Net Zero

1. EV startups inch to black
2. Ukraine’s green rebuild
3. 🟡 The IRA isn’t enough
4. Ghana’s LNG dilemma
5. A new oil chokepoint
6. Deforestation pact falls short
7. Insurers’ fossil investments
8. A complicated affair with gas
9. 🟡 Rising food prices
10. 🟡 Tom Steyer’s money guru

EV startups inch to black

Electric vehicle startups are inching toward financial health. In their second-quarter earnings reports, Lucid, Rivian, Nikola, and Fisker all reported losses. But each also reported some good news. Lucid is on track to meet its annual production target. Rivian and Fisker reported narrower losses than analysts expected. Nikola, which has been beset by internal scandals, replaced its CEO. But it’s been a grim week for battery and electric bus maker Proterra, which filed for bankruptcy, blaming inflation and supply chain snags.

Ukraine’s green rebuild

Ukraine plans to spend one-third of its post-war reconstruction budget on renewable energy, according to a new Oxford University study. That’s a smaller percentage than many countries in Europe spent on green investments in their post-pandemic recovery plans, the study finds, but the total size of Ukraine’s planned spending package — $750 billion — is far larger. The report’s authors caution that investments in new fossil fuel production or distribution infrastructure is likely to be unprofitable in the long run.

The IRA doesn’t go far enough

By Tim McDonnell

THE SCENE

Paul Huelskamp wanted to build more factory space — it was just a question of where. After more than a decade in the clean energy industry, he was confident about the trajectory of his battery manufacturing startup Moxion Power, certain that large-scale energy storage would be a vital and profitable piece of the energy transition puzzle.

His investors pressed for Mexico when, in early 2022, “we started to hear what was possible in the Inflation Reduction Act.” Particularly attractive were tax credits being made more widely available for large battery systems, with a bonus if the system is manufactured in the U.S. “We were watching CNN like you watch the Super Bowl,” he said.

After the IRA was signed into law, one year ago next week, staying local suddenly made sense. In May, California Gov. Gavin Newsom joined Huelskamp to kick off the conversion of an old port facility in Richmond, Calif., into a 205,000 square foot battery factory, which will be one of the largest battery plants in the U.S. when it opens.

“Doing that in the U.S. a couple of years ago would not have been possible,” he said.

TIM’S VIEW

The IRA showcases both what is possible with the U.S. government’s financial might when it comes to driving domestic manufacturing, and the limits of what that same government can ultimately accomplish in fighting climate change solely by incentivizing investment — without resorting to so-far politically untenable efforts to penalize carbon pollution.

Already, it’s clear the IRA has fundamentally changed the landscape for clean-tech manufacturing in the U.S., and made a meaningful dent in emissions. Its tax credits, grants, and loans are driving a boom in the construction of factories to produce renewable energy and electric vehicle hardware, and in clean energy production. Huelskamp’s expansion is just one of at least 200 clean energy projects that have been announced in the U.S. since the IRA passed, representing up to $270 billion in private sector investment and somewhere around 100,000 new jobs.

Gil Jenkins, a spokesperson for HASI, a $10 billion climate-focused investment firm, said the last year has seen “exponential growth in the market of projects we can invest in.”

More is yet to come. Most of the big IRA-related investments have been in mature technologies like solar power and EV batteries. Much of the law’s support for research and early-stage development of high-cost, emergent technologies — carbon capture, hydrogen, low-carbon aviation fuels — either hasn’t been finalized yet or hasn’t had enough time to bear fruit, leaving potentially huge industrial investments on the sidelines for now. Consumer-facing rebates for home electrification, which may be how the greatest number of Americans directly benefit from the IRA, haven’t yet been implemented.

All of this adds up to projected nationwide emissions in 2030 that are about 38% lower than in 2005 — about 10% lower than pre-IRA.

Still, the U.S. is reaching the limits of what it can achieve with federal subsidies, however lucrative. It urgently needs to resolve other thorny issues in climate politics that the IRA doesn’t solve in order to get on track for its net zero goals, which it is well short of.

On emissions, the IRA on its own does little to accelerate lagging adoption of carbon capture technology for power plants and industrial facilities, a recent BloombergNEF analysis concluded. Speeding this up requires the U.S. to finally adopt emissions regulations for coal and gas plants, analyst Tara Narayanan said. New fault lines emerged on that front this week, when the top lobbying group for the utility industry said it was opposed to the administration’s proposed regulations.

Washington also needs to make progress on permitting reform, key not only to deploying power infrastructure but also to creating more domestic supply chains for mineral mining and processing, without which U.S. clean energy manufacturers will struggle to compete on price with Chinese rivals. Clean energy is also held back by labor shortages and inflation.

These headwinds will undermine the beneficial effects of the IRA. Of the 50 gigawatts of solar manufacturing capacity announced in the last year — 10 times more than existed pre-IRA — about half will ultimately go out of business absent further reforms, according to BloombergNEF analyst Pol Lezcano.

To read the Room for Disagreement, View from Capitol Hill, and View from South Korea, click here.

Ghana’s LNG dilemma

Ghana is forging ahead with plans to build a liquified natural gas import terminal with Shell over objections from local climate activists and economists. The $400 million project could undercut Ghana’s transition to renewables, The Guardian reported, and exacerbate its already-crippling sovereign debt load, especially as it includes opaque contract provisions that could lock the country into buying more gas than it needs. If Ghana needs more energy, a better solution would be to address significant flaring and wastage in its domestic gas drilling industry. In the meantime, Ghana this week approved plans to speed up mining of EV battery minerals.

