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US global leadership in the age of electricity

Robert F. Ichord, Jr. — Mon, 16 Jun 2025 12:00:00 +0000

The international system is experiencing a period of significant realignment, shaped by shifting geopolitical relationships, economic tensions, and evolving security challenges. Within the broader context of global uncertainty, President Donald Trump’s initial foreign policy actions during his second term, for example on trade, support for Ukraine, and foreign assistance, have contributed to questions among allies about the future trajectory of US global leadership and engagement.

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This shake-up has important implications for global energy security, which has come into sharp focus since the full-scale Russian invasion of Ukraine. Considering the Trump administration’s renewed focus on an “energy dominance” agenda, including an emphasis on furthering US oil and gas production and exports, one should not overlook the equally important geopolitical aspects of the electricity sector. Increasingly relevant to global affairs, the electricity sector has experienced rapid global demand growth of 4 percent per year—often placing new energy systems at the heart of geopolitics.

As the world enters an “age of electricity,” decisions made during this second Trump administration will have far-reaching consequences impacting the future of international conflict, competition, and cooperation around the world.

Security, growth, and innovation

A dominant geopolitical feature impacting the electricity landscape is Russia’s military aggression against Ukraine, which has sharpened the confrontation between the West and a coalition of authoritarian states that have in various ways supported Russia’s war effort, including China, Iran, and North Korea. The conflict has illustrated and heightened the priority of electricity security, as the executive director of the International Energy Agency (IEA) recently emphasized to European Union (EU) leaders. The EU, with major help from US liquefied natural gas (LNG) exports, reduced its dependence on Russian gas for electricity, ramped up renewable energy to 47 percent of total generation, began to replace Russian nuclear fuels with Western sources, and disconnected the Baltic states from the Russian power grid.

Meanwhile, outside of the EU, the rest of the world saw record levels of electricity demand growth in 2024, especially in Asia, with China accounting for about half of the increase. Although the International Monetary Fund (IMF) forecasts slower world economic growth given the impact of uncertainty given ongoing trade pressure from Trump’s tariff strategy, the IEA still projects substantial electricity growth over the next three years.

Partly fueling this expected rise in demand is the explosion of digital information, along with the artificial intelligence (AI) systems to analyze this data. This trend is revolutionizing the electricity sector and creating growing demands for reliable, flexible, secure, and resilient electricity supplies for data centers and in other key civilian and military spheres. More complex and interconnected national and regional electricity grids are growing in almost all regions of the world. But these large digital systems are increasingly vulnerable to cyberattacks, especially from malign actors such as China and its Volt, Flax, and Salt Typhoon threat teams. Electricity security is therefore a vital component to national security in this new age.

This growing demand has set off a race to innovate and deploy new energy technologies. One critical strategic area is the development of advanced nuclear power systems, with designs under development to meet needs for electricity, industrial heat, desalination, military systems, district heating, data centers, hydrogen production, and shipping. There has been a resurgence of interest in nuclear power around the world—at COP28, leading countries pledged a tripling of nuclear power by 2050 from 2020 levels.

Competition for electricity markets

Against this complex backdrop, the Trump administration’s expanded use of tariffs has added new dimensions to global economic competition that is affecting relationships both allies and opponents alike. These measures have also introduced added strain on already fragile electricity supply chains, including those of power transformers, switchgear, and meters. This added pressure for the West and Western-aligned countries gives China, the world’s largest exporter of electric power equipment and electronics, an opportunity to expand further its global market presence, especially in emerging markets and developing economies (EMDEs). EMDEs generate about two thirds of the world’s power and are projected to account for 85 percent of global electricity growth over the next three years.

Moreover, over the past decade as the costs of solar and wind have dropped, EMDEs have pursued a transition to renewable energy. Although renewables supplied only 26 percent of EMDE generation in 2023, they now provide over 75 percent of new EMDE generation capacity outside of China. China’s dominance in renewables gives it significant market—and geopolitical—influence. Global installed solar photovoltaic (PV) capacity increased by 30 percent in 2024, and Chinese companies are poised to continue flooding the market with solar PV systems and components.

EMDE natural gas demand for power, which can complement intermittent renewables and improve grid reliability, and for industry is also growing. This creates space in EMDE electricity markets for a growing US role. As the world’s largest LNG exporter, the United States is looking to increase export capacity and access markets in India, Southeast Asia, and other EMDEs. Some countries may commit to increasing US LNG imports in their trade negotiations with the Trump administration to address trade imbalances and reduce tariffs. In 2024, US volumes went to 20 EMDEs and represented about 30 percent of total US LNG exports.

In the past five or so years, the United States has made significant progress in the development of advanced nuclear power systems, some of which are now beginning construction. This has placed the United States in a strong position to compete for new nuclear contracts in EMDEs, particularly to build small and micro reactors. These systems offer the prospect of lower total capital costs, faster construction times, and more appropriate sizes for the smaller grids in many of these countries than large 1000-MW reactors. Russia has dominated the international new-build market with Rosatom constructing large VVER 1000/1200 reactors in India, Bangladesh, Egypt, Turkey, Iran, and China and beginning a small modular reactor (SMR) project in Uzbekistan. China has the largest number of reactors under construction (30 domestically) and is working to expand exports of its Hualong I large reactor beyond the completed units in Pakistan as well as developing several types of SMR systems. South Korean, European, and Canadian companies are also eyeing foreign markets and nuclear supply chains for new reactors are linking companies from these regions.

Recognizing the critical role nuclear can play in meeting US electricity demand growth, the Trump administration, with bipartisan cooperation, is supporting advanced reactor development and demonstration as well as domestic uranium mining, enrichment, and fuel production efforts. Trump recently signed an executive order targeting an increase in US nuclear capacity from 100 to 400 gigawatts by 2050. Domestic growth in the sector would enable the administration to export both large AP-1000s and SMRs, with at least a dozen projects and cooperation in the works not only in advanced economies, like the United Kingdom, Canada, Poland, Romania, Bulgaria, but also with EMDEs like Ukraine, India, Ghana, Kenya, the Philippines, Indonesia, and Vietnam. Interest in SMRs is at play in most of these countries and US companies could achieve of a sizeable share of the IEA’s projected SMR global market of 120 GW by 2050.

National security and global engagement

Given its broad-based excellence in the electricity sector and emerging digital and AI technologies, the United States is well positioned to engage with allies on the adoption of technologies that advance grid reliability, flexibility, and resilience. US involvement in these growing overseas markets, valued at over $2 trillion annually, is vital to its commercial, technological, and national security interests and to restoring trust and confidence in the United States as a reliable partner.

In this effort, the United States should leverage its strengths as the largest producer of both natural gas and nuclear power to help other countries build out firm, baseload, and peaking power, helping reduce dependence on Chinese solar and battery systems in an age of electricity. But US investment both at home and abroad in renewables, energy efficiency, carbon capture, hydrogen, and other technologies is also critical to US influence in the world.

As the Trump administration reconfigures US foreign policy, it is important to forge a new partnership with industry to enhance US energy leadership and coordinate deployment of key diplomatic and economic tools—including technology and commercial agreements, policy and regulatory assistance, capital allocation, and trade and investment promotion—in a package that can be tailored to the energy needs of individual countries. In addition to bilateral efforts, successful US global leadership will require close cooperation with allies in supporting sound multilateral financial and technology cooperation mechanisms, Western-oriented regional electricity markets, and secure supply chains.

The age of electricity is coming. Will the United States step up and recognize that being a global leader in this sector is critical to its national security?

Robert F. Ichord Jr. is a nonresident senior fellow at the Atlantic Council Global Energy Center.

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The strategic reserve and the Israel-Iran conflict

Joseph Webster, Landon Derentz — Fri, 13 Jun 2025 21:29:31 +0000

Note: This is an update to a New Atlanticist article from October 2024 on the US Strategic Petroleum Reserve. Given the policy urgency surrounding Israel’s strikes on Iran, the authors have updated the previously-published work with the latest data and developments.

The US Strategic Petroleum Reserve (SPR) of crude oil is well-stocked, expanding policymakers’ optionality in the crisis in the Middle East.

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After accounting for fifty-two-week averages of imports and exports, as well as current inventory levels, the SPR’s net import cover is historically high, holding 23.8 weeks’ worth compared to the 17.1-week average since 2009. Over 107 million barrels from the SPR could be released without falling below post-2009 historical levels of net import cover. Fatih Birol, Executive Director of the International Energy Agency (IEA), issued a statement noting there are over 1.2 billion barrels of emergency oil stocks in the IEA oil security system.

The United States’ SPR has shifted since the early 2010s, when it held nearly 730 million barrels, covering roughly 11.5 weeks of crude net import demand, at fifty-two-week averages. With rising US oil production and exports, the SPR’s net import cover gradually increased over the early and mid-2010s.

As the United States rapidly became a major crude oil exporter, inventory management strategy shifted. Congressionally mandated sales from the SPR occurred from 2017 through the first days of the COVID-19 pandemic, as the barrels in inventory declined from around 695 million barrels at the beginning of 2017 to around 635 million barrels in April 2020. Inventories were further reduced between 2022 and 2023, as the United States and its allies worked to combat Russia’s full-scale invasion in Ukraine and its effects on energy markets. Since mid-2023, the United States began slowly restocking the SPR and inventories currently stand at over 402 million barrels.

While SPR inventories are near their lowest absolute levels in over three decades, the stockpile is very well-placed to meet its mission, which is to “reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the United States under the international energy program.” That’s because while the SPR’s crude oil inventory levels have fallen, US imports needs have receded, even as US exports have surged. Accordingly, US net crude oil imports stand at just over two million barrels per day, down sharply from ten million barrels per day in 2007, or eight million barrels per day in 2017.

The rise in US crude exports and the drop in net imports have bolstered US oil security. However, challenges remain. US refineries are optimized for specific crude grades, many of which still need to be imported. Shifting light, sweet crude exports to domestic use could, for example, disrupt refineries optimized for heavier, more sulfuric crude grades.

Despite these limitations, SPR inventories are at elevated levels, allowing the United States to cover about 23.8 weeks of demand. Net crude oil import cover is sharply higher than before the shale boom, or even immediately before the COVID-19 pandemic.

Finally, US crude oil production and consumption are projected to remain stable in 2025 and 2026. Technological improvements and—critically—the removal of energy infrastructure bottlenecks are supporting domestic crude production. The recently inaugurated Matterhorn Express natural gas pipeline, which runs west-to-east across Texas, has removed a key takeaway constraint from the Permian basin, improving US oil production fundamentals and sending domestic output higher. The EIA’s latest forecast holds crude oil net imports will remain flat or decline modestly, enabling the United States to draw down inventories even further while still maintaining net import coverage.

The United States’ strategic petroleum reserves and substantial domestic oil production leave it well-positioned to weather a crisis in the Middle East, barring major, prolonged outages to Gulf oil production.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and the Indo-Pacific Security Initiative; he also edits the independent China-Russia Report.

Landon Derentz is senior director and Morningstar Chair for Global Energy Security at the Atlantic Council’s Global Energy Center. He previously served as director for energy at the White House National Security Council and director for Middle Eastern and African affairs at the US Department of Energy.

This article reflects their own personal opinions.

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Complex energy systems face low-tech threats

Travis Nels — Wed, 11 Jun 2025 17:06:40 +0000

The dramatic destruction of parked Russian strategic bombers through a daring operation of the Ukrainian intelligence service has once again shone a spotlight on the power of asymmetric warfare. After initial reactions of delight in the West at seeing Russian aircraft burn, such feelings quickly turned to concern that similar events could relatively easily happen here as well.

The fact that cheap, low-end systems could wreak havoc on advanced military forces is indeed fear inducing—and unfortunately, that risk extends beyond jets parked on an airfield apron.

The electrical grid has been described as “the world’s largest machine.” In terms of defending it, a better mental model is that of a very complex supply chain. Electrons are produced from molecules pulled from the ground, atomic reactions, or the movement of wind, water, or sun. Those electrons are transported through a vast network of wires to their ultimate end use.

Notably, that end use—whether light, warm or cold air, artificial intelligence inference, or a Netflix movie—is all that matters. The electrons in an intermediate form or location are useless to a human being, so disruptions anywhere along the supply chain are functionally equivalent.

Attacking energy infrastructure has long been recognized as a useful combat tactic because those electrons are a precursor to many legitimate military end uses. Attacking electric power can also terrorize civilian populations, best evidenced in Ukraine by thousands of Russian attacks against the grid by high-end cruise missiles and guided weapons.

The number of global actors with access to cruise missiles is, thankfully, limited. But that does not reduce the risk to the grid. Being able to disrupt end use anywhere along the electron supply chain is a boon to the asymmetric attacker, who can find plenty of choke points along that chain. They can look for targets with the greatest impact at the lowest cost in time, resources, and risk.

To combat these threats, discussion of asymmetric risk vectors has increasingly focused on cybersecurity vulnerabilities. Recent revelations that the global supply chain for solar power inverters has been compromised by Chinese manufacturers is another reminder of the sector’s cyber vulnerabilities. The North American Electric Reliability Company (NERC), through its Critical Infrastructure Protection (CIP) program strives to address these risks through compliance activity, and players in the electric power ecosystem have invested heavily in software and processes to defend against cyberattacks.

Beyond cyber, attention is often focused on physical risk to the generation end of the electron supply chain. Certainly, it is easy to envision both attacking and defending a large, fixed piece of infrastructure like a power plant from an asymmetric attacker’s drones. The same applies to substation infrastructure. But what if one were to push the imagination a little further?

Electric utilities across the United States must constantly deal with outages from technical challenges, weather, animals, and even mylar balloons, which have disrupted utility services for years.

Listings on Amazon and Alibaba show that approximately 10,000 mylar balloons could be filled and released for less than $15,000 (with 95 percent of that being the cost of helium). Given that electric transmission and distribution infrastructure is in fixed, known locations—often highly visible and open to the air—it is acutely vulnerable to aerial attack.

Such an attack wouldn’t require smuggling drones and explosives, clandestinely attaching them to trucks in an action worthy of a Hollywood spy thriller—it would just require waiting for a delivery from the attacker’s e-commerce provider of choice. Think less of a spy thriller, and more of a dark remake of Up.

Infrastructure risk is increasing on two fronts—from the diffusion of high-end digital technology and from an evolving understanding that high-end energy systems can be threatened by cheap and low-tech weapons, or weaponized commercial products.

To counteract this threat landscape, policymakers are trying to support infrastructure owners and operators in protecting the grid. In addition to NERC CIP measures for infrastructure security, there is legislation pending that would hold states to the same federal standard as interstate transmission infrastructure, or elevate the US Department of Energy’s leader responsible for emergency response to a Senate-confirmed position.

This is not a call to action to ban mylar balloons—though some states are trying. Instead, infrastructure stakeholders must realize that the threat environment is broadening at both the high and low ends of the spectrum. After watching videos of burning Russian bombers, the sinking feeling that society is more vulnerable today than it was yesterday extends far beyond the military domain.

Travis Nels is a Veterans Advanced Energy fellow with the Atlantic Council’s Global Energy Center and the vice president of planning, analytics, technology, and transformation at AES Corporation in Arlington, Virginia. The views and ideas expressed in this article are his own.

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MDBs must finance nuclear power—or Russia and China will

Juzel Lloyd — Mon, 02 Jun 2025 13:23:32 +0000

The world is entering a new age for nuclear energy, as developing nations like India, Argentina, Egypt, and Pakistan consider adding nuclear power to their energy mix to rapidly increase domestic energy access. Multilateral development banks (MDBs) are in a position to enable this expansion of energy in their mission to help developing economies achieve economic growth and energy access, but the banks are hindering the use of nuclear power. Meanwhile, Russia and China, both nuclear technology export leaders, are filling the gap and gaining geopolitical influence. Other countries, such as France and the Republic of Korea, have state-owned nuclear enterprises, but they are market competitors and not geopolitical adversaries. As developing nations seek nuclear power to meet rising energy needs, MDBs must revise their outdated and politicized views of the technology—or risk ceding political capital to autocratic actors.

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An essential tool in the development toolkit

Developing countries’ energy demand is rising, requiring more firm power generation. Nuclear energy offers a reliable baseload critical for economies industrializing with energy-intensive sectors such as manufacturing and data centers. A 900-MW nuclear reactor can produce—with a much smaller footprint—the same power as 8.5 million solar panels or 800 wind turbines. And, unlike hydropower and geothermal energy, nuclear power is much less geographically constrained, enabling it to be sited in many locations.

Major economies are exporting their nuclear aversion

Currently, most MDBs do not fund nuclear energy projects. The Asian Development Bank (ADB) refuses to finance nuclear energy projects due to issues such as waste management and high investment costs. The European Bank for Reconstruction and Development (EBRD) prioritizes its energy strategy for “scaling up renewables,” supporting nuclear projects solely in areas of safety like decommissioning, with no involvement in construction. EBRD states it is neither in favor of or opposed to nuclear energy; it is simply operating within the mandate determined by its shareholders. The World Bank—the largest and arguably most influential MDB—cites a lack of expertise as its reason for not funding nuclear energy projects, although it frequently relies on external contractors for expertise in other sectors.

However, the World Bank’s president, Ajay Banga, recently signaled a potential shift by pushing the board to reconsider its stance on funding nuclear energy projects. In reality, the World Bank’s voting structure, which allocates voting power according to how much funding a country provides, grants its biggest funders with veto power. Germany serves as a key example: it shut down its nuclear reactors and opposed the inclusion of nuclear power in the European Union’s green investment taxonomy. The World Bank is held hostage by this tunnel vision, which supports only renewable projects, even though these technologies alone cannot meet the growing energy demands of developing nations.

MDBs’ refusal to fund nuclear power projects exacerbates the geopolitical divide between developing economies and the developed nations. This results in missed opportunities to expand energy access in poorer nations based on the prejudices of wealthier nations.

Lenders of last resort

MDBs’ current failure to finance nuclear projects cedes opportunities to other lenders. Western banks, including Goldman Sachs and Barclays, recently announced their support for nuclear energy, but this long-term commitment is questionable given private lenders’ risk-averse nature. Prolonged construction timelines and high capital costs for nuclear energy projects in countries like the United States may eventually deter commercial banks from maintaining their support for the technology.

Russia and China could fill the gap if the West leaves nuclear financing to others. Russia leads global nuclear power plant construction, accounting for about 60 percent of reactor exports, with ongoing projects in nations like Turkey, Bangladesh, and Egypt. Similarly, China is rapidly building out its domestic nuclear capacity—targeting over 100 new reactors by 2035—and leveraging the technology as a geopolitical tool under its Belt and Road Initiative, establishing projects in nations such as Pakistan and Argentina.

The MDBs’ absence in nuclear financing starkly contrasts with the generous loans offered by Russia and China. By leveraging state funding, Russia offers highly attractive terms, covering up to 85 percent of total project costs, as seen in Egypt’s loan, with lower interest rates and longer repayment periods than those required by the Organisation of Economic Co-operation and Development (OECD) for its members—an organization that does not include Russia or China. Russia is also expanding its equity stakes in international nuclear projects, such as Turkey’s Akkuyu nuclear power plant, where it holds a majority stake, fostering closer geopolitical ties and exerting influence over critical energy infrastructure.

Similarly, China extends significant financial support, covering 85 percent of construction costs for Pakistan’s Chasma 5 reactor along with a $100 million discount on the total project cost. China has also offered to cover 85 percent of costs in loans for Argentina’s Atucha III reactor.

By refusing to finance nuclear projects, MDBs force developing nations to rely on Russian and Chinese nuclear exports. Both nations’ dominance in nuclear energy exports risks creating significant geopolitical imbalances, expanding their grip on critical energy sources while weakening Western influence over international energy security. The MDBs must rectify this problem to ensure a more geopolitically diverse financing model for nuclear power construction and operation in developing nations.

Breaking the logjam

MDBs must consider structural changes to bypass the veto power of its major players and begin funding nuclear energy projects. One option is to create a consortium of pro-nuclear states within the MDBs. These nations could create a separate fund for nuclear energy financing, independent of contributions from anti-nuclear nations. This would not be a complete fix—the bank’s broader policy against nuclear finance would remain unaffected—but it’s a crucial step in the right direction.

Outside of direct financial support, development banks do have other options. They can establish pathways for technical assistance for nuclear projects, similar to the Energy for Growth Hub’s nuclear trust fund proposal for the World Bank. This can include enlisting expert contractors as advisors to governments building nuclear power plants and fostering open dialogues on nuclear energy. By taking these steps, development banks can empower developing nations to harness nuclear power and create a more equitable energy future.

Don’t hand adversaries a nuclear victory

The increasing dominance of Moscow and Beijing in global nuclear energy finance risks reshaping future energy affairs. It is time for MDBs to acknowledge nuclear energy as an essential tool to expand energy access. The World Bank and other multilateral organizations must reform their antiquated policies to support nuclear energy deployment and allow developing countries to more readily achieve economic growth. If they don’t, autocratic regimes willing to weaponize their energy dominance will eagerly fill the void.

Juzel Lloyd is an energy/environmental technology researcher at the Lawrence Berkeley National Laboratory and a former Atlantic Council Global Energy Center Women Leaders in Energy and Climate fellow.

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Replace the Inflation Reduction Act with FUEL-AI

Joseph Webster — Wed, 21 May 2025 13:00:00 +0000

The race to artificial general intelligence (AGI) could be the most consequential technological competition in history. Some American technologists see initial AGI leadership as self-reinforcing, granting early adopters lasting advantages. By contrast, many Chinese and (increasingly) US experts believe broad, cross-sectoral artificial intelligence (AI) adoption will shape long-term outcomes. This requires an all-of-the-above energy approach: natural gas, coal, and advanced energy technologies like solar, batteries, advanced nuclear, and wind. Regardless of whether the AI race proves to be a sprint or a marathon, however, US policymakers face difficult, complicated choices resourcing AI and its energy needs.

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As AI and data centers expand demand for power, natural gas and coal alone can’t meet future needs, while current solar and battery supply chains carry security risks. To resolve these challenges, the United States should expand domestic manufacturing of advanced energy technologies while maintaining natural gas—and, possibly, coal—production in the near term.

To win the AI race against the Chinese government, US energy policy must shift from a climate-first lens to one that prioritizes national security and securing a growing supply of power. To do so, Congress should pass the Future Usable Energy Legislation—Artificial Intelligence (FUEL-AI) Act, which would prioritize key national security interests such as providing power for key AI hubs like Northern Virginia’s Data Center Alley, streamlining permitting, modernizing transmission and the grid, supporting domestic energy manufacturing, and incentivizing energy efficiency technologies.

Energy and the race for AI supremacy

Whether the AI race is a sprint or a marathon, both paths demand massive amounts of new electricity. Though energy is a small share of AI costs, it’s a critical operational constraint: data centers can’t run without power.

While acknowledging profound uncertainties, top forecasts project data centers and AI-driven electricity demand could reach 4.6–9.1 percent of total US consumption by 2030, up from 4 percent today. If the sprint scenario holds, only fast-to-deploy sources like solar and batteries can keep pace with demand.

Even in the marathon scenario of broad AI adoption, the United States will likely need large amounts of new electricity—fast. Relying on natural gas and coal alone to power AI won’t work. Natural gas turbine production is constrained, and no major coal plant has opened since 2013. Supply chain constraints, profound grassroots opposition, and investor reluctance make new coal capacity unlikely.

Even though gas and coal will play a major role in powering US AI, a gas and coal-only strategy won’t succeed. In the worst-case scenario, insufficient electricity generation could create shortages and necessitate persistent brownouts that were last seen in the United States in the 1970s. Even if those dire conditions don’t materialize, however, higher domestic natural gas prices would reduce the competitiveness of US liquefied natural gas and pipeline gas exports. But the impact of a natural gas and coal-only approach would be felt most acutely by consumers, since residential electricity prices are already outpacing inflation.

Rural Americans would be hit hardest by rising electricity costs and poor reliability. They spend 4.4 percent of household income on energy—versus 3.1 percent in metropolitan areas—and face more outages.

Fueling AI with a summer peaking resource

In both AI sprint and marathon scenarios, solar and battery storage are highly suitable for meeting rising demand due to their speed, low cost, scalability, and geographic flexibility.

Solar is highly capable for matching data centers’ peak summer demand, especially in warm-weather markets. In Northern Virginia, home to 13 percent of all reported data center operational capacity globally, regional solar generation typically peaks in the summer—matching peaks for both commercial data centers’ cooling needs and residential consumers’ electricity consumption.

Solar’s flexibility makes it ideal for data center clusters, as it requires minimal infrastructure and no resupply. China appears to recognize solar power’s strategic value, concentrating rooftop solar in coastal provinces and deploying at least 3,000 megawatts of capacity at the dual-use Shigatse Peace Airport near the Indian border.

Strengthening solar cybersecurity

China’s dominance of solar supply chains poses security risks, especially given solar power’s importance for AI. Reports of Chinese-made inverters with unexplained communication equipment underline the dangers, as such devices could destabilize the grid—a risk the US Department of Energy has long flagged.

However, inverter threats are just one among many. The Chinese government and other adversaries already have broad ability to target US and partner infrastructure. Cybercriminals operating in Russia attacked Colonial Pipeline, while China has been linked to Mumbai’s 2021 blackout, malware found in US power and water systems, a still-unexplained transformer interdiction in Houston, and crypto mines operating near US military sites. Indeed, Chinese firms are estimated to own one-third of US crypto mining infrastructure and supply the vast majority of its machinery. Furthermore, ERCOT, the operator for most of the Texas grid, warns these high-load operations can worsen grid events, turning low-voltage issues into frequency control problems.

China’s role in software and hardware supply chains poses sabotage risks. Just as Russia weaponized energy in Ukraine, Beijing could exploit electricity systems in a Taiwan conflict. The United States should assess the inverter threat by reviewing installed units, ramping up inspections of Chinese-connected devices, and conducting other risk mitigation and software hygiene measures.

Instead of fruitlessly seeking to eliminate vulnerabilities and establish perfect security across pipelines, crypto mines, and inverters, however, the United States must rely on deterrence, threatening proportionate responses if China conducts electricity sector sabotage.

Replace the Inflation Reduction Act with FUEL-AI

The AI race with China carries immense stakes and uncertainty. To compete, the United States will need vast new electricity generation—regardless of whether the race is a sprint or a marathon. This requires an all-of-the-above energy approach: natural gas, coal, and advanced technologies like solar, batteries, advanced nuclear, and wind.

The United States should replace the Inflation Reduction Act with FUEL-AI, shifting focus from climate to national security. FUEL-AI would make it easier to build new energy infrastructure by streamlining permitting and modernizing transmission. Additionally, it would support domestic energy manufacturing for key national security technologies, such as transformers and advanced batteries; and prioritize power demand and supply measures at AI hubs like Northern Virginia’s Data Center Alley.

These reforms could attract bipartisan backing. Both parties oppose the Chinese government and support strategic technologies like nuclear power and transformers, while US advanced energy supply chains support hundreds of thousands of jobs and hundreds of billions of dollars in investment. Reorienting energy policy toward AI competitiveness can unite national security and economic priorities without abandoning the advanced energy technologies of the future.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative, and editor of the independent China-Russia Report. This article reflects his own personal opinion.

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Four energy deals Trump will look to make on his Middle East trip

Ellen Wald — Tue, 13 May 2025 13:32:41 +0000

President Donald Trump is traveling to the Gulf states this week in a visit aimed at negotiating business deals rather than wading into geopolitical issues. Here are four ways this strategy may play out.

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1. Investment in US energy and manufacturing

Last month, the United Arab Emirates (UAE) committed to investing $1.4 trillion in the United States over the next decade. Some of the investments in the package have already been announced, including a recent commitment by Emirates Global Aluminum to fund the construction of a smelter in the United States. If built, it would be the country’s first new aluminum smelter in thirty-five years and could potentially double US production. Trump will likely push the UAE to announce additional plans to invest in US manufacturing, infrastructure, and energy production, with petrochemicals, steel, and battery production likely targets.

Trump is expected to press Saudi Arabia to announce where it intends to invest the $600 billion that Crown Prince Mohammed bin Salman committed to during a post-inauguration call in January. Just like during his first term, Trump said that if Saudi Arabia agreed to large purchases of US products, he would make the country his first foreign visit. Now, he will look to hammer out the specifics, which will likely include purchases of military equipment in addition to investments in infrastructure, technology, and mining.

2. Nuclear energy cooperation

Saudi Arabia has tried to start a domestic nuclear power program since 2006. It has signed multiple agreements with various contractors and consultants—but with very little progress other than a small research reactor in Riyadh due to come online soon. Saudi Arabia has engaged with Chinese companies to explore domestic uranium mining and enrichment—a potentially problematic move from the perspective of the International Atomic Energy Agency (IAEA) because it can easily lead to weapons production.

However, there are signs that Saudi Arabia is now interested in complying with IAEA standards. Last August, Riyadh agreed to IAEA spot inspections designed to ensure that weapons are not being developed, potentially paving a pathway for cooperation with the United States. Last week, the Trump administration announced that it was dropping the Biden administration’s demand that Saudi Arabia normalize relations with Israel as a condition for civil nuclear cooperation negations, putting Saudi nuclear power back on the table. At stake may be commitments from Saudi Arabia to use US companies and American-made materials to build future reactors, as well as deals to supply Saudi-produced critical minerals to US customers.

3. Pumping more oil

Trump has been extremely vocal about his desire to lower oil prices. While US producers don’t want to see prices fall below the sixty dollars per barrel range (breakeven prices in the most productive shale basins are currently in the low to mid sixty dollars per barrel range), consumers would welcome lower gasoline prices this summer. Middle East producers seem eager to help, as OPEC+ recently committed to increase production by 411,000 barrels per day in June and is expected to recommit to gradually put more oil on the market at its ministerial meeting at the end of May. It is unlikely that Trump will press the Gulf countries to make additional commitments, but he will expect them to follow through—and will likely say so to the press.

4. LNG purchases

Trump is likely to push Gulf countries to expand their orders for US liquefied natural gas (LNG). Kuwait and Iraq already import US LNG and Bahrain just received its first cargo last month. Both Kuwait and Bahrain want to buy more LNG to meet high domestic electricity demand over the summer while natural gas outputs decline. Trump should push them to sign long-term offtake agreements with US LNG companies rather than rely on spot market purchases. This will ensure that these countries continue buying US gas even when more LNG become available from nearby Qatar, which is expanding its production.

This should be an easy sell to Kuwait, which is already in talks with the Australian company Woodside to buy a 40 percent stake in its Louisiana LNG terminal. Kuwait is aiming to secure LNG supplies from this project, but even with assistance from the Trump administration, it won’t be fully operational until the early 2030s. Trump should push Kuwait to sign additional offtake agreements, with the idea that if Kuwait does find itself oversupplied with LNG in the future, it can always resell cargos on the spot market.

Strategically, announcing at least two new LNG agreements with Middle Eastern countries will help the Trump administration’s position as it presses Europe to move forward with long-term offtake agreements for US LNG. Europe has been dragging its feet over concerns about emissions reporting, even though Europe needs US gas to replace the Russian LNG it currently buys. Trump can use LNG deals with Middle Eastern consumers to pressure Europe to commit to US purchases before winding down imports of Russian LNG. This would also help Trump pressure Russia to negotiate on Ukraine, as it would further squeeze Moscow’s income.

It isn’t just business

The focus of Trump’s visit to the Middle East may be on strengthening economic ties, but it is tough to ignore the backdrop of rising geopolitical tensions, particularly regarding Israel, Iran, and the Houthis. Business, trade, and energy markets are important to both the president and the leaders of the Gulf countries he will be meeting, but so are security and diplomacy. In Trump’s mind, business and geopolitics operate in tandem and everything is up for negotiation. It should not come as a surprise to see energy deals, trade negotiations, sanctions enforcement and even weapons sales materialize in concert.

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Environmental risk weighs heavily on the possible rewards of deep sea mining

William Yancey Brown — Fri, 09 May 2025 16:37:31 +0000

Many industry stakeholders and policymakers view deep sea mining (DSM) as a panacea for securing sufficient supplies of critical minerals, which are needed for clean energy and defense technologies. In March, the White House issued an executive order promoting mining generally and, in April, followed with a second order to fast-track deep sea permitting and circumvent multilateral regulations of the practice.

However, an analysis of the applicable international and US environmental requirements for DSM reveals that, in practice, the risks to deep sea ecosystems would prohibit DSM from proceeding under current laws.

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Why pursue deep sea mining?

DSM is focused on collecting polymetallic nodules (PMNs) that look like potatoes and contain critical minerals that currently are sourced from mining on land. A patch of the Pacific Ocean called the Clarion-Clipperton (CC) Zone, which covers more than 4 million square kilometers, may hold more cobalt, nickel, and manganese reserves¹ than are available on land.

A. PMNs scatter scattered on the deep seabed
B. Front of a PMN
C. Side of a PMN

Copyright British Geological Survey, National Oceanography Center © UKRI 2018

What rules govern DSM?

DSM in the CC Zone and elsewhere beyond national jurisdiction is regulated by the International Seabed Authority (ISA) under the United Nations Convention on the Law of the Sea (UNCLOS), to which most United Nations members are parties. The ISA has entered into 15-year exclusive rights contracts for DSM exploration with 17 contractors looking at PMNs in the CC Zone.

The United States is not a party to UNCLOS and cannot sponsor DSM exploration contracts beyond its national jurisdiction, but it and other nations can pursue DSM on their continental shelves, as countries like the Cook Islands are doing. No country is currently mining in the CC Zone, but Nauru is trying.

But the United States has its own applicable laws on DSM: the US Deep Seabed Hard Mineral Resources Act and the US Outer Continental Shelf Lands Act.

So, what do international and US laws say about whether DSM is permissible?

United Nations Convention on Law of the Sea

UNCLOS addresses environmental protection for seabed activities. It directs the ISA to adopt rules for “the prevention of damage to the flora and fauna,”² to disapprove exploitation where “substantial evidence indicates the risk of serious harm to the marine environment,”³ and to include measures “necessary to protect and preserve rare or fragile ecosystems as well as the habitat of depleted, threatened, or endangered species and other forms of marine life.” ⁴

International Seabed Authority

The ISA has issued final rules for exploration⁵ and draft rules for exploiting⁶ deep sea resources. Both regulations require a “precautionary approach” (Principal 15 of the Rio Declaration on Environment and Development) and prohibit activities in international waters that would cause “serious harm,” which both rules define to be any effect which represents a “significant adverse change in the marine environment.”

US Deep Seabed Hard Mineral Resources Act

The United States has its own DSM policy in the Deep Seabed Hard Mineral Resources Act (DSHMRA). This awkward and long-dormant statute prohibits any person under US jurisdiction from exploration or commercial recovery in international waters unless the activity “cannot reasonably be expected to result in a significant adverse effect on the quality of the environment.” That standard is incorporated in regulations. Despite the obvious schism with UNCLOS and objections from the ISA and UNCLOS parties including China and Russia, Canada’s The Metals Company, encouraged by the White House, announced in March that it will apply for a DSHMRA permit to mine in the CC Zone.

US Outer Continental Shelf Lands Act

The Outer Continental Shelf Lands Act (OCSLA) applies to any DSM activities on the 13 million square kilometer US “outer continental shelf”—including Pacific territories where PMNs are found. OCSLA and its regulations have several environmental standards addressing exploration and also requiring mining operations to be “designed to prevent serious harm or damage to … any life (including fish and other aquatic life), property, or the marine, coastal, or human environment.” The potential for DSM in US territory is not an idle consideration. A company named Impossible Metals made an unsolicited request for a lease in 2024 to mine PMNs offshore American Samoa, and has reportedly resubmitted the proposal to the Trump administration, which is likely to be more receptive to the idea.

In sum, the environmental takeaways under these laws are similar:

Don’t mine if there will be “serious harm” to the environment (UNCLOS).

Don’t mine if there could be a reasonable expectation the activity will “result in significant adverse effect on the quality of the environment” (DSHMRA).
Don’t mine if there is “a threat of serious, irreparable, or immediate harm or damage to life (including fish and other aquatic life) … or to the marine, coastal, or human environment” (OCSLA).

Would DSM meet these standards?

Out of concern for environmental impacts of DSM, the International Union for Conservation of Nature (IUCN)—a leading global conservation organization with governmental members, including the United States—approved a resolution in 2020 calling for a moratorium on DSM in international waters. To date, 32 nations have called for a ban or moratorium on the practice.

Studies have shown that the habitats of PMNs teem with exotic and little-understood life. One seminal article estimates that over 6,000 multicellular species occur in the CC Zone, living on and among the PMNs. About 90 percent are probably still undiscovered to science. Each mining operation is likely to remove⁷ PMNs from hundreds of square kilometers each year of operation. If the PMNs disappear, so will these animals, potentially including pink “Barbie” sea pigs and other species that the Natural History Museum of London’s scientists have discovered.

Things go slowly in the deep sea. The PMNs form over millions of years. This is the oldest of old growth—if it is stripped away, the nodules would probably take the same millions of years to come back, if ever.

DSM impacts besides habitat removal include dispersion of animals, noise, and possible oxygen depletion. During DSM testing, contractors primarily use self-propelled collectors that leave tracks and produce sediment plumes with potentially far-reaching consequences⁸ for the marine environment. One recent study found some small and mobile animals commonly found in sediment everywhere in the CC Zone had re-colonized testing track areas after 44 years, however, large-sized animals that are fixed to the sea floor were still very rare in the tracks, showing little signs of recovery. Impossible Metals proposes to hover and pluck the nodules, but its technology is untested at scale.

The CC Zone is huge—4.2 million kilometers have commercial potential and 3.4 million⁹ are considered particularly attractive for mining. This isan area larger than Alaska, Texas, California, and Montana combined, and the abundance and diversity of life forms vary substantially across it.

What’s the takeaway?

No experienced and objective environmental regulator could reasonably conclude that DSM, as now proposed, would meet the environmental standards of UNCLOS, DSHMRA, or OCSLA.

With new technology, greater understanding of the deep sea environment, and advancements in artificial intelligence, future DSM efforts may be able to selectively harvest PMNs with less impact. But for now, deep sea mining does not pass the environmental tests of the laws that apply.

William Yancey Brown is a nonresident senior fellow at the Atlantic Council Global Energy Center. From 2013–2024, Brown was the chief environmental officer of the Bureau of Ocean Energy Management in the US Department of the Interior, where he oversaw the implementation of NEPA.

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1 (p.23)

2 (Art. 145)

3 (Art. 162(2)(x))

4 (Art. 194(5))

5 (p.4)

6 (p.117)

7 (p. 91)

8 (p. xii)

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Make critical mineral spending matter this time

Ashley Zumwalt-Forbes — Mon, 05 May 2025 14:48:31 +0000

For the first time in history, the United States is preparing to inject direct, large-scale funding into critical mineral stockpiling and supply chain resilience as a core pillar of national defense.

As part of the $150 billion defense funding boost that the House Armed Services Committee is including in the budget reconciliation bill, approximately $2.5 billion is specifically earmarked for the domestic production and stockpiling of critical minerals. An additional $20 billion is allocated to strengthening munitions manufacturing and the broader defense industrial base, which will also indirectly benefit critical minerals supply chains.

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While this is a welcome and overdue move, the real test isn’t whether Congress can authorize new spending—it’s whether that spending can be structured in ways that create durable, investable markets.

This wouldn’t be the first time that funds are announced with great fanfare, but lacking clear commercial pathways, private sector follow-on investments never materialize. Projects stall, supply chains remain fragile, and strategic vulnerabilities persist.

To truly improve critical minerals security, Congress must structure these funds to create durable markets with sustainable demand signals, real commercial offtakes, and price stability. Merely handing out subsidies and building stockpiles that gather dust is not enough.

Here’s how Congress can get it right:

1. Use stockpiling wisely: Build “bid windows,” not just warehouses

Stockpiling critical minerals is essential for national defense, but traditional government stockpiles have often operated outside normal market dynamics. Congress must avoid designing a system where the US government simply buys and stores metals at opaque and inflexible prices, inadvertently distorting already underdeveloped markets.

Instead, a “bid window” structure—similar to how the Japan Organization for Metals and Energy Security (JOGMEC) operates—could ensure the stockpile acts as a price floor, rather than a ceiling, for market development. The United States could commit to buying minerals at a transparent, indexed floor price for a set volume each quarter, giving miners and refiners the demand certainty they need to invest while still letting private markets function freely above that level.

This approach would reduce the risk for business and investors of a price collapse, thereby attracting private investment and stretching taxpayer dollars further by stabilizing—rather than dominating—the market.

2. Focus on processing first: Without midstream, nothing works

Many policymakers are tempted to fund new mines, but without midstream processing capacity, mines are destined to become stranded assets.

Instead, Congress must prioritize refining, separation, and chemical conversion capacity inside US borders. It’s not glamorous work—but it’s the missing middle where China dominates and the West remains frighteningly dependent.

The reconciliation bill’s funds should catalyze small-to-midscale batch processing plants for metals like cobalt, rare earths, gallium, and tungsten that are faster and cheaper to deploy than megaprojects. The midstream is where the supply chain bottlenecks—and geopolitical leverage—truly lie.

A mine without processing isn’t a supply chain—it’s an orphan. The middle of the supply chain needs to be fixed first.

3. Use the right tool for the right stage: Grants where needed, blended finance where possible

Grants have been—and will continue to be—essential for building the critical mineral supply chain. Early-stage projects, new technologies, and first-of-a-kind facilities often cannot attract private financing without meaningful public support. Programs like the Department of Energy’s battery material processing and manufacturing grants have catalyzed activity where private capital alone would not step in.

But as projects mature, this funding model should evolve. Wherever possible, blended finance tools—such as partial guarantees, credit enhancements, or first-loss capital—can stretch public dollars further and bring private investors alongside.

Right now, there is not yet enough private capital chasing critical minerals to worry about crowding out investments with public spending. The bigger risk is failing to attract it at all. Structuring public funding in a way that can de-risk projects enough to make them bankable can crowd in private investment without making government funding the only path forward.

Otherwise, critical mineral projects will survive only as long as government grants flow, instead of becoming durable parts of national security supply chains.

4. Target strategic chokepoints: Not everything is “critical”

Finally, not every mineral deserves public backing. Defense dollars must focus on true chokepoints: materials heavily controlled by adversaries where supply disruptions would cripple US capabilities.

Tungsten, antimony, heavy rare earths, cobalt, and graphite fit this billing, but not commodities like aluminum or gold where deep, liquid global markets exist.

By staying disciplined about which materials—and which segments of the value chain—the US government funds, it can maximize strategic leverage without diluting impact.

A historic opportunity

The United States has a rare window to reset its critical minerals strategy. The $150 billion reconciliation bill could be the start of something transformative—but only if it is structured to create a real market pull, not just government push.

If prices can be stabilized without destroying private incentives, if the middle of the supply chain can be bolstered, and if private investment can be attracted in a durable way, the reconciliation bill may prove a real turning point.

Done right, this bill could lay the foundation for resilient, investable critical mineral supply chains that support national security long after the headlines fade.

Ashley Zumwalt-Forbes is a former US Department of Energy deputy director for batteries and critical minerals, co-founder and former president of Black Mountain Metals and Black Mountain Exploration, and co-founder and former senior advisor of Metals Acquisition Corp.

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Can Nord Stream really rise from the dead?

Alan Riley — Tue, 29 Apr 2025 15:31:12 +0000

Recently, Russian Foreign Minister Sergey Lavrov announced that Moscow is in discussions with Washington to bring the Nord Stream pipelines back into operation. But upon closer examination, such a reopening looks difficult to execute in practice.

There are first the legal barriers, particularly with respect to the Nord Stream 2 pipelines. The European Union (EU) Gas Directive of 2024 imposes a supply security test on non-EU asset owners—clearly a problem for Gazprom. However, US investors may be able to take advantage of EU rules to push forward their proposal for the acquisition of Nord Stream pipelines (possibly one, two or all the pipelines) arguing they are more likely to pass such a test than any Russian entity.

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However, there is potentially a major second barrier: civil damages. A range of multibillion dollar claims against Gazprom are now underway because of its refusal to supply gas to its long-term customers during the energy crisis of 2021–22. There is not much point in investing in a pipeline if the gas or the revenues will then be seized by Gazprom’s former customers.

Furthermore, if Chinese tariffs on US liquefied natural gas (LNG) remain, US producers will likely want to keep Russian gas out of the EU market. This factor may weigh decisively on the Trump administration.

The Nord Stream Pipelines

The Nord Stream pipelines consist of two sets of pipelines, Nord Stream 1 and 2, which run along the seabed of the Baltic Sea. Prior to the full-scale invasion of Ukraine in February 2022, Nord Stream 1 was fully operational, while Nord Stream 2 was awaiting German and EU authorization. Each set in turn consist of two pipelines: Nord Stream 1A and B, and Nord Stream 2A and B. Each has a total annual capacity of approximately 27.5 billion cubic meters (bcm), amounting to 110 bcm in all—equal to two thirds of pre-2022 Russian gas exports to the EU.

Leading up to the full-scale invasion of Ukraine, Gazprom progressively cut the flow of gas to the EU via all pipeline routes—not just Nord Stream 1, but also the Yamal pipeline and Ukrainian transit routes. These supply cuts sent EU gas prices spiraling to over €340 per megawatt hour by August 2022, well over the 2009–19 range of €9–29. By early September 2022, no gas flowed through Nord Stream 1, and Nord Stream 2 remained unauthorized. Later that month, explosions ruptured three of the pipelines leaving only Nord Stream 2A intact.

The EU responded first by providing social protection for its consumers and businesses and funding gas purchases, principally from LNG providers. This cost the EU and member states approximately €500 billion. Subsequently, the EU significantly diversified its gas market, increasing pipeline supplies from Norway and LNG from the United States, Qatar, and even Russia. The EU plans to prohibit all Russian pipeline gas by April 2027. With the end of Russia’s Ukrainian transit contract in December 2024, the only Russian pipeline gas arriving in the EU is the 15 bcm which flows via the Turk Stream 2 pipeline principally to Hungary and non-EU Serbia.

Can Nord Stream restart?

The major US figure pushing for a restart is investment banker Stephen Lynch, who has focused particularly on the still-intact Nord Stream 2B pipeline. Lynch has also suggested that repairing the other NS2 pipeline would cost less than $700 million.

It is natural that one would start with the intact pipeline. However, the fundamental regulatory problem is that neither Nord Stream 2 pipeline has been authorized under German or EU law. The 2024 Gas Directive imposes two key requirements on pipeline owners. First, the owner must demonstrate that it is not also the supplier of the gas. Second, a non-EU owner person must show that certification will not risk the energy or overall security of any member state or the EU itself.

One can see how the Lynch proposal could work with the EU law provisions. A US-owned pipeline would be far more likely than Gazprom to obtain certification under the supply security test, given Gazprom’s behavior during the energy crisis. Furthermore, as the US investors would own the pipeline but not provide the gas, they would be able to pass the separation of ownership and supply test.

However, for such a proposal to work, the sale would need to be at full arm’s length—at market prices and with no Russian money or Russian state connections on the US side. The 2024 Gas Directive imports a very broad definition of control from the EU Merger Regulation. Any below-market-price transaction or Russian participation could raise the prospect of a legal challenge against the certification of the new non-EU owner—some EU member states would certainly launch a challenge if there were any suspicion of Russian involvement on the US side.

One also must ask whether Gazprom—which has never willingly sold one of its long-distance pipeline systems—would be prepared to do so now. Gazprom ran a half-decade campaign to get Nord Stream 2 authorized so it could run the pipeline, and it would be unprecedented for Gazprom to surrender it.

A further problem is that in response to the prospect of Nord Stream 2 restarting, the EU could seek to deauthorize Nord Stream 1, which was authorized under an older assessment regime which did not include the supply security test. As both Nord Stream 1 pipelines are ruptured and have not been repaired in over two years, the European Commission could propose amending legislation to the 2024 Gas Directive which could provide that any significant and lengthy rupture to a major piece of gas infrastructure would require the application of the supply security test.

Adopting such legislation would potentially strengthen US investors’ hands with Gazprom. It would mean the only way that Russian gas could flow through the pipelines would be if they were sold. However, Gazprom would probably be even more reluctant to surrender all of its pipelines to outside hands. Taking that position, however, would mean that Nord Stream 1 could never be revived.

The damages barrier

Perhaps the most formidable barrier to US investment in the Nord Stream pipelines is the fact that Gazprom would have difficulty selling its gas in the European Union, stemming from its behavior during the 2021–2022 energy crisis.

From spring 2021—presumably as a means to weaken Europeans’ resolve to assist Ukraine once the full-scale invasion got underway—Gazprom progressively cut gas flows to the EU. This started with a failure to respond to demand for more gas on the European spot market as COVID restrictions lifted. Then, Gazprom did not fill its own European-based gas storages and indeed drew from them as the winter heating season began. By early winter 2021–22, some of Gazprom’s EU storages were as little as 5 percent full.

Following the invasion in February 2022, Moscow went much further. In March, the Kremlin issued a presidential decree requiring all of Gazprom’s long-term customers to pay in rubles rather than in euros or dollars as per their contracts. Because it was difficult to be sure that payments would be cleared, many customers refused to pay in rubles. By May, Gazprom began systematically cutting off its long-term customers, starting with Poland in May and finishing with Italy in October. Over the summer, Gazprom progressively cut gas flows via Nord Stream 1, reducing supplies even for those continuing customers it was nominally still supplying.

This led to at least twenty long-term customers suing Gazprom. As these arbitration proceedings are private, it is not possible to know how many cases there are or the scale of their claims. However, it is known that Germany’s Uniper has been awarded €13 billion by the Stockholm Court of Arbitration, and that Austria’s OMV is pursuing several claims and has so far received awards amounting to €330 million. In addition, Poland’s Orlen has said publicly it has a claim outstanding for €1.45 billion.

The problem for Gazprom is that such awards create a major barrier to returning to the EU market. Gazprom will face seizures of its gas as it enters the EU market or more likely its customers payments will be seized to satisfy outstanding arbitration awards such as that handed down to Uniper.

However, it is not only the long-term customers of Gazprom who have claims. Gazprom was the dominant gas supplier in most of Central and Eastern Europe and parts of Western Europe. Given that refusal to supply is an antitrust abuse of dominance under EU law, and indirect purchasers (including energy-intensive industrial users) as well as consumers are able to bring claims, the potential scale of damages against Gazprom may be enormous.

With its long-term customers, Gazprom could potentially offer very cheap gas as a means of compensation. It could adopt a divide-and-conquer strategy by doing similar low-price compensation deals with high-volume users while seeking to contest consumer cases. The question remains however, as to whether the scale of compensation that Gazprom may have to pay undermines the economic case for entry to the EU market—and thereby the economic case for US investors to acquire one, two or all of the Nord Stream pipelines.

Chinese tariffs and US LNG interests

With the imposition of Chinese tariffs on US LNG, US gas shipments are already being redirected toward the European market. If the current tariff regime is sustained, then US producers will want to maximize access to alternative markets. This then raises the question as to whether the US government would be willing to support any Russian gas flows returning to the EU.

