May 11, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning. Today's Smart Brevity count: 1,301 words, 5 minutes.

🎬 Tonight’s "Axios on HBO” returns at 11pm ET/PT on all HBO platforms with interviews with Vice President Mike Pence (clip), Senator Marco Rubio, and Salesforce CEO Marc Benioff. Plus, we explore the bioethics of contact tracing.

My latest column looks at how green (or not) America's recovery could be. I'll share a glimpse of that and then Ben Geman will get you up to speed on other news. 

1 big thing: Greening the recovery (or not)

Illustration: Eniola Odetunde/Axios

Economists, investors and environmentalists are calling on the United States — and the world — to inject big clean energy and climate policy into recovery plans.

Reality check: Such prospects face uphill battles almost everywhere, and especially in the U.S., where proponents are on defense with the Trump administration and lawmakers are in crisis mode.

The big picture: It’s not just environmentalists clamoring for a green economic recovery. The United Nations, the International Monetary Fund and a broad swath of investors and corporate executives are calling for a range of clean-energy policies as well.

  • They argue that these policies will not only help the economy better than alternatives, but will also assist in combating another existential threat: climate change.

Where it stands: Congress is going to spend the next several months debating legislation to provide different levels of relief, rescue and recovery to the economy, which is still reeling from coronavirus-fueled shutdowns.

“As long as the country is gripped by the fear of significant personal family trauma and grinding months of unemployment, that's what Congress is going to focus on. I think we are going to be in emergency policy subsistence for the rest of 2020.”
— Jason Grumet, president, Bipartisan Policy Center

What they’re saying: Sen. Jeff Merkley (D-Ore.), one of Washington’s most progressive advocates for climate-change action and clean energy, is on defense.

  • He introduced legislation recently that seeks to restrict the Trump administration’s efforts to help the oil industry, which is struggling as demand for fuel craters.
  • Merkley is not ready to pursue legislation helping clean energy in any recovery package, he told me in a recent interview.
  • “That’ll be another chapter. I’m not introducing a bill on it right now, but I’m holding conversations with others to develop a strategy on it,” Merkley said.

Driving the news: The paralysis is not stopping a growing number of organizations from suggesting numerous policies to green the economy while also rebuilding it, including Grumet’s group.

Click here to read about them and my full column.

The intrigue: One policy idea Washington insiders have talked about (and has happened before) is a classic pairing of a Republican priority — buying excess oil for the nation’s strategic reserves — and a Democratic priority, reauthorizing renewable-energy tax credits.

Yes, but: Such a swap would do little to reduce heat-trapping emissions in the long run and at the deep levels scientists say is necessary, experts say.

  • “I think horse-trading of near-term emissions cuts and gains is an awful way to do climate policy, but it’s the most likely thing to happen,” says Varun Sivaram, a visiting senior fellow at Columbia University’s Center on Global Energy Policy.
  • “If we’re not looking at deep decarbonization, we shouldn’t be doing climate policy.”

What’s next: Stay tuned for deeper dives into some of the discussed policies and the potential for other countries to green their economic recoveries.

2. How oil's slide could hit the economy
Data: FactSet; Chart: Axios Visuals

Investors have abandoned oil at warp speed so far this year as futures prices have fallen to record lows. Even as oil has bounced from its record trough in April, investors remain skeptical about the chances for sustained value appreciation, Axios' Dion Rabouin reports.

Why it matters: "Typically, oil price fluctuations have a small aggregate impact on U.S. growth, with roughly offsetting effects from the energy capex and consumption channels," Paul Choi, biotechnology analyst at Goldman Sachs, writes in a note to clients.

  • "However, the sharp rise in the likelihood of bankruptcies in the energy sector and spending constraints due to the virus suggest that the decline in oil prices might be a larger drag on growth this time."

The big picture: The U.S. is now the world's No.1 oil producer, which means more of the economy is dependent on oil and gas production.

What happened: Energy saw the biggest change in positioning of all market sectors, as traders sold nearly 80 million shares of energy stocks during the first quarter, Bank of America Global Research notes.

  • That put energy's relative weight in overall fund holdings at its second-lowest level in the bank's data history, dating back to 2008.
  • Hedge funds sold oil at an even more extreme pace and held record underweights at the end of the first quarter.

What to watch: Oil's historically low prices mean that more bankruptcies are "likely unavoidable," Choi says. Goldman's estimates currently imply "a 50-60% year-on-year decline in energy capex in Q2/Q3, similar to the decline in 2015/2016."

  • In addition to the increased bankruptcies, that will likely also mean more debt and less investment for the companies that are able to survive, meaning sustained fundamental weakness in the sector.

The last word: Analysts expect oil will provide a net drag on overall U.S. GDP growth of roughly 0.25 percentage points, year over year, Choi says.

  • "While this would normally represent a meaningful drag on growth, in the current environment oil is unlikely to be a major factor for overall growth."
3. Tesla's controversial fight to reopen its factory

Illustration: Aïda Amer/Axios

ICYMI, Tesla filed a federal lawsuit Saturday in a bid to restart operations in its factory in Fremont, California — a step that came on the same day CEO Elon Musk threatened to move the company's headquarters out of the state.

Driving the news: The electric automaker's suit against Alameda County calls local officials' refusal to allow the factory to reopen a "power grab" that defies Gov. Gavin Newsom's policies on industry operations and constitutional due process rights.

  • The suit, filed in the U.S. District Court for the Northern District of California, asks a judge for an injunction that would block enforcement of county orders against Tesla and a judgment against the policy.

Where it stands: It followed tweets from Musk announcing the case and stating that Tesla will "now move its HQ and future programs to Texas/Nevada immediately."

  • "If we even retain Fremont manufacturing activity at all, it will be dependent on how Tesla is treated in the future," he wrote.
  • But Musk is getting some pushback over the threats and reopening bid, including this colorful response from a state lawmaker.

The other side: A statement from Alameda County issued before the lawsuit was filed says county officials have been working with Tesla.

  • "This has been a collaborative, good faith effort to develop and implement a safety plan that allows for reopening while protecting the health and well-being of the thousands of employees who travel to and from work at Tesla’s factory," the county said.

The intrigue: As for Musk's threat to pull up stakes in California, this Bloomberg piece offers reasons why it should be treated with some skepticism.

  • "Musk risks turning off consumers who have registered more than 70,000 new Tesla vehicles each of the last two last years, according to IHS Markit. The company delivered almost 370,000 cars worldwide in 2019," they report.

What we're watching: I'm curious to see if the outspoken Musk's threat to distance Tesla from California was Twitter pique or translates into action.

4. Global warming's present and future toll

A new peer-reviewed study has identified thousands of unprecedented periods of extreme heat and humidity in areas around the world in recent decades, including in the U.S. Gulf Coast, Axios' Bryan Walsh reports.

Why it matters: It highlights how warming is already affecting large swaths of the population, and temperatures are projected to increase substantially this century even with mitigation efforts and technology progress.

What they did: The May 8 paper in Science Advances analyzed weather data and found extreme heat and humidity combinations doubled between 1979 and 2017.

  • Along the already brutally hot Persian Gulf, there were more than a dozen times when the mix of high temperatures and humidity temporarily exceeded the theoretical human survivability level.

Of note: Scientists assess the heat and humidity combination using what is known as wet-bulb temperature, which is literally measured by wrapping a thermometer in a wet cloth.

  • A wet-bulb temperature of 95° F is lethal after about six hours.

Threat level: The study comes on the heels of a paper in the journal PNAS which projects that very large numbers of people will live in areas considered unsuitably hot for human beings by 2070.

Read more

Ben GemanAmy Harder