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A proposed foreign pollution fee could disincentivize dirty factories from cleaning up.͏‌  ͏‌  ͏‌  ͏‌  ͏‌  ͏‌ 
 
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November 8, 2023
semafor

Net Zero

Climate
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Tim McDonnell
Tim McDonnell

Hi everyone, welcome back to Net Zero.

2023 is “virtually certain” to be the hottest year on record, European scientists reported today. The El Niño cycle is partially to blame. But that’s not nearly enough of a push to reach the uncharted territory that global temperatures are now in. Fossil fuel consumption is still much too high, and investment in alternatives much too low, especially in developing countries. The scientific data set clear stakes for COP28, and add pressure on lawmakers from the top-emitting countries to move much faster. Today we look at a new effort in Congress to put a price on the emissions of overseas manufacturers, especially in China, that stands a decent chance of gaining bipartisan support — but may actually disincentivize some forms of climate action.

Also today: Direct air capture draws a big new investor and some intriguing tech innovation, and one winner of Prince William’s Earthshot Prize texts us about what comes next.

If you like what you’re reading, spread the word.

Hotspots
  1. Tesla’s labor strategy
  2. Fossil fuel overload
  3. ‘Voodoo’ carbon math
  4. Lithium nosedives
  5. Mixed election results
  6. Carbon-sucking soil
  7. A method for methane
  8. Cleaner, cheaper DAC
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1

Tesla’s labor strategy

REUTERS/Mike Blake

The battle between automakers and their employees over the EV transition is shifting from the U.S. to Europe. On Tuesday, a variety of unions in Sweden — including dockworkers, electricians, and maintenance workers — said they would stop providing services for Tesla after talks over a collective bargaining agreement collapsed. Tesla and its CEO Elon Musk have so far successfully parried unionization attempts in the United States. As unions succeed in drawing higher pay and other benefits from other top automakers, Tesla’s lower labor costs could help it retain a cost advantage in the hyper-competitive, low-margin EV market. But the task will be much more difficult in Europe, where the cultural and legal protections for workers are much more deeply entrenched. This week, the company signaled it may be willing to get ahead of worker demands in the interest of fending off other strikes, raising wages for its workers in Germany.

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2

Fossil fuel overload

The amount of coal, oil, and natural gas that companies and governments plan to produce in the next few decades is far higher than what is compatible with the warming goals of the Paris Agreement, a report today from the U.N. and environmental think tanks concluded.

Major fossil fuel producers, including the U.S., aim to reach peak production sometime around 2030, churning out 93% more than what’s allowable in a 1.5 C pathway. By 2050, under current plans, the production gap widens to 313%. That’s not only a problem for emissions — if fossil fuel demand falls as quickly as the International Energy Agency expects, all that extra production means collapsing prices and a dire situation for oil companies’ books, a separate report today from the think tank Carbon Tracker concluded.

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3

Republicans’ carbon tariff plan requires ‘voodoo’ math

 
Tim McDonnell
Tim McDonnell
 
Rawpixel

THE NEWS

Senate Republicans announced a long-awaited plan to tax carbon-intensive imports, opening the next front in the simmering clean-energy trade war between China and the United States. But it’s unclear if the bill will be able to achieve its twin aims of lowering global emissions and protecting U.S. jobs.

TIM’S VIEW

Placing controls on global trade is one of the strongest levers that U.S. policymakers have to bend the emissions curve in countries — China especially — with more carbon-intensive industrial processes. And the Foreign Pollution Fee Act, introduced by Sens. Bill Cassidy (R-LA) and Lindsey Graham (R-SC), looks like the most realistic shot yet at U.S. carbon pricing legislation that could actually become law. But the design of the bill illustrates just how hard it is to balance that objective with the key Republican goal of protecting U.S. manufacturers. Any form of carbon pricing, even if it doesn’t target U.S. companies, remains a touchy subject with Republicans — as my Joseph Zeballos-Roig reported today, one of the bill’s original backers, Sen. Roger Wicker (R-Miss.) has withdrawn his support “after encountering major blowback from conservative groups.”