Potentially, Chinese tariffs may give Beijing greater incentive to finally consent to a version of the Power of Siberia 2 pipeline, which would, for the first time, bring natural gas from the Western Siberian gas fields—the main supply fields for the EU—to China.

If this ends up being the case, one can see the potential reshaping of global gas markets. Russia would increase its gas flows to China, while the United States—via long-term LNG contracts—would supply the EU market. In such a world there would only be a limited role—if any—for the Nord Stream pipelines. Given the formidable obstacles, restarting Nord Stream may simply be one pipe dream too far.

Alan Riley is a non-resident senior fellow at the Atlantic Council Global Energy Center and a Professor at the College of Europe, Natolin.

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If Russian gas returns to Europe, it must go through Ukraine

Sergiy Makogon — Mon, 28 Apr 2025 13:25:23 +0000

The possibility of resuming Russian gas supplies to Europe as part of a cease-fire agreement in Ukraine is being actively discussed. Technically, this would be feasible—Ukraine’s gas transmission system is still capable of transiting up to 100 billion cubic meters (bcm) per year of Russian gas to Europe.

Nearly three months of zero gas flows have shown that Europe can manage without the volumes of Russian gas that previously transited Ukraine—only 15 bcm in 2024, compared to 84 bcm in 2019. Nevertheless, rumors of possible restoration of Russian gas deliveries to the European Union (EU)—either via Nord Stream or through Ukraine—continue to circulate in the press. Resuming this trade could be a potential Russian condition for halting hostilities as Russia desperately needs gas export revenues. If that is the case, resumed flows might be a necessary step to create peace. But they must be routed through Ukraine and under conditions that will ensure energy security and full transparency.

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Russia is extremely interested in resuming supplies to the premium European gas market. Since 2021, Russia has lost more than 100 bcm per year of gas exports to Europe, undermining Gazprom’s financial stability. Desperate attempts by Gazprom to redirect exports to Central Asia and China have not brought significant financial returns, as prices there are two-and-a-half times lower than European prices. Moreover, pipeline export capacity to those markets is very limited. Russia’s direct pipeline export capacity to China currently stands at 38 bcm per year via Power of Siberia. This infrastructure is not connected to the large gas fields historically used to supply European markets. Additionally, Russia’s ability to export liquefied natural gas (LNG) faces significant constraints due to US sanctions. To cushion the loss of the European market, the Russian government has been forced to raise domestic prices, an unusual and very unpopular move in the country.

Additionally, the Kremlin is eager to maintain its political influence over Europe, including through export revenues. Hungary and Slovakia are clear examples of how this influence manifests—both nations have repeatedly opposed or diluted EU sanctions against Russia and blocked critical financial and military support for Ukraine.

The Russian government and several members of the German far right regularly raise the issue of resuming Russian gas supplies to Germany via the surviving branch of the Nord Stream 2 pipeline, which has a capacity of 27.5 bcm per year. However, German authorities categorically rule out the possibility of such a resumption. Other Northern European countries, as well as Poland and the Baltic states, also strongly oppose restoring transit through Nord Stream, fearing increased militarization of the Baltic Sea and the potential reversion to EU dependence on Russian gas. Resuming transit through Poland is also unlikely, for both political and technical reasons, as the Yamal–Europe pipeline has now been almost fully integrated into Poland’s domestic gas system and can no longer handle flows from Russia.

This leaves Ukraine as the most feasible route for resuming Russian gas deliveries to Europe.

EU officials and most member states officially do not support the idea of resuming gas transit through Ukraine. However, the EU has not imposed sanctions on Russian pipeline gas or LNG, allowing Russia to retain a significant market share in Europe. The European Commission continues to reaffirm its commitment to phasing out Russian gas completely by 2027, and this month plans to present a detailed roadmap for this process.

Unfortunately, the European Commission has been unable to fully ban Russian gas imports. Combined pipeline and LNG imports from Russia accounted for less than 19 percent of total EU gas inflows in 2024. However, there may be concern that a complete ban could significantly impact gas prices in Europe. Given that the Commission has outlined a plan—not a binding commitment—to fully phase out Russian gas by 2027, it might opt to delay sanctions on Russian gas until then in exchange for peace. The anticipated influx of new LNG volumes from the United States, Canada, and Qatar between 2026–28 could mitigate EU concerns about price volatility during this transitional period.

The position of the United States will be determinative. On one hand, the Trump administration consistently demands that EU countries increase purchases of US LNG and may not welcome significant increases in Russian gas imports to Europe. However, for the sake of a peace deal, Trump may agree to limited imports of up to 15 bcm annually—a volume that flowed via Ukraine in 2024 and would have only a minor impact on US exports to Europe.

As for Ukraine, estimated annual revenues of $400–600 million from Russian gas transit are a miniscule contribution to the economy. Therefore, the question of resuming transit should be considered in a broader context of cease-fire agreements and establishing long-term peace. Continued transit of Russian oil and renewed gas transit through Ukraine could allow Russia to earn up to $12 billion annually. Accordingly, Ukraine is entitled to expect not only transit fees of around $200 million for oil and an estimated $400–600 million for gas, but also significant additional concessions from Russia.

These concessions should include Ukrainian control over the Zaporizhzhia nuclear power plant, which can produce 6 gigawatts of electricity annually, but was occupied by Russia in 2022. This would help balance Ukraine’s power system, large parts of which have been destroyed by Russian missile and drone attacks, and eliminate the need to import electricity from the EU. It is worth noting that Russian control over the plant has little economic sense, as Russia cannot restart the plant without restoring the Kakhovka Reservoir, which is unlikely without Ukrainian cooperation.

Additionally, Ukraine has the right to demand 15–20 percent of Russian oil and gas exports—either in monetary terms or in kind—as a transit tax. These funds should go into a special fund for the restoration of Ukraine’s energy production, which has been destroyed by Russian attacks. The proposed percentage is reasonable, given the existing discounts on Russian oil and gas which, as sanctions are lifted, should disappear.

In order to limit Kremlin’s influence on the European gas market and on political processes within Europe, the EU should place red lines on its reengagement with Russian energy.

First, import volumes of Russian gas should be capped, both for the entire EU and for individual member states, to prevent any renewed dependency on Russian energy supplies.

Second, gas purchases should be carried out collectively through the AggregateEU initiative, with the delivery point for European buyers located at the Russia–Ukraine border. This would eliminate Gazprom’s ability to offer politically motivated pricing to more loyal countries and energy companies.

Finally, the EU and Ukraine should create an international consortium to manage Ukraine’s gas transmission system. This idea was explored in 2018, and its revival could increase European traders’ confidence in transit reliability through Ukraine.

Conclusion

If a cease-fire necessitates resuming Russian gas flows to Europe, it must flow via Ukraine and be conditional on key concessions from Russia. These must include safeguards to ensure that the EU does not become dependent on Russian gas again and that Moscow can no longer use gas as political leverage. Ukraine should also regain control over vital energy assets like the Zaporizhzhia nuclear plant and secure a substantial transit tax for reconstruction of its energy infrastructure. Policymakers in Kyiv, Brussels, and Washington must remain resolute in demanding these terms to ensure any peace agreement reinforces, rather than undermines, regional stability and energy security.

Sergiy Makogon is a non-resident senior fellow at the Center for European Policy Analysis and the former CEO of GasTSO of Ukraine (2019-2022).

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Illicit mineral supply chains fuel the DRC’s M23 insurgency

Clarkson Kamurai, Brad Handler, and Morgan Bazilian — Wed, 23 Apr 2025 19:46:26 +0000

The insurgency by M23 in the eastern Democratic Republic of the Congo (DRC) is the latest example of the damage that can be wrought by the illicit trade of mined materials. It also highlights the limitations of some developing economy governments to oversee mining, particularly when the deposits are easily accessible. As the United States considers a deal that would provide security to the DRC in exchange for access to its critical minerals, it is important to understand the level and nature of the commitment required to address the complex challenges related to critical mineral development in the country. Indeed, broader international engagement—from neighboring governments to commercial buyers—is likely needed to bolster the DRC’s capacity to manage its minerals.

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Conflict minerals and the M23 insurgency

The Great Lakes region of Africa, which straddles the DRC, Rwanda, Burundi, and Uganda, supplies 30 percent of the world’s coltan, a crucial mineral for high-end electronics. Other valuable minerals, such tin, tungsten, tantalite, and gold, are often mined alongside coltan in the region. Artisanal mining is common—while this provides livelihoods for many, it also gives rise to dangerous working conditions, child labor, and political conflict and instability.

Much of the region’s coltan is deemed a conflict mineral as mining areas are controlled by armed groups and organized crime. The DRC government lacks firm control of its territories, especially in the eastern provinces, and transportation infrastructure is underdeveloped. Because of these challenges, foreign companies often avoid direct mining in the DRC, instead purchasing minerals through middlemen.

The M23 rebel group, an ethnic Tutsi-led militia in the eastern DRC, is fighting the DRC national army and claims to protect Tutsi populations from Hutu militias. Its resurgence in 2022 is linked to frustrations over the government’s slow implementation of peace agreements and worsening security, although it is argued that M23 acts in service of Rwanda’s interests in the region’s minerals. The M23 insurgency is allegedly financed through the exploitation of coltan and other minerals, including reports that M23 fraudulently exported at least 150 metric tons of coltan (7-10 percent of DRC’s annual global supply) to Rwanda in 2024. Current estimates put this as high as 120 metric tons per month. The current involvement and role of Rwanda is evidenced by the presence of 4,000 Rwandan army personnel and heavy weaponry.

The ongoing insurgency has halted regular mining activities, leading to “command” mining in which rebels control operations. This is affecting production levels, worker safety, and regional investment. Conflict has placed all transport routes under rebel control, increasing costs and delays due to road closures and violence.

An important dynamic for global supply chains is that rebel groups like M23, along with other middlemen, foster the mixing of legal and illegal minerals. This effectively launders the illegally mined material, allowing its sale to parties that are mandated to buy ethically sourced product, such as US-based customers who must comply with the Dodd-Frank Act. These sales channel profits to armed groups while depriving the DRC of its rightful revenue. Rwanda is effectively complicit, as it does not charge taxes on mineral exports and allows imported goods to be reassigned as “Made in Rwanda” if they are transformed or processed within the country with a minimum 30 percent value addition.

DRC efforts to regain control

Amid the ongoing conflict in the eastern DRC, there is an intensified call for international accountability and economic reforms to address resource-driven violence. At the February 2025 United Nations (UN) Human Rights Council session, the International Chamber of Commerce and Development urged the UN to enhance transparency in raw material transfers from Rwanda to combat mineral exploitation crimes. Enhanced oversight, it argued, would hold resource looters accountable.

Additionally, at the Munich Security Conference, the DRC accused Rwanda of destabilizing the region to exploit its minerals and proposed measures to encourage legitimate investments and transparent contracts while urging the international community to facilitate peace.

The DRC, meanwhile, has classified certain mining sites in North and South Kivu provinces as “red” zones, halting mineral trading in these areas. The country is orchestrating legal and regulatory efforts, including installing ore tracking mechanisms to combat the illegal mineral trade, disrupt conflict financing, and align mining practices with international standards. The red zone classification is intended to last six months and includes independent audits to ensure responsible sourcing.

On the diplomatic and military front, a quid pro quo of mineral rights for security cooperation seems to be developing whereby the DRC is courting Western governments’ security assistance to thwart the Rwanda-backed incursion. Much of the international community is also demanding stricter standards for purchasing minerals ostensibly mined and processed in Rwanda. The DRC will need international support to implement measures for strict oversight of the region and, more fundamentally, addressing the sources of instability that fuel the conflict. On a positive note, in late March, a Qatar-brokered peace summit resulted in commitments by the leaders of the DRC and Rwanda to cease hostilities.

Next steps

Achieving lasting peace in the eastern DRC requires addressing the root causes of conflict, including ethnic tensions, political instability, and competition for mineral resources. It will not come quickly.

The DRC needs sustained dialogue with rebel groups and neighboring countries to reach a peace agreement and foster reconciliation among ethnic groups. It also needs to improve the capacity and legitimacy of institutions to manage resources, provide security, combat corruption, and enhance transparency.

Meanwhile, mineral buyers and the international community can help the DRC by enforcing ethical sourcing that follows regulations like the Dodd-Frank Act and OECD guidelines, supporting peace initiatives with diplomatic and financial aid, and providing humanitarian assistance to support displaced populations, rebuild communities, and enforce human rights laws.

The M23 insurgency is yet another reminder that the international community must support resource-rich countries in building the capacity to formalize mining and adhere to recognized principles for working and living conditions. The United States’ and others’ overtures to help provide security may be a good first step, but it only sets a foundation for much more work to be done.

Clarkson Kamurai is the critical minerals program manager at the Payne Institute and a PhD researcher in the minerals and energy economics program at the Colorado School of Mines. Kamurai has engineering experience in base and precious metal mining in sub-Saharan Africa and South America.

Brad Handler is the program director for the Payne Institute for Public Policy’s Energy Finance Lab. Previously, he was an equity research analyst in the oil and gas sector at investment banks including Credit Suisse and Jefferies.

Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines and a former lead energy specialist at the World Bank.

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Central Asia’s geography inhibits a US critical minerals partnership

Haley Nelson and Natalia Storz — Tue, 15 Apr 2025 17:14:58 +0000

Recognizing the national security risks posed by China’s chokehold over critical mineral supply chains, the new Trump administration has issued an executive order that aims to increase domestic production. This and previous administrations have also courted alternative critical mineral suppliers to diversify US supply chains. Now, attention is also shifting to the five countries of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan)—a resource-rich region with a wealth of minerals necessary for energy and defense technologies.

Through the C5+1 Critical Minerals Dialogue, the Group of Seven’s (G7’s) Partnership for Global Infrastructure and Investment (PGII), and bilateral memoranda of understanding signed with the region, the United States has begun to explore Central Asia’s untapped critical mineral wealth. However, the political ambition has not necessarily reflected the logistical difficulties inherent in Central Asia-originated supply chains.

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Central Asia’s untapped potential

Much has been written on Central Asia’s position as a “new frontier” in the global contest for critical minerals. The region has a wealth of lithium, copper, aluminum and uranium, although some reserves require further exploration as existing data was collected during the Soviet era.

But just because the region has critical minerals, does not mean the United States can easily access them. Taking a closer look at the region, infrastructure, governance, topography, and geopolitical complexities presents numerous challenges for US companies to navigate.

Regional energy grids are not well equipped to handle expanded mineral production. Mining is highly energy intensive, accounting for 69 percent of Kazakhstan’s industrial energy use. Central Asia’s power system already struggles to balance generation and distribution, suffering high transmission losses and frequent blackouts. To improve the grid and ensure that reliable power is supplied to mines and enrichment facilities, modern power plants and upgraded high-voltage transmission lines are needed, which would cost an estimated $25–49 billion.

Subpar resource governance is also impeding Central Asia’s mineral potential. The region is home to inconsistent tax regimes, lacks government transparency, and has a history of nationalizing or renegotiating contracts with foreign companies. Stronger regulatory protections are needed to ensure investor confidence.

Beyond these challenges, newcomers to this frontier market face deeply entrenched Chinese and Russian influence in regional supply chains. Soviet-era pipelines, highways, and railways initially pulled trade northward after the collapse of the Soviet Union. But, since 2013, China’s Belt and Road Initiative (BRI) has reoriented trade eastward through infrastructure projects like the China-Kyrgyzstan-Uzbekistan railway. Through partnerships with regional transit operators like Kazakhstan Railways (KTZ), and investments in locomotive production and Caspian ports, Beijing has bought out regional transit infrastructure and skewed the investment bidding process. US businesses may face challenges in securing contracts in a region where critical infrastructure is controlled by Chinese and Russian entities.

In the critical mineral sector, China holds the majority of mining permits in Kyrgyzstan and Tajikistan, Russia has monopolized regional uranium enrichment, and several Central Asian mining companies have been sanctioned by the United States for their close relationships with Russia. These geopolitical and regulatory barriers not only limit Western access to critical mineral resources, but also reinforce China and Russia’s control over the region’s strategic industries.

Moreover, the primary bottleneck in the critical minerals supply chain is processing, not mining. While Kazakhstan can refine copper, zinc, and lead, the region lacks processing capacity for energy minerals like lithium, uranium, nickel, and cobalt. Most of these raw metals end up in China or Russia for further enrichment.

Promises and pitfalls of the Middle Corridor

For Central Asia’s critical minerals to reach Western markets at scale, new export routes must be established; energy infrastructure issues must be addressed; mineral survey maps must be modernized; and local enrichment facilities must be developed.

Raw minerals can be shipped to processors in the West, but westward routes are largely underdeveloped. Because the region is surrounded by sanctioned and adversarial states—Afghanistan, China, Iran, and Russia—the Middle Corridor, a multimodal transport route that links Central Asia to Europe via the Caspian Sea and South Caucasus, is the only way to ensure secure, sanction-free export. However, due to regional infrastructure inefficiencies, checkered contractual practices, and rapidly developing environmental issues, Western investors have been slow to develop the route’s capacity.

Infrastructure issues have kept the route’s container capacity low, the shipping times unpredictable, delays frequent, and prices volatile. Caspian ports are restrained by low vessel capacity; there are significant, time-consuming “break-of-gauge” issues across Central Asian railways; and unaligned tariff regimes, cargo regulations, and customs procedures impede the flow of goods across borders.

While climate-driven water loss could see the Caspian’s shoreline lower by 21 meters by 2100, port capacity is expected to shrink further, and ports could be pushed back at least one kilometer from the shoreline, necessitating major redevelopment and causing billions of dollars in economic losses. Rising temperatures and the construction of dams along Russia’s Volga River, the Caspian’s main source of water, have seen the average sea level drop to its lowest point in 400 years, reducing cargo ship capacity by 20 percent. In the northeast Caspian, where waters are shallowest, ships leave ports before they are fully loaded to reduce ship depth. If waters decline further, northeast Caspian ports will likely be unusable. Desalination projects have been implemented by Kazakhstan, Azerbaijan, and Turkmenistan to slow the declining water levels of the Caspian. However, the energy-intensive desalination process has unintended negative impacts on marine life and water quality, and its ability to slow declining water levels has been highly debated. Therefore, the region needs investment in new forms of water-saving technologies, like atmospheric water harvesting, in order to prevent shrinkage that will eliminate the feasibility of the Middle Corridor.

Can this frontier be tamed?

In its current state, the Middle Corridor is incapable of accommodating the United States’ critical mineral needs. Its limited capacity and higher-than-average transit costs would offer little strategic benefit to US businesses while exposing investors to significant financial and geopolitical risks.

For investors to see the benefits of Central Asian critical mineral mining, improved transit routes are necessary; some studies have estimated €18.5 billion is required to ensure commercial viability. Transport costs remain high, delays create logistical uncertainty, and limited domestic processing forces reliance on neighboring markets. Without addressing these bottlenecks, the region’s potential as a critical mineral hub will remain constrained.

Unified tariffs and cargo regulations and the digitalization of regional transit could help to reduce delays along the Middle Corridor, helping to set the groundwork for additional infrastructure investments. Kazakhstan, Azerbaijan, and Georgia have already begun working towards a unified customs system after signing a trilateral union in 2023 to establish a jointly owned logistics company. However, with China Railway Container Transport Corporation (CRTC) joining the joint venture at the end of 2024, the corridor is beginning to look like another BRI project.

China’s formal involvement in the Middle Corridor Multimodal Joint Venture, its agreement with Kazakhstan to construct the Tacheng-Ayagoz railway line, and China’s construction and management of Georgia’s Anaklia deep-sea port underscore the importance of this route for China. Any increase in the route’s capacity will help increase the capacity of China’s westward exports. Investing billions into the westward export of Central Asia’s critical minerals will benefit Chinese transit and open more opportunities for the dumping of Chinese goods into Western markets.

Although the United States strategically benefits from engaging with Central Asia and offering an alternative partner, investing billions of dollars into regional transit routes may lead to negative unintended consequences. Not only does the route require massive infrastructure investments and significant regulatory improvements to benefit Western markets, but from a US national security perspective, investments will undoubtedly encourage westward Chinese transit.

The reality of a US-Central Asia critical mineral partnership

Quickly securing critical mineral partnerships is vital to US efforts to reduce dependence on China. However, the United States should be wary of unrealistic expectations for what Central Asia can provide. Regional infrastructure development is incomparable to any other region in the world. Central Asia is uniquely burdened by its encirclement between US-sanctioned countries. In the short and medium term, low export capacity, high transit costs, geopolitical volatility, and a high-risk investment environment significantly reduce the region’s commercial viability.

The United States should choose its battles wisely. Political will is not enough to move billions of dollars’ worth of minerals across oceans. Infrastructural, logistical, environmental, and legal complexities should guide decision-making. With the time-sensitive nature of US critical mineral needs, efforts should start closer to home with US-allied countries with established mineral export industries, like Canada or Chile. US supply chain efforts need to be driven by capacity, reliability, and economic viability, rather than political pipe dreams.

Haley Nelson is assistant director at the Atlantic Council Global Energy Center.

Natalia Storz is program assistant at the Atlantic Council Global Energy Center.

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Profitability and power: Fixing US critical minerals supply chains

Ashley Zumwalt-Forbes — Thu, 03 Apr 2025 17:00:14 +0000

The United States is not losing the global race for critical minerals because of a lack of resources—it is losing because it lacks a financial model that ensures profitability. Despite bipartisan recognition of the strategic importance of these materials, US policies have failed to make this industry economically viable.

Without a clear pathway to sustainable profits, taxpayer and private sector investments risk becoming financial sinkholes. If the United States wants to secure a resilient supply chain, it must create a financial framework that attracts and retains capital.

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The economics of critical minerals

A functional critical minerals supply chain requires three key stages: mining, midstream processing, and downstream manufacturing. China dominates all three, not because it has better resources, but because it has a better economic strategy.

Through state-backed subsidies, China shields its companies from market forces, allowing them to endure losses in pursuit of long-term control. Meanwhile, the United States expects each player—miners, processors, and manufacturers—to be independently profitable, creating higher costs, greater risk, and systemic fragility. If one link in the chain collapses, the entire system fails.

This fractured approach discourages private investment. Unlike large, transparent markets such as oil or copper, critical minerals markets are relatively small, opaque, and highly volatile. Many key minerals trade on spot markets dominated by China, which can manipulate prices at will. If China wants to eliminate competition, it simply floods the market, driving prices down and making Western projects financially unviable.

To break free from this cycle, the United States must focus not just on developing mines, but on ensuring that the entire supply chain is profitable and attractive to investors.

A market-based strategy to compete with China

The United States has the strongest capital markets in the world. Rather than defaulting to top-down industrial planning, Washington should treat private capital as a strategic asset. With the right risk-adjusted incentives, US capital markets can outcompete China’s state-directed model. To do so, the United States should focus on four pillars: targeted supply chain construction, pricing power, investment risk reduction, and policy stability.

1. Stand up integrated supply chains through strategic funds

To accelerate development, the United States should launch government-backed, private-sector-managed funds focused on building single, vertically integrated supply chains (for example, a supply chain for antimony or gallium). These funds should be designed with strict performance conditions: they receive incentives only if they successfully stand up an end-to-end supply chain. This structure ensures quasi-vertical integration and forces offtake agreements to be part of the business model from the outset.

2. Build pricing power by raising domestic commodity prices for sensitive materials

To reduce vulnerability to China’s market manipulation, the United States must break away from artificially depressed price structures. This can be achieved through two levers: (a) targeted tariffs on mineral imports that benefit from unfair subsidies and (b) tighter domestic sourcing requirements across clean energy and defense sectors. By raising the floor on US commodity prices, these policies would insulate domestic producers and make long-term investments more financially viable.

3. Reduce investment risk via demand guarantees and price floors

Price volatility and uncertain offtake remain top deterrents to private investment. The United States should implement mechanisms to stabilize both. This could include government-backed trading houses or public-private stockpiles that establish price floors for particularly vulnerable minerals. Long-term offtake agreements, brokered through private-sector consortia, would provide stable revenue streams that investors need.

4. Ensure long-term policy certainty

The most important determinant of private investment is confidence in the rules of the game. Critical minerals development is a multi-decade endeavor. If the United States wants capital markets to play a leading role, it must offer long-term policy stability. That means preserving existing tax credits, grants, and loan programs—not just as temporary stimulus but as enduring pillars of the investment environment.

Building a market, not a monopoly

China has not just secured mineral resources—it has built a financial system that allows it to manipulate markets and suppress competition. The United States must construct an alternative, leveraging free enterprise and innovation as strengths. Identifying deposits and opening mines, though critical, is not enough. Without a financial strategy that ensures profitability, the United States will remain dependent on China for the materials that power its economy and national security.

It’s time to stop treating critical minerals as just a resource problem—and start treating them as the economic battle they truly are. The solution lies not in more short-term government intervention, but in structuring a market that incentivizes investment, ensures financial viability, and ultimately secures the United States’ position as a leader in the critical minerals race.

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The future of global energy policy is abundance

Charles Hendry — Mon, 31 Mar 2025 17:19:28 +0000

After years in which the United States and Europe have been aligned in their energy policies, we are now seeing a divergence between two approaches that appear hard to reconcile.

To paraphrase US Energy Secretary Chris Wright, energy policy should be about enriching people, not making them poorer. With some of the largest gas resources in the world, the United States has shifted fundamentally to an approach which prioritizes low costs and economic growth over decarbonization.

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This pivot is having consequences around the world. European—and especially British—energy prices are now a multiple of those in the United States. The risk to Europe is that major energy users will move away from the continent if those price differentials cannot be narrowed.

But while the US narrative is that cheap energy delivers security, in the United Kingdom (UK), the government insists that decarbonized energy delivers security. Britain is still seeing the consequences of the enormous price spikes following Russia’s full-scale invasion of Ukraine. The argument is that had the UK been less reliant on gas, the price increases would have been less dramatic.

While it seems that these two approaches at loggerheads, they are in fact possible to reconcile.

For years, many have spoken about the energy trilemma: the balance between security, affordability, and sustainability. It’s time to reframe that debate—and focus instead on energy abundance.

A decade ago, when the American shale revolution was beginning, the sheer enormity of gas production, combined with an inability at that time to export significant quantities, brought prices crashing down for US businesses and consumers.

Similarly, the global rollout of solar power has enabled the cost to be brought down to under 1 percent of what it was just a few years ago.

Abundance enables costs to come down. Abundance offers energy security. And abundance helps make space to decarbonize without penalizing consumers.

Different countries are abundant in different fuel stocks or technologies, so each country needs to play to its strengths. Consumers are best served by harnessing the resources which are most abundant and most affordable, rather than endlessly pursuing costlier resources just because they happen to be around.

The United States would understandably focus on gas, but that does not mean that all countries should do so. If a country lacks significant gas resources of its own, it is foolhardy to build an energy policy that relies on imported gas, especially from a single source, as the Ukraine war has so clearly shown Europe. To paraphrase Winston Churchill, security comes from diversity, and diversity alone.

Therefore, the UK and Europe need to look at where they have the most abundant resources and allow the genius of innovators and industry to work to drive those costs down.

For the UK, that could be offshore wind, where prices have dropped by two thirds in a decade. It also makes sense to continue to use Britain’s North Sea gas resources for as long as possible, as the original investment costs have long since been recovered. While the North Sea basin is in long-term decline, the rate of decline can be reduced with sensible, pro-business policies. The UK should then be applying carbon capture technology when the gas plants are run as baseload rather than as peaking plants, which operate for only a small number of hours per year.

In sunnier countries, solar is the answer. Nuclear, too, can provide energy abundance, especially if next-generation small and advanced modular reactors (SMRs and AMRs) are developed in sufficient quantities to deliver real economies of scale. Each country needs to chart it owns course, based on the resources and skills available to it.

The first element of energy policy should be to develop abundant and affordable resources. Where that is not be sufficient to meet demand at all times (as abundance is not necessarily the same as self-sufficiency) then the policy should be to secure alternatives in the most affordable way. Interconnection can bring cheap electricity from many hundreds of miles away. Imported gas—from reliable partners and backed by sufficient levels of domestic storage—provides resilience when the wind is not blowing and the sun is not shining. And as the cost of batteries continues to fall, they can provide short-term reserves at grid scale.

Policymakers’ rhetoric suggests a large gulf between the approaches in the United States and Europe. But just as there is no one-size-fits-all approach to every country’s needs, policy approaches must reflect the unique circumstances of individual countries.

Faced with the imperative to keep costs down, governments need to be wary about open-ended commitments to provide subsidies. In the UK, the contract for difference model provides price guarantees to enable large energy infrastructure to be built. But unlike a subsidy, when the wholesale price of electricity rises, the support drops away and even becomes negative. If subsidies are used, then there must be a clear degression from the outset to make sure that they are a mechanism for driving costs down rather than keeping them artificially high.

The cooperative optimism displayed at COP26 and COP28 is long gone. The response should be to rethink how to deliver the energy security the world needs in the most affordable way. The principle of abundance should be at the heart of it. Abundance enables countries with dramatically different supply and demand conditions to find common cause. There is security in diversity—and diversity alone.

Charles Hendry is a distinguished fellow of the Atlantic Council Global Energy Center and a former UK minister of state for energy.

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Nord Stream could divide Europe yet again

Michał Kurtyka — Fri, 28 Mar 2025 16:39:35 +0000

A reset between Washington and Moscow could revive an albatross to European unity. As President Donald Trump tries to secure peace in Ukraine, reports have emerged that negotiations are taking place to open the Nord Stream 2 pipeline with the backing of US investors. The subsea pipeline was suspended by the German government on the eve of Russia’s full-scale invasion of Ukraine before it had delivered a single molecule of gas.

It’s an open question whether the United States, whose natural gas producers now rely on European liquefied natural gas (LNG) sales to boost profits and support investments, would ultimately cede that market—and the political influence that comes with it—to Russian pipeline exports. Perhaps Washington will concede its newfound dominance in Europe’s energy system as a cost of attaining peace in Ukraine—and extricating itself from the continent to focus on the Indo-Pacific theater.

But for Europe, allowing Russia back into its gas market through Nord Stream would be a costly mistake. It would furnish the Russian war machine with an additional $5 billion, open the temptation for German manufacturers to extract a 1.5 percent competitive advantage over other Europeans, and leave 100 million Europeans in geopolitical limbo.

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No reason for Nord Stream nostalgia

There is an obvious temptation for Europe to try to return to the seemingly halcyon world before COVID-19 and war in Ukraine. Elevated gas prices have threatened the continent’s long-term industrial competitiveness. In 2023—after the price spikes of 2022 subsided—industrial gas prices remained a whopping four-and-a-half times higher than in the United States. The European average in 2019, by contrast, was a modest 70 percent higher than US prices.

But Europeans should not view the pre-war status quo through rose-colored glasses. Europe was vulnerable to supply shutoffs, such as happened during Russo-Ukrainian disputes in 2006 and 2009. And supposedly cheap Russian gas proved to be very expensive in the end—mitigating the energy crisis cost Europe a historic price of nearly €700 billion just by mid 2023, on top of nearly €250 million in aid to Ukraine by 2025. All in all, the cost of dependence amounted to more than €1 trillion.

Europe can neither forget the lessons learned from Russia’s weaponization of gas supply in the lead up to and during the war; nor can it ignore the new geopolitical realities that define its relationship with Russia.

Paying off the arsonist

First, if Europe were to restore Russian pipeline imports, that would greatly increase cash flow to Gazprom. Currently, Russia is selling gas mostly to China, supplying the country with 30 billion cubic meters (bcm) of gas in 2024 and aiming to hit 38 bcm in 2025 with the opening of a new eastern pipeline. But those volumes pale in comparison to the record 179 bcm shipped by pipeline to Europe in 2019. Even the amount of gas exported via the now-destroyed Nord Stream 1 alone—which had the same nameplate capacity as its successor—totaled 58.5 bcm in 2019, far more than total Russian pipeline and LNG shipments to China in 2024.

Chinese buyers can’t make up for the loss of European markets. There exists no infrastructure to bring the gas from Russia’s massive European fields to Asian consumers. China has slow walked completion of the 50 bcm Power of Siberia 2 pipeline and appears to be hesitant about becoming too reliant on Russian gas. Losing the European market has severely hurt Gazprom, which posted a net loss of $12.9 billion in 2024—after seeing record profits of $29 billion in 2021.

This has profound implications for Russia’s ability to wage war in Ukraine—and elsewhere. If Gazprom were to attain an additional $15 billion from Nord Stream 2 sales—based on a pre-war estimate of the pipeline’s potential revenue generation—and another $15 billion from restarting the damaged Nord Stream 1 pipeline, one might assume that half would go to Russia’s state budget. Of that $15 billion, one third would go to the military, based on the proportion of Russia’s 2025 budget dedicated to defense. This would mean $5 billion more to Russia’s military, a 4 percent increase in the Russian war chest.

Distorting European competition

Moreover, making Germany the primary entry point for Russian gas into Europe would provide German industry with a temptation to take advantage over its neighbors, as was the case in the early 2000s, constantly threatening European unity at a trying time. A primary reason why other Western European countries had opposed Nord Stream 2 even before the war was fear that Germany monopolizing Russian gas flows would give it a competitive advantage over manufacturers in Italy and France.

Indeed, a 2012 investigation by the European Commission into Gazprom found that Russian gas was cheaper for Germany than it was for the average European country by at least 15 percent. Data released by Russian news agency Interfax in 2010 revealed that Gazprom was charging France 10 percent and Italy 25 percent more than Germany for gas. Further, the Commission found in 2018 that Gazprom had violated European Union (EU) antitrust rules to divide national markets, potentially allowing it to overcharge five Central European member states—countries which paid even more than France and Italy.

For the most energy-intensive sectors in Europe, energy can account for over 10 percent of manufacturing costs—so if German industry gets a 15 percent discount, the country gains up to 1.5 percent advantage in profitability over the European average.

A dagger at the heart of European unity

Last but not least, Nord Stream 2 would deliver Russian gas in a route that bypasses most of the Central European transit states, allowing Russia to leverage energy supplies to these countries separately from Western Europe and leaving 100 million Europeans in geopolitical limbo.

Whereas Moscow’s disputes with Kyiv in the 2000s over gas supply meant that cutting off Ukraine would cut off the rest of Europe, Nord Stream 2’s reopening would allow Russia to more effectively divide and conquer the continent. In a new era of full-scale war to readjudicate the political borders of Europe, this would leave substantial portions of the EUand NATO at the mercy of the Kremlin’s imperial whims.

Three numbers that should frighten Europe

Ultimately, regardless of how Washington decides to proceed on Nord Stream 2, Europe must take responsibility for its own decisions on whether to buy gas from the pipeline or not. In weighing that choice, it must remember three key numbers: $5 billion in additional money for the Russian military; 1.5 percent of additional profitability for German industry over its EU neighbors; and 100 million Europeans left vulnerable to renewed Russian aggression.

Michał Kurtyka is a distinguished fellow with the Atlantic Council Global Energy Center and was formerly Poland’s minister of energy, climate, and environment.

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Why now is the right time for ‘maximum pressure’ on Iran’s oil exports

Scott Modell — Thu, 13 Mar 2025 17:39:15 +0000

US President Donald Trump, now back in the Oval Office, has reinstated “maximum pressure” on Iran, and the economic campaign is inching toward the top of his foreign-policy agenda. Already, the administration has taken a slate of initial actions, which included new sanctions on Iran’s oil industry, seeing as Iran uses oil revenues to fund terrorist proxies abroad, repression at home, and a nuclear weapons program that could upend the region’s delicate balance of power.

The return of “maximum pressure” is coming at the right time. Iran’s economy is extremely vulnerable. The global oil market’s fundamentals are relatively soft, as strong global supply growth keeps pace with moderating oil demand growth, driving Brent crude futures below seventy dollars per barrel for the first time since September 2024. Furthermore, nearly all of Iran’s 1.6 million barrels per day (mb/d) of crude oil and condensate exports go to a single buyer, China. This means the conditions are ripe for dealing Tehran a crippling blow.

Removing most of those volumes from the market would come at a time of relatively high spare production capacity in Saudi Arabia and other members of the oil-producing group OPEC+. The estimated 5–6 mb/d of spare capacity (production held off the market due to output cuts) in these countries is more than enough to offset the loss of Iranian barrels. Moreover, the loss of billions of dollars in oil revenues, in addition to the Israeli military’s deterrence, would make it nearly impossible for Tehran to rebuild its smoldering Axis of Resistance and leaves the regime more vulnerable to internal dissent and international pressure.

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Current global oil market conditions provide a unique opportunity to escalate pressure on Iran without causing undue harm to consumers or US allies. First, strong production growth from the United States, Canada, Brazil, and other non-OPEC+ countries and tepid demand growth have loosened global oil markets, meaning that there are reduced risks for both US consumers and the administration. Expectations from forecasters such as the International Energy Agency continue to see the market in surplus this year. Saudi-led OPEC+ has been forced to cut supply multiple times since the beginning of 2023 to stabilize prices, and while the group announced it will proceed with its plan to return barrels to the market beginning in April, it reiterated that the “gradual increase may be paused or reversed subject to market conditions.”

As a result of the conservative production approach since 2023, OPEC+ has built up enough spare capacity to offset a sharp reduction in Iranian exports. While Washington may need to work with Riyadh to convince it to ramp up production more quickly than currently planned, the buffer can insulate consumers from potential price spikes, reducing political risks for the administration.

Second, removing Iranian barrels from the equation may help the United States avoid a harmful price collapse. Oversupply is not just a problem for Iran and other oil-producing countries—it also threatens US oil producers, which require moderately higher prices to sustain production growth and generate returns. A collapse in oil prices—as seen in 2014 and 2020—would disproportionately hurt US energy interests. By removing Iranian barrels from the market, the United States could help stabilize prices, protect its domestic oil industry, and weaken Iran all at once.

Third, Iran’s oil sector is dilapidated. Prior to the reimposition of oil sanctions in 2018, Iran’s crude oil production capacity was around 3.8 mb/d for decades. Over time, that number has fallen due to sanctions and underinvestment. In December 2024, Iran’s Ministry of Oil released a report on the status of the country’s oil sector, noting it would require three billion dollars of investment to recover the 0.4 mb/d of capacity it has lost since 2018. The ministry also admitted that if trends persist, production could decrease to 2.75 mb/d by 2028. At current rates, Iran may have to choose between meeting domestic demand and sustaining exports (and thus maintaining export revenues) as early as 2026.

Finally, disrupting Iran’s energy sector is not just about economics—it’s also about leveraging an effective tool to achieve broader strategic goals. An energy-focused maximum pressure campaign could heighten economic challenges for Iran, potentially amplifying domestic dissent. Tehran will have to divert resources from its destabilizing activities, such as its nuclear program and support for regional proxies, and make real concessions or risk further escalation.

Trump’s return to the presidency presents a historic opportunity to reset the United States’ approach to Iran. Oil markets are soft, and Iran is more vulnerable than it has been in decades. By turning off the taps, the United States can deliver a decisive blow to Iran’s ambitions and set the stage for a more stable and secure future.

Scott Modell is the chief executive officer of Rapidan Energy Group.

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The Mediterranean must work collectively to harness the power of renewables

Karim Elgendy — Tue, 11 Mar 2025 18:33:14 +0000

In September of 2024, nine northern Mediterranean countries (MED9) agreed to collaborate on making the region a renewable energy hub, aligning with the COP28 commitment to triple renewable energy capacity by 2030. This initiative gained particular significance last week when the EU Commission released its Clean Industrial Deal, reiterating Europe’s strong commitment to decarbonization despite the geopolitical backdrop, and underscoring the importance of regional partnerships in achieving these goals. While the MED9 pledge enjoys broad support across Europe and parts of the Middle East and North African (MENA) region, challenges such as geopolitical tensions, competing priorities, and financing constraints could affect the pace of implementation.

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Nonetheless, grassroots momentum could accelerate decarbonization throughout the Mediterranean basin. Increased renewable energy cooperation across the Mediterranean would not only help mitigate climate change, but it would also promise new economic opportunities, improved energy security, and enhanced regional ties.

To achieve the ambitious global goal of tripling renewable capacity, the Mediterranean region must overcome several challenges, including geopolitical tension and limited finance. But the target is eminently within reach if countries implement their existing renewable energy plans and increase their ambition while embracing the benefits of cross-border collaboration.

Common targets, divergent trajectories

Over the past decade, the region has significantly expanded its renewable energy portfolio, particularly in the east. As of 2022, installed renewable power capacity in Mediterranean countries was estimated at nearly 300,000 megawatts (MW), representing 43 percent of total generation capacity.

According to Climate Analytics, in order to align with the 1.5 degrees Celsius target set in the Paris Agreement, global renewable capacity needs to grow to 11.5 terawatts (TW) by 2030, 3.4 times higher than 2022 levels. For the Mediterranean to play its part, it would need to bring its capacity above 1 TW, 3.6 times 2022 levels. This would require annual growth of 97 gigawatts (GW)—adding the total generation capacity of Spain every year until 2030.

These goals are within reach if countries implement their current plans—and then some. The existing pipeline of solar, wind, and hydropower projects in the region, would nearly triple generation capacity to 780,000 MW. But this only brings the region 73 percent of the way toward the 1 TW goal.

Within the region, plans and aspirations vary widely. Last year, most Mediterranean countries signed the Global Renewables and Energy Efficiency Pledge, which aims to triple renewable energy capacity globally by 2030. Under existing plans, Greece, Egypt, Libya, Tunisia, Algeria, and Morocco would exceed three times their current renewables capacity, while others—including big consumers like France, Italy, Turkey, and Israel—would fall short.

Seizing the economic opportunity

The renewable energy transition presents distinct economic opportunities for both the northern and southern shores of the Mediterranean, reflecting their unique geographical, economic, and industrial contexts.

Solar photovoltaics (PV) and wind power are becoming increasingly competitive with fossil fuels. In Egypt for example, the cost of solar energy dropped to 2 cents per kilowatt hour, while wind power stands at 2.4 cents. Mediterranean countries can meet their domestic energy needs with clean, locally sourced energy, and potentially become net exporters using interconnectors such as the one between Tunisia and Italy. Investing in renewable projects creates real economic benefits—clean energy accounted for 10 percent of global economic growth in 2023. Scaling up renewable deployment has the potential to create 30 million new jobs globally by 2030, although 13 million jobs in fossil fuel-related industries could be lost.

The Mediterranean’s extensive coastlines offer significant potential for offshore wind development. This emerging sector could create thousands of jobs in manufacturing, installation, and maintenance, especially in the north. Northern Mediterranean countries can also invest in smart-grid technologies and energy management systems that would improve domestic energy efficiency and create exportable expertise for grid integration of renewables.

Additionally, the southern Mediterranean can capitalize on its high solar irradiance and vast deserts to develop large-scale solar and wind projects. Countries like Morocco, Egypt, and Algeria can serve domestic needs and potentially export clean energy to Europe through interconnectors, such as that connecting Morocco and Spain, and one being planned between Tunisia and Italy. Abundant solar and wind resources across North Africa are ideal for green hydrogen production, creating new export opportunities serving energy-hungry European markets.

Financing the energy transition

Countries across the Mediterranean can position themselves as green finance hubs, facilitating investments in renewable projects throughout the region rather than chase dwindling investments in fossil fuels. Countries with developed financial markets, like France and Italy in the north, can leverage their existing expertise and infrastructure to accelerate renewable energy deployment. In the south which has often struggled with attracting investments on favorable terms, emerging markets such as Egypt and Morocco can capitalize on their growing financial sectors and strategic positions to attract renewable energy investments.

Southern Mediterranean countries can use instruments like Sharia-aligned sukuk, also known as Islamic bonds, that emphasize environmental stewardship. The success of green sukuk issuances by entities like the Islamic Development Bank has already demonstrated the potential of this approach. Governments can also offer tax incentives and develop national sustainable finance strategies.

Despite not explicitly referring to the Mediterranean region, the EU’s Clean Industrial Deal could also provide some support and resources, particularly in financing through the Clean Trade and Investment Partnerships, and its plans to mobilize €100 billion for clean manufacturing, simplifying state aid for renewables, and addressing energy prices and financing.

Overcoming geopolitical faultlines

Ultimately, the region needs to come together to push toward a collective goal. But doing so requires overcoming complex geopolitical relationships, recent history shows that energy cooperation can persist even amid political tensions.

Despite the economic opportunities presented by renewable energy collaboration, the Mediterranean region faces significant geopolitical challenges. Historical tensions and ongoing disputes create a complex landscape for cooperation, including between Morocco and Algeria over Western Sahara, strained relations between Algeria and France rooted in colonial history, periodic tensions between Morocco and Spain over migration and border disputes, and between Turkey-Greece-Cyprus over territorial and maritime issues.

However, these challenges haven’t completely hindered collaboration. Algeria and Italy have maintained strong energy partnerships despite Libya’s instability. Similarly, Morocco and Spain have successfully operated the Morocco-Spain power interconnector since 1997, and have recently agreed to study collaboration on green hydrogen transport.

Tripling renewables is an unmatched opportunity

By embracing the goal of tripling renewable energy capacity by 2030, countries across the Mediterranean have the opportunity to unlock a host of economic benefits. Achieving this ambitious target will require concerted efforts and collaboration among all stakeholders. Governments must take the lead in creating enabling policy frameworks, investing in infrastructure, and fostering regional cooperation. The private sector must also step up to drive innovation, mobilize capital, and build robust supply chains.

The time to act is now, and the Mediterranean must embrace this transformative journey with a spirit of regional cooperation. By seizing the economic potential of renewable energy, the region can address the pressing challenges of energy and climate change while laying the foundation for a more sustainable and inclusive future.

Karim Elgendy is an Associate Fellow at Chatham House and at the Middle East Institute in Washington.

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The US can reduce Russia’s nuclear energy—and geopolitical—influence

Marina Lorenzini — Fri, 07 Mar 2025 17:31:23 +0000

As the second Donald Trump administration settles in, at least one energy priority will remain consistent: bipartisan efforts to position the US nuclear energy industry for a greater share in the global marketplace. In early February, Secretary Chris Wright emphasized Trump’s priority for the United States: to “lead the commercialization of affordable and abundant nuclear energy” amid surging global energy demand. This opportunity will lead not only to economic growth and improved energy security in the United States, but also the chance to reduce Russian influence on nuclear energy markets in Europe—and the geopolitical leverage it affords.

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For the past two decades, Russia has wielded its nuclear energy technologies—through its state-owned conglomerate Rosatom—as a strategic export to exert geopolitical leverage. Rosatom has been a dependable, cost-effective, and technically competent partner for stakeholders around the world, enabling its dominant market position.

Substantial up-front project finance and loans have contributed to Rosatom’s international success. Bangladesh, Belarus, Egypt, Hungary, and Turkey have benefitted from multibillion-dollar loans from Russia’s State Bank for Development and Foreign Economic Affairs (Vnesheconombank). State sponsorship allows Rosatom to offer favorable loan terms—such as a 3 percent interest rate—that competitors cannot match. Meanwhile, any analogous form of concessional loans for infrastructure projects has not been a part of the development strategy among Rosatom’s competitors.

However, some countries that previously embraced the vision of energy integration with Russia continue to shift investments away from Russian partners. Countries tied to Rosatom for their nuclear supplies are keen to diversify—if not extract themselves entirely—from energy dependence on Russia. Additionally, Vnesheconombank‘s SWIFT ban and US sanctions designation increases risks for loan recipients.

The United States—and allies with nuclear industries such as France and South Korea—could further convert the commercial interest for non-Russian products into strategic wins by focusing on countries with Soviet-era reactors. Countries and utilities often cite project finance as the primary barrier for building, but the new political momentum in the United States could galvanize both sufficient funds and new models across the public and private sectors.

Bulgaria seeks two new reactors at Soviet-era site

Bulgaria’s Kozloduy nuclear power plant operates two Soviet-era VVER-1000 reactors which supply one third of the country’s electricity. But in February 2024, Bulgaria signed an intergovernmental agreement with the United States to contribute to Bulgaria’s civil nuclear program, including the design, construction, and commissioning of two Westinghouse AP-1000 reactors at Kozloduy at a cost of $14 billion. Bulgaria’s energy minister said that the two reactors will be built entirely with public funds: either the Bulgarian treasury or the state plant owner will finance up to 30 percent of the project costs, and a loan will cover the remaining costs.

In early February, the Bulgarian energy minister met with officials from the US Export-Import Bank (EXIM) to advance a $8.6 billion (more than 60 percent of the estimated cost) letter of interest for the two new reactors. For the remaining amount, the Bulgarian treasury or Kozloduy’s owner has several options. Bulgaria may also have access to debt or equity financing from the world’s largest multilateral development lender, the European Investment Bank. Additionally, as the World Bank considers how to incorporate nuclear power into their offerings, any steps toward engagement would encourage other lenders to do the same. If further capital is required, Bulgaria—with its relatively healthy domestic economy—could issue dollar-denominated bonds to raise funds, or the Kozloduy owner could issue green bonds similar to Canada’s Bruce Power.

Bulgaria’s ability—and that of any potential lenders—to overcome financing hurdles will determine the success of such agreements. But if the agreement leads to new nuclear power generation, it bodes well for similar economies to undertake new reactor builds.

Soviet reactor reaches end of life in Armenia

Russia dominates Armenia’s energy system, but Armenian foreign policy has shifted dramatically away from Moscow in the past year, in part due to the lack of Russian military assistance to Armenia when Azerbaijan seized Nagorno-Karabakh.

The policy change will not immediately impact Armenia’s Soviet-era VVER-440 nuclear reactor at Metsamor, which has received several upgrades and lifetime extensions—the latest, with Rosatom’s support, will sustain the remaining operational reactor until 2036. However, preparations must be made in the coming years to: extend the operational lifetime (a highly unlikely outcome due to the reactor’s age); build new light-water reactors (whether from China, Russia, South Korea, or the United States); or invest in small modular reactors (SMRs). Armenia may seek to build an SMR rather than a traditional reactor due to limited financing options and low power consumption.

To build a new reactor, Armenia might want to follow Romania’s blended model for financing its SMR deal with NuScale. The EXIM and US International Development Finance Corporation offered Romania tentative financial support totaling $4 billion. Public and private partners then formed a coalition of stakeholders from Japan, South Korea, the United Arab Emirates, and the United States to finance the SMR project up to $275 million. If further capital is needed, private financial institutions have also recently announced their plans to support the nuclear industry. Whether and when construction begins for the reactor in Romania will demonstrate feasibility, but so far, the financial structure has shown promise.

A great nuclear power balance

In partnership with allies, the United States should advance financial and commercial solutions to help countries dependent on Russian nuclear energy diversify their domestic power programs. The United States is well positioned to do so. Trump, and Biden before him, have supported nuclear energy domestically, which, in turn, can result in the export of US technologies and expertise. Strong bipartisan appropriations from multiple administrations will reinforce Trump’s vision and the domestic nuclear energy industry. In 2019, during Trump’s first administration, the Nuclear Energy Innovation and Modernization Act became law, paving the way for a streamlined advanced reactor licensing process. Under the Biden administration, the multibillion-dollar appropriations from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act bolstered the US nuclear energy industry. Further, the 2023 Nuclear Fuel Security Act and the 2024 ADVANCE Act enjoyed bipartisan support on Capitol Hill.

