D public and private expenditures.

Technological competition cannot be restricted to export controls and ‘friendshoring’ supply chains. It must include deliberate efforts to develop and deploy next-generation clean energy technologies. To date, this remains an area where the United States has lost an edge to its competitors, particularly in critical sectors such as advanced batteries, nuclear fuel cycle technologies, semiconductor materials, and solar manufacturing systems, among others. For the IRA to achieve its US climate leadership objectives, R&D investments on an historic scale are required.

William Tobin is an assistant director at the Atlantic Council Global Energy Center

Global Energy Center experts respond to the Inflation Reduction Act

The IRA of 2022 marks the biggest climate investment in US history, and it will likely send reverberations around the world. Our experts offer their thoughts on its provisions and its consequences.

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EnergySource Aug 7, 2023

A year after the IRA, industrial policy has gone global. Now what?

By David L. Goldwyn, Andrea Clabough

Energy & Environment Energy Transitions

EnergySource Aug 8, 2023

To deliver on IRA objectives, expand the clean energy workforce

By Paddy Ryan, Maia Sparkman

Upskilling and growing the US labor force for the clean energy transition is a must for delivering the economic and climate objectives of the Inflation Reduction Act.

Climate Change & Climate Action Energy & Environment

EnergySource Aug 10, 2022

Does the Inflation Reduction Act take the right approach to shoring up clean energy supply chains?

By William Tobin, Daniel Helmeci, and Selin Kumbaraci

The IRA houses two distinct approaches to building up domestic and friendly clean energy supply chains. The approach based on incentives is likely to be more effective than the one based on penalties.

Energy & Environment Energy Markets & Governance

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The post The IRA supercharged US R&D. But does it go far enough? appeared first on Atlantic Council.

The IRA challenges the European climate model

Friedbert Pflüger — Wed, 09 Aug 2023 13:00:00 +0000

The United States’ rejection of the Kyoto Agreement in 2001 and President Donald Trump’s withdrawal from the Paris Climate Accords in 2020 gave many Europeans a sense of superiority to the United States with regard to climate change. But now, Europeans are starting to realize their leadership in the energy transition is not as secure as previously believed. They are seeing the profound competition posed by the Inflation Reduction Act (IRA)—and the economic forces it unleashes.

The IRA as a response to climate change differs fundamentally from the European Union (EU)’s Green Deal. The EU quantifies numerous climate targets to set strict limits on greenhouse gas emissions. But the United States aims to make new technologies that mitigate climate change more competitive than conventional ones.

In the IRA, tax credits are the primary instrument of climate policy. Renewables and climate-friendly technologies are the main beneficiaries of the IRA, but they are stimulated through market incentives, without paternalism, managerialism, or micromanagement.

While the EU holds a binding, bureaucratic grip on the regulation of climate technology, the IRA harnesses creative market power in support of both renewables and other energy sources. In striving to turbocharge its economy by decarbonizing the energy sector, the United States could achieve climate neutrality before Europe.

In the IRA, climate neutrality takes precedence. Unlike in Europe, the United States does not pick winners and losers among competing climate technologies. The legislation’s success largely stems from the wide range of technologies that receive tax credits.

These credits do not narrow America’s energy supply base. Nuclear and hydrogen are both included in the legislative scope of the IRA. For instance, the IRA facilitates the carbon-neutral production of blue hydrogen, from natural gas with carbon capture and storage technology (CCS). Green hydrogen—produced from renewables—benefits most from the IRA’s tax code, but this does not come at the expense of CCS and blue hydrogen, which also receive tax credits in the legislation.

In contrast to the United States, subsidies persist as the main form of European energy policy, often creating inefficiency in the strive for climate neutrality. For example, Germany‘s Renewable Energy Sources Act, passed in 2000, created immense subsidies but left ambivalent climate results after two decades.

By 2025, the act will have placed an economic burden of nearly €408 billion on German electricity consumers. Additionally, the law’s feed-in tariffs brought about the downfall of the German solar industry while enabling China and India to ramp up photovoltaic technologies at scale. Ironically, Germany’s landmark climate legislation became a sort of development aid for global renewable energy, encouraging many countries to pursue solar and wind, but at a high price to Germany.

It is an uncontested success that half of German-generated electricity is now renewable. However, it is doubtful that the severe costs of Germany’s climate legislation are proportional to its resulting emissions savings.

Germany’s technologically prescriptive approach excluded carbon capture technologies, failing to understand that expanding electricity production from renewables would require a conventional back up for intermittency. The United States’ technologically agnostic approach may yield greater emissions reductions than in Europe, despite this not being the primary objective of the IRA.

Last April, National Security Advisor Jake Sullivan expressed the ideology behind the law in a speech proclaiming, “our international policy has to adapt to the world as it is, so we can build the world that we want.” The expansion of climate technology—the principal focus of the IRA—is not chiefly directed at climate protection. Instead, climate technology efforts serve as an instrument for asserting global leadership. The IRA seeks economic and geopolitical success through the energy transition. The IRA exists at the convergence of democratic, economic, and national security interests.

The ideology of the IRA is one that is skeptical towards the global order of multilateralism and free trade, blaming this international system for deindustrialization and the decline of the American middle class, “The prevailing assumption was that trade-enabled growth would be inclusive growth—that the gains of trade would end up getting broadly shared within nations,” explained Sullivan. “But those gains failed to reach a lot of the working people.” The IRA, consequently, aims to ease the domestic disadvantages of multilateralism and reinvigorate the US industrial middle class.

Reindustrialization, revitalizing the American middle class, and reasserting global influence in a burgeoning age of great power politics are the central aims of the IRA. Astute industrial policy puts decarbonization at the center of this effort; rather than micromanaging through strict policy dictates, the IRA gives entrepreneurs and engineers a broad, expeditious framework of incentives to maximize technological innovation.

The EU’s countermeasures to the IRA—which continue to be financed by extremely high taxes—have proven to be reactive, defensive, and only effective in specific cases. Consequently, Europe’s energy-intensive industries and automobile companies will continue to redirect investments, production, and manufacturing to the United States.

Ultimately, climate policy has the potential to make an economic miracle a reality. But in the United States—and China—not in Germany or Europe. Not yet, at least.

Dr. Friedbert Pflüger is partner and managing director of the Clean Energy Forum Foundation (CEF), and founding partner of Strategic Minds Company GmbH (SMC), Berlin. From 1990 to 2006 he was a member of the German Bundestag and served as deputy minister of defense in the first Merkel cabinet from 2005 to 2006. Dr. Pflüger is a nonresident senior fellow at the Atlantic Council Global Energy Center.

Dr. Pflüger thanks Alex Abdelal, a student at Yale University, for his assistance in researching the IRA.

Global Energy Center experts respond to the Inflation Reduction Act

The IRA of 2022 marks the biggest climate investment in US history, and it will likely send reverberations around the world. Our experts offer their thoughts on its provisions and its consequences.

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Energy & Environment

EnergySource Aug 7, 2023

A year after the IRA, industrial policy has gone global. Now what?

By David L. Goldwyn, Andrea Clabough

Energy & Environment Energy Transitions

EnergySource Aug 17, 2022

International cooperation is critical to the IRA’s climate and energy security impact

By Olga Khakova

Cooperation with allies could greatly amplify the impact of the Inflation Reduction Act. But it will take additional support to empower US agencies to forge partnerships and make global progress.

Energy & Environment Energy Transitions

EnergySource Mar 10, 2023

Clean industrial policies: A space for EU-US collaboration

By Théophile Pouget-Abadie, Francis Shin, Jonah Allen

EU-US tensions over clean industrial policy could derail the energy transition. Collaboration on equal footing would bolster collective security and drive emissions reductions to new levels.

Energy & Environment Energy Markets & Governance

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The post The IRA challenges the European climate model appeared first on Atlantic Council.

To deliver on IRA objectives, expand the clean energy workforce

Paddy Ryan, Maia Sparkman — Tue, 08 Aug 2023 14:39:56 +0000

The Inflation Reduction Act (IRA) aims to create US jobs by investing heavily in clean energy. Tied closely to the administration’s energy transition agenda–which includes fully decarbonizing the grid by 2035 and achieving net-zero emissions by 2050–the IRA is both a US climate leadership bill and a jobs bill, and its provisions could require creating up to 9 million new jobs across the United States over the next decade. Ultimately, the goals of the IRA will be impossible to deliver effectively and on time without growing and upskilling the US labor force.

The IRA’s tax incentives have stimulated private sector investment at scale; $271 billion of utility-scale clean energy and $50 billion of new electric vehicle (EV) supply chain investments have been announced since the legislation’s passage. But new projects require workers to bring them to fruition. Already, signs of disconnect between labor demand and labor availability are starting to show.

Labor force bottlenecks

In an industry survey, nine-in-ten US solar companies reported difficulties in finding the skilled labor they need, creating obstacles for new installations. The three fields with the largest demand driven by decarbonization–builders, factory workers, and electricians–are already facing stark labor shortages. Estimates suggest the construction and manufacturing sectors face deficits of 413,000 and 764,000 workers, respectively. The United States is currently short up to 80,000 electricians, and will require an additional million to meet its climate objectives over the next ten years. In a US labor market at 3.6 percent unemployment, new industries that require advanced skills could face particularly significant challenges.

Insufficient labor could delay timelines and drive up costs for clean energy projects, negating renewables’ cost advantage in the marketplace and the ‘Inflation Reduction’ core of the legislation. Policymakers must find ways of retaining current workers and attracting younger populations to the clean energy trades, which will require robust education and training programs.

Transitioning workforces

Upskilling for decarbonization is an imperative for a just energy transition. At the same time, the fossil fuel labor pool in the United States will be an important source for the new workforce that a clean energy economy will need. Around 1.7 million people are directly employed in the US fossil fuel industry, and will require new employment opportunities as that sector approaches its peak. Clean energy in the United States is experiencing job growth across all fifty states, with notable fossil fuel-producing states California, West Virginia, and Texas experiencing the most growth, adding over 25,000 jobs combined.

Transitioning fossil fuel communities to clean energy comes with unique challenges. Disparities in pay could stymie efforts to accelerate this transition. Salaries in green energy are lower than in the hydrocarbon industry; the median annual salaries for solar panel installers and wind turbine technicians are $47,670 and $56,260 respectively, compared to $70,340 for petroleum pump system and refinery operators. Unionization in the renewables sector has lagged, partly explaining the lower rate of pay. Moreover, the transition will not necessarily create a one-for-one replacement of fossil fuel jobs. Wind and solar farms require fewer workers to operate, and 24-hour staffing is not needed.

To avoid these unintended consequences for the US energy workforce, upskilling and economic diversification are essential. Proactive efforts are needed to engage communities to enable their participation in the clean energy economy, such as through manufacturing, redeveloping retired power plants, mining for critical minerals, developing nuclear and renewable energy projects, and cleaning up pollution left at abandoned mines. If done correctly, fossil fuel communities can be enlisted to power the clean energy transition.

Recommendations

To alleviate the bottlenecks created by a lack of skilled labor and advance a just energy transition, federal, state, and local policymakers should engage in public-private partnerships with clean energy providers to create workforce academies. Such programs have precedence. In Atlanta, for example, five major corporations seeded funding to start the Center for Workforce Innovation for industries with high demand for skilled labor. Public-private partnerships in workforce training have the dual benefits of splitting costs for taxpayers with the firms which will benefit while also ensuring that the skills acquired line up with market demand.

Exchanging best practices with international partners can help standardize information about what skills are needed for the energy transition. Collaborating with the European Union–which is introducing a Net-Zero Europe Platform to foster shared learning among member states and industry stakeholders to organize clean energy workforce academies–could be particularly valuable to this end. Convening the European Union and other partners under a clean energy skills forum could galvanize upskilling efforts at home and abroad.

In addition, visa backlogs, processes, and quotas limit the number of workers from abroad who can contribute to US clean energy industries. On one end, 38 percent of the nation’s foreign-born construction laborers are undocumented immigrants. On the other, over 74 percent of US graduates in electrical engineering are international students, many of whom are unable to remain in the United States after graduation.

In addition to upskilling domestic workers, the United States must attract skilled workers to build out the required labor force for its clean energy transition. The Biden administration has attempted to break this cycle by providing student visas for foreign-born, STEM-educated international students to work in the United States for up to three years post-graduation.

More can be done to streamline this process. For example, Canada created an Express Entry system in 2015, allowing high-skilled foreign nationals to become permanent residents in a year, and the number of Indian STEM masters students studying in Canada rose by 182 percent between 2016 and 2019. Last week, Ottawa announced that the system would focus on attracting workers skilled in trades deemed critical to the Canadian economy, including construction. Likewise, expanding the number of non-university educated workers coming into the country who can alleviate shortages for electricians, builders, and factory workers, is also critical for US efforts to build out its clean energy arsenal.

Delivering on the IRA must happen now

The timeline to achieve the United States’ 2030 decarbonization goals is quickly approaching. In order to ensure that such a transition to clean energy to achieve net-zero by mid-century can happen, upskilling and growing the US labor force for the clean energy transition is a must for delivering the economic and climate objectives of the Inflation Reduction Act.

Paddy Ryan is an assistant director at the Atlantic Council Global Energy Center and the editor of EnergySource

Maia Sparkman is an assistant director at the Atlantic Council Global Energy Center

Global Energy Center experts respond to the Inflation Reduction Act

The IRA of 2022 marks the biggest climate investment in US history, and it will likely send reverberations around the world. Our experts offer their thoughts on its provisions and its consequences.

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Amplifying the IRA: Prioritizing investment in US agricultural innovation

By Maia Sparkman

The lack of meaningful investment in next-generation agriculture in the IRA leaves US crops vulnerable to climate change, endangers US market competitiveness, and allows the sector’s emissions to continue unabated. Policymakers need to be more forward-thinking to set the US agricultural sector up for success.

Energy & Environment United States and Canada

EnergySource Aug 8, 2022

The Inflation Reduction Act places a big bet on alternative mineral supply chains

By Reed Blakemore, Paddy Ryan

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The post To deliver on IRA objectives, expand the clean energy workforce appeared first on Atlantic Council.

A year after the IRA, industrial policy has gone global. Now what?

David L. Goldwyn, Andrea Clabough — Mon, 07 Aug 2023 13:00:00 +0000

The Inflation Reduction Act (IRA) may prove to be one of the most transformative pieces of economic legislation in US history. The vast waves of investment coming to US shores throughout the last year bear out this possibility. One recent analysis estimated that between August 2022 and January 2023, over 100,000 clean energy jobs were created in the United States as a result of almost $90 billion invested in dozens of clean energy projects.

The domestic impacts of the IRA are undeniable. It is less certain what it means for the global energy transition. One year later, much work remains ahead to maximize the potential of the IRA. While US policymakers should consider the IRA’s long-term future and extend many of its provisions past 2032, officials must prioritize opportunities to align with like-minded allies overseas.

The IRA was designed to pair two central goals for the Biden administration: revitalize domestic industry while spurring a systemic transformation of the US economy toward a low-carbon, net-zero pathway. Undoubtedly, massive investments in key transition technologies within the world’s largest economy have global implications. New analysis suggests the IRA’s domestic provisions will ultimately reduce the cost curves for technologies like clean hydrogen and sustainable aviation fuels throughout the world.

However, these global benefits largely occur in the post-2050 timeframe—after the crucial midcentury date by when the world must achieve net-zero emissions.

The challenge

This problem reinforces the central challenge of the IRA-era—that the legislation represents only a fraction of the total investment needed to achieve a global net-zero pathway. The International Renewable Energy Agency recently forecast that investments in clean energy must more than quadruple to over $5 trillion per year to cap global temperature rise at 1.5^°C. Even the most ambitious estimates of the IRA’s decade-long incentives fall far short of the investment needed to save the world. No single government, law, or system of incentives can meet this challenge.

The IRA, for better or worse, represents a major Western power turning firmly in the direction of a federally incentivized industrial policy. The United States did not start this trend–a centralized approach to industrial production of low-carbon technologies began in China, which dominates multiple clean energy value chains.

After the IRA, similar industrial policies are increasingly popular among long-standing allies of the United States. Earlier this year, the European Union (EU) announced its Green Industrial Plan, placing its Net-Zero Industry Act (NZIA) at the center of its own industrial strategy. Under the NZIA, the bloc aims for its strategic net-zero technologies manufacturing capacity to reach at least 40 percent of EU deployment needs by 2030. The bloc has adjusted its policies to allow its member states greater flexibility to incentivize private investors and match foreign subsidies, such as those available under the IRA. The Innovation Fund, one of the cornerstones of the revamped EU strategy, just announced that forty-one projects will receive grants worth €3.6 billion.

Japan’s approach is also illustrative. Last December, Tokyo unveiled its own Green Transformation (GX) Basic Policy, which aims for over $1 trillion in public-private financing opportunities over the next ten years. The GX Basic Policy will target areas including hydrogen, ammonia, carbon capture and electric vehicle (EV) adoption.

These developments suggest the world is at a crossroads, between a race to the top favoring widespread clean energy deployment and sustainable new businesses, and a race to the bottom for subsidization of nascent, untested decarbonization pathways. It is therefore critical to find ways to maximize the potential of the IRA and other emerging industrial strategies to achieve the fast-fading prospect of reaching net-zero by midcentury.

The IRA’s domestic future

The pathway towards that objective starts at home. US policymakers should articulate firm support for maintaining and perhaps extending the IRA. A key accelerator for private sector investment is de-risking; the certainty of a ten-year runway for the continuation of attractive credit, direct payment, and transfer opportunities has played an outsized role in driving the announcement of major new projects.

Importantly, these investments have been spread far and wide throughout the United States–blue states, purple states, and especially red states–with the emerging southern “Battery Belt” now common parlance. Recent estimates suggest that an astonishing $337 billion in investments for large solar, wind, and storage projects through the end of the decade will go directly to Republican-voting districts even as their congressional representatives attempt to unwind the law.

US policymakers—particularly within the GOP—should therefore dispose with notions that the IRA should be overturned in whole or in part and instead focus on collaborating with their colleagues to ensure that the legislation is working as intended and that any perverse outcomes are avoided or corrected.

An even more important step, however, is for Congress to consider the post-2032 timeframe and assess whether some of the IRA tax preferences should be extended beyond ten years. For private investors considering multi-billion-dollar projects—especially in nascent technologies requiring economies of scale—ten years is often insufficient to facilitate such vast commitments of capital.

Given the early success of the IRA, a sound analysis which assesses whether the benefits of extending the tax preferences warrant an additional five or ten years could be helpful. The subsequent legislative discussion must almost certainly wait until after the 2024 elections. The early success of the IRA could lead to a less polarized conversation in Congress, although much will depend on composition of that new Congress and the state of the US economy. But some confirmation of the IRA’s long-term staying power would enhance both its domestic economic and geopolitical benefits.

Federal agencies can assist the Hill in this task, particularly with updated and forward-looking regular assessments of how fast critical technology suites are progressing in comparison with the domestic climate targets of the United States. Such analyses could inform congressional action to adjust or extend key provisions in the law. They would also provide an opportunity to reassess if certain components are not working as intended.

Managing industrial policy on a global scale

Perhaps more importantly, maximizing the IRA involves a significant foreign policy component. The advent of the legislation produced manifold tensions between the United States and its overseas partners–particularly with respect to its EV domestic content provisions.

In March, the United States Trade Representative announced the US-Japan Critical Minerals Agreement intended to ameliorate concerns of Japanese automakers that their future EVs would be wholly shut out from qualifying for IRA tax credits. A similar—perhaps more expansive—reconciliation framework is under active negotiation between the United States and the European Union.