At the same time, the policy innovations engineered to make it more appealing to Republicans, especially leaving out a domestic carbon tax, could undermine the bill’s effectiveness on climate.

“On balance, this bill is more about protecting U.S. producers,” said Aaron Cosbey, a senior economist at the International Institute for Sustainable Development. “Judging it as a climate measure, it doesn’t come out well.”

Taxing imports based on their associated emissions, in theory, encourages producers to clean up. It also creates a level playing field with domestic producers that face higher regulatory compliance costs or local carbon taxes. The Republican proposal targets many of the same products as the EU’s Carbon Border Adjustment Mechanism, including aluminum, steel, and cement. But unlike the CBAM, the U.S. bill sets fees based on an average emissions metric in the producer’s country of ownership, not of the individual producing facility per se. A steel factory that is located in China or elsewhere but majority-owned by a Chinese entity, for example, would face an import fee based on average steel-sector emissions in China. This is meant to prevent firms or countries from “gaming” the system, by sending a small number of cleaner products to the U.S. but ramping up emissions in the rest of their operations.

The problem, Cosbey said, is that this measure disincentivizes companies from taking early steps to decarbonize by lumping leaders in with laggards. The bill allows individual facilities to be exempted from the national average, but only by entering into “partnerships” that must be individually approved by Congress, adhering to all U.S. environmental laws, and submitting to spot emissions inspections — an onerous process that few companies, especially those based in China, will be willing and able to follow.

Setting the fee for covered products is also tricky, because there’s no U.S. carbon price to use as a benchmark. Instead, the bill requires a commission of bureaucrats, government scientists, and private sector executives to work backward from a desired emissions reduction target and set a fee that can achieve that reduction, which requires a bit of “voodoo” math and could backfire, Cosbey said. Place the tariff too high, and producers may simply stop selling in the U.S. market, or slap on their own retaliatory fees. That risks choking off U.S. access to some essential clean-energy technologies that are covered by the bill — including hydrogen, biofuels, solar cells, and wind turbines — and ultimately slowing the energy transition. And if the tariff is too low, it won’t be effective in lowering emissions in the exporting country.

“Ideally they converge on something that doesn’t restrict trade unduly,” Cosbey said. “But because it’s the Wild West, that’s not guaranteed.”

 

The math may be doable, however. And a more immediate test will be how tax officials manage China's role in the EV supply chain. →

 

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4

Lithium nosedives

Decline in benchmark lithium price since January, one of the steepest dives of any commodity. Lithium mines and refineries in China have both expanded a lot this year, in anticipation of future global electric-vehicle demand. But for now, they’ve moved faster than battery manufacturers and consumers, leading to a lithium glut. Prices for cobalt and nickel have also plunged this year. That’s good news for automakers, but is putting some higher-cost new lithium mining ventures in Australia and elsewhere at risk. By the late 2020s analysts expect lithium to be in short supply again, with prices rising to match.

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5

Mixed election results

U.S. voters returned mixed results for climate policy in a round of off-cycle state elections on Tuesday. In Virginia, Democrats took full control of the legislature, dealing a major setback to Republican Gov. Glenn Youngkin’s aspirations to gut the state’s clean electricity, carbon trading, and EV policies. Kentuckians re-elected Democratic Governor Andy Beshear over a coal industry advocate. Climate is only one issue among many in these states, but the results suggest voters have a positive view of how they stand to benefit economically from clean energy investment — a key selling point for Congressional Democrats and U.S. President Joe Biden in the general election next year.

The outcome of two ballot measures to overhaul electric grids was less climate-friendly: In Texas, voters approved a plan to spend at least $5 billion in public funds on low-interest loans for builders of new natural gas power plants. And in Maine, they rejected a plan to replace the state’s private utilities with a more renewables-focused public alternative.

