October 29, 2018

Good morning!

I mentioned a few weeks ago that I was visiting Norway to tour its energy facilities. My latest "Harder Line" column is reported from there and even weaves in the recent White House report on socialism. I'll share a glimpse of that — and then Ben will guide you the rest of the way.

1 big thing: Oil-rich Norway's climate moves

Illustration: Sarah Grillo/Axios

MONGSTAD, Norway — This Nordic nation offers a window into how an economy fueled by oil and natural gas can attempt aggressive action on climate change.

Why it matters: It sounds contradictory, but given that our world has remained 81% dependent upon fossil fuels for the past 30 years, cutting greenhouse gas emissions while using these fuels is probably going to be unavoidable. In two separate upcoming decisions, Norway will show the extent to which it’s committed to its climate ambitions and diversifying its wealth, which is largely derived from oil.

The big picture: President Trump has said he likes Norway, though it’s not clear why.

  • This admiration comes despite the fact that Norway has some socialist policies, most notably its staggering tax rate of 78% on oil and natural gas production.
  • The money raised goes into its sovereign wealth fund, the largest in the world at nearly $1 trillion.
  • That high tax rate was left out of a White House report issued last week seeking, in part, to debunk the notion that Nordic countries have socialist policies by pointing to their low corporate tax rates.

Driving the news:

  • The Norwegian government will decide this autumn whether its sovereign wealth fund will divest from oil and natural gas stocks. If it does, it would boost efforts around the world to urge investors to drop fossil-fuel investments as concerns grow about climate change.
  • Norway is also set to decide in the coming years whether to fund what would be one of the world's most ambitious initiatives to capture and store underground carbon dioxide emissions. The technology is technically possible, but prohibitively expensive in most instances.
  • If Norway follows through here, it would be a pivotal step toward showing the financial commitment many experts say is needed to address climate change in our fossil-fuel driven world, including commitments laid out in the 2015 Paris climate accord.

Between the lines: Inaction on either of these fronts would raise a difficult prospect: If Norway — rich from its fossil fuels and genuinely ambitious about addressing climate change — doesn’t follow through, who would?

What’s next: After the decision about the sovereign wealth fund, the focus will turn to whether the carbon capturing project goes through.

Go deeper in the Axios stream.

2. The great auto disruption

Illustration: Rebecca Zisser/Axios

Autonomous vehicles are an energy story as the technology works in concert with electrification and ride-hailing to help reshape mobility.

So I highly recommend our weekend deep dive led by Axios' AV correspondent Joann Muller and managing editor Alison Snyder, who write...


Already, people are abandoning cars for ride-hailing and tooling around on electric scooters. Computer-assisted driving is giving way to prototype autonomous vehicles that share the road in some cities with pedestrians, bicyclists and traditional vehicles.

The big picture: The vision is that driverless cars will chauffeur you anywhere while you relax, work or socialize.

  • The reality is that while 99% of routine driving skills have been relatively easy for robots to achieve, the last 1% haven't — and those are crucial for safety and consumer trust.

Execs are trying to lower expectations:

  • After promising that a Tesla would drive itself across the country by the end of 2017, the company recently removed "full self-driving mode" from its pre-order options, with CEO Elon Musk admitting it confused consumers to offer a feature that wasn't ready yet.
  • Aurora Innovation, led by former execs from Google, Tesla and Uber, urged the industry to tone down its bullishness and "be more truthful about our capabilities," reports the Washington Post.
  • Even the CEO of Waymo, which is preparing to launch the nation's first commercial robo-taxi service in sections of Phoenix by year-end, says privately owned self-driving cars will take "longer than you think."

What's next: The technology requires more intensive testing and development to be able to predict how other cars will behave — and surpass humans at driving. Safety regulations need to catch up with technological innovation. And legal questions need answering, such as who is to blame if an AV causes an accident?

The bottom line: None of this has changed the minds of investors. They are pouring in cash, and company valuations are getting frothier.

Go deeper: The whole deep dive is worthy of your time.

3. The energy stakes of Brazil's hard-right turn

Jair Bolsonaro, a far-right candidate whose misogyny, racism and reverence for military dictators has made him one of Latin America's most polarizing figures, won Brazil's presidency yesterday with over 55% of the vote.

