Home Commodities Washington’s Latest Energy Drama: ‘Reforming Permits’

Washington’s Latest Energy Drama: ‘Reforming Permits’

by SuperiorInvest

This article is a version of our Energy Source newsletter. Register here to receive the newsletter every Tuesday and Thursday directly to your email inbox

Welcome back to Energy Source, writing today from Pittsburgh, host of this week’s Global Clean Energy Action Forum, a gathering of cleantech leaders and government ministers.

Speaking of clean energy measures, the US Congress now has a full authorization bill to consider. America’s unwieldy permitting bureaucracy is arguably the most important remaining obstacle to President Joe Biden’s plan to decarbonize America’s energy system — or so according to renewables chiefs, investors and analysts. That is the subject of our first note.

Meanwhile, oil prices rallied again yesterday, once again pegged at — what else? — Vladimir Putin’s escalation in Ukraine. It is hard to imagine that Western sanctions on Russian energy are not about to be tightened again. That is the subject of the second note.

In Data Drill, Amanda notes last year’s sudden jump in coal consumption worldwide: not good news for emissions.

Thank you for reading. And if you’re in Pittsburgh too, come say hi!

— Derek

An unexpected reform drama that takes place in Washington

As boring and technocratic as it sounds, “enabling reform” may be the most significant obstacle facing the clean energy revolution that Joe Biden wants to bring to America.

Yesterday Congress started seriously discussing it. A fight is coming.

When Joe Manchin, the Democratic senator from West Virginia, shocked everyone over the summer with his Inflation Reduction Act—legislation packed with $370 billion in clean energy tax giveaways designed to cut the United States’ emissions in half by 2030 compared to in 2005. — had a condition. He also wanted to overhaul America’s notorious permit regime. A pipeline in Manchin’s home state was crippled by these laws, as were many other fossil fuel projects. His deal with the Democrats in the Senate was straightforward: he would get the IRA through; they would help him reform if he would allow it.

But progressives in Manchin’s own party don’t want to make oil and gas permitting easier. The whole reason permitting laws exist is to protect the environment, he argues. And Senate Republicans don’t want to give Manchin another win.

But as Myles and I wrote in a piece yesterday, it is more at stake than DC politics. Clean energy bosses, lawyers, investors and analysts have sent a clear message: without reforming permitting laws, the rapid deployment of renewable energy as planned in the IRA will not happen, putting emissions reduction targets at risk. Yes, investment will continue to flow into America’s clean energy capacity—tax incentives will ensure it. But connecting that capacity to consumers depends on building a new network. And you need a permit for that. Many of them.

“Let’s say we have solar module factories all over the US thanks to the IRA. . . Then the question is how quickly will it take you to permit the project and build it,” said David Scaysbrook, one of the founders of Quinbrook Infrastructure Partners, a major clean energy developer in the US.

America’s “broken domestic energy permitting system” has now delayed all forms of energy infrastructure, including clean energy pipelines and supplies, for years – and would threaten the very ambitions of the IRA, according to the new one. paper from the Institute of Progressive Politics. But installing the transmission, with an approval process that now takes more than four years, is the biggest problem.

One key point is the ability of states to stop interstate infrastructure projects by preventing the use of eminent domain — which would allow companies to buy private land for “public use.”

“We’re nowhere without eminent domain,” said Sean Moran, a partner at the law firm Vinson & Elkins. “There’s a graveyard of transfer deals” that died on that hurdle, he said.

All of this makes a congressional showdown critical to the country’s fight against emissions. Get it wrong, and allowing reform may just allow more fossil fuel projects and give developers their way, while doing little to accelerate the energy transition. But fix what PPI’s Paul Bledsoe calls “chronic sclerosis” by enabling and unwinding the clean energy sector of the newly revived IRA.

“We have a historic investment in clean energy” coming from IRAs, said Lauren Collins, another Vinson & Elkins partner. “But will we achieve the emissions targets we have set without allowing this? Probably not.”