Despite these likely temporary concerns, the IRA has had substantial, positive foreign policy implications. The law has been a crucial tailwind for efforts to expand and diversify critical supply chains away from China. It represents the world’s largest economy turning firmly toward systemic decarbonization, with enormous incentives for developing and deploying under-developed technologies crucial to global net-zero. Given the evident domestic benefits, future US presidents are unlikely to turn away from the IRA outright—and certainly not from industrial policy more generally.

It is time for the United States and its partners to pursue a broader slate of harmonization opportunities to maximize the IRA’s benefits for all key stakeholders. A range of regulatory designs and metrics are proliferating for emerging low-carbon technologies including clean hydrogen, carbon capture and removal, e-fuels, and advanced biofuels.

The hydrogen example is instructive. While the exact requirements for meeting the “clean hydrogen” definition in the IRA are still in development, the European Union has already promulgated its own definition under the Renewable Energy Directive. Similarly, the IRA introduced a historic methane fee to complement upcoming regulations from the Environmental Protection Agency. Brussels, meanwhile, has finalized its methane strategy and pushed forward a legislative proposal to enhance leak detection and repair requirements throughout the bloc, impacting both domestic producers and external suppliers.

A collaborative approach in areas like these may already be underway with reports of a clean gas certification program under multilateral discussion. Broadly, alignment on standards, definitions, monitoring, and verification can ease and de-risk cross-border investment and trade in clean energy technologies globally. With so many decarbonization options moving rapidly from pilots to tangible scaling, there is no time like the present for friends to collaborate on how to regulate these new sectors. Equally important, however, is some sense of cooperation around the design and application of the various incentives now visible in national industrial policies throughout the world.

The time is now

In April, US National Security Advisor Jake Sullivan emphasized that the Biden administration does not seek a race to the bottom with its allies. He pointedly noted in his remarks that the United States “is pursuing a modern industrial and innovation strategy—both at home and with partners around the world.” He argued that the United States seeks to strengthen and diversify global supply chains and the highest standards of good governance in order to “build a fairer, more durable global economic order, for the benefit of ourselves and for people everywhere.”

Given the tensions which have surrounded the IRA, these are lofty aspirations indeed–but they are not impossible through careful diplomacy. There is a precarious balance within the IRA between protectionism and the global scaling of clean technologies. However, if the end goals of the IRA are to dramatically grow the availability low-carbon technologies throughout the world and reduce Chinese domination of these industries, then like-minded allies should be able to come together and harmonize their incentive structures to promote beneficial competition. In-fighting amongst friends wastes precious time to build new economies of scale.

On its anniversary, the IRA, it appears, is here to stay–and so, it seems, is the global trend in favor of industrial policy approaches to the clean energy transition. The law will have profound international implications for the foreseeable future. The task now is to optimize the IRA and facilitate positive investment trends throughout the world as one piece of a much bigger puzzle. The IRA must be the beginning, not the endpoint, of a renewed global conversation around strategic energy transition goals. On that score, there is no time to lose.

Andrea Clabough is a nonresident fellow at the Atlantic Council Global Energy Center and an associate at Goldwyn Global Strategies, LLC

Global Energy Center experts respond to the Inflation Reduction Act

The IRA of 2022 marks the biggest climate investment in US history, and it will likely send reverberations around the world. Our experts offer their thoughts on its provisions and its consequences.

EnergySource

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Fellow

David L. Goldwyn

Adrienne Arsht Latin America Center Global Energy Center

Caribbean Climate Change & Climate Action

Fellow

Andrea Clabough

Climate Change & Climate Action Energy & Environment

EnergySource Aug 9, 2022

The balance President Biden needed: How the IRA achieves a durable energy and climate policy

By David L. Goldwyn

The Biden administration and the Democratic Party stand to benefit greatly from the passage of the IRA. The bill’s balanced approach to clean energy deployment and support for the US oil and gas sector makes it a political winner.

Energy & Environment Energy Transitions

EnergySource Aug 17, 2022

International cooperation is critical to the IRA’s climate and energy security impact

By Olga Khakova

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Energy & Environment Energy Transitions

EnergySource Aug 8, 2022

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By Reed Blakemore, Paddy Ryan

Energy & Environment Energy Markets & Governance

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The post A year after the IRA, industrial policy has gone global. Now what? appeared first on Atlantic Council.

New FERC order to accelerate grid transition—but planning reform still needed

Ken Berlin, Frank Willey — Wed, 02 Aug 2023 15:32:43 +0000

Permitting reform remains a hot topic in Congress, with senators signaling continued willingness to work on the issue following a bipartisan bill passed in the June session. The debt ceiling-linked legislation reforms the National Environmental Policy Act (NEPA) to shorten the average time to permit a project but does not address a fundamental mismatch between where transmission infrastructure is located and where renewables need to be connected, as outlined in a previous EnergySource opinion piece. Despite substantial interest across the aisle for further permitting reform, the chances of new legislation any time soon are slim.

Amid Congress’ inability to address this issue, another entity, the Federal Energy Regulatory Commission (FERC), has taken up the reins. Last Thursday, FERC commissioners voted unanimously to pass an order to accelerate the interconnection process for new generators. The FERC interconnection rule is a good first step to ramp up US decarbonization efforts but should be supplemented with transmission planning reform to optimize future infrastructure deployment.

Before the new FERC rule, the debt ceiling bill failed to remedy two primary defects in the permitting system: a lack of regionally coordinated planning to upgrade the grid and the lengthening queue—now up to five years—for existing renewable projects to be connected to the grid. The FERC rule implements a “first-ready, first-served” process to cluster several proposed generating facilities into a single, 150-day interconnection study to improve efficiency and cost allocation. In addition, the rule increases the speed of queue processing by imposing deadlines and penalties for transmission providers.

Accelerating the interconnection process for new electricity generators would be a boon for US decarbonization efforts. Over 2030 gigawatts (GW) of generation and storage assets were in the US interconnection queue at the end of 2022, almost double the 1250 GW total generation capacity on the existing grid. Ninety-five percent of those projects are zero-carbon generators or battery storage.

FERC is also expected soon to finalize rulemaking on transmission planning, a critical but often overlooked solution to scale up renewable energy. Proactive planning can address transmission needs holistically by identifying where developers need to build projects and expediting permitting, interconnection, and other procedures in those areas.

Congress, federal agencies, and system operators all have a role in transmission planning reform. To hasten construction of transmission infrastructure, independent system operators and utilities must establish planning procedures rooted in wide stakeholder consultation and cost-benefit analyses in both regulated and deregulated markets. Congress should pass legislation that expands FERC’s authority to oversee and accelerate transmission planning, emulating how FERC’s exercise of such authority over gas pipelines has enabled the efficient distribution of the fuel to markets around the country. Transmission planning reform would accelerate renewable energy deployment and lower costs, savings that pass to consumers through lower energy bills.

Designate a lead agency to coordinate permitting

Permitting for transmission projects is far too slow to meet the goals of a clean electricity grid by 2035. Projects can wait over 15 years for approval, such as the TransWest Express Line and SunZia’s Southwest Transmission Project, which are now beginning construction that will take several more years. Transmission developers need to obtain approval through applications to multiple agencies that do not coordinate among themselves. For example, the NEPA process addressed in the debt ceiling bill only accounts for a fraction of the time taken to obtain permits.

No central agency exists to coordinate permitting for transmission lines, unlike for natural gas pipelines, where FERC has had sole approval authority since 1938. Expedited processes like the FAST-41 program, a coordinated review process with transparent deadlines, can help but are not comprehensive, leading to far longer permitting lead times for transmission projects compared to natural gas pipelines.

Under current law, states retain independent review and approval authority over transmission lines passing through their jurisdiction. FERC can only supersede the state-led process if projects are deemed to be in the national interest by the Department of Energy (DOE) under the Federal Power Act. Currently, no DOE-designated “national interest electric transmission corridors” exist, although the department released a Notice of Intent and Request for Information to formalize the designation process in May. The DOE is also conducting a National Transmission Planning Study that will help identify projects, procedures, and strategies that accelerate transmission build-out.

Extending FERC authority or executing the DOE-FERC national interest corridor framework would contribute to faster construction of sorely needed transmission infrastructure. If FERC were given sole authority over electric transmission lines, it could coordinate local, state, and federal permitting authorities to expedite the approval process. Once the DOE finalizes its planning study, FERC should move quickly to grant permits in national interest corridors.

Introduce transmission planning reform with multi-value cost-benefit analysis and expedited renewable energy zones

System operators should adopt innovative planning approaches that consider the cost-benefit rationale of upgrades and expansions and designate special zones with expedited project approvals. Currently, cost-benefit analysis is largely absent from transmission planning in the United States. Of the $20-25 billion spent each year on US transmission projects since 2013, utilities justified more than 90 percent of projects based solely on reliability needs with no consideration of economics or cost savings. The outcome has been steadily increasing electricity prices for consumers across the United States.

The US focus on reliability over all else has warped the electricity market and limited the cost savings new infrastructure could bring to consumers. Instead, system operators should implement multi-value analysis for energy infrastructure projects to fully capture the potential benefits and relative costs. Transmission lines provide numerous benefits, including greater reliability and cost savings from increased capacity, competition, and flexibility, in addition to delivering progress on decarbonization. The current standard planning process does not consider these diverse variables when building new transmission. While natural gas generators use the reliability argument to facilitate permitting for their projects, multiple studies show that a 70 to 90 percent clean electricity grid can remain reliable while providing the other aforementioned benefits.

System operators using multi-value analyses in their planning have found that adding renewables to the system lowers energy bills for consumers. For instance, the Midcontinent System Operator in the Midwest and Southern United States projected $23.2 to $52.2 billion in net benefits from new transmission at a cost of $14.1 to $16.8 billion. A Lawrence Berkeley National Laboratory study showed that potential cost savings from new electric transmission lines were higher in 2022 than in any year since 2012.

Pre-approving areas for renewable development is another way legislators can accelerate permitting. The Australian Energy Market Operator designated 67 renewable energy zones in 2022, forecasting that building 6,124 miles of transmission would lead to 28 billion AUD in net market benefits at a cost of 12.7 billion, savings which would pass to consumers via lower electric bills. Designated renewable areas and pre-planned transmission line studies are also practiced under the European Union’s Renewable Acceleration Areas and the Electricity Reliability Council of Texas’ Competitive Renewable Energy Zones. Both the European and Texan programs have been successful. The European Union forecasts €9 billion per year in savings from 2025 to 2040. Texas has the most wind energy in the nation and the second-most solar generation behind California. Proactive system planning accelerates renewable adoption on a cost-competitive basis.

Beyond the new FERC rule

Thousands of gigawatts of renewable energy generation projects are ready to interconnect once transmission lines get to them. The requirement that transmission providers conduct cluster studies for interconnection requests and the new deadlines under the new FERC order will accelerate renewable deployment. However, further work is needed to enshrine forward-thinking, cost-effective transmission planning procedures across the United States.

Ken Berlin is a senior fellow and the director of the Financing and Achieving Cost Competitive Climate Solutions Project at the Atlantic Council Global Energy Center

Frank Willey is a project assistant at the Atlantic Council Global Energy Center

Meet the authors

Fellow

Ken Berlin

Chinese Climate Change & Climate Action

Staff

Frank Willey

Energy & Environment French

EnergySource Jun 8, 2023

The debt-ceiling permitting deal misses the real problems holding back the energy transition

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By Ameya Hadap

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Energy & Environment Energy Transitions

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The post New FERC order to accelerate grid transition—but planning reform still needed appeared first on Atlantic Council.

How cities can drive the energy transition in the Western Hemisphere

Maia Sparkman, Willow Fortunoff — Tue, 11 Jul 2023 16:22:27 +0000

This week, President Joe Biden’s administration wraps up the second leg of its cross-country Investing in America tour to spotlight cities and towns leading new clean energy infrastructure projects with federal investment. While the tour’s focus has been on national priorities, mayors, who have shown their ability to deliver on domestic investment projects, have begun exploring opportunities for international collaboration. These expanded efforts bode well for securing international partnerships to strengthen energy supply chains, particularly with allies in the Western hemisphere.

Key to these international aspirations is the US domestic agenda. Expanding access to critical minerals and increasing manufacturing capacity is essential for meeting the Biden administration’s decarbonization targets. Through legislation like the CHIPS and Science Act, the Bipartisan Infrastructure Law, and the Inflation Reduction Act (IRA), Biden has committed to increase domestic mining, processing, and manufacturing operations to boost the US middle class and build economic resilience. Federal policies have created powerful incentives for manufacturers, such as Tesla, Schneider Electric, General Motors, and Ford, to establish manufacturing facilities in North America.

City leaders have taken advantage of recent legislation to deliver economic growth to their communities. The IRA’s incentives for investments in clean energy are prompting the federal government to work closely with US cities to make manufacturing investments that can increase US energy security, reduce emissions, and support domestic manufacturing. Since the signing of the law, companies have announced 31 new battery manufacturing projects, 96 gigawatts of new clean power to add to the grid, and $210 billion of investments in the electric vehicle (EV) industry, bringing jobs and growth to US cities.

The role of mayors in the clean energy transition

The growing diplomatic power of mayors was on display at the first-ever Cities Summit of the Americas held in Denver in April 2023. The summit fostered conversations on bridging national-level support and community-led action to build robust clean energy supply chains. In Denver, mayors exchanged best practices in taking advantage of recent legislation and establishing clean energy industries. Mayor Tim Kelly of Chattanooga, Tennessee, highlighted workforce development as a central pillar of Chattanooga’s growth in low-carbon industries. Mayor Luis Colosio of Monterrey, Mexico, outlined the importance of overcoming political and regulatory obstacles to usher in major regional projects, like his city’s new Tesla Gigafactory. He also emphasized the need to incorporate community input in municipal investment strategies.

The summit signaled the administration’s new efforts recognizing cities and city-level decisionmakers as key actors for making progress toward US decarbonization and climate objectives and strengthening ties with like-minded partners across the Western hemisphere. At the summit, the US Department of State also launched a new Cities Forward initiative that aims to strengthen mayoral partnerships by matching US, Latin American, and Caribbean cities to address urban sustainability challenges. Latin America and the Caribbean have abundant mineral resources, and are important allies in the United States’ efforts to establish new clean energy supply chains for products like batteries, solar panels, and EVs. These new initiatives tap into mayors’ dual ability to connect with local constituents and forge international partnerships based on common challenges.

Strengthening partnerships with Latin America and the Caribbean

Regional mayors and officials in Latin America and the Caribbean are crucial partners for ensuring social license to operate given their unique understanding of community concerns and challenges. The region accounts for 35 percent of global production of lithium, 40 percent of copper, and 10 percent of nickel. These resources will play a crucial role in the Western hemisphere’s transition toward renewable energy and electrification and ultimately contributes to global climate objectives.

However, increased mining in Latin America could instigate regional discontent and threaten hemispheric relations if voices of local leaders are not included. In Peru, community backlash against the Chinese-owned Las Bambas copper mine halted production for four hundred days, costing the company $9.5 million per day. In Argentina, protests against a new local mining law led to its swift repeal by a provincial legislature. Local officials have the convening power to bring communities together to solicit buy-in and leverage opportunities within energy transition supply chains. Peer-to-peer exchanges between mayors like those at the Cities Summit and investment projects such as the Cities Forward initiative can mitigate these challenges by expanding opportunities for cities to reap the benefits of major mining and manufacturing projects.

While individual cities and towns are already stepping up to the plate, national governments need to provide assistance to help cities establish industries across the Americas. Municipalities need workforce development programs to meet the demand from eager investors, standards in environmental, social, and governance (ESG) to attract investment, and resource management to improve their absorptive capacity to accept new projects at scale. By providing greater coordination and resource sharing from both the bottom up and top down, the United States can make progress toward empowering cities and towns to play a role in the clean energy supply chain while benefiting from the industry’s economic growth and opportunities.

Establish technology standards with consultation from local governments

National policies can be adapted to better suit the needs of local government, but that only happens if local leaders have a seat at the table. The US Government National Standards Strategy for Critical and Emerging Technology released last May calls for new standards to define the development of renewable energy technology, yet includes no mention of perspectives from local governments. The American National Standards Institute (ANSI) should include stakeholders from mayoral and statewide offices to help shape ESG standards for the mining, manufacturing, and producing of critical minerals to ensure that future regulations are strong but not onerous. At an international level, local officials from mining communities should be included in ongoing discussions to set sustainable mining standards in the Americas alongside national governments and the mining industry.

Establish regional workforce development programs and streamline visa processes

For cities to attract investment and deliver economic benefits for local communities, a trained workforce is required. Technological advancement and increased automation reduce the number of people needed on the assembly line but increases the demand for a highly skilled workforce. For example, US semiconductor companies, buoyed by the CHIPS and Science Act, will have 300,000 unfilled vacancies for skilled engineers by 2030. Beginning with the North America Leaders Summit, the three heads of state should collaborate on establishing North American workforce training programs and streamlined visa processes to create a stronger workforce across the region.

To further promote regional training and information sharing, the Unit for City and State Diplomacy at the US Department of State should organize mayoral convenings on the sidelines of major energy conferences across the region. The Caribbean Renewable Energy Forum in Miami, International Renewable Energy Agency’s Investment Forum in Latin America, and Energy Transition North America present opportunities for mayors to hear directly about investment opportunities and share strategies for meeting industry standards.

Leverage existing subnational networks to communicate USG funding opportunities

Trusted city networks can magnify the impact of national-level initiatives. In 2022, the US Department of Energy (DOE) announced $39 million in funding for universities, national laboratories, and private sector-led projects to increase domestic supply of critical minerals. The Bipartisan Infrastructure Law appropriated over $62 billion to DOE to support a range of domestic clean energy projects, including grants targeted at local governments. By utilizing already established subnational networks like C40 Cities and The United States Conference of Mayors, the DOE, along with other US agencies, can better disseminate programs and resources available to empower city-level efforts to leverage investments and funding opportunities to power the low-carbon transition.

From local to global: Strengthening clean energy supply chains

While the United States continues to establish national and international policies to build new clean energy supply chains, cities and towns are implementing national objectives in real time. Across the hemisphere, city councils mediate tensions between communities and mining companies, subnational departments of labor enroll students in training programs, and mayors devise standards to raise the federal ESG benchmark. Local leaders will continue to play a fundamental role in driving both the standards and implementation of projects that will shape a low-carbon energy future. These efforts have been on full display during the Biden administration’s Investing in America tour.

Maia Sparkman is an assistant director at the Atlantic Council Global Energy Center

Willow Fortunoff is a former assistant director at the Atlantic Council Adrienne Arsht Latin America Center and Fulbright Research Fellow

EnergySource

Meet the authors

Former staff

Maia Sparkman

Former Assistant Director

Africa Climate Change & Climate Action

Former staff

Willow Fortunoff

Adrienne Arsht Latin America Center

Americas Caribbean

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The post How cities can drive the energy transition in the Western Hemisphere appeared first on Atlantic Council.

US offshore wind’s growing pains: Permitting and cost inflation

Joseph Webster, Elina Carpen — Mon, 26 Jun 2023 14:04:38 +0000

The United States has a nascent offshore wind strategy that requires approving new projects and catalyzing investment into the sector. Although offshore wind is gradually developing, it lags behind other important international markets, as the world’s largest economy has deployed less offshore wind than virtually every other advanced economy.