Building on these domestic advances, Trump’s embrace of financial vehicles, such as the EXIM Bank or DFC, that bridge public and private sectors, will facilitate investments in multi-billion dollar infrastructure projects outside of the United States and bolster US energy-related exports, including from its domestic nuclear energy industry. These factors bode well for the United States to substantially weaken Russia’s share of global nuclear markets and its geopolitical influence.

Marina Lorenzini is the research program coordinator at the Middle East Initiative at the Belfer Center for Science and International Affairs at Harvard University’s John F. Kennedy School of Government.

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How shifting political leadership, war, and generative AI are shaping the energy outlook: Insights from the 2025 Global Energy Agenda

Landon Derentz, Christine Suh, Bailee Mathews — Thu, 06 Mar 2025 16:16:59 +0000

Amid conflict, electoral transformations, and the emergence of generative AI, the Atlantic Council launched its annual flagship report, the Global Energy Agenda, chronicling changes, challenges, and opportunities in the energy system through leadership perspectives and a survey of more than 1,000 energy professionals across more than 100 countries. Collectively, these views provide a valuable roadmap for building a more secure, sustainable, and resilient energy system.

Read the full report here.

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On balancing competing pressures

In recognition of the complexity of the energy system, rising energy demand, and that every energy source has tradeoffs, Rick Muncrief, who just retired as CEO of Devon Energy, sums up the realities facing the sector this way: “We cannot prioritize clean energy over reliability and affordability, we cannot pursue reliability and affordability at the expense of the environment, and we cannot develop energy policies and systems that do not account for geopolitical risks domestically and abroad.”

These geopolitical risks feature strongly in our survey results, with respondents citing conflict in the Middle East and Russia’s unjust war in Ukraine as the biggest concerns. These risks raised the alarm over the use of energy for geopolitical leverage and renewed determination among US business leaders and policymakers to ramp up innovation and manufacturing domestically.

What will be the biggest risk in energy geopolitics in the coming year?

On seeking common ground

But amid this competitive spirit, policymakers know that they cannot secure their respective energy systems alone. Dan Jørgensen, European Commissioner of energy and housing, identifies key areas, including supply chains, cybersecurity, liquefied natural gas, and nuclear energy, where US-EU partnership is critical for both to achieve energy security, writing: “In the face of challenges to come, it will be essential to find and reinforce our common connections, wherever they exist.”

On advancing the energy transition

Energy leaders also make clear in our Agenda that the momentum of the energy transition has taken on a life of its own. Andrés Rebolledo Smitmans, executive secretary of the Latin America Energy Organization (OLADE), notes that in Latin America and the Caribbean “the share of renewable energy in electricity generation increased from 53 percent to 68 percent in the past ten years, while greenhouse gas emissions were reduced by 26 percent.” Ramping up progress will “require investments in unprecedented volumes of materials, which must flow and materialize in relatively short periods.”

This unprecedented amount of investment is perhaps why, out of all sectors we surveyed, those who work in finance predict the longest runway for reaching net-zero emissions.

Median year estimated for achieving net zero (by sector and region/country)

However, progress toward advanced nuclear energy and greater regional cooperation will continue to move the world toward both decarbonization and development.

As Lassina Zerbo, chair of the Rwanda Atomic Energy Board, writes, “Nuclear energy—and in particular small modular and micro reactors (SMRs)—can revolutionize the African energy landscape and promote sustainable development.” In Southeast Asia, Kok Keong Puah, chief executive of Singapore’s Energy Market Authority, emphasizes that interconnections are key to regional decarbonization, but also that a “stable, prosperous, and decarbonized Southeast Asia will not only benefit the region but also strengthen global supply chains, promote economic growth, and contribute to climate stability.”

And one of the most intriguing advancements to watch in 2025 will be the promise of generative AI, which could lead to a game-changing acceleration toward net-zero targets. 

While acknowledging that energy demand for AI is currently growing, Josh Parker, senior director of corporate sustainability at Nvidia, writes, “AI is also proving to be a powerful tool for finding ways to save energy and may very well become the best tool we have for advancing sustainability worldwide.”

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Andrei Covatariu: The EU’s decarbonization goals are technically achievable—but are Europeans able to pay for them?

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Can the EU’s Clean Industrial Deal cut carbon and restore competitiveness?

Andrea Clabough, Andrei Covatariu, Elena Benaim, Carol Schaeffer — Thu, 27 Feb 2025 15:09:01 +0000

The European Commission has introduced the EU Clean Industrial Deal (CID) to align climate ambitions with industrial competitiveness. Building on previous EU energy policies like the REPowerEU Plan, CID focuses on ensuring affordable energy to consumers through streamlining market integration, harmonizing financial and regulatory frameworks, providing clean energy investment incentives, digitalizing the grid, and reducing permitting bottlenecks, and alleviating regulatory burdens on natural gas markets. By integrating industrial, economic, and trade policies, the deal aims to provide a predictable framework for innovation and investment in clean technologies.

However, as geopolitical pressures mount and Europe faces growing competition in global markets, questions remain over whether these measures will be implemented swiftly enough to prevent further industrial decline. Below, Atlantic Council experts share their analysis on the EU’s new industrial policy, its implications for European energy security, and how key partners may respond to the bloc’s evolving regulatory landscape.

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Andrea Clabough: Europe goes all in on industrial policy—with or without the US

Elena Benaim: The Clean Industrial Deal Needs a Clear Strategy on Clean Energy Supply Chains

Carol Schaeffer: The CID is more industrial than it is clean. But Europe needs to be both.

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The EU’s decarbonization goals are technically achievable—but are Europeans able to pay for them?

Listed first among the critical elements for a “thriving new European industrial ecosystem of growth and prosperity” is affordable energy, as Europe’s energy prices are significantly higher than those of its main trading competitors. For this reason, the Clean Industrial Deal strategy issued by the European Commission is accompanied by an additional, even lengthier document—the Action Plan for Affordable Energy—aimed at finding energy policy solutions to restore economic competitiveness while keeping the EU on track to meet its decarbonization goals.

To achieve this, the Clean Industrial Deal sets a target of a 32 percent electrification rate by 2030, representing a more than 50 percent increase compared to today (21.3 percent). While flexibility is seen as a major contributor to both increasing electrification and reducing system costs, achieving such a rapid electrification rate would require massive investments in power grids—otherwise a critical foundation for the energy transition process—within less than five years. Given that Europe has some of the highest lead times globally for deploying new distribution and transmission lines, fast-tracking permitting is cited as a necessary solution. Although these ambitious targets are technically achievable, ensuring affordability at the same time—as repeatedly emphasized in the Commission’s proposal—is simply aspirational.

While acknowledging that Europe has the most integrated grid globally, the Action Plan for Affordable Energy also recognizes the need for further progress. It proposes making electricity bills more affordable, including by reducing network charges. However, while these costs may be removed from final energy bills, they will still be indirectly paid by end users through domestic or EU budgets, exacerbating existing budget deficits or inflation-related issues, especially in the short run.

Although ambitious targets may foster short-term social and political cohesion, failing to meet them will have political repercussions in the next EU elections in 2029—just months before the 2030 milestone.

Still, the goal of reducing net greenhouse gas emissions by 90 percent by 2040 is still attainable through other energy policy measures listed in the document, most of which have already been talked about in previous years. These include more long-term contracts, faster permitting for clean power projects, creating a Gas Market Task Force to ensure fair competition, fully integrating energy markets, and providing more funding for energy efficiency solutions.

In summary, the EU requires more than €570 billion per year between 2021 and 2030, as well as €690 billion per year between 2031 and 2040, to stay on track to meet its climate neutrality mission, according to the Action Plan for Affordable Energy. These figures include solar, wind and biomass, energy efficiency and grid capacity, but do not cover investments in nuclear energy (including fusion), enhanced geothermal, solid-state batteries, or capacity refurbishment, which the Commission will assess and foster. It is a bold—if old—plan, with the same unresolved question of how the EU will pay for it.

Andrei Covatatiu is a nonresident fellow with the Atlantic Council Global Energy Center

Europe goes all in on industrial policy—with or without the US

The Clean Industrial Deal hardly emerged in a vacuum, and it is perhaps impossible to analyze apart from the sea change the last month has brought to US-EU relations. The CID reveals determination in Europe to build its own future and (re)emerge as a global industrial competitor—looking not just at China, but also the United States. Some of the announcements will be appreciated in Washington, such as delayed implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM), narrowing its application to a smaller group of importers, and more tailored environment, sustainability, and governance requirements in corporate sustainability and due diligence reporting.

But other components point to a “Made in Europe” industrial policy that retains characteristic focus on decarbonization. New Clean Trade and Investment Partnerships and additional free trade agreements are intended to “better manage strategic dependencies” but are almost certainly a response to the protectionist mindset and tariff threats coming from Washington. Likewise, a critical raw materials demand aggregation and matchmaking mechanism will facilitate joint purchases within hotly competitive markets for minerals and other commodities—a focus of the Trump administration’s recent diplomacy to secure such access for the United States. A revision in the Public Procurement Framework next year will “make European preference criteria a structural feature of EU public procurement in strategic sectors.” The Affordable Energy Action Plan, meanwhile, emphasizes further diversification of liquefied natural gas (LNG) suppliers from existing and future LNG projects, likely to include but perhaps look beyond reliance on US LNG.

Through the CID, the EU Commission is arguing that the costs of energy transition can be mitigated while the social and economic opportunities are fully maximized—a marked contrast to the attitude in Washington. These and other elements suggest the EU wants its own rules of the road to be proactive (rather than continually react) to whatever pathways the United States and China pursue. With serious questions surrounding the transatlantic alliance and the reliability of the United States as an economic and geostrategic partner, this gear shift in the European approach comes not a moment too soon.

Andrea Clabough is a nonresident fellow with the Atlantic Council Global Energy Center.

The Clean Industrial Deal Needs a Clear Strategy on Clean Energy Supply Chains

The European Commission’s Clean Industrial Deal outlines a welcome and necessary framework, as it positions climate action as the driver for creating a compelling business case for industrial decarbonization.

While the framework includes a series of forthcoming initiatives that could—at least in principle—strengthen the competitiveness and decarbonization nexus, there is a lack of clarity when it comes to the role of international trade.

Under the “Global Markets and International Partnership” pillar, the Commission rightly points out that “the EU cannot realise its clean industrialisation objectives without partnerships on the global stage.” Clean Trade and Investment Partnerships (CTIPs) are introduced as a tool that will complement free trade agreements to offer a “more targeted approach, tailored to the concrete business interests of the EU.”

For the EU to successfully achieve its clean industrial objectives, a well-defined strategy for clean technology supply chains is essential. This requires, on one hand, a comprehensive analysis of the EU’s current manufacturing capacity in clean technology supply chain segments necessary to reach net zero, and on the other, a thorough assessment of existing trade agreements with global partners to identify where external supply chains can complement gaps in the EU ‘s capacity.

Without such an analysis, there is a risk that CTIPs may fall short of delivering, ultimately undermining the EU’s goals. At a time of geopolitical turmoil and a reassessment of strategic partnerships, fully integrating this evaluation into a joint roadmap for decarbonization and competitiveness is of fundamental importance.

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

The CID is more industrial than it is clean. But Europe needs to be both.

With the introduction of the Clean Industrial Deal, the European Commission correctly acknowledges that competitiveness and climate policy are intertwined. But as Carbon Market Watch put it, although the deal is “certainly industrial, it is far from clean.” While the CID is an important step to solidify the green transition as part of a strategy for economic competitiveness, it falls short in bringing Europe closer to meeting the goals of the Paris Agreement.

One example is the CID’s heavy reliance on carbon capture, utilization and storage (CCUS), which is its main strategy to address emissions from key sectors of European economy, such as steel, cement, and chemicals. But CCUS can only count as carbon removal if that removal is permanent. While a revision of the Emissions Trading System (ETS) aims to incentivize permanent storage—which has enormous long-term logistical challenges—relying on carbon capture to manage emissions after they are produced is a more precarious way to decarbonize than reducing the emissions in the first place.

It is important to remember that cutting emissions is itself a competitiveness measure—the long-term damage to supply chains and infrastructure from increasingly severe climate impacts is as great a threat to Europe’s economy as any tariff. But despite the shortcomings of the CID, the good news is that it clearly signals Europe’s commitment to doubling down on the green transition amid profound economic challenges.

The CID may be more industrial than it is clean—but that may be in service of the climate fight in the long run. Europe cannot be a leader in the green transition if it collapses under competitive pressures from the United States, Russia, and China. But if the CID is about Europe fighting for its survival in a rapidly shifting geopolitical landscape, then it should not forget that the climate crisis remains the continent’s greatest long-term threat.

Carol Schaeffer is a nonresident senior fellow with the Atlantic Council Europe Center.

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New Atlanticist Feb 19, 2025

Make Europe more energy secure by reforming EU regulations

By Olga Khakova

Streamlining the European Union’s regulatory environment could help ensure energy security throughout the bloc.

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EnergySource Oct 8, 2024

A new European Commission faces three key issues at the heart of the clean energy transition

By Michał Kurtyka

As the European Commission takes shape, it faces three critical issues that it must address to meet energy demand and restore Europe’s climate credibility: inadequate funding for the green transition, dependence on foreign energy imports, and declining economic competitiveness. The EU must take bold action to survive in a changing world.

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EnergySource Nov 14, 2024

Europe’s new industrial plan faces formidable obstacles

By Andrei Covatariu

European Commission President Ursula von der Leyen has promised to put forth in her second term a new Clean Industrial Deal to mobilize investment in infrastructure and industry, and reduce dependence on energy imports. But energy supply challenges and geopolitical hurdles risk undermining plans to restore Europe’s industrial competitiveness.

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US energy dominance is Putin’s worst nightmare as Russia enters its fourth year of war crimes

Olga Khakova, Haley Nelson — Mon, 24 Feb 2025 19:50:34 +0000

Three years of Russia’s senseless aggression in Ukraine have caused monumental, unnecessary human suffering but also an irreversible impact on Russia’s energy sector. The war has diminished giants like Gazprom—once a massive revenue crutch for Moscow—into historic economic losers. Now, Vladimir Putin’s narrow path to regaining European gas market share is through liquefied natural gas (LNG)—a modern Trojan Horse of energy influence. Unstopped, he may succeed, as growing LNG exports to European consumers sent €7 billion to Russia in 2024.

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After ending the remaining pipeline exports through Ukraine, Europe is ready to take the leap to address Russia’s LNG leakage into the market, if competitive deals can be reached with alternative suppliers. The EU is welcoming more US LNG to fill these capacities and is also considering investments in LNG projects abroad to boost diversification and security of supply.

President Donald Trump fulfilled his promise to roll back former President Joe Biden’s pause on additional LNG project permits—a vital step to unleash future development. However, permitting is not the only driver for additional LNG capacity. Markets make the final call. Any opportunity to create certainty in a turbulent world would reduce risk for potential investors. Choking off Russian LNG on the global market through sanctions is the surest way to signal a new tangible demand trajectory for Europe and beyond.

But what’s the insurance policy against a resurgence of Russian gas? Unconstrained by the pipeline networks, LNG has the fungibility to reach buyers around the world—often lured in by the highest bidder Because of LNG’s ability to navigate through the global markets, the lasting curtailment of Russian LNG calls for a more comprehensive approach than just an EU ban. Sanctioning LNG where it’s sourced, rather than piecemeal at ports or through a national approach is the most effective way to prevent future supply blackmail from Moscow. The Arctic 2 LNG project sanctions, for example, are a roadmap to impactful project curtailments. Such efforts must be expanded to Russia’s Yamal and Sakhalin-2 LNG project—two significant LNG facilities that have been spared from sanctions to date.

The Trump administration has left the door open for additional sanctions on the Kremlin, if Putin fails to negotiate a peace deal in good faith. Thousands of rockets attacking Ukrainian civilians, including children, and critical infrastructure clearly signal that Moscow is undermining the United States and seeks to continue its brutalities against the most vulnerable populations.

By sanctioning Russia’s biggest remaining LNG projects, the United States and Europe can secure a triple win: stimulate domestic gas production and exports, while applying pressure on Moscow and strengthening transatlantic trade relations.

Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center (GEC).

Haley Nelson is assistant director for European energy security at the Atlantic Council’s Global Energy Center.

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What China’s BYD really wants from EV investments in Mexico

Haley Nelson — Wed, 29 Jan 2025 15:28:05 +0000

The world’s largest electric vehicle (EV) manufacturer is moving ahead with plans to launch a manufacturing plant in Mexico. Even after US President-elect Donald Trump threatened steep tariffs on the country, BYD is still rushing to build the plant despite trade friction with the United States, the largest consumer of Mexican-produced vehicles.

While trade barriers will likely restrain BYD’s access to the US market—at least in the short term—the company’s presence in Mexico isn’t about the United States. It reflects a broader ambition to use EVs to embed the company within Mexico’s critical infrastructure.

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Without a sure export market in the United States, BYD’s ambitions in Mexico could challenge the country’s underdeveloped EV infrastructure. BYD plans to expand auto sales sixfold in the country—but with fewer than 3,000 public charging stations, Mexico needs to invest $1.73 billion annually in its charging infrastructure over the next six years to keep up with demand.

Chinese firms, with their experience building renewable energy infrastructure, are filling this gap—and exploiting an opportunity to expand into Mexico’s critical infrastructure. BYD and partner companies are quickly deploying chargers to support Chinese EV ownership in Mexico. Vemo, a Mexican cleantech company, is actively working with the company to double the number of BYD-compatible chargers in Mexico to 1000 in 2025.

Moreover, Mexico’s grid already faces an energy deficit and will struggle to keep up with rising power demand from EVs. In November 2020, China’s State Power Investment Corporation (SPIC) acquired Mexican renewable energy company, Zuma Energia—now the second-largest private renewable energy producer in Mexico—which is involved in fast-charging facilities, storage, and solar panels. As of September 2024, SPIC reported investments of more than $1 billion in Mexico and expressed its intention to continue expansion in the country.

An opportunity for Mexico

Mexico has much to gain from securing a piece of the EV market. New manufacturing facilities could create high-paying jobs, expand one of Mexico’s main export industries, and attract new investments. Jorge Vallejo, BYD’s general director in Mexico, stated that the new EV plant will create around 10,000 new jobs in Mexico.

Currently, EVs remain out of reach for many consumers. In Mexico, the cheapest Tesla model costs a prohibitive $40,000. However, localizing production could lower prices by reducing transport costs and bypassing tariffs.

Other automakers in Mexico are already struggling to compete with BYD. The Song model, BYD’s $30,000 plug-in sport utility vehicle, is edging out rivals. A local factory threatens to slash prices even lower.

EVs are just the first step

BYD is a risky business partner because of its ability to rapidly integrate itself within a country’s energy system, quickly replacing competitors in not only the EV market, but the larger cleantech industry.

BYD’s goal in Mexico is not just to sell electric vehicles. Similar to how the company has operated in Brazil, first come the EVs—then, BYD provides the manufacturing logistic software, charging systems, storage, and generation needed for the EV ecosystem to operate.

BYD is not just an auto company, it’s a software company, with its own chip-making subsidiary and artificial intelligence (AI) program. The company produces batteries, trucks, skyrails, energy storage systems, digital logistic management software, communication equipment, and 5G and AI technology. BYD uses this expertise to vertically integrate itself into a country’s energy system, allowing it to dominate large parts of the green economy.

In Brazil, where Chinese brands have a 9 percent share of new car sales, BYD builds electric buses, operates solar farms, supplies trains, partners with lithium miners, and manufactures consumer EVs. For BYD, EV production is a beachhead for gaining access to broader energy infrastructure, creating dependency on Chinese technology and investment to support the very industries Chinese companies help establish.

In Mexico, China’s footprint in the energy system is growing. In 2023 alone, Chinese companies announced over $12.6 billion in infrastructure projects in Mexico, focusing on EVs, mining, transit, container ports, and telecommunications. China-based miner Ganfeng has also been involved in a years-long dispute with Mexico over the rights to mine lithium in the Sonora desert.

The party’s favors

BYD’s rise in Mexico comes at a time when Chinese companies are under scrutiny for unfair trade practices, supply chain meddling, and security concerns, which have prompted several Mexican states to dial back tax and resource incentives for BYD.

But this means little for a company that is essentially at the service of the Chinese Communist Party (CCP). Since the late 1980s, China’s Go Out policy has encouraged investment abroad to obtain domestically scarce strategic resources. By acting as a key player in the CCP’s economic efforts, BYD gains unfair advantages in an increasingly competitive global automobile market. High subsidies, strong domestic policy support, and access to military intelligence that could guide transnational business decisions give BYD the competitive edge needed to make it one of the top-selling automakers in the world.

BYD’s ties to the CCP run deep: it has supported China’s military-civil fusion strategy, integrating defense and civilian research to bolster national objectives. In 2019, the company received a prestigious state award for contributions to military technology and has developed at least three military-civil fusion enterprise zones focused on research and development in the defense industry, as directed by the military.

BYD’s leadership maintains an extensive interpersonal network—and even a revolving door—with CCP leadership. BYD founder Wang Chuanfu has held a number of CCP posts, including as a delegate to the People’s Congress of Shenzhen from 2000–2010.

Perhaps uncoincidentally, BYD is also one of China’s most heavily subsidized companies. In 2022, BYD received $2.1 billion in direct subsidies from the Chinese government, significantly higher than other domestic manufacturers. These subsidies help BYD’s expansion efforts, especially as countries concerned with Chinese influence impose tariffs on Chinese EVs.

BYD did not become the world’s largest EV manufacturer by mistake. The CCP has called on BYD to “go out” and conquer foreign markets, and it has supported the company’s efforts through military collaboration, funding, and heavy subsidies. This intense collaboration has made it difficult to differentiate BYD’s corporate strategies from government orders.

A larger prize at stake

Through its vertically integrated approach—from electric vehicles to renewable energy infrastructure—BYD not only captures market share, but also secures lasting influence over the systems driving Mexico’s clean energy transition—to the geostrategic benefit of Beijing.

China’s expansion into Mexico’s EV market, led by BYD, is more than just a response to rising local demand for affordable electric vehicles. It is part of a wider strategy to embed Chinese influence in Mexico’s broader energy and infrastructure systems—and signals a much deeper geopolitical play.

Mexico’s demand for EVs is quickly growing—and BYD’s potential to dominate the market is undeniable. The rapid vertical integration of Chinese firms into sectors needed to support EV adoption can leave Mexico increasingly dependent on China for critical energy and industrial systems.

As Mexico looks to capitalize on the EV boom, policymakers must weigh the long-term trade-offs of Chinese partnerships. While BYD promises immediate economic benefits, the country risks ceding control over strategic assets and becoming overly reliant on Chinese technology and investment.

For Mexico to achieve sustainable, independent growth in cleantech, it must balance foreign collaboration with efforts to strengthen its own domestic capacity and regulatory oversight.

Haley Nelson is assistant director at the Atlantic Council Global Energy Center.

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Bigger than the Berlin Airlift: How NATO’s natural gas shut down a key Russian pipeline

Simon Lomax, Morgan Bazilian, and Greg Clough — Wed, 29 Jan 2025 14:41:01 +0000

Just a few weeks into 2025, two significant efforts to stifle Russia’s energy revenues have already taken place. Both carry major energy security and geopolitical ramifications.

On January 10, the US Treasury Department announced the most significant sanctions on Russian oil since 2014. And on January 1, over the objections of Moscow, a contract allowing for pipeline deliveries of Russian natural gas across Ukraine and into the European Union expired. 

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To be sure, following Russia’s full-scale invasion of Ukraine in 2022, gas volumes along this pipeline route had already plummeted to a fraction of their historic levels. But the expiration of the transit deal has allowed Ukraine to finally shut off one of the few remaining connections between the European Union (EU) and Russia’s gas sector—and put further economic pressure on the regime of Russian President Vladimir Putin to end the war.

Before the 2022 invasion, Russia’s share of the European gas market stood at more than 40 percent. Since then, it has fallen to less than 15 percent, and the expiration of the Ukraine transit deal will move the EU closer to its 2027 goal of ending all Russian gas imports.

This is an astonishing achievement, both in technical and economic terms. It would not have been possible without close coordination between members of the North Atlantic Treaty Organization, which was originally formed in 1949 to defend against Russian expansion during the Cold War.

In particular, two founding members of NATO—the United States and Norway—answered the call to defend Europe against Russian energy aggression. The United States surged exports of liquefied natural gas (LNG) and Norway ramped up pipeline shipments at a dramatic pace. Barely 18 months after the Russian invasion, the United States was providing almost 20 percent of the EU’s gas imports from across the Atlantic Ocean and Norway was providing more than 30 percent.

The speed and determination of this effort was reminiscent of the 1948 Berlin Airlift, but on a much larger scale. Instead of supporting a single city after it was blockaded by the Soviet Union, the United States, Norway, and other gas-producing nations came to the aid of an entire continent of 450 million people.

This has not been easy or cheap for the economies of Europe. But the data show it could have been much worse—without the US shale revolution, Europe could have been at Russia’s mercy and a very different geopolitical map might have emerged.

A few months into the conflict, European natural gas prices climbed to record levels, roughly five times the price recorded at the start of 2022. But thanks to a surge of imports from NATO allies and conservation measures that limited demand, the wholesale price of gas in Europe had returned to pre-invasion levels by early 2023. Today, European gas prices are 80–90 percent lower than their record levels.

For this reason, European Commission President Ursula von der Leyen recently called for continued growth in US LNG shipments to Europe. American LNG is “cheaper” than other sources of natural gas and “brings down our energy prices,” von der Leyen said in November after a call with incoming US President Donald Trump.

Another major benefit of the move away from Russian natural gas is connected to climate change. 

Natural gas produces roughly half the carbon dioxide of coal when burned to generate electricity. But the climate benefits of natural gas can be eroded by fugitive emissions of methane during production, processing, transportation, and other points along the supply chain.

In North America, there are strong environmental regulations, efficient production practices, and a series of technologies to detect and reduce fugitive methane emissions. Those technologies include ground-level monitors; drone surveys; aircraft sensors; satellites; vapor-recovery units; low- and zero-emission pneumatic controllers; and real-time autonomous systems that can detect potential methane releases, throttle back production, and alert field crews to investigate.

By comparison, Russia’s oil and natural gas infrastructure is notoriously leaky, producing around 50 percent more fugitive methane than the United States per unit of gas produced, according to data from the International Energy Agency (IEA). Norway’s gas is even cleaner, with virtually no fugitive methane emissions, says the IEA.

When the full-scale war in Ukraine began, Russian President Vladimir Putin believed he could use energy as a weapon to threaten Europe and NATO. Instead, in less than three years, Europe pivoted to cleaner and more secure energy sources, strengthening the transatlantic alliance and benefiting the climate.

Make no mistake, many challenges remain and there is much work to be done. But this moment in geopolitics, energy security and environmental progress—which was unthinkable just a few years ago—deserves to be celebrated.

Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines and a former lead energy specialist at the World Bank.

Greg Clough is the institute’s deputy director.

Simon Lomax is the director of the institute’s Accelerated Methane Reduction Initiative.

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DOGE should use AI to fix environmental review

William Yancey Brown — Mon, 27 Jan 2025 13:57:26 +0000

The recently conceived Department of Government Efficiency (DOGE), headed by Elon Musk, is the big, new Trump administration idea on the block for cutting costs and making government work better. It should tackle a problem of government inefficiency that is holding up investment and job creation associated with development projects of many kinds, including siting clean energy and connecting it to a grid.

DOGE should focus its tech talent on making the National Environmental Policy Act (NEPA) work the way it was intended: to make federal decision-making sensitive to environmental impacts but not create the byzantine paperwork exercise that haunts many projects. To do that, DOGE should leverage artificial intelligence (AI) technologies to streamline bureaucratic processes.

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NEPA doesn’t need to be so cumbersome

On January 1, 1970, then-President Richard Nixon signed NEPA, and it quickly became a cornerstone for environmental protection in the United States. NEPA doesn’t establish limits for harm—it is a “process” statute requiring federal agencies to identify planned actions that may significantly affect the environment and to describe those impacts in detail, for both the project as proposed and for a range of alternatives. Federal agencies must then state which action they will take, and which measures they’ll implement to mitigate the impacts.

But NEPA has long been a cumbersome process. The law and its amendments call for brevity in words and time, but the collective parts of an environmental impact statement (EIS) can run hundreds or even thousands of pages long and take more than two years to prepare—often by outside firms. Neither the environment nor the participants in the process benefit from that excess—decision-makers rarely even read the EIS.

It’s time for a dramatic change in the way that federal environmental review is carried out. The emergence of AI creates a tool to make that change a reality.

AI can streamline government processes

The Bureau of Ocean Energy Management (BOEM), where I have served, launched an effort in this direction in February 2020 during the last year of the first Trump administration.

BOEM’s initial idea was simple: EISs and other environmental documents were being created anew by the agency for each proposed action. Some parts of those documents were unique to the action involved, but much of the information, such as a required description of the affected environment, was largely identical for activities in the same geographical area. BOEM realized that an information base kept updated by agency scientists would save staff from unnecessary, repetitive review and speed things up.

BOEM named its initiative Status of the Outer Continental Shelf (SOCS) reflecting the agency’s jurisdiction. It began by compiling environmental documents prepared and vetted by the agency over the years and initiating a study to develop a model for decision-making using that information base. The model would not take humans out of decisions but instead provide them with objective indices of impacts on the environment based on defined categories of concern, such as the presence of endangered species and importance to tribal culture.

SOCS is underway now in BOEM, and its potential is made dramatically more significant with the emergence of generative AI.

Here is the concept: couple the SOCS information and model with generative AI and then fine-tune a custom AI tool for BOEM that can prepare EISs and other environmental documents. On top of that, use AI to facilitate public engagement faster and better than is currently done by providing a way for anyone to ask questions directly to the AI tool about projects and NEPA documents.

This concept can work for any federal agency making decisions with environmental impacts, not just BOEM.

How AI can fix NEPA

That said, one approach for developing a new AI-based tool could follow these steps:

Upload contextual documents, including NEPA, other environmental laws and regulations, plus guidance documents and judicial decisions—the more, the better. Include EISs that are exemplary documents so the AI tool can learn what an EIS should look like—that is, it should communicate key issues concisely, clearly, with supporting graphics, focus candidly on important issues, and specify clear and enforceable mitigation measures (as conditions of approval).
Have the AI produce an EIS template drawing from these uploads and integrating a decision-making model if an effective one becomes available—something DOGE should include in its NEPA-related efforts. A good model should transparently address the full range of impacts of greatest concern. It also needs to be user friendly for agency staff who are not modelers themselves.
Task the AI tool to prompt the human team with requests for information specific to the EIS-proposed action.
Fine-tune the AI tool through iterative refinement. This would include human experts systematically reviewing, correcting, and updating AI-generated output, since generative AI models can “hallucinate” facts that require fixing. The review should also look hard for and correct model bias—such as the Google Gemini AI model which, when asked for images of the Founding Fathers, only came up with people of color.
Have the human experts closely review completed draft EISs for accuracy and quality. This task should become easier over time as reviewers gain experience.
AI tools can also enormously improve public engagement with EISs. Google’s NotebookLM is one option currently available for free. Users can upload an EIS (or any other document) and ask questions about it. The answers are reliable and the tool can even generate an engaging podcast.
Eventually, it may become possible simply to task an AI agent to produce a draft EIS, making sure it can access information specific to the project concerned.

NEPA is fixable

So, why aren’t EISs being prepared this way now? It’s partly because generative AI is still novel and government is slow to change. NEPA itself is not an obstacle. The statute and its regulations provide flexibility for how an EIS should be drafted.

To be sure, agency lawyers will wring their hands about what courts may do with AI, but that’s not a good reason to hold back. With rescission of the Chevron doctrine by the Supreme Court, which eliminated deference to agencies by judges, predicting judicial outcomes is impossible, and NEPA can be amended if warranted.

Government information technology (IT) policies are perhaps an even greater inhibition for AI innovation than nervous lawyers. IT requirements, some of which are legislated, are necessary for system security. But the process of change allowed under them can be suffocating and lead agency program staff to avoid innovation.

These organizational inhibitions make improving environmental review under NEPA a strong candidate for prioritization for the Department of Government Efficiency envisioned under the second Trump administration.

DOGE, which aims to bring in technology-focused staff from outside of government, working with the White House Council on Environmental Quality on the inside, could deliver a needed shake-up. It could bring the NEPA process into the 21st century. That would mean a more efficient path to renewable energy growth and the quest for net-zero carbon emissions, while creating a better understanding of the adverse environmental impacts of projects.

Go for this one, DOGE; it’s waiting for you in plain sight.

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China’s lithium-ion battery exports: Why are US prices so low?

Joseph Webster — Wed, 22 Jan 2025 15:32:16 +0000

Batteries are an increasingly important element in the US-China strategic competition. Batteries are not only used for commercial items, such as electric vehicles (EVs) or battery energy storage systems (BESS)—they’re also crucial military enablers employed in unmanned aerial, surface, and subsurface systems, diesel-electric submarines, electronic warfare systems, military microgrids, and directed energy weapons.

Strikingly, the per-kilogram prices of Chinese lithium-ion batteries exported to the United States are lower than the same product sold to any other market. The low per-kilogram prices may stem from China’s export of heavier BESS batteries to the United States—or anti-competitive tactics meant to oust US, Korean, and Japanese manufacturers in a militarily relevant technology. Given batteries’ dual-use potential and domestic production prospects, the United States should raise tariffs on Chinese imports and boost funding for domestic and allied supply chains.

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Chinese leaders recognize the commercial and military potential of next-generation batteries. Beijing has directed top firms to collaborate on solid-state battery development and banned Chinese companies from supplying batteries to Skydio, the largest US drone maker. Earlier this month, the US Department of Defense (DOD) designated China’s largest battery maker, CATL, as a military company.

The DOD may have made the designation due to CATL’s potential collaboration with the Chinese navy on lithium-ion battery-powered submarines. Currently, only Japan operates such submarines, although South Korea is building three of them. The DOD’s move may indicate that China is also using advanced batteries to enhance its submarine force.

Despite batteries’ dual-use applications, Chinese companies are global players. Chinese export destinations for lithium-ion (Li-ion) batteries are highly diversified, as the chart below shows.

Significantly, Chinese Li-ion battery exports to the United States have risen sharply in recent months, reaching an all-time high of $1.9 billion in December 2024. Chinese exporters may have been expediting shipments to avoid potential tariffs before President Donald Trump’s inauguration. But also, Chinese manufacturers often accelerate shipments in December to meet year-end targets and account for the production slowdown during Lunar New Year celebrations.

While Chinese battery global export earnings have declined from recent highs, focusing on dollar amounts doesn’t tell the whole story. As measured in weight, Chinese Li-ion battery exports are rising.

Chinese trade data shows that battery exports by weight have increased year-over-year, while their export value has declined. In 2024, the United States imported 923,000 tons, slightly less than the EU’s 938,000 tons. However, comparing volumes has limitations since batteries vary widely in function and are not interchangeable commodities.

Even as the quantity exported rises, battery prices on a per-kilogram measure have dropped. Indeed, the average global per-kilogram export price of China’s lithium-ion batteries fell from $32.9 in 2020 to $20.1 in 2024.

Remarkably, Chinese per-kilogram battery export prices to the United States are the lowest in the world—only continental Latin America even comes close.

Tariffs don’t seem to be playing a major role. Chinese exporters of lithium-ion EV batteries to the United States now face a 25 percent tariff after President Joe Biden raised rates in a May executive order, up from 7 percent. But storage batteries—which are China’s primary Li-ion shipment to the United States—are not subject to the higher rate until 2026; they currently face an effective tariff rate of only 10.9 percent.

Importantly, China’s per-kilogram battery export prices vary depending on the type of batteries supplied to different markets. Stationary battery storage systems, typically weighing over 1,500 kilograms, contrast with EV batteries, which generally weigh between 326 and 544 kilograms. However, Chinese trade data, reported at the 8-digit Harmonized Tariff System (HTS)-level for external audiences, does not differentiate between lithium-ion batteries for energy storage or EVs.

In contrast, the United States’ more transparent data on Li-ion battery imports does distinguish between these categories, with most imports consisting of heavier battery energy storage systems. Significantly, per-kilogram battery costs are lower for battery energy storage systems than batteries for EVs. US BESS per-kilogram costs averaged $19.7 through the first eleven months of the year, while batteries for EVs averaged $28.8, according to US trade data. Chinese trade data also show that the EU imports more Li-ion battery units than the United States, suggesting Europe’s imports are more focused on EV batteries. This aligns with Europe’s higher EV penetration rate, which explains China’s relatively lower Li-ion battery export prices to the United States.

Indeed, US deployments of Li-ion storage projects are another factor driving its per-kilogram Li-ion battery import costs lower. Battery storage deployments have surged from 3.4 gigawatts (GW) in 2021 to nearly 8.3 GW in the first eleven months of 2024—a period that correlates with the decline in Chinese per-kilogram export prices.

Chinese battery exporters may indirectly benefit from the US solar deployment boom, despite limited eligibility for tax credits. About 53 percent of US solar projects—and 98 percent under the California Independent System Operator (CAISO), the United States’ most advanced solar market—include paired battery storage in order to reduce curtailment. While US data on its domestic Li-ion BESS production is lacking, market actors suggest China supplies most BESS batteries; conversely, EV batteries are primarily made in the United States. Without policy shifts, such as greater tariffs on Chinese products or more incentives for domestic manufacturing, Chinese suppliers are likely to dominate the growing BESS market.

Finally—and while difficult to prove definitively—Chinese battery exporters may be lowering per-kilogram prices to undercut US and allied manufacturers. US battery investment has surged, rising from under $4 billion in 2021 to over $33.8 billion by late 2024, potentially triggering worries in Beijing that the United States could eventually surpass China in this dual-use technology. Meanwhile, Chinese and South Korean exporters—the top two suppliers to the United States—appear locked in a price war, although Chinese shipments of storage batteries far outweigh South Korea’s, totaling 678,000 tons versus 58,000 tons through November 2024.

It is preferable for the United States that South Korea—a US treaty ally and vital defense industrial base partner, including in semiconductors and shipbuilding—can compete with China in batteries. Indeed, the United States and its allies must win the battery race with China, especially given the technology’s military applications. Accordingly, increasing and accelerating tariffs on Chinese-made lithium-ion storage batteries would bolster US and allied manufacturers at the expense of Chinese competitors. Worryingly, existing planned tariffs will not close the cost gap between US-made and Chinese-made batteries, according to an analysis by Rahul Verma of Fractal Energy Storage. Additional tariffs on Chinese imports—and incentives for US manufacturers—may be necessary to close the cost gap.

To be sure, additional tariffs on Chinese-made lithium-ion storage batteries will impose short-term costs and slow domestic deployment of clean technologies, especially solar energy. Still, US long-term strategic interests—which include reducing emissions as rapidly as possible—are best served by constraining China’s dual-use technological capabilities and industrial capacity in batteries while advancing related US and allied competencies.

Given the need to jumpstart US and allied battery technological and manufacturing capabilities, additional, accelerated tariffs on Chinese-made Li-ion batteries for both EVs and BESS are appropriate. Additionally, policymakers should collect better data on Li-ion domestic production and make that information public. When placing tariffs on Chinese-made Li-ion batteries, however, policymakers should ensure that the United States, working closely with allies and partners, develop a US battery complex. Outcompeting China in batteries, a vital military and energy technology, is critical for US and allied security.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and its Indo-Pacific Security Initiative. He is also editor of the independent China-Russia Report. This analysis reflects his own personal opinion.

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Tripling global nuclear energy capacity is in reach—if the world seizes the moment

Amy Drake — Wed, 15 Jan 2025 15:00:10 +0000

In December 2023 at COP28 in Dubai, 22 countries and more than 120 companies pledged to triple global nuclear energy capacity by 2050 to support the goal of reaching net-zero emissions. The declaration reflects a growing consensus around nuclear energy’s role in climate action and spurred a momentous year for the industry. Following further commitments announced at COP29, it will be crucial for industry to mobilize engagement as it looks ahead to this year’s COP30 in Brazil.

In the first global stocktake of progress towards the 2015 Paris Agreement, the 198 signatory countries called for accelerating deployment of low-emission technologies—including nuclear energy—to meet climate goals. The stocktake marked the first formal recognition of nuclear energy as a solution to reduce emissions in a COP agreement, reflecting a recent paradigm shift in how nuclear power is viewed among climate negotiators.

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Acknowledging the emissions-reducing role of nuclear energy enables government and private sector leaders to leverage it as a decarbonization tool; it also helps unlock investment for countries embarking on nuclear energy projects.

During New York Climate Week in September 2024, fourteen global banks and financial institutions pledged to support the COP28 goal of tripling nuclear energy capacity. This public backing from the financial sector was the first of its kind and is a critical step in driving investor confidence in this revitalized market.

The pledge marks a timely shift in attitudes toward financing nuclear energy projects. The average annual global investment in nuclear power in the 2010s was just $30 billion. From 2017-23, this rose to $50 billion. Tripling nuclear energy capacity would require upwards of $150 billion in annual global investment by 2050.

Private investment—in addition to government-backed initiatives—is critical to accelerate nuclear energy deployment at scale. Leaders in the nuclear energy industry must continue to engage with banks and financial institutions to mobilize capital to support anticipated levels of growth.

Customers ready to purchase nuclear electricity are required for new projects to be bankable. As the only zero-emission baseload power source with the potential to be scalable in many regions, nuclear energy is an attractive option for industries which require reliable, 24/7 power—like data centers.

Global power demand from data centers is expected to grow 160 percent by 2030, with US demand rising from 25 gigawatts (GW) in 2024 to more than 80 GW by 2030 to accommodate increased computing capacities. Customers are already experiencing higher electric bills as a result of data centers’ sudden and unprecedented strain on the grid.

Driven by their extraordinary demand for reliable power, US tech companies comprise some of the earliest end-users driving the large-scale deployment of commercial nuclear energy. Last year, some of the world’s largest tech firms announced big commitments to invest in nuclear energy projects, including agreements between Google and Kairos Power, Amazon and X-energy, and Microsoft and Constellation Energy.

Partnerships between Big Tech and reactor companies marked some of the most promising developments towards establishing demand at scale, or an “orderbook,” for the US industry last year. The partnerships illustrate the potential for financial mechanisms, such as power purchase agreements, to de-risk investments in novel projects. Using these developments as a blueprint, nuclear energy providers should work closely with other energy-intensive sectors, such as heavy manufacturing, as demand for clean electricity surges worldwide.

In November, COP29 in Azerbaijan delivered additional support for the industry. The Biden administration set a first-of-its-kind target to deploy 200 GW of new nuclear by 2050, which would more than triple current US capacity. The United States launched three project partnerships with Ukraine under the Foundational Infrastructure for the Responsible Use of Small Modular Reactor Technology (FIRST) program to dedicate $30 million to explore the potential of nuclear energy to help the country meet its energy security goals. The United States also signed a civil nuclear collaboration agreement with the United Kingdom to pool research and development funding and exclude Russia from future collaborations.

With Brazil holding the COP30 presidency, the country’s nuclear power ambitions may help to secure nuclear energy’s place at the center of the COP agenda. Latin America’s leader in installed nuclear capacity and home to the world’s eighth-largest uranium reserves, Brazil has expressed intentions to add 10 GW over the next thirty years and revive domestic uranium production.

Deploying new nuclear energy projects at scale will require global leaders to translate pledges into action. Multilateral engagement, backing from the financial sector, and buy-in from new customers could deliver major wins for nuclear energy. The industry must now mobilize around these converging trends to secure a robust nuclear energy ecosystem for the decades ahead.

Amy Drake is an assistant director at the Nuclear Energy Policy Initiative with the Atlantic Council Global Energy Center.

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Guyana’s low-carbon model for resource-led development

Liliana Diaz — Mon, 16 Dec 2024 13:45:28 +0000

Guyana is making a bold attempt to pursue sustainable development while capitalizing on its fossil fuel wealth. The small South American nation with Caribbean links has emerged as an unlikely laboratory for one of the 21st century’s most pressing challenges: how to harness natural resources while pursuing genuine environmental stewardship.

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A low-carbon vision meets untold natural resource wealth

Guyana had embarked on an ambitious journey toward sustainable development long before ExxonMobil’s massive oil discoveries off its coast in 2015. In 2009, recognizing the value of its vast rainforests in the fight against climate change, Guyana launched its pioneering Low Carbon Development Strategy (LCDS). This wasn’t merely an environmental policy; it represented a fundamental rethinking of how a developing nation could approach economic growth.

The strategy’s origins lay in a holistic understanding of Guyana’s natural wealth. The country’s rainforests, covering roughly two thirds of its territory, store an estimated 19.5 billion tons of carbon dioxide equivalent. Rather than viewing these forests as obstacles to development, Guyana recognized them as vital assets in the global fight against climate change.

An early partnership with Norway—which pledged up to $250 million to help preserve Guyana’s rainforests—established the LCDS’s credibility. It provided vital seed funding, helping Guyana develop the institutional capacity and technical frameworks necessary for environmental asset management on a national scale.

The 2015 oil discoveries placed Guyana at a crucial decision point—over 11 billion barrels of oil equivalent were enough to transform the nation’s economic trajectory overnight. Many nations might have abandoned their environmental commitments in the face of such wealth. Instead, Guyana chose to update and strengthen its low-carbon strategy, creating LCDS 2030.

The balancing act of LCDS 2030

Guyana’s approach reflects a sophisticated understanding of its natural capital. Rather than treating environmental protection and resource extraction as mutually exclusive, Guyana developed parallel value streams from its natural assets.

The country’s forests, for instance, generate revenue through both sustainable forestry and carbon credits, which monetize environmental stewardship. In 2022, Guyana made history by becoming the first nation to receive private sector validation for forest conservation-based jurisdictional carbon credits, leading to a landmark $750 million agreement with Hess Corporation.

The groundbreaking deal involves the sale of 37.5 million carbon credits (about 30 percent of Guyana’s credit issuance) between 2022-32, with increasing minimum prices from $15 to $25 per ton and a 60 percent revenue share for Guyana if market prices exceed these floors. The credits are independently verified under the United Nations (UN) ART TREES standard and meet UN social and environmental safeguards.

The country has further pushed boundaries by launching a Global Biodiversity Alliance aiming to develop a biodiversity credits system that extends beyond carbon, creating a comprehensive framework for valuing ecosystem services. By combining carbon credits, biodiversity credits, and sustainable forestry income, Guyana’s sustainable finance approach offers a new paradigm for how developing nations can maximize the value of their natural assets while preserving them for future generations.

Similarly, rather than treating petroleum wealth as an end in itself, Guyana views it as a means to finance its climate transition. Oil revenues are channeled into renewable energy projects, climate-resilient agriculture, coastal protection, and green job training. For example, the government has invested 12 percent of the nation’s gross domestic product in upgrading drainage and irrigation networks and expanding rehabilitation of sea and river defense structures at critical locations. These investments are complemented by planned water treatment facilities and comprehensive flood management programs.

By 2027, Guyana is projected to produce 1.2 million barrels of oil per day, rivaling some OPEC members. But unlike many oil producers, this production surge is balanced with concrete environmental commitments.

The power of inclusion

The most innovative aspect of Guyana’s approach lies in its governance framework. The Multi-Stakeholder Steering Committee overseeing the LCDS represents a comprehensive model of inclusive decision-making, drawing representatives from government, civil society, Indigenous organizations, the private sector, and academia. Specifically, Indigenous communities—traditional stewards of the forests—are integrated through village-level consultations, dedicated representation in decision-making, and capacity-building programs, ensuring they play a central role in shaping Guyana’s national sustainable development strategy.

Guyana’s global leadership

The strength of Guyana’s commitment to this balanced approach was powerfully articulated at the 16th Conference of the Parties to the UN Convention on Biological Diversity in 2024. There, Vickram Bharrat, Guyana’s minister of natural resources, presented his nation’s journey not as a compromise, but as a pioneering model for development:

“As a developing, oil-producing nation with ambitious infrastructure projects, we face the challenge of balancing economic growth with environmental preservation. However, through the Low Carbon Development Strategy 2030, we are committed to ensuring that development proceeds without compromising our natural capital. Our forests will continue to serve as vital carbon sinks and biodiversity hotspots, supporting both climate action and ecosystem resilience.”

The minister’s words were backed by one of the most ambitious conservation commitments globally: expanding Guyana’s protected areas from 9 to 30 percent of its land mass by 2030. At COP29 in Azerbaijan, Guyana further demonstrated its leadership by receiving the Transparency Award and co-chairing the Forest and Climate Leaders’ Partnership. Bharrat’s call to move beyond theoretical debates to “measurable, accountable action” underscored Guyana’s role as a practical innovator in global climate solutions.

Lessons for a world in transition

Guyana’s ability to transform potential contradictions into complementary strengths offers a compelling model for managing the energy transition. The same government that oversees a rapidly expanding oil sector is also pioneering biodiversity credits and expanding protected areas. This isn’t coincidental—it reflects a nuanced understanding that modern development requires balancing multiple priorities and revenue streams.

The strategy treats oil wealth not as an end goal, but as a bridge to a sustainable future. Oil revenues are systematically channeled into building the infrastructure, institutions, and human capital needed for a low-carbon economy. This approach recognizes that the oil boom, while significant, is temporary. The benefits of preserved forests and biodiversity, however, are permanent.

For other oil producers, particularly those in the developing world, Guyana offers a template that could be adapted to local conditions. The success of this model is already providing compelling evidence that developing nations need not choose between economic development and environmental stewardship. Instead, they can pursue a more balanced path that recognizes and monetizes the value of all their natural assets and builds toward a more sustainable future.

Liliana Diaz is a nonresident senior fellow with the Atlantic Council Global Energy Center and an adjunct professor of energy, climate policy, and markets in the Americas at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University.

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The United States needs a durable national energy strategy

Sara Vakhshouri — Wed, 11 Dec 2024 14:31:51 +0000

Energy security is critical to US national security, economic resilience, and competitiveness. Despite this, the United States lacks a comprehensive, long-term energy strategy that aligns energy security with broader national interests beyond the US political cycle.

To address this, a “National Energy Strategy” (NES)—like the National Defense Strategy (NDS)—should be mandated through Congress, with regular reviews and bipartisan collaboration to ensure stability and adaptability to emerging challenges. The next administration could work closely with Congress to draft an NES that ensures efforts are enduring and aligned with long-term national interests. Subject to five-year reviews and Congressional oversight, this approach would maintain policy continuity and resilience across political cycles.

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President-elect Donald Trump’s announcement of establishing a National Energy Council (NEC) at the White House underscores the critical need for a cohesive and long-term energy strategy. Trump proposed that the NEC would oversee the path to US energy dominance by enhancing private sector investments across all sectors of the economy, prioritizing innovation, and accelerating review and approval processes to increase energy production and delivery. This approach aligns with the broader need for a structured NES that not only drives economic growth and energy independence but also establishes a durable energy policy framework.