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6

One Good Text

Aadith Moorthy, CEO & founder of Boomitra. The company, which helps farmers in the global south monetize carbon-sequestering soil maintenance practices through the global carbon market, was one of five winners on Tuesday of Prince William’s $1.1 million Earthshot Prize.

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7

Will China’s methane reduction plan work?

 
Diego Mendoza
Diego Mendoza
 
Xie Zhenhua, Special Representative for Climate Change Affairs of China. REUTERS/Mohamed Abd El Ghany

China on Tuesday unveiled its long-awaited methane reduction plan, a major step in tackling greenhouse gas emissions for the world’s largest methane producer. Beijing pledged to boost monitoring, reporting, and data transparency in an effort to reduce methane emissions. But the plan notably makes no mention of specific targets.

  • “It remains to be seen how China’s action plan aligns with the global pledge,” Byford Tsang, an advisor at the E3G think tank, told Semafor, largely because China’s plan never once mentions the Global Methane Pledge, a U.S.-led initiative signed by 150 countries to reduce methane emissions by 30% by 2030. Still, the plan is “one of the few deliverables” China has produced since signing a joint declaration with the US at COP26 in Glasgow, Tsang noted.
  • China’s decision not to sign the Global Methane Pledge was likely driven by its heavy reliance on coal mining, Tsinghua University’s Teng Fei told the China Dialogue. Coal mining produces about 90% to 95% of China’s methane emissions, which are more challenging and costlier to reduce than emissions in the U.S. and EU which are primarily produced by the oil and gas sector. “Given the differences in the make-up of methane emissions and ease of reduction, the targets proposed by the EU and the US are easier for them to achieve than for China,” Teng said, which, he noted, explains China’s reluctance to sign the pledge.
  • The goal of the current U.S.-China climate talks is largely to “separate climate change from other issues on which the U.S. and China vehemently disagree,” writes Axios’ Andrew Freedman. Talks between Xie and Kerry in July produced no breakthrough, but China’s new methane reduction plan is “a goodwill gesture,” Greenpeace’s Li Shuo told Bloomberg. But even if bilateral agreements don’t happen, competition between the U.S. and China in ramping up green technology domestically and energy transition abroad could also “lead to more climate action,” one expert told E&E News.
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8

Green Shoots

Courtesy Avnos

Entrepreneurs in California fired up a new kind of carbon removal technology this week that promises to have lower costs and a smaller environmental footprint than the prevailing alternative.

The startup, Avnos, is taking an unconventional approach to a branch of climate tech — direct air capture — that is already unconventional. Many of the DAC facilities under development use a chemical solvent to draw in ambient CO2. The solvent must be heated, requiring a lot of energy, and the process can consume several tons of water per ton of CO2. Avnos developed a proprietary solid solvent with scientists from the Pacific Northwest National Laboratory which uses relatively little energy, and actually generates water as a byproduct.

The water aspect is key, CEO Will Kain told Semafor. Not only does it create a new revenue stream, it makes the whole process more sustainable. Kain previously worked for a saltwater desalination company, and got immersed in global water shortages. Once DAC reaches a scale where it makes a noticeable dent in global emissions, Kain said, “You’re talking about tens of billions of tons of water consumption, which strikes me as unsustainable. I wanted to look at opportunities to change that paradigm.”

The pilot project in Bakersfield is small, aiming to draw down just 30 tons of CO2 per year. At larger scales, Kain said, between the energy efficiency savings and water production revenue, Avnos’ technology could become one of the cheapest ways to do DAC: “We think we have the cleanest line of site to less than $100 per ton” by the early 2030s, he said. For now, it’s still on the margins. On Tuesday, asset manager BlackRock said it will invest $550 million in the world’s largest DAC facility, under development by oil and gas company Occidental, that relies on a more conventional chemical solvent.

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