Two major issues are constraining US offshore wind deployment: challenges in securing permits and cost inflation. Regulatory uncertainty and a slow approval process are slowing the United States’ deployment of offshore wind. Project developers stress that there are not enough regulatory personnel to quickly approve projects. Meanwhile, projects are also constrained by rising installation costs which are largely macroeconomic in nature. The sector is not immune to broader inflationary forces and rising interest rates, while trade policy and steel tariffs are also raising costs. Still, there are also industry-specific cost pressures, including limited port and vessel infrastructure and skilled labor shortages.

These are, to some extent, growing pains for a rapidly developing industry. How fast the US offshore wind market matures will depend in part on whether the country quickly learns from others who have more developed offshore wind sectors.

A complex regulatory web

Over the past few years, the Biden administration has taken renewed leadership in the energy transition, rolling out measures intended to advance offshore wind in the United States. In March 2021, the administration set a target to deploy 30 gigawatts (GW) of offshore wind by 2030, and the Inflation Reduction Act (IRA) incudes federal tax credits that support the deployment of offshore wind in the country.

Yet, these newfound commitments do little to address the bottlenecks that result from the environmental permitting process in the United States. Nor do they provide clarity on the federal regulatory process.

Since 2009, the US Bureau of Ocean Energy Management (BOEM) has been responsible for lease sales and the coordination of permitting activity for US offshore wind projects. However, the US Bureau of Safety and Environmental Enforcement (BSEE) remains responsible for offshore wind safety and environmental enforcement and compliance, while other agencies have environmental authority over permitting processes related to protected species and other filings under the National Environmental Policy Act (NEPA). This lack of federal coordination can result in delays issuing Environmental Impact Statements—federal documents that assess the impact that a project might have on the surrounding environment—preventing the deployment of these projects.

Similarly, connecting offshore wind power to the onshore electricity grid remains a work in progress in the United States, and will require significant infrastructure development. The environmental impact of expanding transmission infrastructure is largely unknown and will be subject to its own regulatory process.

Learning from Europe

Europe, in contrast, is a mature offshore market, boasting approximately 255GW of installed wind capacity. Europe is also developing a meshed grid, which will comprise clusters of offshore wind farms that are connected to multiple energy grids across the continent to allow for a more coordinated deployment of offshore wind power infrastructure. This success has been made possible by a clearly defined permitting process.

Germany, for instance, has a one-stop permitting approach, where a single government authority coordinates the entire process. This government agency, the BSH, handles all approval methods, including strategic environmental assessments. Germany also has a fixed permitting timeline, which requires specific permitting requirements to be completed on a predetermined schedule, providing additional clarity. These standardized procedures allow for a more streamlined permitting process.

The United Kingdom, Europe’s offshore wind leader, is moving toward an overall strategic—rather than site-specific—approach. This would allow offshore wind developers to offset their environmental impacts on a larger scale, granting developers access to larger infrastructure projects that can encourage large-scale renewable energy usage while avoiding detailed environmental assessments on a site-specific basis. This change aims to cut down the offshore permitting process from four years to one.

The US BOEM has recognized the need for more clarity and efficiency in the US regulatory processes and has taken steps to mitigate existing permitting bottlenecks. BOEM has proposed a Notice of Intent checklist for Environmental Impact Statements, a document that details the review process for any proposed offshore wind development project. This checklist would act as a resource to keep the process on track and avoid delays in NEPA reviews. This is a good start; although challenges remain, the United States has recognized the current obstacles impeding offshore wind deployment and is taking steps to mitigate them.

Cost inflation and deployment

Offshore wind has some unique advantages when compared to other renewables. It is the only variable baseload power generation technology, meaning it has a high utilization rate nearly on par with gas-fired combined cycle power plants. Offshore wind also enjoys relatively low hourly variability, especially when compared to solar photovoltaic systems.

Yet, offshore wind has still suffered from some of the problems plaguing other renewables—and the broader economy. Offshore wind costs have risen due to rising interest rates, higher labor expenses, and increased prices for steel, copper, and other relevant materials. Steel accounts for approximately 90 percent of the materials used for an offshore wind farm, and iron and steel prices remain well above pre-pandemic levels, although they have declined from record highs.

The offshore wind sector is also hurting from specific challenges. Steel prices in the United States are still subject to uncertainty stemming from Russia’s invasion of Ukraine removing supply from world markets, including Ukrainian manufacturing facilities. Moreover, Trump-era steel tariffs have not been fully lifted, and there is a chance that some of the tariffs that have been removed could return later in the year if the legislation’s October deadline to strike a US-EU deal is not met. Increased tariffs would hit offshore wind projects hard, dealing a further blow to the industry.

Limited port and vessel infrastructure also continues to constrain projects, while some segments of the supply chain, such as wind turbine installation vessels and skilled labo, could become part of a tug-of-war between US and European projects. Already, several offshore wind projects along the US East Coast are seeking to renegotiate contracts because of these headwinds. Renegotiation attempts have faced legal challenges from state regulators, including in Massachusetts.

On the positive side, procurement contracts, which are critical for offshore wind development, have provided credible and durable long-term demand signals, enhancing certainty for suppliers. The IRA has also incentivized manufacturers to invest in steel, blade, tower, and nacelle capacity, while regional transmission planning has been funded through the bill.

The way forward

To address the bottlenecks in issuing permits, the United States should learn from German and British offshore wind strategies by housing permitting authorities within a single agency and staffing regulatory bodies appropriately to enable large-scale, strategic approval processes. While these reforms may not be possible to implement at the national level, US states should consider adopting them to enable rapid deployment of offshore wind capacity.

Cost inflation remains a problem for US offshore wind. Steel prices remain elevated, there are a limited number of available service vessels, and transmission challenges will loom larger as projects move closer to deployment. However, in addition to the IRA, procurement contracts from states have helped incentivize project development. Ultimately, US offshore wind will require strong federal and state support if the ambitious targets to generate 30GW by 2030 are to be met.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center. Elina Carpen is a program assistant at the Atlantic Council Global Energy Center. This article reflects their own personal opinions.

EnergySource

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Staff

Joseph Webster

Global Energy Center Indo-Pacific Security Initiative

Central Asia China

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Americas Energy & Environment

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Leader perspective: Forging a green special relationship between the United States and United Kingdom

The Rt Hon. Chris Skidmore, MP — Mon, 12 Jun 2023 14:11:17 +0000

Nearly four years ago, back in June 2019, the United Kingdom enshrined its commitment to achieve net-zero carbon dioxide emissions into law. The United Kingdom had long been a climate leader, with the pioneering Climate Change Act of 2008 and its introduction of carbon-budgeting into government decision-making, helping to halve Britain’s emissions compared to 1990 levels. With the 2019 legislation, the United Kingdom became the first G7 country to commit to net zero.

Since then, other countries have caught up. Today, 90 percent of global GDP is under some form of net-zero commitment, which would have been unimaginable in 2019. The progress made by both governments and corporate boardrooms across the world has been staggering. It is becoming ever-clearer that there is no future economy—and certainly no future financial investment—without a green economy and green finance at its heart. The United Kingdom, by working with its close ally the United States, can reassert its climate leadership through a green special relationship that can galvanize net-zero objectives domestically and abroad.

This paradigm shift toward net zero has created a global net-zero race. Countries are now seeking to demonstrate not only when they will achieve net zero, but also how net-zero commitments can catalyze and deliver the new clean technologies of the future. In the United States, the Inflation Reduction Act’s commitment of $369 billion in public investment in clean energy is a game changer that has sent shock waves throughout the world. The money is important, but what is also critical to the act is its long-term stability, with tax credits guaranteed until January 2033. The European Union also has its €1 trillion Green Deal, again with long-term funding commitments that can foster a new green economy. It is vital that the United Kingdom, once a climate leader, demonstrate similar ambitions if it wishes to re-establish climate leadership and avoid falling behind in the net-zero race.

The UK government recently embarked on a review of its net-zero readiness. That review sought to make recommendations on how net zero could be achieved in a more pro-growth, pro-business manner. The group’s final report, Mission Zero, concluded that net zero is not a cost but rather an opportunity, to secure £1 trillion of inward investment by 2030 and create 480,000 new jobs. Conversely, the cost of “not zero” would be far higher for the UK economy. The review also recognized the importance of ensuring that the United Kingdom collaborates with friends and partners to jointly address the world’s shared climate challenge. Carbon dioxide knows no borders. Like-minded nations should recognize that rivalry and competition, while healthy in driving markets forward and bringing costs down, must not be allowed to create new barriers and delay progress on climate action.

Many criticize the Inflation Reduction Act for being protectionist, for putting the United States first. Others claim the act will start a global subsidy race. That concern is overblown. While there is clearly a chance the law will lure companies to the United States by the promise of tax credits and investment, the wider deployment of these technologies will not be possible without establishing global supply chains and international cooperation. There is not enough skilled labor for the demand the green Industrial Revolution is creating, and new alliances for delivering net zero must therefore be forged. Without collaboration, net zero and the economic promise of the energy transition will fall short.

For the United States and the United Kingdom, an opportunity exists as like-minded friends and allies to work together to establish a new green special relationship. As advocates of democracy, liberty, and freedom, we can work with developing nations to support their own energy transitions. The net-zero prize for our nations is not simply an economic one: it can also strengthen the foundations of our shared democratic values across the globe.

Washington and London can also forge new partnerships across green industries where we cannot go it alone. Together, the allies can be greater than the sum of their parts in several strategic energy partnerships where they enjoy a comparative advantage. In new nuclear technologies, such as advanced and small modular reactors, TerraPower and X-Energy—both US companies—are seeking to locate in the United Kingdom where there are shovel-ready former coal sites with local populations that recognize the benefits of nuclear energy for workers. In carbon capture, the United Kingdom has vast geologic storage opportunities with up to 78 billion metric tons of capacity identified under the North Sea. In energy efficiency, Ameresco—another US firm—is partnering with the City of Bristol to invest £450 million in a new district heating network. These are joint opportunities from which both sides recognize the huge mutual benefits of cooperation. These can go much further, if stakeholders are willing to seize this moment to collaborate.

The Inflation Reduction Act has fired the starting gun toward delivering on net zero by providing the investment, certainty, and stability needed to allow private capital to flow and drive forward the green revolution. That investment will go far further, and achieve far greater value, if it is matched with partnerships to maximize comparative advantages that are shared by the United States and United Kingdom in achieving net zero. Now is the time to build a Green Special Relationship, for the future. Global ambitions to achieve net zero and combat climate change depend upon it.

The Rt Hon. Chris Skidmore, MP is chair of the UK government’s Net Zero Review and a former UK energy minister. He authored the government’s recent Mission Zero report. He delivered a speech on the “Green Special Relationship” at the Atlantic Council on Tuesday, April 25.

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The debt-ceiling permitting deal misses the real problems holding back the energy transition

Ken Berlin, Frank Willey — Thu, 08 Jun 2023 15:35:20 +0000

On Saturday, President Joe Biden signed into law a bill that raises the debt limit in exchange for concessions on federal spending. The deal also seeks to reform permitting for energy projects by introducing changes to the National Environmental Policy Act (NEPA), commissioning an interregional transfer capability determination study, streamlining approvals for energy storage projects, and—most controversially—completing the Mountain Valley Pipeline.

Shortening the review process for transmission projects and renewable interconnection to the grid is critical for accelerating the United States’ clean energy transition. Transmission lines take an average of five to ten years to build, largely due to the complex patchwork of stakeholders and permitting authorities involved in the review process. In addition, of the 2,000 gigawatts (GW) of generation capacity awaiting connection to the US transmission system, natural gas accounts for only 85 GW and coal merely 1 GW—the rest are zero-carbon technologies.

The critical permitting bottlenecks holding back the energy transition involve securing access to and approval of new transmission lines and the interconnection of new renewable projects to the grid. The legislation in the bill does not address either subject and will do little to clear the blockages in the permitting queue. To meet climate targets, legislators must adopt additional measures that are specific to transmission and renewable interconnection.

Source: Berkeley Lab

Completion of the Mountain Valley Pipeline
The Mountain Valley Pipeline, the most contentious of the provisions included in the bill, will proceed with development and could be completed as early as the end of this year. Some approve of the pipeline’s completion for its potential economic and energy security benefits, while others condemn its negative environmental impact. Construction on the pipeline is already 94 percent complete, but the impact on the environment and indigenous communities remains an open issue.

The Builder Act

The debt ceiling deal includes the Builder Act, which introduces reforms to NEPA that impose time limits on environmental reviews unless the project sponsor and agency agree to extend, designate a lead agency to coordinate federal project permitting, and allow project sponsors to conduct the NEPA study themselves, subject to agency review. In addition, the act revises language within the original NEPA legislation, requiring agencies to consider only environmental effects that are “reasonably foreseeable” and alternatives that are “technically and economically feasible,” potentially constraining which environmental impacts and alternatives a company must evaluate. Whether the updated legal language will result in a less comprehensive consideration of alternatives will be revealed in future litigation. Finally, the act shortens the length of NEPA documents, although the page limits do not apply to appendices, which could minimize the effects of this reform.

The provisions in the act that set time limits on the preparation of Environmental Impact Statements (EIS) and Environmental Assessments (EA) will shorten the federal review process but will not resolve the state and local jurisdictional issues that also hinder project deployment. Currently, it takes on average four-and-a-half years to complete an EIS. The Builder Act creates a two-year deadline for completing an EIS and a one-year deadline for an EA. The lead agency can extend the deadline in consultation with the project applicant but must complete the process within ninety days of a court order after the deadline. Projects, however, are not automatically approved if the timeline is not met, and significant barriers remain related to agency staffing to meet the shortened deadlines, an issue neglected in the debt ceiling reforms.

Contrary to widely expressed fears, these changes are unlikely to affect the integrity of the NEPA process. NEPA statements remain subject to the same judicial review as they were before the amendment, and if its conclusions are unsound, a reviewing court will send the NEPA document back to the agency for further review. The reviewing agency must still scrutinize any documents submitted by project sponsors and is responsible for final approval. If short deadlines prevent rigorous analysis from being completed, the NEPA document would not likely stand up in court. The environmental community, civil society, and businesses can still add comments or additional information to the administrative record but now have less time to review and comment on EISs and EAs, putting more pressure on interested parties to move swiftly.

Interregional Transmission Planning Opportunities Study

NEPA is not the biggest barrier to the rapid buildout of transmission and renewable infrastructure. The uncoordinated patchwork of federal and state permitting agencies involved in approvals, asynchronous review processes that stretch permitting times, and the Federal Energy Regulatory Commission (FERC)’s lack of direct authority over transmission wires—in contrast to its authority over natural gas pipelines—play a much more significant role in holding back project development. In addition, disagreements about cost allocation have proven formidable obstacles to building transmission and getting new renewable projects onto the grid.

These barriers are being studied extensively. The US Department of Energy (DOE) is conducting a National Transmission Planning study to be released this summer. FERC also issued a Notice of Proposed Rulemaking (NOPR) in April 2022 to improve regional transmission planning and cost allocation procedures. Instead of using these and other studies to inform legislation, the Builder Act directs the North American Electric Reliability Corporation (NERC) to conduct an interregional transmission planning opportunities study that will be published within eighteen months of the bill’s passage, followed by a year of public comment. FERC will then recommend statutory changes subject to their own review timeline.

Congress, FERC, and other federal agencies should not wait for completion of the NERC study. Instead, they should act using completed studies and the results of the DOE and FERC processes when considering additional transmission permitting and planning reform, as the infrastructure is needed as soon as possible. A Princeton study estimates the grid will need to expand by 60 percent by 2030 and triple in size by 2050. Building 60 percent more electricity transmission infrastructure within four years, starting in 2026 after the NERC study’s completion, is not feasible.

Permitting streamlining for energy storage

The bill also adds energy storage to the list of “covered projects” under the Fixing America’s Surface Transportation (FAST) Act, which improves federal-state coordination and enshrines tangible deadlines for review, but can pose additional eligibility criteria and procedural requirements that do not make the process simpler. Project proponents are subject to restrictions on review period extensions and must interpret new terminology in consultation with agencies to ensure compliance with the program. Overall, including energy storage projects under FAST-41—named after Title 41 in the FAST Act—is a welcome development. Such programs should be expanded but must be supplemented with reform of the standard permitting process.

Recommendation for permitting reform

The permitting reforms in the agreed legislation will not affect the integrity of the EIS and EA processes, despite concerns from the environmental community. However, they fail to address the substantive permitting issues related to transmission and interconnection that investors and developers face today. Bills that address primarily oil and gas leasing and permitting are counterproductive to both the permitting discussion and energy transition goals. Legislators must work together and compromise to address permitting issues.

This article is the first in a series on EnergySource discussing permitting reform in the United States. The next article will examine opportunities for permitting reform after the debt ceiling bill.

Ken Berlin is a senior fellow and the director of the Financing and Achieving Cost Competitive Climate Solutions Project at the Atlantic Council Global Energy Center.

Frank Willey is a project assistant at the Atlantic Council Global Energy Center.

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Natural gas reduced China’s urban air pollution. Can it be a global climate solution?

Joseph Webster — Tue, 06 Jun 2023 19:48:49 +0000

Greater uptake of natural gas has helped substantially reduce urban air pollution in Beijing, notorious until a few years ago for its apocalyptic, grey, smog-filled skies. The Chinese capital’s example offers a template for other developing world cities that face a similar challenge. By switching from coal, the dirtiest and most polluting energy source, these cities too can lower urban emissions, reduce harmful health outcomes, and dramatically improve quality of life, particularly among young children suffering from asthma.

While natural gas is demonstrably effective at reducing local emissions, more work is needed to reduce its global climatological impacts. Developed world natural gas exporters, including the United States, Qatar, Australia, and Canada, meanwhile, have a responsibility to constrain global greenhouse gas (GHG) emissions by limiting methane flaring and venting, and by capturing carbon in underground storage. Similarly, natural gas consumers, meanwhile, should consider not only the health benefits of reduced local air pollution, but also the climatological impacts of production abroad. Ahead of COP28 discussions this year, the United States, China, and other countries should encourage responsible natural gas production as a solution for reducing global emissions and urban air pollution.

Beijing’s improved air quality

Beijing’s local air quality has improved nearly continuously since 2013 as particulate matter (PM) 2.5 levels decreased. The US Environmental Protection Agency defines PM 2.5 as “fine inhalable particles, with diameters that are generally 2.5 micrometers and smaller.” These particles can cause serious health problems after inhalation. PM 2.5 may be particularly harmful for children, and early-life exposure is associated with an increased risk of childhood asthma.

Publicly available measurements of particulate matter concentration from the US embassy in Beijing show that the city’s average annual air quality index (AQI) fell sharply from 2013 to 2019, the last pre-COVID year in Beijing. Higher AQI values correspond to greater air pollution.

Figure 1: Beijing’s average annual Air Quality Index (lower scores indicate less pollution)
(Source: U.S. State Department, author’s calculations)

Several factors have contributed to improving air quality scores. Lauri Myllyvirta of the Centre for Research on Energy and Clean Air identifies key drivers: implementing strong emissions standards and using of emissions-control technologies for power plants and high-emissions industries; eliminating coal-based heating and cooking in homes; and slowing growth in coal consumption.

An embrace of natural gas also undoubtedly played a major role in enabling Beijing to reduce local coal production while maintaining energy access. The city has shuttered over 2 gigawatts (GW) of local coal plant capacity, beginning in 2014, while opening nearly 6 GWs of cleaner natural gas capacity.

