Jul 13, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning. My latest column takes us to Europe (well, not literally, since we're not allowed), and shares why all of us should care about that region's green pandemic recovery. Then Ben Geman will get you up to speed on other news. 

Situational awareness: "The Trump administration plans to retain a national limit of 70 parts per billion for the pollutant ozone, the standard set by the Obama administration five years ago after business groups fought tougher standards." (Wall Street Journal)

Today's Smart Brevity Count: 1,343 words, 5 minutes.

1 big thing: The global reach of Europe’s green recovery

Illustration: Sarah Grillo/Axios

Europe, long the most progressive continent when it comes to tackling climate change, is doubling down on this ambition to revive pandemic-ravaged economies.

Why it matters: The European Union is the world’s third-largest emitting region after the U.S. and China, but it’s not just that. These plans will push global corporate behavior and prod other governments by creating either templates to follow or protectionist battles (or both).

Where it stands: European nations account for three-quarters of the green stimulus funding announced as of early June, according to a BloombergNEF report issued then.

  • Other countries are not being nearly as aggressive in this space, despite mounting calls from the United Nations, International Monetary Fund and International Energy Agency.

Driving the news: Three different areas of Europe’s policy push are especially worth watching for their global implications. Many of these proposals come from the region’s Green Deal plan it unveiled late last year.

  1. The proposed recovery package itself, which will showcase to what degree $825 billion in clean-energy funding — especially for electric vehicles, hydrogen and energy efficiency — create jobs and cut emissions.
  2. Forthcoming standards on methane emissions and finance, which will affect virtually all oil and gas companies and countries seeking investments from them.
  3. To what degree Europe pushes forward with a border tax on imported goods from nations without similar climate policies.

“We’re keenly watching it,” Ilmi Granoff, who directs the finance program at the California-based ClimateWorks Foundation, said of these actions by Europe. “It may take different forms in different jurisdictions, but I do think it’s a bellwether for how we understand a truly mobilized climate policy.”

What's next: If Joe Biden wins the presidential contest, expect America to start looking a lot more like Europe when it comes to climate ambitions.

  • “That is exactly where we are headed,” said Granoff. “That’s true not just of the U.S., it’s true globally. Any serious state that is trying to grapple with climate change is now coming to the realization that it would have to be across every aspect of its economy including [issues like] financial regulation and trade policy.”

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Bonus quote of the day
"A border carbon adjustment mechanism, or carbon border tax, has nothing to do with economic objectives and everything to do with climate objectives."

Who said it: Ditte Juul-Jørgensen, European Commission’s director general for energy, speaking with Amy.

The context: Europe remains on course to impose a border "carbon adjustment" (a tax) sometime next year on certain imported products from nations that don’t have similar climate policies, which under President Trump would surely include the United States.

  • Juul-Jørgensen deflected when asked whether Europe would reconsider the policy given the global economic recession brought on by the pandemic, and instead offered the comment above.

Reality check: The official purpose of this policy is to make sure companies making carbon-intensive products like steel and cement don’t move their emitting operations elsewhere.

  • In practice, the policy would have big economic impacts and — if Trump wins re-election — would likely fan the trade-war flames across the Atlantic.
2. The peril of $40-per-barrel oil
Data: Federal Reserve Bank of Kansas City; Chart: Axios Visuals

Oil patch bankruptcies are piling up and prices are still in the financial danger zone for a significant amount of producers despite some recovery, new reports show.

Driving the news: A Kansas City Fed survey of companies in their region, released Friday, finds...

  • "Over two-thirds of firms reported they could survive more than a year if current revenues were to continue, while around 32% would not survive a year if current revenue levels persist."
  • "A majority of firms in our survey applied for and received SBA PPP loans, but low energy prices have hurt profitability."

Why it matters: The finding from the bank — whose region includes the producing states of Oklahoma, Wyoming and Colorado — underscores the sector's peril.

  • The Kansas City Fed report came on the heels of the latest tally of industry insolvencies from the law firm Haynes and Boone.
  • They found that 18 producers filed for bankruptcy in the second quarter, up from five the prior quarter and the most since Q2 of 2016, when companies were reeling from the last bust.

