This month, we’re talking about the energy implications of Russia’s invasion of Ukraine, offshore wind, moves to reduce the cost of low carbon steel and cement, and some interesting research findings on ethanol and tax credits.
Big Geopolitical, Humanitarian, Moral, and Economic Disaster: Russia’s Invasion of Ukraine
First and foremost, this is obviously a dark human tragedy, whose carnage outweighs its energy implications.
What are these implications? With oil above $100 a barrel, relatively high gas prices have moved higher. This puts a heavy burden on the poor and those on fixed incomes; on the other hand, higher gas prices do tend to create a short-term incentive towards more efficient vehicles (although this fades when prices decline). That said, if gas prices remain elevated for a period and this corresponds with additional affordable EV models being released, this could end up giving a significant boost to vehicle electrification as it may nudge people towards more efficient vehicles just as these vehicles are being incentivized by our government.
In the near term, the conflict may push climate to the back burner of news and policy focus; however, it has the potential to speed the transition over the longer term, especially for Europe, which is now grappling with its dependence on Russian gas.
I like the way economist Jason Furman described Russia’s trade and economic connections with the west – that Russia is basically a big gas station. That said, they also export commodities like nickel and copper.
Speaking of, the International Energy Agency is just out with a report on the role of critical materials for the energy transition. It highlights that producing an electric vehicle currently requires 6 times the amount of mineral commodities as an internal combustion engine, including significant amounts of nickel and copper.
Big Money for Big Wind Turbines
The Bureau of Ocean Energy Management conducted an auction for offshore wind leases, resulting in a total of $4.37 billion for 488,000 acres (10 times the bids from the last auction), which could support the development of over 7,000 megawatts of wind.
The US currently has just 42 megawatts of offshore wind in operation, although there are more than 30,000 megawatt under development. What you might call a growth industry – it’s also an area where oil and gas companies are fairly well positioned to engage in, given their expertise operating offshore oil rigs.
The Biden Administration announced purchasing program guidelines to help lower emissions from industrial materials like steel, cement, and aluminum. The federal government buys a lot of stuff – especially stuff that contains a lot of steel and cement like roads and bridges – indeed, it is the largest consumer in the world.
In the absence of more comprehensive policy, this is a valuable step to take. This is in a similar vein as the corporate buyers coalitions we discussed in the Roundup in November.
Elsewhere in federal policy moves, the Biden administration laid out their EV charging infrastructure plan, leveraging $5 billion from the infrastructure bill. The focus will be on fast chargers primarily along interstate highways (to help address range anxiety).
Although the level 3 fast chargers are many times more expensive than other chargers, this is definitely the right strategy – fast charging during long trips is the main gap that needs to be solved in the nation’s charging infrastructure.
Big Ethanol Issues
A study recently published in the prestigious Proceedings of the National Academy of Sciences suggests that federal policy providing subsidies for ethanol were a huge mess from a carbon emissions perspective – no better than just using gasoline, and probably a bit more carbon intensive. This is unfortunate, since addressing climate change was one of the primary motivators for this policy (in addition to reducing dependence on foreign oil).
Big Benefits for Tax Credits
Analysis by the Energy Policy Institute at the University of Chicago and the Rhodium Group shows that tax credits are actually a really cost effective way to reduce power sector emissions. Here’s Michael Greenstone’s take from an interview with Robinson Meyer in The Atlantic:
“I will confess I was always a little skeptical of the tax incentives. I was concerned that they were expensive on a cost-per-ton-abated basis,” Michael Greenstone, a co-author of the study and the Milton Friedman Distinguished Service Professor in Economics at the University of Chicago, told me. “I came away from this quite surprised at how beneficial this was.”
“It’s very rare that we get opportunities to have policies with a benefit-to-cost ratio of 3 or 4 to 1. Normally it’s, like, 1.3 to 1, and we economists get very excited,” he said.
Other Big News
Chicago area-based LanzaJet (a spinoff of Lanzatech) announced it was partnering with Marquis Sustainable Aviation Fuel to open a large sustainable fuel plant in central Illinois. Speaking of Lanzatech, the company recently announced it would be going public via SPAC.
Rivian announced the cost of its vehicles would rise by more than $10,000 (although it later backtracked for customers who had already put down deposits). Volume production is hard. Link
The Intercalation Station has a good February roundup of battery and EV news tidbits if you’re interested in that sort of thing. Link