January 23, 2023
☕ Good morning! Today's newsletter has a Smart Brevity count of 952 words, 4 minutes.
🎶 At this moment in 2002, Ja Rule and Ashanti ruled Billboard's hip-hop charts (and would later top the Hot 100) with today's intro tune...
1 big thing: How the Ukraine war upended energy markets forever
Nearly a year after Russia's invasion, the Ukraine crisis has permanently reshaped the global energy system and brought severe economic pain, Ben writes.
The big picture: "Russia's days as an energy superpower are ebbing away," prominent energy historian and analyst Dan Yergin said.
Why it matters: The worst-case scenarios haven't come to pass, thanks to a mix of EU policies, Russian President Vladimir Putin's miscalculations and pure luck.
But the impact is apparent in every facet of the market from natural gas to oil to low-carbon energy.
Driving the news: Europe's heavy dependence on Russian gas, which once provided 40% of EU supplies, has been rapidly severed. Now it only accounts for about 14.4% of EU supplies, per S&P Global Commodity Insights.
State of play: European gas prices soared to record levels, but have since fallen back to below pre-war levels. That's partly thanks to more supplies from the U.S. and elsewhere, but it's also because of planning.
- European nations have made moves to sever ties with Russian coal, oil and gas and diversify their supplies, conserve energy and fill gas storage facilities.
- That effort has also prompted EU officials to accelerate and scale up efforts to deploy low-carbon tech like renewables and heat pumps. There was also some short-term switching to carbon-intensive coal.
- Luck was also a factor, with unusually mild weather cutting heating demand.
- "Widespread shortages, which were once legitimately feared, have not materialized," writes Financial Times energy editor David Sheppard in a column titled "Vladimir Putin is losing the energy war."
What they're saying: Putin misjudged his ability to wield Russia's massive gas and oil exports to Europe as a geopolitical weapon, analysts say.
- A Center for Strategic and International Studies (CSIS) report notes that Putin, in cutting gas shipments, was "hoping economic pain would break European and transatlantic resolve to support Ukraine."
- Yergin tells Axios that Putin's "point of maximum leverage is past" now that Europe has diversified supplies and filled storage levels.
- "He thought that Europe's dependence on Russian energy would be so great that the Europeans would, at the end of the day, deplore what happened [in Ukraine] but stand aside."
2. What to watch as wounded Tesla reports earnings
Tesla will report Q4 earnings after markets close Wednesday during a tumultuous stretch for the EV company, Ben writes.
The big picture: The report and call with analysts arrive as Tesla's share price has plummeted over the past year (though regained some ground recently).
Despite a dominant market position, Tesla faces rising competition, signs of softening demand, and investor worries about CEO Elon Musk's Twitter purchase and behavior as its boss.
What we're watching: How execs discuss the recent move to significantly cut prices and what it portends for Tesla's future earnings.
Also on our radar: More details on production and sales of the semi truck that recently went into production.
What they're saying: Analysts quoted in MarketWatch offered a mixed verdict on the price cuts.
Deutsche Bank's Emmanuel Rosner predicts it's a "bold offensive move, which secures Tesla’s volume growth, puts its traditional and EV competitors in great difficulty, and showcases Tesla’s considerable pricing power and cost superiority."
3. Carbon offsets market could soar near $1 trillion
Companies bought fewer carbon offsets in 2022 than they did the year before, a new report finds, Andrew writes.
- They are wary that offsets will damage their company’s reputation, BloombergNEF concludes.
- Solving the voluntary carbon offset market's credibility challenges is crucial to determining the future development of the offset market.
- Some hard-to-decarbonize industries, such as commercial aviation, will likely require the use of offsets to meet net zero emissions targets.
Zoom in: The report finds that if problems related to offset quality and verifiability are largely resolved, the total value of carbon credits produced and sold could grow to near $1 trillion as soon as 2037.
- "Buyers need transparency, clear definitions around quality and easy access to premium supply, or future years will resemble what we saw in 2022," Kyle Harrison, the report's lead author, said in a statement.
Context: The industry is grappling with if offsets permanently reduce emissions or if they are going to projects that would have reduced emissions anyway.
- Independent advisory groups like the Integrity Council on Voluntary Carbon Markets are seeking to establish robust offsets standards.
- In addition, many climate tech startups are rushing to try to fill the need for more verifiable, high-quality offsets.
“Creating standardization is the carbon offset market’s space race,” Harrison said.
4. 🏃🏽♀️Catch up fast on VC: methane and power
🐄 Australia startup Rumin8, which engineers livestock feed that cuts methane emissions, raised $12 million in a phase 2 seed round led by Bill Gates' Breakthrough Energy Ventures, Ben writes.
- Why it matters: Agriculture is a big source of the highly potent greenhouse gas.
- Driving the news: It will use the money for commercial trials in several countries, pilot manufacturing and more.
⚡WattCarbon, a startup that helps decarbonize buildings by matching them with low-emissions energy on a round-the-clock basis, raised $4.5 million in seed funding led by True Ventures.
- How it works: Its "virtual power plant" market allows buyers to offset power use on a "time and locational basis" via renewables, demand response and electrification projects.
5. 🧮 Number of the day: 27%
That's how much the methane emissions from coal mined for making steel adds to that industry's global warming impact, per the environmental think tank Ember, Ben writes.
Why it matters: The new report notes that global steelmaking will continue to use coal "even under optimistic decarbonization scenarios," so cutting methane upstream is crucial.
What's next: Recommendations include...
- Ensuring methane is included in calculations of steel industry emissions.
- Coal companies should craft an industry standard to monitor and cut methane.
- Steelmakers should only buy coal from mining companies taking action.
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🙏 Thanks to Mickey Meece and David Nather for edits to today's newsletter.