Figure 2: Beijing’s changing electricity generation landscape
(Source: Global Energy Monitor Global Coal Plant and Global Gas Plant Trackers, author’s calculations)

As local demand for natural gas rose, Beijing sourced more supplies from abroad. Pipeline natural gas imports along the Central Asia-to-China Pipeline (CACP) were particularly important. According to the Chinese National Petroleum Company, natural gas service enabled the shutdown of four thermal coal plants in 2015. The CACP’s Line C, which entered service in 2014 and has a capacity of 25 billion cubic meters (bcm) per year, undoubtedly played a role. The CACP’s A and B lines came online in 2009 and 2010, respectively, and have a combined capacity of 30 bcm per year.

Liquefied natural gas (LNG) imports also played an important role in Beijing’s clean air transformation. From 2013–2018, China opened five LNG import terminals near Beijing, with capacity just under 40 bcm. In addition, the increased adoption of natural gas in the adjacent Tianjin municipality and Hebei and Liaoning provinces have also helped reduce coal pollution in the greater Beijing area. It’s clear that natural gas imports, especially LNG, have played an enormously important role in reducing Chinese urban pollution. China’s total natural gas imports more than quadrupled from 2011 to 2021, while its LNG imports rose from just under 17 bcm to 110 bcm in this period.

Figure 3: Chinese natural gas imports, by source
(Source: BP Statistical Review, author’s calculations)

Yet China’s victory over urban air pollution has been costly. The central government has often simply transferred coal generation from its biggest cities to less-populated locations. Therefore, while urban air pollution has declined dramatically since 2010, China’s emissions from steam coal used to make electricity have risen by 28 percent. China’s strategy has been to use natural gas selectively, reducing air pollution in politically important urban areas while increasing emissions in other parts of the country.

China also negated the environmental benefits of coal-to-gas switching by turning to Turkmenistan, almost certainly the world’s most methane-intensive producer. While coal produces far more carbon emissions than natural gas, methane emissions from natural gas production undercut that advantage. Methane has a shorter lifetime in the atmosphere than carbon dioxide, but is more efficient at trapping radiation. China sources most of its Central Asian natural gas imports from Turkmenistan, which has a methane intensity of production of 1.37 kilograms of methane per gigajoule–a level more than six times higher than in the United States even before the IRA incentivized producers to slash methane output.

Worryingly, Turkmenistan has not agreed to any concrete steps to reduce methane emissions, despite growing evidence it will secure another pipeline deal with China. If a new, 30 bcm-per-year Turkmenistan-to-China pipeline comes online and Turkmenistan’s current methane emission rate remains constant, the pipeline’s raw methane content could exceed the methane emissions of the entire US LNG complex, which boasts an export capacity of around 150 bcm a year. If Turkmenistan’s methane emissions are not abated, China’s procurement of Central Asian gas may reduce local air pollution in its cities, but will ultimately raise global emissions and associated costs.

Natural gas should be a tool for both urban air quality and climate

While the overall impact of natural gas on the climate is currently somewhat ambiguous, due to the role of methane, there need not be a tension between urban air quality and decarbonization. While there is strong evidence that replacing coal with natural gas can help reduce urban air pollution in China, India, and other economies across the Indo-Pacific, natural gas’ climate impacts can be significantly mitigated.

LNG producers from the United States and elsewhere must reduce methane emissions by limiting flaring and venting, which contribute to GHG emissions. US natural gas producers are already cutting methane emissions ahead of implementation of a methane fee under the Inflation Reduction Act. More effort is needed to reduce US natural gas GHG emissions, including by storing carbon, but the world’s largest natural gas producer and LNG exporter is on the right path.

Natural gas production does incur carbon and methane emissions—but it’s also a tool for reducing air pollution and asthma rates in urban population centers in developing countries. Moreover, if methane can be abated, natural gas can reduce global emissions when replacing coal.

The US and other natural gas producers must therefore accelerate methane and carbon emissions reductions. Meanwhile, natural gas importers, including China, must also pressure producers to limit methane and carbon emissions. Washington and Brussels are working to ensure that responsible natural gas production and LNG exports serve as a climate bridge fuel and a tool for urban emissions reduction, but they will need cooperation from Beijing and other important natural gas stakeholders.

Joseph Webster is a senior fellow at the Atlantic Council and editor of the China-Russia Report. This article represents his own personal opinion.

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Central Asia’s clean energy opportunity: Hydropower

Maxwell Zandi — Fri, 02 Jun 2023 18:11:41 +0000

Central Asia holds some of the greatest potential for hydropower in the world. The Pamir and Tien Shan mountain ranges and vast river networks that form from glacier meltwater provide numerous locations for hydroelectric dams in Central Asia. Upstream republics, including Tajikistan and Kyrgyzstan, already receive nearly 90 percent of their electricity from hydroelectric production.

However, the region has failed to harness its full hydropower potential. Tajikistan has only developed 4 percent of its total capacity, while Kyrgyzstan has exploited just 10 percent. If Tajikistan and Kyrgyzstan were to fully capitalize on their topography, they would have a surplus of electricity to export to their fossil fuel-dependent neighbors.

Several roadblocks have stalled Central Asia’s hydropower development. But through investments in Central Asia’s energy infrastructure and by fostering new dialogue on transboundary water management, the United States and European Union (EU) can help unlock much of Central Asia’s potential and forge stronger ties to the region.

Barriers to development

The majority of Central Asia’s hydropower infrastructure was built during the Soviet era and is not equipped for today’s challenges. The dated technology is unable to generate and distribute electricity at a scale needed to support rising demand in the region.

Climate change has compounded these problems. Central Asia is warming faster than most regions in the world, and recent cases of extreme heat have increased electricity demand while depleting water flows, plunging the region into darkness.

In addition, advancing new projects in Central Asia has been difficult. Historically, hydropolitics has hindered regional cooperation. Downstream republics, including Uzbekistan, Kazakhstan, and Turkmenistan are dependent on the flow of water for cotton and wheat production, which account for 5 percent of Kazakhstan’s GDP and nearly 25 percent of Uzbekistan’s. Uzbekistan’s former president even threatened the use of military force against Kyrgyzstan and Tajikistan over proposed dam projects in 2012.

A glimmer of hope

Since then, however, new leadership has engaged in more constructive dialogue on shared resources in Central Asia. This newfound willingness to cooperate has opened the door for new hydroelectric dam projects. Projects that were shelved for decades are advancing to new stages of development. The Rogun and Kambar-Ata Dams, once points of contention between upstream and downstream republics, now provide hope for Central Asia’s hydropower sector.

In 2016, Tajikistan restarted construction of the Rogun Dam, and now the early stages of the future world’s tallest dam sit on the Vakhsh River. With the technical assistance of an Italian company, Webuild, the Rogun Dam is expected to become fully operational by 2032, with a capacity of 3,600 megawatts (MW), doubling Tajikistan’s installed electrical generation capacity. Even though the project has endured significant delays, the Rogun Dam can transform the region with clean baseload energy.

The Kambar-Ata Dam is another beneficiary of the hydropolitics détente in Central Asia. In January of 2023, Kyrgyzstan, Kazakhstan, and Uzbekistan agreed to a roadmap for the project, which will have an installed capacity of 1,860 MW. Nonetheless, the project remains in the early stage of development and needs additional financing before its completion.

Pathways forward

Central Asia is trending in the right direction but must overcome several barriers before maximizing its full hydropower potential.

To mitigate cross-border disputes over new hydroelectric dams, Central Asian governments should address how to navigate the water-energy nexus. Central Asian republics should conclude new water-sharing agreements that set out clear frameworks for apportioning water between upstream hydroelectric power producers and downstream agricultural users. Greater transboundary transparency on the use of shared resources can reduce anxieties over new dam projects and help plan for contingencies in water availability. Preemptive measures can ensure the sustainable and long-term operation of hydroelectric dams in Central Asia.

Given new technology, small-scale hydropower can avoid much of the political fighting related to large-scale dams. Smaller units can be more easily deployed in existing canals and irrigation systems. This minimizes the disruption to the environment and local populations compared to large-scale units. Additionally, small-scale hydropower does not require large power lines, helping electrify rural areas in Central Asia, who tend to lack access to consistent electricity. Small-scale hydropower is not a silver bullet, but it can help expand Central Asia’s hydropower production at the margins.

To fully capitalize on its clean energy potential, however, Central Asia should continue to develop large-scale hydropower projects. Financing new projects remains a key challenge. Development institutions, such as the World Bank and Asian Development Bank, have offered support, but more is needed.

For decades, Russia has been closely linked to Central Asia’s energy system, but President Vladimir Putin’s invasion of Ukraine has motivated Central Asian governments to hedge their dependency on Moscow. New partners–China and the EU–see Russia’s isolation as an opportunity to gain new inroads into the region through energy investments.

China has avoided entering into the region’s historically fractious hydropolitics by investing downstream in Uzbekistan and Kazakhstan, both significant hydrocarbon exporters. At a recent summit with Central Asian leaders, Beijing expressed continued commitment to oil and gas investment in the region. The EU, which now accounts for 42 percent of Central Asia’s total foreign direct investment, has also taken a greater interest in the region, hoping to reduce the region’s reliance on Russian energy and counter China’s Belt and Road Initiative.

Interest from international partners is geopolitical in nature. However, if the United States and EU force Central Asian republics to choose a side in a larger geopolitical contest, they could be less receptive to new investments with strings attached and move closer to Russia and China. Instead, Western nations should focus on how investments can accelerate the region’s energy transition, thereby reducing demand for Russian hydrocarbons and strengthening Central Asia’s energy security.

Central Asia’s untapped potential for hydropower presents a unique opportunity for the region and for many Western nations. With greater international assistance and a pragmatic approach that addresses the root of the water-energy nexus, external partners can help Central Asia overcome barriers to development, strengthen collaboration, and support the region’s clean energy transition.

Maxwell Zandi is a young global professional at the Atlantic Council Global Energy Center.

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Green hydrogen: Loaded up and (long-haul) trucking

Joseph Webster, William Tobin — Fri, 05 May 2023 16:00:42 +0000

Long-haul trucking is a highly promising use case for the US hydrogen industry, and California and Texas are two large potential markets for pioneering hydrogen-fueled trucking. Both states have excellent green hydrogen potential and are taking initial steps to become hydrogen trucking hubs. When it comes to decarbonizing heavy-duty transportation, hydrogen is here for the long-haul.

Cleaning up hydrogen

Today, the vast majority of hydrogen is produced from reforming the methane in coal or natural gas in a process that produces ten times more carbon dioxide than hydrogen by mass. It is principally used for refining heavy sour oil and producing ammonia for fertilizer.

The most promising pathways to create zero-carbon clean hydrogen at scale are through renewables-produced green hydrogen or nuclear-powered pink hydrogen, both of which use zero-carbon electricity to separate hydrogen and oxygen via electrolysis. There is also blue hydrogen, which comes from natural gas in a process paired with carbon capture. Blue hydrogen’s role in decarbonization, however, is contingent on the mass buildout of carbon transportation and storage infrastructure.

If deployed judiciously, clean hydrogen can have a meaningful impact on lowering emissions in hard-to-electrify sectors, which require a chemical feedstock, long-duration energy storage, or extreme heat.

Long-haul trucking is a viable clean hydrogen offtaker

For most forms of transportation, growing economies of scale have given batteries an edge over hydrogen fuel cells. However, long-haul trucking—which accounts for 7 percent of transportation emissions—may be too high a fence for batteries to climb.

As a vehicle becomes heavier, its battery must expand proportionately in volume to provide the requisite power. Electric freight tractors use battery packs that are significantly heavier than the weight of diesel a truck typically carries, which decreases range and payload capacity while requiring more frequent charging. This is meaningful in the freight industry, where time is precious, and downtime can come at a cost of over $50 per hour before accounting for costs of charging. An electric long-haul truck takes thirty minutes to charge to only 70 percent capacity even with megawatt charging. In comparison, hydrogen re-fueling can be done quickly. Refueling a hydrogen truck takes ten minutes.

Hydrogen fuel cell trucks are therefore likely to edge out batteries for trips surpassing 180 miles and payloads above 24,000 pounds, according to an industry study.

The US Department of Energy estimates that total cost of ownership for hydrogen fuel cell long-haul vehicles will become affordable by 2030 thanks to new production tax credits for clean hydrogen. Furthermore, the department cites evidence that the long-haul trucking sector is willing to pay a premium for clean hydrogen. This outcome, however, is contingent on a buildout of refueling infrastructure along freight corridors. To boost demand, infrastructure could be built along freight lines that support high volumes of freight, such as near seaports. This can help medium-sized refueling stations reach their breakeven utilization rate. To do so, industry and policymakers must overcome a chicken-and-egg problem. The development of refueling infrastructure is critical to enable hydrogen-powered long-haul trucks, and—conversely—hydrogen refueling stations will rely on long-haul trucking for their income, as hydrogen uptake in transportation is likely to be confined to this sector.

California and Texas: Unlikely hydrogen trucking partners

California and Texas are important players in both green hydrogen and long-haul trucking.

Not only do the two states have the largest populations and economies in the country, but they also have outstanding green hydrogen potential.

Both California and Texas have excellent renewable resources, including solar and wind. The two states have deployed nearly 74 gigawatts of solar and wind capacity with another 36 GW in development.

Texas and California are the nation’s largest and second-largest renewables generators. As more renewable electricity production grows in these states, so will green hydrogen capacity—although there will be tensions between providing renewables for power generation or hydrogen.

Long-haul trucking is a natural use case for green hydrogen in both states. Texas and California are the country’s largest users of diesel for the transportation sector, consuming 633,000 barrels per day in 2021, or about 21 percent of total US diesel demand. Both states rely heavily on trucking to transport cargo from ports along the coast of California and Texas to destinations further inland. Indeed, Los Angeles, Long Beach, and Houston are the country’s first, second, and fifth-largest container ports by volume, respectively.

There is already evidence that Texas and California’s long-haul trucking sectors could see synergies between ports and green hydrogen production. California provides fiscal support for zero-emissions vehicles, plans to end the sale of fossil fuel-powered medium- and heavy-duty trucks by 2036, and continues to develop hydrogen refueling infrastructure. Tellingly, Hyundai Motor will soon operate thirty fuel cell electric trucks in California; Hyundai states this deployment will mark the largest commercial deployment of fuel cell electric trucks in the United States in the super-large vehicle class. In North Texas, Air Products and AES are teaming up to construct the country’s largest green hydrogen facility to service the trucking industry.

The trucking fleet is replaced very rapidly: the average lifespan of a super-large class truck is eight years, while the median truck on the road today is approximately six years old. In comparison, personal vehicles are replaced on average only every ten and a half years. Moreover, unlike the personal vehicle segment, most long-haul trucks are procured by fleet owners who pay very close attention to the total cost of ownership, not just the sticker price. If hydrogen-fuel trucks become more competitive than their diesel counterparts, there could be a relatively rapid adjustment.

Hydrogen: Here for the long-haul

Hydrogen’s technical and economic fundamentals are likely to improve as technology advances and the Inflation Reduction Act incentivizes investments in renewables. Owing to their renewables potential, large ports, and significant diesel demand, California and Texas are primed to lead the trucking market’s transformation. While trucking fleet turnover will take time, hydrogen appears poised to disrupt the US trucking market.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

William Tobin is a program assistant at the Atlantic Council Global Energy Center.

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China’s wind industrial policy “succeeded” – but at what cost?

Joseph Webster — Mon, 01 May 2023 17:57:46 +0000

The Chinese wind industry’s expansion is an undeniably impressive story. The world’s second-largest economy is the world’s largest onshore and offshore wind market in terms of both generation and capacity. China is not only firmly embedded across wind energy value chains—particularly in the mining and processing of rare earth elements—but it is also at the forefront of developing the world’s largest and most efficient wind turbines.

Yet China’s emergence as the world’s leading player in wind has been costly. Beijing’s wind capacity deployment to less-than-ideal locations has been inefficient, while its failure to build corresponding transmission connections stunted growth in some of its windiest provinces. Moreover, Beijing’s acquisition of wind technology—sometimes by outright theft—has increased tensions with the West. China has risen to the top of the global wind industry, but at tremendous financial and diplomatic cost. China’s successes and failures provide lessons to other countries seeking to use their own wind industrial policies to address climate challenges and strengthen economic growth.

China’s expansive industrial policy

China’s total industrial policy spend comprised at least 1.73 percent of total GDP in 2019, more than four times that of the United States. China’s wind industry policies included enforcing localization requirements, using a feed-in tariff for initial sectoral development, employing massive direct and indirect subsidies, and obtaining—many would say stealing—foreign intellectual property.

China’s wind industrial policy began with feed-in-tariffs introduced in 2009 and domestic content requirements to achieve 1 percent of the country’s energy mix by 2010.

In addition to localization requirements and feed-in tariffs, China’s wind industry also benefitted from a range of direct and indirect industrial subsidies.

Chinese provinces often extend their own subsidies for wind energy. In 2021, Guangdong province issued subsidy standards for grid-connected offshore wind projects at 1500 Renminbi per kilowatt. At this scale, a similar program in the United States would yield about $109 million in subsidies for a 500 megawatt turbine, a remarkable level of support from a subnational government.

Chinese wind industrial policy’s supply chain secrets: subsidies for steel, ships—and even coal

The Chinese wind industry has received fillips from “cross-subsidies” for steel, coal, and shipbuilding.

Steel is an important cost driver for wind projects, accounting for about 90 percent of the materials used for an offshore wind turbine, which in turn represents nearly 40 percent of the installation cost for offshore wind projects. Steel is also a key component for onshore wind projects, although those installation costs vary far more dramatically.

In China, steel and coal are inseparable.

China’s steel production primarily employs blast furnace-basic oxygen furnace, which uses coal for 90 percent of the production processes. This reliance on coal makes China’s steel, which is heavily subsidized, highly carbon intensive.

Coal generation has long been subsidized by the Chinese government, with one estimate finding support of at least $37.7 billion in 2014; China’s total electricity sector subsidies stood at $30 billion in 2021, with much of that spending still directed to coal. Beijing also quadrupled the amount of new coal power approvals in 2022 compared to 2021, contradicting China’s climate pledges.

China’s steel-coal nexus has provided significant support for the development of its wind industry, but at significant environmental cost. To be clear: even China’s carbon-intensive wind turbines are orders of magnitude less polluting than coal or natural gas, and China’s wind turbine deployment is unambiguously a positive for the climate. However, these climate benefits are reduced by the Chinese wind industry’s dependence on a carbon-intensive, coal-consuming steel industry.

Finally, China’s steel and coal subsidies complement another industry vital for offshore wind: shipping. Beijing subsidized its shipping and shipbuilding industries to the tune of $132 billion between 2010 and 2018. Its ship manufacturing capabilities ensure it can produce wind turbine installation vessels and other ships for use in offshore wind deployment. China dominates this industry; in 2019, China accounted for about 55 percent of global shipbuilding orders, and employs 33 out of the 49 existing wind turbine installation vessels. Given its low-cost steel and extensive shipbuilding complex, China is extremely well-positioned to continue to deploy offshore wind rapidly.

Forced technology transfer and espionage

The PRC has obtained foreign intellectual property related to the wind industry via forced technology transfers and industrial espionage. In exchange for operating rights within China, Spanish company Gamesa was obligated by the Chinese government to train in-country competitors. As a result, the company’s share of the Chinese market fell from 33 percent in 2005 to just 3 percent by 2010. Many foreign companies saw their intellectual property stolen by Chinese firms, often with the support of Chinese intelligence services. For instance, American Superconductor Corp (ASMC), a computer systems supplier to wind turbines, had its source code hacked and its contracts with Chinese suppliers terminated in the early 2010s. Stories like ASMC’s abound throughout the wind industry.