Why it matters: Brazil is already an important oil producer at roughly 3 million barrels per day, and has been auctioning offshore tracts thought to contain huge hydrocarbon resources to some of the world's largest energy companies.

  • And the Amazon also makes Brazil vital to the world's climate and biodiversity.

What's next: One oil executive told S&P Global Platts recently that "Bolsonaro represents the current, favorable status quo although there could be some hiccups."

  • They note that a policy plan he floated early this month backed "reinforced expectations Bolsonaro would likely continue reform efforts that lured investment from heavyweights such as BP, Equinor, ExxonMobil, Shell and Total."
  • Yes, but: Their piece and others note the he could install a military general atop state-energy giant Petrobras who would favor a heavier state grip on hydrocarbons.

On the environment, this Washington Post analysis points out that while he's backed away from plans to abandon the Paris climate deal, "that doesn’t mean Bolsonaro has suddenly become the Lorax."

  • "Bolsonaro is a powerful supporter of agribusiness — one of the pillars of his political platform — and is likely to favor profits over preservation."
  • "He has called for a new, pro-business approach to exploiting Brazil’s natural resources, insisting that overzealous bureaucrats have harassed farmers for simply trying to make a living by carving out patches of jungle."

The views of Paulo Guedes, the University of Chicago-trained economist advising Bolsonaro, were examined in a Reuters piece:

  • "Guedes is keen to privatize an array of state enterprises, including units of oil company Petroleo Brasileiro SA (Petrobras) and power utility Centrais Eletricas Brasileiras SA (Eletrobras)."
  • "However, his free-market ideas have clashed with the views of the retired army generals who are helping Bolsonaro flesh out his government program."

4. Making sense of Tesla's big quarter

Axios' Felix Salmon has a few thoughts on Tesla's big news last week and what it says about the stock market more broadly...

Congratulations to Elon Musk, who not only missed out on being owned by the Saudis, but who also celebrated Tesla's most profitable quarter ever last week.

  • The Model 3 has proved to be a big hit, and Tesla hasn't even started selling it internationally yet, in countries where gasoline is a lot more expensive and demand for electric cars is correspondingly higher.
  • Tesla stock rose on the news. After closing two weeks ago at $260 per share, it closed last week at $315. That's a rise of more than 20%.
  • Yet the stock is still 20% below its highs of 2017, when Tesla was losing billions of dollars a year. Great news at the corporate level isn't always good news for the stock market, especially when criminal probes still hang over the company.

The bottom line: Stock-price valuations are weird, and don't do a great job of reflecting present-day fundamentals. Corporate America, as a whole, is looking very healthy right now. It's worth remembering that current share prices would look fantastic if they hadn't been so ridiculously frothy in the recent past.

Go deeper: Musk sees uninterrupted profits ahead for Tesla

5. Shell to EPA: Be faithful to Paris climate deal

Shell is jumping into the high-stakes fight over auto regulations.

What they're saying: I noticed that in some newly available comments filed with regulators, the oil giant says U.S. policy should be "consistent with the aim of the Paris Agreement."

  • Shell "does not support" the administration's proposal to weaken federal mileage and carbon emissions rules by freezing them in 2020 rather than letting them become increasingly stringent.
  • Shell's comments push back against the EPA plan to revoke California's power to impose emissions standards that are tougher than the federal rules, calling it a "step in the wrong direction."
  • California has a special authority under the Clean Air Act to set separate tailpipe standards that roughly a dozen other states also follow.

Where it stands: California is fighting to keep its power to maintain tougher rules even if the federal standards are rolled back. But automakers fear that would create a messy patchwork and want California and the EPA to strike a deal that preserves a single nationwide set of rules.

The intrigue: The oil giant's views signal how the Trump administration's dismantling of Obama-era climate rules puts the White House to the right of even some big fossil fuel companies.

  • However, Shell's climate message is absent from more detailed comments filed by the American Petroleum Institute, the powerful oil-and-gas lobbying group.

The big picture: The fight over Obama-era auto rules — a pillar of the former president's climate policy — is pretty messy.

  • While big automakers say they don't support freezing the standards in place, they have lobbied for some kind of relaxation of the Obama mandates, calling them too stringent.
  • Shell, for its part, doesn't weigh in what the standards should be, but instead simply agrees with the auto lobby that they should not be frozen.