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OIL AND GAS LEASING PROTECTED IN DEMOCRATIC BILL: The Democrats’ reconciliation deal is heavy on green energy provisions, but Majority Leader Chuck Schumer made some notable concessions to get Sen. Joe Manchin’s support by tying renewable energy development in federal waters to continued oil and gas leasing.
The Inflation Reduction Act of 2022 would make the issuance of offshore wind leases contingent on oil and gas lease sales also being held for the 10-year period covered by the budget deal.
It’s a check on the campaign among Democrats and environmental groups to rapidly expand renewable energy and simultaneously end leasing of federal lands for oil and gas extraction.
Specifically, the bill would prohibit the Interior Department from issuing an offshore wind lease in the Outer Continental Shelf unless it carries out an offshore oil and gas lease sale during the prior year. That oil and gas lease sale must also cover at least 60 million acres.
The bill puts similar strictures on the issuance of rights-of-way for wind and solar developments on federal lands. Interior must move forward with quarterly onshore oil and gas lease sales to do so.
Trading off: The provisions preferencing oil and gas challenges President Joe Biden’s series of promises to restrict mineral extraction on federal lands.
They also put many Democrats in a position of voting for a bill that locks in more oil and gas leasing. A number of party lawmakers have introduced bills this very Congress to end oil and gas leasing on federal lands.
But at the same time, moving offshore wind forward is integral to the Democrats’ broader green agenda, and more specifically to the Biden administration’s strategy to reduce greenhouse gas emissions from the power sector.
Biden wants to deploy 30 gigawatts of offshore wind capacity by 2030, and Interior just last week, in response to what was ostensibly the end to negotiations over energy and climate spending (remember that climate emergency talk?) announced draft acreage for wind development in the Gulf of Mexico.
Other wins for oil and gas: The bill would also require Interior to carry out the three offshore lease sales it canceled in May. Those three sales — one for acreage in Alaska’s Cook Inlet and two others in the Gulf — would be otherwise fated to go unfulfilled as they were part of the five-year offshore program that just expired at the end of June.
It would also “reinstate” Lease Sale 257 and make Interior award bids for it — the lone offshore sale carried out last year that’s been held up in the courts ever since. It’s unclear yet exactly how that would work.
Plenty of green measures: The deal isn’t a fossil bill by any means, although the leasing provisions particularly stood out.
It would also raise royalty rates, a priority of the Biden administration, establishing a new minimum royalty rate for offshore oil and gas of 16.66%, with a maximum of 18.75%.
The bill summary maintains that it would reduce greenhouse gas emissions 40% by 2030. It would provide billions in tax incentives for green energy, including some $30 billion for production tax credits to encourage domestic manufacturing of solar panels, wind turbines, batteries, and critical minerals processing, as well as investment tax credits valued at $10 billion to build clean technology manufacturing facilities.
Another $500 million would be appropriated for use under the Defense Production Act for heat pumps and critical minerals processing pursuant to Biden’s actions to produce more of both.
Electric vehicle tax credits, a longstanding hang-up for Manchin, made it in, too.
Reactions: Democratic Sen. Ed Markey, one of the minds behind the Green New Deal proposal, shared a favorable view of the deal, saying that while the package “may not be everything that we want, but it’s the start that we need.”
Sen. Jeff Merkley was more equivocal, suggesting he wanted more time to look at the bill’s language before backing it. Hundreds of billions for clean energy “seems like a very positive step—but details matter,” he tweeted yesterday.
For Jim Walsh, executive director of environmental group Food & Water Watch, the oil and gas provisions were especially heinous.
“The more I read, the worse it gets,” Walsh told Jeremy. “Any legislation that says you can’t develop new renewables on public lands and waters without also holding new oil and gas lease sales isn’t a climate bill.”
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WEST VIRGINIA BLACKLISTS FIVE WALL STREET GIANTS FOR ‘BOYCOTTS’ ON ENERGY COMPANIES: West Virginia said it has deemed five major financial institutions ineligible for banking contracts in the state on the grounds that they “boycott” energy companies—a drastic step that bars some of the world’s largest financial firms from doing business in the state.
The restricted financial institution list includes major players BlackRock, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo, the Washington Examiner’s Zachary Halaschak reports. The news means the firms will lose access to a combined $18 billion in annual inflows and outflows.
The determination, which takes effect today, was announced this week by the office of West Virginia Treasurer Riley Moore.
“While the ‘Environmental, Social and Governance’ or ‘ESG’ movement might be politically popular in California or in New York, financial institutions need to understand their practices are hurting people across West Virginia,” Moore said. “I simply cannot stand by and allow financial institutions working against West Virginia’s critical industries to profit off the very funds their policies attempt to diminish.” Read more from Zach here.
G-7 NATIONS PUSH FOR PRICE CAP PLAN BY EARLY DECEMBER: Members of the G-7 leading industrial nations are seeking to put in place a proposed Russian oil price cap by Dec. 5, a senior G-7 official said yesterday, as leaders race to stabilize a volatile market and starve Russia of its main source of funding for the war in Ukraine.
Speaking to Reuters yesterday, the official said leaders’ goal is to coincide the price cap timing with a new EU sanctions package banning seaborne imports of Russian crude. “We want to make sure that the price cap mechanism goes into effect at the same time,” this official said.
The news comes after U.S. Treasury Secretary Janet Yellen traveled this month to Asia to lobby support for the plan—including meeting with her counterparts in Japan and South Korea, and speaking by phone to leaders in China and India, whose countries are both considered key holdouts to adopting the price cap.
