NEWS OF THE DAY:
U.S. lawmaker introduces bill to eliminate carbon credits for oil recovery
Leah Douglas, Reuters, December 13, 2021
California lawmaker Ro Khanna introduced a bill into the U.S. House of Representatives on Monday that would prevent investors from securing carbon capture and sequestration tax credits if the carbon is used to boost oil production.
The bill has little chance of being adopted into law but reflects deep political divisions in Congress over whether and how carbon capture can be used as a tool in the fight against climate change.
The tax credit, known as 45Q, allows companies to earn money for every ton of carbon that they capture off a polluting facility and store underground. That includes carbon injected into oil fields to push trapped oil out of the ground, something the industry calls enhanced oil recovery (EOR).
Khanna’s bill would revise 45Q by eliminating any credit for captured carbon used for EOR, which environmentalists say defeats the purpose of carbon capture by promoting the carbon-intensive fossil fuels industry.
Currently, 95% of carbon capture and storage (CCS) capacity in the United States is for EOR, according to data from the Global CCS Institute.
“We shouldn’t be subsidizing (EOR) if this is going to be increasing carbon,” Khanna told Reuters. “If the technology advances, we can consider it.”
The bill, titled the End Polluter Welfare for Enhanced Oil Recovery Act, is co-sponsored by Raul Grijalva of Arizona, chair of the House Natural Resources Committee, and Mike Quigley of Illinois, both Democrats like Khanna. It is supported by twenty green groups including Food & Water Watch, the Sierra Club, and Sunrise Movement.
Khanna hopes the bill will be adopted into the Senate’s version of the Build Back Better Act (BBBA), the budget reconciliation bill. The House passed its version of the bill in November.
But the provision would be a significant departure from the House version, which includes a major expansion to the 45Q credit.
According to media reports, several senators, including West Virginia’s Joe Manchin, whose vote is needed to pass BBBA, have been discussing eliminating a provision of 45Q that requires facilities to capture at least 75% of their carbon emissions to qualify.
“They’re going the wrong way,” Khanna said of his Senate colleagues.
OIL:
Oil dips after IEA says omicron will slow recovery in demand
Market Watch, William Watts, December 14, 2021
Oil futures were higher Tuesday, but remained off earlier highs, after the International Energy Agency said the omicron variant of the coronavirus that causes COVID-19 would slow a recovery in demand for crude.
West Texas Intermediate crude for January delivery CL00, -0.77% CLF22, -0.73% rose 9 cents, or 0.1%, to $71.38 a barrel on the New York Mercantile Exchange. February Brent crude BRN00, -0.86% BRNG22, -0.86%, the global benchmark, edged up 12 cents, or 0.2%, to $74.51 a barrel on ICE Futures Europe.
Both benchmarks dipped into negative territory after the Paris-based IEA, in its monthly report, cut its 2022 supply forecast from non-OPEC producers by 100,000 barrels a day and reduced its demand forecast by the same amount, saying it expects the surge in coronavirus cases to stymie the recovery in global demand.
Read: IEA cuts 2022 oil demand outlook citing omicron hit on global growth
Analysts said traders would remain attuned to reports around the severity of the omicron variant.
Central banks are also in focus, with the Federal Reserve expected to move Wednesday to more quickly wind-down its monthly asset purchases, setting the stage for rate increases by next spring.
Related:
OPEC increases global oil demand forecast for Q1 2022
GAS:
Chip giant Taiwan’s energy security on the line with LNG referendum
Sarah Wu, Reuters, December 13, 2021
Taiwanese voters will decide this Saturday on a new LNG terminal considered key for the chipmaking powerhouse to secure its energy supply but facing attacks from conservationists – and from an opposition party eager to wrong-foot the government.
The referendum, which seeks to relocate the project away from an ancient algal reef and would likely delay it for years, has a reasonable chance of passing, some polls have shown.
At stake for the government is not just averting future power cuts, like those in May during a drought and heat wave, but an environmental policy that moves away from polluting coal and nuclear power, towards greener and renewable alternatives.
“If we can’t build this third LNG terminal, we will really have an electricity supply problem,” Economy Minister Wang Mei-hua told reporters last month.
The project would make the Datan Power Plant the island’s biggest while advancing the government’s goal of boosting LNG to produce half its power by 2025.
It would also help to supply Taiwan’s semiconductor plants, thrust into the spotlight by a global chip shortage that has crimped supplies of cars and electronics. They require vast amounts of energy and water.