China’s wind industrial policy has been, at best, a highly ambiguous success. China is indisputably the leader in wind energy markets, as it historically accounts for about half of all new wind installations by capacity. It is also the world’s leader, by far, in offshore wind deployment by capacity.

However, this progress has come at great and often unnecessary cost. China’s generous and holistic industrial subsides should have been deployed in a technologically agnostic manner, as much of its wind industrial policy spending was wasted. The Chinese wind market’s overall capacity factor has historically lagged other markets, with some research showing real capacity factors below 23 percent as late as 2019, compared to utilization factors of over 34 percent in the US market. This low rate is due in part to the stunted growth in China’s most wind-rich provinces in the early 2010s due to a lack of transmission capacity, leading to significant curtailment. China’s actual wind generation is much less impressive than its deployment of wind capacity.

Moreover, Beijing’s aggressive—often illegal—actions to secure wind energy intellectual property has alienated the West and provoked political distrust. Chinese leaders may now complain about economic de-risking, but their arguments ring hollow, as Chinese firms aggressively pushed Western companies out of their domestic wind market.

China’s wind energy industrial policy has ensured it is the world’s largest and most important wind producer, but it remains to be seen if the benefits will outweigh the considerable costs. Other countries considering their own wind industrial policies should apply lessons from China’s experience. To accelerate decarbonization, countries must be mindful of the unintended consequences of subsidies; nimbly adjust transmission networks to accommodate onshore and offshore wind generation; respect fundamental intellectual property rights; and use market mechanisms, such as a pollution fee on carbon. Otherwise, they risk misallocating resources and alienating vital partners, as China has done.

Joseph Webster is a Senior Fellow at the Atlantic Council’s Global Energy Center and edits the China-Russia Report. The opinions expressed in this article are those of the author.

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Green investment takes the lead: Japan’s revamped approach in Africa

Emi Yasukawa — Fri, 31 Mar 2023 13:30:00 +0000

Countries have been trying to shift toward an investment-based approach toward Africa for at least a decade. African countries face a $100 billion annual shortfall in infrastructure financing. And while the Chinese Belt and Road Initiative outperformed the world, Chinese lending has been in decline since 2016.

Thus, the various “Africa+1” summits held in 2022 placed significant emphasis on investment and trade deals. The summit between Africa and the United States, which took place in December 2022 after an eight-year hiatus, was a result of the reframing of Africa’s importance to the United States. The Deal Room at the summit struck private sector investments and partnerships worth $15.7 billion. The UK-Africa Investment Summit emphasized the role of British businesses in enabling Africa to reap the benefits of the green industrial revolution. India, the fifth-largest investor in the continent, views the green economy as a source of new opportunities. Furthermore, in March, at the second International parliamentary Conference “Russia-Africa” in Moscow, President Putin said that Russia “has always given and would continue to give to cooperation with African countries,” with an Africa summit planned in July.

Notably, Japan also stepped up. At the Eighth Tokyo International Conference on African Development (TICAD) summit in Tunisia last summer, Japan made a $30 billion pledge, to be financed by both the public and private sectors over the next three years, surpassing its previous commitment made in 2019. The new Green Growth Initiative with Africa (GGA) was launched with a dedicated fund of $4 billion combining public and private financing, aspiring to steadily expand climate change mitigation and adaptation business through proactive investment. The initiative was accompanied by a series of memoranda of understanding (MOUs) between Japanese and African partners.

Despite Tokyo’s political commitment to Africa, trade relations with Africa have been sluggish since the beginning of the 2010s as China and India grew as economic powers. Japan’s market share fell from seventh (over 4 percent) in 2000 to seventeenth (less than 2 percent) in 2018. In 2020, Japanese Official Development Assistance (ODA) to sub-Saharan Africa accounted for only 7.8 percent of all Japanese ODA and has been on a downward trend for the past two decades. While there has been debate over increasing ODA to sub-Saharan Africa in response to the international security environment, with the larger infrastructure gap to fill today, ODA will still remain a limited tool for the growing green infrastructure financing in Africa.

The silver lining for Japan is revamped private interest toward green growth for Africa and the more flexible role of the public in incentivizing and structuring such interests.

Japanese companies with a presence in Africa see “resources/energy” as a promising business arena, doubling the percentage for “natural gas and oil,” according to a recent survey. Major trading houses that have the most local subsidiaries in Africa among Japanese companies, such as Toyota Tsusho and Sumitomo Corporation, are actively investing in renewables and green supply chains. These companies are also exploring opportunities in the green hydrogen value chain. Toyota Tsusho Corp recently acquired SoftBank’s renewable energy unit and announced “Green Economy” agreements at TICAD. The company’s Africa-based businesses doubled their sales in the past five years, reaching 1 trillion yen in 2022. Sumitomo Corporation is partnering with Namibia’s national power utility NamPower to produce ammonia from green hydrogen, with a feasibility study anticipated to be completed by the end of 2023.

Japanese commercial banking institutions have also recalibrated their interests. These interests are incubated by Africa-based institutions such as the Africa Finance Corporation (AFC), a pan-African infrastructure solution provider with an approximately $2 billion investment portfolio and a track record of making climate change adaptation and mitigation investments. AFC secured $389 million through a samurai bond, a type of bond issued in Japan by a foreign entity and denominated in yen, which offers a way for foreign issuers to access Japan’s capital market; many Japanese megabanks participated, and the issuance “was significantly oversubscribed.” Another example is Mizuho Bank—the third-largest financier by assets in Japan and the first major Japanese lender to pledge to stop financing new coal mining projects—which joined the African Hydrogen Partnership (AHP) as its first Japanese member in 2022. Mizuho signed an MOU during TICAD with Namibian Investment Promotion and Development Board for the development of an African green hydrogen hub in Namibia. With Japan as the second-biggest hydrogen patent holder (24 percent) following the EU’s 28 percent, the hydrogen economy is becoming a new frontier platform for Africa-Japan engagement. AFC and Mizuho are in agreement to co-finance infrastructure projects in Africa, and the catalytic role of Africa’s institutional partners will be key in alleviating fears over project bankability.

While Japan still lags in the mobilization of blended financing, it is becoming a viable and strategic instrument to lower risks and incentivize private interests. In particular, the mobilization of a public insurance scheme to structure financing is a critical component of the aforementioned GGA. Egypt’s future onshore wind farms near the Gulf of Suez (announced in December 2022 and March 2023) are being co-financed by a multinational consortium of banks led by Japanese public and commercial banks. These projects are part of Japan’s LEAD Initiative and will receive the highest commercial risk insurance coverage by Nippon Export and Investment Insurance (NEXI). Japan aims to formulate 1 trillion-yen scale deals in total through the LEAD Initiative portfolio by 2025. Although the LEAD Initiative is currently limited to projects in the MENA region, it has been designed to broaden project eligibility for loans, and projects may qualify for this category regardless of whether they involve Japanese exports or investments. Acceleration of this program will help de-risk projects and catalyze investments.

With Japan’s chairmanship of the G7 sure to be defined in large part by heightened concerns over energy security after one year of war in Ukraine, it is imperative that Japan maintains the momentum generated from the promises made at the 2022 TICAD and charts a distinct course from the previous decade while building relationships with countries in Africa. Japan should catalyze mechanisms to incentivize and structure green investment, such as the LEAD Initiative as laid out in the GGA, and look to build out blending financing capabilities. While challenges remain, increased private interest and a flexible public role present a positive outlook for Africa-Japan relations in the future.

Emi Yasukawa is a member of this year’s Women Leaders in Energy and Climate Fellowship at the Atlantic Council. She is the senior researcher of congressional affairs at the Embassy of Japan in Washington, DC. The views and opinions expressed in the article are those of the writer and do not necessarily reflect the views or positions of the Government of Japan.

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The US clean energy transformation can’t happen at the expense of national security

Francis R. Fannon — Thu, 30 Mar 2023 17:57:27 +0000

The greatest achievements in US history happened through considerable costs, shared sacrifice, and courage. Victory in World War II, the moon landing, and the defeat of the Soviet Union were years-long efforts that cost the nation greatly but have been celebrated around the globe for generations. During these great national challenges, US leaders were honest about the costs and grounded the country in shared ambition, girded with moral purpose.

It’s time for the United States to lead the global clean energy transition in the same way.

For years, US and European politicians have lauded the consistent decline in the cost of renewables and batteries to increase public support. The World Economic Forum noted that the cost of electricity from utility-scale solar photovoltaic panels plunged 85 percent from 2010 to 2020.

This price reduction correlates with China’s state industrial policy and control of more than 80 percent of global solar manufacturing. The International Energy Agency (IEA) stated that “China has been instrumental in bringing down costs worldwide for solar panels, with multiple benefits for clean energy transitions.”

But China’s role in clean tech cost reductions cannot be recognized anymore without acknowledging—and condemning—how those reductions were achieved: through state-sponsored intellectual property theft, human rights abuse, environmental destruction, and predatory investment practices. The FBI concluded that the “Chinese Communist Party are a grave threat to the economic well-being and democratic values of the United States.”

The United States is conflicted. Policymakers want cheap Chinese clean energy goods but recognize that such reliance undermines US economic strength and security. This conflict yields perverse results, like the waiving of justified tariffs even after the Commerce Department concluded that Chinese firms violated trade rules.

The United States must not jeopardize its national security priorities out of fear of slowing climate progress. And US success cannot be dependent on China, the world’s greatest and ever-growing climate polluter. Instead, the United States should develop a secure, resilient, and responsible clean energy supply chain. Leaders speak about the energy transition as virtuous; we must ensure that the means are as well.

The United States should address this now, as US companies reorient their supply chains from the ground up. The IEA found that the clean energy transition will require an exponential demand growth in critical minerals while also noting that the US permitting system inhibits timely domestic production.

Meanwhile, the Chinese Communist Party has spent over a decade amassing critical mineral mines around the world, and localizing processing and manufacturing at home. President Joe Biden acknowledged that “China controls most of the global market in these minerals.”

The current US administration understands this fact and has taken some notable actions. The Inflation Reduction Act (IRA), for example, included $370 billion worth of “carrots” to encourage domestic clean energy manufacturing. Yet, the Treasury Department is wrestling with how to interpret language in the IRA that restricts federal incentives for electric vehicles (EVs). The law only permits subsidies for EVs if 40 percent of their critical minerals were mined or processed in the United States, or a country with which the United States has a free trade agreement (FTA). The law prohibits subsidies if materials are sourced from China and other malign actors.

Following a meeting with President Biden, European Commission President Ursula von der Leyen said that the EU would qualify for IRA subsidies. Yet many of Europe’s EV Gigafactories are owned by Chinese Communist Party-affiliated companies.

As currently written, the IRA’s subsidy test may create loopholes that could open the door for unscrupulous laundering-like activity. For example, an enterprising commodities trader in an FTA country could potentially import and minimally process Chinese metals and qualify for US subsidies.

The administration should make clear that moving prohibited goods through a friendly port does not—and should not—qualify for US taxpayer-funded subsidies.

Instead, the United States should adopt a focused and prescriptive interpretation that applies to countries and companies, both foreign and domestic. To qualify for subsidies and other federal incentives, companies should have to disclose their critical minerals and processing supply chain. This is the only way for the United States to really know where and how its clean energy goods are produced.

Those who refuse to share this information should be barred from receiving subsidies. After all, if a company chooses to do business with cheaper Chinese inputs, then it already enjoys a cost advantage.

US policy should help make choosing the right path profitable. And we must ensure that the benefits of the US market and federal taxpayer-funded incentives only accrue to those who can demonstrate a transparent, secure, responsible supply chain. Chinese firms have repeatedly failed that test.

Republicans and Democrats are united on the China threat. The administration should build on that rare bipartisan consensus. The United States should close loopholes and prohibit US taxpayer funds from benefiting our greatest strategic adversary. To do otherwise could politically imperil the IRA and substantively undermine our strategic goals—to increase US security and build a responsible clean energy supply chain.

Frank Fannon served as the inaugural US assistant secretary of state for energy resources. He is currently managing director of Fannon Global Advisors, a consultancy finding opportunity in geopolitics and the energy transition, and a nonresident senior fellow at the Atlantic Council Global Energy Center.

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Country spotlight: Unlocking a high-energy future for Zambia

Maia Sparkman, William Tobin — Tue, 28 Mar 2023 14:46:16 +0000

With renewed commitment to democratic principles, growing bilateral relationships with high-income countries, abundant clean energy potential, and critical resources necessary for the global energy transition, the country of Zambia is well positioned to leverage its strengths to build a low-carbon, reliable energy system to spur economic growth and close the poverty gap. President Hakainde Hichilema’s landslide victory over former President Edgar Lungu in August 2021 has placed Zambia back on a path towards inclusive economic growth through attempts to restructure debt, promotion of private sector interest in infrastructure and energy investments, and delivery of economic opportunities to rural communities across the country, where over half of the population lives below the poverty line. Given these developments, Zambia poses a model for expanded collaboration between African economies, the United States, and other allies, with partnership attributes which can be replicated elsewhere on the continent.

Zambia has 2,800 megawatts (MW) of installed electricity generation capacity, with 85 percent of the electricity mix derived from hydropower, and 31 percent of the population has access to energy—the majority being in urban areas. The global disruptions to expected rainfall patterns, linked to the effects of climate change, has directly affected Zambian hydropower. Zambia’s loadshedding challenges made news this past December as their public utility, ZESCO, announced that consumers would experience up to twelve hours of loadshedding a day because of critically low water levels at the Kariba Dam, on the border of Zambia and Zimbabwe. During this time, the dam on Zambia’s side of the border could not deliver even 40 percent of its 1,080 MW capacity, crippling the country’s ability to deliver energy to consumers.

There are notable low-hanging fruits in the development of Zambia’s electricity mix. While Zambia has the potential to generate 2,300 MW of solar and 3,000 MW of wind, only 76 MW of solar has been installed and no wind power to date. And while 67 percent of the urban population has access to energy, the connection is disrupted frequently due to loadshedding and service disruption caused by aforementioned low water levels in hydropower stations. While the rains in early February assisted in shoring up water levels, climate change will continue to impact rainfall levels and create future problems in energy generation unless the energy mix diversifies.

Attracting low-capital cost investment for new energy projects has, until recently, been a challenge. President Hichilema took office shortly after Zambia became the first African country to default on its sovereign debt in 2020 during the COVID-19 pandemic and found that his predecessors had accumulated $30 billion in unserviceable debt. Much of Zambia’s borrowing under former President Lungu’s leadership was part of China’s Belt and Road Initiative (BRI), from which Zambia received $5.23 billion in the energy sector alone. The BRI led to considerable expansion of infrastructure and nearly a two-fold increase in electricity consumption over the previous decade, but left the country unable to balance its payments.

Recognizing the need to diversify Zambia’s energy grid, the government has been working towards securing private sector investment to deploy solar projects throughout the country to close the energy poverty gap. The government has outlined a plan to achieve universal access to energy for all Zambians by 2030 by bringing additional solar, hydro, geothermal, and thermal energy online.

While developed nations look to decarbonize, countries in sub-Saharan Africa, including Zambia, will need significantly more energy to power a high-growth society and achieve development goals. The vast majority of Zambia’s population is comprised of smallholder farmers, producing 80 percent of the country’s agricultural production. That same population is the most vulnerable to climate change impacts, as they rely on rain-fed agriculture. The process of realizing Zambia’s breadbasket potential will require a shift from traditional to modern farming practices, which will require significantly more energy to drive irrigation development and the mechanization of agricultural production. Furthermore, Zambia’s economy has the potential to expand its raw materials sector, and to bolster its GDP by adding value to its products through increased processing and smelting of minerals within Zambia’s borders. Doing this will require more power, and importantly, in continuous supply.

Positively, Zambia has received a recent wave of investment in its power infrastructure, a result of Hichilema welcoming foreign investors and independent power producers. A few notable investments and memoranda of understanding (MOUs) have been announced by key partners from around the world, positioning Zambia as a high prospect for low-carbon energy investments and unlocking opportunities to deliver investments in 24/7 clean electricity systems necessary to power industrial activity such as minerals processing. A few weeks ago, seven British companies announced an investment commitment of $2 billion in renewable energy projects in Zambia, to produce 1,500 MW of clean energy. Earlier this year, ZESCO and the United Arab Emirates’ Masdar signed an MOU to develop solar projects worth $2 billion, meant to generate 2,000 MW. This investment, labeled a “capital injection” by President Hichilema, will nearly triple Zambia’s electric capacity in combination with the investment from the British coalition. Critically, these investments will bolster the Zambian grid’s ability to generate electricity at times when hydropower generation is low and solar irradiance is high.

Providing commitments to develop Zambia’s energy infrastructure is not a matter of aid or charity. It has the potential to bring Zambia into the fold of the global economy—a process which adds value for Zambians and Zambia’s trade partners—and provide critical inputs to the global energy transition.

Recognizing this, during the US-African Leaders Summit hosted by the Biden Administration this past December, the United States, the Democratic Republic of the Congo (DRC), and Zambia signed an MOU to strengthen cooperation to develop a cross-border integrated electric vehicle (EV) battery value chain. This MOU is a welcome example of the form of partnership which the United States and allies should adopt in their commercial partnerships with African nations. Notably, the MOU expresses a desire to support the DRC and Zambia in developing economic activity within the EV battery value chain from the mine to the assembly line, not solely in the extraction of raw materials. Such a partnership provides an area for the US private sector to share knowledge and provide project development services and enable local industry and capacity to grow while firming global supply for critical materials and technologies for the energy transition, a win for all partners involved.

Zambia, as well as other countries across the continent, has held recent high-level diplomatic visits to establish a stronger relationship between the United States and Africa. Secretary of Treasury Janet Yellen visited Zambia in January, and Vice President Kamala Harris has just begun her tour on the continent which includes a stop in Zambia. The trips to the continent have highlighted the US’s mutual interests in strengthening Africa’s security and economic prosperity, but discussions surrounding energy development, the backbone of a prosperous future in Africa, have remained vague. While the diplomatic engagements are notable, the trips should place a heavier emphasis on opportunities for the United States to further strengthen energy development throughout the continent, a critical missing link in driving economic growth and expanding opportunity for communities in Zambia and elsewhere on the continent.

As debt-burdened African nations expand engagement with higher-income countries beyond aid, Zambia serves as an important case study on opportunities to attract investor interest in energy development. In order to keep momentum up, investment transparency and translating MOUs into action will be critical to accelerate progress on achieving sustainable development goals. Notably, the investor interest that Hichilema’s administration is attracting is a positive signal for neighboring countries by showing the outcomes that are associated with a commitment to good governance.

Maia Sparkman is an assistant director at the Atlantic Council Global Energy Center.

William Tobin is a program assistant at the Atlantic Council Global Energy Center.

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Harmonizing hydrogen ambitions and realities

William Tobin, Joseph Webster — Tue, 14 Mar 2023 15:52:45 +0000

Hydrogen will play a vital role in the deep decarbonization of the global economy. In a net-zero world, estimates like those provided by the International Renewable Energy Association (IRENA) and the Hydrogen Council forecast the chemical will supply between 12 and 20 percent of world final energy demand.