US lawmakers press ahead with new Russian price cap proposal

There is no price ceiling for Russian oil yet, and it has been met with widespread skepticism in the oil market. But as Vladimir Putin escalates the war in Ukraine, there are already calls from the US Congress to tighten the price cap.

On Tuesday, two US senators – Democrat Chris Van Hollen and Republican Pat Toomey – released a “framework for new sanctions against Russia”. Their proposal it goes much further than the existing price cap plan proposed by the finance ministry, which has yet to decide on the actual price.

Two key elements of the Van Hollen/Toomey plan would be:

  1. Reducing the cap price by a third each year until Russia was forced to sell at the breakeven price.

  2. Enforcement through blanket secondary sanctions against countries or people that do not comply with the limit.

“If you want to set a global price ceiling for Russian oil, you need to ensure that it is uniformly applied. And for that, we believe you need a back-up of secondary sanctions, otherwise Russia will take advantage of loopholes,” Van Hollen told reporters on Tuesday. “It does no good to close the front door when there is a trapdoor in the back that is open.”

Toomey added that the plan sought to address the “Achilles heel” of the G7 price cap plan, which is that it only applies to transactions that use Western services. “Now is not the time to let up — now is the time to increase the pressure and ultimately destroy the Kremlin’s ability to continue to wage this war.”

Will it fly?

The Treasury Department has so far resisted enforcing broad secondary sanctions against those who violate the price cap, but has said it will crack down on buyers of Russian oil who knowingly violate the cap with “actions” to enforce the sanctions as punishment. The Biden administration remains concerned that an overly rigid scheme could backfire and inadvertently lead to higher oil prices. But under his plan, Van Hollen said the administration would still retain some “flexibility” in managing the price cap, including when to impose secondary sanctions. And while congressional leaders had not yet been briefed, he expected it to have broad support on Capitol Hill.

A Treasury spokesman brushed off the plan, saying the administration believes the current one will be effective. “Our goal remains to work hand-in-hand with our international partners to keep Russian oil flowing to global markets at lower prices and reduce the Kremlin’s revenue from its illegal war in Ukraine.

Meanwhile, after weeks of trying to sell its price cap, the finance ministry is beginning to gain at least some credibility in the market, where most participants have said the plan will not work without Chinese and Indian cooperation. Worse, if the plan works, some say, Russia would simply cut off its own oil supplies, driving up prices — exactly what US governments want to avoid.

The Treasury sent out a recent report from Deutsche Bank, which cut its oil price forecast “to lower supply risks,” adding that “Russian retaliation and deliberate supply cuts are unlikely.” A ministry spokesman also pointed to reports of Asian buyers again securing deeper discounts on Russian crude, suggesting the price cap was already forcing the Kremlin to accept lower prices. (James Politi and Derek Brower)

Data drill

Coal accounted for the largest increase in electricity generation last year for the first time since 2013, according to a new BloombergNEF report. Coal production increased by 8.5 percent in 2021, increasing the sector’s emissions by 7 percent.

China, India, the US and Germany have led the growth of coal power, driven in large part by high gas prices, rising demand for electricity and major droughts damaging hydropower. Half of the countries that pledged to phase out coal at COP26 increased coal production in 2021, according to the report.

“The challenges that caused the increase in coal production in 2021 are still a big issue in 2022,” said Luiza Demoro, head of energy transition at BloombergNEF, adding that another jump in coal production this year is possible as European countries looking for relief for high gas prices.

More optimistically, countries have made remarkable gains in renewables. Solar and wind generation accounted for more than 10 percent of all electricity generation for the first time. While only 33 countries had more than 20 GWh of solar power in 2012, 118 countries will reach this capacity in 2021.

Power Points

Energy Source is a bi-weekly energy newsletter from the Financial Times. Writes and edits Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg.

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