In 2019, Taiwan Semiconductor Manufacturing Co Ltd’s (2330.TW) electricity consumption was about 5% of Taiwan’s total, according to a Bernstein report.
Mark Li, a Bernstein semiconductor analyst, said TSMC, the world’s largest contract chipmaker and a major Apple Inc (AAPL.O) supplier, has for years worked with the government to ensure that Taiwan’s power supply will increase as the company expands.
“They’ve been talking to the government to make sure there wouldn’t be long-term outages that become a real issue for the company,” Li said.
When Taiwan faced its worst drought in more than half a century this year, the government prioritised water for households and industry over irrigation, while companies ordered in truckloads of water and set up generators for power cuts.
‘SACRED MOUNTAIN’
TSMC, known widely in Taiwan as a “sacred mountain protecting the nation”, is wary of being drawn into the island’s polarised politics and has stayed out of the referendum debate.
But one chip executive, who spoke on condition of anonymity because he is not authorised to talk to the media, said the industry has long worried about Taiwan’s limitations on land, water and electricity.
“But of all those, it’s electricity that is the top concern, especially a stable power supply,” he said.
The Taiwan Semiconductor Industry Association and TSMC both declined to comment on the referendum.
The referendum petition was initiated by an environmental activist and garnered more than 700,000 signatures on the back of an endorsement from the main opposition party, the Kuomintang.
The party, eyeing local elections next year when it hopes to stage a political comeback, is pushing instead for more nuclear power as the green solution to Taiwan’s energy woes, and supports a separate referendum on restarting a mothballed nuclear power plant opposed by the government.
The Kuomintang has framed the four upcoming referendums as a vote of no confidence in the ruling party. read more
President Tsai Ing-wen signalled the vote’s importance to her government during a visit last month to the Datan Algal Reef, which stretches along the northwest coastline next to Taoyuan city.
“Taiwan has world-class, high-end manufacturing industries,” Tsai told reporters. “For the country’s safety and for economic development, we need to provide reliable and stable electricity.”
Chou Kuei-tien, a National Taiwan University professor, added that Taiwan urgently needs to speed up its move to cleaner energy sources.
“Taiwan already lags behind other countries in the energy transition,” he said.
None of this cuts much ice with activist Pan Chong-cheng, who led the campaign for the vote to move the terminal and protect the more than 7,000-year-old reef.
“This is the world’s shared property, this is our next generation’s property,” said Pan, a retired teacher, and the convener of the Rescue Datan’s Algal Reefs Alliance.
“With so many people wanting to preserve it, if we can’t preserve it then this country would only seem to have economic development and money before its eyes.”
MINING:
Peru mining chamber says tax hike proposal risks $50 billion investment
Mining.Com, December 14, 2021
Peru’s mining chamber lambasted on Monday a government proposal to raise taxes on the sector by at least 3 percentage points, saying it would put more than $50 billion in future investments at risk in the world’s second largest copper producer.
Peru’s Finance Minister Pedro Francke said on Sunday that the government wants to increase mining taxes by 3 to 4 percentage points, citing a study from the International Monetary Fund (IMF) which gave room to hike levies.
The government of leftist President Pedro Castillo has been at loggerheads with mining firms since he came to office in July, pledging to redistribute the Andean country’s mineral wealth and hike taxes to fund social programs.
There have also been a spate of protests against the sector, with mining firms complaining that the government has not done enough to resolve blockades that have at times hit production.
The National Society of Mining, Oil and Energy said Francke’s proposal would “irreparably” damage competitiveness in Peru’s sector mining, the engine of the country’s economy.
“We consider that there is ample evidence that the tax burden on mining is currently close to 50% of profits,” the chamber said. It added the rate in neighboring Chile was just over 40%, while it was 35.5% in Canada and 44.3% in Australia.
“These are mining countries with which Peru competes directly.”
Those numbers clash what the government says. Francke claimed on Sunday, citing the IMF study, that Peru’s mining tax rate was 41.7%, lower than Chile’s 47.1%.
Castillo’s government is pushing the opposition-dominated Congress to approve plans before the end of the year to legislate on tax reforms, mainly in the mining sector currently benefiting from high international metal prices.
The mining chamber said Peru’s economy ministry had used a “a particular interpretation” of the IMF’s preliminary report, which has not yet been publicly released.
“A bad redesign of the tax scheme will discourage investments in expansions of mines already operating and in new mining projects. Future investments of more than $50 billion are at risk,” it added.