For this reason, hydrogen is gaining increased attention from policymakers and the public. While altogether a welcome development, it also comes with risks. The reason for this is simple: hydrogen is an energy carrier, not a primary fuel, and its production requires energy. For this reason, the process of devoting financial and clean energy resources to create hydrogen for applications where it is not optimal will detract from carbon abatement efforts, particularly when investments and energy are devoted to make clean hydrogen for applications which are more efficiently electrified.

The bottom of the ladder

Hydrogen is versatile, and its properties are ideal for the decarbonization of many vital economic processes which cannot easily be electrified, especially in industries such as refining, steel, and cement. Nonetheless, there are many applications which do not draw on hydrogen’s physical strengths, which policymakers should be wary of:

Liquefaction for exports. Liquefying hydrogen will be too energy intensive per unit of energy, and therefore too expensive, to justify transporting the liquid product. Converting a fuel (wind, solar, water energy, natural gas, etc.) to electricity, from electricity to hydrogen, and then from hydrogen to liquified hydrogen will result in a roundtrip efficiency (the efficiency derived from dividing the energy carried in the primary fuel by the energy present in the resultant product) of less than 40 percent, even before factoring in boil-off and regasification. This figure decreases substantially if hydrogen imports are destined for electricity generation.

Compounding these disadvantages, the amount of energy which can be transported via hydrogen, even in liquid form, is 40 percent that of an equivalent volume of liquid natural gas.

Finally, the export and import of liquid hydrogen will largely not be able to repurpose existing liquefied natural gas (LNG) terminals. Hydrogen embrittlement will require new storage tanks, piping, pumps, and valves, while new, higher-capacity compressors will be needed to achieve a liquified temperature of −253 degrees Celsius, as opposed to −162 degrees Celsius for natural gas. These expensive and time-consuming refurbishments would severely harm project economics.
Baseload thermal power generation. It is unlikely that converting electricity or natural gas to hydrogen and then to electricity will be economically viable, except in limited circumstances, such as long-term storage. Utilizing hydrogen for power generation exhibits poor roundtrip efficiency. The maximum achievable roundtrip efficiency for power-to-power hydrogen applications is 29 percent, per a study published in the International Journal of Hydrogen Energy, and between 18 and 46 percent, per a study published in Nature Energy. For reference, a combined-cycle natural gas plant can operate at efficiencies ranging from 45 to 60 percent. Co-firing natural gas with hydrogen or using a 100-percent blend of hydrogen in gas turbines may have value for inter-seasonal storage applications, however.
Domestic heating. Electrifying heat via heat pumps is highly efficient, while blending hydrogen into residential gas distribution pipelines for heating is far less so. In the United Kingdom, a meta-study by Oxford’s Jan Rosenow of thirty-two independent studies found that hydrogen for space and hot water heating results in higher energy system costs; leads to more significant environmental impacts, including greater land use requirements; and requires about five times more electricity to heat a home than a heat pump. Michael Liebreich, the founder of Bloomberg New Energy Finance, calculates that obtaining the equivalent of 70 gigawatts (GW) of residential heat via hydrogen would require 150 GW of renewable electricity. Conversely, obtaining that same amount of residential heat via heat pumps would require only 26 GW of renewable electricity.

A study on hydrogen by the UK Parliament found “hydrogen could play a role in domestic heating, but the extent of its potential is still uncertain and looks likely to be limited rather than widespread.”
Mid- to low-temperature industrial process heat. These applications should be electrified to the greatest feasible extent. Technologies like industrial heat pumps show considerable promise.
Ground transportation (light transportation, trains, and buses). Batteries are more efficient, converting 80-90 percent of stored electricity to traction. This compares to 40-60 percent for hydrogen fuel cells, not accounting for the fact that hydrogen already needed to be converted from electricity or another feedstock. Batteries are also more advanced on the cost curve than fuel cells, will likely be able to deliver improved range, and enjoy incumbency advantages via more developed infrastructure. Moreover, in applications for these vehicles with fixed routes where fuel cells might make sense due to the availability of refueling infrastructure, electrical lines will be able to deliver better results at more competitive prices. However, hydrogen vehicles could play a pivotal role in certain heavy-duty markets, if batteries are unable to meet weight-to-volume requirements which enable them to power these vehicles as innovation progresses.

Key hydrogen applications

While hydrogen has limitations, it will have an important role to play in the decarbonization of key applications. Hydrogen burns at a higher temperature (2182 degrees Celsius) than natural gas (1937 degrees Celsius), yet combustion of hydrogen produces only water. Hydrogen is also an ideal solution for industrial applications such as steel, which is responsible for 7-9 percent of global greenhouse gas emissions.

Chemicals. The first priority for building the market for low- to zero- carbon hydrogen should be to decarbonize existing hydrogen applications. This begins with refining—where hydrogen is used for hydrotreating and hydrocracking, which are essential to process heavy sour crude oil—and chemicals, with an emphasis on nitrogen-based fertilizer for which hydrogen is used to produce ammonia.

Today, the demand for hydrogen totals about 100 million tons per annum. Today, less than one million tons per annum are derived from “low-carbon” sources of hydrogen production, although this could scale to 16-24 million tons per annum by 2030 if all projects in the pipeline today were completed.
Steel. Hydrogen is essential to decarbonizing steel. Through a process called the direct reduction of iron, which uses hydrogen to reduce iron instead of coke, green steel can be made, bypassing the dirty blast-furnace-basic oxygen furnace (BF-BOF) process, in oversimplistic terms. While electrochemical substitute processes are on the horizon, they are not yet technologically mature.
Long-duration energy storage. Unlike batteries, which store electricity electrochemically in a galvanic cell, hydrogen is a chemical energy storage solution which can play a role in integrating the electrical grid by storing energy for long periods of time, eventually being converted back to electricity via combustion or by using fuel cells. The use of hydrogen for short-term “grid balancing”—the production of hydrogen during periods of high electricity production for use when production drops—competes with batteries, which store energy better per unit of volume and are achieving manufacturing scale already. However, the production of hydrogen with the express intent to fill protracted gaps in firm electricity generation is more cost-effective than using valuable battery storage for this purpose. Batteries are more economically employed for short-term storage, balancing daily ebbs in renewable generation.

A mix of uncertainty and necessity

One area to watch is decarbonizing heavy-duty vehicles, such as for mining and construction applications, whose requirements may differ from long-haul trucking. The best pathway to decarbonize haul trucks, for instance, is uncertain due to the weight-to-volume ratio for batteries approaching the scale needed to power these applications. Companies such as First Mode are trialing hydrogen haul trucks for mine sites and have fielded models which deliver more power than diesel predecessors.

Other hard-to-abate sectors similarly pose substantial amounts of uncertainty, with no clear candidate for the best pathway for decarbonization. This includes aviation, where hydrogen may yet emerge as a viable pathway for enabling low-emission flights, at least in certain contexts. This also includes shipping, for which methanol—a hydrogen carrier—may be a leading solution.

In any case, universal electrification is not possible with currently available technologies. Hydrogen will remain an irreplaceable building block of a net-zero energy system, and policymakers should continue to value it as such. But everything that can be electrified should be, leaving clean hydrogen for the most economically viable and carbon-intensive applications, allowing us to accelerate deployment where it is most needed.

William Tobin is a program assistant at the Atlantic Council Global Energy Center.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

Hydrogen as a decarbonization tool

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Clean industrial policies: A space for EU-US collaboration

Théophile Pouget-Abadie, Francis Shin, Jonah Allen — Fri, 10 Mar 2023 14:47:35 +0000

Upon the passing of the US Inflation Reduction Act (IRA) into law last summer, a wave of panic shook European capitals over concerns that European green industries would relocate to the United States. The tension is understandable: while navigating an unprecedented energy crisis and a war at its border, Europe is finding its clean industries increasingly squeezed by US—and Chinese—industrial power.

In response, the European Commission unveiled its own green industrial policy: “a Green Industrial Plan (GIP) for the Net-Zero Age,” followed by a newly announced subsidy scheme for the solar panel, battery, wind turbine, electrolyzer, and heat pump industries. Although the GIP and subsidy scheme were drafted in reaction to the IRA, future EU green industrial plans should use the IRA as an opportunity for the European Union and the United States to collaborate in specific segments of clean industrial value chains: batteries and their critical raw materials, as well as electrolyzers. Challenging China’s historical dominance across clean industries will be difficult and costly, and as tensions mount, Europeans and Americans have everything to gain from working together.

The IRA: A massive shift in clean global value chains

The IRA was itself meant to address decades of Chinese, and to a lesser extent, European, domination in five industries: electric vehicles (EVs), batteries, wind, solar, and emerging technologies like green hydrogen production and carbon capture. China grew its influence through heavy government investments, protectionist policies, an increasingly integrated internal market, and low labor costs. In September 2020, Xi Jinping announced a new net-zero plan designed to give Beijing an insurmountable lead in clean industries. Since then, Chinese investments in clean manufacturing have accelerated dramatically, reaching 91 percent of global clean manufacturing investments in 2022. Meanwhile, European clean industries developed from a set of policies incentivizing the decarbonization of industries (notably via the Emissions Trading System, or EU ETS), an environmentally minded internal market, and a skilled labor force.

But through $369 billion worth of tax credits and funding support (and potentially much more), the IRA will dramatically shift the economics of clean energy technologies and EVs in the United States and the rest of the world. Among the policies that have caused friction with US trade partners, the IRA could provide upfront investment tax credits for up to 70 percent of investment costs for renewable energy technologies, and halve the generation costs of onshore wind and solar. The federal government will also provide $7,500 for any American wishing to purchase a new EV, including incentives with domestic content requirements. Already, there are numerous industrial actors responding to these requirements by pledging new or expanded US-based production, such as Enel in solar, Hyundai in EVs, and Panasonic in batteries.

Given the economic disruption the IRA may cause for Europe’s EV and green industries, the GIP was designed to mimic some IRA provisions and play on the EU’s existing comparative strengths in response. This includes simplifying regulation and loosening state aid rules, as well as investing in skills training and securing critical raw material sources. The plan also plays to the European Union’s primary strengths in its highly skilled workforce and existing regulatory incentives—such as the EU ETS and the upcoming Carbon Border Adjustment Mechanism (CBAM)—to ensure existing decarbonization plans remain on track. The new EU subsidy scheme for green industries was similarly meant to match the IRA’s own subsidies, but make it comparatively easier for European companies to acquire aid.

However, where Europe faces greater challenges in implementing its industrial plan is its lack of fiscal firepower compared to the United States, as well as a deficit in administrative capacity due to the EU’s supranational structure to accelerate and simplify regulation. Furthermore, the new subsidy rules are not meant to apply beyond 2025, as European Commissioner for Competition Margrethe Vestager earlier insisted that such measures would be “targeted, temporary and proportionate.” The transitoriness of the subsidy scheme, which was meant to prevent states like France and Germany from benefitting disproportionately compared to other EU member states, likewise reflects more broadly how the European Union still lacks a cohesive, sweeping energy strategy that is integrated between member states, reducing its own internal market strengths.

The IRA will impact different industries in different ways. For some, such as wind, Europeans will retain their lead. In other industries, like battery production and emerging technologies like green hydrogen generation, localizing what would have been European production in the United States will be a no-brainer. Understanding how the IRA will reshuffle US, Chinese, and European positions in these global value chains will be critical to finding where it makes sense for the transatlantic alliance to collaborate closely.

Solar and wind: Lessons from history

In the solar photovoltaic (PV) market, even if the US and Europe coordinated more, China’s outright dominance would be hard to challenge on the international stage. But whereas European policymakers seem to have generally given up any hope of reviving domestic PV production following the collapse of solar PV in Germany, US policymakers have taken a more assertive role in encouraging the growth of its own PV production. The IRA tax credits will make domestic module production competitive, but not exports. For US PV producers, this relative barrier to exporting is somewhat mitigated by exponential growth in domestic demand. For Europeans, it means continued reliance on Chinese manufacturing in the near future, even with the ongoing implementation of the GIP and subsidy scheme.

In contrast, European producers have maintained their lead in wind energy production and will likely continue to do so. The region remains a leader in patents for wind technologies, and has the largest pool of start-ups. While the IRA emphasized investments in offshore wind energy, Europe would have retained its own strong lead in its existing base of offshore windfarms and the installation of offshore wind turbines even without the introduction of the subsidy scheme, which directly impacts wind energy technologies. As well as that, wind is traditionally harder to displace as an industry due to its high transportation costs. By supporting the training of skilled workers, simplifying the regulatory environment, and accelerating permitting processes, the GIP will provide a welcomed boost to the European wind industry, at a time when China increases its export capacities.

Electric vehicles: a long awaited catch-up in the United States

The United States has lagged behind its peers in EV market share, with EVs making up 20 percent of car markets in Europe compared to 6.5 percent in the United States. This leaves room for greater uptake in the latter. Moreover, there are extraordinary growth prospects for EVs around the globe, reinforced by the recent European Parliament vote to ban sales of combustion engine cars by 2035—likely meaning that there will be “enough [EVs] to go around.” But it remains to be seen whether knowledge, engineering and R&D capacities will move away from Europe and China to the United States. For now, and despite calls from France and Germany to ramp up support for European EV producers, Europe’s green industrial plan and subsidy scheme do not clearly define their support for the industry. Instead, the GIP and scheme have focused mainly on the key component of EVs: batteries.

A new arms race? Batteries and electrolyzers

The battery sector, an essential component of the energy transition, will be the key area of US and European competition with China. Given its strategic importance, the United States and Europe have both placed local battery production high on their wish lists, with the latter creating a European Battery Alliance in 2017. Yet China dominates the critical raw material supply chains required for batteries, producing fifteen times as much lithium as the United States and refining and exporting 80 percent of the world’s cobalt in 2020. The IRA’s strict domestic content and sourcing requirements limit supply chains to free trade partners and exclude “foreign countries of concern” (primarily China and Russia). This would place European carmakers, overly dependent on offtake agreements with Chinese suppliers, in a difficult position.

Dramatically reducing dependence on China for battery ecosystems will be costly. Due to vertical integration, economies of scale, and long learning curves, China’s battery industry is now competitive even without national policy support. The IRA would essentially duplicate existing (but Chinese dominated) battery supply chains at huge costs, and the EU subsidy scheme would likely run into similar issues.

For electrolyzers, vital to producing clean hydrogen and decarbonizing heavy industries, Europe and the United States are keen to develop their own domestic production capabilities in the face of cheaper Chinese products. In this race, the GIP will add another string to Europe’s bow. An upcoming Critical Raw Materials Act will seek to secure the supply of minerals, while additional funding and faster permitting will accelerate the deployment of battery and electrolyzer manufacturing in Europe. The subsidy scheme will further incentivize European battery and electrolyzer producers to retain and ramp up their investments in the region as well.

For Europe and the United States, a “join or die” moment

Given the large investment needs, US policymakers and their European counterparts have everything to gain from joining forces and designing new win-win partnerships. Building domestic capabilities in electrolyzers, battery manufacturing and their supply chains, and reducing their dependencies on China will be extremely costly.

In fact, China is ramping up its own investments. In 2022, China invested over 500 billion dollars on clean industries (about 3 percent of its GDP). In comparison, Europe spent 4 percent of its GDP on measures to shield its consumers from rising energy costs, a much higher proportion than the share of spending implied by the IRA with respect to US GDP (likely around 1-2 percent). Consequently, the European Union has demonstrated a capacity to make large-scale investment decisions, but it is running out of momentum to continue doing so (even with its newly announced subsidy scheme) due to how much it has already spent in response to the energy crisis.

Instead of igniting undue competition, the IRA should be used as a platform to build new mutually beneficial agreements. Policymakers on both sides of the Atlantic should build on the success of the low-carbon steel and aluminum agreement and anticipate tensions around the CBAM. A recent proposal to design a transatlantic “buyers club” for critical raw materials in battery production is a step in the right direction. The United States and European Union could also use the discussions sparked by the IRA, GIP, and EU subsidy scheme for green industries to work closer together to agree on common global norms, reducing Chinese influence over international standards.

Without transatlantic coordination, the United States and European Union may become mired in a trade war over the EV and green industries, which would render them both vulnerable to climate change and growing authoritarian control over the global decarbonization consensus. It is crucial for the United States and Europe to agree on collaborative industrial policies that would at least challenge Chinese dominance in green industries to ensure existing decarbonization efforts are not derailed by trade disputes and Europe’s economic anxieties do not come to pass.

Théophile Pouget-Abadie is a nonresident fellow at the Atlantic Council’s Transform Europe Initiative and policy fellow at the Jain Family Institute.

Francis Shin is a research assistant at the Atlantic Council’s Europe Center.

Jonah James Allen is a nonresident fellow at the Atlantic Council’s Transform Europe Initiative and research fellow at the Jain Family Institute.

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Sub-Saharan green hydrogen as a catalyst for development

Daniel Helmeci — Thu, 09 Mar 2023 15:53:11 +0000

Breakthroughs at COP27 led to greater international support for the MENA region’s unique potential for producing cost-effective green hydrogen. Multiple financing agreements and strategic partnerships between MENA states and potential European buyers signaled the region’s interest in long-term cooperation on developing hydrogen infrastructure and production capacity.

As Europe drives investment into the MENA region, green hydrogen’s potential in sub-Saharan African nations like South Africa, Namibia, and Kenya risks being overlooked as a driver of needed sustainable energy and economic development. Partially due to the effects of COVID-19, the population without access to electricity in sub-Saharan Africa rose in 2020 for the first time since 2013. Currently, the region accounts for 77 percent of the global population without access to electricity, up from 74 percent prior to the pandemic. Energy demand is set to rise dramatically over the next 30 years, as the region’s current population of 1.18 billion is expected to double to over 2.2 billion by 2050.

But supporting sub-Saharan sustainable energy development is not only a pressing facet of a just global energy transition; it would also be a mutually beneficial investment decision. The average long-term practical yield for a photovoltaic solar energy installation in the region is 4.34 kWh/kWp/day, significantly higher than Europe’s 3.44 kWh/kWp/day. Nearly 30 percent of the region is capable of producing over 5 kWh/kWp/day of photovoltaic output, with some of the strongest concentrations of solar irradiation in Namibia, South Africa, Botswana, and Ethiopia. Sub-Saharan wind energy potential is also strong, particularly along the coasts of Namibia, South Africa, and Kenya. If successfully developed, renewable energy capacity could produce economically viable green hydrogen in Africa under €2 per kilogram by 2030.

South Africa signaled its intention to develop green hydrogen at scale with the release of the South African Hydrogen Society Roadmap (HSRM) in February 2022. The HSRM outlined four catalytic demonstration zones designed to lay the groundwork for long-term decarbonization of industry and transportation as well as the creation of a robust export market for green hydrogen and green ammonia.

In cooperation with Hydrogen Council members Anglo American and ENGIE, South African private and public sector operators are pursuing the development of a centralized hydrogen valley known as the Platinum Valley Initiative (PVI). The valley aims to connect three hubs—Johannesburg, Durban, and Limpopo—with a projected aggregated demand of 184 kilotons (kt) of green hydrogen by 2030. The initial viability study projected that the PVI could add between $4-9 billion to South African GDP by 2050 in addition to creating between 14,000-30,000 direct and indirect jobs annually. The nine currently proposed projects would contribute to decarbonization efforts spanning the transport, industrial, and mining sectors.