Creating a durable, de-politicized energy strategy

Establishing an NES under Congress elevates energy security as a national security priority. This can allow for a cohesive strategy resilient to short-term political fluctuations. Congressional oversight would align energy policies with long-term national interests, including economic growth, self-reliance, economic and energy sustainability, and global leadership. A structured NES should enhance domestic energy production, diversify supply chains, secure strategic reserves, and integrate sustainable practices. It must also prioritize technological advancements, invest in new energy sources, improve energy efficiency, and ensure the security and transparency of critical mineral supply chains. This strategy would secure reliable and affordable energy production, boost efficiency—especially for AI and data centers—safeguard industrial productivity, stabilize energy markets, and reduce dependence on foreign actors for essential resources. By promoting resilience, sustainability, and strategic autonomy, the NES would also solidify US leadership and strategic partnerships in the global energy and mineral supply chain and energy access.

A regular review mechanism for the NES every four or five years would ensure continued relevance and strategic effectiveness by adapting to new technologies and their supply chains, shifting geopolitical currents, and emerging threats like cyberattacks on energy infrastructure. This process could mirror the NDS, incorporating expert analysis and industry input to keep the strategy up to date.

Strong bipartisan collaboration within the NES would ensure energy security remains a national priority regardless of partisan changes in presidential administration or Congressional majorities. Bipartisan support is essential for creating a stable policy environment that enables long-term energy projects to move forward without disruption, fostering investment confidence in critical energy infrastructure and innovation projects.

How the NES would enhance US energy security

The NES can support investor confidence in emerging technology sectors with uncertain energy demand scenarios.

For example, rising energy demand in data centers, cloud computing, and artificial intelligence (AI) requires stable and resilient power supplies. A significant percentage of global internet traffic flows through data centers in Northern Virginia. The region’s electricity demand is projected to increase as more data centers come online. According to the author’s conversations with the Northern Virginia Electric Cooperative, the region would require the addition of 14 GW by 2030 and 24 GW by 2038 if its data center growth were to continue its steep upward trajectory. This demand is equivalent to the construction of twenty-six to thirty nuclear power plants.

AI’s energy consumption is also growing rapidly, with no reliable method yet to predict its future power needs. Without bipartisan support for long-term energy policies, the United States risks energy shortages that could stall economic and technological advancements.

In addition, the NES must conduct a risk assessment of the US energy system and address the diversification of key energy sources and supply chains. Uranium and critical mineral supply vulnerabilities provide an example of how the NES can foster resilient supply chains. In 2022, US nuclear power plants purchased 25 percent of their uranium from Kazakhstan, where Russia holds large shares in its uranium mines, and 12 percent directly from Russia. China controls much of the global production and processing of critical minerals, essential for renewable technologies.

A robust NES would strengthen US nuclear fuel and strategic mineral supply chains and reduce reliance on Russia and China by leveraging bipartisan collaboration to secure long-term energy investments and ensure policy stability. This approach is essential for advancing domestic energy sources, promoting investment in nuclear power, isotope production, and emerging technologies like hydrogen and fusion. Additionally, bipartisan efforts would help forge international alliances for critical minerals and battery supply chains, diversify supply chains through domestic and global mineral processing, and establish transparent markets for fair pricing and secure access to essential resources.

Finally, by regularly updating the strategy in line with unforeseen technological and geopolitical changes, the United States can proactively address emerging energy trends while systematically identifying and assessing risks, threats, and vulnerabilities within the national energy system. This approach allows for the reinforcement of strategic strengths and opportunities, as well as the reassessment of international alliances and energy trade partnerships. A well-executed review mechanism should prioritize infrastructure resilience to safeguard critical sectors like defense, healthcare, and digital services from new cyber and physical threats.

The NES protects the United States in an uncertain energy future

A comprehensive National Energy Strategy—anchored by Congressional oversight, bipartisan collaboration, and regular reviews—is essential for securing US national security and long-term energy stability. Prioritizing energy security will protect supplies, bolster economic growth, and sustain US leadership in global energy markets. This strategy will equip the United States to address future challenges, from rising energy demands to enhancing domestic energy resources, expanding clean energy, ensuring access to affordable energy, securing critical energy supply chains, and fostering transparent markets.

Sara Vakhshouri is founder and president of SVB Energy International & SVB Green Access, director of IWP Center for Energy Security and Energy Diplomacy, and a senior energy fellow at Oxford Institute for Energy.

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Ukraine faces its most perilous winter yet

Haley Nelson — Fri, 06 Dec 2024 16:48:03 +0000

Russia kicked off its winter assault on Ukrainian energy facilities with missile and drone strikes on November 16, damaging critical energy infrastructure when the country is struggling to accumulate enough gas for winter storage. Despite optimistic government claims that Ukraine is entering winter with “the highest possible level of readiness,” Ukraine’s energy system is at its most precarious state since the full-scale invasion. As of late October, Ukraine’s gas storage stands at 12.5 billion cubic meters (bcm), stalling below its early November target of 13.2 bcm. Ukrenegro, Ukraine’s national electric grid operator, has been forced to introduce intermittent shutdowns to reduce strains on the system after Russia attacked electric transmission facilities nationwide. With heating season underway as of October 15—when temperatures can drop as low as –20 degrees Celsius—low gas storage levels and an already fragile electric grid increase the risk of prolonged blackouts throughout the country this winter.

This most recent round of Russian attacks damaged energy facilities in several oblasts, including hydroelectric plants, critical transmission infrastructure, and network servers. Ukraine is bracing for its toughest winter yet, while Russia has already destroyed most of Ukraine’s energy generation capacity and attacks likely to escalate. Hardening Ukraine’s energy infrastructure against physical and cyber-attacks and ensuring Ukraine can defend its energy systems against Russian attacks can help Ukraine endure the frigid winter months. As temperatures in Ukraine drop below zero, it is imperative that Ukraine’s partners act with urgency to strengthen Ukraine’s energy infrastructure defense systems.

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This winter is different

Although Ukraine’s energy sector remarkably withstood Russian bombardments during two previous winters, this year presents a much greater challenge. While millions of Ukrainians lost heat during sub-zero temperatures last winter, Russia’s intensified attacks have left Ukraine’s energy systems more vulnerable than in previous years. Many of Ukraine’s power plants are either destroyed or occupied, and critical infrastructure—such as thermal power plants and high-voltage substations—remains vulnerable to missile and drone strikes. As Russia launches another offensive against Ukraine this winter, Ukraine is far less equipped to rebound as it did last year.

Ukraine’s gas reserves stand notably lower than the 16 bcm amassed by mid-October last year. Hitting the target of 13.2 bcm to meet winter demand requires an additional 0.6 bcm of piped gas imports from the European Union (EU). Ukrainian underground storage facilities (UGSs), which are the largest in Europe, played a critical role for storing up to 10 bcm of gas for consumers outside of Ukraine. European traders have been injecting gas into these storage facilities throughout the war. However, because of recent Russian missile attacks, European traders are hesitant to send gas to the country—in fact, recently, European traders have, on net, been withdrawing from Ukrainian storage sites.

An energy system on the brink

Since February 2022, Ukraine’s energy facilities have faced relentless, targeted attacks. From 2022-23, Russian forces have destroyed or occupied half of Ukraine’s generation facilities and damaged or destroyed nearly half of the country’s high-voltage substations. Russia has targeted almost everything in Ukraine’s energy system: dams, gas storage, transmission lines, transformers, autotransformers, and construction sites. Initially, the attacks focused largely on the electricity distribution networks but have shifted toward generation. After Russia illegally occupied Ukraine’s Zaporizhzhia Nuclear Power Plant, Ukraine’s nine remaining unoccupied nuclear reactors are the last fully functioning generation facilities in the country, but Russia’s attacks on high-voltage substations threaten even these lifelines.

Russia’s November missile and drone attacks represented the largest attacks on Ukrainian energy infrastructure since August 26, when over 127 missiles hit critical Ukrainian energy infrastructure, including the Kyiv Hydroelectric Power Plant. As a result, blackouts affected more than half of Ukraine’s oblasts, including Lviv, Odesa, and Volyn.

The August attacks put Ukraine’s already weak energy sector over the edge. In September, the International Energy Agency estimated that Ukraine’s supply shortfall could reach six gigawatts (GW) this winter, equivalent to the peak demand of Denmark. This deficit spells serious risks for the country.

Ukraine is getting inadequate support

The Kyiv School of Economics estimates that war-related damages to Ukraine’s energy sector amount to over $16.1 billion, with transmission facilities bearing the brunt of Russia’s assault. DTEK, the largest private investor in Ukraine’s energy industry, reported earlier this year that Russia had targeted its thermal power plants over 180 times since the full-scale invasion, depleting 90 percent of the company’s generation capacity.

Although Ukraine’s energy storage levels are lower than in previous year, and its electric grid is in a precarious state, there are several immediate actions that can be done to bolster Ukraine’s energy security ahead of the Russian winter offensive.

Since the August attacks, the EU has pledged a $39 million loan and the United States $325 million to support Ukraine’s grid rebuilding efforts, a welcome boost but one that does nothing to shield against further Russian assaults. Without enhanced air defenses, Ukraine’s critical infrastructure remains exposed.

With most of its thermal generation destroyed, Ukraine has increasingly adopted decentralized energy systems to defend against Russian strikes. Decentralization must accelerate to keep up with winter needs—it’s much more difficult to take twenty small, dispersed systems offline than it is to take out one large thermal plant. By deploying low-capacity energy sources such as household batteries and power generators, the country reduces the efficacy of Russia’s widescale attacks.

Local municipalities are already using small gas turbines to supply homes, hospitals, and essential services. The US Agency for International Development (USAID) is assisting in deploying 20-megawatt gas-powered units in district heating systems across Ukraine. Although some factories have invested in the turbines, they are expected to produce only 0.5-1 GW this winter—a minor relief to Ukraine’s worsening energy crisis.

Ukraine must also add more passive protection around its transformer substations—structural reinforcements, such as concrete walls and steel-enforced enclosures, which make it more difficult for attacks to inflict significant damage.

During the April 2024 Russian offensive, Ukraine’s passive protection saved at least half of its substation equipment from destruction. But, notes Volodymyr Kudrytskyi, then CEO and chairman of the national energy company Ukrenergo, “these are huge structures, the arrangement of which requires huge financial and human resources.”

The protection of Ukraine’s energy infrastructure goes beyond physical defense. Cyberattacks have tripled since the start of the war, and defenses must be upgraded. Strengthening cyber infrastructure, developing incident response plans, and collaborating with NATO partners can protect from cyberattacks that could potentially take the entire system offline, as happened in 2016.

The stakes are high

Sustained attacks on the country’s energy infrastructure could leave millions of Ukrainians without heating, disrupt critical services, and provoke further migration into already-strained EU countries. Without adequate air defense support for Ukraine, an energy and humanitarian crisis risks spilling into broader European instability.

The security of Ukraine’s energy system this winter depends on the support Kyiv receives from its allies. Strengthening Ukraine’s air defenses to cover existing gaps could prevent further damage and reduce the risk of a complete grid collapse.

Beyond immediate human costs, the continued destruction of Ukraine’s energy infrastructure has lasting implications. Attacks on energy facilities reduce industrial output and heighten Ukraine’s dependence on energy imports, complicating long-term recovery efforts. The persistent targeting of critical infrastructure highlights that, for Russia, destabilizing the energy system is not merely a wartime tactic, but a broader strategy to undermine Ukraine’s future.

As Ukraine braces for another harsh winter, Russia appears poised to exploit every vulnerability in Ukraine’s energy landscape. Short on energy reserves and its infrastructure at the breaking point, Ukraine remains at high risk of intensified Russian attacks. It should be assumed that Russia’s tactics of degrading critical infrastructure will continue, and perhaps escalate given the circumstances.

To secure Ukraine’s future, bolstering the resilience of its energy infrastructure is imperative. This means hardening critical facilities against both cyber and physical attacks, strengthening rapid response plans to restore power, and ensuring Ukraine has the advanced defense systems needed to protect against ongoing threats. Without these defenses, international financial support risks being undermined by the next wave of attacks.

Haley Nelson is an assistant director for European energy security at the Atlantic Council Global Energy Center.

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There’s a more effective way forward than “maximum pressure” for Venezuela

David Voght and Patricia Ventura — Tue, 03 Dec 2024 18:31:14 +0000

Following the fraudulent outcome of Venezuela’s July election, calls are growing for the United States to reinstate maximum sanctions on the country’s oil sector. Critics of the regime of Nicolás Maduro want the US Office of Foreign Assets Control (OFAC) to terminate licensing that allows US and European companies to operate within Venezuela’s petroleum industry.

But despite the fraught politics of the OFAC licensing system, Washington should stick with the current policy—which regulates cash flow into Venezuela, distances the country from China and Iran, and strengthens transatlantic energy security—rather than returning to the “maximum pressure” strategies that preceded it.

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Maximum pressure, minimal results

In January 2019, the first Trump administration imposed broad sanctions on Venezuela’s state oil company, PDVSA, which expanded into a “maximum pressure” campaign that barred US oil companies from operating in the country and extended sanctions risk to non-US firms.

Stricter sanctions contributed to an abrupt decline in Venezuela’s crude oil production. Output crashed from 1.6 million barrels per day (bpd) in January 2019 to 430,000 by July 2020—although the effects of long-term underinvestment, national blackouts, and COVID-19 also impacted oil operations during this period.

The economic fallout from Venezuela’s oil bust intensified a wave of emigration that had begun in 2015. But the sanctions failed to dislodge Maduro—and polling, both internally and among the country’s diaspora, showed they were unpopular with most Venezuelans.

PDVSA quickly learned how to circumvent the sanctions. Secondary sanctions aimed at preventing companies from selling Venezuelan oil abroad were overcome through an extensive network of phantom traders.

As a result, by the end of 2020 China and Iran had emerged as Venezuela’s primary trading partners. Between July 2021 and July 2023, Venezuela imported over 35 million barrels of Iranian condensate as diluent used to produce 400,000-500,000 bpd of extra heavy crude oil. Over this two-year period, Iranian traders acquired over 47 million barrels of crude in exchange for that condensate, with nearly all shipments routed to China clandestinely and at steep discounts. These swaps circumvented sanctions and strengthened ties between Venezuela and Iran.

Course correction

Two years into the Biden administration the policy changed. In November 2022, OFAC issued General License (GL) 41 to Chevron, permitting it to resume operations under an agreement with PDVSA that allowed the US company to manage key aspects of its joint ventures, including procurement, crude marketing, and finance. Under GL41 and other specific licenses, Chevron can swap oil for US-sourced diluent. All production from joint ventures is required to be sold on the US market. Greater operational control has allowed Chevron to improve working conditions and mitigate safety and environmental risk.

In October 2023, GL44 lifted nearly all sanctions on PDVSA to induce the Maduro government to hold free and fair elections. However, the license was allowed to expire in April 2024 when the regime failed to recognize Maria Corina Machado or her designee as the opposition candidate in the presidential race. Instead, OFAC adopted a policy of issuing “specific” licenses to companies on a case-by-case basis for limited projects or activities.

Joint ventures operating in connection with specific licenses pay the Venezuelan government taxes and royalties in bolívars—not dollars—up to 50 percent of sales, as required by Venezuelan law. Payments to PDVSA are not allowed. Thirty percent of the value of each cargo is reinvested into operations and maintenance. The private partner manages this reinvestment, ensuring an additional layer of accountability. Funds are channeled to strictly vetted service companies.

Finally, 20 percent of each cargo is earmarked for the repayment of debt owed to the minority partner.

Detractors of the licensing regime express frustration with a lack of public information. OFAC licenses are diplomatic tools that permit certain economic activities within restrictions that result from challenging geopolitical conditions. Consequently, key information related to license activities is not made public. But “non-public” does not mean “opaque.” Detailed reports on all activities are filed with OFAC. Information on crude trades is available from numerous subscription sources.

Objectively, specific license holders do channel hundreds of millions of US dollars into the Venezuela economy through private banks. Many economists agree that the flow of these funds into the domestic economy plays a crucial role in stabilizing the exchange rate and managing inflation, which benefits all Venezuelans.

Better than the alternative

Given the unverifiable election results and subsequent human rights abuses in Venezuela, many question why the US government would authorize foreign oil operators to generate revenue from Venezuelan crude. The answer is that OFAC licenses are far more effective at regulating the cash flow from these sales than the maximum pressure sanctions of 2019 to 2022, when Western companies were divorced from their joint venture activities.

The issuance of specific licenses directed Venezuelan oil exports away from China and toward the United States, Europe, and India. In 2024, Venezuela exported 310,000 bpd to China, down from 491,000 in 2021. The share of oil exports marketed by phantom traders decreased from virtually all in 2021 to about 60 percent in 2024. Venezuela’s reliance on Iranian condensate ended, as OFAC-licensed companies are now allowed to import Western-sourced diluent for extra-heavy oil production.

If specific licenses are revoked, the consequences would not align with US energy and security interests, and may bring unintended costs for the opposition and the Venezuelan people.

PDVSA knows how to skirt maximum pressure sanctions and is well prepared to do so again. If those sanctions return, PDVSA would regain full discretion over revenue generated by approximately 300,000 bpd of crude exports, giving the Maduro regime direct access to more money than it currently receives—with no transparency requirements on how it uses it.

Crude sales would be diverted back to China from the United States, Europe, and India. Large discounts would effectively subsidize Chinese imports at the expense of Western company debt repayment. PDVSA would likely resume its reliance on Iran—instead of the US Gulf Coast—for diluent supply.

Venezuela accounts for just 1 percent of global oil production and has limited influence over oil prices. But with instability in the Middle East, it does no good to the United States to lose access to supplies so close to home. Removing Western companies from Venezuelan oil production would only increase energy security risks.

A fine line

Investors face a delicate balance in contemplating engagement with Venezuela, where human rights abuses and corruption pose real risks to moral integrity and financial viability. But the existing approach to OFAC licenses has found a productive middle path that provides greater economic stability, transparency, and control over the flow of revenue to the Maduro regime.

The United States remains limited in its ability to deliver a satisfactory political resolution in Venezuela. Although sanctions are historically ineffective at forcing regime change, they are likely to remain given Venezuela’s complex socio-political environment. But by retaining the existing system and avoiding a return to maximum pressure, the United States can act pragmatically to improve conditions for the Venezuelan people, support more effective mobilization for change, address global geopolitical priorities, and enhance transatlantic energy security.

David Voght and Patricia Ventura are experts on Latin American oil and gas markets and its energy transition.

The views expressed in this analysis are the authors’ own, based on independent research, and do not necessarily reflect those of any clients.

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Extend and expand the Nord Stream sanctions now

Alan Riley — Mon, 02 Dec 2024 21:59:58 +0000

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PEESA needs a refresh

In 2020, the United States enacted the Protecting European Energy Security Act (PEESA), which was adopted as part of that year’s National Defense Authorization Act. The act imposes sanctions on foreign persons who provide vessels or ancillary services in the construction of Nord Stream 2, Turk Stream, or any successors of those projects to create new routes for Russian gas to reach the European Union (EU).

This legislation was an appropriate response to European and Ukrainian security threats in early 2020. At the time, construction of Nord Stream 2 would have provided an additional 55 billion cubic meters per year (bcma) of Russian gas to Germany directly through the Baltic Sea.

The route would allow Moscow to bypass transit states to Germany’s east—creating the possibility for the Kremlin to threaten these countries with gas shut offs or other coercive measures without interrupting shipments to the lucrative markets to their west. No country was more exposed than Ukraine, which transited 90 bcma of Russian gas to the EU—half the bloc’s total imports from Russia—as late as 2019. While Nord Stream 2 never came online, the European security situation has changed dramatically since Moscow launched a full-scale invasion of Ukraine in February 2022. Before and during the war, Gazprom found excuses to cut gas supplies via Nord Stream 1. By the time Nord Stream 1 and 2 were rocked by explosions in September 2022, neither were transiting gas.

Down, but not necessarily out

The explosions took out Nord Stream 1 pipelines A and B, which each carried up to 27.5 bcma of Russian gas to Germany before the war. Nord Stream 2 pipeline B was taken out by a third explosion, while pipeline A remains intact but is still not operational.

PEESA should be extended to prevent any of the Nord Stream pipelines being brought online. The legislation places sanctions on activities supporting the “construction” of Nord Stream 2. The words “or reconstruction” should be added to remove any doubt that sanctions would also apply to pipelines being repaired.

The law should also be extended to Nord Stream 1. It’s clear that both Nord Stream 1 pipelines will need to be repaired before they can become operational again. It would be unfortunate if Nord Stream 2 could not be repaired because of PEESA, but Nord Stream 1 could—when in fact that both pose grave security risks to Ukraine and Europe. The historical circumstances which meant that only Nord Stream 2 could be addressed by PEESA should not now constrain the opportunity to address the threat posed by both sets of pipelines.

In addition, the EU has much more difficulty in blocking Nord Stream 1’s reopening because it is subject only to an earlier regulatory regime and not the 2009 Gas Directive. Nord Stream 2 could be stymied even if PEESA were to lapse by the directive’s security of supply test for non-EU owners—which Gazprom would have significant difficulty meeting. A recent scheme by a Miami-based investor to acquire Nord Stream 2 would likely also fail that test, given the prospective buyer’s 20-year business career in Russia. But no existing US sanctions nor EU legislation could block reconstruction of Nord Stream 1.

Updating PEESA would benefit Ukraine, the EU, and the United States

Extending PEESA to Nord Stream 1 would strengthen Ukrainian security. It would prevent Moscow from doing gas deals in Western Europe that isolate Ukraine against Russian economic and military power. Instead, Ukraine would gain leverage: most Russian gas sent to the EU would have to transit Ukraine. This would permit Kyiv greater negotiating power with Moscow and open the prospect of effectively taxing Russian gas to help pay for reconstruction, thereby reducing the cost to the West of rebuilding Ukraine. While Kyiv currently has little appetite to extend a gas transit contract permitting a limited 15 bcma of gas to flow through Ukraine that will terminate at the end of December, post-war flows could give Ukraine bargaining power and a revenue stream for compensation.

By contrast, leaving Nord Stream 1 untouched by PEESA would undermine Europe’s energy security by locking in its dependence on Russian gas. On the eve of the war in February 2022, the EU sourced 45 percent of its gas imports from Russia—in Germany, this figure was 55 percent. Extending PEESA to Nord Stream 1 would encourage continued supply diversification and make it less likely that Europe would return to its dependence on Russian energy.

The Senate must amend and expand PEESA. Simply preserving the existing legislation past its 2024 expiration date does not recognize the dramatic changes in Europe since 2020. The Senate cannot miss a major opportunity to enhance the security of Ukraine, the EU, and the United States.

Alan Riley is a nonresident senior fellow at the Atlantic Council Global Energy Center and a visiting professor at the College of Europe in Natolin, Poland.

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Brazilian, US public-private partnerships key to regional energy security

Bailee Mathews — Tue, 19 Nov 2024 15:39:11 +0000

Abrão Neto, the chief executive officer of AmCham Brazil (the American Chamber of Commerce in Brazil), signaled Brazil’s readiness to enhance collaboration with the United States on energy security by bringing the public and private sectors together to deliver concrete outcomes.

Speaking at an Atlantic Council Global Energy Center’s event on November 13 on the sidelines of COP29 in Baku, Azerbaijan, Neto and Landon Derentz, senior director and Morningstar Chair for Energy Security of the Global Energy Center, noted that Brazil and the United States are natural partners for strengthening cooperation given both countries’ historic leadership in innovation and research and development. Brazil’s robust biofuels sector and mature wind turbine manufacturing capacities demonstrate the country’s ability to drive energy sector transformation while meeting energy security needs.

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Both Brazil and the United States also understand that innovation is a key aspect of energy security. Looking ahead, both countries are well positioned to partner on enduring issues such as securing the supply chains central to energy security needs and energy transition efforts.

Following Neto and Derentz’s conversation, Cassia Carvalho, the executive director of the Brazil-US Business Council, moderated a panel with Allyson Book, the chief sustainability officer of Baker Hughes, Leonardo Botelho, the head of international and investor relations at the Brazilian Development Bank (BNDES), Jake Oster, the director of sustainability policy at Amazon Web Services, Owen Herrnstadt, a member of the board of directors at the Export-Import Bank of the United States (EXIM), and Anna Shpitsberg, the chief climate officer at the US Development Finance Corporation (DFC).

Unlocking climate and energy finance

Hernstadt of EXIM and BNDES’ Botelho emphasized that their institutions and DFC will continue to play critical roles in de-risking projects and promoting competitive markets.

In Brazil specifically, where DFC just opened its first Latin America office this past March, Shpitsberg was optimistic about the level of opportunity she sees in the country. In October, DFC signed a cooperation framework arrangement with BNDES to enhance co-investment opportunities in a number of energy and climate sectors such as innovation, infrastructure, mining, biofuels, decarbonization, and green hydrogen.

Private sector investment in the energy transition

Industry has a key role in developing and deploying the technology necessary for accelerating the energy transition. One area of opportunity in particular is in methane abatement. Baker Hughes’ Book said that not enough is being done to address this potent greenhouse gas, but this creates an opportunity. Investors must look closely at the tools necessary to tackle methane emissions in Brazil and elsewhere in the coming year.

Amazon’s Oster noted that technology companies are also in a position to lead on investments in renewable energy and sustainable practices.

Looking ahead: strengthening collaboration

On public investments, Brazil and the US are both looking to strengthen partnerships. Shpitsberg and Botelho both expressed optimism for future collaboration between their organizations, noting that the opportunity to drive investments in Brazil is still large. Working together will be crucial to ensuring that future investments lead to energy sector innovation efficiently and effectively.

Similarly, Book and Oster said the private sector will also focus on building partnerships across industry to advance energy and climate goals. This means using a range of finance instruments and expanding cooperation on clean energy technologies, including geothermal, hydrogen, and carbon capture, utilization, and storage.

The discussion in Baku signals that industry, finance, and government are continuing to push forward investments in clean energy and build coalitions in the year ahead with an eye toward COP30 in Brazil.

Bailee Mathews is a program assistant with the Atlantic Council Global Energy Center.

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Batteries are charging California’s solar revolution

Joseph Webster and Natalia Storz — Mon, 18 Nov 2024 13:31:30 +0000

California is generating more solar electricity than ever, a significant accomplishment that will lower costs and emissions while making the grid more resilient and secure. The California Independent System Operator (CAISO), which manages the state grid, is reporting record-setting solar electricity generation in both absolute and relative terms. CAISO’s solar generation success has been due to several factors, including expanding generation while limiting curtailment. But the key to California’s solar revolution is batteries.

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California’s solar generation is rising sharply

Solar and batteries go together like peas and carrots. CAISO’s solar generation continues to grow as a share of its total in-state load, with the trailing 12-month share rising from 13.8 percent in January 2021 to 22 percent in August 2024. California overlaps almost entirely with, but is distinct from, CAISO, which serves 80 percent of the state plus a small portion of Nevada.

Solar’s growing share of California’s in-state electricity consumption is greening the grid. Coal electricity generation declined from 303 gigawatt hours (GWh) in 2021 to 257 GWh in 2023, while natural gas generation fell from 97,431 GWh to 94,192 GWh over the same period.

Additionally, CAISO imports significant volumes of electricity from neighboring states, some of which is generated by natural gas or coal. In 2023, only 64 percent of California’s electricity imports were from zero-emission sources, with many of these imports received via the Pacific DC Intertie high-voltage direct current (HVDC) transmission line used to ship electrons over long-distances. Consequently, as CAISO’s electricity imports fall due to local solar generation, the demand for carbon-emitting generation sources in neighboring states decreases. Importantly, it also frees up clean electrons—such as from Washington state’s hydropower—to serve other use cases, like data centers or green hydrogen. The rise of Golden State solar is not only reducing emissions and pollution in California; it also benefits the wider region.

Batteries are enabling incremental solar growth

Solar production has increased along with battery deployments. From January 2021 to August 2024, CAISO deployed 9.5 gigawatts (GW) of batteries. As batteries became relatively more significant on CAISO’s grid, cumulative installed battery capacity reached almost 50 percent of total installed solar capacity in August 2024. Without substantial battery deployment, solar curtailment likely would have exploded.

This trend of pairing solar with batteries is set to continue. Indeed, within CAISO, 98 percent of prospective solar projects include battery storage.

To meet ambitious climate targets while maintaining grid resiliency, CAISO will need more solar, more storage—and more transmission. A follow-on article will examine how CAISO’s transmission expansion is unlocking solar generation.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

Natalia Storz is a young global professional at the Atlantic Council Global Energy Center.

This article represents their own personal opinion.

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Europe’s new industrial plan faces formidable obstacles

Andrei Covatariu — Thu, 14 Nov 2024 13:00:31 +0000

Employing 30 million people and accounting for more than 80 percent of the bloc’s exports, the industrial sector is an economic cornerstone of the European Union (EU). But European industry faces fundamental challenges. The EU’s industrial behemoth was fueled by cheap energy imports, which are no longer available to it. Now, the bloc’s decarbonization mission also relies on imported technologies.

Maintaining economic competitiveness is a pressing issue for Ursula von der Leyen as she begins her second term as president of the European Commission. President von der Leyen has promised to put forward a new Clean Industrial Deal in the first one hundred days of the new mandate to “channel investment in infrastructure and industry, in particular for energy-intensive sectors.” But energy supply challenges and geopolitical hurdles risk undermining plans to restore Europe’s industrial competitiveness.

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The roots of Europe’s industrial crisis

The state of European industry is nuanced, but the trends are increasingly alarming.

The European Union’s share of the global industrial sector, measured by gross value added, decreased from 21 percent in 2000 to 14.5 percent in 2021, numbers similar to the United States’. Manufacturing still accounts for 15 percent of the bloc’s gross domestic product (GDP). But amid the impacts of COVID-19 and the 2022 energy crisis, the EU industrial sector has lost 850,000 jobs since 2019.

Experts question the EU’s preparedness for increasingly strategic industrial activities, such as defense, clean energy technologies, and chips. Moreover, the bloc’s reliance on imported energy commodities and technologies leaves its industrial sector vulnerable to external shocks. This vulnerability was exposed during Russia’s full-scale invasion of Ukraine, as the Kremlin took advantage of the EU’s reliance on Russia for 43 percent of its natural gas imports.

By contrast, the EU’s industrial competitors benefit from cheaper energy. The United States enjoys abundant oil and gas and is producing at world-record levels—a trend that the incoming Trump administration would like to continue—and is witnessing a boom in renewable generation. China continues to use domestic coal while increasing imports of Russia’s price-capped oil.

The International Energy Agency estimates that electricity prices for the European Union’s energy-intensive industries were double those in China and the United States in 2023, making it almost impossible for Europe to compete due to high energy costs in production. Complex regulatory frameworks, lengthy permitting processes, expensive labor, and limited innovation are also weakening the EU’s competitiveness.

How the Clean Industrial Deal can help

The stakes are high for European industry. Europe has been proactive in addressing its energy supply vulnerabilities, developing important initiatives such as the Net Zero Industry Act and Critical Raw Materials Act. Now, the Clean Industrial Deal provides the opportunity to address key energy-related competitiveness challenges.

First, the proposal needs to address vulnerabilities in the energy supply chain. This starts with diversifying the sourcing for critical raw materials needed for domestic clean energy production—many of which Europe is reliant on China for.

Despite low public support for such projects, de-risking supply chains should involve domestic mining and processing—which may happen in Germany, the Czech Republic, and Sweden, as well as in a still-controversial mining project in EU candidate state Serbia. But Europe cannot be fully self-sufficient in critical raw materials, and must also enhance supply chain cooperation with the United States and partners in the Global South. Nevertheless, the lead times required to source sufficient critical raw materials domestically or from like-minded partners are considerable. For now, the majority of EU demand will likely continue to be met by imports from China.

In addition, Europe’s industrial transition requires electrification to reduce energy consumption and thus costs. To do this, the EU needs to strengthen the backbone of its energy system: the power grid. This requires investment, accelerated permitting processes, and dynamic regulation that can reduce uncertainty for grid developers, investors, and operators.

As emphasized by former Italian Prime Minister Enrico Letta in his Much more than a market report issued this spring, the EU’s internal fragmentation also poses a threat to industrial efficiency. Harmonizing regulations across member states and finalizing the EU’s single market are crucial steps toward creating a more predictable business environment, fostering investment, and encouraging innovation. Coordinated public spending at the EU level, particularly on large-scale projects like cross-border energy infrastructure, is essential.

Enhancing existing external strategic partnerships should also be foundational to the EU’s industrial plans. This includes collaboration on protecting energy infrastructure from physical and digital threats, securing access to critical raw materials, and coordinating climate efforts at the multilateral level.

What could go wrong?

The geopolitics of energy will play a significant role in shaping the EU’s industrial revival plan.

On the one hand, the EU’s approach to managing its reliance on China for cleantech needs to assess the costs and benefits of de-risking. Europe’s aspirations to expand its clean manufacturing sector could potentially backfire—if Europe makes progress in developing domestic clean manufacturing it will gradually acquire fewer technologies from China, which might hedge this risk by cutting off access or increasing prices for EU-bound exports. By doing so, China could weaken Europe’s financial capacity for investing in its industrial sector—keeping the continent reliant on imports. China’s 2023 export restrictions on gallium and germanium could be a sign of such a risk.

It is often overlooked that EU exports to China have increased more than sevenfold over the last two decades, and China is the EU’s third-largest external market, after the United States and the United Kingdom. A trade war would be damaging to both sides.

On the other hand, the Clean Industrial Deal comes as US elections have concluded, raising concerns on whether the EU and the United States will pursue a clean industrial partnership or potentially move toward rivalry. The transatlantic partnership plays a crucial role in the EU’s ability to stabilize its exposure to energy commodities, as demonstrated by Europe’s increased US LNG imports since 2022.

For the United States, this cooperation is also of great benefit, not only for fostering exports in LNG, critical raw materials, and nuclear energy technology, but also for finding synergies in research and development and for reinforcing geopolitical stability. However, potential trade barriers, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), may heighten the risk of a trade war. The future of this partnership could significantly influence global economic and security dynamics.

Much depends on what will happen in the new Commission’s first one hundred days—on both sides of the Atlantic.

Andrei Covatariu is a Brussels-based energy expert. He is a senior research associate at Energy Policy Group (EPG) and a research fellow at the Centre on Regulation in Europe (CERRE). This article reflects his personal opinion.

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Tackling the energy-water challenge at COP29

Robert F. Ichord, Jr. — Wed, 06 Nov 2024 15:26:47 +0000

Understanding the energy and water nexus is vital to combating climate change. Global demand for both continues to grow as populations, cities, and incomes expand. Climate change increases rainfall variability, causing more destructive droughts and floods, and affecting hydropower’s ability to supply low-emission electricity and stabilize the grid. Climate impacts will boost energy demand for irrigation and desalination, and stress electricity transmission and utility water systems.

At this month’s COP29 in Baku, greater attention must be given to the complex relationship between energy and water. The meeting should promote long-term policies, strategies, and investments to meet this challenge.

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Hydropower’s role in the global energy system

Hydropower is the world’s single-largest source of renewable power. But most clean energy development analyses, including the 2024 World Energy Outlook by the International Energy Agency (IEA), emphasize the role of solar and wind in the energy transition. Their growth over the past decade has indeed been unprecedented; the IEA forecasts that global hydropower generation will be overtaken by solar photovoltaics in 2029 and by wind in 2030. Nevertheless, hydropower still contributes 14 percent of global power generation and 35 percent of the world’s non-fossil electricity. Hydropower is widespread in all regions, with 89 countries boasting installed capacity over 1,000 megawatts. Nine countries across four continents depend on hydropower for over 75 percent of their electricity generation, while another fourteen rely on it for more than half.

But drought and flood conditions have left this important power source vulnerable—after remaining constant for over a decade, hydropower output fell in 2021 and 2023 despite new capacity additions and improvements to older units.

New stresses, new demands

Climate change has exacerbated water stress. The World Resources Institute finds that a quarter of the world’s population lives in countries facing extreme drought conditions, notably in the Middle East, North Africa, and South Asia. Many other nations experience high water stress for at least one month a year.

This has a serious impact on power production. Droughts reduced hydropower generation by 8 percent in India during the first half of 2024. Droughts not only require increased thermal power use; they also reduce the availability of water for cooling thermal plants. In 2020, about 22 percent of global energy-related water use was for cooling thermal plants, drawn largely from freshwater sources. These volumes are projected to increase to at least 35 percent of world water use by 2050.

The agricultural sector is being profoundly affected by increased drought and record high temperatures. Irrigation systems, especially the expansive diesel and electric groundwater tubewell systems of South Asia, require increased energy supplies. A 2024 study suggests that future irrigation system expansion could increase energy consumption in irrigation worldwide by 28 percent.

Demand for desalination has risen about 7 percent per year in order to meet growing freshwater needs and groundwater depletion. Desalination plants are energy intensive, with total plant electricity consumption ranging from 1.3 kilowatt-hour (kWh) per cubic meter of water in new plants to as much as 3 kWh in older ones. This energy load and associated costs may strain electricity and water systems, as well as increase emissions if powered by fossil fuels. Desalination is expanding in a number of regions, notably in the Middle East and North Africa, which has the largest regional desalination capacity. Since 2022, the Algerian Energy Company has begun building five new desalination plants to augment the nineteen currently in operation. To reduce dependence on natural gas, the government is looking to use renewable energy to power these units.

Climate-induced severe weather comes at high cost

The severity of storms and floods have intensified in recent years, inflicting damage on energy and water infrastructure. Communities are being left devastated by severe weather events, such as the back-to-back hurricanes Helene and Milton in the United States.

The destruction of watersheds, including by wildfires that have reduced their ability to retain water, has resulted in mudslides and polluted lakes, rivers, and reservoirs with debris. Dams are critical to controlling water flows, but large floods put them under stress, with older facilities particularly impacted. In the United States alone, it is estimated that rehabilitating approximately 15,200 high-hazard dams will cost $24 billion.

The time for action is now

The energy-water nexus is creating new uncertainties for energy and climate planning, requiring a more integrated analytical framework for decisions on strategic investment. COP29 should support the development of improved data and monitoring of key energy-water indicators—such as reservoir and river flow levels, energy use and efficiency in water utilities, water prices, and infrastructure investment—that can be incorporated into national climate and energy plans.

Although it would be wise for hydro-dependent countries to diversify their clean generation, there still exists significant potential for new hydropower capacity, even though the IEA sees only marginal future growth contributing to emissions reduction. The International Hydropower Association estimates global hydropower potential stands at 1,782 gigawatts (GW), even larger than total installed capacity in 2023 of 1,416 GW, which includes pumped storage. Africa has the largest regional potential at 487 GW, but the lowest installed capacity of only 42 GW.

The International Renewable Energy Agency estimates that to meet net-zero emission goals, hydropower needs to double by 2050, requiring a much higher level of investment than the current $50-60 billion annually. Although China has been the largest international financier of hydropower projects, multilateral financial institutions have increased their funding over the past decade. The African Development Bank’s $1 billion program to upgrade twelve hydropower plants in Africa is an example of such funding.

Private sector participation is also critical to achieving net-zero goals through hydropower. Promising areas for private investment include pumped storage projects that can contribute to grid stability and store water, as well as desalination plants, which require large amounts of clean energy.

As COP29 pursues its mission to enhance ambition and enable climate action, clearer and stronger commitments—such as those that emerged on methane from public and private actors at COP28—are needed to meet the energy and water challenge. Addressing this critical issue is central to enabling emissions reduction and adaptation, and remedying loss and damage.

Robert F. Ichord, Jr. is a nonresident senior fellow at the Atlantic Council Global Energy Center.

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What will a Trump or Harris administration mean for climate and energy policy?

David L. Goldwyn, Andrea Clabough — Wed, 30 Oct 2024 17:54:00 +0000

After a frenetic presidential campaign, voters are faced with a stark choice on climate and energy. The outgoing Joe Biden administration prioritized actions on this front, passing a landmark bipartisan infrastructure law and the $300 billion investment of the Inflation Reduction Act (IRA), and matching this legislation with an expansive slate of regulations and incentive-based programs favoring a clean manufacturing agenda.

The future of this agenda depends on the outcome of the election. Former President Donald Trump has promised to reverse course and reassert the fossil fuel-centric “energy dominance” posture of his prior administration, along with a resurgence of protectionist trade policies. Vice President Kamala Harris, who cast the tie-breaking vote to pass the IRA, has promised to build upon her predecessor’s clean energy industrial policy legacy. But both candidates face constraints that will shape their approach to energy and climate, with great geopolitical and national security implications.

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Full steam ahead, or double back?

While there’s no shortage of pressing energy and climate considerations awaiting the next administration, four are most immediate.

1. Permitting reform

Despite President Biden’s legislative successes, comprehensive permitting reform remains elusive. Recent analyses have warned that if permitting and environmental review bottlenecks remain unaddressed, as much as 100 gigawatts of new clean energy projects could be delayed, and $100 billion of potential investment lost over the next decade. With an estimated 40 percent of new manufacturing projects experiencing delays already, and surging new projections for electricity demand growth, the permitting reform question may soon go from challenge to crisis.

All sides agree that something must be done on permitting, but diverge on what that should entail. The previous Trump administration attempted to limit environmental reviews to expedite permits. A Harris administration is expected to favor review timelines that balance stakeholder input and environmental justice considerations, akin to the Biden administration’s executive-level efforts and stated reform principles.

Permitting reform has the potential to benefit a wide range of project types—from pipelines to offshore wind and nuclear—but that diversity makes for tricky politics among advocates for some categories of projects over others.

A starting point for reform exists in the bipartisan Energy Permitting Reform Act introduced by Senators Joe Manchin (D-WV) and John Barrasso (R-WY). Its prospects in the lame-duck session are uncertain, and the next Congress may decide its fate.

In that circumstance, whoever occupies the White House will have outsized influence on the negotiations. So, too, will the makeup of Congress—but even if either party secures a trifecta, they will almost certainly need to compromise to attract votes from across the aisle to pass reform via regular order. With high-profile energy moderates like Manchin now departing, these bipartisan negotiations could be fraught regardless of White House intervention.

2. IRA implementation

The IRA is unlikely to be fully repealed even under a Republican trifecta, despite Trump’s promise to try. But with Republican control of Congress, some controversial provisions—such as the $7,500 credits for electric vehicle (EV) purchases—could be eliminated. But even without Congress, the IRA’s original design could be undermined by more subtle executive action.

The White House, through federal agencies, can avoid issuing important guidance or regulations, drastically change how tax incentives are structured, stifle disbursement for specific programs, and delay leases, reviews, and studies needed to implement the IRA. For example, Trump plans to rescind any and all “unspent” IRA monies. Similarly, the law’s hydrogen tax credit guidance, 45V, has yet to be finalized amid fierce debate. A Trump administration uninterested in hydrogen’s decarbonization potential could further delay this guidance or alter it in ways that exacerbate risk and uncertainty in this emerging sector.

A Harris administration would face a monumental implementation task. Of the IRA’s initial $145 billion in direct spending, tens of billions remain undisbursed and thus vulnerable to repeal under a new Congress.

Spending money quickly may seem an enviable problem, but managing the debates around IRA guidance is not. In addition to the drama surrounding 45V, the Biden administration has received sharp criticism over its interpretation of the IRA’s EV provisions, from perceived giveaways to foreign auto industries to controversial electric vehicle minerals agreements with other governments. Navigating these issues while maintaining the original intent of the IRA will be a difficult tightrope for a Harris administration to walk.

3. Trade policy

Trade policy has seen strong continuity between the Trump and Biden administrations. President Biden has largely retained his predecessor’s energy-related tariffs, including those targeting Chinese EVs and solar technologies.

The former president is prepared to revive his “America First” system of trade barriers, intended to decouple the US economy from China as much as possible. He has promised to establish a baseline global tariff on most foreign products, followed by incremental increases based on alleged currency devaluation. With the United States-Mexico-Canada Agreement (USMCA) up for review in 2026, a new Trump administration is expected to make fresh demands on Mexico, which has growing economic ties with China. By the same token, incoming European Union (EU) regulations on imported methane emissions and a carbon border adjustment mechanism (CBAM) might provoke a Trump administration into retaliatory measures that could ensnare energy exports.

Harris’ trade agenda also views China as a geostrategic adversary and promises to “fight for a level playing field with China and other global competitors.” Though her campaign disavows the “disastrous trade war” of the Trump era, it reaffirms support for reshoring manufacturing under President Biden’s clean industrial policy. Her approach, however, prioritizes multilateralism and maintaining partnerships wherever possible, especially in North America, East Asia, and Europe. For example, a Harris administration would likely negotiate with the EU to secure exemptions for US fuels and other exports that might be affected by EU climate policies.

The CBAM presents an area of potential convergence between the EU and both potential administrations. Multiple bills to enact a US version exist, including the GOP-endorsed Foreign Pollution Fee and the Democrat-sponsored Clean Competition Act. To be sure, Trump and Harris have disparate views of what a CBAM should accomplish, how its funds should be spent, and how it would impact domestic producers of high-emission products. But the concept appeals to both sides, albeit for different reasons, especially as industrial policy is likely to remain the driving theme for any presidency.

4. Natural gas

The role of natural gas and new gas infrastructure in the US energy system is at the crux of energy policy discussions. US electricity is increasingly powered by natural gas. US liquefied natural gas (LNG) is an important commodity for allies in Europe. The prospects for a sharp increase in US power demand driven by artificial intelligence highlight the importance of affordable, domestically produced gas in meeting these requirements.

The Trump campaign has derided the Biden-era focus on clean energy technologies and reasserted its vision for prioritizing American fossil fuels, especially natural gas. The Harris campaign has taken a nuanced approach that acknowledges the imperative to reduce fossil fuel emissions while also touting LNG exports to Europe and record US fossil fuel production under the Biden administration, and disavowing a federal fracking ban which she supported during her 2020 campaign.

The candidates diverge on the ongoing LNG export authorization pause, which froze new permits to sell to countries without a US free trade agreement. This pause, ostensibly to allow for a thorough review of the approval process for new applicants, has been lambasted by Republicans. The Biden administration has pledged that the review will conclude by the end of 2024 and the pause will be lifted in early 2025, but Trump has vowed to terminate it immediately upon taking office. Harris faces a delicate balancing act; while she has indicated support for LNG exports as an economic and national security matter, she has not criticized the pause either.

Additionally, the next administration may need to consider the impact of new export permits on domestic gas prices. While the Natural Gas Act has always required such analysis before granting permits, the impact of exports on domestic prices has historically been modest. As exports grow to larger shares of total demand for US natural gas, the price impacts for domestic consumers could be significant, potentially creating new domestic opposition to exports based on economic, rather than climate, concerns.

Guardrails

Neither candidate, however, will enter office with a clean slate or unlimited options. Three critical guardrails will constrain their respective energy and climate agendas.

1. The death of deference

Earlier this year, a seismic Supreme Court ruling overturned the “Chevron doctrine,” which allowed agencies wide regulatory latitude in areas where their statutory authorizations were ambiguous. As a result, agencies’ proposed regulations must now be firmly grounded in the letter of statues, even those written decades ago.

Federal agencies must now tread carefully. A future Harris administration would be particularly impacted, tasked with defending a slate of her predecessor’s climate-focused regulations now winding their way through the federal judiciary. If controversial rules, like the Securities and Exchange Commission’s new climate disclosure regulation, are overturned on the basis of agency overreach, Harris-appointed agency leadership may be forced to expend time and resources on new regulations subject to similar constraints.

However, the end of deference cuts both ways. A Trump administration could face a ruling binding it to certain IRA provisions it may oppose, such as the methane fee.

2. Congress

While Congress’ post-election composition is still unknown, the likeliest scenario appears to be divided control of the chambers. But even if either party were to gain full control, the next Congress faces a circuitous series of fiscal negotiations. Many provisions from the 2017 Tax Cuts and Jobs Act are set to expire at the end of 2025, setting up contentious debates over various rates, deductions, credits, and subsidies. This situation raises troublesome questions over finding new revenues and adjusting corporate tax rates, areas where either future administration will have strong opinions.

These imminent debates herald a more constrained fiscal environment than existed during the prior Trump or Biden administrations. Appetites for more energy and climate spending will be extremely low, even among Democrats who have plenty of other priorities. Conversely, there will be a hunt for new revenues. The latter could be an opening for protectionist tariff or border adjustment policies depending on who holds executive office. Undisbursed funds, such as those in the Biden-era climate and infrastructure laws, would also be tempting targets to help pay for new tax plans.

3. Federalism

The US federal system represents the most important limitation on any president’s agenda. In an increasingly polarized national political environment with few states that are not largely controlled by one party, either future presidency’s agenda will be met with state-level pushback, usually in the form of lawsuits.

How those suits proceed with a conservative-dominated Supreme Court is an open question. What is certain is that states will govern as they please, pursuing their own policy mandates, funneling tax dollars toward preferred projects, and making critical infrastructure and permitting decisions which have ripple effects elsewhere. For example, in the late 2010s, former President Trump’s withdrawal from the Paris Agreement did not stifle ongoing clean energy expansion in northeastern and Sun Belt states.

In a post-IRA environment, this situation may present a greater challenge to a Trump administration than a Harris one. Billions of dollars of federal investment in clean energy and manufacturing during the Biden administration has gone to traditional Republican strongholds such as Georgia, Tennessee, Texas, and South Carolina. Any attempts to rescind this funding or cut tax incentives which have enabled major investments in these states will be controversial. As ever, all politics is local.

What’s next?

As the 2024 campaign enters its final hours, the respective energy and climate agendas of each ticket are a study in contrasts. Even so, the future under either administration is murky, with significant limitations and complex negotiations ahead for whoever occupies the White House in 2025. This is to say nothing of the unforeseen events which can propel a government into one direction or another, such as global pandemics, land wars in Europe, or disruptions in global shipping hubs.

The competing visions of the campaign cycle will soon be a memory. What comes next will have enormous implications for the world.

David L. Goldwyn is chairman of the Atlantic Council’s energy advisory group and a nonresident senior fellow at the Atlantic Council Global Energy Center and the Adrienne Arsht Latin America Center.

Andrea Clabough is a nonresident fellow at the Atlantic Council Global Energy Center and a senior associate at Goldwyn Global Strategies, LLC.

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Hungary’s Russian oil deal threatens EU solidarity

Sergiy Makogon — Fri, 25 Oct 2024 14:13:30 +0000

Hungary’s largest oil and gas company, MOL, has announced a deal with Lukoil to resume the transit of Russian oil to Hungary through Ukraine. By purchasing Russian oil at the Belarus-Ukraine border, MOL effectively takes legal ownership of the oil before it reaches Ukrainian territory. While this allows MOL to avoid sanctions imposed by Ukraine on the Russian oil producer, it undermines Europe’s collective action against Russia’s aggression in Ukraine. The European Union and Ukraine must act decisively to prevent such flagrant violations of the spirit of the sanctions regime, both now and in the future.

