NEWS OF THE DAY:
Poland calls for EU’s ‘Fit for 55’ climate legislation to be revised or postponed
S & P Global Platts, October 20, 2021
Gas crisis makes climate plan ‘ridiculous’
Renewed call to revise EU ETS, energy tax
Poland has called for the revision or postponement of the EU’s ‘Fit for 55’ climate proposals ahead of this week’s EU Council summit, with the country’s most powerful politician Jaroslaw Kaczynski saying Oct. 20 that Russian behavior over gas supplies made advocates of the plan look “ridiculous”.
In a non-paper circulated among EU member states ahead of Thursday’s EU Council meeting, Poland said that in the light of rising energy prices in Europe the Fit for 55 legislation, which aims to cut the bloc’s emissions by at least 55% before the end of the decade, should be revised.
Any elements of the package that could have a negative impact on energy price should be analyzed, revised or postponed, the document said.
“The surge in energy prices has a direct impact on all EU citizens and comes at a particularly high socio-economic cost, especially for the most vulnerable households, while the EU is still dealing with the profound economic fall-out caused by the COVID-19 pandemic,” the document said.
Poland also argued that the EU Emissions Trading System and the bloc’s carbon market and energy taxation directive, which establishes minimum tax rates on electricity, should be revised.
Meanwhile the head of Poland’s governing Law and Justice (PiS) party said events since EU Member States agreed the Fit for 55 legislation in July had changed, and it was no longer acceptable.
“We agreed to some solutions because in return we negotiated, for example, funds that are of great importance to our country. Let me be completely clear. I think that when it comes to climate issues, reality quickly repudiates different theses,” Kaczynski said in an interview with the pro-government weekly, Gazeta Polska, published Oct. 20.
“After the Russian action concerning gas, the creators and advocates of this Fit for 55 have, to put it mildly, made themselves look ridiculous. Energy prices have hit many EU countries with such force that their citizens simply will not agree to raise them further in the name of some unproven theories,” he said.
Separately, in a letter to EU Competition Commissioner Margrethe Vestager published on Oct. 20, Poland’s Climate and Environment minister Michal Kurtyka, called for urgent steps to combat rising energy prices.
“The scale of the rise in price is unprecedented, with more than twelve-fold year-on-year growth. This is much more than the rise in oil prices during the 1970s oil crisis,” he wrote.
Kurtyka said lower-than-expected gas deliveries from Gazprom were boosting European energy prices with booked gas transit via the Yamal pipeline, which delivers Russian gas through Belarus to Poland and Germany down by 90% for November. In October, only about 30% of Yamal’s capacity was booked, he said.
Possible concessions
The EC’s narrative that high energy prices pointed to EU overdependency on fossil fuels, and the need to speed up investment in renewables, was not convincing to those member states pushing back on an accelerated energy transition, Giorgio Corbetta of advisory firm Global Counsel told S&P Global Platts Oct. 15.
Some concessions may be needed, with the easiest file to compromise on potentially being outside of the Fit for 55 package, namely state aid, the inclusion of natural gas and nuclear in the taxonomy, and the review of the gas market, Corbetta said.
Related: China Takes the Brakes Off Coal Production to Tackle Power Shortage
Beijing orders more output and price cuts, highlighting the difficulty of balancing carbon goals with energy needs to keep economy humming
OIL:
Oil rises modestly as U.S. crude stockpiles dwindle
David Gaffen, Reuters, October 20, 2021
- EIA shows expected fall in U.S. crude stocks
- Oil supplies continue to tighten worldwide
NEW YORK, Oct 20 (Reuters) – Oil prices edged higher on Wednesday, rebounding from early losses after U.S. crude stockpiles unexpectedly fell and inventories at the nation’s largest storage site hit their lowest level in three years.
Brent crude futures rose 10 cents, or 0.1%, to $85.18 a barrel as of 11:58 a.m. EDT (1558 GMT), close to multi-year highs.
November U.S. West Texas Intermediate (WTI) crude , which expires on Wednesday, rose 34 cents, or 0.4% to $83.30 a barrel, while the more active WTI contract for December was up 22 cents, or 0.3%, to $82.66 a barrel.
Crude prices have risenas supply has tightened, with the Organization of the Petroleum Exporting Countries maintaining a slow increase in supply rather than intervening to add more barrels to the market, and as U.S. demand has ramped up.
U.S. crude stocks fell by 431,000 barrels in the most recent week, the U.S. Energy Information Administration said, against expectations for an increase, and gasoline stocks plunged by more than 5 million barrels as refiners cut processing due to maintenance.
U.S. stocks at the Cushing, Oklahoma delivery hub hit their lowest level since October 2018. Gasoline stocks are now at their lowest since November 2019, the EIA said.