In addition to HSRM and PVI, South Africa signed a Just Energy Transition Partnership (JETP) agreement with France, Germany, the United Kingdom, and the United States in November 2021. At COP27, US Special Presidential Envoy for Climate John Kerry and South African President Cyril Ramaphosa announced the endorsement of the $8.5-billion JETP investment plan. Expanding the transportation and energy potential of green hydrogen is a key component of the investment strategy.

To the west, Namibia is also expanding its development goals for green hydrogen with a focus on Southern Corridor Development Initiative (SCDI). Following the hydrogen valley model, the SCDI is a partnership between the Namibian Green Hydrogen Council and the German firm Hyphen Hydrogen Energy. The project is expected to produce 300,000 tons of green hydrogen by 2030 from 5-6 gigawatts (GW) of installed renewable energy capacity. The Namibian Port Authority (Namport) is a critical component of the SCDI scheme, already laying the groundwork with Hyphen and the Port of Rotterdam to identify needed export infrastructure.

Before an export market can develop, however, Namibia’s existing energy woes must be addressed. In 2022, only 56 percent of Namibians had access to electricity, and the nation imported 60-70 percent of its electricity demand. Hyphen says its planned projects will generate 1.5-2 terawatt-hours of surplus electricity per year, nearly equal to Namibia’s purchases from the South African Power Pool (SAPP) regional electricity network. Hyphen’s development contract is only a fraction of the 26,000 square kilometers reserved by the government for green hydrogen development. As more projects are announced, renewable energy costs will decrease, and additional electricity supply should be available to both meet domestic demand and contribute to the decarbonization of the SAPP.

Already leading the continent in geothermal energy capacity, Kenya announced a slate of investment partnerships on the sidelines of COP27 for the growth of an East African green hydrogen hub. Fortescue Future Industries (FFI), an Australian firm with a global green hydrogen and ammonia portfolio, won the rights to develop a 300-megawatt (MW) green hydrogen and ammonia plant over the next three years.

Kenya’s development of renewable energy capacity has been a blessing for the country, nearly doubling electricity access from 32 percent in 2013 to 75 percent in 2022. Kenya Electricity Generating Company’s (KenGen) geothermal infrastructure is responsible for 70 percent of that growth, and the state-owned firm announced an additional $2-billion investment in new geothermal plants in 2021. As geothermal energy continues to expand, new solar and wind projects can exclusively produce green hydrogen and its derivatives without shortchanging residential, commercial, or industrial electricity demand.

As electrolyzer costs continue to decrease and sub-Saharan Africa’s renewable energy capacity grows, developing a robust green hydrogen and ammonia economy across the region could serve as an economic and energy development boon. Before that vision can be achieved, however, the inequities between nations and energy networks within the region must be addressed through cooperation and international support. Of the forty-eight countries in the region, twenty-four have electricity grids which service less than half of their national populations; eight have grids which reach less than 20 percent of citizens. This broad range of energy system reach complicates viability assessments for green hydrogen and other sustainable energy sources when focusing on sub-Saharan Africa as a whole. Instead, development potential in specific nations like South Africa, Namibia, and Kenya should be the focus of near-term support, with the goal of expanding successful programs and investments across the region over the next 30 years.

As sustainable energy markets develop in regional leaders throughout the decade, regional partnerships like the African Green Hydrogen Alliance should expand their membership. Angola, Mozambique, Botswana, Tanzania, and Ethiopia all possess reasonable wind and solar resources and form a corridor along the southern and eastern coasts of Africa, a prime opportunity for domestic development of green hydrogen and export to Asian buyers.

Regional leaders should pursue strategies to support the expansion of electricity grids and sustainable energy in neighboring nations. Adapting previous strategies like the Mozambique Transmission Company’s (MOTRACO) cross-border interconnection project—which linked transmission networks from South Africa, Mozambique, and Eswatini for aluminum smelting—may be a way to connect large-scale utility grids, which would bolster each nation’s ability to produce cost-effective green hydrogen on a consistent basis. International financing agreements like Just Energy Transition Partnerships (JETPs) or initiatives like Power Africa should support the long-term goal of leveling electricity access and energy networks across the region, building from lessons learned from existing agreements with South Africa. While concrete strategies for developing sustainable energy in energy-insecure sub-Saharan countries remain undefined, identifying early avenues of support is a critical step in harnessing the potential 50 million tons of regional green hydrogen capacity by 2035, according to a recent report from the European Investment Bank.

Kenya, Namibia, and South Africa are well positioned to expand their production capacity over the next ten years while gradually expanding green hydrogen markets to neighboring nations and setting the foundation for future export markets to Europe and Asia. If done correctly, the African Green Hydrogen Alliance partners could set favorable regulatory environments for the region and leverage their supply on international markets. Green hydrogen has unique potential to fuel the sustainable development of the transportation networks, industrial bases, and commercial enterprises of sub-Saharan nations while also strengthening their relationship with international trading partners.

Daniel Helmeci was a Summer 2022 Young Global Professional at the Atlantic Council Global Energy Center.

EnergySource

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Chinese refining markets 101—and their implications for price caps on Russian oil

Joseph Webster — Wed, 08 Mar 2023 19:12:34 +0000

With Chinese refineries front and center amid price caps on Russian crude and products exports, this article provides fundamental analysis of Chinese refining markets.

Beijing has had a complicated history with its refiners: it attempted to shutter excess capacity at independent refiners (so-called “teapots”) in the 2000s and early 2010s, only to be largely thwarted by provincial and even county-level governments determined to retain the tax base and employment associated with the facilities. Beijing then acquiesced—to a degree—as it relaxed restrictions on import quotas for independent refineries while continuing to consolidate some of the smaller players. While the Chinese Communist Party (CCP) has not always achieved its objectives in China’s domestic oil market, it is nevertheless a very active manager, something Western policymakers should consider amid high volumes of Russian crude exports to China.

A brief history of contemporary Chinese refining markets

In 2022, China became the world’s largest refining market by capacity, at 18.8 million barrels per day (MMBPD) in 2022. This represents an astonishing increase from 2005, when capacity stood at only 8.5 MMBPD. And the surge is unlikely to stop any time soon, as capacity could grow to 20 MMBPD by 2025, although some analysts see a pullback in domestic refining capacity this year as several outdated facilities are phased out.

Source: BP Statistical Review of World Energy, EIA, CNPC ETRI, author’s calculations

Chinese refinery throughput, or crude oil intake used to produce refined products such as gasoline, diesel, and jet fuel, and more, has expanded along with capacity. While Chinese refinery throughput still lagged the United States in 2021, China is very likely to become the world’s largest refining market within the next two to three years, if it is not already. Chinese refinery throughput stood at just under 6 MMBPD in 2005, but in 2021 reached 14.5 MMBPD, a level just shy of the US throughput of 15.1 MMBPD in the same year.

Source: BP Statistical Review of World Energy

China appears well on its way to becoming the world’s largest and most important refining market, but its journey has been a bumpy one. China’s refineries have traditionally suffered from extremely low utilization rates and poor margins, especially among independent refiners. These refiners are often referred to as “teapot refiners,” due to their limited capacity and basic equipment, especially when compared to refineries run by Chinese national oil companies (NOCs).

These teapot refineries, which are generally privately owned and concentrated in central China’s Shandong province, have historically suffered from extremely low reported utilization rates—often as low as 35 to 40 percent. Extreme overcapacity ensured China historically suffered from ultra-low refinery utilization rates, especially when compared to its peers.

Source: BP Statistical Review of World Energy, author’s calculations

Dragged down by teapot refineries, from 2005-2014, Chinese refineries’ reported collective imputed capacity factors, or “run rates,” hovered at or around 65 percent, the threshold below which most individual US plants tend to shut down, at least temporarily, for economic and safety reasons. Since the entire Chinese refinery sector suffered from low refinery run rates for over a decade, the sector’s overcapacity issues were highly problematic.

Still, it is worth noting that Chinese refineries, especially the independents, are notorious for misclassifying production. There are also recent instances of refineries outright underreporting production to evade taxes. As with all Chinese economic data, one should take presented statistics with a grain of salt.

For much of the 2000s, Beijing struggled to reduce overcapacity. Erica Downs’ The Rise of China’s Independent Refineries traces how Beijing’s attempts to restrain or even constrict Chinese refineries often backfired. For example, in 2009, China’s National Development and Reform Commission (NDRC) ordered that all refineries with capacity under 40,000 barrels per day (bpd) be closed, merged, or upgraded, depending on their size. While the policy sought to shutter capacity, refineries, typically with the support of provincial or county-level governments dependent on their employment and revenue, responded by expanding capacity to avoid closure. Between 2005 and 2015, teapots’ refining capacity grew from 832,000 bpd to 4,175,000 bpd, according to Downs, suppressing China’s overall refinery utilization rates.

China’s refining overcapacity problems have abated in recent years due to stabilizing refinery capacity and, more importantly, greater crude imports. The Shandong-based teapots saw some closures and consolidations, including the September 2017 merger of the Shandong Refining Energy Group. Moreover, China allowed independent refiners to import more crude oil—and, typically, export refined products. While China’s four state-owned oil giants—Sinopec, PetroChina, CNOOC and Sinochem—have always enjoyed direct access to crude oil imports, other players, including the independents, are forced to secure import quotas from the central government. Luckily for the teapots (and China’s refinery utilization rates), Shandong’s crude import quotas nearly tripled from 2015 to 2019, while China’s overall crude imports rose from 6.7 MMBPD in 2015 to over 10 MMBPD in 2019. Despite a slight decline in domestic crude production and additional refinery capacity expansions, rising crude imports sent refinery utilization rates higher.

Chinese domestic politics and the oil sector

Chinese domestic also politics played an important role in the evolution of China’s refinery markets. Zhou Yongkang, a former member of the extremely-powerful Politburo Standing Committee, China’s former security czar, and former head of state-run China National Petroleum Company (CNPC, also the parent company of PetroChina), was purged in a Communist Party power struggle amidst the 18^th party congress in 2012. Immediately after ascending to General Secretary, Xi Jinping began consolidating power and eliminating rivals, such as Bo Xilai and Bo-affiliated figures, including Zhou Yongkang. The purges ultimately ensnared at least six senior CNPC executives linked to Zhou.

Interestingly, PetroChina’s refinery run rates continue to lag those of Beijing’s other state-run oil companies. Indeed, Shandong independents have occasionally outperformed PetroChina’s refinery utilization rates in recent years. The reasons for PetroChina’s lackluster performance are unclear. While PetroChina’s refining assets are concentrated in less-economically-dynamic north China, constraining its refining economics, the company’s association with Zhou Yongkang could also subject it to additional scrutiny and Beijing’s disfavor. Notably, PetroChina and three independent producers were penalized in early 2022 for “irregular trading.”

The CCP leadership follows oil markets closely

General Secretary Xi Jinping is not nearly as personally engaged with energy markets as his counterpart in Moscow, who has over two decades of experience interacting with Russia’s most important industry and (supposedly) wrote a doctoral thesis on Russia’s natural resources. Still, Beijing’s actions demonstrate is a highly active manager of its refining markets, as its recent decision to lift crude oil import quotas demonstrates. Moreover, Xi is familiar with the sector due to its economic centrality, as well as its role in the Zhou Yongkang affair. The CCP pays close attention to oil markets, something Western policymakers should keep in mind as they examine Sino-Russian energy ties.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

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Global Energy Center Indo-Pacific Security Initiative

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Beauty and the beast: Implications of the US-China tech war on climate and energy

Jennifer Lee — Mon, 06 Mar 2023 20:00:00 +0000

Tensions from the US-China tech war have spilled over into green tech and climate efforts. Reports last month suggested Beijing has revised export/import guidelines to restrict the export of solar panel equipment (not the panels themselves). China produces and exports the most solar panels in the world and dominates the solar panel supply chain; the top ten suppliers of solar PV manufacturing equipment reside in China, and Chinese producers make up at least 80 percent of every step in the solar panel manufacturing process.

Notably, the move to restrict the export of equipment used to make key technology (here, solar panels) mirrors US actions to do the same with semiconductors. This mirroring tactic aligns with Beijing’s typical tit-for-tat approach when reacting to contentious events with the United States in recent years. As US-China geopolitical hostilities hit green tech sectors, intense competition brings both advantages and drawbacks for the industry.

The pretty…

Bottlenecks and vulnerabilities revealed by the COVID-19 pandemic have contributed to a global impulse to on-, re-, and friend-shore supply chains, resulting in increased investment in core technologies. The Biden administration has ramped up spending on semiconductors and STEM education, as well as batteries and their related components. Not only have American green tech sectors received greater policy prioritization, but they will also gain from new funding initiatives and from investments into STEM-related human capital and infrastructure. Moreover, a diversified tech supply chain would reduce geopolitical leverage of third-party countries, like China, in the medium to long term.

Additionally, recognizing supply chain dominance by countries of concern has the benefit of spurring research into and development of alternate technologies to reduce dependence on vulnerable supply chains. China’s supremacy in the production of silicon—the key critical mineral used in commercial solar panels currently—helps justify researching and commercializing other materials to produce solar panels, such as perovskites (though Chinese firms still play a major role in developing the technology) and US-led cadmium-telluride.

…and the ugly

China watchers have traditionally pointed to climate as an area for cooperation with China even during heightened tensions, but increasingly geopolitics have pushed environmental efforts towards competition. Secretary Raimondo’s November 30 speech on US-China relations mentioned competition twenty-six times, whereas cooperation appeared only six times. Democrats’ initial rush to decouple from China’s domestic clean energy industries temporarily strained relations with allies, while Republicans like Rep. Cathy McMorris Rodgers want to slow down the clean energy transition for fear of overreliance on China (and then focus on outcompeting China)—both strategies prioritize geopolitical competition over mitigating climate change. As Ilaria Marzocco noted, national security motivations for developing these technologies are eclipsing climate change needs.

Escalating even non-tech US-China tensions could threaten progress on climate efforts and green tech development. Conflict between the two, such as over a flashpoint like Taiwan, could distract these giants and force green tech advancements to take a back seat to conventional security priorities. Following Nancy Pelosi’s visit to Taiwan, China suspended the high-level US-China bilateral climate talks (though the talks resumed in November). Further straining the relationship could jeopardize green tech deployment and emissions reductions as the United States and China exchange blows.

Looking ahead: Pushing the pretty and mitigating the ugly

The Inflation Reduction Act (IRA) dedicates billions to funding clean energy initiatives. Prompt implementation of the different financing mechanisms will allow green tech companies to access the benefits of competition. Already, the Environmental Protection Agency has made progress; on February 14, it released guidelines for the IRA’s Greenhouse Gas Reduction Fund, of which $7 billion targets solar power deployment through the Zero-Emissions Technology Fund Competition. It expects to start accepting proposals this summer. Ensuring follow-through on implementation of US industrial policies will tackle the classic climate problem of failing to put commitments into practice and reduce the pain of supply chain reorientation.

Policymakers also need to guard against counterproductive fallout from tech tensions. The Biden administration has additional tech restrictions planned, buoyed by bipartisan support for countering China across multiple sectors. Beijing could respond in-kind with restrictions of its own going beyond solar panel equipment; China also dominates wind power supply chains, for example, and Beijing has taken issue with the Ford-CATL deal over concerns it could share core battery technology with the US company. Biden’s potential outbound investment executive order has been anticipated for several months, though, so it would not come as a surprise to Beijing. Clear communication with Chinese counterparts about US policy changes—when appropriate—can help dampen the reaction to competitive policies.

Meanwhile, like how Pelosi’s Taiwan visit suspended high-level US-China climate change talks for months, mitigating risks across other areas of the relationship will help insulate green tech from the negative effects of geopolitical competition. Sustaining bilateral dialogues and cooperating on other areas of mutual interest —for example, governance of AI-powered weapons, illicit fentanyl trade, nuclear threats from North Korea and Iran—can counter some of the spillover of rising tensions into the green tech sector.

China and the United States represent the top two individual emitters, together making up nearly 40 percent of global CO₂ emissions. A healthy level of competition can catalyze innovation and uptake of clean energy and secures supply chains, but officials should take care not to escalate to where antagonism between the green tech powerhouses would slow down development and cut off markets around the world from accessing the best tools to combat emissions. How the two governments manage their relationship and their domestic policies affects economic outcomes for green tech companies as well as global climate security outcomes.

Jennifer Lee is a member of this year’s Women Leaders in Energy and Climate Fellowship at the Atlantic Council. She is an associate at the Scowcroft Group.

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Lula is back. Are Brazil’s climate credentials?

By Lizi Bowen, Maia Sparkman, William Tobin

Lula’s return to office in Brazil heralded a renewed commitment to environmental stewardship. But steps must be taken to ensure that renewal becomes as concrete and effective as possible.

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By Giampaolo Cantini

COP27 marked a major escalation in the MENA region’s hydrogen ambitions. With several international partnerships now underway, sustained support and forward-thinking policymaking will be key.

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Recap: Alliance for Green Cities launch event

Global Energy Center — Mon, 06 Mar 2023 14:52:44 +0000

Last week, the Alliance for Green Cities, a new initiative under the Partnership for Transatlantic Energy and Climate Cooperation (P-TECC), was launched by the United States Department of Energy (DOE) during an event hosted by the City of Split, the American-Central European Business Association, and the Atlantic Council. The Alliance was inaugurated with a conference in Split, Croatia, convening leaders to explore how to enhance climate action at the municipal level. This initiative highlights the role cities play in promoting a clean energy transition by upgrading inefficient energy management systems, decarbonizing transportation, and building resilience against the impacts of climate change.

The conference was joined by mayors from Croatia, representatives from US cities and DOE’s National Laboratories, and leaders from the non-profit and private sectors engaged in city-level decarbonization efforts. Kicking off with keynote remarks from Ivica Puljak, Mayor of Split, and Andrew Light, Assistant Secretary of Energy for International Affairs at DOE, the two leaders emphasized their commitment to empowering cities to play a key role in enabling policies that leverage technological innovation and unlocking funding to realize the energy transition. By recognizing cities as laboratories of change, the initiative aims to disseminate best practices in decarbonization, with an eye towards scaling policies to the national and international level.

As cities assess their emissions and press ahead with decarbonization, many are finding that buildings and transportations are their two most emissions-intensive sectors. Decarbonizing commercial and residential buildings through data-driven energy management retrofits of inefficient stock is one of the most cost-effective ways to lower carbon emissions in cities. Speakers highlighted the ways cities can work to improve building performance to reduce greenhouse gas emissions.

Russia’s war in Ukraine has accelerated the transition by increasing the price of fossil-based energy and demonstrating the interconnection between energy security and decarbonization. The war’s impact has pushed cities in Europe to make buildings more energy-efficient with support from municipal co-financing. Through this initiative, DOE’s National Laboratories will work with city leaders to deploy energy-efficient technologies.

Electrifying transportation will be key to a clean energy future. Regional power grids must be modernized to accommodate the increased demand created by a growing electric vehicle fleet. Panelists expressed desire to improve low-carbon transportation between cities, highlighting the need for national governments to support regional-scale mobility. Cities must take a much more holistic approach when planning for a decarbonized transportation sector by improving walkability and bikeability, spreading amenities beyond downtowns, and improving access to public transportation. However, providing financing at scale to address these changes is daunting. In Croatia, for example, the Environmental Protection and Energy Efficiency Fund provides investments for the public and private sectors, as well as directly to citizens, to retrofit buildings, install renewable energy sources, and decarbonize transportation.

The conference concluded by discussing opportunities for cities to become more resilient to climate impacts and to engage with citizens to respond to extreme heat, floods, and droughts. The conversation detailed the work between DOE’s National Labs and cities to develop a shared vision on maximizing economic growth and equity as it relates to a clean energy transition. A resilient city builds policies with co-benefits to address disparities in health, education, and resource access, and to engage with the communities most vulnerable to the impacts of climate change.