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The gaping hole in European sanctions

In June 2022, in response to Russia’s full-scale invasion of Ukraine, the European Commission imposed an embargo on Russian crude oil and refined oil products. However, Brussels granted a temporary exemption to some European Union (EU) member states due to their unique challenges in securing alternatives to Russian oil imports, including Hungary, Slovakia, and the Czech Republic. The exemption was intended to provide time to establish new sources of supply. Since then, about 14 million tons of Russian oil per year have been transited via Ukraine to these three countries, unchanged from pre-war levels, bringing approximately $6 billion to Russia’s war chest.

Central Europe’s oil diversification laggards

The EU should have closed this Druzhba pipeline loophole long ago. Despite the temporary nature of the exemption, Hungary and Slovakia have done little to develop alternative supplies. By contrast, the Czech Republic announced that it will eliminate its dependence on Russian crude by next year and aims to request its exemption be canceled once the Italian TAL pipeline’s expansion is completed, which will make more seaborne oil supplies available to the landlocked country.

Hungary’s inertia has not been for lack of help. Croatia constantly offers to expand the Adria pipeline, capable of importing non-Russian oil from its shores to Hungary. In August 2024, Croatian pipeline operator JANAF tested and confirmed that the pipeline can transport 14.3 million tons of oil, exceeding the annual needs of MOL’s refineries in Hungary and Slovakia.

However, MOL has contracted only 2.2 million tons for 2024. Hungarian officials have expressed skepticism about depending on Croatia—an EU and NATO ally—for oil. “Croatia is simply not a reliable country for transit,” claimed Péter Szijjártó, Hungary’s foreign minister. Instead, Hungary relies on Russia’s oil, as Moscow continues its military aggression against Ukraine and poses a threat to the NATO alliance.

Undermining solidarity

Hungary, the Czech Republic, and Slovakia paid Moscow €557 million for crude oil in April 2024, funding the Kremlin’s war and raising concerns within the EU about the precedent it sets for other member states. For example, although Germany halted its imports along the northern Druzhba pipeline, it could consider a similar deal at the Belarus-Poland border to resume imports of cheaper Russian oil. After the left-wing populist BSW party finished third with 14 percent of the vote in Brandenburg’s recent state elections, party leader Sara Wagenknecht said she would try to lift the embargo on Russian oil if her party entered the state government.

Allowing individual member states to circumvent the spirit of sanctions could play into Russia’s strategy to weaken EU solidarity, in line with the Kremlin’s historical “divide and conquer” tactics to exploit intra-European divisions. The EU’s sanctions aim to diminish Russia’s ability to finance its military operations. Hungary’s disinterest in developing alternative supplies—creating a workaround to continue importing Russian oil instead—undermines these collective efforts.

Given these developments, it is crucial for the European Commission to reassess the current sanctions on Russian pipeline oil. Closing loopholes that permit Hungary and Slovakia to continue importing Russian oil is essential for maintaining the integrity of the EU’s sanctions regime and the unity of its members. Implementing mandatory changes over a six-to-nine-month period would allow affected countries reasonable time to secure alternative supplies through existing infrastructure, such as the Adria pipeline.

Hungary’s actions present a critical test for EU unity and the effectiveness of its sanctions regime. By exploiting legal loopholes, Hungary risks undermining not only the collective response to Russia’s aggression, but also the foundational principles of EU solidarity.

The situation highlights the delicate balance that the EU must strike between respecting individual member states’ interests and upholding collective commitments to international security. A decisive response from the European Commission by cancelling exemptions for Russian pipeline oil would reinforce the EU’s dedication to solidarity and its resolve in confronting global challenges. Failure to act now could not only weaken the effectiveness of sanctions against Russia—it risks setting a concerning precedent for EU unity in future crises.

Sergiy Makogon is an energy expert who served as the chief executive officer of GasTSO of Ukraine from 2019-22.

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Despite panicked markets, Israel is unlikely to attack Iranian oil facilities

Ellen Wald — Mon, 21 Oct 2024 19:55:45 +0000

Since Iran fired over 180 ballistic missiles at Israel on October 1, speculation about Israel’s response has intensified. According to Israeli officials, the country is planning a “significant retaliation” that could target Iran’s crude oil production and export infrastructure.

Iran is taking this threat seriously. Shortly after the October 1 attack, the National Iranian Tanker Company directed several empty tankers to leave their moorings at Kharg Island, where 90 percent of Iranian oil is loaded for export. These tensions are unsettling the market—the price of Brent crude jumped nearly 4 percent on October 7 in anticipation of Israel’s response.

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Although analysts are rivetted by the prospect of an attack on Iran’s oil production and export facilities, the likelihood of this is actually fairly low. Here’s why:

The mission would be complicated and risky

Iran’s oil assets are spread out mostly along its Gulf coastline. Oil fields are concentrated in Iran’s northern region but stretch towards its interior. Multiple pipeline networks connect the various fields to refineries and output terminals. The most significant facilities are the Abadan refinery, located on the coast along the border with Iraq, the Kharg Island terminal in the center of Iran’s Gulf coastline, and the Bandar Abbas refinery and terminal, both located at the Strait of Hormuz. Of these, Kharg Island and the Bandar Abbas terminal are key to disabling Iran’s oil export industry.

The logistics of targeting both of these facilities are challenging given the distance, likely use of Arab airspace, and Iran’s Russian air-defense system, though Israel demonstrated back in April its ability to contend with, and damage it. Kharg Island is also near an Iranian nuclear facility and thus more heavily protected. Although former Israeli officials insist that Israel is capable of such an attack, the risks associated with it probably outweigh the benefits such a strike would achieve at this point. A successful attack on Iran’s oil production and export infrastructure would alienate the United States, imperil relations with the United Arab Emirates and other Arab neighbors and anger China, Iran’s largest customer of crude oil and condensate exports. This damage would be long-lasting and significantly more difficult to repair than the physical damage to Iran’s oil export infrastructure.

But Israel’s bluff offers strategic advantages

Still, there is an advantage to manipulating adversaries (and allies) into believing you will do anything in pursuit of victory. Since Iran’s most recent attack, current and former Israeli officials have spoken openly about attacking Iran’s crude oil industry and probably have seriously considered it. But even if Israel does not undertake this approach—which would dramatically escalate the conflict with Iran—Israel has put itself in an advantageous position. Now, a response targeting Iran’s military sites through military and/or cyber means, will appear restrained compared to Israel’s public messaging.

According to recent reports, the United States just agreed to send Israel the Terminal High Altitude Area Defense (THAAD) missile system, along with the military personnel to operate it. It is likely that the Biden administration agreed to deploy this system to mollify Israel and to deter additional ballistic missile attack from Iran.

The United States successfully employed a similar strategy to extricate itself from the Vietnam War. According to Henry Kissinger, he and President Richard Nixon sought to make North Vietnam and the Soviet Union “think we might be ‘crazy’ and might really go much further.” Through massive bombing campaigns and veiled nuclear threats, they intimidated North Vietnam and succeeded in getting Moscow to pressure Hanoi into the diplomatic concessions needed to bring the conflict to a negotiated conclusion within a relatively brief timeframe.

The real impact on markets

Market watchers should understand that despite the rhetoric, Israel’s next move isn’t likely to disrupt Iranian oil production or exports. However, Israel could deliver a strong-but-not-crippling blow to Iran’s economy by targeting its domestic gasoline industry. Israel was linked to a December 2023 cyberattack that disabled the majority of gasoline stations in Iran, and a similar attack on Iran’s steel industry.

A cyberattack followed by a military strike is a likely Israeli response to the Iranian missile barrage. A potential target could be the Abadan refinery, which produces a quarter of Iran’s gasoline supply. Fighter jets would only have to fly over Jordan and Iraq, and the area is not as heavily defended as Kharg Island. Hitting Abadan wouldn’t roil oil markets because most of its production is consumed domestically, and an outage wouldn’t impact crude exports.

It is clear that Israel wants the United States and Iran to believe it will attack Iran’s oil industry. However, traders, market watchers, and policymakers must understand that this is very unlikely, and that a much more limited attack with minimal global impact is far more likely.

Ellen Wald is a nonresident senior fellow with the Atlantic Council Global Energy Center and the author of the book, “Saudi, Inc.: The Arabian Kingdom’s Pursuit of Profit and Power”.

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Innovation can accelerate Southeast Asia’s energy transition

Reed Blakemore, Chase Thalheimer — Fri, 18 Oct 2024 13:12:04 +0000

As Southeast Asia accelerates its energy transition, the Atlantic Council Global Energy Center (GEC) is engaging with stakeholders across the region to develop the policy and business strategies needed to rapidly finance and deploy clean energy technologies. This includes collaborating with Singapore International Energy Week 2024 (SIEW) as a Strategic Insights Partner. There, the GEC is supporting SIEW TechTable 2024 to build a platform for stakeholders to engage with these cutting-edge technologies and discuss their deployment at scale in order to advance Southeast Asia’s energy future.

Southeast Asia is undergoing a profound transformation in its energy landscape, driven by rapid economic growth, urbanization, and a pressing need to reduce carbon emissions. Regional energy demand is expected to surge by two-thirds by 2040. Ensuring reliable and affordable supply for rapidly expanding populations requires an accelerated deployment of cleaner, more sustainable energy sources.

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From highly industrialized nations like Singapore to developing economies like Vietnam, each country faces distinct energy security and sustainability concerns. But across the region, there is a common need for an integrated transition strategy that supports economic growth, enhances energy security, and aligns with global climate objectives. Central to achieving this transition is the adoption of innovative clean technologies.

Technologies like carbon capture, utilization, and storage (CCUS), battery storage, enhanced geothermal systems, and small modular reactors (SMRs) are essential to ensure a reliable, resilient, and clean energy supply. With strategic investments and robust policy support, these technologies are poised to play a pivotal role in Southeast Asia’s energy future as the region faces rising demand and climate risks.

Diversifying the energy mix for resilience

By diversifying their energy sources with emerging technologies, Southeast Asian countries can enhance energy security while progressively reducing emissions. Finding the right balance between conventional and clean energy while leveraging innovative technologies is critical for maintaining resilience during the transition.

Natural gas is seen as a “transition fuel” for many Southeast Asian nations. While still a fossil fuel, natural gas produces nearly half the carbon dioxide emissions of coal and can be integrated with renewable sources of power generation. Investments in liquefied natural gas (LNG) infrastructure are increasing across the region. Singapore is positioning itself as a major LNG trading hub in Asia. Pavilion Energy and Sembcorp Industries have already made significant investments in LNG bunkering services, providing cleaner fuel options for shipping and ensuring Singapore’s energy security.

As countries rely on natural gas for immediate energy needs, emerging clean technologies are providing a pathway for achieving the deeper decarbonization needed for long-term sustainability. Clean energy technologies can diversify the energy mix, reduce emissions, and ensure resilience as Southeast Asia transitions to a more sustainable energy future.

Innovations supporting the region’s transition

Battery storage systems are critical for stabilizing power grids as intermittent renewables like solar and wind come online. The Asian Development Bank recently proposed a $30 million, 50-megawatt battery energy storage system project in northern Vietnam. The proposal is designed to reliably integrate solar energy into the grid. Vietnam added a massive 16.5 gigawatts (GW) of solar capacity in 2020. The project could provide a model for other Southeast Asian countries facing similar challenges with renewable integration.

CCUS is being deployed to mitigate emissions from the region’s fossil fuel use while maintaining energy security. Indonesia’s CCUS and enhanced gas recovery (EGR) project on the Gundih field in Central Java, led by Pertamina in partnership with Japan’s Ministry of Economy, Trade and Industry, is projected to capture and store 300,000 tons of carbon per year. Malaysia’s Kasawari project, spearheaded by Petronas, is expected to become one of the world’s largest offshore carbon capture projects, aiming to capture up to 3.3 million tons of carbon per year. Kasawari illustrates the potential for large-scale CCUS to decarbonize Southeast Asia’s natural gas industry.

Enhanced Geothermal Systems (EGS) represent a largely untapped opportunity for Southeast Asia which could expand geothermal energy in areas where other domestic energy resources are otherwise limited. Indonesia, with some of the highest geothermal potential globally, could meet its ambitious goal of increasing capacity to 9.3 GW by 2035 through EGS. However, scaling up this technology will require significant investments. The right policy frameworks are needed to de-risk projects and attract private sector involvement. Despite these hurdles, EGS could provide stable, baseload power—both at utility scale and to meet demand for energy-intensive facilities such as data centers and artificial intelligence hubs—complementing renewables and reducing reliance on coal.

Finally, advanced nuclear reactors, including SMRs, can produce carbon-free baseload energy while being more scalable and more efficient than traditional nuclear power plants. SMRs are gaining particular attention due to their smaller size, flexibility, and ability to integrate with renewables. For instance, in mid-2024, Singapore signed a civil nuclear cooperation agreement with the United States. Known as a “123 Agreement,” this provides access to US nuclear technology—including SMRs—as part of Singapore’s long-term decarbonization strategy. Indonesia is developing its own SMR technology through the PeLUIt-40 project, a domestically designed reactor aimed at helping the country achieve net-zero emissions by 2060. These initiatives highlight the growing interest in SMRs as a reliable and sustainable solution for Southeast Asia’s diverse energy needs.

Powering sustainable growth

Southeast Asia’s energy transition is a driver of economic growth and development. Clean energy technologies are creating new industries, attracting foreign investment, and creating jobs across the region. Countries that position themselves as leaders in cleantech innovation can unlock industrial expansion and international collaboration. And as Southeast Asia embraces sustainable energy, it will be better equipped to compete in the global economy. Reducing reliance on fossil fuels will not only help meet the region’s climate commitments, it will also protect Southeast Asia from the volatility of global energy markets. As clean energy infrastructure grows, regional energy cooperation—such as cross-border energy grids and trade in renewable energy—could further boost economic stability and integration.

Ultimately, by committing to a clean energy future, Southeast Asia can not only protect the climate, but also build a resilient, competitive economy that thrives in a rapidly changing global landscape.

Reed Blakemore is the director of research and programs at the Atlantic Council Global Energy Center.

Chase Thalheimer is an assistant director at the Atlantic Council Global Energy Center.

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Attention to market realities are key to a successful COP29

Robert Cekuta — Tue, 15 Oct 2024 21:13:32 +0000

Analysis ahead of next month’s COP29—often called a “finance COP”—focuses largely on increasing the funds available to poorer countries to address climate change. However, this misses a key point: that market conditions in recipient countries are a critical determinant for the success of such climate efforts.

Fighting climate change requires trillions of dollars globally for low- or zero-carbon technologies, for measures to adapt to changing sea levels or weather patterns, and to establish more resilient infrastructure. The International Energy Agency (IEA)’s Net-Zero Roadmap to keep global temperature rise under 1.5 degrees Celsius states that the world has to invest $4.5 trillion annually by the early 2030s to be on a path toward achieving this goal. This same report notes that “annual concessional funding for clean energy in emerging market and developing economies will need to reach around $80-100 billion by the early 2030s.”

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For years there have been repeated calls for industrialized countries to foot much of the bill for lower-income countries. However, such transfers—even if they can be agreed to and realized—would be inadequate. Moreover, while the World Bank and other international financial institutions can be mobilized to boost funding levels, experts predict serious shortfalls will remain and call for greatly increased private sector engagement.

Governments and civil society groups have seized on public-private partnerships as the answer to addressing these shortfalls. Such partnerships can be instrumental in combating rising carbon emissions and their impacts—not just in rich industrialized counties, but also in many of the emerging market economies that now account for much of the world’s annual carbon emissions.

However, because these partnerships involve the private sector, market factors are key in determining if, where, and how such partnerships can be realized. The same market factors that make a country attractive to domestic or foreign investment in general will affect their ability to attract and mobilize capital for projects to build a more sustainable, lower-carbon future.

If a country has problems attracting or keeping capital in general, these same problems will affect its ability to attract or keep the funds, human capital, and technologies needed for new renewable power generation systems, more efficient electrical grids, and other climate-aligned projects.

The exact factors vary by country, but years of working with highly industrialized, emerging market, or lower-income countries point to some very basic, common concerns and how they can be addressed.

The first is to recognize that every country competes globally to attract and keep capital. Political and business leaders work to sell their country and its market to investors. But when the corporate, banking, or government leaders from country X finish their presentations, counterparts from country Y come in soon after to say why their project deserves backing instead.

A second factor is a country’s overall reputation as a place to do business. How strong is the rule of law? What is the country’s reputation regarding corrupt business practices? Are contracts—whether with the government or private entities in the country—kept and fairly enforced? How freely can capital enter or leave? There is a saying that when it comes to oil or gas ventures, “good rocks are not enough.” This same principle applies when it comes to building solar or wind power facilities as well.

Moreover, non-governmental organizations (NGOs) and other institutions from these countries that are looking for international backing for their climate-related proposals will be affected by these same concerns. A women’s group or civil society organization operating in a country with a poor international business reputation will face additional hurdles compared to those operating in countries with good transparency, low corruption levels, and well-functioning regulatory and judicial systems.

The good news is that once recognized, these issues can be addressed. International financial institutions, bilateral and regional development assistance organizations, NGOs, and private sector and academic experts can provide willing governments with insights and suggestions. Governments may already know what they should do and have just been slow in acting. Global realities, however, require recognizing that projects to slash carbon emissions or make their countries better equipped to deal with climate change are not immune from the factors that attract or deter funding for other projects.

Taking countries’ market realties into account will be essential for discussions in Baku to achieve the necessary results for global climate efforts.

Robert Cekuta is a former principal deputy assistant secretary for energy at the State Department and was U.S. ambassador to Azerbaijan.

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A new European Commission faces three key issues at the heart of the clean energy transition

Michał Kurtyka — Tue, 08 Oct 2024 17:54:58 +0000

The new European Commission is taking shape. EU member states have named their commissioners-designate, and portfolios have been assigned. Now, parliamentary confirmations will be held to establish who will shape key EU policy files for the next five years.

This political jockeying has important consequences for two interdependent portfolios in particular, whose prominence has grown dramatically since the last election cycle in 2019: energy and climate. Europe has gotten through the worst of the energy crisis following Russia’s full-scale invasion of Ukraine. But now the energy transition faces growing political headwinds, evidenced by a backlash to green policies expressed in recent European, national, and subnational elections.

To answer these challenges, Mario Draghi, former prime minister of Italy and former president of the European Central Bank, has written a report postulating that the Clean Industrial Deal should be adopted by the new European Commission within the first one hundred days. As the energy focus shifts from “clean” to “green”—suggesting more emphasis on industry and competitiveness as compared with environment and climate—it remains to be seen what this evolution means in practice. It needs to be viewed in the light of increased geopolitical tensions and rising concerns over European energy security.

Europe stands at a critical juncture in its mission to meet energy demand and fuel economic growth in a changed world. It’s a tall order. To do this requires the new Commission to overcome three key obstacles: lack of funding, import reliance, and declining economic competitiveness.

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Out of the energy crisis comes a climate opportunity

Europe’s energy crisis created tension between energy security and its climate ambitions, which lie at the heart of its global diplomacy. As Russia turned up the dials on its energy war against Europe, the continent rapidly embraced liquefied natural gas (LNG). Some countries—notably Germany—even restarted previously closed coal plants.

This kept the lights on but damaged Europe’s green credibility. As the crisis becomes less acute, Europe has the space to prove to the world that it is possible to build a secure, competitive, and resilient energy system—but to accomplish that task, it must first address three major obstacles.

1. Without adequate funding, Europe’s climate agenda is toothless

The problem is that Europe’s current climate toolbox is not up to this task. The European Union finally put adequate resources behind its Green Deal by using money left over from the Recovery and Resilience Facility (RRF), a pandemic-era policy innovation that utilized collective borrowing for the first—and so far, only—time.

Brussels mandated that at least 37 percent of member states’ shares of the €750 billion program go toward climate-related projects, and then repurposed €300 billion of the facility’s scantly used funds for the May 2022 REPowerEU plan, which aims to wean the bloc off Russian energy in part through decarbonization.

But that money has been spent. The EU reports that nearly all of REPowerEU’s funds have been mobilized, in addition to €275 billion of the RRF toward emissions-reducing projects. The EU’s climate account has run dry, but not its legislative ambitions—final approval was given to a new Net Zero Industry Act last May, and a Critical Raw Materials Act (CRMA) in March. Now, Commission President Ursula von der Leyen intends to introduce a Clean Industrial Deal within the first one hundred days of the new mandate.

But without new money to back up these initiatives, Europe’s climate plans have no teeth. Over the next decade, the US government could invest $569 billion under the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act, alongside a well-capitalized and risk-tolerant US financial sector. And China invested a staggering $890 billion in low-carbon sectors in 2023 alone, with little indication it will soon pull back.

Europe faces an internal battle to match such funding. Former Italian prime minister Mario Draghi’s long-awaited report calls for new common borrowing to reinvigorate European industry. But the Commission’s previous proposal for a European Sovereignty Fund faced widespread opposition among northern member states, who oppose further collective borrowing. If such opposition continues, clean industry may well seek greener pastures elsewhere.

2. Europe’s reliance on foreign energy, materials, and finance creates economic risks

Europe is dependent on energy imports. The reality that 45 percent of EU gas consumption came from a hostile power was made clear in February 2022. While Europe survived a dire end to its reliance on Russian fossil fuels, it now depends on imported LNG for 37 percent of its gas.

Likewise, Europe’s clean industry relies on Chinese finance and products. Last year, Europe imported a staggering $57 billion-worth of China’s marquis clean energy products: solar photovoltaics, lithium-ion batteries, and electric vehicles.

Where Europe tries to substitute those imports with domestic products, Chinese money and technologies are critical for backing such ventures. Chinese investments in the EU electric vehicle supply chain reached €4.7 billion in 2023. Chinese firms are in various stages of development for battery, auto, and material plants in Germany, France, Sweden, Finland, the United Kingdom, Spain, and Hungary.

These external dependencies leave Europe vulnerable to market instability and geopolitical pressure. The effects are already being felt.

Exposure to a more liquid and globalized market for energy has inflicted massive volatility on European gas prices, which were nine times higher than US prices in August 2022 before leveling off to a modest five-fold spread by May 2024. Partly as a result, Europe’s electricity prices are also two-to-three times higher than in the United States, with profound implications for Europe’s manufacturing competitiveness and investors’ willingness to plow more money into European industry.

The development of clean industries still leaves Europe beholden to external actors, where it depends mostly on imports for key cleantech raw materials like lithium, cobalt, rare earth elements, magnesium, and graphite.

3. Energy dependence and industrial policy imbalances are harming Europe’s competitiveness

European industry is still reeling from elevated fuel prices. Germany’s manufacturing sector—which in 2018 accounted for two-thirds of the EU-28’s trade surplus—has been hit by higher fuel prices, which Markus Krebber, the chief executive officer of Germany’s largest utility, warned may never fully recover. The automotive industry, the crown jewel of German manufacturing, responsible for one-sixth of German exports, is no longer performing—exports in 2023 were down 11 percent from 2019 levels.

Attempts to use industrial subsidies to stem Europe’s competitive decline are not only insufficient to keep pace with China and the United States—they also exacerbate intra-European disparities. Lacking consensus to establish common funding mechanisms at the EU level, the Commission in March 2022 relaxed state aid rules that normally prevent member states from subsidizing domestic industry. Perhaps unsurprisingly, Germany, France, and Italy accounted for 85 percent of industrial support under the crisis framework, undermining European solidarity and widening the competitive gap between the bloc’s three largest economies and the other twenty-four member states.

This every-country-for-itself subsidy strategy risks centralizing clean industry around Europe’s big three economies, given the prevailing economics of localization when dealing with ultra-heavy machinery like batteries and wind turbines. While Poland and Hungary currently account for most EU battery manufacturing capacity, Warsaw and Budapest can’t compete with aid packages from Berlin, Paris, and Rome.

Europe’s path forward requires cooperation—and competition

The European Union began as a peace project but now must reconcile itself to a world that it is more dangerous, more competitive, and more uncertain. Europe cannot resign itself to be a peripheral player in an era centered on US-China strategic competition. The continent needs to be clearer on its role within the international system and its geopolitical stance toward Washington and Beijing. And it must remember that Europe’s core strength has always been its ability to forge unity out of diversity, whether internally or with external partners.

On funding, Europe needs to work collectively

Collective European action is required to build competitive clean industries at home. The Draghi report calls for an EU-funded Marshall Plan for European industry, which low-carbon sectors would naturally be at the heart of. A common EU funding mechanism would also help to crowd in private sector investment, much like the IRA does in the United States. Further common borrowing is needed to make that a reality.

Fully leveraging private European capital also means providing clear and simple rules to the private investors. That requires a technologically neutral approach to moving towards net zero, much as the United States has done with its landmark climate laws.

The EU green taxonomy should include nuclear fusion and fission, geothermal, and other low-emission technologies that advance energy security and emissions-reductions in tandem. Europe cannot achieve its moonshot mission of climate neutrality by 2050 with one hand behind its back. No solutions can be taken off the table—the United States and China certainly are not doing so.

Europe needs trusted partnerships to de-risk external dependencies

Collective European efforts must go beyond funding. Reducing external dependencies does not only mean replacing foreign energy imports with domestically produced clean energy. It also requires acting in concert to secure greater bargaining power, as well as diversifying sources of imports and pivoting towards trustworthy suppliers.

Europe must enhance its demand aggregation measures under the EU Energy Platform to achieve greater security and affordability in energy sources where it will always be a net-importer, such as LNG and hydrogen. It must also consider such measures for critical raw materials.

While the CRMA is justified in its objectives of locating more extraction and processing within Europe, there are limits to that approach. Europe’s raw materials cannot only be Made in Europe—they must also be Made with Europe, alongside a complex array of trade partnerships with nations in Africa, Latin America, and—of course—the United States and Canada.

Indeed, Europe must also deepen its collaboration in energy and climate among external partners who share its vision of an open, free, and climate-secure world. This means intensifying transatlantic cooperation on innovating and deploying technologies like batteries, electric vehicles, and nuclear energy.

A competitiveness agenda means re-tooling the EU for an era of great power competition

Achieving Europe’s energy security and climate goals requires a radical approach that gives the European Union the tools to meet the challenge of a more competitive world. This means transforming the European Union so that it can survive in an era defined by hot war, industrial policy, and strategic economic competition. Europe must adapt, or as Draghi says in his new report, succumb to a “slow agony.” The new Commission has not a second to lose.

Michał Kurtyka is a distinguished fellow with the Atlantic Council Global Energy Center and the former Polish minister of climate and environment.

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China’s cleantech growth strategy sets its sights on Brazil

Joseph Webster, William Tobin — Wed, 02 Oct 2024 15:59:38 +0000

China is counting on three cleantech sectors to fuel future economic growth: electric vehicles (EVs), lithium-ion batteries, and solar photovoltaic (PV) panels. Exports of these so-called “new three” industries reached nearly $143 billion in 2023, up massively from $33 billion in 2019.

But China’s growing might in cleantech is stirring unease in recipient markets due to perceived economic and national security risks. The United States has all but banned imports of Chinese solar cells and modules, and EVs. Other advanced economies may follow suit—for example, on August 26, Canada imposed tariffs on Chinese-made products.

With several developed countries becoming increasingly reluctant to absorb imports from China’s new three industries, China’s cleantech sectors need alternative markets to secure future export growth. Accordingly, Latin American’s approach to China’s cleantech industries could prove consequential. For now, growth in China-Latin America ties in the “new three” is driven primarily by Brazil, although electric vehicle shipments to the South American country have softened considerably in recent months.

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China’s Brazil bonanza

New three exports to continental Latin America have surged. The region’s total imports of Chinese solar panels, lithium-ion batteries, and solar PV rose from $3.2 billion in 2019 to $8.9 billion in 2023, with Brazil absorbing 63 percent of these imports by value last year.

Exports of the new three are relatively minor compared to China’s total exports to the region, which nearly reached $230 billion in 2023. Altogether, continental Latin America accounted for 10 percent of China’s exports of the new three for the twelve months ending August 2024. The region features, however, as one of the options China is presented with to find a market for its exports amid rising manufacturing capacity domestically.

Electric vehicles are where Brazil’s outsized purchases of the new three are most striking. For the twelve months ending in August 2024, 73 percent of China’s exports of battery electric and plug-in hybrid vehicles to continental Latin America were directed toward Brazil.

Interestingly, there has been a sharp decline in EV exports to Brazil in recent months, while shipments to Mexico are rising sharply. Some of the recent decline is due to sales being brought forward to avoid an 18 percent tariff imposed by Brazil in July.

The same trend may be observed in Mexico, as its rising imports of Chinese EVs are likely tied to the phase out of a tariff exemption on October 1. Still, rising shipments to Mexico could also signal the start of a larger trend. Importantly, BYD is, for now pausing investment plans in the country.

Brazil’s market advantage

China’s apparent focus on Brazil for new three exports can be attributed to the size of the Brazilian market, strong environmental and policy fundamentals, and the influence of Beijing’s trade and investment diplomacy.

Brazil’s gross domestic product (GDP) measured $2.2 trillion in 2023, accounting for 34 percent of continental Latin America’s GDP. In a regulation-heavy region, China needs to prioritize markets for its early-stage exports.

In addition to Brazil’s size, the country is a favorable location for clean industry. Brazil is fertile ground for solar power, enjoying high solar irradiance in nearly all regions of the country. Since 2017, Brazil has added an average of 1 gigawatt per month of combined solar capacity in residential and utility-scale projects. The average price of solar electricity in the country has decreased by 68.6 percent since 2013, making it among the most competitive generation sources on the grid.

Brazilian policy supports domestic deployment of clean energy—and thus new three imports from China. Brazil provides import tax credits for electric vehicles, and has an emissions standards program known as Proconve, which mandates emissions limits for harmful pollutants. By extension, this program also incentivizes battery deployment, since electric vehicles perform well under this scheme.

The country has long-established solar support mechanism through its ProInfa tax credit scheme, and BNDES, the national development bank, provides cheap project finance. Brazil also incentivizes residential solar through a net-metering policy. Few other Latin American nations combine such sophisticated policy frameworks with favorable financing conditions, a key enabler of investment in a region beset with high interest rates. These policies have made Brazil an attractive market for Chinese cleantech firms.

Finally, China views Brazil as a valuable diplomatic partner in South America, and the relationship could provide Beijing a regional foothold. Brazil is also an important economic partner—in Latin America, it is China’s largest trading partner and the largest recipient of Chinese investment. Globally, Brazil is China’s principal source of soybeans and second-largest source of iron ore, which are central to China’s livestock and steelmaking industries, respectively. China is, in turn, a critical export market for Brazil.

Brazil’s policy tightrope

However, Brazilian policymakers face a dilemma in their economic relationship with China. To spur productivity growth needed to boost real wages, Brazil would benefit from moving up the value chain for its exports.

In 2021, capital, consumer, and intermediate goods accounted for 93 percent of Brazil’s total goods imports, while raw materials represented 55.7 percent of Brazil’s goods exports. Brazil’s trade specialization in raw materials and lesser value-added goods has only increased over time—manufacturing’s share of GDP has shrunk by 23 percent since 1980. For this reason, re-industrialization was recently cited as “essential” for Brazil’s growth by its minister of labor and employment, with the energy transition counted as one of the six pillars of Brazil’s new industrial policy plan.

Brazil has sought to invest in domestic production rather than imports. During Vice President Geraldo Alckmin’s recent trip to China, he obtained commitments for nearly $5 billion in infrastructure investment. While Chinese commitments do not always pan out, they do signal diplomatic intent.

Additionally, Brazilian diplomacy coaxed Chinese EV manufacturer BYD to invest in a facility in Bahia—at the site of a closed Ford plant—BYD’s first such establishment abroad. Still, Brazil has a vested interest to ensure the Chinese market remains open to their exports of raw materials. This means the Brazilian government is not likely to take a confrontational approach on trade, which limits its ability to alter the nature of its economic relationship with China.

Brazil’s posture toward Chinese cleantech imports must balance competing interests. Cheap cleantech could provide low-cost equipment to expand the grid and accelerate decarbonization, all while providing short-term economic benefits. On the other hand, unfettered imports could weaken domestic manufacturing and give Chinese companies monopolistic leverage they could exploit.

Additionally, while there is little risk from “dumb” solar panels and lithium-ion batteries that do not connect to the web, Chinese-made Internet-connected vehicles pose potential security threats. Brazil, a major non-NATO ally, and other Latin American countries can mitigate economic and security dangers by ensuring that Chinese firms site production locally and share source code for connected vehicles. Additionally, Latin American countries could ban “over-the-air” software updates for Chinese EVs, or otherwise airgap them from the Internet.

Brazil, China, and the new three

As Chinese goods increasingly face scrutiny across North America, Europe, and other markets, the Brazilian market will loom larger as an alternative. China’s economic ties with Brazil are an inescapable reality, but Brasília should ensure the relationship serves its own objectives and does not inculcate dependency. Policymakers in Washington should also elevate Brazil as a strategic commercial partner, and work with the private sector to offer a credible, competitive alternative to Chinese cleantech.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

William Tobin is an assistant director at the Global Energy Center.

This article reflects their own personal opinions.

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Renewables offer opportunity in the Western Balkans. But challenges remain.

Michael Hochberg — Fri, 27 Sep 2024 19:56:38 +0000

Change is afoot in the Western Balkans. The region of 17 million inhabitants is rolling out policy tools to maximize its solar and wind potential via private sector investment. The depth of renewable energy deployment will ultimately depend on the interplay between competing ideologies and economic concerns, international and local politics, and the capacity and topology of the electric grid. But targeted solutions to channel investment and create favorable market conditions can accelerate the speed and scale of regional renewable deployment.

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Coal dominance, renewable potential

The Western Balkans rely heavily on coal. Four of its six nations produce at least 50 percent of their electricity from locally mined lignite, the most polluting coal class. Albania is unique in having no coal generation, although it supplements locally produced hydropower with electricity imports from its coal-burning neighbors.

The region’s second-largest source of electricity is hydropower. With more than 9,000 megawatts (MW) of installed capacity, hydropower accounts for more than 80 percent of the Western Balkans’ renewable energy capacity. Hydropower is a low-emission technology, but it can have a significant environmental impact. Moreover, the zero-marginal cost nature of hydropower can make it difficult for other renewable power technologies to compete in competitive power markets.

Wind and solar resources in the Western Balkans remain relatively untapped. The region had installed capacities totaling 1,011 megawatts (MW) of wind and 897 MW of solar at the end of 2023. A patchwork of support mechanisms aims to boost wind and solar, including reverse auctions, feed-in tariffs, private market deals, and self-consumption regulations—albeit with mixed success. Tens of thousands of megawatts of solar and wind projects have been proposed within the region, reflecting investor appetite for new projects. But the vast majority remain in the development or planning stages.

To facilitate offtake for these projects, auctions have been implemented across the region. Serbia used an auction in 2023 to solicit bids for 400 MW of wind and 50 MW of solar projects. The wind portion of the auction was oversubscribed, yet the solar portion underperformed. In terms of consumer participation in renewables, all Western Balkan nations have begun to develop self-consumption frameworks to enable onsite renewable power generation. North Macedonia and Albania have adopted these frameworks faster than their neighbors.

The need for investment

The average coal-fired power plant in the Western Balkans is more than 40 years old. These inefficient plants are significantly more polluting than their counterparts within the European Union (EU), causing regional public health issues and creating obstacles to national EU accession goals, which require alignment on climate policies.

Air pollution—much of it from burning coal for electricity—causes 30,000 premature deaths annually in the Western Balkans. Retiring older coal plants would lower emissions, facilitate compliance with EU air pollution requirements, and enhance European energy market integration. But under any scenario, security of supply must be maintained.

To retire coal, replacement capacity must be built, which can offer a range of secondary benefits beyond cleaner power generation. Renewable power deployment can provide impetus for regional clean energy business clusters which facilitate local manufacturing, new jobs, and economic growth. New large-scale renewable energy facilities also typically boost property tax revenues, create construction jobs, and supply indirect economic benefits from new expenditures resulting from the projects.

Challenges to deployment

Despite policy incentives and positive market signals, significant renewable energy deployment in the Western Balkans is not guaranteed. Five key challenges remain.

First, limited available transmission capacity makes it difficult to deliver clean power to consumers. Serbia’s grid operator has received requests to connect 20,000 MW of new renewable power, which is several times greater than Serbia’s available capacity.

Second, entrenched coal interests diminish the prospects for rapid decarbonization. Tens of thousands of jobs across the region are supported by the coal industry. Careful planning, early stakeholder engagement, reskilling programs, and prudent messaging around these efforts are key to generating public support for decarbonization as aging plants are phased out.

Third, illiquid electricity markets can make financing difficult. For example, Bosnia and Herzegovina has no organized electricity market, and most of the region’s nations only began rolling out time-differentiated markets in 2023. This limits power commercialization opportunities and financing options for the private sector.

Fourth, finding offtakers to purchase renewable power represents a challenge. State-owned utilities within the region can help through bulk purchases from renewable projects. But they often lack the financial wherewithal to serve as offtakers. Large-demand private commercial and industrial consumers, when enabled by regulation, could meet a portion of power demand via contracting with renewable projects. Yet these firms do not always enjoy physical proximity to renewable projects, nor sufficient demand to buy all of the electricity produced from a single large-scale project.

Finally, a lack of regional coordination and inconsistent rules across jurisdictions raises the barriers to entry for new market participants in the Western Balkans and creates silos that may reduce the perception of scale of a truly regional opportunity.

Coal, grid capacity, and technology

Despite coal’s outsized role in the region’s energy system, there are no current plans for new coal capacity. Within the next decade, many aging plants will either retire or be refurbished to become less polluting. To facilitate both retirements of coal and deployment of renewables, private developers should pursue clean energy projects adjacent to planned coal plant retirements to secure valuable transmission capacity and help move renewable projects to construction and operation.

Battery storage will also play a role in enabling growth in renewables as coal plants retire. Regulations that incentivize battery deployment would help new solar and wind replace coal by firming up intermittency. Battery systems can also facilitate incremental increases in solar and wind capacity—for example, if a solar project has 100 MW of grid capacity, its owner can overbuild to 120 MW, store the excess 20 MW, and deliver this power to consumers when the solar output declines in the evening.

Other technical solutions, like grid-enhancing technologies (GETs), can increase the capacity of existing power lines. With minimal investment, GETs carve out room on the grid for new solar and wind projects where there previously was none. In addition to grid capacity, the introduction of GETs can enable business partnerships and knowledge transfer between the companies that deliver these technologies and utilities or power grid operators.

Procuring renewable power

Auctions are a proven method used by many countries to secure investment in power generation. They can enable price discovery and enhance competition, leading to the deployment of inexpensive power.

Serbia, Albania, and Kosovo have implemented auctions for procuring renewable energy. Other nations in the region may follow suit.

Yet auctions can lead to problems. Auction design and administration must account for local contexts. If implemented incorrectly, auctions can inspire collusion, thereby undermining legitimacy and competitiveness. Or they can cause overly aggressive bidding, harming project completion rates. Finally, auctions often limit the number of suppliers, which can reduce competitiveness.

One alternative to auctions is a bilateral approach, in which procurement is negotiated directly between power purchaser and project developers, leading to quicker deployment and lower transaction costs. Such an approach can also unlock access to suppliers that may not normally join an auction process.

European Union support

Support from the EU and European institutions is a key facet of the Western Balkans’ transition. Serbia’s utility recently secured $100 million in green debt from an Italian bank, enhancing its viability as a green offtaker. The prospect of EU accession provides a carrot for decarbonization as well. The EU has made billions of euros available to support regional energy transition projects. Meeting EU standards to access financing could encourage standardization of rules that would help private investors more effectively navigate the region.

Looking ahead

The tailwinds propelling solar and wind investment are strong. Developing solar and wind generation will bolster the Western Balkans’ economy and provide broader strategic advantages as the region continues to face fast-evolving energy and geopolitical paradigms.

Michael Hochberg is chief development officer at HGR Energy.

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As Middle East tensions simmer, the world fixates on the wrong energy market risks

Ellen Wald — Tue, 17 Sep 2024 13:46:59 +0000

As the anniversary of Hamas’ devastating October 7 attack on Israel approaches and the escalation of the Israel-Gaza war continues, tensions in the Middle East show no signs of receding. Iran’s role in supplying, training, and facilitating attacks from Hamas, Hezbollah, and the Houthis is well-known, but fears persist that dismantling this network will lead to a serious escalation with Iran and threaten global energy supplies. But the real risks to the energy sector are not the ones that policymakers and oil traders are focused on.

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The risks in the Strait of Hormuz are overblown

The risk that Iran could close the Strait of Hormuz looms large among government and industry leaders, given that one fifth of global petroleum liquids consumption and liquefied natural gas (LNG) trade flows through this narrow waterway. The impacts would be devastating to the global economy—particularly for Asian consumers of Gulf oil.

However, the economic, political, and geographic realities mean that—not only is Iran extremely unlikely to close the strait—it is practically impossible for it to do so.

Economically, Iran has too much to lose. The country exports 1.5 million barrels per day of oil in contravention of US sanctions, up massively from 350,000 in 2019. If the country refused to allow non-Iranian tankers to exit the Gulf, it would expose its own tankers to foreign navies, threatening Tehran’s primary source of revenue. As long as Iran continues to make money selling oil, it will not close the strait.

Politically, Iran can’t afford to jeopardize its relations with the United Arab Emirates (UAE), Saudi Arabia, or China. Over the past five years, Iran has painstakingly rebuilt ties with Saudi Arabia, the most powerful Gulf state, and the UAE, Iran’s most important trading partner. Nor can Iran afford to alienate its best customer and the largest overall importer of Gulf oil—China. Samir Madani, co-founder of TankerTrackers.com, Inc., an independent company that tracks seaborne oil, said it would be incredibly ill-advised for Iran to disrupt Beijing’s oil supply from the Gulf.

Even if Iran were desperate enough to attempt closing the strait, it’s unclear if it could even halt shipping. While the safest and most efficient route through the Strait of Hormuz traverses Iranian waters, tankers can—and do—deviate from it by going through UAE waters. After two British tankers were seized by Islamic Revolutionary Guard Corps (IRGC) ships in 2019, British ships were instructed to avoid Iranian waters despite the increased likelihood of a collision. While a mass rerouting of traffic through UAE waters would be slow and restrict transit volumes, it would be possible for oil flows to continue.

Rather than focusing on a worst-case but extremely unlikely scenario in the Gulf, policymakers should focus on more realistic energy risks in the region.

Instead, worry about disruptions to Israel’s natural gas exports…

Israel produces natural gas through two offshore gas fields, Tamar and Leviathan, which meet Israel’s domestic needs and supply gas to Jordan and Egypt. Egypt uses Israeli gas for domestic demand or liquefies and exports it to Europe. After the October 7 attacks, Israel shut down production from Tamar, forcing Egypt to halt shipments and causing a brief spike in European natural gas prices. At the end of November, Israel resumed flows to Egypt, and exports to Europe continued at lower levels than before the attacks. Since April, however, Egypt has halted all LNG exports in order to use Israel’s natural gas to meet domestic electricity demand.

Israel’s natural gas fields remain vulnerable in the event of a military escalation between Israel and Hezbollah. If gas exports were halted, Egypt—which plays an important role in ceasefire negotiations between Israel and Hamas—could face an energy shortage. Decisionmakers involved in negotiations could offer incentives that would increase Israel’s natural gas deliveries to Egypt or help alleviate Egypt’s power crunch with other sources of natural gas, in exchange for Cairo exerting more pressure on Hamas to accept ceasefire terms.

It would also behoove policymakers to help the two countries expedite plans to build a 40-mile pipeline that would enable Israel to export an additional 6 billion cubic meters per year of natural gas to Egypt. Increasing energy interdependence would not only improve economic and diplomatic relations in the region; but also, increasing Israel’s gas export capacity to Egypt’s liquefaction facilities serves as an insurance policy for southern Europe in the event of a supply crunch.

…And escalation in the Red Sea

Policymakers should work to neutralize the threat of Houthi attacks on ships transiting the Red Sea. Iran is supplying the equipment the Houthis are using to threaten seaborne trade. Since October, the Houthis have attacked more than eighty merchant ships—and dry bulk traffic through the Suez Canal is down 50 percent year-over-year. While some oil tankers now avoid the Red Sea, most have continued to cross the Suez despite higher insurance costs.

A recent attack on a Greek-flagged tanker, the Sounion, should be a wakeup call. The attack caused a fire aboard the ship, which has been abandoned. The vessel, carrying 1 million barrels of oil, is now leaking—if that continues, the environmental disaster could be four times greater than the Exxon Valdez oil spill. While the crew was able to escape, efforts to salvage the ship were called off because the Houthis planted explosives on its deck.

The pattern of escalation in the Red Sea cannot be ignored—whereas previously the Houthis confined their attacks to ships affiliated with Israel or Israeli citizens, this is no longer the case. Since the Sounion attack, insurance companies have nearly doubled the risk premium for Red Sea-bound ships. Only Chinese-owned ships seem to be safe—their insurance premiums have dropped by 50 percent since February.

On September 2, US Central Command (CENTCOM) reported that the Houthis attacked and hit two oil tankers in the Red Sea, one of which was a Saudi very large crude carrier (VLCC) tanker carrying 2 million barrels of oil. The Houthis claimed responsibility only for the attack on the non-Saudi tanker. Saudi Arabia denied that its ship was hit, although the US military maintains that both ships were damaged by “reckless acts of terrorism by the Houthis.”

Though the specifics of the incident remain in dispute, the risks are clear: millions of barrels of oil could spill into the Red Sea or ignite in fires that cannot be extinguished. The ensuing environmental catastrophe and economic disruption would hit all producers and consumers that use the waterway regardless of their political stance on Middle East conflicts. Even if Saudi Arabia can’t publicly acknowledge that its tankers are at risk, it has just as much—if not more—to lose from attacks in the Red Sea.

Even the presence of US naval forces has not deterred the Houthis. US destroyers stationed in the Red Sea faced sustained combat rivalling that experienced during World War II—and still could not thwart every attack. Policymakers need to realize that Houthi activity in the Red Sea is a serious and growing risk to global energy supplies. Currently, the risk is being realized in insurance rates but could quickly spread throughout the global oil market if another tanker is hit.

Focus on the real risks

The ongoing conflict in the Middle East has challenged long-held assumptions about the risk geopolitical instability in a critical region for global energy supplies poses to world markets. Old paradigms, particularly those focusing on the Strait of Hormuz, no longer apply. If industry and financial experts priced in the actual risks to global energy supplies instead of focusing on unlikelier ones, world leaders might be more motivated to better ensure the security of global maritime transportation in the Red Sea.

Ellen Wald is a nonresident senior fellow with the Atlantic Council Global Energy Center and the co-founder of Washington Ivy Advisors.

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After Venezuela’s stolen election, here’s how the US should craft an effective sanctions policy

David L. Goldwyn — Thu, 12 Sep 2024 21:24:23 +0000

Venezuela’s political crisis is deepening, with worrying consequences for Venezuelans, the country’s neighbors, and the entire Western hemisphere.

The United States now faces a serious question of economic statecraft: how to design a set of policies that advances the cause of Venezuelan democracy by inflicting pain on the Maduro regime while minimizing the impact on the population, the region, and US interests.

In response, on September 12, the US Treasury imposed new sanctions targeting sixteen Maduro-affiliated individuals from the National Electoral Council, the Supreme Tribunal of Justice, and the National Assembly for impeding the electoral process and obstructing the release of the election results, while the US State Department imposed visa restrictions limiting their ability to travel or do business with the United States.

A broader approach, however, is needed. Washington must work with the opposition and regional allies, craft a smart sanctions policy based on lessons learned, and provide Venezuela’s leaders an exit strategy.

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How the opposition outfoxed Maduro

Venezuela’s democratic opposition launched a new strategy to contest what they knew would be a deeply flawed presidential election. Rather than boycotting the vote as they had done in the past, they unified the disparate opposition parties under one banner to contest national, regional, and local elections—and demonstrate the lack of popular support for the ruling United Socialist Party (PSUV) and its leader Nicolás Maduro.

The Unitary Platform held a primary that selected Maria Corrina Machado as its presidential nominee. It then supported a substitute nominee, Edmundo González Urrutia, when Machado was banned from participating in the election.

The opposition faced a great deal of intimidation throughout the process, and was keenly aware that Maduro would not give up power easily. The Unitary Platform was confident, however, that contesting the elections could dramatically transform Venezuelan politics and create the opportunity for change.

This approach succeeded in showing that the regime vastly overestimated its support across Venezuelan society. It’s now clear that González won by a wide margin—the opposition cleverly took photographs of the physical voting receipts and published them, demonstrating that Maduro lost the election.

The United Nations, the United States, and a number of Latin American countries have all recognized González as the winner. Brazil, Colombia, and Mexico have called for Venezuela to publish the results and have them independently validated as the constitution requires.

Maduro has instead doubled down by controlling decisions by the National Elections Council and Supreme Court, and calling for the arrest of González, who has escaped to Spain. With the military’s support, it now appears that Maduro will remain in power past the end of his term on January 10, 2025, despite his shameless lack of legitimacy at home and abroad.

The unintended consequences of sanctions

While the United States must support Venezuela’s democratic opposition, it must also consider the impact economic sanctions could have within Venezuela and across the Western hemisphere as a whole.

Harsh sanctions of the past—and fear of more to come—have substantially degraded the Venezuelan economy and created a migration crisis. Around 7.7 million Venezuelans have fled, mostly to neighboring countries, including nearly 3 million in Colombia alone.

The United States has also been deeply affected; on some days last year, as many as 3,000 Venezuelans attempted to enter the United States.

Energy is critical for changing Caracas’ behavior

Migration from Venezuela is driven by the state of the economy, which is determined by the level of oil production and exports, as well as the ability of Venezuela to produce adequate quantities of gasoline for transportation and diesel for power generation, public transport, agriculture, and industry.

The US Energy Information Administration estimates that Venezuela’s crude oil production has fallen from about 3.2 million barrels per day (bpd) in 2000 to just over 0.7 million bpd in September 2023. Sanctions have been a key driver of these declines. Until recently, Venezuela has had to sell its oil at steep discounts.

Exports in 2024 have averaged between 0.5 and 0.6 million bpd, with profound effects on national income. While modest in global terms, Venezuelan exports influence global supply and price, given the fragile world economy and severe sanctions on Russian and Iranian oil supplies.

Lessons learned

The challenge for the Biden administration is to craft a sanctions policy that incentivizes the Maduro regime to alter its behavior while minimizing harm to the population of Venezuela and its neighbors.

The United States has learned a great deal from past failures, including the maximum pressure campaign of the Trump administration, which banned US and non-US investment and trade in hydrocarbons with Venezuela. It resulted in mass migration from the country and major shortages of food and electricity.

All of this proved deeply unpopular in Venezuela, including among the opposition. It also proved wholly ineffective in dislodging Maduro.

