US unveils its new emissions target

One thing to start: Happy Earth Day, everyone.

What began decades ago as a day to honour the planet and demand its protection was also, in 2016, the day the Paris climate agreement was signed. But Earth Day is struggling to sustain its identity under the deluge of corporate greenwashing and platitudes that now surround it.

On Thursday, Joe Biden will attempt to do Earth Day justice as he confirms an open secret: the US plan to deepen its greenhouse gas emissions cuts over the next decade. After the environmental obstructionism of the Trump years, Biden promises to make the US a leader in the climate fight. The new commitment is also designed to galvanise other countries as the world looks ahead to the UN’s Glasgow climate conference later this year.

Energy Source considers what the new targets mean for the US energy sector — ground zero for the country’s battle to control emissions.

Thanks for reading. Please get in touch at energy.source@ft.com. You can sign up for the newsletter here. — Derek

What does the new US emissions goal mean for energy?

Biden’s big (virtual) climate party kicks off today and, to coincide with it, the US has a new greenhouse gas emissions target: a cut of 50-52 per cent, from 2005 levels, by 2030.

The White House confirmed the new commitment this morning, but beyond a broad outline of sectors ripe for reducing emissions, details on how it will get there remain scant.

The target is nonetheless radical (especially in the wake of the Trump administration tearing up scores of climate rules and regulations over the past four years). Living up to it will require big changes in the country’s energy landscape, from power to transport. 

“The big splash is the US being back — being back really fast — wanting to demonstrate that it’s capable of a 180-degree turn,” said David Levaï, a researcher at the Institute for Sustainable Development and International Relations think-tank. “It’s a massive [threshold] on the road to carbon neutrality and keeping 1.5C alive.”

What role will American energy play?

Even without knowing the specifics of the new emissions target, we can say the implications for the energy sector will be seismic. 

“It’s huge, basically,” said Ed Crooks, Americas vice-chair at Wood Mackenzie. “Not just to energy but fundamentally to the US economy.”

The plan sets 2005 as a baseline from which emissions should fall. In the 15 years from 2005 to 2019 they dropped 12 per cent, according to Woodmac. That was in the face of massive change in the US energy sector: the surge in shale drilling allowed natural gas to displace coal; renewable power generation soared as wind and solar costs plunged. 

Those changes marked a “real revolution”, said Crooks. “You’re now saying that you have to go significantly faster than that. You have another 38 per cent to do in the next 10 years. That is a very, very ambitious goal to set.”

“It’s very difficult to do and it’s going to need every available option; every available lever is going to have to be pulled.”

Decarbonising power was the first of a handful of energy areas the White House pointed to as being part of its emissions slashing plan. Also mentioned were: efficiency upgrades to homes, electrifying heating systems, reducing tailpipe emissions, clamping down on methane pollution, and innovation in the form of carbon capture and hydrogen.

But as to what tools the federal government will use to encourage each of these areas to play their part, we are none the wiser.

One thing that is clear, though, is that the White House wants everyone to associate the climate fight with job creation. That’s been a consistent theme since Biden announced his energy plan as a presidential candidate.

But it stands out in this new emissions-reduction plan, which in the very title of the briefing document from the White House is described not as a way to prevent climate change, but as a “target aimed at creating good-paying union jobs and securing US leadership on clean energy technologies”.

In the short document itself, the word “jobs” appears 13 times. “Climate” shows up 14 times; and “energy”, clean or renewable, just nine.

How might the US do this?

Details will come after the summit, when the Biden administration turns to the much trickier work of getting carbon-reducing legislation and regulations on the books.

The White House said the new target was the product of a wide-ranging analysis that explored a range of pathways to dialling back emissions. “Standards, incentives, programmes, and support for innovation were all weighed,” it said.

For details on precisely what these are, however, we will have to wait for the publication of the administration’s “national climate strategy” due later this year.

Efforts will probably focus on the administration’s big infrastructure push, which is likely to include hundreds of billions of federal dollars in clean technology spending and green tax credits. It could also include “clean energy standard” (CES) legislation to mandate an 80 per cent reduction in emissions from the power sector by 2030.