“Stronger demand and concerns about a drop in inventories when refiners were already running a low rate during maintenance season is making people concerned about what will happen when refiners have to ramp up production to meet what is very strong demand for gasoline and distillate,” said Phil Flynn, senior energy analyst at Price Futures Group in Chicago.
The market had softened overnight after the Chinese government stepped up efforts to tame record high coal prices and ensure coal mines operate at full capacity as Beijing moved to ease a power shortage. read more
Oil prices have in part been swept up in surging natural gas and coal prices worldwide in anticipation that power generators may switch to oil to provide electricity.
Saudi Arabia’s minister of energy said users switching from gas to oil could account for demand of 500,000-600,000 barrels per day, depending on winter weather and prices of other sources of energy. read more
GAS:
U.S. Oil, Natural Gas Producers Seen Having More Access to Capital This Fall – Natural Gas Intelligence
Andrew Baker, Natural Gas Intelligence, October 20, 2021
Exploration and production (E&P) companies that work in the United States are expected to have more reserve-based lending (RBL) capital available to them this fall versus last spring, according to the latest biannual survey conducted by Haynes and Boone LLP.
The law firm conducts surveys ahead of each fall and spring redetermination season for RBL, a common type of financing for U.S. E&Ps.
Based on the latest survey, “producers should expect the fall 2021 redetermination season to result in materially improved reserve-based lending credit availability,” said Haynes Boone partner Kraig Grahmann, who leads the energy finance practice group.
Most of the 84 respondents in the latest survey said they expect borrowing bases to grow by 10-20% in the upcoming redetermination season, with almost none predicting decreases. E&Ps accounted for 40% of the respondents, followed by oil and gas lenders (38%), professional services firms, and other (4%).
The outlook is more optimistic than the spring 2021 survey, when most participants predicted borrowing bases would stay the same or rise by 10%.
The redetermination process protects lenders from fluctuations in oil and natural gas prices, which have strengthened considerably since spring. Researchers highlighted that the New York Mercantile Exchange oil price strip has increased 25% as of Oct. 15 versus last spring, when it was around $60/bbl.
“Notably, lenders are more bullish on borrowing bases increasing than producers,” said the survey authors. “While 38% of producers anticipate no change, 62% of lenders predict at least a 10% increase in borrowing bases.”
Most respondents said reserve-based credit facility borrowers have 50-70% of their production hedged over the next year. Researchers said the increased levels of oil and gas price hedging by producers is a cause for concern.
“Although many producers saw these locked-in hedges as a lifesaver in the down markets of 2020, they now see them as an impediment to cashing in on the price spike days seen in the second half of 2021,” the Haynes Boone team said.
As in the previous survey, respondents said they expect E&Ps to use cash flow from operations and bank debt as their primary sources of capital this year.
“The most notable change in market sentiment is a slight increase in banks as a potential capital source and a slight decrease in alternative capital providers,” researchers said.
The survey also showed resurgent optimism around the oil and gas sector’s access to public equity markets. Nearly two-thirds said they expect these markets to be available in 2022.
“This is an interesting finding given that public equity markets have shunned our industry for the last 18 months,” Grahmann said.
MINING:
Northern mines could provide most of the EU’s strategic metals
Kevin McGwin, Arctic Today, October 19, 2021
Greenland, northern Scandinavia and parts of Iceland — together with the wider Nordic region — are a potential source of nearly all the metals the European Union has identified as crucial to the bloc’s development of a low-carbon economy, a review published by the Nordic Council of Ministers has found.
“The Nordics have a unique position to take the lead within sustainable mineral and metal production” the review concludes.
Much of the region’s potential is linked to the wide swaths of mineral-rich areas located there, but the existence of functioning mining and processing industries in Norway, Sweden and Finland add to the region’s attractiveness.
The review warns however, that financing, logistics and other barriers could prevent even the most promising projects from ever coming online.
[Sweden moves to update Sámi reindeer laws in the wake of a landmark land-rights decision]
As an example, it points out that Greenland’s enormous deposits of rare-earth minerals may be a less attractive business case than a smaller rare-earth deposit that is currently being developed in southern Sweden.
Similarly, opposition from Sámi groups, who have opposed mining activity that threatens their way of life, could put some mineral deposits out of reach.
This is a concern the EU sought to address in the most recent version of its policy for the Arctic, which identifies the region as a potentially significant supplier of what it calls critical raw materials — while also touting the industry as a driver of economic growth for its communities.
The policy pledges to respect Indigenous rights as it seeks to secure sources of critical raw materials. But Sámiráđđi, a group promoting Sámi interests, has warned that it sees “many obstacles” to expanded mining on land used by reindeer herders.
