Biden’s Skills, Russia’s War, And Climate’s Rescue

With 2022 drawing to a close, it’s time not just to reflect but also to look ahead — to contextualize how the energy economy is shaping our lives. And the evolution is profound. Indeed, Russia has invaded the peaceful democratic nation of Ukraine, changing the entire energy picture. The West is choking Russia with sanctions and vowing to wean itself from its oil and gas. And President Biden has not just led the West in this pursuit; he has passed the most significant climate legislation ever and set hard targets to reduce CO2 releases. The legislative victory set the agenda for the COP27 meeting late in the year, which made two notable strides: saving rainforests through sovereign carbon credits and creating a fund to pay for damages caused by climate change. The three stories are irrefutably linked.

Number 3: What happened at COP27 will definitely be heard worldwide. For three decades, emerging nations have emphasized that the developed world is responsible for the emissions leading to climate change — the ones causing rising tides, droughts, and flood waters impacting their economies. They want compensation. Specifically, negotiators will set up a “loss and damage” fund to give some relief to Latin America, Asia, Africa, and the South Pacific countries. While the agreement is historical, the details are unknown. Most significantly, it is still determining who will get funded and contribute. With that, the Republicans took over the U.S. House, making it unlikely it will consent to bankroll such a fund; many of those members deny climate change is a problem — much less one that the U.S. should pay to remedy.

Moreover, developing countries fought to include the REDD+ mechanism in the final agreement. Under that plan, governments account for their forest lands and set targets to stop deforestation. The United Nations Framework Convention on Climate Change evaluates that progress before approving their emissions reductions. That makes it easier to attract corporate financing and keep trees standing — a natural asset that soaks up CO2 from the atmosphere.

Notably, the globe’s two biggest emitters — China and the United States —agreed to meet to foster solutions. China has set net zero goals for 2060, while the United States has done so for 2050. China’s goal is to cut carbon-heavy fuels by 20% by 2025. Meanwhile, the United States is investing $369 billion in its clean tech economy through the Inflation Reduction Act. It will also cut greenhouse gas emissions by 40% below 2005 levels in 2030.

Number 2: President Biden passes the most consequential environmental legislation since the 1970 Clean Air Act. The Inflation Reduction Act will fuel the growth of electric vehicles. But it will also do the same for hydrogen fuel cell cars. It provides a $7,500 tax credit for electric vehicles beginning in 2023, and it will last a decade — a benefit that had previously gone away if the car manufacturer sold more than 200,000 vehicles.

Hydrogen also is widely used in oil refining and the production of fertilizers. However, it must expand into transport, buildings, and power generation to make an even bigger footprint. “With the passage of the Act, we expect a boom for our electrolyzer and green hydrogen business,” Andrew Marsh, chief executive of Plug PowerPLUG
, said in a conference call. “All applications that use grey hydrogen today, such as fertilizer manufacturing, will now be able to buy green hydrogen at a competitive price.”

Moreover, there have been echoes of a nuclear renaissance for two decades. But the passage of the Inflation Reduction Act may bring it to fruition. The law provides a production tax credit for existing nuclear energy units — similar to the ones received by wind and solar farms. That will keep those plants competitive, preventing their early retirement.

But the industry will look differently, comprised of small modular reactors — not the jumbo-sized ones, which have been unable to meet their timetables or budgets. The smaller ones, assembled onsite, are cheaper to build, safer to operate, and could soon appear in North America. “Adding 300 reactors that generate 90 gigawatts over 30 years might be on the low end once this plays out,” says Doug True, the chief nuclear officer at the Nuclear Energy Institute.

Number 1: Russia’s invasion of Ukraine on February 24th was a suicide note: it will kill the country’s booming oil and gas sectors and authoritarian-style leadership. On November 9th, this reporter visited the Berlin Wall and the Brandenburg Gate, both of which stood between East and West Berlin, symbolizing the Cold War.

Coincidentally, the Wall collapsed on November 9, 1989. Two years later, the Soviet Union would also fall peacefully. When this happened, the world welcomed Russia and its former satellite nations into the fold, giving it much greater access to world oil and gas markets. It’s been one of the big three producers, along with Saudi Arabia and the United States.

In 2020, Russia’s oil and gas revenues were $219 billion, according to Rosstat. The two sectors combined made up 60% of the country’s exports and 40% of its federal budget.

However, President Vladimir Putin’s invasion of Ukraine has threatened global stability and strengthened NATO. And now the Europeans, dependent on Russian oil and gas, are lining up new contracts. Meantime, the globe is trending green, and Europe is going all-in on renewables and energy efficiency.

The United States, a net exporter since 2017, hopes to fill the natural gas void. With markets in the United Kingdom, Spain, and France, it has its eye on Germany, which has sopped up Russian gas. The biggest U.S. exporters are Cheniere Energy, Exxon Mobil Corp., and ChevronCVX
Corp.

The timing could not be better. The West officially killed Russia’s Nord Stream 2 natural gas pipeline this year after it declared war on Ukraine. Russia built Nord Stream 2 to bypass Ukraine — an $11 billion undertaking that stretches 745 miles before it filters into Germany’s Baltic coast.

“If Russia invades, that means tanks or troops crossing the border of Ukraine again, then there will be – there will be no longer a Nord Stream 2,” Biden said during a news conference. “We will bring an end to it … I promise you we will be able to do it.”

And that’s what happened — the same leadership that the president used to pass the Inflation Reduction Act and re-commit to the Paris climate agreement.