Net Zero

1. Test for CCS
2. LNG overload
3. $7 billion climate bet
4. Copper bulls
5. Big Oil showdown

Pleading for solar trade protections, and passing Peak COP.

Test for CCS

The Biden administration’s new restrictions on power plant emissions set up a final test for one of the most controversial corners of climate tech: carbon capture and sequestration. The rules require existing coal-fired power plants to curb their CO2 emissions by 90% if they plan to operate beyond 2039, and also require steep emissions cuts from any new gas-fired power plants. The rules essentially force a choice on investors in coal plants: Is it more cost-effective to retire the plants early and replace them with a lower-carbon option, or retrofit the plant with carbon capture? Numerous attempts over the last decade to fit CCS onto a coal plant have failed. Currently, only one such plant exists in the US, and its finances work because the captured CO2 is sold to facilitate oil drilling, limiting the project’s climate benefit.

Tax incentives in the Inflation Reduction Act should make the next generation of CCS attempts more viable, but there are still obstacles in building out the infrastructure to transport and bury all that CO2. Aniruddha Sharma, CEO of the CCS company Carbon Clean, said while the technology can pencil out for smaller factories with few alternate decarbonization options, “infrastructure upgrades may not make sense” for larger, older coal plants, which will also face costs from other new EPA restrictions on mercury and other pollutants. The upshot is that the next few years will determine whether “clean coal” can actually exist.

The new rules are also a test of the impact and durability of emissions-targeting regulations (i.e., sticks), in an era when most climate policymakers have shifted focus to subsidies and industrial policy (i.e., carrots). They are certain to face an avalanche of lawsuits, and would probably be scrapped on Donald Trump’s first day in the White House if re-elected. Changes to grid permitting, rather than EPA regulation, “will determine the power industry’s emissions trajectories into the 2030s,” Devin Hartman, director of energy and environmental policy at the conservative-leaning R Street Institute, wrote this week.

LNG overload

Prospects for the global liquefied natural gas trade are dimming.

Demand in the three biggest LNG markets — Europe, Japan, and South Korea, which together account for more than half of global demand — is shrinking because of the growth of renewables and nuclear power, according to a report Thursday from the Institute for Energy Economics and Financial Analysis, a think tank.

As a result, the global LNG industry will be in oversupply within two years, the report projects, leaving exporters increasingly reliant on prospective markets in China, South Asia, and Southeast Asia with “less-creditworthy buyers and riskier business environments.” That cuts into the profit potential of multibillion-dollar export projects currently on hold in the US. JP Morgan also forecast this week that LNG prices will soon start to fall because of oversupply — although that will help Asian countries cut their coal consumption, the bank said. Russia, meanwhile, may also miss its window of opportunity with LNG: Because of Ukraine war-related sanctions, Russia is likely to miss its LNG export goals by more than half, Rystad Energy reported this week.

How KKR plans to chase profit and emissions at once

One of the world’s biggest private equity firms wants to prove it can turn a hefty profit on the energy transition — but believes explicitly targeting the emissions savings of its investments would actually be counterproductive, its co-head of global climate said in an interview.

The remarks by KKR’s Emmanuel Lagarrigue — he argued emission-reduction goals risked investors over-concentrating on limited technologies, and ultimately undermined the case that the energy transition was sufficiently profitable on its own — came in a wide-ranging conversation setting out KKR’s approach.

Lagarrigue also said the firm is targeting what climate-tech companies call the “valley of death,” with a focus on rich countries. “It’s really about decarbonizing high emission sectors and high emitting economies,” he said.

“When you have completely derisked your technology, you have validated your unit economics, you start generating a few serious cash flows, you have created entry barriers — usually, when you reach that point in climate, you need a lot of money just to get started, just to execute on whatever agreement you just got from your first large customer. And this is where people are stuck,” Lagarrigue told me. “This is where we want to focus our strategy.”

Copper bulls

Price per metric ton of copper reached on Friday, close to a 20-year high. A clean tech manufacturing boom in China and the unexpected political mothballing of a massive copper mine in Panama have pushed the market into deficit, where it seems likely to remain for years to come as the energy transition gathers steam. The emergence of copper as one of the world’s hottest commodities is sparking a bidding war between mining companies for access to deposits: On Friday, copper-rich Anglo American rejected a $39 billion takeover bid by Australian giant BHP, and Bloomberg reported that the activist hedge fund Elliott Investment Management has built up a $1 billion stake in Anglo. But some analysts caution against being too bullish on copper — prices could tumble if the Panama mine reopens or China’s clean-tech sector, already far over capacity, starts to peak.

Big Oil showdown

Lower natural gas prices and thinning margins from oil refineries cut into the first-quarter profits of ExxonMobil and Chevron.

Chevron’s profit fell 16% compared to the same period last year, and Exxon’s fell 28%, even steeper than Wall Street’s expectation. The two longtime rivals remain locked in a legal dispute over Chevron’s planned acquisition of Hess, which would give it access to lucrative offshore oilfields in Guyana that are one of Exxon’s crown jewels. It’s a critical prize for Chevron that would help its valuation catch up to Exxon’s, which is being buoyed by investments CEO Darren Woods made in low-cost production over the last decade. Even if Exxon wins in court, it’s not clear whether it would be willing or able to take over the Hess assets in Guyana. But it would definitely kneecap its rival’s chances for growth.

New Energy

• The global economy needs a six-fold increase in energy storage, mostly from batteries, by 2030 in order to support the necessary buildout of renewables, the International Energy Agency reported. Although battery costs have fallen 90% in the last 15 years, the IEA says they need to fall further to the rate of adoption to get on track.
• California’s rooftop solar boom has caused about $3.8 billion in costs to be shifted off the bills of solar households and onto those without, a University of California analysis found.
• Flights taking off from the UK will be required to use at least 10% sustainable aviation fuels by 2030, lawmakers there decided. Ticket prices are likely to increase as a result.
• A policy change to cut the number of US federal agencies that have to review grid transmission permits should reduce the average wait time from four years to two, Energy Secretary Jennifer Granholm said.

Politics & Policy

• The European Union will leave a 1995 energy treaty that had allowed fossil fuel companies to sue governments over their climate policies.

EVs

• Step aside, Cybertruck. BYD is coming out with its first electric pickup truck: The Shark.
• Much of the hardware used to manufacture batteries comes from small companies in Japan, which are facing so much demand they’re having to turn customers away.

Food & Agriculture

• Brazil can curb cattle-related deforestation without tanking its beef-reliant economy, a study by Brazilian economists this week concluded. The researchers recommend a slow but big increase in taxes on beef, with revenue converted to subsidies for other food products.

COP29

• We may have passed Peak COP. Simon Stiell, the UN’s top climate official, said after nearly 100,000 people flocked to Dubai for COP28, attendance at COP29 in Azerbaijan is expected to be just 40,000 — and that’s a good thing, he said.

Tim Brightbill, co-chair of the law firm Wiley’s international trade practice and lead counsel to the American Alliance for Solar Manufacturing Trade Committee. On Wednesday, the committee asked the Biden administration to escalate its crackdown on solar panel manufacturers in Asia.

• Crypto project Worldcoin faces an orb shortage.
• Poor countries have a climate bomb on their balance sheets.
• China is extending its lead over the US in Africa’s energy transition.