The conference provided a starting point for transatlantic cooperation on city-level decarbonization, but central to lowering emissions is improving education and communication with local community members to empower them to be agents of change. The Alliance for Green Cities promises to be an invaluable incubator for ideas to advance global decarbonization efforts, starting at the city level.

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Lula is back. Are Brazil’s climate credentials?

Lizi Bowen, Maia Sparkman, William Tobin — Fri, 24 Feb 2023 14:50:43 +0000

Following Luiz Inácio “Lula” da Silva’s presidential win in Brazil, Lula and President Biden met at the White House this month to set out a new agenda to further decarbonization and climate change efforts in the Western hemisphere. Early actions taken in Lula’s return to office show positive signals that Brazil is committed to implementing environmental and energy policies to address climate change while balancing economic development and environmental justice.

These actions are welcome, given the troubling environmental legacy of the prior administration. Deforestation rates surged under former President Jair Bolsonaro’s term, reaching the highest levels in 2021 since 2008. The Bolsonaro administration weakened environmental agencies intended to protect the Amazon rainforest, eased protections on protected land, and fired the head of Brazil’s National Institute for Space and Research (INPE) after it released data showing that deforestation rates had increased. Lax environmental policies resulted in land robbery and the increase of illegal activity, particularly related to logging and mining. Illegal mining saw a 46 percent increase in the Yanomami Indigenous territory in northern Brazil from 2020 to 2021, raising environmental justice concerns as the uniquely impacted Yanomami community experienced increased violence and diseases due to polluted rivers as a result of ore processing.

Lula’s return to office marks a return to the protection and conservation of the Amazon and its people while balancing the sustainable development of the region. The president created the country’s first Ministry of Indigenous Peoples, representing 307 indigenous groups. Lula also welcomed Marina Silva back to the federal government as Minister of Environment, the position she held during Lula’s first term as president. A well-known environmentalist from the Amazon state of Acre, Silva’s return to the Ministry signals Lula’s commitment to prioritizing environmental protection.

The return of the Amazon Fund

Deforestation of the Brazilian Amazon has made the forest a net carbon emitter since 2016, accelerated by Bolsonaro’s policies and the shuttering of the Amazon Fund. Soon after Lula’s victory, however, Brazil’s Supreme Court ruled to reactivate the fund, which he signed on his first day back in office. With this reversal, Brazil is taking steps to once more be a clean energy and decarbonization leader in the region. But in order to reach these goals, expanding and diversifying funding is crucial.

Deforestation is a major factor in driving up greenhouse gas emissions, with tropical deforestation being responsible for roughly 20 percent of annual emissions. The Amazon rainforest holds 48 billion tons of carbon and its preservation is essential in the global fight against climate change and reaching ambitious net-zero goals. To assert low-carbon leadership in the region, Brazil should take advantage of the momentum behind the Amazon Fund right now.

The fund has historically been supported by Norway and Germany, but its support is set to grow. The Norwegian government—after backing out of the fund while Bolsonaro was in power—is keen on resuming donations immediately, and Germany signed a new pledge committing to donations following Lula’s October win. Additionally, following President Lula and Biden’s meeting this month, the two leaders released a joint statement in which Biden committed to work with the US Congress to contribute funds to conserve the Brazilian Amazon, including directly to the Amazon Fund. France, the European Union, and the United Kingdom have also announced their intentions to contribute to the fund.

While the addition of some of the world’s wealthiest countries are a significant step to broaden the fund’s scope, it is not enough. At COP27 in Glasgow, over one hundred world leaders representing more than 85 percent of the world’s forests pledged to halt deforestation by 2030, but little momentum has been seen since. As governments raise their ambition in forest preservation and funding, the focus must next turn to industry whose spending power and contributions in technology will be vital to expanding conservation efforts.

Private-sector participation in conservation funding would prove beneficial for Brazil, where although early satellite data shows deforestation in the Amazon has been declining since Lula’s return to office, experts say it may take years to show major progress following environmental setbacks under Bolsonaro. This progress will more effectively be accomplished with a suite of multi-sectoral funders. The fund’s potential for impact should be marketed to a broad coalition of funders from government, finance, and industry alike, with the option to contribute using verifiable carbon credits.

Building an even cleaner energy mix

Brazil’s environmental leadership need not be confined to the management of its ecosystems, however. Brazil already has one of the world’s highest shares of renewable energy in primary energy consumption, where clean energy sources meet 46 percent of total energy supply—not just electricity—in Brazil. By such a measure, Brazil is a clean energy powerhouse. Nonetheless, there are areas for Brazil to expand its low-carbon leadership.

Much of Brazil’s high share of clean energy in its energy supply is owed to biofuels, which are used in the industrial and residential heat, and transport sectors, at 50 percent and 25 percent, respectively. The country has been a pioneer in the use of biofuels for transportation, and in 2017 issued the RenovaBio policy which links the use of biofuels in transportation with Brazil’s Nationally Determined Contribution (NDC) under the Paris Agreement to reduce its emissions by 43 percent from 2005 levels by 2030. The country has committed under its NDC to increase the use of bioenergy, with high blending standards to support this. However, as an alternative to biofuels, Brazil could benefit from more targeted investment and policy support for electromobility, which does not pose the same concerns associated with the carbon intensity of land use. Brazil surpassed 100,000 cumulative electric vehicle sales in 2022, but deployment is limited by a lack of charging infrastructure. The country has less than 5,000 charging stations, while Germany, for instance, has over 1 million.

Furthermore, the country has a genuine opportunity to increase the share of clean energy in the power grid above 86 percent. Much of this share is owed to hydropower, which accounts for about 65 percent of total generation. Brazil is being eyed as a prime destination for wind development, with a potential of 1.8 terawatts (TW) onshore and offshore. The Ministry of Mines and Energy has taken steps to clarify the regulatory and legal frameworks for offshore wind development, which are severely lacking across Latin America, and could be catalytic for investment beyond the 17 GW of offshore wind already planned in Brazil.

However, the integration of intermittent renewables onto the electric grid will require more power system balancing to ensure generation matches demand. This comes amid a troubling outlook for hydropower in Brazil, historically a reliable baseload energy source, but whose generation is forecast to be more variable, as climate change leads to abnormal weather patterns. Increasingly frequent droughts and less predictable rainfall may increase the need for energy storage or gas peaker plants, if necessary, to ensure the consistent delivery of electricity to consumers.

Another area for Brazil to lead is by modernizing Petrobras and orienting it towards the energy transition. Petrobras is the largest oil company in Latin America and Brazil’s flagship state-owned enterprise. Prior to Lula’s victory, core energy advisors expressed a desire to make Petrobras more active in investing in renewable energy assets. After his election, Lula appointed Jean Paul Prates to the role of CEO, a senator and political ally of Lula. Prates has a history of introducing sustainability-focused legislation, even during Bolsonaro’s term. This background could bode well for the management of Petrobras at a critical juncture. Debt-constrained Petrobras will need to find innovative models if it desires to pair energy-transition ambitions with returns for the Brazilian public, but if it succeeds, it could offer lessons for national or state-owned oil company modernization on a global scale.

Bolstering Brazil’s environmental and clean energy leadership will require careful planning in the years ahead. The re-emergence of Lula does not seal this fate. While it can showcase its clean electricity sector, Brazil will need to balance using resources for conserving the Amazon and expanding electrification amid competing domestic economic and political priorities. For instance, Brazil will need to invest to maintain its social welfare state, amid a high benchmark interest rate of 13.75 percent and conflict between the Lula administration and the Central Bank of Brazil over fiscal policy, challenges which will impact the investment climate and Lula’s domestic political efficacy in tandem. Despite these challenges, Brazil has the potential to act as a first mover among emerging markets in making progress towards net-zero.

Lizi Bowen is associate director for digital communications and community engagement at the Atlantic Council Global Energy Center.

Maia Sparkman is an assistant director at the Atlantic Council Global Energy Center.

William Tobin is a program assistant at the Atlantic Council Global Energy Center.

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The power of renewables: Productive use appliances as climate change solutions in sub-Saharan Africa

Sharmila Bellur — Tue, 21 Feb 2023 16:52:08 +0000

Despite contributing the least to greenhouse gas emissions, sub-Saharan Africa is the region most affected by climate change, with key development sectors already experiencing widespread loss and damage attributable to human-induced climate change. Africa’s annual temperature has risen consistently over the years, increasing at an average rate of 0.13 degrees Celsius per decade since 1910, accelerating to 0.29 degrees Celsius per decade since 1981. And with these rising temperatures have come increased frequency and severity of climate events like erratic precipitation, extreme weather events, slow-onset changes such as desert locust swarms, and rising seas. These impacts pose threats to agricultural and industrial output as well as people’s health and livelihoods.

570 million people in the region, or 48 percent, lack access to electricity, while 900 million people, or 83 percent, lack access to clean cooking. This leaves the unserved hooked to polluting and fossil-based alternatives to meet basic energy needs, further impacting the region’s ability to grapple with climate change. Productive use appliances (PUAs) powered by renewables can play a critical role in reducing carbon emissions and mitigating the effects of climate change, while enabling a wide range of climate adaptation and resilience activities.

Productive use appliances are energy-using, productivity-increasing, and income-generating devices designed for specific economic activities within agriculture and small and medium enterprises. Some common examples of PUAs include solar water pumps for irrigation; cold storage for preservation of food; solar cookstoves; poultry lighting, egg incubators and milking machines for livestock; and grain mills for small-scale food processing. Renewable energy sources, such as solar and wind, powering grids, off-grid appliances, and productive loads connected to mini-grids, offer a sustainable and accessible solution to meeting the energy needs for PUAs.

The benefits of PUAs in sub-Saharan Africa

Adoption of productive uses is a significant leap up the energy ladder as increased use of electricity helps unlock productivity and results in increased incomes. With increased incomes, households can afford more appliances, like refrigerators and electricity for cooking, that provide health benefits and time savings. PUAs can serve as loads that enhance the viability of off-grid, mini-grid, and utility service, helping reduce energy costs and improve the quality of supply. They can also help create local jobs in areas such as manufacturing, installation, maintenance, and repair. This not only provides employment but also strengthens the local economy. By improving livelihoods and food security, PUAs can help to reduce poverty and increase economic growth.

Climate mitigation, adaptation, and resilience

By reducing the use of fossil fuels and the associated greenhouse gas emissions, the productive use of renewable energy appliances helps mitigate and adapt to the changing climate. For example, a solar-powered water pump can provide farmers with access to irrigation even during times of drought, reducing the need for diesel-powered pumps that contribute to greenhouse gas emissions and helping communities combat food insecurity. Similarly, using a solar-powered refrigerator for food storage can help reduce emissions from traditional refrigeration systems that rely on refrigerants with high global warming potential. They also provide communities with access to cold storage for food and medicine, which can be critical during times of extreme weather and power outages.

Finally, the productive use of renewable energy appliances can help build resilience to the impacts of climate change. By reducing dependence on fossil fuels, communities can become more self-sufficient and less vulnerable to price spikes and supply disruptions. Additionally, renewable energy systems can be designed to be modular, scalable, and circular, allowing communities to adapt to changing energy needs over time.

Challenges and solutions

Despite the numerous benefits, much of its potential is yet to realized. For example, over 5.4 million small-holder farmers could use solar water pumps in sub-Saharan Africa, but less than 10 percent of them do so. This is due to constraints that impact both demand and supply of PUAs: the high, potentially prohibitive cost of PUAs and electricity supply; the patchy quality and reliability of supply, especially grid-based supply; the dearth of PUAs themselves; the lack of mechanisms to identify demand; and limited access to finance for end users and PUA suppliers.

To address these constraints, several solutions are being tested and have proven successful that can be unleashed to scale PUAs in sub-Saharan Africa:

Ensure that PUAs are available. Innovation, supply chain expansion, and customer targeting of PUAs is increasing uptake. For example, focused efforts in promoting solar cooling in Nigeria to fishing communities for better storage of fish, a valuable commodity, resulted in significant benefits. However, it is necessary to develop and enforce consistent quality standards for PUAs to prevent market spoilage, along with harm to consumers and the environment.
Provide access to finance for small businesses, end users, and providers of energy services. Results-based financing, grants, and subsidies are being leveraged to bring the private sector into underserved markets and address affordability constraints of end users. Pay-as-you-go (PAYGo) payment mechanisms, which are already prevalent in the distributed energy resource (DER) sector, enable end users to repay over a period of time, reducing affordability constraints. In order to create financing interventions that effectively support both the demand and supply of PUAs, it is necessary to assess the constraints that PUA end users and energy service and appliance providers face when accessing finance.
Support business development. End users need to make informed equipment and appliance purchasing decisions, have the technical skills to operate new equipment, and develop the entrepreneurial and business skills to manage business operations so that they capitalize on the PUAs. Additionally, it is crucial to provide access to markets through complementary services such as transportation and communication infrastructure. This will enable the production and sale of goods and services produced through the use of PUAs.
Provide sufficient electricity supply. Creating new sources of power, expanding transmission and distribution to increase supply and serve more areas, and connecting more customers are important for advancing access in the region.

It is crucial for sub-Saharan Africa to shift towards low-carbon energy sources to decrease the amount of greenhouse gases released into the atmosphere, as well as to build the region’s adaptive and resilience capacity. But this must be done in a way that supports the growth and progress of the continent and provides energy access to the millions of Africans who currently lack it. Productive use appliances powered by renewable energy show promise for fulfilling these diverse priorities.

Sharmila Bellur is a member of this year’s Women Leaders in Energy and Climate Fellowship at the Atlantic Council. She is a sustainable development consultant at the World Bank.

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Hydrogen in the MENA region: Priorities and steps forward

Giampaolo Cantini — Tue, 14 Feb 2023 17:29:33 +0000

A number of announcements made recently concerning plans on green hydrogen development in the MENA region are set to advance the idea of a future pattern of energy interdependence, particularly in hydrogen, with Europe. Most of these plans are still undergoing feasibility studies, but some are closer to operation.

If fully implemented, such projects, might act as a catalyst for more investments in hydrogen production and infrastructure in the region and for the process of demand creation that remains at the core of the future of hydrogen development.

Furthermore, the potential in the MENA goes well beyond the region itself and its relationship with Europe. Some Gulf countries are set to export green hydrogen products to Asia and their sovereign funds and renewables companies are looking at hydrogen investments in several African countries.

The implications of the MENA region’s commitment to renewables development and to hydrogen in particular are thus wide-ranging and should be supported at the policy and operational level by, among others, the EU, the multilateral finance development institutions, and other international partners.

Many projects were announced at COP27. Egypt, the host country, was the main protagonist: 9 memoranda of understanding (MoUs) on feasibility studies on production of green hydrogen and green ammonia were signed. Such products would mostly be exported to European and Asian markets. If turned into investment decisions and implemented fully, the nine projects are supposed to be worth around $83 billion and to produce collectively 7.6 million tons of green ammonia and 2.7 million tons of green hydrogen per year, when fully operational. Also at COP27, the Egyptian authorities and a consortium of local and international investors announced the commissioning of the first phase of what is supposed to become the first integrated green hydrogen plant in Africa.

The most noticeable development at a political level in the field of hydrogen development regarded EU-Egypt cooperation, when the President of the European Commission von der Leyen and Egypt’s President al-Sisi issued a Joint Statement on the EU-Egypt Renewable Hydrogen Partnership and the Vice President of the European Commission and its Energy Commissioner signed a MoU, with the Egyptian Ministers of Oil/Petroleum and Electricity/Renewables, to establish a strategic partnership on renewable hydrogen. The two sides agreed to set up an EU-Egypt Hydrogen Coordination Group and to organize an annual meeting of a Business Forum that would include industrial and energy players.

Furthermore, on November 9, Egypt’s President and Belgium’s Prime Minister launched a new international platform on hydrogen, named the “Global Renewable Hydrogen Forum”.

After COP27, seven more MoUs were signed by the relevant Egyptian agencies with various investors to conduct feasibility studies on new projects with a view to setting up facilities to produce green hydrogen and its derivatives.

Egypt is not the only Arab country to move dynamically on this front. Governments, sovereign funds, and industrial players in Saudi Arabia, the United Arab Emirates, Oman, and Morocco are acting quickly and boldly.

Saudi Arabia, which launched a comprehensive Saudi Green Initiative in 2021, is planning a substantial development of green hydrogen and green ammonia production centered around NEOM, a new city and area to be developed in the northwestern corner of the country. If fully implemented, the project would set up the world’s largest utility green hydrogen facility. The Green Initiative also includes thirteen renewable energy projects, with a combined capacity of 11.3 GW that would help reduce some 20 million tons of carbon emissions per year.

Oman launched recently a new Strategy on Green Hydrogen that foresees $140 billion in investment by 2050, targeting an annual production of 1-1.25 megatons (MT) of green hydrogen by 2030, rising to 3.25-3.75 MT by 2040 and 7.5-8.5 MT by 2050. Oman is also working on a project to establish a green steel plant fed by hydrogen, with an annual production of 5 million tons. Such product would be exported to other Middle Eastern countries as well as to Europe, Japan, and other Asian markets.

The UAE, the host of COP28 in 2023, is also very active through different channels: at COP27 it announced a joint initiative (denominated “PACE”, Partnership to Accelerate Transition to Clean Energy) with the United States, with the aim to “catalyze $100 billion in financing, investment, and other support and to deploy globally 100 gigawatts (GW) of clean energy by 2035 to advance the energy transition and maximize climate benefits.” The UAE is also in the process of developing green hydrogen within its borders and abroad, mainly through Masdar, a key player with plans stretching from Africa to Central Asia.

Qatar has launched a project for establishing the largest blue ammonia facility worldwide and is very active in acquisitions in international renewables companies. Its sovereign fund QIA is also considering support to projects in Egypt, for developing green ammonia and green fuel for navigation.

At a regional level, according to the recently issued IEA report “Renewables 2022”, rapid growth in wind and solar will see renewables capacity across MENA rise faster than expected earlier. Such capacity is indeed set to triple to reach 45 GW in five years, with a significant upward revision from the IEA’s 2021 report (that estimated a capacity of 32 GW to be reached between 2021 and 2026). The IEA expects Saudi Arabia, the UAE, Israel, Oman, Morocco, and Egypt to account for 85 percent of renewable capacity growth in the region between 2022 and 2027.

Underlying most of these efforts is the goal, especially for gas-producing countries, to push ahead with renewables projects with the aim to liberate, in the short-medium term, gas resources for export, in light of the European quest for diversification of gas supplies and of the global energy crunch.

Two trends should thus be monitored over the coming months and years:

In spite of the harsh debate at COP27 on the role of oil and gas in the transition, including the claims by most fossil fuel-producing (or would-be producing) countries in MENA (and in Africa) on the need to continue to invest in oil and gas, these same countries are already investing to a significant extent in renewables development. This may not be occurring at the pace necessary, without a common strategy and with a number of uncertainties, but nonetheless signifies a rising level of ambition.
The idea of interconnecting these countries with European and Asian markets for exporting green renewables appears to gradually be taking shape, initially through the export of blue and green ammonia and, at a later stage, green hydrogen through converted or dedicated infrastructure. The initiatives jointly launched by the EU and Egypt at COP27 hopefully will advance this aim.

Giampaolo Cantini is a nonresident senior fellow at the Atlantic Council Global Energy Center.

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