On the regulatory front, the administration is likely to push for stricter car emission rules to propel electric vehicle adoption and use the Environmental Protection Agency to pile pressure on the oil and gas industry to clean up its methane pollution.

But the administration’s credibility in international climate talks will hinge on its ability to get as much of its agenda as possible enshrined into law.

In a divided Congress — where Republican support will be modest, at best, and fossil-fuel state Democrats will resist action — this will be difficult.

“They’re going hit some rough patches over the next six months in the run-up to Glasgow because they’re going to get to the reality of the legislative process,” said Frank Maisano, founding partner at the Policy Resolution group and Bracewell, a lobbying and legal firm that represents energy clients.

What is missing?

In terms of specifics, almost everything!

Yes, we know power production will be targeted, but there was no mention of a CES or how it might function. We know that tailpipe emissions are on the chopping block, but how stringent will the anticipated fuel economy standards be? We know Biden wants to clamp down on methane leaks, but the specific targets some had hoped would appear are nowhere to be seen.

And that is only the beginning of the questions we are left with. Is more legislation on the cards or should we expect a regulatory drive? Are more restrictions on oil and gas extraction possible? To what extent might carbon capture play a role? Is a carbon tax definitely not on the table?

But these targets are an opening salvo as the new Biden administration prepares for the Glasgow climate talks.

“They’re trying to send a signal that we’re back, we’re players in the game,” said Maisano. “We’re going to push people in the direction of trying to make reductions, whether it’s China or India, whoever. That’s the signal they’re trying to send. They’re not going to worry about the details.”

Still, the US will need to provide a clear picture of how it plans to achieve its lofty new emissions goals soon if it wants to be taken seriously. As Kevin Book at Clearview Energy noted: “In the absence of policy support, ambitious proclamations could draw suspicion more than they convey leadership.” 

Whether the White House can match its rhetoric with substance will be key for other big polluters redoubling their efforts to decarbonise.

“Stoking Paris counterparties’ ambitions in Glasgow may depend more on what Washington ‘shows’ later this year than what it ‘tells’ [today],” said Book.

(Myles McCormick, Justin Jacobs and Derek Brower)

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Data Drill

European permits to pollute have been trading at all-time highs this week, as the EU committed to cut its greenhouse gas emissions by 55 per cent below 1990 levels by 2030. On Wednesday evening in Brussels, the price of emitting one tonne of CO2 hit more than €46, a rise of more than 40 per cent since the start of the year.

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Endnote

Baker Hughes and Halliburton, two oilfield services companies, both beat earnings estimates yesterday as they reported first-quarter results. Even though revenue fell for both, the outlook from these two oilfield services companies was upbeat considering how badly the sector was battered in last year’s oil price crash.

Jeff Miller, Halliburton’s chief executive, said he expected international oilfield activity was heading into “multiple years of growth”.

“As deals become smaller and more complex, operators work harder to produce more barrels. Their pursuit of incremental production to meet future oil demand growth should require higher service intensity,” he added.

US shale activity would be brisk through 2021, he said.

Lorenzo Simonelli, Baker Hughes’s chief executive, also pointed to the US — a “strong recovery” from private shale drillers had improved the near-term outlook. Drilling and completion activity — a key part of Baker Hughes’s business — would be “modestly higher” this year.

But listening to Simonelli, Baker Hughes’s future lies less in oil and gas than in “transforming the core” to become an “energy technology company focusing on the energy transition”.

In comparison, NextEra Energy, a power producer with a fast-growing portfolio of clean energy assets, posted a sharp rise in earnings. The market did not like the weak revenue from one of its wholesale electricity units, however. Its shares fell yesterday.

As a big investor in clean energy, you could almost hear NextEra execs on the analyst call licking their lips at the Biden infrastructure plan and clean energy drive.

“I mean the thing about the green economy is that it’s cleaner, it’s greener, but it’s also cheaper. And that’s why it’s so powerful,” said Jim Robo, the company’s chief executive.