Instead, a wise sanctions policy should have five key elements:

First, do no harm. An effective policy crafted over the past year licenses private companies to invest in Venezuela’s oil production as long as they control all material aspects of the project, including monies earned from oil sales. The only payments to Venezuela are for taxes and royalites deposited with the Central Bank.

This policy has been largely successful. It sustained and modestly expanded Venezuelan oil production, displacing Iran as a supplier of diluent, funneling Venezuelan oil to US and global markets, and reducing discounted oil sales to China. Specific licenses have also created a system of transparency and accountability, overseen by the US Treasury Department. This system should be expanded, rather than returning to the failed maximum pressure policy of the past.

Second, follow the lead of the opposition. Venezuela’s democratic opposition has called for punishing the regime and not regular Venezuelans. This is essential to the opposition’s political viability.

Recent polls show that large majorities of Venezuelans reject sectoral sanctions. While the opposition calls for continued pressure on the regime to release legitimate election audit results, it has not asked for additional economic sanctions.

Third, work with neighbors. Venezuela’s neighbors have a political, economic, and ideological stake in managing this crisis. While critical of the Maduro regime, neighboring countries have objected to further sanctions. Some, like Brazil, have even called for lifting existing sanctions.

Venezuela’s neighbors are suffering the most direct consequences of the crisis, given the number of migrants taking refuge in their countries. Even Mexico will be affected, as the United States continues to put pressure on it to prevent Venezuelans from crossing the border.

By working with partners, the United States is not subcontracting diplomacy, as some have claimed; it is building the most effective coalition possible. Whatever steps the United States takes would have direct consequences on those countries—all of them democratic allies—and their views should be respected.

Fourth, use smart sanctions that target members of the regime and their enablers. The United States announced new sanctions targeting these individuals, limiting their ability to travel or do business. It also impounded a presidential aircraft which violated US sanctions.

In the medium to long term, sanctioning regime leadership and their enablers could impact the decision-making of government officials, the military, and PSUV party leaders when deciding whether to pressure Maduro to leave.

Fifth, create an exit path for the regime. The regime and Maduro himself face prosecution if they leave power today. The military is deeply entrenched in the economy and their future role would be unsettled in the event of a political transition.

Therefore, a successful transition requires a pathway to avoid an existential risk to Maduro if he departs, as well as to the Chavista leadership and the military. Other countries have considered immunity, political participation, relocation, and power sharing as options. The sanctions imposed today are most useful as measures that can be revoked in the event of a better and more equitable political outcome.

Use sanctions wisely

It is tempting to resort to draconian measures that sound appealing on the campaign trail, but are counterproductive to US interests. The Biden administration should stay the course, focusing on sanctions against the regime and its members while ensuring that it does not aggravate the migration crisis Venezuela’s neighbors face today.

In turn, any future presidential administration must carefully calibrate its approach with an eye toward avoiding yesterday’s mistakes in the hope of a brighter tomorrow for Venezuelans.

David L. Goldwyn served as special envoy for international energy under President Barack Obama and assistant secretary of energy for international relations under President Bill Clinton. He is chair of the Atlantic Council’s Energy Advisory Group.

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The US government should build a Resilient Resource Reserve for wartime and peacetime

Gregory Wischer and Morgan Bazilian — Thu, 29 Aug 2024 19:35:44 +0000

In December 2023, the US House Select Committee on the Chinese Communist Party called for creating a Resilient Resource Reserve, which would “insulate American producers from price volatility and [China’s] weaponization of its dominance in critical mineral supply chains.” The committee recommended targeting minerals “with high volatility, low US domestic production volume, and [Chinese] import dependence,” such as cobalt, graphite, and rare earth elements, but it did not specify what the reserve mechanism would be—a physical stockpile, a financial reserve, or something else.

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If Congress proceeds—as it should—with creating a Resilient Resource Reserve, it should establish a physical stockpile that can meet the critical mineral demands of the US military in a major conflict, as well as influence domestic mineral prices to incentivize expanded US mineral production. This critical minerals reserve would differ from the Strategic Petroleum Reserve as it would directly use stockpile purchases to incentivize domestic production, and it would differ from the National Defense Stockpile as it would explicitly use stockpile purchases to influence domestic mineral prices.

Specifically, supplying the military means stockpiling the strategic minerals necessary to wage a large-scale and high-intensity conventional conflict with China for five years. For incentivizing mineral production, the US government should buy domestically produced minerals to establish price floors that would keep existing US mineral producers operational and incentivize investment in additional US mineral projects. By the same token, it could also sell minerals amid high prices to ensure supply access and create price ceilings that keep manufacturers in defense and other important sectors operational.

Historic precedent, contemporary shortcomings

Washington used to maintain robust mineral stockpiles. During the first decade of the Cold War, the US government stockpiled enough minerals to cover a five-year conflict with the Soviet Union. By 1962 this meant a reserve worth over $77 billion adjusted for current prices. This stockpile was housed at over two hundred locations, ranging from military depots to commercial warehouses, and it contained large-volume minerals like aluminum, copper, lead, and acid-grade fluorspar—some of the most commonly used minerals by the Department of Defense.

Today, the existing National Defense Stockpile is insufficient for supporting the US military in a major conflict. The stockpile targets enough inventories for just a one-year conflict with China, followed by a three-year recovery. Even so, the present reserve—which is worth only $912.3 million and stored at just six locations—meets less than half of the military’s estimated demand in this scenario. It also lacks any inventories of critical aluminum, copper, lead, and acid-grade fluorspar. Furthermore, the stockpile is meant only to be used during a national emergency, and it is not leveraged to incentivize domestic mineral production.

The China model

By contrast, China’s stockpile provides minerals to key sectors during national emergencies and influences mineral prices to support domestic producers and consumers. Illustrating its price influence, in 2016, China purchased copper at depressed prices from domestic smelters to keep them operational. Conversely, to address strategic supply concerns during the COVID-19 pandemic, China stockpiled copper at elevated prices. Again displaying its price influence, in 2021, China released copper from the stockpile to shield manufacturers in key sectors like the power grid from high prices—a far lower threshold than a national emergency.

The proposed Resilient Resource Reserve should operate similarly to China’s mineral stockpile. The first priority should be to stockpile sufficient reserves to fulfill military demand in a major five-year war with China. This includes, first and foremost, minerals needed to manufacture platforms and munitions that would be critical to winning a US-China conflict, including excess volumes for those minerals not mined in the United States or sourced from vulnerable East Asian countries like Japan and South Korea.

Building a stockpile to meet the challenge

In coordination with partners and allies, the US government should acquire these military-related minerals with urgency, given the serious consequences of shortages should a conflict arise before stockpile targets are met. That means purchasing domestic minerals if they exist in the necessary form, but also sourcing minerals quickly from overseas, including from China and Chinese companies abroad. This would not be unusual—during the Cold War, the US government purchased minerals for its stockpile from the Soviet Union. Similarly, China currently stockpiles much of its copper through imports due to its limited domestic production.

After securing a baseline level of strategic inventories, the US government’s second priority should be to purchase and sell additional minerals to favorably influence mineral prices for domestic industries. When prices are low and risk curtailing domestic mineral production, the government should purchase minerals for the Resilient Resource Reserve to boost demand. When prices are high and risk disrupting downstream manufacturing, the government should sell stockpiled minerals to the defense industrial base and other critical sectors.

Pulling the levers of the market

Both the purchase floor and sell ceiling should be above current prices to protect existing mines and incentivize further mine development. In 1957, the US government stockpiled chromium ore at $100 per ton when global prices hovered around $50 per ton. US mineral projects generally have higher capital and operating expenses than those in other countries and thus require higher prices to remain operational.

When prices are low, the US government should purchase minerals from domestic producers at fixed prices to set price floors. In one cautionary example, the final construction of the only US primary cobalt mine in Idaho was halted when oversupply caused by Chinese companies depressed prices and rendered the operation unprofitable. However, if the US government were to purchase high-purity cobalt from domestic producers at $25 per pound, this price floor could support existing projects and incentivize new mines and refineries.

Conversely, when prices are high, the US government could sell minerals at lower fixed prices to key sectors, setting price ceilings. For instance, Russia’s invasion of Ukraine caused cobalt prices to exceed $40 per pound by April 2022. The US government could protect against future volatility by selling stockpiled cobalt to the defense industrial base at $40 per pound. When releasing from the stockpile, the US government should prioritize selling minerals to manufacturers of platforms and munitions important in a US-China conflict.

A reserve made in America

Because one of the core aims of the Resilient Resource Reserve is to expand US mineral production, Washington should procure domestic minerals for its non-military mineral inventories. This approach has precedent. Early in the Cold War, the United States sought to protect and expand domestic mineral production through stockpiling. Under Title III of the Defense Production Act, the US government guaranteed that it would buy certain minerals from domestic producers at fixed prices—for example, it promised to buy domestic copper mines’ expanded production at $0.245 per pound. It took similar action with aluminum, causing US production to double from about 720,000 tons in 1950 to nearly 1.6 million tons in 1955.

Likewise, the US government in 1951 guaranteed that it would purchase all domestically produced tungsten at $3.9375 per pound for five years or until 24,000 tons were stockpiled. Consequently, tungsten mine production increased from 2,000 tons in 1950 to almost 8,000 tons in 1955, which was then the highest level in US history—and virtually all of it was destined for the national stockpile.

While the United States lacks extraction and refining for many minerals, the US government should still only purchase domestic minerals for its non-military inventories so that government demand drives new mineral projects. For instance, in the 1950s, the US government guaranteed that it would pay premium prices for cobalt from the St. Louis Smelting & Refining Division of National Lead Co., incentivizing the firm to build a new cobalt refinery in the United States.

Stockpiling for wartime and peacetime

By building a sizable physical stockpile, a Resilient Resource Reserve could help mitigate supply disruptions to the US military in a major conflict while also incentivizing US mineral production. Both the US government’s mineral stockpiling in the early Cold War and China’s mineral stockpiling today demonstrate the effectiveness of such a stockpile. All that remains is for Congress to act.

Gregory Wischer is a nonresident fellow at the Payne Institute for Public Policy at the Colorado School of Mines.

Morgan Bazilian is the director of the Payne Institute for Public Policy and a professor of public policy at the Colorado School of Mines.

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Japan’s economic revitalization requires nuclear energy

Lauren Hughes, Maia Sparkman — Sun, 11 Aug 2024 19:46:16 +0000

After decades of sluggish growth, Japan’s economy may be turning a corner. The government is pressing ahead with initiatives to promote population growth and expand energy-intensive industries, particularly artificial intelligence (AI) and semiconductors. But current energy policies are not accounting for increased demand driven by these growth efforts.

However, Japan is taking positive steps in restarting its nuclear reactors under new security and safety measures established after the Fukushima Daiichi accident in 2011. The government recognizes nuclear energy as an important source of baseload electricity generation that can help achieve Japan’s climate targets and bolster energy security to hedge against the volatility of global fossil fuel import markets. To power its economic growth and competitiveness, Japan must continue restarting its existing fleet and commit to the eventual construction of next-generation advanced reactors.

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Japan’s climate and energy security strategy

Japan’s energy system is transforming to decarbonize and ensure energy security. The government’s “S Plus 3E” strategy is based on the four pillars of safety, energy security, economic efficiency, and the environment. To advance these objectives, the government is targeting an electricity mix in which nuclear constitutes 20-22 percent of generation by 2030, alongside a 36-38 percent share for renewables, 20 percent liquefied natural gas, 19 percent coal, and 2 percent oil.

Japan has some offshore wind capacity—currently 0.25 gigawatts (GW)—and ambitious goals of achieving 10 GW by 2030 and 30-40 GW by 2050 under its feed-in-tariff (FIT) scheme. The 2012 FIT significantly boosted solar generation, increasing installed capacity from 5.6 GW before 2012 to 70 GW by May 2023. However, solar deployment has slowed recently due to a shortage of land and grid congestion.

In February 2023, the government announced its Basic Policy for the Realization of GX (Green Transformation), Japan’s vision for a virtuous cycle of emissions reductions and economic growth. The GX Promotion Strategy, adopted in July 2023, identifies support for nuclear power as one of several necessary policies to provide a steady supply of energy. Public approval of nuclear energy has steadily increased since the Russian invasion of Ukraine. In 2023, a majority in Japan favored restarting the existing reactor fleet.

New momentum for nuclear

As of fiscal year (FY) 2022, nuclear energy constituted 5.6 percent of Japan’s electricity production, a significant decrease from 25 percent in FY 2010, the year before the Fukushima Daiichi accident. In the last few years, nuclear generation has recovered steadily, despite remaining well below pre-2011 levels. Nuclear also holds great promise for repowering retired coal-fired power plants, providing firm generation for data centers and semiconductor facilities, producing industrial heat and hydrogen, and powering Japanese industries participating in a growing export market.

Japan operated over fifty nuclear reactors before the accident; as of May 2024, thirty-three reactors are classed as operable. However, only twelve reactors—of the twenty-seven that have applied—have met new regulatory requirements and received approval from the Nuclear Regulation Authority (NRA) to restart. Ten remain under the authority’s review and must obtain local government consent before restarting. Notably, Tsuruga Unit 2 could be the first to be denied restart approval under post-Fukushima regulations, due to its proximity to fault lines and failure to meet new seismic regulatory requirements.

Two notable plants being queued for restart are at Onagawa and Shimane. The Onagawa Nuclear Power Station, which utilizes boiling-water reactors (BWRs), will likely be the first BWR to resume operation in Japan since the 2011 earthquake. This restart is a powerful step toward advancing Japan’s S Plus 3E objectives.

Safety improvements learned from the Fukushima Daiichi accident, such as tsunami walls and earthquake reinforcements, have been implemented for the existing fleet. The restart process has taken over a decade, with continuous reviews and updates required by the NRA. Japan should glean lessons from Onagawa Unit 2’s upcoming reconnection process to refine technical, operational, and regulatory efficiencies for other pending BWR restarts. Improving the clarity and predictability of the regulator’s heightened post-Fukushima safety requirements will also be essential.

Increasing or decreasing demand?

Japan’s government currently projects that energy demand will decrease as a result of a declining population and successful energy efficiency measures. However, these projections have yet to reflect the government’s plans to boost energy-intensive industries and reverse Japan’s population decline.

Japan’s birth rate has been declining since the 1970s, reaching an all-time low in 2023 with only 727,277 births for a population of 125 million. Prime Minister Fumio Kishida has committed to doubling government spending on child-related programs and established the Children and Families Agency in an attempt to reverse this trend. If successful, the government will need to revise its expectations that falling birth rates will contribute to plummeting energy demand.

Economic growth is also challenging those assumptions. The domestic semiconductor industry is growing, with Taiwan Semiconductor Manufacturing Company (TSMC) investing $20 billion for two plants in southwest Japan, one of which opened in February 2024. Micron Technology intends to build a manufacturing facility in Hiroshima, and Tokyo-based Rapidus aims to build a facility in northern Japan, an effort reinforced by $6 billion in government support.

Rapid adoption of new AI tools is boosting Japan’s economy and tech sector. Digitalization gained momentum during the pandemic, and tech giants like Microsoft—which is investing $2.9 billion in AI data centers over the next two years—and Oracle—which is planning to invest over $8 billion in cloud computing and AI within the next decade—underscore this AI boom.

These factors are expected to increase power demand significantly. The International Energy Agency forecasts that data centers and data transmission services—and their insatiable appetite for electricity—could double their power consumption between 2022-26. This level of growth is already being seen in some markets. In the United States, a recent Energy Information Administration survey found that, because of large-scale computing facilities, commercial demand for electricity generation surged by 27 billion kilowatt-hours in Texas and Virginia from 2019-23, and increased by 40 percent in North Dakota over the same period.

As a result, Japan’s Ministry of Economy, Trade and Industry (METI) is supporting the restart of nuclear power plants to meet growing energy needs, particularly to backstop load growth from its expanding tech and AI industries. METI’s Advisory Committee for Natural Resources and Energy will no doubt capture these emerging dynamics in its forthcoming seventh Strategic Energy Plan, currently under discussion and expected later this year.

Moving forward with nuclear energy

In August 2022, Kishida proclaimed that restarting idled nuclear power plants is a strategic imperative to avert crisis and secure Japan’s electricity supply, urging additional units approved by the NRA be brought online.

Echoing this sentiment at the March 2024 Nuclear Energy Summit in Brussels, Kishida said, “Japan will work to push forward the restart of nuclear power plants, extend their operational periods, and foster the development and construction of next-generation advanced reactors.”

Japan has moved to utilize its existing nuclear power units and restarted twelve reactors. It is imperative, however, to look to the future when the existing fleet will need to be replaced and new reactors built. To create a favorable business environment and enable utilities to construct next-generation advanced reactors, policies that promote large initial capital investments and improved business predictability are crucial. Additionally, the nuclear industry struggles with an aging workforce and an illiquid market for skilled labor, necessitating sustained investments in human capital and a strengthened talent pipeline. Japan must also work to bolster supply chains needed for eventual plant construction and operation. Moreover, if Japan is to compete in the global market—and team up with the United States and other like-minded countries on reactor export tenders—efforts such as the Nuclear Supply Chain Platform are essential and will enable the Japanese nuclear workforce to maintain expertise.

To overcome these challenges, Japan must maintain positive momentum and implement robust measures to support the nuclear sector, ensuring it can meet growing electricity demand and secure its energy future. Nuclear power plants are not solely physical components of critical electrical infrastructure; they are long-term strategic assets that generate clean, firm power and can strengthen green growth strategies, as articulated in Japan’s GX policy. Japan can harness its existing fleet and leverage its technical prowess to secure and invest in a brighter economic future.

Note: This blog post is based on the authors’ recent trip to Japan, having attended a workshop on advanced reactor technologies at Tohoku University in Sendai. The authors wish to thank Tohoku Electric Power Company for hosting a tour of Onagawa Nuclear Power Station in May 2024.

Lauren Hughes is the deputy director of the Nuclear Energy Policy Initiative at the Atlantic Council Global Energy Center.

Maia Sparkman is the former associate director for climate diplomacy at the Atlantic Council Global Energy Center.

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Pragmatism can improve Mexico’s energy outlook

David L. Goldwyn and Antonio Ortiz-Mena — Wed, 31 Jul 2024 21:17:59 +0000

Claudia Sheinbaum’s seismic victory in Mexico’s presidential election is certain to have material impacts on energy and investment in Mexico. Much will depend on her predecessor, President Andrés Manuel López Obrador (AMLO), and his government’s final actions before Sheinbaum takes office, as well as the composition of her cabinet.

It is a crucial time in Mexican energy politics. While there are important challenges to address, Sheinbaum’s initial moves are a promising beginning to maximizing Mexico’s economic potential, which requires significant investment in clean energy.

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Uncertainties complicate investment in clean energy

Under Mexican law, the new Congress takes office on September 1, but the new president takes office on October 1. The current government intends to present constitutional reforms to the new Morena-dominated legislature—the ruling party that will now likely have a supermajority—in a manner that could challenge certain policy adjustments by the new government. To that end, AMLO has stated that electoral and judicial constitutional reforms are his legislative priorities—repealing the 2013 energy reforms, which enabled an influx of foreign and private investment in Mexico’s energy sector during the mid-2010s, is not.

The outgoing government introduced complexities to private investment, especially in clean energy. These include suspending auctions in oil, gas, and clean energy, giving priority to the state electricity system operator CFE’s established fossil-based generation over cleaner and cheaper alternatives, and suspending implementation of the clean energy certificate program, which incentivized conversion to less carbon intensive electricity. Several of these actions are now the subject of disputes under the United States-Mexico-Canada Agreement (USMCA), and have disincentivized foreign investment in manufacturing, due to companies’ strict carbon-emission reduction targets—for them to set up shop or expand in Mexico, they require access to clean energy.

The government has also taken steps to prioritize Mexico’s long-established fossil-based power sector, but production by national oil champion Pemex is at historic lows despite a consistent influx of federal spending to revive the flagging company, which faces a looming debt crisis. Meanwhile, CFE is struggling to power Mexico’s growing economy amid the burdens of extreme heat and other climate-exacerbated energy challenges.

The federal government is in a challenging fiscal position, as its budget deficit is forecast to grow this year. In addition, there appear to be adverse market reactions to controversial, proposed judicial reforms, which include appointing judges by popular vote. Some foreign investors remain cautious, particularly in the energy sector.

Mexico’s golden economic opportunity requires clean energy to sustain it

Despite these investment challenges, Mexico holds vast potential as a nearshoring destination. For Mexico to capitalize on the USMCA and its proximity to the lucrative US export market, it will need to expand its energy supply not only for manufacturing, but also to power artificial intelligence use by data centers, which will increase demand for clean energy exponentially.

It will be in the interest of both US government and energy industry stakeholders to help Sheinbaum find a way to navigate among Morena’s different groups to develop a pragmatic policy approach that moves forward Mexico’s energy security and transition while maintaining a leading role for Pemex and CFE, which remains a central element of Morena’s policy platform. Public-private partnerships of many forms can be part of the solution.

It will be challenging but possible for Sheinbaum to retain the primacy of Pemex and CFE while also giving foreign and domestic investors full confidence that they will receive permits to build and obtain reasonable returns without fear that a popularly elected judiciary and weaker national regulators will undermine their projects.

Serious policymakers will be in charge

Sheinbaum wants to make her own mark on history as the first female president of Mexico, but faces a tough road ahead. The most important benchmarks will be her cabinet appointments, her commitment to a predictable and transparent policymaking process, and her engagement on the USMCA, which comes up for review in 2026.

The composition of Sheinbaum’s cabinet will be an indication of her intent to meaningfully address Mexico’s energy and fiscal challenges. So far, the news is positive, with serious policy professionals being tapped for high-level appointments. Current Finance Minister Rogelio Ramírez de la O, who is familiar with the overall fiscal challenge, including that posed by Pemex and CFE, is slated to remain in his post. Former Foreign Minister Marcelo Ebrard, a highly experienced and capable politician, was named economy minister and will play a steadying hand. Luz Elena González, an economist who until recently was finance secretary of Mexico City, will be the secretary of energy, demonstrating that the government understands the relevance of public finances for energy policy. Finally, current Foreign Minister Alicia Bárcena, who is experienced in environmental issues, will become environment minister and could be a relevant actor on energy transition.

The path forward

Sheinbaum’s commitment to clear, predictable policies will be an important marker of her style of governance. This can send positive signals to investors in areas such as energy import permits and infrastructure investment. Her approach to the 2026 USMCA review—which will be deeply impacted by whoever wins the US presidential election in November—will be another test of the Sheinbaum administration’s ability to navigate a delicate bilateral relationship. That review will be a top-line issue for both the US and Mexican governments, and early consultations are already underway. Energy will loom large in this review; both the US government and private stakeholders have a powerful motivation to ensure that energy disputes do not undermine the USMCA—they need it to remain strong enough to provide certainty for the wider cross-border relationship.

Sheinbaum has much to gain from reassuring investors, capitalizing on Mexico’s advantages in nearshoring, and addressing the country’s slow energy transition. She can creatively design a framework that respects Morena’s political stance on energy while increasing investor confidence. Sheinbaum will be looking for able and willing partners to craft solutions that maximize the potential of foreign investment and job creation in Mexico. Undoubtedly, the energy industry and civil society on both sides of the border all have a major interest in helping her succeed.

Antonio Ortiz-Mena is a professor at the Center for Latin American Studies, Walsh School of Foreign Service, Georgetown University, and a partner at DGA Group.

The views expressed are the sole responsibility of the authors and not necessarily those of any institution with which they are affiliated.

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European energy security requires stronger power grids

Andrei Covatariu — Wed, 24 Jul 2024 20:47:50 +0000

In 2022, 63 percent of all energy consumed in the European Union (EU) was imported. Europe’s energy generation gap has come into focus amid the energy security challenges stemming from Russia’s full-scale invasion of Ukraine. But while Europe has weathered the storm, in part by deploying renewables and accelerating electrification, there is a pressing need to strengthen the backbone of a decarbonized energy system—Europe’s power grid.

A mismatch between supply security, climate ambition, and grid capacity

Upgrading electricity grids to enable decarbonization is a worldwide issue. The International Energy Agency (IEA) estimates that global grid investments must double to reach $600 billion per year by 2030 to meet nationally set climate objectives. In Europe, a recent study by Eurelectric suggests that the EU and Norway must invest €67 billion in grids per year to realize carbon neutrality by 2050.

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As the EU aims to reach a 42.5 percent—ideally 45 percent—share for renewables in its total energy mix by 2030, grid capacity must keep pace with rapidly growing clean energy generation.

Europe overall, including the UK, is making progress on renewable deployment, but a mismatch in grid capacity is already causing significant challenges. In Britain, for example, the connection queue for generation, storage, or energy-consuming projects waiting to be connected to the grid is projected to reach 800 gigawatts by the end of 2024. Grid congestion is also a major problem in the Netherlands, with industry and households asked to reduce demand at peak times to avoid blackouts. In Romania, a boom in state-backed prosumers without adequate storage facilities is placing significant stress on the grid.

Building the grid of the future

Currently, cross-border interconnections within the EU limit the amount of electricity that can be imported or exported, creating significant price discrepancies between neighboring states. Expected increases in electricity demand due to electrification will only exacerbate these distortions.

Enabling greater cross-border electricity trade is a must for solidifying energy security and solidarity across Europe. New high-voltage transmission lines could convert intermittent renewable generation into more baseload-like output by quickly moving excess clean electricity to regions in deficit.

To this end, debate continues in Brussels over creating an EU-wide supergrid that would enable high volumes of electricity to be transported across the continent. This would help level energy prices across borders, reduce equity concerns, and improve supply security over the short and long term.

Furthermore, the difficulties in predicting renewable energy generation and adapting consumption accordingly requires the digital transformation of energy grids. Digitalization can further integrate renewable generation through smart meters and smart appliances that can accurately forecast output and match it with flexible electricity consumption. This can help minimize grid congestion and enhance resilience in the face of intermittency.

Additionally, new sensor and software platforms can enable predictive maintenance that reduces the time infrastructure is out of service. Digital twins—virtual representations of physical power grids—use data analytics to model various scenarios, leading to higher operational efficiency, increased asset lifespan, and optimized energy flow. While a highly digitalized energy grid may also increase cyber threats, other sectors have demonstrated over decades that these threats can be mitigated through strategies that include rapid incident reporting to limit malware spreading and investment in threats monitoring systems.

The unavoidable but necessary cost

Upgrading and extending the grid would translate into higher tariffs paid by European end-users, who have already struggled with energy affordability. A spike in network tariffs could lead to negative social, economic, and—eventually—political consequences, as was seen during EU-wide protests in 2022, triggered by increasing energy bills.

Although these investments will impose direct and indirect costs on consumers in the short term, they will unlock over the medium and long term increased electrification and pass decreasing renewable generation costs onto rate payers. Today, onshore wind and solar photovoltaic energy are cheaper than new fossil fuel plants almost everywhere. The average cost of variable renewable energy generation is expected to drop further, from a levelized cost of electricity of $155 per megawatt hour in 2010 to $60 in 2028.

To finance these upgrades while minimizing the negative impacts on rate payers, new earmarked EU funds could complement tariff-based network revenues. While this has not been done before in advanced economies with complex electricity systems, policy innovation is required to keep the EU’s ambitious 2030 targets alive.

Not investing in transmission and distribution would jeopardize both European energy security and climate ambitions. By stalling deployment of renewable generation and thereby the electrification of heating and transport, failing to invest in the European grid would prolong high levels of fossil fuel imports. This would keep energy bills high, leave Europe exposed to fossil fuel supply insecurity, and place at risk Europe’s social and political fabric.

Bottlenecks to be addressed

Beyond financing challenges, building power infrastructure is notably slow. In Europe in particular, permitting procedures cause significant delays. The IEA highlights that the United States and EU have the longest deployment times for distribution—around three years—and transmission lines—between four and twelve years. The COVID-19 pandemic has made the problem worse, creating high demand while constricting supply for power grid components.

Regulatory frameworks are also constraining grid development. While the regulation of these natural monopolies has evolved in Europe to liberalize and unbundle the sector, national regulatory authorities need to deal with greater uncertainty; for instance, the rate of electrification and improvements on energy efficiency are difficult to predict. They will need to manage increased investment while encouraging innovation and keeping tariffs in check. Energy regulators must learn from previous experience, respond to current challenges, and anticipate future trends—all at the same time.

The overlooked factor in European energy security

Energy security in Europe hinges on the state of its power grids. As reliance on renewable energy and electrification grows, existing grid infrastructure is struggling to keep pace, causing congestion and delays. Substantial investments in grid upgrades and modernization are essential for integrating renewables, accelerating the electrification of heating and transportation, building technical redundancies to enhance resilience, combatting cyber threats, and protecting against extreme weather events.

While difficult to sell politically, investments in grid infrastructure will ultimately pay off in lower energy bills for consumers and industry, compared to a business-as-usual scenario. Failing to achieve these objectives will imperil Europe’s security of supply and its capacity to build a resilient energy future.

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The case for investing in Ukraine’s energy future

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Despite uncertainty over when the war will end and corruption in Ukraine, international investors should see Ukraine’s energy reconstruction as an opportunity to create a European energy leader.

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What to do about Russia’s energy trojan horse

By Olga Khakova, Charles Lichfield

The future of Gazprom’s piped deliveries to Europe looks bleak. However, Europe has no binding timeline for phasing out Russia’s growing LNG exports. Reducing these import will be critical to bringing Ukraine closer to victory and for securing Europe’s energy system.

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Clean industrial policies: A space for EU-US collaboration

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EU-US tensions over clean industrial policy could derail the energy transition. Collaboration on equal footing would bolster collective security and drive emissions reductions to new levels.

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Chevron deference is dead—and US climate action hangs in the balance

David L. Goldwyn, Andrea Clabough — Thu, 11 Jul 2024 18:56:36 +0000

In a seismic ruling, the US Supreme Court overturned the long-standing “Chevron deference” in its decision for Loper Bright Enterprises v. Raimondo. The ruling was not specifically concerned with energy or climate policy. But its consequences for US decarbonization are profound.

The ruling creates deep complications for the Joe Biden administration’s energy and climate agenda. But it also highlights their significance for the upcoming presidential election.

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The death of deference

The landmark 1984 ruling in Chevron U.S.A., Inc. v. Natural Resources Defense Council centered on the prerogatives of federal agencies to interpret existing—and potentially decades-old—federal laws. Under the precedent enshrined as “Chevron deference,” agencies were allowed a wide berth to interpret federal laws where they were unclear or ambiguous on a specific issue. Chevron deference has proven valuable to administrations of every political inclination for forty years.

The end of deference represents a monumental shift in regulatory authority away from agencies and their technical experts—now merely accorded “respectful consideration”—and toward the hundreds of federal judges seated throughout the country.

Judges are empowered as arbiters if and when a given statute is ambiguous. They thus determine whether an agency’s interpretation of its authorities—as expressed in agency-delivered regulations—is valid. This outcome creates a more complex legal system surrounding every regulatory intervention, potentially creating a patchwork of interpretations across the ninety-four US federal judicial districts.

This development has implications for any future administration. Regardless of the outcome of the November election, both candidates must contend with the new realities of enacting their respective energy and climate visions without Chevron deference.

Overruling net zero?

For the Biden administration, the ruling undermines its sweeping regulatory efforts toward economy-wide decarbonization. Already, key agencies such as the Environmental Protection Agency (EPA) and the Securities Exchange Commission have likely anticipated this court could end the Chevron deference, tailoring their recently finalized regulations accordingly.

But the Biden administration’s marquee regulations could now be challenged in whole or in part for straying too far from the letter of their foundational laws. If so, any federal judge could rule against that perceived overextension of an agency’s statutory authority.

The fate of the EPA’s regulation for fossil-fueled power plants will be a litmus test. Finalized last April, it’s expected to be extensively litigated and eventually reach the Supreme Court. Democratic leaders have anticipated this, confirming within the 2022 Inflation Reduction Act (IRA) that greenhouse gases, including carbon dioxide, are air pollutants, giving the EPA the explicit authority to regulate it.

However, this legislative amendment does not necessarily insulate the EPA from scrutiny of how it regulates the newly labeled air pollutant—for example, by encouraging changes in generation mix, implementing power plant-level regulations not explicit within the original Clean Air Act, or, most recently, mandating the adoption of carbon capture.

This Supreme Court’s string of recent rulings, from West Virginia v. EPA and the stay of the “good neighbor rule” to extending the timeline for a federal rule to be challenged, suggests that the bench views the EPA’s authority as far more limited than the Biden administration does.

Crucially, the Loper ruling has limitations of its own. Per the majority opinion, it will not apply retroactively, meaning that previously decided cases where agency deference was at play cannot be reopened. Perhaps even more importantly, the ruling applies specifically to the federal government and not to local, state, or regional administrations.

Even if the EPA and other agencies find themselves confined to strict readings of their statutory authorizations, state regulations—including clean energy and renewable portfolio standards—cannot be challenged on this basis. On the contrary, a state attorney general could instead leverage the end of Chevron deference as a new opportunity to litigate regulations from the federal government not aligned with their state’s climate and energy goals.

Beyond November, the end of agency deference could destabilize the Biden administration’s climate agenda in a re-election scenario. Implementation of the IRA is likely to be hampered by lawsuits, and agencies may see newly issued regulations and guidelines—such as the controversial hydrogen guidance pertaining to Section 45V—become fodder for litigation. The same could be true for federal permitting and siting procedures.

Federal agencies may find it less cumbersome to simply issue broad, performance-based regulations that set a widely applicable standard, such as to power plants. These could allow for a wide range of approaches to meet a given standard rather than prescriptive rules mandating specific technologies or fuels. Programmatic approaches that concern major statutes, such as the Endangered Species Act, Clean Water Act, and others, may also become the preferred means to simplify environmental reviews and preclude challenges.

Not so clear a victory

The extensive media coverage of the Loper decision has framed the outcome as an unequivocal boon to Donald Trump’s agenda, particularly in the energy and climate landscape. To some extent, this perspective is justified; a new Trump administration will leverage this ruling as justification to back away from addressing environmental or climate challenges beyond the bare minimum mandated by existing statutes.

However, agencies have long been criticized by stakeholder and environmental organizations for hiding behind Chevron deference for inadequate enforcement of environmental laws. A Trump administration, which aims for the floor, but can no longer rely on Chevron deference for protection, may discover that such lawsuits have become more numerous and disruptive.

Moreover, not every congressional statute on energy and environmental matters is ambiguous. A new Trump administration attorney general would struggle to argue that the IRA’s methane fee cannot or should not be enforced, as this requirement is explicit in the law.

There are other, more subtle, pathways to undermine the IRA and other major Biden-era climate achievements if a Trump administration were set on doing so—namely, by doing as little as possible.

The 45V credits are instructive. If a given Internal Revenue Service regulation for this section of the IRA were challenged in court as being outside the letter of the original law, it could be thrown out in a post-Loper world where agency deference is no longer assumed. A Trump administration, gifted this development, could simply refuse or delay issuing new guidance if it were uninterested in abetting the emergence of a US clean hydrogen industry.

This tactic would undermine investment certainty for large, expensive projects across technologies and fuel types while technically keeping the IRA on the books. This approach, however, assumes that federal courts will agree with sharply limited interpretations of ambiguity and not rule against thin regulations or force a Trump administration to issue guidance whether it wants to or not.

If agency deference is no longer axiomatic, then a conservative administration risks similar pushback in interpreting laws to suit ideological preference and policy goals. In a post-deference world, such an administration might face legal challenges in, for example, attempting to extend the lifetimes of operating coal plants, as much as a more liberal administration might face challenges for creative attempts to phase coal out of the US generation mix.

A volatile patchwork lies ahead

Fundamentally, the end of Chevron deference implies a new era of volatility in the legal and regulatory landscape for US energy and climate policy. Everyone from project developers and operators to investors and local stakeholders should prepare accordingly.

While federal judges are newly empowered to intervene, the Supreme Court cannot adjudicate every potential dispute in the handful of cases it reviews in a given year. As a result, it will take any suit years of litigation to reach that level—if at all—making the rulings of lower federal courts more important than ever before. Judicial opinions are likely to vary widely, making the location and timing of a suit paramount to its outcome.

For project developers, this uncertainty compounds an already serpentine US permitting landscape. Depending on which administration is in control after 2024, it is conceivable that environmental and social justice considerations around projects are given less weight than had Chevron deference been maintained. Going forward, an agency may be less inclined to propagate criteria or guidelines that would allow refusal of a permit on the basis of considerations not explicitly prescribed in existing laws. Confined to their statutory foundations, agencies may therefore be inclined to decide on leases and permits more quickly. But with fewer creative tools to mitigate project impacts authorized in their foundational statutes, agencies may simply lean toward faster denials.

Ultimately, however, the Supreme Court is the likely final stop for all major regulations going forward, implying greater uncertainty, circuitous timelines for judicial review, and whiplash aligned to the winds of political change in the executive branch. This could foster a scenario where climate action is largely blocked by the courts, and Congress is unable to meaningfully amend or write new laws to clarify the exact role of the federal government in addressing the climate crisis.

That prospect, and its implications, could exacerbate societal tensions at a time of deepening alarm over our global climate future.

Andrea Clabough is a nonresident fellow at the Atlantic Council Global Energy Center and a senior associate at Goldwyn Global Strategies, LLC.

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The UK sets a path for clean, affordable energy—and renewed climate leadership

Charles Hendry — Tue, 09 Jul 2024 16:24:21 +0000

The new United Kingdom administration is one that is passionate about clean energy and the energy transition. But first, to understand its approach to energy policy, it is important to understand how this new government will operate.

Prime Minister Keir Starmer’s pitch is that the government will be focused on “mission delivery” with mission delivery boards chaired by Starmer personally. He has said that his approach to all issues will be “country first—party second.”

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Almost all members of the Shadow Cabinet have been appointed to those same portfolios in government and, in addition, Starmer has also brought back some former ministers from the Tony Blair/Gordon Brown years. They are all therefore familiar with their portfolios, widely respected, and able to hit the ground running. It is also clear that the prime minister wants to work closely with the private sector in order to make early progress on the government’s priorities.

Ed Miliband has been appointed as secretary of state for energy security and net zero. This is broadly the role he held when Labour was last in government before 2010, so he knows the issues well and is a genuinely passionate advocate for tackling climate change and delivering net zero.

With the UK government now one the most secure among the large western nations (with a five-year mandate and a very large majority), the United Kingdom is expected to reassume a leading role in the international discussions on climate change. As the only country to have reduced its carbon emissions by over 50 percent since 1990, many will welcome that leadership once again.

In most areas, there will not be a huge difference in UK government energy policy under the new administration, but there will be a few distinct changes.

Labour has set a very challenging target to decarbonize the electricity grid by 2030. Until there is much more detail about how this can be done, industry will understandably be skeptical about the feasibility of such a goal, the costs involved, and how local communities will be brought on board. This will involve a significant further commitment to renewables, including a welcome early announcement to end the ban on onshore wind. The United Kingdom’s success in developing offshore wind will be continued.

There is evident government support for new nuclear, including next generation small modular reactors, and in the longer-term for fusion. The government wants to see a significant role for hydrogen and for tidal power, but these cannot deliver at scale in time for the 2030 target, so expect to see an acceleration of carbon capture utilization and storage programs. Starmer has spoken recently about the continuing role for gas in the mix, to deliver energy security, and this can only happen if its use can be decarbonized.

Labour is committed to ending the granting of new oil and gas licenses for the North Sea, while respecting the licenses that have already been issued. In reality, these would be for field developments that are many years off, so they would not make any significant difference to the United Kingdom’s energy security in the short-term. Of more immediate impact, there will be a new levy on companies operating in the North Sea oil and gas sector, and here the detail will be crucial—if not done carefully, companies may simply choose to leave the United Kingdom, as many have already done.

At the heart of its energy policy, there will be a new government organization, Great British Energy, and although its full details are still to be clarified, its purpose is to drive forward the clean energy sector and accelerate the transition. If done properly, it will help ensure the roll-out of the grid infrastructure needed to harness the wealth of renewable energy that the United Kingdom has in abundance.

Also of value will be greater attention on issues that have not had the attention they deserve, such as energy efficiency, decarbonizing heat, and an acceleration of demand-side response measures that are already starting to transform the electricity market. The government already knows that the success of its energy policy will be judged in large part by whether people can afford their bills.

Sadly, energy rarely seemed to be center-stage under the Conservative government (unless in response to a crisis), and that seems to be changing fast. There is already a sense that energy deeply matters to this administration—not just to deliver energy security but as an economic driver, helping to decarbonize homes and businesses, and creating a mass of new green jobs.

As a former Conservative energy minister, I wish this new administration well. If they can get these policies right, they stand a very good chance of delivering the holy grail in energy terms—clean, and secure energy, at a price people can afford.

Charles Hendry is a distinguished fellow with the Atlantic Council Global Energy Center, a former member of the UK Parliament, and former UK minister of state for energy.

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Bangladesh’s air quality is among the world’s worst. What can be done?

Joseph Webster, Natalie Sinha, and Sarah Meadows — Tue, 25 Jun 2024 22:53:39 +0000

Bangladesh is grappling with a severe air quality crisis. Recent reports highlight pollution’s impact on the nation’s health, economy, and environment. Bangladesh urgently needs to balance growth, sustainability, and energy access to enhance the well-being of its population. But the country faces profound challenges in moving toward a safer and more equitable energy system.

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Bangladesh’s air quality crisis

The air quality index (AQI) measures air pollution through levels of PM2.5, fine particulate matter small enough to penetrate the lungs and enter the bloodstream. This past decade, PM2.5 concentration in Bangladesh’s capital, Dhaka, came in at a yearly average of 77.1 micrograms per cubic meter (μg/m³), more than eight times higher than the US Environmental Protection Agency’s health-based PM2.5 standard of 9.0 μg/m³ per year.

Bangladesh’s alarming AQI has many causes, including vehicle emissions, industrial discharges, and the widespread use of kilns to make bricks. These are all exacerbated by the absence of stringent environmental regulations and enforcement.

This extreme level of air pollution exacts a severe human toll. Particulate pollution has reduced the average life expectancy in Bangladesh by 6.9 years. By contrast, the next-biggest health hazard in the country—tobacco use—reduces life expectancy by 1.6 years, while child and maternal malnutrition in Bangladesh are responsible for a 1.4-year decrease. Pollution in Bangladesh not only has a dire immediate health impact; it poses negative long-term consequences on the well-being and productivity of its population.

Rising incomes, rising emissions

Bangladesh’s level of carbon emissions are also rising, tied to increasing levels of development fueled by hydrocarbons. Between 2010 and 2022, Bangladesh’s annual per capita income rose by three-and-a-half times to reach nearly $2,700 in real terms. Over the same period, Bangladesh’s consumption of oil and coal rose by factors of three and six, respectively. Natural gas consumption also rose by 52 percent.

While greater economic growth has improved living standards in Bangladesh, air quality has worsened. A World Bank study found that average annual PM2.5 concentration levels in Dhaka rose from 84 μg/m³ in 2013 to 106 μg/m³ in 2021.

Bangladesh’s growing use of fossil fuels has not only worsened air pollution, it has also contributed to climate impacts, which will increasingly produce negative economic effects. The United Nations Intergovernmental Panel on Climate Change says Bangladesh could lose 2 to 9 percent of its GDP from more frequent natural disasters like tropical cyclones and severe flooding.

It’s important to note, however, that Bangladesh’s use of coal pales in comparison to other regional actors. According to data from the Energy Institute, China’s consumption of commercial solid coal fuels exceeded Bangladesh’s by more than 325 times in 2023. So, while the world should seek to mitigate Bangladesh’s coal consumption, the country only contributes about 0.4 percent of all world emissions, even as China accounted for about 27 percent of greenhouse gas emissions in 2021, according to Climate Watch.

Nevertheless, if Bangladesh’s use and import of coal remains on its current trajectory, 2024 is poised to break national emissions records—and, more significantly—degrade its air quality and economic goals. Importantly, Bangladesh’s coal use could harm its export abilities as the European Union and other jurisdictions impose carbon border adjustments.

Bangladesh’s difficult transition to clean energy

Bangladesh’s poor air quality is disproportionately large compared to its overall carbon footprint. The country contributes less than 1 percent of global carbon emissions, yet its cities have some of the worst AQI scores in the world. Fifty-nine percent of the country’s energy derives from natural gas, 31 percent from oil, and 10 percent from coal. Renewables are a negligible part of Bangladesh’s energy mix, while coal use has ticked up sharply in both absolute and proportional terms.

Coal-versus-gas competition has great relevance for Bangladesh’s air quality. While natural gas emits carbon dioxide, it produces far fewer particulates than coal, with some studies showing that swapping coal for gas can reduce harmful emissions of sulfur dioxide by more than 90 percent, and of nitric oxide and nitrogen dioxide (NO_X) by more than 60 percent.

Coal-to-gas switching is a quick and relatively easy fix for Bangladesh’s air quality concerns, given the country’s daunting challenges in switching to clean energy. Bangladesh’s solar and wind resources are limited, and it has weak hydropower potential. The country suffers an absence of summertime breezes, reducing wind’s usefulness in meeting peak demand during the hottest months.

The promise of nuclear energy

Given its constrained supply of indigenous renewables, Bangladesh is building two new nuclear power plants, for which Russia, China, and South Korea all provided bids. In 2009, Russia’s proposal was accepted. Bangladesh’s first reactor, which began construction in 2017, is set to begin operation this year.

While nuclear energy produces no emissions or pollutants, Bangladesh’s pursuit of the technology has not been cheap. Russia’s Rosatom is providing technical assistance, but Bangladesh is responsible for financing, for which it received a Russian loan. The Rosatom-led Rooppur project will cost $12.65 billion and is set to have a total capacity of 2.4 gigawatts. While nuclear energy is useful for decarbonization and improving air quality, expanding it further in the near term will prove difficult for Bangladesh. Capital financing costs have risen since Russia’s full-scale invasion of Ukraine, while tie-ups with Rosatom are potentially fraught. Some US legislators have called for sanctions on the state-owned Russian nuclear power giant, although experts generally believe these measures would disrupt Western markets while providing few geopolitical benefits.

How Bangladesh can improve its air quality

A nearer-term and more affordable option for reducing air pollution is liquefied natural gas (LNG). LNG is a fossil fuel, but it burns cleaner than coal and oil, which can help improve air quality.

Other measures to improve Bangladesh’s air quality could target vehicles, a major source of air pollutants. Bangladesh should look to models such as Mexico City’s ‘hoy no circula’ or Beijing’s odd and even days to limit vehicle pollution.

In Mexico City, the last number of a vehicle’s license plate determines which days it can be driven, with only the lowest-emission vehicles allowed to operate seven days a week. In Beijing, a similar program dates back to 2008, when China hosted the Summer Olympics. Beijing’s restrictions limit which weekdays cars with license plates ending in certain digits are allowed on the road.

These measures come at a significant economic cost, which may be too high given Bangladesh’s lower level of economic development compared to Mexico and China. But Bangladesh’s cities may consider such tradeoffs as acceptable given the severity of the country’s air quality crisis.

Over the longer term, Bangladesh can access cleaner electricity and lower its air pollution by integrating its grid with other hydropower-rich countries in the region. In January 2024, India concluded an agreement with Nepal to import 10,000 megawatts of hydropower from the Himalayan country, showing that cross-border electricity deals are possible in the region.

While deeper integration of regional electricity markets will require substantially more political trust than exists today, cooperation is necessary to meet Bangladesh’s energy access and air quality needs.

Bangladesh’s air quality trilemma

There are no easy ways to mitigate Bangladesh’s air quality crisis. Bangladesh has little renewable energy potential and faces difficulties in expanding nuclear energy or adopting vehicular emissions programs given the country’s limited financial resources. Moreover, Bangladesh suffers from substantial energy poverty, making improved energy access a top priority.

It is extremely difficult to balance these concerns, particularly in the short term. But in the longer term, trade in low-emission fuels and clean electricity can help Bangladesh resolve its trilemma of ensuring clean air, economic growth, and sustainable energy access.

Joe Webster is a senior fellow at the Atlantic Council Global Energy Center.

Natalie Sinha is a former young global professional at the Atlantic Council Global Energy Center.

Sarah Meadows is a former young global professional at the Atlantic Council Global Energy Center.

This article reflects the authors’ personal opinions.

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US-Mexico energy cooperation is vital to enable nearshoring

William Tobin — Tue, 18 Jun 2024 18:57:00 +0000

Claudia Sheinbaum’s historic election matters for Mexico’s relationship with the United States, particularly in trade and energy. While Sheinbaum has pledged continuity with the top-line agenda of outgoing president Andrés Manuel López Obrador (AMLO), subtle differences are emerging, opening new areas for cooperation. To make the most of those opportunities, the United States and Mexico must work together to enhance Mexico’s grid for a new industrial era.

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Mexico’s nearshoring opportunity

Mexico features prominently in US ambitions to “nearshore,” whereby companies move their production facilities closer to home and away from far-flung industrial hubs—mainly China. This shift is influenced by the United States’ drive to build more resilient supply chains in the wake of the COVID-19 pandemic and heightened geopolitical competition with China.

Cross-border economic ties under the United States-Mexico-Canada (USMCA) free trade zone are growing. The United States and Mexico are now each other’s largest trading partner. This can be attributed to many factors, including a deteriorating trade relationship between the United States and China, which reinforces the argument for nearshoring.

Mexico presents a supply chain opportunity for the United States. But from the Mexican perspective, support for nearshoring is relatively subdued. The “national project” of AMLO and Sheinbaum’s Morena party emphasizes combatting inequality including by developing the country’s south and strengthening state-owned companies. By contrast, the bulk of nearshoring investments would be made by private companies and go toward Mexico’s industrialized north, along the US border. Perhaps as a result, nearshoring has not progressed as rapidly as many predicted. US investors will need to align with Sheinbaum’s agenda to build a Mexican energy system capable of turning nearshoring into a reality.

Is nearshoring even happening?

A closer look at investment data paints a mixed picture of nearshoring. On one hand, foreign direct investment (FDI) in Mexico—the only measure of whether investment in the country is rising—reached a record $20.3 billion in the first quarter (Q1) of 2024, a 9 percent increase over Q1 2023. Fifty-two percent of total FDI in Mexico originated from the United States. On the other hand, only 3 percent of this increase can be attributed to new investments, contradicting the narrative that large-scale nearshoring is occurring. Furthermore, manufacturing as a share of Mexico’s economy grew to only 21 percent in the first half of 2023, from a pre-pandemic level of 20 percent. Tesla, which in March 2023 announced one of the largest nearshoring projects, has yet to break ground on its facility in Nuevo León. Like other investors, Tesla has encountered rising costs and logistical challenges.

Grid constrains are stifling nearshoring

Nearshoring is being limited by structural issues faced by Mexico’s electricity sector. Mexico’s grid has struggled to keep up with rising demand. The country suffers an “energy deficit,” facing difficulty connecting new manufacturing plants to the grid and—by extension—to renewable energy sources. The latter is a potential sticking point for electric vehicle producers looking to relocate to Mexico such as Tesla, GM, and Ford. The Mexican Association of Private Industrial Parks notes that this issue has postponed some projects and has throttled nearshoring in the years since the pandemic.