POLITICS:
Biden’s proposed new methane tax a bad idea
Miller Hudson, Colorado Politics, December 13, 2021
When governments wish to prevent or restrain something, they usually consider either of two choices — regulation accompanied with enforcement penalties or painful taxes. Alternatively, when governments want to stimulate or expand the availability of a service or product, regulation and taxes take a 180-degree twist — offering incentives or direct subsidies. No single one of these choices is inherently superior since each is best suited to specific circumstances for achieving a policy objective. Failing such strategic matching, regulation and taxes often can and do run astray.
President Biden’s reconciliation bill which recently passed the House and was then shuttled over to the Senate for its amendment and approval incorporates a new tax on natural gas that promises to accelerate inflation for Colorado residents. Taxes alone rarely produce their advertised purpose since they are readily passed along to customers in the price of whatever is being taxed at minimal cost to a targeted industry. Regulation that closely monitors polluting processes — such as compliance orders issued by the Environmental Protection Agency (EPA) — is far more effective and reliable. There is no better example than Colorado’s regimen for reducing methane emissions generated by its oil and gas operators. These measures have proven so successful it was expected the Biden administration might adopt them as a national model.
This may still happen, but the ‘Build Back Better’ (BBB) Act currently proposes a blanket tax — labeled as a ‘methane fee,’ on all petroleum producers which will be calculated using a national average index for oil field methane emissions. This tax is projected to generate $14 billion dollars annually and thereby helps meet the legislative goal of assuring the BBB legislation pays for itself. In truth this tax seems certain to drive up heating costs by nearly 20% at a time when inflation is becoming a problem. It would also unfairly burden consumers in Colorado where petroleum producers have dramatically reduced their methane emissions, in some cases by as much as 80%. If we are truly concerned about climate change, methane policy should be shaped by proven results.
The energy industry remains a major contributor to the economic health of Colorado, benefiting both state and local governments. The combined oil and natural gas sectors supported 340,000 jobs, paid out $34 billion in wages, and pumped $46.1 billion into Colorado’s economy during 2019 according to a PriceWaterhouseCoopers audit. Taxing this energy industry solely to raise revenue in the same way government levies excise (sin) taxes on alcohol, gaming and marijuana is shortsighted.
There are good reasons why groceries, prescriptions, and most wholesale transactions are exempt from sales taxes. These are not moral decisions, but practical ones. Should home heating fuels be taxed heavily? No matter how concerned we are about global warming, I certainly come down on the side of caution and in support of curtailing emissions. It doesn’t make much sense to punish homeowners with a regressive tax that has been deliberately hidden from voters by collecting it from producers. These upstream revenues will be recovered prior to retail delivery through market pricing.
Reducing methane emissions should be a priority for the oil and natural gas industry. Fugitive methane can be captured and sold. A little regulatory prodding doesn’t hurt, of course. In Colorado, the energy industry has worked in concert with state regulators to develop what stands as a gold standard for methane reduction. Detection technologies have improved rapidly and while leaks will never be completely eliminated, their swift identification and remedy will continue to improve with innovative detection technologies coupled to prudent government regulation and oversight.
The proposed $1,800 per-ton fee on oil and gas production, accompanied by a built-in annual 5%-plus-inflation escalator, also applies to imports. This backdoor tariff scheme has never been debated in committee by either Congressional chamber and invites retaliation from both OPEC and our allies. It will surely destabilize energy markets worldwide and invite trade fights. The implications of what has traveled beneath Washington’s radar as a feel-good climate change policy deserves a thorough public vetting. There are significant foreign policy and domestic economic consequences that should be weighed and debated.
The EPA is well positioned to enforce a rigorous leak detection and prompt repair system that protects both public health and promotes environmental resilience. Colorado’s successful and hard-won regulatory program can serve as a basis for effective and intelligent oversight. A methane tax, not so much.
CLIMATE CHANGE:
John Kerry hints at plans for post-COP26 summit
Ben Geman, Axios, December 14, 2021
John Kerry, the U.S. climate envoy, offered a hint about plans for a multilateral meeting this spring aimed at accelerating emissions-cutting efforts.
Driving the news: “In April next year, we’re going to be having a summit on the subject of increased mitigation,” Kerry tells Euractiv.
- He didn’t offer details, but it followed remarks about efforts via the U.S.-led Major Economies Forum on Energy and Climate.
- A State Department official confirmed discussions but also did not provide details.
Why it matters: The big United Nations climate summit last month brought a wealth of new nonbinding commitments.
- The big question is what concrete steps nations are taking to transform them into tangible policy.