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A NEW PRESSURE ON U.S. LNG: The EU’s strict new methane emissions limits are likely to add to pressure on U.S. LNG suppliers to clean up their production and export operations in order to avoid costly fines and contract cancellations.
The rules, which eventually impose “maximum methane intensity values” on producers, were approved by EU leaders this week and align at least in part with Democrats’ push for the U.S. to update its “outdated” approval process for assessing LNG climate impacts.
By the numbers: The U.S. was the largest LNG exporter globally in the first half of 2023, according to the U.S. Energy Information Administration, and its LNG exports to the EU tripled in value last year compared to 2021 following Russia’s invasion of Ukraine.
Exports are on track to increase. Currently, 16 LNG export projects are under review in the U.S., including Calcasieu Pass 2, or CP2, a sprawling LNG export hub planned in Louisiana with an expected annual capacity of 24 million tons.
The methane rule: The EU rule introduces new methane limitations for oil and gas, including on LNG imports—requiring importers to monitor, report, and verify emissions of the potent greenhouse gas. Suppliers who are found to be in violation of the methane limit will face massive fines, and eventually contract cancellations.
The EU currently accounts for roughly two-thirds of U.S. LNG exports.
The rules could help Democrats make the case: It’s good timing for Democrats, including the more than 60 lawmakers who this week pressed the Biden administration to develop updated climate analyses for LNG export licensing and asked the Department of Energy to change its current case-by-case LNG approval process, which they argued ignores the “explosive growth” of LNG exports, as well as potential harm to the climate and communities.
The lawmakers, including Sen. Jeff Merkley of Oregon and Rep. Jared Huffman, cited a new analysis from the Sierra Club that found lifecycle emissions of planned and existing LNG export terminals in the U.S. “would be equivalent to 681 coal plants or 548 million gasoline-powered cars annually, putting domestic and global climate targets out of reach.”
The view from Brussels: EU leaders indicated they hoped the rules would drive down emissions in other countries.
The extension to imports “will have repercussions worldwide,” said Jutta Paulus, a European Parliament member who co-led negotiations on the new methane rules.
U.S. LNG suppliers are likely to face new pressure. In fact, hours after the announcement, the Biden administration announced a new international working group tasked with measuring methane emissions across the LNG supply chain.
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Breanne Deppisch (@breanne_dep) and Nancy Vu (@NancyVu99). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
NEW GUIDANCE ON SECTION 48 TAX CREDIT: The Treasury Department proposed new tax guidance this morning for clean energy projects, providing further clarity for developers looking to invest in the sector.
The Section 48 investment tax credit – which was included and expanded in the Inflation Reduction Act passed by Democrats and signed by President Joe Biden last year – aims to subsidize construction costs for the build-out of new energy infrastructure. Although the credit has been traditionally used for solar projects, the tax credit has now been extended to offshore wind, energy storage, and other projects.
The newest guidance would update the types of energy infrastructure eligible for the credit, including transfer equipment such as subsea export cables that are used in offshore wind projects, along with certain power conditioning equipment located on onshore substations.
The rules also include guidance for the eligibility of standalone battery storage, along with the inclusion of costs of interconnection-related property for lower-output clean energy installations. The new guidance would include the cost of upgrades to local transmission and distribution networks. Read more from Nancy on that here.
SANCTIONED TANKERS SUPPLIED RUSSIAN OIL TO INDIA: Three oil tankers, newly sanctioned by the U.S., regularly shipped Sokol crude from Russia to Indian Oil Corp – the country’s top refiner – in recent months, Reuters reports.
The U.S. on Thursday imposed sanctions on maritime companies and vessels for shipping Russian oil sold above the price cap agreed upon by the G-7, as Washington seeks to close loopholes in the mechanism designed to punish Moscow for its war in Ukraine.
The three Liberian-flagged ships hit with sanctions are the Kazan, Ligovsky Prospect and NS Century. All three tankers discharged Russian Sokol crude in India in September, while two of them made the trip in October.
The sanctions may decrease the number of ships carrying Russian oil and prompt India to seek out oil elsewhere, but they are unlikely to stop the trade altogether due to its lucrative nature, several traders told Reuters.
As long as there are willing buyers, sellers and shippers will always find a way to make the oil flow, one trader said. Read more on that here.
CLIMATE CHANGE THREATENS KENYAN ECONOMY: Kenya could lose up to 7.25% of economic output by 2050 if it does not take further actions to adapt to climate change and mitigate its effects, the World Bank said in a new report Friday.
As Reuters lays out, like many other developing nations, the East African country has been suffering from the effects of global warming, including extensive droughts in recent years.
“By 2050, inaction against climate change could result in a decline in real GDP of 3.61–7.25 percent,” the World Bank said in a new report entitled the Kenya Country Climate and Development Report.
The report also noted that the effects of climate change could be “partly buffered by a higher annual growth rate and structural transformation.” If the economy grows 7.5% per year through 2050, the damage of climate change to economic output would drop to 2.78-5.3%, the report said.
The report also called for increased investments in water resources management, farming, energy, transport and digital systems to help reduce climate change’s impacts.
The silver lining: With about 90% of its electricity coming from renewable sources like hydro-generation and geothermal wells, the report states the country is well-positioned to provide solutions to other countries to lower their emissions. Read more on that here.
ANTI-ESG MOVEMENT AFFECTS LOAN MARKET: The anti-ESG movement could be affecting sustainability-linked loans, as U.S. borrowers retreat en masse from the world’s second-biggest ESG debt class, Bloomberg reports.
The $1.5 trillion market for sustainability-related loans has seen an overall slowdown in volumes this year as both interest rates and greenwashing fears continue to grow. But the decline has been even more pronounced in the U.S., where the number of new sustainability-linked loans is down 80% from a year earlier, according to data compiled by Bloomberg.
The slump reflects the tense political environment that borrowers in the U.S. have to navigate, said Jacomijn Vels, the global head of sustainable finance at ING Groep NV – the first bank to arrange a sustainability-linked loan back in 2017.
In the U.S., not only does a borrower have to manage the reputational risk that always comes with an ESG product, but “you also have to manage your reputation toward the anti-ESG movement,” Vels said. “That is bringing an extra dimension to acting in the Americas, especially in SLLs.”
As the anti-ESG movement blossomed and spread across the U.S., American borrowers are turning their backs on loans that require them to tie their credit to ESG goals.
Looking ahead: Next year, an estimated $187 billion of SLLs are coming due globally, with about 90% of those in the form of revolving credit facilities. But, there are already signs that bankers may proceed with caution with these loans, as regulators start to pay more attention to a market that’s so far avoided their scrutiny. Read more on that here.
FOR YOUR RADAR: The Department of State has released the U.S.’s COP28 schedule. A number of lawmakers, officials and experts will be gathering at the largest climate change conference later this month, which is set to take place in the United Arab Emirates. Take a look at the schedule here.
The Rundown
Politico EU Does the architect of Europe’s Green Deal truly understand what he’s unleashed?
Bloomberg Rich nations hit overdue $100 billion climate fund goal in 2022
Washington Post He won a Nobel Prize. Then he started denying climate change.