Is Mexico’s electricity sector a constraint?

The fragility of Mexico’s grid presents another major nearshoring obstacle. This was made clear in early May 2024 when the electricity demand on the grid nearly exceeded the total available generating capacity, leading the national electric system operator, CENACE, to declare a state of emergency. It has been reported that much of this demand can be attributed to the rising use of air conditioning and electric cooling during a record-breaking, weeks-long heatwave. As Mexico gets hotter courtesy of climate change, demand for cooling technologies—particularly for industrial processes—is set to rise.

Mexico’s electricity sector needs to shape up to meet increased demand from nearshoring.

More competition is needed—US investors can help

Mexico’s electricity sector offers a promising path for the United States to align its nearshoring objectives with Sheinbaum’s agenda. But to do so, it must benefit state-owned companies and free up state funds for social programs aimed at reducing inequality.

Increased private sector participation in the electricity sector is a necessity for achieving greater capacity and connectivity to unlock nearshoring. One analysis from the National Autonomous University of Mexico argues that increasing private sector participation in the electricity sector would not displace the state-owned electricity company CFE, which controls 40 percent of Mexico’s electric generation capacity, produces 70 percent of its power with private partners, and controls the full transmission and distribution network of the national grid.

In fact, CFE could benefit from increased industrial demand driven by nearshoring. Increasing private sector involvement in power generation can even help CFE by freeing it to investment in other areas, such as upgrading its transmission and distribution network and strengthening its balance sheet in the long term.

New president, new opportunities

AMLO has tried to strengthen CFE by passing a measure in 2021 to discriminate against private sector electricity generation and negate the 2013 Electricity Industry Law, which was designed to promote competition in the sector. Although the measure has since been overturned by the Supreme Court, the administration has effectively halted new public auctions for independent power contracts, preventing growth in private sector investment. Despite this, the private sector drove the increase in solar and wind power from 2014-2020.

Reversing course on private investment will be critical to restoring and expanding the capacity of the electric system and lowering costs. In 2019, independent power producers generated electricity 35 percent cheaper than CFE.

Sheinbaum’s election may present an opportunity for greater private sector collaboration with the United States. Facilitating investment can both strengthen Mexico’s grid and bolster the Mexican state, outcomes that are in line with Morena’s socioeconomic justice goals. While Sheinbaum will likely continue to favor state-owned companies, the Wall Street Journal reports that she also aims to “attract billions of dollars in private investment for solar and wind farms, with the government keeping control and a majority share in the electricity market,” citing a close advisor to Sheinbaum.

How the US-Mexico partnership can boost nearshoring and the electricity sector

The United States should seize the opportunity to work with the incoming Sheinbaum administration to strengthen the Mexican energy sector, thereby enabling supply chain security gains through nearshoring. The relationship should uphold the mutually beneficial tenets of the USMCA, including its level playing field for private sector investment.

In addition, the United States should redouble its technical and regulatory cooperation efforts with Mexican electricity regulators as has been conducted through the U.S. National Renewable Energy Laboratory (NREL). The aim of this partnership should be to work toward goals which benefit the Mexican administration’s agenda while strengthening economic ties and boosting Mexico’s manufacturing potential.

US-Mexico cooperation on electricity sector regulation can facilitate private sector investment in generation that could decrease the burden on CFE as the sole entity responsible for expanding the grid. Ceding greater financing responsibility to the private sector—with CENACE retaining control of the national electric system—could enable CFE to expand its business alongside the private sector and permit the Mexican state to focus on investments that promote increased prosperity for all its citizens.

With higher private sector participation conducted in a manner that respects the central role state-owned companies play in Mexican society, the electricity sector in Mexico can be transformed into an enabler of the nearshoring trend.

William Tobin is an assistant director with the Atlantic Council Global Energy Center.

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András Simonyi: Will the EU elections slow its energy transition?

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Will the new Parliament change Europe’s course on energy security and climate?

András Simonyi, Olga Khakova, Pau Ruiz Guix, Andrei Covatariu, and Elena Benaim — Fri, 14 Jun 2024 19:29:18 +0000

The last European Parliament governed as Europe’s energy system withstood unprecedent shocks to global markets and the economy. The shocks were numerous and severe: from negative pricing during the COVID-19 pandemic to all time-high energy costs following Putin’s full-scale invasion of Ukraine; from tensions in the Middle East and cyber and kinetic attacks on energy infrastructure to extreme weather events made more severe by climate change.

While energy was not the driving issue for the majority of the 185 million European voters for this election, the newly elected Parliament will play an important role in determining how to defend the bloc’s energy security, reduce emissions, and boost competitiveness.

Our experts weigh in on the impact of Europe’s elections on these issues.

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Pau Ruiz Guix: How the EU can stay the course on clean energy goals

Andrei Covatariu: EU elections put climate, energy security, and political capital at risk

Elena Benaim: EU climate and energy agenda hangs in the balance

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Will the EU elections slow its energy transition?

Five years ago, the European Commission under President Ursula von der Leyen set out to make the green transition its top priority. What comes next for the EU’s climate and energy agenda is uncertain. The Parliament’s new composition, and, perhaps even more importantly, the final choice of Commission president (which is up in the air) and members of the Commission, along with the distribution of portfolios, will be reflective of but also critical to the future direction of the EU.

While the gains of the extreme right are mainly a result of the migration crisis, the huge losses suffered by the Greens, plus the economic and political costs of the energy transition, need to be taken into account. These indicate a strong push to “rebalance” green transition and energy security.

Europe’s competitiveness has thus been added to climate and security/energy security concerns—for some member states, it is the number-one priority. Besides the geopolitical realities, as we warned years ago, the “absorption” capacity of European societies increasingly determines the speed with which the green transition can move forward.

There is an overwhelming view that now the next Commission will have to focus on the implementation of previous decisions. There are clearly two competing political trends, however. One aims to speed up the green transition as a panacea to all the issues mentioned above. The other takes a more pragmatic and realistic position to continue the transition, while taking into account the security, cost, and social aspects of that transition.

No matter what, energy security will take center stage. This means that US liquefied natural gas (LNG) will continue to play a major role, particularly as the majority view in Europe is that it will not go back to the status quo ante with Russian energy supplies.

András Simonyi is the former Hungarian ambassador to the United States and a nonresident senior fellow with the Atlantic Council Global Energy Center.

How the EU can stay the course on clean energy goals

The European elections results reflect a sentiment that has already been increasingly apparent: a need to align ambitious climate policy with a competitiveness and resilience agenda that delivers growth and economic security. While the reality of European policymaking means that a clearer picture will only emerge when new leadership is at the helm of the European Commission, the next five years will be all about implementing already-adopted regulation to reduce European greenhouse gas emissions by 55 percent by 2030.

To deliver on deep decarbonization goals, EU countries will need to implement targets to decarbonize hydrogen production at a time when carbon pricing will be extended, and the Carbon Border Adjustment Mechanism will be implemented and potentially expanded.

To deliver on domestic clean technology manufacturing goals, the new European leadership may opt to accelerate a trend toward re-shoring and friend-shoring, requiring new instruments, partnerships, and relationships within the multilateral trade system.

To deliver on clean hydrogen deployment goals, a sector where final investment decisions (FIDs) are struggling to take off, the new mandate should finalize low-carbon hydrogen rules and revise clean hydrogen rules reflecting what works and what doesn’t.

Achieving these three broad goals, which inevitably tackle global and trade-exposed sectors, will require strong climate and energy diplomacy that strengthens global cooperation on increased decarbonization of hard-to-abate industries, supply chain security, and regulatory alignment and certification. The US position and transatlantic cooperation will play a key role in achieving these objectives, and, therefore, not only European elections but American ones in November will inform and influence the realm of possibilities.

All in all, a world of different speeds in the energy transition is a challenging place, and the European experience shows that only by working together is it possible to balance climate, economic, and security objectives to the benefit of the people and the planet.

Pau Ruiz Guix is a trade and international relations officer with Hydrogen Europe.

EU elections put climate, energy security, and political capital at risk

In 2022, after Russia’s full-scale invasion of Ukraine, the European Commission set ambitious energy and climate targets to a significant extent aimed at minimizing social unrest and maintaining political stability in the European Parliament for the 2024 elections. This strategy largely succeeded, with the 2019 political coalition still holding a majority—albeit a narrow one— while public protests have been managed over the last years.

However, overambitious targets may soon backfire. As Commission President Ursula von der Leyen works to secure a strong coalition (which could include the Greens), some of the energy and climate objectives are at risk. Revising the approved 2030 targets is complex and politically risky with a right-leaning European Parliament. This could slow the transition pace, possibly enhancing short-term energy security but undermining long-term climate goals and supply security.

An alternative would be to maintain the existing targets, but this approach would also risk leaving goals unmet. This outcome could hurt energy security and political credibility, especially as the deadline for meeting targets falls right after the five-year term of the newly elected European Commission. Failing to meet the targets could erode the credibility of the leaders who will be in power at the end of this decade.

Looking beyond 2030, negotiations over the unapproved 2040 EU energy and climate targets pose even greater challenges than before, thus creating yet another significant political risk. Additionally, the EU enlargement process may also become less ambitious, which will only continue to generate spillover effects. Prospective countries would remain easily targeted by Russia with physical attacks on critical infrastructure, cyberattacks, or energy supply cuts, which will continue to hurt EU member states.

Andrei Covatariu is senior research associate at Energy Policy Group (EPG) and a research fellow at the Centre on Regulation in Europe (CERRE). This article reflects his own personal opinion.

EU climate and energy agenda hangs in the balance

On June 6, 2024, when called upon to vote for the European Parliament, European voters kept the center-right European People’s Party (EPP) as the leading group with 190 seats—a slight increase compared to the previous elections. However, to hold the majority, which requires 361 seats out of 720, the EPP will need to find working coalitions with other groups to pass legislation.

As announced by the EPP, European Commission President Ursula von der Leyen will again be their candidate for the presidency. With a second mandate, von der Leyen would be expected to protect the Commission’s legacy (including its key initiatives such as Fit for 55 and RePower EU) and to continue focusing on competitiveness, cleantech, innovation, global leadership, and energy resilience. However, coalitions in the European Parliament will heavily determine the direction of climate and energy policies.

With a majority formed by the EPP, Progressive Alliance of Socialists and Democrats (S&D), Renew Europe, and the Greens, the European Green Deal could be safe in terms of ambitions and targets. The coalition would probably maintain a decarbonization agenda strongly focused on energy security and industrial competitiveness and a likely dominant conversation around the social dimension of the energy transition.

With a majority that includes the hard-right group European Conservatives and Reformists (ECR), there could be a serious risk of seeing climate ambition weakened. Right-wing parties in member states have openly criticized Europe’s climate ambition, and this could result in undermining the provisions of the Fit for 55 plan. It might also complicate the already challenging discussion on unlocking investments for the green transition at the EU level.

A move to the right by the EPP would have severe implications for the legacy that the previous Commission built and hinder the possibility for the EU to build a strong industrial competitiveness strategy that supports the energy transition and climate targets.

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

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Generative AI provides a toolkit for decarbonization

Joseph Webster and Shaheer Hussam — Mon, 10 Jun 2024 16:43:13 +0000

Rapidly improving artificial intelligence (AI) capabilities will help accelerate the energy transition. Both established and emergent AI capabilities—such as large language models (LLMs)—can be applied to an array of strategic, technical, financial, and policy challenges posed by decarbonization. It is critical for energy transition stakeholders to monitor, understand, and carefully apply these capabilities to their unique decarbonization challenges, while also addressing the risks involved.

The most consequential new class of AI, generative AI, is able to analyze and create text, audio, code, and even molecular design—doing so faster and often with higher quality than human-created counterparts. Generative AI uses extraordinary volumes of training data and novel data-processing mechanisms which require unprecedented computational power. Data center load growth, driven by a range of factors, is forcing utilities across the United States and Europe to revisit system planning needs. Indeed, this added demand is—in some regions—delaying the retirement of coal-fired power plants. To ensure that climate targets are met, data center growth must coincide with transmission upgrades, energy efficiency improvements, and new low-carbon generation capacity. More broadly, policymakers must also consider how to harness the potential from generative AI while managing complex uncertainties, from inaccurate outputs and data leakage to AI-enabled cyberattacks on critical infrastructure. The deployment of generative AI will require rigorous human oversight, particularly in the early stages.

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Given the capabilities of generative AI, integration into organizational workflows can help energy stakeholders in multiple ways—for example, lower regulatory compliance costs, consider strategic planning options, and evaluate the financial risk around their low-carbon investments, among others.

1. Strategic planning

Recent demonstrations of generative AI capabilities are impressive. Generative AI can already outline, summarize, and draft documents cheaper and faster than many humans. It can also help humans conduct strategic tasks more effectively. A study by Harvard Business School examined the effects of GPT-4—the model behind ChatGPT—on knowledge workers’ productivity, finding that GPT-4 significantly improved workers’ abilities to generate effective ideas and develop implementation plans. Another study from University College London found that a collection of LLMs could give strategic recommendations at a comparable level to human experts. As strategic planning use cases are systemic and across industries, improvements in productivity would apply across the decarbonization value chain.

2. Regulatory compliance

Some generative AI use cases will directly enhance clean energy project developers’ ability to manage cumbersome regulatory processes. As generative AI capabilities are integrated into institutional workflows, they will assist on tasks ranging from simple emails to complex, costly, and time-consuming regulatory processes. The Pacific Northwest National Laboratory, as part of its PolicyAI, initiative, recently found that LLMs could streamline the public comment-review process under the National Environmental Policy Act (NEPA), which is burdensome for many renewables firms.

Importantly, generative AI may aid regulators by accelerating reviews of a variety of environmental impact studies. For instance, after New York State attempted to ease traffic and pollution by passing traffic congestion pricing, an exhaustive environmental review took five years and more than 4,000 pages of analysis. By streamlining portions of these document-intensive regulatory tasks, generative AI can speed up environmental reviews, giving infrastructure projects a quicker go/no-go decision.

3. Decarbonization investment analytics

A range of AI tools, using both existing techniques and generative AI, are being developed to assist with financial and economic modeling, a critical but resource-intensive task for renewable energy projects. While still at the early stages, generative AI tools may be able to partially or even fully build financial models or propose complex scenario plans. In addition, AI is already being used to enhance corporate due diligence by detecting anomalies in financial statements, summarizing earnings call transcripts, or rapidly analyzing trade press. These capabilities will continue to assist both investors and corporate mergers-and-acquisitions teams in their decarbonization investments.

4. Energy asset management

Financial and economic modeling tools overlap with another essential aspect of decarbonization: advanced energy asset management. Currently, communications with energy asset field operators are typically executed via middle management and dashboards with both planned and ad hoc analytics. Generative AI may enable more simplified analytics and communication with the workers physically assessing and repairing assets. At the energy asset management level, generative AI tools could deliver improvements in compiling, summarizing, and communicating asset performance in a customized manner for financial managers.

5. Wildfire risk assessment

In parallel to generative AI, another area of quiet yet significant advancement has been machine-learning (ML) models for weather forecasting, which have produced some extraordinary results. Further advances in weather forecasting could help mitigate the climate change-driven fire season. Wildfires themselves exacerbate the climate crisis—global fires produce emissions of about 2 gigatons of carbon dioxide equivalent per year, equal to 4 percent of total global emissions. These fires can also force large populations indoors for weeks due to health risks and poor air quality. Further investment in AI/ML-based modeling could help manage these risks by predicting the probable location and magnitude of potential wildfires and improving real-time surveillance of smoke, enabling firefighters to combat the over 80,000 wildfires that occur in the United States alone every year.

Despite the current AI hype cycle and the early-stage risks around generative AI, improving the broad range of AI models will be integral to developing a low-carbon economy. The magnitude and pace will be difficult to predict, as models are integrated into institutional workflows. Human oversight, particularly around critical infrastructure, must remain comprehensive. If managed appropriately, these emergent capabilities will yield important advances in regulatory analysis, environmental management, strategic planning, and an array of challenges essential to achieving net-zero emissions.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

Shaheer Hussam is a partner at Aetlan, an energy advisory and analytics firm.

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Brazil is buying lots of Chinese EVs. Will that continue?

William Tobin — Tue, 04 Jun 2024 18:32:48 +0000

In anticipation of growing demand for zero-emission transportation, China has become the world’s largest exporter of electric vehicles (EVs). China’s battery electric vehicle (BEV) industry is at overcapacity, producing an excess of 5 to 10 million vehicles annually beyond domestic demand, forcing China to find new markets to fuel continued growth.

Brazil offers a useful case study of China’s strategy—and whether it’s sustainable.

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Over the course of 2023, the value of Chinese BEV exports to Brazil surged eighteen-fold as automakers like BYD expanded their presence in the country. Chinese BEVs accounted for 92 percent of Brazil’s total BEV imports in this period.

This trend has continued durably thus far. As of April 2024, Brazil has surpassed Belgium as the top export market for China’s EVs.

Those aren’t the only numbers pointing to Brazil’s growing prominence as a market for Chinese BEVs, which constitute 88 percent of China’s total exports of electric vehicles, a category which includes both battery and plug-in hybrid electric vehicles (PHEVs).

In fact, Brazil imported $735 million worth of Chinese BEVs in 2023, nearly three times the value of Mexico’s imports of these Chinese vehicles. Despite increasing attention on Mexico as a destination for exports of Chinese BEVs, 2023 marked the second straight year that Brazil has ranked as Latin America’s largest importer of Chinese BEVs.

Furthermore, growth in Chinese exports of BEVs to Brazil far exceeded the overall rate of increase in exports across China’s “new three” industries—electric vehicles, lithium-ion batteries, and solar photovoltaic cells—that are critical pillars of China’s export-driven manufacturing plans. In 2023, China’s worldwide exports of these three industries increased by 30 percent—a significant jump amid sluggish global GDP growth overall, suggesting limited ability for markets to absorb this export growth.

Whether Brazil can continue to absorb China’s overproduction of BEVs, similarly, is increasingly in doubt.

Strong domestic sales, slacking foreign competition

In recent years, EV sales in China have been robust, with BEVs—which are almost entirely produced domestically—accounting for 25 percent of total car sales in 2023. It is worth noting that this includes foreign firms, however, such as Tesla and Volkswagen.

China’s manufacturing of BEVs has outpaced domestic demand. While this might have resulted in millions of cars sitting unsold in Chinese lots, the overproduction has coincided with Western automakers such as General Motors, Ford, and Volkswagen tempering their EV ambitions amid weakening demand growth in their core markets.

This confluence of trends created an opportunity for Chinese BEV makers to boost sales abroad, as demonstrated by the 70 percent jump in BEV exports during 2023. Chinese BEV firms, and BYD in particular, are making a concerted effort to expand outside of mainland China, offering products that outcompete peers on price, and sometimes compete strongly with internal combustion engine vehicles.

China’s growth ambitions cause concern

Rather than incentivize consumption, China is doubling down on its investment-driven growth model with an upcoming manufacturing stimulus program. Investment, expressed in World Bank data as gross capital formation, already represents 40 percent of China’s GDP, far above the global average of 25 percent and exceeding the emerging market average of 30 to 34 percent, illustrating China’s reliance on sectors like manufacturing to fuel growth.

China’s decision to expand its export-driven manufacturing sector is causing handwringing in target markets. The Brazilian government has opened a number of probes into China’s alleged “dumping” of goods. The European Union has also opened investigations into potential “non-market practices and policies” adopted by China.

China’s exports of its record surplus of manufactured goods beyond current levels will depend on other countries’ willingness to let China take market share from domestic industry. In an increasingly protectionist era, that seems far-fetched.

Will Brazil absorb China’s manufacturing surplus?

The surge in imports of BEVs from China has been rapid, offering little time to react. However, for Brazil, the stakes for its industrial competitiveness are high, and its tolerance for China’s encroachment on its automotive industry may be limited.

For one, automobiles are a critical cog in Brazilian industry. As of 2020, 89 percent of vehicles sold in the country were domestically produced, although this may have decreased slightly amid a surge of Chinese BEV imports. The car sector accounts for about 20 percent of industrial GDP, an area of critical importance to Brazil, where value-added manufacturing’s share of GDP has declined from 26 percent in 1993 to 11 percent in 2022.

Second, Brazil does not want to deepen its reliance on imports of high-tech and value-added products. In 2021, Brazil’s imports of capital, consumer, and intermediate goods accounted for 93 percent of total goods imports, a symptom of the country’s increasing trade specialization in the export of raw materials, which represented 55.7 percent of Brazil’s exports of goods. The government has expressed its discontent with this status quo, seeking to avoid trade arrangements that “condemn our county to be an eternal exporter of raw materials,” in the words of President Luiz Inácio Lula da Silva.

Furthermore, Brazil has made supporting the domestic auto sector a priority. In May 2023, the Lula administration unveiled a series of measures to promote domestic auto manufacturing via credit lines, tax breaks, and incentives for the use of domestic content.

A continued rise in cheap Chinese EV imports would not align with Lula’s top-down push for re-industrialization, designed to foster formal high-wage employment, innovation, and economic diversification. In fact, his administration has announced new tariffs on electric vehicles, which will ramp up to a 35 percent import tax by 2026.

As such, China will likely need to find more willing buyers of its surplus EVs. Although it is difficult to forecast where the next surge in imports will take place, South and Southeast Asian markets such as India, Indonesia, and Thailand could begin to exhibit stronger uptake, as could markets in Latin America such as Colombia and Mexico.

William Tobin is an assistant director at the Atlantic Council Global Energy Center.

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From Vilnius to Warsaw: How to Advance Three Seas Goals Between Summits

Olga Khakova — Thu, 23 May 2024 19:30:27 +0000

Leaders at the ninth Three Seas Summit and Business Forum, held in Vilnius in April, raised the need for creating a permanent body that would institutionalize regional cooperation on digital, transport, and energy integration. While there is little disagreement among participating countries that such an office is needed, their views diverge on the location of this coordinating body, reporting structure, and coverage of its operating costs.

Solving these administrative problems is one of the biggest impediments to formalizing a secretariat. To ensure that the Three Seas Initiative (3SI), which convenes at the annual summits, can effectively and quickly address the unique challenges facing its thirteen Southeastern, Central, and Eastern European member states, associate states, and strategic partners in reaching common goals, its leaders must now agree on a structure.

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More than 900 participants joined this year’s summit, which every year aims to explore ways to tap members’ vast economic potential while fortifying against mounting security threats. They discussed ways to advance connectivity, economic growth, and broader security by overcoming shared regional barriers via the 3SI mechanism. However, making progress between summits requires institutionalization of the 3SI through a permanent secretariat body to maintain momentum and focus between the annual events.

How a 3SI institution could work

The secretariat could be launched and housed in a neutral, non-3SI city in Europe, preferably a financial hub, like Brussels, with a small permanent team whose operating costs would be covered by the 3SI country hosting the summit that year. The 3SI team’s initial guidance could include exchange of information between 3SI stakeholders, outreach to private investors, and the promotion of cross-border digital, energy, and transportation projects in the region, with a particular focus on the project priority list. In a sense, the secretariat would serve as a library of projects for inquiring investors. The 3SI platform can play a meaningful role in helping resolve top priority issues in the region, which were raised repeatedly at the summit, ministerial, and in private events (including those jointly hosted by the Atlantic Council, Clean Air Task Force, and Amber Infrastructure Group). These issues include:

Access to finance
Fragmented market
Supply chains risks
Russian aggression in Ukraine and the broader region
Commercialization of new technologies and innovative solutions
Workforce shortages

By addressing these challenges throughout the year (through the work between the summits), the 3SI stakeholders would create compounding benefits, securities, and efficiencies for Europe, particularly through 3SI’s unique power to connect traditionally siloed sectors and geographies and its magnifying platform for bringing attention to the top challenges in the region.

Leaning into the 3SI mission

Once a 3SI body is created, it can rapidly get to work on actualizing steps toward achieving its goals, including regional integration of resources, coordination of workforce development, optimization of external partnerships, and raising finance. Dialogue at the Three Seas summits has yielded broad consensus and support for these priorities.

Goal 1: Integrating the regions, markets, and innovation

Despite gigantic leaps in connectivity across Europe, regional integration is hampered by the lack of cross-border coordination, regulatory hurdles, supply chain risks, and market fragmentation. These gaps create diverging prices, inefficient routes, and lags in information sharing. 3SI would not be a one-fix-fits-all in resolving these issues, but the presidential-level platform has untapped potential to alleviate some of these challenges. 3SI is uniquely positioned to highlight the regional cost and security threats of insufficient energy interconnection, transportation routes, and digital integration. Priority-project lists should be frequently updated and expanded, something the secretariat can manage, to provide ample options for potential investors with projects’ bankability and other relevant details included.

Moreover, 3SI has a unique opportunity to embrace a technologically neutral approach while focusing on solutions-driven criteria: competitive pricing, carbon emissions, environmental impacts, and secure and diversified supply chains. To scale new technologies, the 3SI secretariat could support existing regional coordination on regulatory alignment to forge an easy-to-navigate investment environment. Cooperation on cyber security and kinetic threats across 3SI stakeholders can enhance protection for these technologies and infrastructure in the region.

Goal 2: Investing in a workforce that will transform the region

In addition to the work dismantling regulatory barriers, 3SI can contribute to forging an innovation ecosystem through building a talented workforce for the future. The Three Seas economies have a unique opportunity to exchange data around the current labor force and the anticipated talent gap in energy, digital, and transportation sectors. The region is already leading in science and technology education in Europe and can build on this competitive advantage by scaling the number of trained professionals through coordinating programs and forging an efficient education-to-workforce placement pipeline. The annual 3SI summits could include programming dedicated to student engagement, recruitment, and education on key opportunities in the growing sectors.

Goal 3: Optimizing collaboration with 3SI associated and strategic partners

Japan’s inclusion as a 3SI strategic partner this year is a testament to the value of global partnership on commercialization of new technologies and diversified supply chains. Several summit panels touched on driving Japanese companies’ investments in the region, particularly rail and communications sectors development.

3SI countries also have an opportunity to develop strategic priorities in support of associate members Ukraine and Moldova (complementary to the existing efforts), while exploring the potential to build additional energy and transport interconnections, as well as collaboration in the digital space.

Goal 4: Financing a secure, competitive, and low-carbon Three Seas region

An enormous barrier to achieving 3SI priorities is the trillion-dollar gap between where infrastructure stands today and where the region agrees it needs to be. National budgets are insufficient. EU funding is challenging to access and excludes some infrastructure and technologies. The Three Seas Fund, 3SI’s investment arm, can play an important role in leveraging private finance and helping match public and private capital to realize the projects. As the next round of the 3SI fund is established, attracting private equity will be crucial for reaching scale of impact. Cross-country coordination creates efficiency and minimizes risk for cross-border investments, particularly in addressing the grid infrastructure gaps and preparing roads for a safe, low-carbon transportation future.

Achieving a shared vision of the future

No similar coalition exists with focus on security and economic prosperity through integration. This shared vision of a secure, digitized, integrated, low-carbon, resilient economy is refined every year at the Three Seas Summit as new ideas are shared on stage, discussed during coffee breaks, and put to the test following the conference. With the formalization of a 3SI institution to build on the work between summits, 3SI could be an unstoppable platform for realizing the region’s rich potential and talent.

Olga Khakova is the deputy director for European energy security at the Atlantic Council Global Energy Center

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Without tariffs, the EU faces a flood of Chinese imports of the ‘new three’

Joseph Webster — Thu, 23 May 2024 18:49:40 +0000

Washington’s recent tariffs against Chinese products all but ensure a flood of these exports to Europe, necessitating a response from Brussels. The products include China’s “new three” cleantech exports—lithium-ion batteries, electric vehicles (EVs), and solar panels—posing undeniable dilemmas for Brussels as it balances security, economic, and climate interests. To head off a deluge of Chinese products while also allowing some to support decarbonization goals, Brussels should selectively and thoughtfully apply greater tariffs and restrictions. Concurrently, European industrial policy should prioritize the development of indigenous battery and EV supply chains and manufacturing capacity.

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The European Union’s imports of the new-three cleantech export categories have skyrocketed in recent years. Over the course of 2023, China’s exports to the EU totaled $23.3 billion for lithium-ion batteries, $19.1 billion in solar panels, and $14.5 billion for electric vehicles.

Sources: PRC General Administration of Customs, Author’s Calculations

Europe’s imports of these cleantech products have fallen in recent months, partly because of the global glut in solar panels and constraints on installations. The EU’s anti-subsidy investigation into electric vehicles, launched in October, has also cooled shipments.

Europe’s most consequential tariff decisions concern EVs and batteries, as these products hold economic and strategic relevance.

With the automotive sector indirectly providing 6.1 percent of total EU employment and 7 percent of GDP turnover, EVs and batteries are a key future driver for the EU’s economy. This sector is at risk due to China’s heavily subsidized auto exports.

While transitioning to EVs from internal combustion engines will necessitate disruptions, ceding Europe’s auto industry would deliver a “second China shock” of mass economic dislocations, all but ensuring a fierce political blowback with potentially calamitous implications for the European project.

Reasonable people could disagree about the wisdom of allowing cheap Chinese imports to undercut domestic industries in the 1990s and 2000s. At the time, many believed that greater economic linkages between the West and China would produce rising living standards across the board, reduce geopolitical frictions, and potentially even lead to constructive political changes within China itself.

That didn’t happen. While trade with China led to complicated, often ambiguous impacts for Western economies, Beijing threatens global democracy more than ever, and the Communist Party continues to rule mainland China with an iron fist.

Recognizing this dynamic, various European Union bodies have characterized the Chinese government as a “systemic rival”—as well as a partner.

While European threat perceptions of Chinese exports largely center around economic and political concerns, security dimensions shouldn’t be overlooked.

China’s exports of sensor-laden connected vehicles pose potential espionage and sabotage risks. Chinese security services could use these vehicles to monitor European military and political facilities, as well as collect real-time economic and mobility data. In a worst-case scenario, these vehicles’ software systems would be vulnerable to hacking.

China’s lithium-ion battery complex also has latent military potential, as batteries are critical components for diesel-electric submarines, unmanned maritime platforms, and aerial drones. Moreover, technological advances in solid-state batteries could offer significant, potentially game-changing performance improvements for military use cases.

Given the economic and security risks, Europe should impose tariffs on Chinese exports of EVs and lithium-ion batteries. To balance decarbonization goals with these other needs, however, Europe could follow the US approach by phasing in certain tariffs, such as on Lithium-ion non-electrical vehicle batteries. These batteries are useful for grid decarbonization but pose few direct security threats.

China is unsubtly hinting it will respond to any European tariffs with countermeasures, including against wine and dairy exports.

Yet Europe is better off accepting short-term pain than allowing the formation of a clean energy cartel overseen by a systemic rival.

In other cases, such as solar panels, Chinese clean tech exports pose few economic and security risks to Europe. This industry has left Europe and isn’t coming back, especially since European solar potential is limited. Although inverters should be monitored closely, there are no known security risks for solar panels, which cannot communicate with the grid. Consequently, Europe should accept Chinese solar imports while still ensuring that global supply chains are not held hostage to a single supplier.

Importantly, the West should continue to emphasize to Beijing that it seeks to de-risk rather than decouple supply chains. While Western trade with China has not fundamentally improved ties, commercial ties nevertheless can provide ballast for the relationship, mitigate security dilemmas, and provide economic benefits.

To stop political ties from deteriorating further while maximizing trade and climate benefits, Europe and its partners should identify products where commerce can be conducted with China without damaging economic or security interests.

Still, Europe should rapidly employ tariffs and fiscal support to bolster critical industries and technologies, including EVs and batteries. Balancing decarbonization objectives with economic and security needs is no easy task, but Brussels must find sure footing on this tightrope, and quickly.

Joseph Webster is a senior fellow at the Atlantic Council and editor of the independent China-Russia Report. This article represents his own personal opinion.

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What US tariffs on Chinese batteries mean for decarbonization—and Taiwan

Joseph Webster — Mon, 13 May 2024 21:29:39 +0000

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On one hand, lithium-ion (li-ion) batteries, including those made in China, the world’s largest li-ion manufacturer, are useful for decarbonizing the US grid, improving the economics of solar deployment, and providing a key input for electric vehicles. On the other hand, ceding a new and important clean tech industry could pose long-term economic damages. Allowing China to dominate this sector hollows out US manufacturing capacity and know-how, while giving China’s battery complex the opportunity to grow in capacity and provide synergies with its submarine and drone-making capabilities, which are increasingly important in modern warfare. This rise in industrial capacity could prove significant in military contingencies involving Taiwan.

Managing these battery dilemmas will be challenging, but not impossible. Most immediately, the United States and its allies, friends, and partners should rigorously investigate where Chinese-made batteries do—and, significantly, do not—pose security risks. Most importantly, however, they should accelerate development of their own battery supply chains.

Chinese li-ion battery exports and US decarbonization objectives

China’s global lithium-ion battery exports reached $65 billion in 2023, up nearly 400 percent from pre-COVID levels in 2019. More than half of these 2023 exports were shipped to the European Union and the United States-Mexico-Canada (USMCA) free trade zone.

Chinese li-ion battery exports are largely bound for the European Union and North America.

Source: PRC General Administration of Customs, author’s calculations

Chinese battery exports to USMCA are highly correlated with EV manufacturing capacity and solar installed capacity, which are often paired with battery energy storage systems. In North America, these facilities are overwhelmingly concentrated in the United States, which accounts for the lion’s share of USMCA’s lithium-ion battery imports, according to Chinese trade statistics. (Note: the United States and China report slightly different total trade figures, due to reporting lags and the timing of international shipments.)

Chinese exports to USMCA are largely routed through the United States.

Source: PRC General Administration of Customs, author’s calculations

According to the US Census Bureau, in 2023, the United States directly imported $13.1 billion in lithium-ion batteries from China, accounting for 70 percent all US li-ion battery imports in 2023, as measured in value. US li-ion imports are split between storage and batteries for electric vehicles.

US lithium-ion batteries derive primarily from China, both directly and indirectly.

Source: US Customs Data, author’s calculations

It’s worth noting that China’s share of all US li-ion batteries is understated in official statistics, in both absolute and relative terms. Chinese battery companies, as well as big battery players based in South Korea and Japan, often have manufacturing facilities in third-party countries that export to the United States.

In other words, China is currently an important player in US decarbonization, particularly when it comes to energy storage. China exported $10.8 billion of Li-ion storage batteries to the United States in 2023, accounting for 72 percent of all US imports of the product.

Chinese imports are particularly important in the storage market.

Source: US Customs Data, author’s calculations

These li-ion storage batteries are useful for decarbonizing the US power sector and complementing solar generation. As recent research shows, California and other western states have significantly increased their uptake of storage batteries on the grid, enabling solar’s percentage share of all generation to rise, advancing state and national decarbonization objectives.

The security risks from China’s battery complex

While mainland China’s li-ion batteries are useful for decarbonization, its battery complex poses often-overlooked security risks, especially in the event of a contingency over Taiwan. Batteries figure increasingly prominently in military affairs, including for diesel-electric submarines and unmanned platforms. Critically, US restrictions on Chinese li-ion batteries or of electric vehicles, another end use of li-ion batteries, will limit China’s industrial capacity that could readily be repurposed from the civilian industry to its defense industrial base. Just as crucially, by diminishing China’s battery business, US tariffs could constrain Beijing’s ability to secure technological breakthroughs with military uses.

China’s battery complex complements its military capabilities in multiple ways. Take aerial drones, which often employ lithium-ion batteries for propulsion. These weapons are already a critical element in Russia’s full-scale invasion of Ukraine, as both sides are estimated to field at least 50,000 first-person-view suicide drones per month.

Drone technology could play an even larger role in any confrontation over Taiwan. Mainland China’s industrial capacity in aerial drones and batteries could loom large in any confrontation, as its manufacture of dual-use drones dwarfs production seen in both Ukraine and Russia. There are limitations to the role batteries could play in the aerial domain due to constraints in energy density and range. Still, advances in battery technology could increase the potency of aerial drones in a potential Taiwan contingency.

Batteries are also useful for unmanned underwater vessels, unmanned surface vessels and, critically, conventional (i.e. non-nuclear powered) submarines. Diesel-electric submarines are powered by batteries charged by onboard diesel generation. Those with li-ion batteries offer performance improvements over those with lead-acid batteries, including quieter operations, and higher speeds for sprinting and cruising. Japan’s Maritime Self-Defense Force is the only navy known to operate diesel-electric submarines with li-ion batteries.

But the possibility that China could also develop li-ion submarines is a concern. Its battery complex has made undeniable technical advances in recent years and is, in many ways, technologically ahead of advanced economies, including Japan and South Korea. It is likely only a matter of time before China’s navy develops advanced li-ion diesel-electric submarines—if it is not doing so already.

Another risk posed by China’s battery complex is its development of solid-state batteries (SSBs), which enjoy further performance advantages over li-ion batteries, including greater density, capacity, range, and no risk of fire. While SSBs have yet to be commercialized, their development could offer substantial performance improvements for both diesel-electric submarines and unmanned systems.

The massive industrial scale and growing technological sophistication of China’s battery complex could therefore not only enable Beijing to secure the commanding heights of a global industry, but also enhance its military capabilities in ways that threaten US interests.

Finding a balanced approach

Because the Chinese battery complex presents decarbonization opportunities, but also security risks for the United States and other constitutional democracies, policymakers should adopt a balanced approach to batteries, working together with allies, friends, and partners to take risk mitigation steps when necessary.

Similar to its investigation into connected vehicles, Washington should comprehensively study where batteries pose potential security risks and take countermeasures where appropriate. Given the need to decarbonize the electricity system, Washington should act against existing installations or near-term imports of Chinese batteries for grid storage only when there is a compelling reason. Despite concerns about the security of Chinese-made grid storage batteries, any efforts by China to destabilize the grid appear far more likely to emerge from offensive malware operations or China’s cryptocurrency mining assets. As an interim measure, however, the United States and its allies should increase resiliency against potential grid subversion by undertaking more spot checks of battery imports and by booting Chinese-made batteries from sensitive locations, such as military bases.

The best way to mitigate battery-related risks, however, is to develop a US and “friend-shored” supply chain. Washington, Brussels, and other allies and partners should de-risk the entirety of the battery supply chain. The coalition should focus on potential supply chain chokepoints, especially graphite, as the United States has no existing production sites for this key battery material. Fortunately, the United States has already made substantial progress on developing its battery industry, as nearly $34 billion in actual investment into battery manufacturing has occurred in 2023 alone.

But more can be done. Washington should enact policies to speed up clean energy deployment to both reduce emissions and enhance national security. This includes permitting reform, which is critical for connecting clean energy to the grid. Also, deployment of more US-made batteries could provide synergies with key defense industrial capabilities, including for unmanned platforms and manned submarines. Similarly, the United States should continue to build out its domestic charging infrastructure for electric vehicles, which are an important use for lithium-ion batteries. Finally, the United States and its treaty allies—Japan, South Korea, and the Philippines—should explore siting battery manufacturing capabilities in areas relevant for contingences involving Taiwan and the South China Sea.

Striking a responsible balance between the competing imperatives of national security, economic interests, and decarbonization is challenging. Many actors fail to grasp that multiple things can be true at once: climate change poses a massive threat to our shared global future—but so does mounting clean energy dependence on the Chinese Communist Party. US tariffs on Chinese batteries aim to take a balanced approach to managing this complicated dilemma.

Joseph Webster is a senior fellow in the Global Energy Center and the editor of the independent China-Russia Report. This article reflects his own personal opinion.

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China builds more utility-scale solar as competition with coal ramps up

Joseph Webster — Thu, 09 May 2024 18:40:41 +0000

By virtually any metric, China is undeniably the world’s solar superpower. It deployed more solar capacity in 2023 than the United States has installed in its history; it also dominates the manufacturing supply chain, especially for wafers. These achievements are remarkable. Yet China’s track record on solar, a critical decarbonization tool, is hardly above criticism, including in its domestic market.

Owing to its deployment patterns and underlying resource constraints, China’s solar usage rates, known as capacity utilization factors, are among the lowest in the world. But this could be about to change. Recent data suggest that China may be shifting from distributed solar to utility-scale solar, which would, all things being equal, raise the overall efficiency of its electricity grid while aiding decarbonization. Given that China is by far both the world’s largest greenhouse gas emitter and coal consumer, its domestic solar deployments will have global consequences. However, several hurdles hindering the country from reaching its domestic solar potential have emerged.

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Utility-scale versus distributed solar

China’s domestic solar choices matter because distinct types of solar installations have vastly different generation potentials. Distributed solar, which is typically found on rooftops, lacks the capability to track the sun’s movements and optimize sunlight reception. It therefore has a lower capacity factor than utility-scale solar, which is generally ground-mounted with single- or dual-axis tracking.

Tracking systems typically entail securing bulky frames and motors, and drilling holes to hold the system in place. This type of solar installation is generally not suited for rooftops. Buildings can struggle to structurally bear the weight of tied-down panels, while high winds pose additional risks for rooftop panels. Consequently, rooftop panels typically do not have tracking, which limits their ability to receive optimal amounts of sunlight.

Case in point, in the United States, utility-scale capacity factors in the best locations and with the latest technology, including tracking capabilities, often exceed 30 percent; utilization factors for residential solar average nearly 16 percent. China doesn’t provide a comparable data breakout for its own utility-scale versus distributed solar. It does, however, provide information about its nationwide solar capacity factors. In 2023, China’s solar capacity factors stood at 14.7 percent, versus 23.3 percent in the United States.

China’s lower capacity factors are due, in large part, to its disproportionately high deployment of distributed solar generation relative to utility-scale deployment. There are several potential reasons for China’s tilt toward disturbed solar. China’s best solar resources are in the northern and western parts of the country, relatively distant from the coastal population centers to the south and east, where much of its solar is deployed. Additionally, China has limited interprovincial electricity transfers. These transmission-related factors, along with China’s higher electricity prices for coastal provinces, incentivize rooftop solar deployment in coastal areas, as seen in the chart below.

China’s solar strategy may be shifting away from distributed solar, although the evidence is mixed. In the last quarter of 2023, China reported 58 gigawatts (GW) of utility-scale solar capacity installations, an all-time high and a massive increase from prior periods. In the first quarter of 2024, China once more installed greater amounts of distributed solar capacity than utility-scale solar.

China’s utility-scale breakout?

Some features of China’s potential turn to utility-scale deployments are worth examining. In both 2022 and 2023, China’s utility-scale installations surged in the final quarter, potentially to meet year-end construction deadlines and capacity targets set by national and provincial governments.

Additionally, some provincial-level trends are noteworthy. Hebei, for example, enjoys good solar irradiance, while its proximity to Beijing’s substantial electricity load limits transmission costs. And Yunnan, in southwest China, installation of major utility-scale capacity began at the end of 2023 and continued through the first quarter.

Xinjiang is a striking anomaly. It reports virtually no distributed solar capacity despite having good solar potential, moderate per-capita income, and 34 GW of installed utility-scale capacity (including solar that China attributes to the Xinjiang production corps). Xinjiang’s deployment patterns constitute a major outlier in a country where rooftop deployment has been encouraged through official policy.

The most plausible explanation for this anomaly emerged from a solar expert on China. In written comments to the author, the expert suggested that “If you live in a low rainfall area with dust storms then somebody must keep the panels clean or wipe them down every so often. With a multifamily dwelling a ’crisis of the commons’ issue is quick to emerge.”

While Xinjiang’s lack of distributed solar capacity may be related to several factors, it is also hard not to wonder if the Communist Party’s pervasive repression of the province’s Uyghur population weakens social trust and, consequently, disincentivizes rooftop solar deployments.

Finally, Inner Mongolia’s modest deployment of utility-scale solar has major climate consequences. The sun-soaked, windy province enjoys some of China’s best renewable energy resources, and it is also a coal bastion. In 2023, Inner Mongolia produced 1.21 billion tons of coal supply, of which 945 million tons were supplied to coal-fired power plants, as the renewables-rich province incongruently supplied over 25 percent of China’s coal production last year. Since Inner Mongolia’s thermal coal and solar production compete to provide electrons for the Chinese grid, this province will play an outsized role in shaping China’s climate trajectory.

It’s too soon to say if China is shifting solar deployment into a more efficient model: namely, utility-scale solar in the northern, more sun-soaked regions of the country. Encouraging signs include the planned construction of over 225 “renewable energy bases” across the Chinese interior, comprising total wind and solar capacity of 455 GWs, along with associated transmission lines. Some Chinese provinces are also siting solar panels on land repurposed from mining. These steps are constructive.

Yet there are also reasons to temper expectations. China’s solar utilization rates actually fell in 2023. That may be attributable to the type and regions of deployment, or bad luck from weather, but other factors are possible. With China exhibiting sudden year-end deployment surges to meet construction targets, the long-term performance and sustainment of its panels could degrade if maintenance needs rise. Finally, solar faces economic headwinds in Shanxi, Inner Mongolia, and Shaanxi—some of China’s most sun-soaked provinces. These regions also have an abundance of coal, some of which is used for steel production rather than electricity generation. Still, the fossil fuel keeps electricity prices low, disincentivizing solar.

China is showing signs of a shift toward more utility-scale solar in suitable regions, and it is making substantial progress in deploying massive volumes of solar capacity, but powerful structural hurdles to the technology’s domestic adoption are coming into focus.

Joe Webster is a senior fellow at the Atlantic Council Global Energy Center, and editor of the China-Russia Report. This article represents his own personal opinion.

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Amid competing pressures, will Ukraine quit its transit of Russian gas?

Sergiy Makogon and Daniel Stein — Tue, 07 May 2024 18:58:09 +0000

Despite Russia’s ongoing war in Ukraine, Russian gas continues to transit Ukraine on its way to European buyers. By and large, both sides continue to adhere to the 2019 EU-brokered gas transit agreement. Under that agreement, Gazprom is obliged to ship a minimum volume of gas—65 billion cubic meters (bcm) in the first year and 40 bcm in subsequent years—under ship-or-pay conditions. But there has been much speculation about what happens to transit when the 2019 agreement expires at the end of December 2024.

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Ukraine’s gas transmission system has traditionally played a major role in delivery of Russian gas to Europe. As late as 2019, transit volume was about 90 bcm, accounting for one half of Russia’s total gas exports to Europe. After Moscow’s full-scale invasion, the continuation of Russian gas transit through Ukraine provided EU member states energy security while also buying them time to arrange for alternative natural gas supplies. And by 2023, the transit volume had fallen to less than 13 bcm, with most of the gas being delivered to Austria, Italy, Hungary, and Slovakia. Other major consumers, including Germany, Poland, and the Czech Republic, have managed to end their dependence on Russian pipeline gas and Russian gas in general, although Russian LNG exports to Europe have continued to rise. But since 2022 the United States has emerged as a main LNG supplier to Europe, accounting for nearly half of total EU LNG imports in 2023 and helping to blunt Europe’s need for Russian LNG.

Of the countries most likely to be directly affected by the expiration of the 2019 agreement, Slovakia and Hungary have been the most vocal in calling for the continuation of Ukraine transit. Italy already has been able to largely replace Ukraine transit gas with LNG and pipeline gas from other sources, including Azerbaijan, and has been silent on the future transit issue. Austria presents a mixed picture. Some Austrian politicians have expressed concerns over its growing dependence on Russian gas, while others have signified their reluctance to break existing supply contracts.

For its part, the EU has expressed the view that there is no need to extend the current transit agreement, although it has not commented on the prospects for transit in the absence of an agreement. This could take the form of capacity bookings by European traders who would take delivery of Russian gas at Ukraine’s eastern border. This possibility has been discussed with little interest for many years until recently, presumably because European traders were not willing to take the attendant risk.

Meanwhile, the view from Kyiv is muddled at best. The minister of energy has completely ruled out future transit, but the prime minister has nixed an extension of the current agreement, while suggesting that transit still might continue under the right circumstances. The head of the Ukrainian gas transit company has similarly expressed willingness to continue transit at least through 2027, the proposed target date for EU countries to phase out imports of Russian fossil fuels.

The arguments in favor of Ukraine continuing to offer transit are weak, premised on the revenue Ukraine earns from transit and concerns over the availability and price of replacement gas. The first concern is overblown. Although Ukraine currently collects about $800 million per year from transit, that does not account for the costs of operating the system. Given the (EU-style) tariff methodology employed by Ukraine, the actual financial benefit is much less, and in the context of Ukraine’s economy, relatively insignificant at 0.46 percent of GDP.

Concerns about replacing Ukraine transit gas are equally overblown. Countries now dependent on Ukraine transit can easily source replacement gas, particularly LNG. Increases in US and Canadian LNG production in 2025-2026 alone would more than replace Russian gas currently being transited via Ukraine.

Meanwhile, the EU has added around 50 bcm of LNG regasification capacity since 2022. Further capacity expected to come online by the end of 2024 will result in total capacity of about 235 bcm, able to meet over 55 percent of European annual gas demand based on the gas consumption average of the last five years.

The argument that the end of transit would lead to much higher gas prices in Europe is likewise questionable. The EU gas market has currently stabilized and returned to its pre-war price range, and Ukrainian transit accounts for only 4 percent of total European demand.

So why the pressure to continue transit once the agreement lapses if Ukraine transit gas can economically be replaced with gas that doesn’t originate in Russia? In the case of Slovakia, and to a lesser extent Austria, purely financial considerations may be at work. The end of Ukraine transit could hit Slovakia hard, since most of the Ukraine transit gas also transits Slovakia through the Eustream pipeline system. However, Eustream has a ship-or-pay contract with Gazprom extending to 2028, obligating payment by Gazprom even in the absence of transit (although force majeure might excuse non-performance). The economic damage to Austria is likely smaller, since it also earns revenue from non-Russian gas transiting its Baumgarten hub.

However, Russia’s continued aggression and the war’s potential to escalate into a NATO-Russia or EU-Russia conflict underline the need for European unity and solidarity, particularly in reducing the export revenues of the aggressor. Billions of dollars in gas revenues from NATO and EU members should not be used to fuel Russia’s military capabilities. In fact, the EU is now considering a complete ban on Russian LNG imports.

Moreover, the continued reliance on Russian pipeline gas gives Russia undue political leverage and creates disunity among EU member states, weakening the West’s overall response to Russian aggression. Ending transit via Ukraine after 2024 would enhance the region’s energy security and diminish Russia’s export income with minimal disruption in gas supplies.

The Ukrainian government may face political pressure from some EU member states to maintain gas transit, with or without an agreement. To counter this pressure, the United States should: (1) discourage its EU allies from continuing to import Russian gas via Ukraine and (2) urge Ukraine to resist this pressure, while also encouraging the EU to support Ukraine in its stance.

Sergiy Makogon is the former CEO of GasTSO of Ukraine (2019-2022).

Daniel D. Stein is a former senior advisor with the Bureau of Energy Resources at the US Department of State.

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Two years on, what the Russian invasion of Ukraine means for energy security and net-zero emissions

By Atlantic Council experts

Experts from the Atlantic Council’s Global Energy Center offer perspectives on navigating global energy security and charting a course towards a more secure and sustainable energy future two years after Russia’s full-scale invasion of Ukraine.

