Oct 11, 2019

Axios Generate

Ben Geman

Happy Friday! Today's Smart Brevity count: 1,093 words, ~ 4 minutes.

Situational awareness: PG&E said overnight that it has restored power to 426,000 out of 738,000 customers who lost electricity in the company's effort to prevent forecasted winds from sparking wildfires. But the company is on the defensive. ABC News has more.

And onto music. This one's a little random but that's ok. At this moment 25 years ago, the band Mazzy Star was #56 on the Billboard charts with today's beautiful intro tune...

1 big thing: A perfect snapshot of dueling oil market pressures

Illustration: Sarah Grillo/Axios

Two pieces of news this morning distill the competing forces acting on oil markets these days.

Driving the news: Via AP, "Two missiles struck an Iranian tanker traveling through the Red Sea off the coast of Saudi Arabia on Friday, Iranian officials said, the latest incident in the region amid months of heightened tensions between Tehran and the U.S."

Meanwhile, the International Energy Agency cut its 2020 demand growth forecast to 1.2 million barrels per day, down from 1.3 mbd in their prior estimate.

  • They cited lower economic growth forecasts for a number of countries.
  • A "technical adjustment" also cut their 2019 oil demand growth estimate.

Why it matters: The tanker attack, like the much larger major aerial strikes on Saudi infrastructure last month, highlights geopolitical risks in the vital oil producing and transit region.

  • But at the same time, a drumbeat of bearish economic news is preventing a sustained price rise, despite dangerous stuff happening in a dangerous part of the world.
  • While prices are rising this morning as a result of the attack, they're starting from a baseline that's below where they were before last month's strikes against Saudi Aramco facilities.

What they're saying: "Intuitively, the precision attacks on Saudi Arabia and the possibility of a repeat should keep the market on edge. There should be talk of a geopolitical premium on top of oil prices," IEA said in their monthly report this morning.

  • "For now, though, there is little sign of this with security fears having been overtaken by weaker demand growth and the prospect of a wave of new oil production coming on stream," the report adds.

Where it stands: This morning, Brent crude was trading around $59.77 and WTI at $54.20.

2. The IMF's case for $75-per-ton carbon taxes

The International Monetary Fund is calling on major greenhouse gas-emitting countries to implement carbon taxes that reach $75-per-ton by 2030 to bolster today's "inadequate" responses to climate change.

Why it matters: Their new report says the window for keeping temperature rise to manageable levels is "closing rapidly" and that "limiting global warming to 2°C or less requires policy measures on an ambitious scale."

What they found: IMF analysts measured the cost-benefit of CO2 taxes in the $25–$75 range (more on that below) and found there would be substantial emissions cuts and health benefits from carbon pricing despite economic tradeoffs.

  • Taxes could be structured to mitigate burdens from higher energy costs, such as redistributing money to poor households, and to support workers "disproportionally affected" by the move to climate-friendly energy.

The big picture: The IMF is calling for carbon prices that are far higher than what has proven politically feasible thus far — something the authors acknowledge.

  • "About 50 countries have a carbon pricing scheme in some form. But the global average carbon price is currently only $2 a ton, far below what the planet needs. The challenge is for more countries to adopt one and for them to raise the price," the report authors note in a blog post.

The intrigue: It's not lost on the IMF that countries are hesitant to act unilaterally for fear of hurting domestic industries.

  • The report proposes an "international carbon price floor" to tackle this, and say that even a floor well below $75 would yield big gains.
  • A $50 floor for advanced nations in the G20 and $25 for the group's developing economies would cut emissions 100% more than those nations' current pledges under the Paris agreement, the blog post states.

Go deeper: The world needs a massive carbon tax in just 10 years to limit climate change, IMF says (The Washington Post)

Bonus: Sizing up CO2 tax effects
Expand chart
Data: International Monetary Fund; Chart: Axios Visuals

The chart above is a simplified version of the IMF's look at net environmental benefits of a $50-per-ton tax in G20 nations.

The bottom line: The benefits — think air quality gains and less traffic congestion — tend to outweigh any negative effects on GDP, and that's even without counting the climate benefits.

The important numbers: A $50 tax would prevent 600,000 premature deaths caused by air pollution in 2030, while a $75 tax would prevent 725,000 premature deaths, the IMF estimates.

3. Making sense of Dyson's EV surrender

ICYMI, Dyson is abandoning plans to build an electric car after concluding they "simply cannot make it commercially viable," but will press ahead with plans to make solid-state batteries, founder James Dyson announced Thursday.

Why it matters: The famed inventor's decision underscores the difficulty of successfully entering the EV market.

  • A suite of startups and legacy automakers are competing to make viable cars, yet EVs remain just a tiny, though rising, slice of global sales.

The big picture: Bloomberg columnist Alex Webb, citing BloombergNEF data, sums up the scene...

  • "Since 2011, electric vehicle startups have raised $18 billion in funding, and announced 43 models and the capacity to make 3.9 million vehicles a year," he writes.
  • And then there's the big, established players. Webb points out that VW alone plans to invest $52 billion in a bid to make 2 million EVs per year by 2025.
4. Senate Dems make a move on climate

Senate Democrats intend to force a roll call vote next week on EPA regulations that scrapped Obama-era carbon emissions rules for power plants and replaced them with a more modest alternative.

Why it matters: Floor votes on global warming are rare, and the bid to scuttle the Trump administration rule signals Senate Minority Leader Chuck Schumer's increasing emphasis on the topic.

  • The planned vote comes roughly 2 weeks after Schumer said a sweeping climate bill would be "one of the first things we put on the floor" if Democrats regain the majority in the 2020 elections.

What's next: Schumer's office said Democrats would force a vote under the Congressional Review Act, a mid-1990s law that gives Congress power to overturn final regulations.

  • Resolutions under the law are immune from filibusters, meaning only a majority vote is needed for passage.

But, but, but: The move is very likely more of a messaging effort than a realistic chance at overturning the rule.

Go deeper:

5. Catch up fast: Perry, Brazil, offshore drilling

Ukraine: 3 House committees have subpoenaed Energy Secretary Rick Perry to turn over documents by Oct. 18 as part of their investigation into President Trump's alleged efforts to push Ukraine to investigate Joe Biden, Axios' Zachary Basu reports.

Brazil: A mysterious oil spill is ravaging Brazil's northeastern coast, killing sea turtles, limiting fishing and littering the sand with clumps of the crude substance, Bloomberg writes.

Offshore drilling: Speaking of Brazil, "Ten companies on Thursday agreed to pay more than $2 billion for the exploration and production rights in 12 offshore oil blocks in Brazil, in what could be a promising sign for even bigger upcoming oil auctions," per Reuters.

Offshore wind: Norwegian energy giant Equinor on Friday announced the greenlight for a half-billion-dollar floating wind farm in the North Sea that will supply oil-and-gas platforms.

  • What's new: It's the first-ever project of its kind to combine floating turbines that supply oil infrastructure, the company said. It's supported in part by the Norwegian government.
Ben Geman