Net Zero

1. Chinese solar crackdown
2. Offshore wind doldrums
3. 🟡 Whither captured carbon?
4. UAE’s methane whiffs
5. New EV behemoth
6. Clean energy recycling
7. 🟡 Small solar strategy
8. Pricier clean power
9. 🟡 Costly droughts
10. 🟡 Beating the ‘risk premium’

Chinese solar crackdown

U.S. regulators are expected to rule this week that some Chinese manufacturers of solar panels shifted their operations to subsidiaries in other Asian countries in an effort to dodge tariffs. If so, those subsidiaries could be on the hook to start paying import taxes of nearly 300%, Bloomberg reported, which would significantly drive up costs for U.S. solar importers and, according to industry advocates, freeze up the U.S. energy transition. But it would also give a market edge to companies like First Solar that have taken most advantage of Inflation Reduction Act tax credits to stand up domestic solar manufacturing facilities.

Not enough offshore wind

Global offshore wind installations are lagging far behind government targets, according to a Wood Mackenzie analysis. Closing that gap will require an additional $100 billion in private sector investment (the analysis excludes China, which is the largest offshore wind market but is mostly self-supplying and closed off from the industry’s global supply chains). Low profit margins are one reason for the lack of investment. Another is the fact that a race among manufacturers to produce ever-bigger turbines has rendered some older equipment obsolete.

The brewing carbon capture debate

By Tim McDonnell

THE FACTS

The U.S. government made one of its biggest-ever bets on emerging climate tech when it handed out $1.2 billion in grants to two projects to capture carbon from the atmosphere. The grants focus on scaling up the carbon-sucking technology (direct air capture, or DAC) itself. But they also take a stance on a debate that has divided the nascent industry: What to do with the carbon once it’s captured?

The two grant recipients will bury the carbon in saline aquifers in Texas and Louisiana. That’s in keeping with the general thrust of federal grants and tax credits, which tend to favor “sequestration” over using the carbon as an industrial raw material. But a growing chorus of “carbon utilization” startups say that’s unfair — and they’re coming up with new ways to make money on their own.

TIM’S VIEW

The move to capture carbon from the atmosphere and industrial point sources — something economists broadly agree is essential to meeting global climate goals — is perhaps the best example of the Inflation Reduction Act’s gargantuan impact on an emerging industry. The IRA is at once buffeting and reshaping the world of carbon capture. But niche sectors within the industry are at odds over whether the two kinds of end-use deserve equal treatment under the law.

Today, sequestration is on top. Carbon-capture tax credits, which got a boost in the IRA, are higher when CO2 is sequestered than when it’s utilized. In an interview this week, Benjamin Heard, president of Gulf Coast Sequestration, the company that will offtake CO2 from the Louisiana grant awardee, said the grant essentially dished up an early anchor customer at a time when the company’s facilities are preparing to open.

That disparity makes sense because sequestration is the easiest way to dispose of the greatest volume of CO2, and because utilization is already a relatively more mature market, said Giana Amador, executive director of the Carbon Removal Alliance, a DAC advocacy group.

“Sequestration should definitely be the priority here,” she said. “It’s important for early R&D to not only prove the technical and commercial potential of capture technologies, but also prove the safety and efficacy of different forms of permanent storage on long timescales.”

Utilization also has a bad rap among climate-focused policymakers because the biggest buyer of captured CO2 over the last decade has been oil companies, which can use it to push the final drops out of nearly-dry oil wells. But that’s changing as entrepreneurs cook up new ways to make money from recycled CO2, which they argue will drive broader adoption of carbon capture. And they would rather be seen as a climate solution than in league with oil companies. (A Department of Energy spokesperson said the DAC grant program is open to proposals that serve either utilization or sequestration.)

“The IRA makes people think sequestration is better, which is nonsensical. Surely it makes more sense to do something with the CO2,” said Martin Keighley, CEO of CarbonFree, which installs carbon capture equipment on industrial facilities, then processes the captured gas into other products it can sell, especially a high-purity calcium carbonate that’s used as a filler in food and pharmaceutical products. “We believe there’s a strong case now for [tax credit] parity.”

That view is shared by Sen. Sheldon Whitehouse (D-RI) and Sen. Bill Cassidy (R-LA) who this spring introduced legislation to equalize tax credits for sequestration and utilization. The bill would not raise the tax credit for oil recovery, effectively creating a three-tiered system.

“Carbon utilization technologies present an opportunity to turn captured carbon dioxide pollution into useful products that would otherwise be made in a carbon-intensive way,” Whitehouse said in an email. “Bringing the value of tax credits for utilization into line with the incentives for sequestration created in the IRA would clear a path for businesses to invest in this promising carbon reduction tool.”

Gregory Constantine, founder of carbon utilization startup Air Company, said companies in this new space shouldn’t wait for taxpayer support, and need to find ways to generate revenue quickly while they scale up the more ambitious parts of their business. In his case, that means vodka: The company sells chic $75 bottles made from captured carbon, which Constantine said generates cash flow to keep the company afloat while it builds up facilities to produce industrial quantities of carbon-neutral ethanol and aviation fuel.