What's next: More Chapter 11 filings. Prices for WTI, the U.S. benchmark, have been hanging around the $40-per-barrel range for the last month, far higher than the depths of April's collapse but ... they are still a problem.

  • It's "not a sufficient clearing price for many heavily leveraged shale producers," Haynes and Boone note in the report.
  • "It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months."

Where it stands: "Oil edged lower ahead of an OPEC+ meeting this week at which the group may announce plans to start tapering historic production cuts even as the coronavirus surges unabated in many parts of the world," Bloomberg writes.

Threat level: The New York Times reports that the wave of U.S. oil bankruptcies brings a "potential environmental disaster — unprofitable wells that will be abandoned or left untended, even as they continue leaking planet-warming pollutants, and a costly bill for taxpayers to clean it all up."

3. The real rise of fake meat

Illustration: Sarah Grillo/Axios

Thanks in part to pandemic-driven disruptions of conventional meat processing, sales and interest in plant-based alternatives are taking off, changing the future of food, Axios Future editor Bryan Walsh reports.

Why it matters: Meat-processing plants have proven especially vulnerable to coronavirus outbreaks, and meat consumption adds to climate change.

  • Better-tasting alternatives could shrink that environmental footprint while solidifying the supply chain for protein.

Driving the news: The UN Food and Agriculture Organization reported last week that global per capita meat consumption is projected to fall to the lowest level in nine years.

  • In the U.S., per capita meat consumption isn't expected to return to pre-pandemic levels until at least 2025.

By the numbers: While demand for conventional meat has fallen, new plant-based alternatives are on the rise.

  • Grocery store sales of alternative-meat products rose 264% in the nine weeks ending May 2.
  • Impossible Foods, a leading maker of alternative meat, reports its grocery store footprint has increased 18-fold since March, and it expects to see a 50-fold rise by the end of 2020.
  • Last month JBS, the world's biggest meat seller, launched its own brand of plant-based burgers and chorizo alternatives.

Flashback: A 2019 UN scientific review explored the effects of moving to plant-based diets and away from meat, which curbs CO2 and methane and reduces pressure on lands.

  • It estimates that could prevent up to 8 gigatonnes of CO2-equivalent emissions per year by 2050 — or roughly a fifth of current emissions.
  • But that's the outer margin of a very wide range and would assume global adoption of vegan diets.
4. ICYMI: Big money for EV maker Rivian

Rivian's R1T pickup. Photo: Michael Brochstein/SOPA Images/LightRocket via Getty Images

So this happened right after we sent Friday's edition: Electric vehicle company Rivian announced Friday the close of a $2.5 billion (!) funding round.

Why it matters: It's another sign that the Michigan-based company is very well-positioned among the suite of EV startups with vehicles heading to the market.

  • The company is planning to soon launch production of an electric SUV and pickup, and also has a deal with Amazon to make a large fleet of electric delivery vehicles.

Driving the news: The funding was led by "funds and accounts advised by T. Rowe Price Associates," Rivian said.

  • Backers include Soros Fund Management, Coatue, Fidelity Management and Research, and Baron Capital Group, Rivian said.
  • Existing shareholders Amazon and BlackRock-managed funds also took part.

What’s next: Rivian plans to launch production of its R1T pickup, R1S SUV and the vehicles for Amazon next year at its manufacturing plant in Normal, Illinois.

  • Amazon plans to buy 100,000 delivery vehicles from Rivian and hopes to have 10,000 operating as soon as 2022.

The bottom line, via Axios' Joann Muller: Rivian is biting off an extraordinary series of manufacturing challenges all at once for a startup that has never built a vehicle. Even experienced automakers struggle to launch new vehicles smoothly.

* * *

Speaking of EVs, Reuters reports: "Tesla Inc cut the price of its sport utility vehicle Model Y by $3,000, just four months after its launch, as the U.S. electric carmaker seeks to maintain sales momentum in the COVID-19 pandemic."

Ben GemanAmy Harder