Though it is unclear what levers G-7 nations can, or have pulled, to get them on board, the official seemed optimistic, telling Reuters that both countries are “interested” in the idea of minimizing oil import costs due to concerns about the budget impact through “often-subsidized retail prices and inflation.”
“We’ve already heard from a number of Asian countries that are interested in either joining the coalition or better understanding the price point at which the price will be set in order to strengthen their hand in their negotiations with the Russians over future contracts,” the G-7 official said. Read more on the price cap effort here.
Why it matters: Some U.S. officials are concerned that oil traders might be underestimating the impact that imposing an insurance ban might have on prices unless it is accompanied by the price cap plan. “Russian production is going to fall when the services ban fully kicks in, unless we use the price cap to allow exports to continue,” a person close to the negotiations told the Financial Times. “It is the one way of preventing a significant rise in prices.”
GLOBAL COAL DEMAND ON THE RISE: Coal consumption in the European Union is slated to increase by 7% this year, according to a new report from the International Energy Agency, with global coal use expected to rise to the highest point in nearly a decade amid soaring natural gas prices and Russia’s war in Ukraine.
EU leaders are scrambling to save gas and secure alternative energy supplies, even if it means resuming use of the world’s most polluting fossil fuel. Several EU countries have opted to extend the life of their coal plants or reopen previously-shuttered facilities as they look to reduce gas consumption and bolster gas storage ahead of the winter season.
“The world’s continued burning of large amounts of coal is heightening climate concerns, as coal is the largest single source of energy-related CO2 emissions,” the report said. Demand from Europe’s power sector will account for most of the EU’s coal consumption, the report found, with IEA estimating a 16% increase in demand this year.
IEA officials said they expect global coal demand to climb even higher in 2023, with gas costs intensifying gas-to-coal switching in many countries. Read the full report here.
CALIFORNIA RELEASES PLANS FOR $16 BILLION WATER TUNNEL: California Gov. Gavin Newsom unveiled plans yesterday for the revamped Delta water tunnel project, a sprawling, 45-mile underground tunnel that seeks to reroute water supplies from Northern California to Southern California, as that part of the state copes with historic drought.
The revamped, $16 billion project will take water that comes into the Sacramento River during rainstorms to the California Aqueduct, for delivery further south.
The Delta tunnel is the single largest endeavor by state administrations to modernize the state’s water management system, which has sparked some concerns: Construction of the tunnel would require the removal of 71 buildings, including homes, as the Washington Examiner’s Misty Severi reports. It could also hurt the Delta smelt and the local endangered salmon.
“It is a conundrum to be able to manage the Delta in a way that protects the environment, respects the communities that live there and provide for the water supplies for a large portion of the state,” Wade Crowfoot, secretary of the California Natural Resources Agency, told the Associated Press.
DOE ANNOUNCES $102 LOAN TO CRITICAL MINERALS PROCESSING FACILITY: The Department of Energy announced yesterday that it is giving a $102 million loan to expand a Louisiana mineral processing facility for materials used in EV batteries.
The facility, owned by Syrah Technologies, is a major manufacturer of a mineral used in lithium-ion batteries and other clean energy technologies, The Hill reports.
“Securing critical materials, such as lithium and graphite, is essential to increasing domestic production of batteries to power the growing number of EVs on our roadways,” Energy Secretary Jennifer Granholm said in a statement announcing the loan.
In April, DOE said the funds could give the Syrah the capacity to produce roughly 2.5 million EVs by 2040, which would save an estimated 970 million gallons of gasoline.
CONGRESS CALLED TO COMMIT TO NATURAL CLIMATE POLICIES: A new policy paper makes the case for more deliberative federal support for natural climate solutions, an approach to emissions mitigation that has garnered bipartisan support in the past.
The paper from conservative energy policy group CRES Forum emphasizes the role that forests, rangelands, and wetlands play as natural carbon sinks. Managed lands removed an estimated 812 million metric tons of carbon dioxide from the atmosphere in 2020, and could do more to reduce and offset emissions with better management, said Charles Hernick, the paper’s primary author.
“We need to invest in natural climate solutions such as reforestation, better forest management, and improving soil health on American farms to drive down emissions further,” Hernick said.
The paper recommends things like expanding urban greenspaces and forests and incentivizing farmers to withdraw less productive farmlands from crop production in order to plant cover crops instead that can sequester carbon.
“Managed well, America’s lands and natural climate solutions could further reduce emissions and offset 21 percent of U.S. emissions,” Hernick said. “That’s a big deal.”
ANOTHER HEALTHY QUARTER FOR BIG OIL: Shell and TotalEnergies reported massive earnings this morning on the heels of a quarter characterized by sustained $100+ per barrel crude oil and strong refining margins.
Shell’s adjusted earnings rose to $11.5 billion for Q2, up from $9.1 billion earned during the first three months of the year. The supermajor’s refining margin rose steeply from $10 per barrel in the first quarter to $28 per barrel in Q2.
French multinational TotalEnergies reported $9.1 billion, more than doubling profits from the same quarter last year, on high oil prices, more LNG sales, and strong refining.
Biden and congressional Democrats have slammed oil companies for earning so big while drivers face steep costs to fill up, although the industry has generally maintained that higher earnings are a function of the higher crude prices and shortage of refining capacity.
Chevron and ExxonMobil are set to announce their quarterly reports tomorrow, and the earnings story is expected to be much the same as with their European competitors.
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Calendar
THURSDAY | JULY 28
10:00 a.m. 1324 Longworth Members of the House Natural Resources committee will hold a hearing exploring ways to prevent large corporate polluters from securing contracts with the Bureau of Land Management.