POLITICS:
Dems seek to salvage climate goals with taxes, regs
Benjamin Storrow, Jean Chemnick, CLIMATEWIRE, October 20, 2021
A grim truth hit Democrats yesterday: They have limited options for meeting President Biden’s climate goals.
The centerpiece of the president’s climate agenda — a $150 billion plan to pay utilities to add clean electricity — is all but dead thanks to staunch opposition from Sen. Joe Manchin.
The conservative West Virginia Democrat also quickly dispensed with talk of turning to a carbon tax as a replacement, telling reporters yesterday it was “not on the board at all.”
And so by the time a group of progressive lawmakers emerged from a meeting at the White House yesterday afternoon — an outline of a scaled-down reconciliation package in hand — it looked increasingly likely that Democratic policymakers would settle for the only two climate policies the country has ever known: tax credits and regulations.
Several analyses show that tax credits have the potential to deliver the largest emissions reduction the United States has ever seen. But those reductions likely would fall short of what deep decarbonization studies say is needed to put America on course for net-zero emissions in 2050 (Climatewire, July 12).
The Clean Electricity Performance Program, which would have paid utilities to sell growing amounts of zero carbon power, would have boosted clean electricity generation from roughly 40 percent today to 80 percent in 2030.
Yet there appears to be very little effort to resuscitate the proposal in the face of opposition from Manchin, said Rep. Sean Casten, an Illinois Democrat who has emerged as a prominent voice on energy issues in the House.
“There’s a concern that if we go through and we pass something with very weak climate provisions, are we going to be under pressure to celebrate that as a victory, and pretend that what we know is true is not?” Casten said. “I have not heard anybody who has articulated a confident view — maybe you have some political spin — but a confident view that we’re going to get anything else done that’s remotely close to the scale of what we lose if we take the CEPP out.”
Analysts said the United States has a narrow road to achieving the 50 percent reduction in greenhouse gas emissions that Biden has targeted by 2030. The combination of tax credits, regulatory reforms and state action could cut emissions 45 to 51 percent below 2005 levels by 2030, according to a report released this week by the Rhodium Group (Climatewire, Oct. 19) .
The analysis finds the greatest emissions reduction in the power sector, dropping 58 percent by 2030 compared with where greenhouse gas levels would be on their present trajectory. Those reductions would be driven by a combination of tax credits for renewables, transmission, carbon capture and energy storage coupled with pollution regulations on new and existing power plants.
But there are no guarantees that the United States would meet Biden’s climate target, said John Larsen, a Rhodium analyst.
“Everything has to go right, and there is a lot that could go wrong,” he said.
Still, tax credits have a strong track record of greening America’s economy.
The stimulus package passed under former President Obama provided roughly $90 billion in incentives for clean energy. That money helped finance a renewable boom in America, with the share of generation from sources like wind and solar rising from less than 5 percent of the country’s electricity mix in 2011 to more than 12 percent last year. U.S. power-sector emissions fell 37 percent between 2005 and 2020, according to EPA data.
Progressives who emerged from a meeting on the White House yesterday said the scaled-back reconciliation package would include about $300 billion in climate funding, but they did not provide details.
A September analysis by the Joint Committee on Taxation found that the reconciliation package contained some $235 billion in clean energy tax credits, on everything from renewables, energy storage and transmission to home retrofits and electric vehicles.
The package also contains an important tweak. Where developers have had to rely on tax equity to receive the credits in the past, they would not be able to recoup those payments directly.
That is a huge win for renewables, said Casten, who worked as a renewable developer before entering Congress. But the question of whether Republicans could water down the tax credits if they take power in the midterm elections acts as an impediment to greening the electricity sector.
“I’m glad of what’s there, but given the rate at which we need the private sector to be deploying capital, tax policy alone will never be sufficient,” he said.
If tax credits have proved a useful tool for cutting emissions, regulations’ track record is more mixed. The last two administrations wrote strikingly different rules for existing power plants using the same provision of the Clean Air Act, Section 111.
And each ran into trouble in the courts. The Obama-era Clean Power Plan, which looked for emissions cuts throughout the electricity system, was stayed by the Supreme Court even before the Trump administration took office and initiated a rulemaking to repeal it. The high court has grown more conservative since that time.
The much weaker Affordable Clean Energy rule, meanwhile, was invalidated by the U.S. Court of Appeals for the District of Columbia Circuit for failing to do enough to curb emissions.
“We have reactionary Supreme Court, so it is not a good time to think about new ideas,” said Danny Cullenward, a lawyer and researcher who studies climate policy. But focusing on limiting traditional air pollutants could have the benefit of also cutting carbon emissions, he said.
“Those are not the tools you would choose if you had the option, but there are a lot of tools we could use if we want to go faster and push toward those goals,” Cullenward said.
If climate legislation sputters out on Capitol Hill, the Biden administration will turn to EPA to decarbonize the power sector using the Clean Air Act.