“As more utilization technologies prove viable at scale it will help things like the tax credit evolve over time,” he said.

QUOTABLE

“I sat in the boardroom of U.S. Steel and it blew their minds that we could take their blast furnace gas and turn it into chewing gum.” — Martin Keighley

— For The View from Louisiana and Room for Disagreement, read more.

UAE’s methane whiffs

The host nation of COP28 is lagging its Gulf State peers in reporting and cutting its methane emissions. The United Arab Emirates, one of the world’s top oil and gas producers, has not reported its methane footprint to the UN climate agency since those reports were first requested in 2014, unlike Saudi Arabia and others in the region, The Guardian reported. It has also set a weak target for further methane cuts. Sultan al-Jaber, COP28 president and CEO of the state oil company ADNOC, will be under pressure during the climate summit to square his calls to “phase down” the global use of fossil fuels with his own country’s and company’s actions.

New EV behemoth

Valuation of Vietnamese electric vehicle maker VinFast after its first day trading on the U.S. stock market this week. That’s more than the current valuation of Ford and GM. But early reviews of the company’s EVs have ranged from “shaky” to “unacceptable.”

Clean energy recycling

China will recycle more of its old solar panels and wind turbines under a government program announced this week. In the world’s largest clean energy market, the first wave of turbines and panels are set to be decommissioned in the next few years, threatening to create a mountain of waste laced with high-value minerals. Old EVs, too, are piling up. Under the new policy, renewable energy companies will be required to make their products easy to dissemble, and project developers will be banned from sending them to landfills — which also creates a lucrative business opportunity in clean energy recycling.

One Good Text

Nick Imudia, CEO of solar appliance company d.light. This week the company closed a $30 million fundraising round to scale up its financing options for low-income households in Tanzania to buy solar-powered lights and chargers.

Pricier clean power

After falling for a decade, the price of electricity from renewables is rising, cutting into energy project developers’ profits and threatening investment in new wind and solar farms. The price of long-term power purchase contracts from wind and solar in the U.S. has risen 30% this year, The Wall Street Journal reported, as supply chain delays and inflation make projects more expensive. On the other hand, power from a new solar or wind farm is still cheaper than power from a new gas or coal plant, so there hasn’t been enough of a tilt to reverse the momentum of the energy transition.

Costly droughts

THE NEWS

Swaths of Latin America have been hit by a months-long drought, and conditions are likely to worsen due to El Niño, a warm-weather pattern, with potentially seismic impacts on the world economy.

On Wednesday Panama Canal authorities extended restrictions on the number of vessels that can travel through it due to the low water levels. Higher temperatures are also taking a devastating toll on the agriculture-related incomes on which millions depend.

INSIGHTS

• El Niño, which increases the risk of both drought and flooding, may see Latin America’s economies lose up to $300 billion. Peru and Ecuador’s agriculture-dependent economies could shrink by 1.7% and 1.6%, respectively. In response, several regional governments have announced spending packages to support beleaguered industries, but experts fear much of it will be misspent. In every region, “the costs of climate variability and climate change” will probably exceed countries’ current estimates, two professors from Dartmouth College said.
• Latin America is home to almost two-thirds of the world’s lithium, a mineral essential for electric vehicles but whose extraction requires vast amounts of water. A prolonged drought could make mining for lithium, copper, nickel, and other metals unviable. “Many of the technologies aiming to help with climate change require practices that would exhaust a far more precious resource: water,” Rest of World noted.
• Heat-related deaths in South America increased by 160% in the four-year period to 2021 compared to 2000-2004, according to a report published in The Lancet this year. El Niño comes on top of dry seasons that are already 2.5 degrees Celsius hotter than the historical standard. “The adverse health effects of climate change are accelerating and disproportionately affecting the most vulnerable populations in South America,” it said. “This trend will only continue if prompt action is not taken.”

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— Jeronimo

Green Shoots

Stubbornly high inflation combined with increased uncertainty in the West is making climate investments in emerging market a more attractive proposition: That’s the case put forward by Nakul Zaveri, a partner at the impact-focused private equity firm Leapfrog Investments, which plans to commit $500 million to climate-focused bets in Asia and Africa.

LeapFrog is aiming to invest in the energy, mobility, food, and built-environment sectors — industries the firm sees as not simply high-emissions, but ripe for business-model shifts — targeting deal sizes of between $30 million and $50 million across climate mitigation- and climate adaptation-focused firms.

In an interview, Zaveri argued growing and increasingly wealthy populations in Asia and Africa made up for any so-called risk premium they represented compared to richer markets, and insisted that in any case the risk premium was overstated as Western countries grappled with cost of living challenges and growing political volatility.

“The risk premium is a reference to the risks that are present in emerging markets. Those risks haven’t gotten amplified,” he said. “They’re the same risks … whereas the opportunity set has increased multifold.”

“The polycrisis was part of daily life for emerging market businesses for decades,” Zaveri continued. “They are better placed to address some of these things. And therefore the risk premium and the opportunity set becomes quite interesting in favor of emerging markets.”

— Prashant

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