Semafor Stat

Share of Russia’s oil exports that pass through the Black Sea. Ukraine ramped up attacks on Russian Black Sea oil tankers and warships over the weekend, threatening to cut off a key energy trade route in an already tightening global oil market — and an important source of cash for the Kremlin.

One year ago, the U.S. approved an historic investment in climate action. Turns out money was the easy part. Watch the full video here.

Deforestation pact falls short

Leaders of Amazon River basin countries agreed to work more closely on ending deforestation, but failed to agree on two key details. Under the new agreement, law enforcement agencies in Brazil, Colombia, and other Amazon nations will share resources to crack down on illegal mining and logging, and will pool funds for conservation. But they did not agree to aim to end deforestation entirely by 2030, nor to end oil drilling in the Amazon, which has continued under Brazilian President Luiz Inácio Lula da Silva in spite of progress his administration has made against logging.

Insurers’ self-defeating investments

Insurance companies are undermining themselves by over-investing in fossil fuel businesses, an analysis by carbon accounting firm Persefoni concluded. Many of the largest U.S. insurers invest at least 10% of their portfolio in fossil fuels, even as rising climate risks force them to pull out of vulnerable areas. Given the costs climate change poses to insurance companies, they have a fiscal responsibility to push fossil fuel companies they’re invested in to decarbonize, the report argues.

A complicated affair with gas

Japanese natural gas importers agreed to invest $880 million in an LNG export terminal in Australia. It’s a distant ripple effect of the war in Ukraine, as reduced Russian gas on the global market has propped up the prospects for LNG projects elsewhere. It’s also an outlet for gas that may increasingly struggle to find domestic buyers, as Australian politicians weigh a possible ban on gas appliances in new homes.

Perspectives

Despite inflation cooling, food prices across the world are soaring, owing to extreme weather events coupled with Russia’s exit from a deal that allowed Ukraine to export grain.

Throughout sub-Saharan Africa, where millions are already fighting hunger, the food pice hike could be devastating.

We’ve gathered reporting and analysis on why food prices are rising and why they may remain high for the foreseeable future.

INSIGHTS

• Russia’s refusal to renew the Black Sea grain deal led to a sharp rise in wheat prices. Meanwhile, El Niño — a warm-weather pattern — led India to restrict non-basmati rice exports, contributing to a global rise of 1.3% in food prices in July, the United Nations’ Food and Agriculture Organization said. It will be especially challenging for sub-Saharan Africa to cope as people there dedicate “a larger share of their incomes to purchase food,” Maximo Torero, the FAO’s chief economist told Al Jazeera.
• While climate change can affect food production, it can also disrupt labor and transportation in the global food supply chain, Suzi Kerr, the chief economist of the Environmental Defense Fund, wrote for The Guardian. Heatwaves, wildfires, and power and internet outages affect workers in warehouses and on roads, pushing prices higher. Heatwaves alone are expected to reduce working hours worldwide by more than 2% by 2030, equivalent to a loss of 80 million full-time jobs and $2.4 trillion globally.
• Extreme weather events — from record heatwaves in Europe and the U.S. to deadly floods across China’s grain belt — are hurting the world’s food supply like never before. As these events become more frequent, they could permanently hobble the world’s food production. “It’s possible we could face unprecedented market impacts if we don’t do anything in terms of mitigation and adapting” to extreme weather events, Roderick Rejesus, agricultural economist at North Carolina State University said. — Axios

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— Jeronimo Gonzalez

Person of Interest

Seth Kirkham, chief equities investment officer at Galvanize Global Equities, a division of the investment firm Galvanize Climate Solutions founded in 2021 by Katie Hall and billionaire Tom Steyer. In an interview this week, Kirkham explained how the firm finds new ways to pressure large corporate emitters to meet their climate targets — while making money. This interview has been condensed.

Tim: How do you approach investing in oil and gas or other high-carbon companies?

Seth: You’re unlikely to see us using proxy voting to have a campaign like Engine No. 1 with Exxon. That adversarial approach to try and enforce change is rarely successful, and time-consuming and capital-consuming, which impairs our ability to appropriately invest the rest of the portfolio. So today we are not invested in any oil and gas majors. We’re distrustful of many of the commitments they have made.

We try to establish when a company has made its first step, and we look for a company that is ready to accept collaboration. That might be just the first publication of a sustainability report. We also use AI software to pick up when there’s an inflection in a company’s communications that could point to a willingness to be a more aligned company. Then we’ll jump in if we think the investment is interesting and ask for climate pledges that are consistent with Paris, and then to insert in the executive compensation some reward for meeting those goals.

Tim: Most of the portfolios of the biggest asset managers are not Paris-aligned. Should they be pushing harder to change that?

Seth: Just using temperature alignment scores as a blunt tool to establish whether an asset manager is on the right side in public equities is very ineffective. If some crazy billionaire gave us the money to pursue a proxy war with all the oil companies and highly-emitting utilities, the data would show us to be the filthiest portfolio on the planet.

Having said that, I do think there’s a huge proportion of the industry which is not taking its responsibilities as a public shareholder appropriately and are definitely errant in being part of the solution. There’s no doubt that climate change is an existential crisis for humanity.

Also, 80% of companies that have made a pledge will have to restate their interim milestones by 2026, according to Gartner. They’re setting a trap for themselves. If you make a net zero pledge and don’t deliver on it, there will be interest groups who will litigate that. So those companies are opening the door for us to come in and make sure they actually deliver on it.

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