In fact, White House climate adviser Gina McCarthy and EPA Administrator Michael Regan have both made clear in recent weeks that the agency would promulgate emissions rules for utilities whether Congress acts or not.
Biden’s EPA is expected to promulgate a third Section 111(d) rule for existing power plants, but it, too, must meet this Goldilocks-and-the-porridge test of showing enough ambition for the more liberal D.C. Circuit and enough restraint for the Supreme Court.
Regan said during his Senate confirmation hearing that when it comes to power plant regulations, EPA has learned from the “success and failure that we’ve seen in past tries.”
EPA’s acting air chief, Joe Goffman, spent the Trump administration at Harvard University, thinking about ways to write ambitious rules with more limited readings of Clean Air Act authority. And his former colleagues from Obama’s EPA say he entered the Biden administration with a clear set of ideas for how to decarbonize the power sector while maximizing a rule’s chances of surviving the Supreme Court.
“There’s no way that Joe Goffman would not have been organizing groups to think through these issues and begin to prepare regulation,” said one past official. “I have my doubts that they have something that’s completely prepared, but I bet there are pretty good outlines.”
Most experts say Goffman and his team are likely looking at ways to achieve maximum emissions cuts inside the fence line at a power plant. Requirements for co-firing would be a likely candidate, as would heat-rate improvements augmented by emissions cuts — and pressure on coal-fired power plants — from other rules for things like mercury, smog and wastewater.
Jeff Holmstead, who headed the EPA air office during the George W. Bush administration, told E&E News recently that McCarthy and Goffman would have a healthy respect for the legal risks involved in regulating carbon under the Clean Air Act for stationary sources.
“EPA hasn’t even started the regulatory process yet because the Clean Air Act doesn’t give the agency a clear path forward,” he said.
“It’s certainly true that the Biden EPA will impose additional regulations on the power sector even if the CEPP is adopted, but they’ll be regulating conventional pollutants — not CO2,” he added. “If they are committed to regulating CO2 no matter what happens in Congress, why haven’t they done anything yet?”
Michael Wara, a research scholar at Stanford University, echoed that theme, saying the administration’s best bet may be to focus on strengthening regulations, like the Cross-State Air Pollution Rule, that have already been ruled on by the Supreme Court.
Those rules can change which power plants companies choose to run, prompting them to select cleaner options more often and slowly eroding the economics of dirtier facilities. And combined with tax credits for clean sources of power generation, those regulations could put the United States closer to Biden’s goal.
“There is no guarantee,” he said. “But there are no guarantees, anyway.”
CLIMATE CHANGE:
First look: New climate website touts Biden’s actions
Andrew Freedman, Axios, October 20, 2021
What is a White House to do when it is stuck between slow-moving climate legislation and a fast-approaching climate summit where its credibility is on the line? Unveil a new White House climate website, of course, showcasing its actions to date as well as ongoing work.
Why it matters: The Biden administration, which shared the site first with Axios, focuses it around the actions taken by the White House National Climate Task Force.
- According to a person familiar with the administration’s thinking, the White House wants to showcase how its all-of-government approach on the climate crisis is achieving results, and that it is also aimed at connecting domestic climate ambition with international leadership.
Details: The task force brings together heads of government agencies — from Commerce to NASA to Defense — to take actions that reduce the impacts of global warming and cut U.S. emissions of greenhouse gases.
- The site links to Biden’s executive orders to evaluate and incorporate climate risk into oversight of the financial system; highlights his Day One reentry into the Paris Agreement; and casts the 2020s as the “decisive decade” to act on global warming.
- The site plays up the virtual climate summit Biden held on Earth Day and emphasizes the U.S.’s commitment to quadruple climate finance overseas toward a goal of $100 billion per year that was first promised in 2009.
- For a president that has been in office for less than a year, there’s a sense of making up for lost time. Biden’s predecessor denied the existence of human-caused climate change, pulled the U.S. from the Paris Agreement, and systematically dismantled the Obama administration’s climate measures.
Between the lines: The timing of the website rollout is noteworthy, coming when some progressives in Congress are questioning Biden’s backbone on climate policy in the face of opposition from moderate West Virginia Democratic Sen. Joe Manchin.
- It also comes about two weeks before the start of COP26 in Glasgow, where the U.S. had hoped to come in with a demonstrated record of accomplishment — preferably in the form of enacted laws.
- Instead, the U.S. will most likely arrive with a lot of rhetoric, executive actions as detailed on the new site, and good intentions. Whether that’s enough to recover from the reversals under Trump remains to be seen.
What we’re watching: Whether Democrats agree to a framework that includes aggressive climate actions prior to or during COP26.
Go deeper: Biden, Manchin and climate change