Jun 12, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning. Today's Smart Brevity count: 1,160 words, 4.5 minutes.

🎵 And Sunday marks 50 years since the Grateful Dead released "Workingman's Dead," which provides today's intro tune...

1 big thing: Oil's comeback is stalling

Illustration: Aïda Amer/Axios

The crude oil price recovery has hit the skids, a gloomy sign for U.S. producers, some of whom are risking bankruptcy.

What's happening: Oil prices are on track for their first weekly decline in well over a month, per Reuters.

  • Prices for WTI, the U.S. benchmark, are trading at roughly $36.45 this morning, about where they were late yesterday afternoon following two days of declines.
  • "Second wave coronavirus risks on crushing hopes for a steady global economic recovery that was spearheading prospects of improving crude demand," Oanda analyst Edward Moya said in a note yesterday.
  • He cited the "supply glut overhang and diminishing crude demand expectations."

The big picture: "The market has shrugged off a pledge by OPEC+ to extend record output cuts, with sentiment souring this week after the Federal Reserve warned of prolonged damage to the economy by the pandemic and U.S. inventories reached record highs," Bloomberg reports.

Threat level: Prices remain below what it typically takes for companies to drill new wells and in some cases even cover costs for operating existing wells (check out this Dallas Fed survey for a snapshot).

What's next: A new Barclays note sees prices starting to rise again eventually, but expect continued near-term headwinds despite the demand revival and supply cuts.

  • They see the pace of the recovery slowing down after the sharp rise from April's troughs.
  • Their note projects U.S. prices averaging $34-per-barrel in the third quarter and $40-per-barrel in Q4, with continued increases throughout next year.

Go deeper: US oil and gas companies file for bankruptcy amid depressed prices (S&P Global Platts)

2. Climate stakes of the pandemic response
Reproduced from Nature; Chart: Danielle Alberti/Axios

Even a recovery from COVID-19 that's akin to historically "greener" revivals from economic shocks would not bring steep carbon cuts, but there's an opportunity to break with precedent, a new analysis argues.

What they did: The commentary in Nature looked at brief emissions dips and return to growth after past shocks (some of which are seen above), as well as the projected 8% decline this year.

  • The Soviet collapse brought industrial access to more efficient technologies, and the 2008 financial crisis promoted big U.S. and Chinese investments in clean energy.
  • On the "dirtier" side, after the the 1998 Asian financial crisis, emissions growth doubled for a decade amid China's coal-fueled manufacturing and export boom.

The big picture: "[W]hether the forthcoming recovery follows the historically green or dirty pathway amounts to a difference of 230 Gt CO2 entering the atmosphere by 2050, equivalent to a change of about 19 p.p.m. in atmospheric concentration — about twice the potential impact of the shock alone."

  • But they say that "with serious investment in decarbonization, the actual trajectory could be much lower; indeed, bending down the emissions curve requires charting a totally new course."

One level deeper: As you can see above, even a recovery from this year's unprecedented emissions drop that's consistent with "greener" recoveries in the past would not bring steep long-term declines.

  • It notes that "nothing in history suggests that emissions can drop fast enough to limit warming to 1.5 °C above pre-industrial levels," which is the goal of the Paris Agreement.
  • That pathway would require a decade of emissions cuts akin to this year's unprecedented drop, so more "pragmatic" goals are needed.

What's next: Now is a critical moment for nations to chart recoveries that break with the past by "getting realistic about which climate projects can be delivered promptly" and provide and protect jobs, they write.

  • What's in: Wind and solar project incentives; transmission infrastructure and building retrofits; keeping existing nuclear plants open, among others.
  • What's out: Carbon taxes and technology mandates that impose new costs on struggling consumers; shoveling money at emerging technologies like hydrogen that won't scale fast.
3. The growth and limits of ICE vehicle phaseouts
Reproduced from the FS–UNEP Collaborating Centre; Chart: Axios Visuals

More and more places are setting long-term plans to break up with gasoline- and diesel-powered cars, but it's generally better to think of them as aspirations than policies.

Driving the news: A study from the Frankfurt School, the UN and BloombergNEF tallied the growing plans to phase out sales of internal combustion engine (ICE) vehicles.

  • (It's one part of the much wider report on global low-carbon energy investment and policy targets. Yesterday we looked at some other findings.)

But, but, but: While the growth in ICE phaseout targets caught my eye, one expert tells me it's too soon to see the national policies affect the trajectory of electric vehicle growth.

BloombergNEF's separate long-term growth forecast for EV deployment does not yet model the ICE sales phaseout plans now in place in 13 countries, according to transportation analyst Colin McKerracher.

  • "Most are high level targets and do not have strong legislative backing behind them. In some cases it's very unclear how they would be implemented (individual EU member states for example)," he told me.
  • "We don't assume any of them are hit in our forecast but we are watching to see if more of them get further regulatory support," he said.

One level deeper: Examples of phaseout targets include France, which has a 20-year goal, the U.K. (15 years), the Netherlands (10) and Israel (10).

4. Using "emergency" policies

Let's revisit whether and how "emergency" declarations could affect climate policy, especially now that President Trump has used the "emergency" frame to demand that agencies speed up and even waive energy project environmental reviews.

Driving the news: Rapidan Energy Group crafted a broad and detailed look at how a Joe Biden victory would affect energy policy that included this interesting scenario...

  • Biden could theoretically try to ban crude oil exports (a popular idea in left climate circles) by declaring an emergency under the International Emergency Economic Powers Act.
  • Banning new LNG exports would be even easier because his Energy Department could simply deny permit applications.

The intrigue: Biden to date has not joined in calls to use emergency powers on climate change or ending fossil fuel exports, but Rapidan posits that even the possibility would provide leverage.

  • "Because a total export ban would incur economic harm and threaten re-election chances, Biden would be more likely to proceed incrementally by blocking new LNG export permits and/or limiting crude exports," they note.
  • "He could then use the threat of a total ban to push other climate policy priorities through Congress." (Emphasis added)
5. Catch up fast: drilling ban, solar installs, coal shutdowns

Offshore drilling: "Florida Republicans say President Donald Trump has no plans to expand oil drilling in the eastern Gulf of Mexico after the 2020 election — insisting that he instead supports a 10-year ban on the practice." (Miami Herald)

Renewables: "Solar installations by homes and businesses across the US are set to slide by a third this year, resulting in thousands of job losses, as the coronavirus pandemic knocks a booming industry off course." (FT)

Coal: "Italian utility Enel will likely close its remaining coal-fired power stations around the world faster than anticipated, with worsening economics for the fuel leading to billions in write-downs and making an even stronger case to replace capacity with gas-fired plants and renewable energy." (S&P Global Platts)

Ben GemanAmy Harder