Energy & Environment Energy Markets & Governance

EnergySource Dec 13, 2023

The US and NATO must clamp down on Russian fossil fuels to end the war in Ukraine

By Svitlana Romanko and Oleh Savytskyi

Energy & Environment Energy Markets & Governance

EnergySource Oct 11, 2023

A Ukrainian energy hub will help Europe’s clean transition

By Mark Temnycky

Ukraine can become an energy and minerals hub for European. Investing in Ukraine’s renewable energy industry is vital for European decarbonization.

Energy & Environment Energy Transitions

Learn more about the Global Energy Center

The post Amid competing pressures, will Ukraine quit its transit of Russian gas? appeared first on Atlantic Council.

G7 pledges to end coal—but only inclusive action will make a real climate impact

Elena Benaim — Fri, 03 May 2024 20:13:34 +0000

Energy ministers from the Group of Seven (G7) met in Turin, Italy, on the 29th and 30th of April for the first time since the United Nation climate summit in Dubai. Two days of discussion at the Climate, Energy, and Environment Ministerial meeting resulted in a series of shared commitments to address climate change and energy security. The 35-page long joint communiqué includes a historic pledge to phase out coal power plants by 2035.

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The commitment of “phasing out coal by 2035 or on a timeline consistent with the 1.5 temperature limit” marks a further step in the direction indicated last year by the UN climate summit, known as COP28, to reduce the use of fossil fuels, of which coal is the most polluting. Mentioning the IEA’s Net-Zero Roadmap report, G7 countries say that “phase-out of unabated coal is needed by 2030s in advanced economies and by 2040 in all the other regions, and that no new unabated coal power plant should be built.” This represents the first agreement on a timeline for phasing out coal after the initiative had previously failed due to opposition by some members. However, it should be noted that, despite the positive step towards a common goal, by using the term “unabated” in the communication, members of the G7 leave open a potential path for the use of coal beyond the indicated timeline.

In addition to the importance of ending coal reliance, it is now widely recognized that the success of the energy transition is linked to a technology-inclusive approach both for reaching climate neutrality and strengthening energy security. The communication of the G7 promotes members’ increasing use of diverse low-carbon energy technologies including renewable energy, energy efficiency, hydrogen, carbon management, storage, nuclear energy, and fusion.

Energy ministers fully committed to the “implementation of the global goal of tripling installation of renewable energy capacity by 2030 to at least 11 terawatts (TW)” and to “double the global average annual rate of energy efficiency improvements by 2030 to 4%,” signaling the intention to create a strong connection with COP28 pledges.

On energy storage, G7 members agreed to a global goal in the power sector of 1500 gigawatts (GW) in 2030, a more than six-fold increase from 2022. Introducing this target for storage is very important to support renewable implementation and ultimately reach the installation capacity target set in Dubai.

The communication highlights the importance for countries to reduce reliance on civil nuclear technologies from Russia and commits to strengthening the resilience of the nuclear supply chain. Countries opting for nuclear energy would work to deploy next generation nuclear reactors.

Fusion made it in the final text with a strong emphasis on the potential of this technology to provide a lasting solution to the global challenges of climate change and energy security in the future, marking an important addition to the G7 joint communication, since in the Hiroshima Communique, fusion was not mentioned.

In order to implement these targets and scale technologies, the G7 countries this year also reaffirmed their commitment to jointly mobilize $100 billion per year until 2025 and their intention to scale up public and private finance. “We stress the need to accelerate efforts to make finance flow consistent with a pathway towards low greenhouse gas emissions and climate-resilient development,” and “we acknowledge that such efforts involve the alignment of the domestic and international financial system.” Attention is now directed toward the upcoming G7 finance meeting, the G20 in Brazil, and the “finance COP” in Azerbaijan.

Finally, convergence and cooperation with countries outside the G7 will play a crucial role in the success of the transition. The joint communication acknowledges that developing countries represent “an important partner in the just energy transition” and recognizes “the great potential of the African continent in becoming a global powerhouse of the future.”

At this year’s energy ministerial meetings, Azerbaijan’s Deputy Minister on Energy Elnur Soltanov (representing the 2024 COP29 presidency), Brazil’s Minister of the Environment and Climate Change Marina Silva (representing the 2024 G20 presidency), and Kenya’s Principal Secretary on Energy Alex K. Wachira, participated along with the G7 partners. This approach shows recognition of the fundamental role that inclusivity plays in a successful transition and the willingness to create strong synergies with the upcoming multilateral forums.

It would be difficult to overstate just how critical pragmatism and convergence are to the energy transition. But this message, in addition to being successfully incorporated in the communication was further reinforced during the Future of Energy Summit, a half-day event hosted by the Atlantic Council Global Energy Center, Politecnico di Torino, and World Energy Council Italy as part of Planet Week on the sidelines of last weekend’s G7 ministerial meeting. Experts and speakers at the Summit emphasized the need to strengthen a technology-inclusive, not exclusive, approach and cooperation among countries.

The IEA’s Net Zero Emissions by 2050 Scenario (NZE) envisages that by 2030, advanced economies would end all power generation by unabated coal-fired plants, making the new G7 historic commitment unfit for purpose. However, the overall success of the transition will not be determined by pledges, but more so by the will of countries to transform pledges into action. Whether G7 countries will be able to succeed in the energy transition will depend on their capacity to create resilient clean energy supply chains, implement diversified energy mixes, promote collaboration with developing countries, scale up public and private finance, and it seems like many steps are being taken in the right direction.

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

EnergySource

EnergySource Apr 3, 2024

Central and Eastern Europe needs to rethink its approach to energy security

By Pawel Czyzak and Nolan Theisen

The upcoming Three Seas Initiative Summit is an opportune time for Central and Eastern European leaders to pivot toward clean, affordable, and local renewables to build energy security.

Central Asia Central Europe

EnergySource Dec 13, 2023

The US and NATO must clamp down on Russian fossil fuels to end the war in Ukraine

By Svitlana Romanko and Oleh Savytskyi

Energy & Environment Energy Markets & Governance

EnergySource Dec 5, 2023

The Oil and Gas Decarbonization Charter is a start, but more work remains

By David L. Goldwyn, Andrea Clabough

Energy & Environment Energy Markets & Governance

Learn more about the Global Energy Center

David Goldwyn: Energy markets will hinge on Israel’s response

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What Iran’s attack on Israel means for global energy

Atlantic Council experts — Tue, 16 Apr 2024 19:34:36 +0000

Energy markets have shown a muted response to Iran’s unprecedented attack on Israel over the weekend, despite the threat this escalation poses to global oil supplies. But, as Israel weighs its response, the risks to fuel prices and global energy security are extremely high. Our experts comment on what to watch for as tensions rise.

Click to jump to an expert analysis:

Ellen Wald: Will Iran close the Strait of Hormuz?

Brenda Shaffer: Iran-Israel direct confrontation will last months, not days

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Energy markets will hinge on Israel’s response

Energy markets have been pretty sanguine about rising tensions in the Middle East for some weeks. This may not last. The baseline assumptions have been that the Strait of Hormuz will remain open because it is in Iran’s interest to keep them open. Trade in liquefied natural gas (LNG) has been rerouted to avoid Houthi attack in some cases, but Qatar has had a fast pass to deliver to market. Even this week, markets were relieved at the ability of Israel and its allies to repel the Iranian drone and missile attack, and continue to assume that Israel’s response will not attack Iranian oil production.

But the key question is what comes next. Pressure in Israel to respond to the Iranian attack is intense. There is a high risk of confrontation with Hezbollah in the north to mitigate the risk of a short-range missile attack on Israel. And the Israelis are not done with their Gaza operation. Iran has taken what it thinks is a well previewed and measured response to Israel’s strike on its consulate in Syria to end the cycle of response, but neither Israel nor the United States can tolerate Iranian attacks on Israel as the new normal.

Key issues to watch in the next two weeks are: 1) what measures the United States and allies will take to try to forestall an Israeli escalation that could lead to a wider war; 2) whether new sanctions on Iran will target insurance clubs, Chinese banks, or both; 3) whether the United States will dramatically increase targeting of Houthi strongholds as a way of reducing the threat to shipping and retaliating against Iran; and 4) whether Israel will exercise restraint, or whether it will trigger a new round of kinetic activity.

At minimum, shipping costs are likely to increase based on the increased risk of military action in the Persian Gulf, pressure on US and European insurance clubs to avoid any transactions—including those with China—that involve Iranian crude and additional rerouting of oil and gas shipments in response to Houthi threats, or Allied responses. Cooler heads in the United States, Europe, Jordan, Saudi Arabia, and hopefully China will try to head off confrontation that will drive oil and gas prices into triple digits. But they may not prevail….

David L. Goldwyn served as special envoy for international energy under President Obama and assistant secretary of energy for international relations under President Clinton. He is chair of the Atlantic Council’s Energy Advisory Group and a nonresident senior fellow with the Council’s Global Energy Center.

Will Iran close the Strait of Hormuz?

As the conflict between Iran and Israel intensifies, the big question is “will Iran close the Strait of Hormuz”? This narrow waterway must be traversed by all ships exiting and entering the Persian Gulf. According to the EIA, about 21 percent of the world’s liquid petroleum (crude oil, condensate and petroleum products) travels through the Strait of Hormuz, making it the most important oil transit chokepoint.

If Iran shut down transit through the strait, oil supplies would be immediately and significantly impacted. Asia would feel the effects most acutely, as 80 percent of the crude oil and condensate that leaves the Persian Gulf through the strait is shipped to Asian customers.

Iran has threatened this action in the past, but never followed through. Iran isn’t likely to close the strait to Saudi, Kuwaiti, Iraqi, and Emirati oil, because if it did, the United States would immediately deploy naval forces to prohibit ships carrying Iranian oil from exiting the Persian Gulf. Iran is completely dependent on revenue from its illicit oil trade, and if it could not export oil, the government would become immediately insolvent.

Even though Iran’s oil is technically under heavy US sanctions, those sanctions are applied on the buyers of Iranian oil, and those buyers have ways of evading sanctions by masking the origin of the oil they purchase. In addition, the Biden administration has not enforced sanctions violations against Iran’s largest customer, China, in ways significant enough to deter Chinese refiners from buying Iranian oil.

Sanctions enforcement and the security of the Strait of Hormuz go hand in hand. If the United States starts enforcing its oil sanctions more strictly and Iran cannot not find buyers for its oil, then Iran could be motivated to close the strait to shipping, because it has nothing to lose. But if sanctions are not as strictly enforced and Iran continues to generate significant revenue from its oil sales, then it will be motivated to keep the Strait of Hormuz open to all shipping.

At the same time, Iran uses revenue from its oil industry to fund terrorism and unrest throughout the Middle East and beyond. Iran isn’t going to close the Strait of Hormuz unless it has nothing to lose. Insurance costs on transporting oil through the Persian Gulf will likely rise, as the potential for an oil tanker to get caught in the crossfire is now more likely. The risk of short-term spikes for oil prices will remain, but the risk of long-term, elevated oil prices owing to a supply shock from the Middle East is still low.

Ellen R. Wald is a nonresident senior fellow with the Atlantic Council Global Energy Center and the co-founder of Washington Ivy Advisors.

Iran-Israel direct confrontation will last months, not days

The Iran-Israel direct confrontation is not over. Currently, the oil market does not correctly reflect the risks to disruption of oil supplies, especially to Iran’s oil production and exports.

Israel will respond to Iran’s April 13 massive aerial barrage. The timing of Israel’s response will depend on when the proper target emerges. States do not pick a date to attack and then look for targets, rather the opposite. When the proper target is identified, the attack will take place.

Iran’s oil production and export is an attractive potential target, because a severe disruption of Iran’s oil infrastructure will be a strategic loss to Iran—and can be accomplished with few human casualties. Yet, clearly the United States would oppose an attack that would reduce Iranian oil exports. The Biden administration wants as many barrels on the market as possible in an election year to keep the global oil prices low, and has not been enforcing US sanctions on Iranian oil exports. Iranian oil production and exports have grown significantly under the Biden administration. In new Iran sanctions that the administration announced on April 18, reference to oil was conspicuously missing.

An illustration of the administration’s tenacity in keeping foreign barrels in the market, Washington asked Ukraine to refrain from attacking Russian oil refineries, despite the effectiveness of these attacks to slow Russia down. If Israel decides to attack Iran’s oil infrastructure, it will likely wait to do it until after the US November elections. Thus, in assessing the impact of the Iran-Israel confrontation on the global oil market, it is important to assess impact over months and not over days.

Iran’s decision to attack Israel from its own territory, and not via proxies as it has done for over twenty years, is exceptional. The regime in Iran is quite calculating and strategic and this decision to attack Israel does not fit its normal mode of behavior. Iran essentially has no modern navy, no serious air defense, and no air force (most of the planes in is inventory were purchased from the United States and France in the 1970s). In this state, it is surprising that Tehran launched the massive aerial attack on Israel, opening itself up to a counterattack. There are two potential explanations to Iran’s decision. One, Iran may be very close to developing a nuclear weapon (or has succeeded), thus has increased confidence, despite its conventional military inferiority. Or, Tehran may have underestimated US support for Israel and the mobilization of most Arab states to challenge the Iranian attack.

Brenda Shaffer is a nonresident senior fellow with the Atlantic Council Global Energy Center.

EnergySource

EnergySource Feb 21, 2024

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By Julia Nesheiwat

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Experts react: What to know about US and UK strikes on the Houthis in Yemen

By Atlantic Council experts

Atlantic Council experts share their insights about the strikes and about what to expect next—including how Iran might respond.

Conflict Crisis Management

Learn more about the Global Energy Center

The post What Iran’s attack on Israel means for global energy appeared first on Atlantic Council.

Central and Eastern Europe needs to rethink its approach to energy security

Pawel Czyzak and Nolan Theisen — Wed, 03 Apr 2024 16:35:37 +0000

With the annual Three Seas Initiative Summit fast approaching and in the wake of the recent joint visit of Poland’s Prime Minister Donald Tusk and President Andrzej Duda with President Joe Biden in Washington, Central and Eastern European (CEE) countries have an opportunity to reframe their energy security outlook—still dominated by natural gas diversification—and increase the role of local green solutions. Analysis of the regional energy landscape finds that CEE countries are planning to expand gas import infrastructure beyond what is needed to replace Russian gas and meet future demand, neglecting abundant renewables potential in the process.

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Navigating outside interests

Historically dependent on Russian fossil fuels, CEE now plays a crucial role as the eastern flank of NATO and a logistics hub for Ukraine aid. Additionally, China has been active in CEE trade and investment through its 14+1 format (formerly 17+1), which includes battery, wind, and solar energy supply chains, while the United States promotes close cooperation with its gas and nuclear industries.

As the largest inter-governmental organization in the region, the Three Seas Initiative (3SI) is uniquely positioned to define CEE’s role among these interests. It includes member countries Estonia, Latvia, Lithuania, Poland, Czechia, Slovakia, Hungary, Slovenia, Croatia, Bulgaria, Romania, Austria, and Greece with the participation of Ukraine and Moldova as partners. However, despite 3SI’s original goal of enhancing North-South collaboration and connectivity, of its forty-one energy priority projects, only one is dedicated to cross-border electricity interconnection and one to an offshore wind farm grid connection, while twenty are linked to gas infrastructure expansion.

CEE’s appetite for gas is no longer growing

Enabling natural gas in CEE is becoming increasingly untenable. Data suggest that by 2025, LNG import capacity across 3SI countries is likely to exceed historical imports of Russian pipeline gas. To use this expected growth in supply, LNG consumption in the region would have to grow well beyond past demand.

Furthermore, evidence is mounting regarding the adverse climate and environmental impacts of LNG. Reflecting global concerns along these lines, the Biden administration suspended approvals for liquified natural gas (LNG) exports, in an effort to better align US foreign policy with its climate ambition.

The potential for stranded assets

Forecasts by European power and gas grid operators estimate that total gas demand in 3SI countries will stabilize around the 2023 level of 70 bcm and reach between 61 and 73 bcm by 2030, depending on the scenario and the displacement of coal in the power sector. Over the same period, LNG import capacity in 3SI countries is expected to reach 53 bcm (by 2030), complemented by 17 bcm from the Baltic Pipe, Balticconnector, and Trans Adriatic Pipeline, as well as 15 bcm of domestic gas production (16 bcm in 2023), reaching 85 bcm in total. This means that by 2030, across 3SI members, the sum of domestic production and gas import capabilities through LNG terminals and pipelines from North and South directions will exceed demand of 3SI countries by 17-40 percent (12-24 bcm).

The outlook varies at the country level, but outsized gas facilities funded by EU taxpayer money in Poland or the Baltic States in particular risk becoming stranded assets. By 2040, demand is expected to decrease due to intensified energy efficiency measures and growth in heat pump installations replacing gas boilers.

The energy security risks of LNG reliance

While LNG has played an indispensable role filling the Russian supply gap, security concerns remain for certain landlocked CEE and 3SI countries with unequal access to market-based LNG. The reality is that all importers and consumers of LNG face risks from global fuel price fluctuations, contract renegotiations, and competition from buyers willing to spend more. Pakistan’s experience in 2022 and 2023 highlights these challenges. Whenever China’s economic recovery arrives, it will have major ramifications across the global LNG market. The EU’s gas import bill ran close to €400 billion in 2022 alone—more than three times the level in 2021, showing how high the price of energy security can be.

The Three Seas Summit is an opportunity to pivot from gas to renewables

This year’s Three Seas Summit provides a unique opportunity for CEE governments to articulate a long-term vision pivoting away from fossil fuel interests toward clean, affordable, and local renewables, enabled by an expanded interconnector network. The new pro-Europe and pro-climate government in Poland, the largest 3SI member, could lead the charge for 3SI to transition away from gas use.

The opportunity to implement this change is significant, especially for the Lithuanian 3SI presidency and its Baltic Sea neighbours, which are on track to deploy 15 GW of offshore wind by the early 2030s. Capitalizing on the wind and solar potential would increase the share of renewables in 3SI’s electricity generation from 39 percent today to 67 percent by 2030, and lead to a 27 percent reduction in power prices compared to a current policy scenario.

Realization of this renewable potential would bring major economic and security benefits. The expansion of offshore wind in the region is already creating hundreds of jobs, and lower electricity prices will attract further manufacturing and industry investments. Examples from Ukraine show that distributed energy generation and interconnection provides better resilience in times of war than a traditional, centralized power system.

However, grid expansion and upgrades have to keep pace with the electrification of the economy. The European Commission estimates that by 2030, €584 billion in investments are necessary to modernize the aging grid infrastructure, making it fit for variable renewables and new demand from electric vehicle charging points and residential heat pumps. This presents a vast investment opportunity for the next phase of the Three Seas Initiative Investment Fund, especially in the area of cross-border interconnection.

With the expansion of wind and solar, the CEE region can become a model for reduced dependency on fossil fuel imports—and transform into a European clean energy hub.

Pawel Czyzak is Central and Eastern Europe lead at Ember.

Nolan Theisen is a senior research fellow at Slovak Foreign Policy Association.

EnergySource

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Central Europe Eastern Europe

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The post Central and Eastern Europe needs to rethink its approach to energy security appeared first on Atlantic Council.

US ratification of the ocean treaty will unlock deep sea mining

Alex Gilbert and Morgan Bazilian — Tue, 02 Apr 2024 18:13:47 +0000

Hundreds of former political and military leaders are calling for the US Senate to ratify the UN Convention on the Law of the Sea (UNCLOS), the impetus being to open up deep sea mining to supply critical minerals needed for clean energy and military technologies. UNCLOS, adopted in 1982, is the primary international treaty governing state activities in oceans, particularly in areas beyond national jurisdiction that hold seabed minerals. Deep seabed resources include highly valued minerals such as cobalt, nickel, and rare earths. Recent technological advances and new companies are making their extraction economically feasible for the first time.

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The United States has yet to ratify the UNCLOS due to historic opposition toward its international regulation of seabed resources in the High Seas. This lack of participation bars US companies from directly participating in what could be a significant new industry. It has already led to dominance of deep sea exploration permits by geopolitical competitors—China and Russia have together won nine permits, including in areas historically claimed by the United States. By ratifying the Law of the Sea treaty, the United States can bolster critical mineral supply security, enter deep sea markets, and enhance national security.

Governments and private industry have long worked to enable the extraction of minerals from the deep seabed for a range of resources, including cobalt crusts, hydrothermal sulphides, and polymetallic nodules. Of these, polymetallic nodules are the most sought after—ocean processes create these billiard-ball-sized clumps of valuable metals. Ore grades in nodules significantly exceed those on land, making their extraction both cost and emissions efficient. The largest collection of nodules is located in an area called the Clarence Clipperton Zone (CCZ), which stretches the Eastern Pacific between Hawaii and Mexico. Recent technological developments, particularly in remotely operated vehicles and underwater vehicles, mean that deep sea resources are potentially economical today.

Reliable critical mineral supplies are increasingly important for the global economy and security. They are needed to meet clean energy needs, including electricity infrastructure, electric vehicles, and renewable energy. Many advanced technologies for defense applications, particularly electronics, require stable and growing supplies of these rare minerals. China dominates extraction and processing of most critical minerals, while the United States is a major importer for all minerals that deep sea mining might supply.

Governance of deep sea mining depends on location. Under UNCLOS, seabed resources within exclusive economic zones are governed by the relevant nation. Norway recently became the first country to authorize mining of such resources in their jurisdiction, but most resources are outside such zones. Resources in the remaining half of the ocean, called the High Seas, are governed by the International Seabed Authority (ISA). Although the United States played an active role in negotiating UNCLOS and considers most of it customary international law, it has not ratified the treaty due to Senate opposition to the role of the ISA. Among other reasons, some senators historically opposed the ISA’s international royalty mechanism, and expressed concerns about precedent for other domains like outer space. Without ratification, the United States cannot directly participate in the ISA’s governing process, and American companies cannot receive ISA mining permits.

These criticisms are not unfounded. The ISA has existed for decades and yet is struggling to establish a governance framework. The small nation of Nauru is forcing the issue legally, and the ISA is close to finalizing its mining permit system, without clear environmental protection. Global environmental groups have called for a moratorium on deep sea mining until scientists can conduct more research on environmental impacts.

Still, one of the primary objections (that an ISA-like royalty mechanism would be created for space exploration) to ratifying the law of the sea is no longer valid. In the last decade, the United States and many other countries have passed domestic legislation legalizing space mining without a space equivalent to ISA. This approach has been legitimized by the multilateral US-led Artemis Accords, which now has thirty-five signatories including all major space powers except China and Russia. The United States has secured a governance pathway forward for space resources that does not repeat the limitations of the ISA.

The letter calling for ratifying the Law of the Sea is the culmination of a growing bipartisan agreement around securing critical minerals in the face of an ongoing trade war with China. A group of bipartisan senators led by Senators Lisa Murkowski, Mazie Hirono, and Tim Kaine introduced a resolution explicitly calling for ratification. Congress, in both informal letters and directed reports, is pushing for studies on deep sea resources in US waters and the ability to establish domestic processing infrastructure. In late 2023, the US State Department initiated an extended continental shelf claim into the Arctic and Pacific oceans, exerting jurisdiction over seabed mining for certain areas beyond its exclusive economic zone, a practice explicitly outlined in UNCLOS. However, China and Russia have challenged this new assertion, arguing at ISA that the US cannot make the claim because it has not signed UNCLOS.

Ratifying UNCLOS would also bolster US diplomatic power. The Houthi campaign in the Red Sea is disrupting 20 percent of global maritime trade. Multiple submarine telecommunications cables in the Baltic Sea and Red Sea have been severed in the last year, threatening global internet connectivity. For more than a decade, China has been violating the principles of the LOS with their actions in the South China Sea and elsewhere. UNCLOS ratification would greatly strengthen US credibility in seeking international coalitions to push back against these challenges.

The future of deep sea mining remains uncertain. The burgeoning industry faces technical, economic, regulatory, environmental, and political challenges. The abyssal plains of the deep seabed hold unique biodiversity and are fragile, so mining activities must readily incorporate environmental best practices to limit impacts and gain social license to operate. Nevertheless, its potential benefits to meeting critical mineral supply are substantial, as are the geopolitical stakes of establishing a leadership position. The urgency of securing critical mineral supply means the time is right for the United States to reconsider its formal participation in UNCLOS.

Alex Gilbert is a PhD student in space resources and a fellow at the Payne Institute for Public Policy at the Colorado School of Mines.

Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines.

EnergySource

EnergySource Aug 16, 2023

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Energy & Environment Energy Transitions

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Energy & Environment Energy Transitions

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The post US ratification of the ocean treaty will unlock deep sea mining appeared first on Atlantic Council.

Peacemaking through curbing Russian oil and gas exports

Svitlana Romanko and Oleh Savytskyi — Wed, 20 Mar 2024 13:22:59 +0000

Ukraine seems to have found an effective asymmetrical response to the massive waves of deadly missile attacks that Russia has unleashed against Ukrainian cities since early January. A number of Russian oil refineries and oil terminals have been hit with precision strikes, attributed to new Ukrainian long-range drones.

By targeting fossil fuel exports—the financial lifeline of the Kremlin’s regime—this response has had an impact. In January Russia’s seaborne oil product exports fell 8.6 percent from a year earlier and 2 percent from the previous month to 10.8 million metric tons, owing to lower processing capacity and unplanned repairs.

Drone strikes at critical processing and export facilities bring financial pain to Russia. Repairs are costly and time-consuming, especially because of sanctions that limit access to Western technology, which is making the replacement of destroyed equipment difficult.

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However, Ukraine’s efforts to repel Russian attacks would be made less challenging if Europe and the United States did even more to throttle Moscow’s oil and gas exports by utilizing the full power of sanctions.

The tragic loss of human life in Ukraine, including hundreds of children, is still too often paid for by cash that Russia receives from the export of oil and gas enabled by loopholes that persist in the sanctions regime imposed on Moscow by the United States and the European Union. Amid the ongoing struggle for peace and sovereignty in Ukraine, governments that believe in the rule of international law must do more. The United States, EU, and the Group of Seven (G7) industrialized nations should be consistent and strict in enforcing sanctions against Russian fossil fuels.

Western governments have strong tools to dry up the Kremlin’s war budget. They can do this by plugging the gaps in sanctions against Russian oil and gas exports, strengthening them further, and thereby severing the critical revenue stream supporting the Kremlin’s oppressive regime and its brutal war machine.

There are five specific actions that the G7 and EU can take in this direction: enforce price caps on Russian oil and oil products; prevent the expansion of Russia’s shadow fleet of oil tankers; close the refining loophole; fully ban Russian liquefied natural gas (LNG) imports; and take decisive actions to reduce demand for oil and gas in the long-term.

Civil society organizations are urging Western leaders to take these steps. More than 290 groups from across the globe addressed the G7 and EU leaders with this call in February, as Ukraine marked the tragic two-year anniversary of the full-scale invasion.

There is an urgent need to eliminate loopholes in sanctions against Russian fossil fuels to prevent further escalation of the Kremlin’s aggression in Europe outside of Ukraine.

The shadow of Russia’s military plans looms ominously. This is evident in the 2024 federal budget, with a staggering allocation of resources to the military-industrial complex, not seen since Soviet times. This is a startling shift in budgetary focus, with a third dedicated to the army. This militarization signifies a perilous path toward conflict intensification, threatening regional stability. In 2024, Russia’s “national defense” budget will expand to 10.8 trillion rubles ($110 billion), marking a 70 percent increase from 2023 and more than doubling from 2022. It is three times higher than the pre-war 2021 allocation.

Regrettably, Europe and the United States inadvertently contribute to this war chest. The refining loophole in Western sanctions against Russian oil exports, meticulously highlighted by Global Witness, remains a massive funding source feeding Russia’s aggression, a fact that should not be overlooked.

While Western governments have banned the imports of crude oil, petrol, diesel, and jet fuel that originate in Russia, their countries can still import refined oil products produced from Russian crude in other nations, like India, China, Turkey, or the United Arab Emirates. In 2023 sales of Russian crude oil to refineries in India went through the roof. These Indian refineries capitalized on selling the refined products to G7 markets, where direct supplies of Russian oil were banned. The refining loophole increases the demand for Russian crude oil and enables higher sales in terms of volume, while keeping its price up. As a result, the price of Russian crude oil does not collapse in the global market even with the Western sanctions.

OPEC members’ decision to restrict exports of additional volumes of oil to world markets benefits Putin, and contributes to Russia’s strategy to weaponize energy supply. The refining loophole also creates a space for cooperation between Russia and OPEC countries, which can import Russian oil to refine or mix it with other blends of crude to conceal origin and profit from it.

Similarly, Europe still buys significant volumes of Russian natural gas, not so much through pipelines, but increasingly in the form of LNG. Key Russian LNG importers such as France, Spain, and Belgium have little excuse for continuing to do business with Russia. The gas storage in Europe is ample, and projections indicate an energy surplus bolstered by record-breaking clean energy expansion and alternative LNG supplies set to come online in 2024.

In total, since the start of the full-scale invasion in Ukraine on February 24, 2022, Russia has amassed more than $650 billion in profits from fossil fuel exports. Yet, if international sanctions on Russia’s fossil fuel industry are maintained and rigorously enforced, the International Energy Agency projects that the Kremlin’s profits from oil and gas could plummet by 40 to 50 percent by 2030.

The West has to act collectively to cripple the Kremlin’s fossil fuel export lifeline to help end the war in Ukraine faster. The future of Ukraine’s security and human dignity hinges on this critical moment of action, and world leaders must take action now to stop funding Russia’s aggression.

Svitlana Romanko, Founder and Director of Razom We Stand

Oleh Savytskyi, Campaigns Manager at Razom We Stand

EnergySource

EnergySource Feb 21, 2024

Two years on, what the Russian invasion of Ukraine means for energy security and net-zero emissions

By Atlantic Council experts

Energy & Environment Energy Markets & Governance

EnergySource Dec 13, 2023

The US and NATO must clamp down on Russian fossil fuels to end the war in Ukraine

By Svitlana Romanko and Oleh Savytskyi

Energy & Environment Energy Markets & Governance

EnergySource Sep 14, 2023

What to do about Russia’s energy trojan horse

By Olga Khakova, Charles Lichfield

Economic Sanctions Economy & Business

Learn more about the Global Energy Center

The post Peacemaking through curbing Russian oil and gas exports appeared first on Atlantic Council.

Hydrogen challenges in a post-45V world

Matthew Blieske and Joseph Webster — Thu, 14 Mar 2024 19:05:55 +0000

Recently, the US Treasury released its critical hydrogen guidance, called 45V, but the domestic hydrogen ecosystem has yet to see major positive final investment decisions (FID). While 45V is an undeniably important element in determining the future of the industry, and its related emissions, insufficient attention is being paid to the substantial technical, commercial, and regulatory challenges that must be overcome if hydrogen is to realize its potential as a key decarbonization vector.

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45V is a tax credit for the production of what the US Treasury terms “qualified clean hydrogen.” The US Treasury released its 45V draft guidance in late December, imposing strict guidance on the so-called “three pillars” of temporal matching, additionality, and deliverability.

Critics of the 45V guidance argue it is too restrictive and will prevent the industry from reaching scale, or even cede the sector to China. Conversely, environmental groups and academics are broadly supportive of the Treasury’s decision, holding that hydrogen’s ambitions must match its thermodynamic and technoeconomic realities, as insufficient restrictions could actually increase US emissions at the cost of tens of billions of dollars.

While 45V will have enormously consequential impacts on US hydrogen’s scalability, as well as emissions, it’s not the only factor affecting the industry. These challenges include the following:

Elevated interest rates and lengthy permitting times for new clean infrastructure are slowing capital-intensive energy deployment, including clean hydrogen.
Technology and supply chain issues are also impacting hydrogen development. While hydrogen production tax credits will improve project costs, they do not address persistent issues with integration of the supply chain and onsite systems. Hydrogen suppliers are inexperienced, with many having just come out of a technology-development phase. They often lack operations support and robust system design around the core technology.
Poor technical integration due to the lack of robust modern digital platforms that can communicate with and manage assets across the supply chain impairs a project’s ability to pass FID. Hydrogen generation projects will not pass FID unless offtake is secured. Integration challenges will continue to delay FIDs.
Technical scope will be highly project dependent, making economies of scale difficult to achieve. Hydrogen production projects will change significantly in scope—and cost—depending on the offtaker.

For instance, mobility end users will require significant hydrogen storage, compression trains or liquefaction trains, and export systems. Conversely, industrial customers will seek to develop systems designed specifically to avoid potential unintended consequences of hydrogen blending in gas pipelines. These technical requirements from the offtaker impose significant scope change to the production project.

Infrastructure limitations will result in market inefficiencies, adding a commercial hurdle to scaling hydrogen. Due to limited pipeline infrastructure, hydrogen markets have virtually no inter-regional connectivity with one another, limiting the number of buyers and sellers in each market.

To wit, there are only 1,600 miles of hydrogen pipelines in the United States, mostly along the Gulf Coast. In comparison, nationwide there are about 3 million miles of natural gas pipelines. Additionally, existing hydrogen networks are typically private-carrier pipelines, which are used by incumbents but not necessarily open to new producers.

Limited inter-regional trade in clean hydrogen means that the number of buyers and sellers will be highly constrained in local markets, especially in parts of the United States where there is little or no existing merchant trade in hydrogen. This could create considerable market distortions in places where industrial-scale clean hydrogen consumers will be the dominant—if not sole—offtaker in their local market. Markets where there is a sole buyer—a monopsonist—are prone to inefficiencies.

With some hydrogen markets unable to rely on fully competitive market structures, which rely on many buyers and many sellers, the development of the technology may be constrained. Notably, credit conditions for projects seeking to sell to a sole offtaker may be challenging.

The US hydrogen hubs, supported by funding from the Department of Energy, aim to solve this foreseeable problem by building an ecosystem of many buyers and sellers, aggregating demand and supply to create a more efficient market. Indeed, in existing ports and industrial zones, there will be few risks of a monopsony problems due to varied potential customers. Still, less developed H2 markets will be subject to this risk.

Most importantly, a lack of reliable demand exists for green hydrogen in any volume outside the heavy mobility market in California, and grey hydrogen producers will not be incentivized to switch until price parity is achieved, either via carrots (such as incentives in 45V), or sticks (such as pollution fees or regulatory measures). The issue is one of price, and it’s not clear that the combination of carrots and sticks in enough to achieve a switch from grey hydrogen to lower carbon products.

In sum, while the Treasury Department’s guidance on 45V is grabbing a lot of attention, multiple other factors impacting the clean hydrogen industry must be addressed. Industry and policymakers need to grapple with these challenges and identify effective solutions.

Matthew Blieske is the former CEO and co-founder of LIFTE H2, which develops and deploys novel end-to-end hydrogen supply chains. Blieske sold his stake in the company in October 2023 and is now an independent hydrogen consultant.

Joseph Webster is a senior fellow at the Atlantic Council. This article represents their own personal opinion.

EnergySource

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Climate Change & Climate Action Energy Transitions

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The post Hydrogen challenges in a post-45V world appeared first on Atlantic Council.

Toward harmonizing transatlantic hydrogen policies: Understanding the gaps

Joseph Webster and Pau Ruiz Guix — Mon, 04 Mar 2024 21:37:11 +0000

The United States and the European Union are taking different approaches to the development of clean hydrogen, a critical technology to decarbonize hard-to-abate sectors, from industry to maritime and aviation, among others. Divergent hydrogen policies can limit the emergence of the competitive, transatlantic marketplace necessary to accelerate the deployment of clean molecules and eventually facilitate regional and global trade. Consequently, US and EU policymakers must coordinate hydrogen rules to the maximum extent possible while ensuring that hydrogen uptake reduces carbon emissions. The following analysis identifies key distinctions between the transatlantic partners’ hydrogen strategies.

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Common pillars for clean hydrogen—with different rules

In December 2023, the United States published draft guidance on hydrogen standards, used to determine eligibility for tax credits under the Inflation Reduction Act (IRA). The guidance, called 45V, is built around what is termed the “the three pillars” of hydrogen: temporal matching, additionality, and deliverability. These three general requirements are also tacked in the EU Delegated Act, which defines renewable hydrogen for compliance with EU targets as renewable fuels of non-biological origin (RFNBOs). While in the US framework, tax credits go toward clean hydrogen that is produced using any clean electricity source, including nuclear energy, and in the EU, compliance with EU RFNBO targets requires that hydrogen be generated with renewables only, the three pillars can be generally understood as:

Temporal matching: These rules aim to ensure hydrogen is produced when clean electricity is available. This means that any amount of electricity used in hydrogen production must be matched with the same amount of zero-carbon electricity produced within a given time period. Shorter time intervals reduce electrolyzer capacity factors, increasing the levelized cost of hydrogen but achieving greater emissions reductions. Temporal matching periods are typically conducted on an hourly, daily, monthly, or annual basis.

Additionality/incrementality: Rules around this pillar aim to ensure hydrogen production goes hand in hand with new clean electricity generation capacity, making hydrogen producers add renewable electricity to the grid, rather than repurpose existing clean energy already on the grid.

Deliverability: This set of rules aims to ensure hydrogen is produced using clean electricity in the same region where that electricity is produced. There must be a direct physical interconnection between the clean energy source and the electrolyzers producing green hydrogen.

The chart below features a comparison between the EU and the US approaches to hydrogen across the three pillars, as well as other key areas of clean hydrogen policy. While US regulations are a proposed draft, the EU framework is considered final despite tweaks that may take place during its scheduled revision period in 2028.

Table 1. US and EU approaches to green hydrogen

While certain elements of the US rules might suggest they are stricter than the EU approach, this would be an oversimplification, as each contains elements that could be considered stricter—or looser—than the other in certain areas. While both approaches ultimately mandate hourly temporal correlation and strict additionality rules, the EU does not switch to hourly correlation until 2030—whereas the United States switches in 2028. Also, the EU allows for grandfathering of additionality, which is not permitted in the US proposed guidelines. Nonetheless, the draft US framework allows for the use of subsidized clean electricity for hydrogen production, takes a technology-neutral approach to clean electricity, and accepts energy attribute certificates to comply with hydrogen rules, diverging from the EU framework and allowing for greater flexibility for hydrogen producers. Importantly, differences in approach mean qualifying for the US 45V credit does not automatically qualify a facility as producing EU RFNBO-compliant renewable hydrogen.

Beyond these significant technical variations, US and EU strategies for developing clean hydrogen markets differ in their economic approach: the United States follows a supply-incentive model, while the EU is predominantly relying on a market-pull mechanism. The United States incentivizes production of hydrogen with uncapped tax credits that give lower or higher support depending on emissions thresholds but does not mandate clean molecule uptake. In this sense, it rewards greater wholesale emissions reductions without requiring it. In contrast, the EU employs a demand-side mechanism: regulation imposes the consumption of renewable hydrogen (i.e., 42 percent of hydrogen used in industry must be renewable by 2030), and strictly defines which hydrogen (RFNBOs) is available to meet legally binding targets. This mechanism prioritizes the use, rather than production, of hydrogen, and thus the decarbonization of end users. While the EU has put in place a Hydrogen Bank to support production, support is capped and auction based, whereas the United States’ effort is uncapped and direct. The Hydrogen Bank’s results are yet to be seen.

To maximize clean hydrogen’s potential to contribute to energy security and decarbonization, the EU and the United States will need to balance environmental, economic, and security concerns—and they must coordinate these efforts together. While the two markets have different resource endowments, legal regimes, and more, the EU and the United States should ensure the maximal harmonization and interoperability of hydrogen regulatory frameworks, as this will simplify investment and trade. The two sides should also plan carefully to ensure that their respective approaches to hydrogen development reduce carbon emissions. The next Trade and Technology Council in Belgium is an opportunity for both sides to learn from each other’s best practices and develop common approaches to hydrogen development.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

Pau Ruiz Guix is Officer on Trade and International Relations at Hydrogen Europe.

This article reflects their own personal opinions.

EnergySource

EnergySource Oct 19, 2023

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Climate Change & Climate Action Energy & Environment

EnergySource Oct 16, 2023

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COP28 and the growing Europe-MENA hydrogen connection

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Africa Energy & Environment

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The post Toward harmonizing transatlantic hydrogen policies: Understanding the gaps appeared first on Atlantic Council.

How to finance net zero in developing economies: Beyond the existing investment framework

Ken Berlin, Frank Willey — Thu, 22 Feb 2024 16:39:13 +0000

The International Energy Agency’s (IEA) analysis of commitments to reduce carbon emissions by 2030 made both before and at the United Nations Climate Change Conference (COP28) concludes that the world is on a path to achieving only one-third of the reductions in carbon emissions needed to limit global warming to 1.5 degrees C.

Achieving the needed reductions, according to the IEA, requires reducing fossil fuel emissions and tripling clean energy investments. The need for increased financing is even greater in emerging markets and developing economies. Current investment in clean energy in these markets is around $260 billion per year, but the IEA concludes that around $2 trillion a year must be invested by 2030.

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Reducing emissions in developing countries is critical to achieving the goal of net-zero greenhouse gas emissions by 2050. Although developing countries have contributed a very low percentage of historical greenhouse gas emissions, today, they emit nearly half of all greenhouse gas emissions and one-third of energy sector emissions. Failure to provide the needed finance would make achieving the 1.5-degree goal almost impossible.

Historically, the World Bank Group and other multilateral development banks (MDBs) have played the principal role in financing investment and providing guarantees to developing economies. They have supported catalytic projects, built capacity, provided grants, loans, and equity financing and guarantees to the poorest countries. They also developed the concept of blended finance where the public and private sector work and invest together.

Despite these important results, however, the MDBs have not been able to attract a significant level of private investment in developing countries. Their processes are too slow, their financial regulations too narrow, and their bureaucracy too great to attract the needed trillions of dollars of investment that governments cannot afford and that only private investors can provide to reach emission reduction goals. The MDBs are working to reform their processes, but unless they develop innovative new financing structures, their existing structure, mandates, and limitations make it very unlikely that these reforms will sufficiently open the spigot of private investments.

Thus, innovative new approaches and institutions are needed to achieve emission reduction goals. There is a growing consensus that the best way to attract private investment in developing countries is to reduce the real and perceived risks of those investments by providing guarantees at a level that makes projects investment grade in the minds of the private investors. Guarantees provide the most efficient way of leveraging public financing since the cash needed is only the amount necessary to cover expected losses in the investments. Unexpected losses are protected against by balance sheet backups to the cash provided to cover expected losses.

There are many guarantee proposals being considered and implemented. To achieve the needed impact, one or more of the proposals should establish a facility that provides over a ten-year period at least $500 billion in financing guarantees for loans and possibly for equity. Sovereign nations and perhaps very large foundations and private corporations would fund the facility.

This proposal is very ambitious, but not as costly as it sounds. If, for example, the facility concludes that the risk of loss is very high, say 10 percent, the nations providing funding would have to put up $50 billion in cash over a ten-year period, or $5 billion a year. If ten sovereign funds contribute to the facility, each country would have to put up an average of $500 million a year. This is a significant commitment, but a doable amount, particularly given developed countries’ pledges of $100 billion a year in financing to the developing world. Moreover, the facility could ramp up slowly, requiring lower contributions in the early years.

The facility would structure itself to attract private institutional investors by setting up a simple and efficient process of evaluating their investments and approving the guarantees. It would guarantee projects in a portfolio of investments by an investor, setting standards in advance on due diligence, environmental reviews, and involvement of local communities (ESG). Investors would be responsible for conducting due diligence and implementing the standards. The facility would spot check due diligence and implementation, but not conduct its own reviews. It would require a very small fee on investments to raise funds for capacity building in EMDEs.

The facility would comprehensively guarantee all risks necessary to make the project viable, including political and operational risks. It would provide guarantees in the amount necessary to ensure that investors can internally rate a project as investment grade. It would not guarantee currency risks but would work with a partner organization to cover that risk. It would charge interest and fees at very low concessional rates.

This structure would thus allow an investor to make an investment in the manner it normally invests, without additional layers of review, approval, and bureaucracy. Because the guarantees would lower the risk of an investment, investors would be able to provide loans at a much lower interest rate and equity without a premium on return to cover risk. This would lead to more financially viable projects and lower costs to consumers.

Lower interest rates would also significantly contribute to ensuring that the developing world can compete economically since it is cheaper, often much cheaper, in most of the world to generate renewable energy than fossil fuel-based energy. Lower interest rates would also contribute to achieving equity between advanced economies and emerging and developing economies since the cost of investments would converge instead of investments being significantly more expensive in developing countries.

Reaching 2030 carbon reduction targets in developing countries will require support from many different types of financial institutions. Working with Ian Callaghan, the founder of the UK Climate Finance Accelerator, we have proposed, along with co-author George Frampton, distinguished fellow with the Atlantic Council Global Energy Center, a new facility, the emerging market investment compact (EMCIC), that meets all the above criteria. EMCIC or a similar type of facility would complement the financing provided by multilateral development banks and governments and would play a crucial role in enabling developing countries to achieve their carbon reduction goals.

Ken Berlin is a senior fellow and the director of the Financing and Achieving Cost Competitive Climate Solutions Project at the Atlantic Council Global Energy Center.

Frank Willey is a program assistant at the Atlantic Council Global Energy Center.

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EnergySource Nov 30, 2023

Mobilizing climate finance at COP28: Improving enabling environments in emerging and developing countries

By Robert F. Ichord, Jr.

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The IRA’s best kept climate secret: Moving oil and gas toward operational net zero

By William Tobin

The IRA contains a suite of provisions to help oil and gas move toward scope one and two climate neutrality, potentially comprising some of the law’s most impactful climate measures.

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What’s next in the two-front war against climate change and energy insecurity?

By Robert F. Ichord, Jr.

Climate Change & Climate Action Energy & Environment

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The post How to finance net zero in developing economies: Beyond the existing investment framework appeared first on Atlantic Council.

Escalating Middle East conflict means North America must bolster global energy security

Julia Nesheiwat — Wed, 21 Feb 2024 22:18:22 +0000

In recent weeks, attacks on ships in the Red Sea have significantly raised shipping costs and caused delays for traded goods, from hospital supplies to food and clothes. Though the global energy supply is so far uninterrupted, a broader conflict in the region would mean disruptive attacks on energy and transport infrastructure, whether through Iranian naval action or Iranian proxies. North America must prepare itself for a coming crisis in the global energy supply, particularly the United States—where President Biden recently announced his decision to pause the approval of new liquefied natural gas exports.

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Red Sea attacks continue to threaten shipping

In November 2023, Houthi rebels began attacking commercial ships in the Red Sea and surrounding waters. The Houthis, a Fiver Shiite political faction and the de facto government of western Yemen, are a US-designated terrorist group closely aligned with Iran. They are targeting commercial vessels as a way to oppose Israel’s war against Hamas. In response, the United States helped launch a multinational naval coalition to safeguard navigation in the Red Sea, and it has since struck Houthi military targets several times. However, this has not yet stopped Houthi attacks.

The Red Sea conflict has forced ships to reroute around the Cape of Good Hope. This has disrupted the trade of commodities, including oil and gas, by raising freight rates, increasing shipping times, and reducing the number of ships available. Despite these disruptions, key oil prices such as the Brent benchmark have not yet spiked. Natural gas prices also remain relatively low, as overall demand is still being mitigated by full European gas stocks, a relatively warm winter in some places, and a slowdown in the Chinese economy and other economies, such as Japan and Germany. According to Reuters, US gas exports have played a key role in maintaining global price stability, especially in Europe, but also in Asia.

However, if the disruption in the Red Sea continues unabated, it will invariably drive up global costs for oil and liquefied natural gas (LNG). Freight rates for oil and petroleum product tankers continue to climb—in some cases by nearly 500 percent since November. Additionally, transport times and costs have gone up for oil and LNG shipments from the Middle East to Europe and Asia.

The near future remains uncertain. A wider conflict in the Middle East capable of physically interrupting oil or gas supply is increasingly likely. Recent press reports claim a war between Hezbollah and Israel may be “inevitable,” which in turn would force Iran to act. Iran’s military could easily disrupt the key shipping routes, forcing many countries to seek out supplies shipped via alternative means, notably from North America.

Iran’s actions will be key to the energy outlook

How Iran would respond to all-out conflict between Hezbollah and Israel remains an open question, but historical trends give no reason for optimism.

Primarily, Iran’s past actions in the Gulf mean more frequent harassment of Western-linked tankers is almost guaranteed. This strategy may have already started. In January, Iranian forces seized a Greek tanker off the coast of Oman, though they claim the seizure was reprisal for US sanctions against Iranian oil. The Iranian military is also building up its capabilities. In December, the Revolutionary Guard announced the establishment of a new, volunteer naval force intended to carry out “deep sea missions.” Iran’s navy is building a drone carrier intended for “long-range strike[s].”

There are two obvious ways for Iran to militarily act: the Iranian navy attacks or seizes commercial ships; or Iran-aligned militias attack a major Gulf energy producer, such as Saudi Arabia. Iran has previously resorted to both tactics.

During the Iran-Iraq War of the 1980s, the Iranian armed forces sank and seized tankers leaving Iraqi ports. In 2019, Iranian-led Houthi forces used drones and missiles to damage an oil processing plant in Abqaiq, Saudi Arabia. In 2021, Houthi rebels carried out a similar attack against a Saudi oil terminal in Jazan. The Houthis also attacked energy facilities in the United Arab Emirates with drones.

Broader conflict would severely impact energy supplies

To what extent Iranian military action would cut off the flow of oil and gas is beyond the scope of this analysis. But the impact on the global economy would be swift, including for major economies like China, Japan, South Korea, Taiwan, and India, who all significantly rely on crude oil, refined products, and LNG from the Gulf states. Altogether, around 25 percent of crude cargoes and 20 percent of LNG cargoes pass through the Strait of Hormuz. The EU also relies on oil imports from the Gulf states although less so than Asian countries.

Any large disruption to the Gulf states would leave North America as the most reliable, significant supply of energy. The United States alone exported 91 million tons of LNG in 2023, ahead of Australia and Qatar, which both exported about 80 million tons. Crude oil exports averaged nearly 4 million barrels per day. By one estimate, up to 40 percent of US LNG exports are destination-flexible, meaning they could be easily redirected to buyers in case of a Middle East supply disruption.

North America must bolster global energy security
Every day, it becomes likelier that there will be an escalation of conflict in the Middle East, particularly between Hezbollah and Israel. Such a war and the ensuing Iranian response would jeopardize the global supply of oil and gas due to trade disruptions not only in the Gulf, but also via the drought-affected Panama Canal, which has seen a drop in trade since November 2023. Countries would be left scrambling and forced to turn to reliable production in the United States, Canada, and Mexico. Altogether, the future of the global energy market may soon depend on how North America chooses to respond. The World Bank has estimated that up to 8 percent of global crude supply would be interrupted in case of a conflict. Such an event would also raise the price of LNG and other commodities. Inaction would be easy, and perhaps even politically expedient, but would further strain supplies. Given the risks, it would be best to allow a full development of North American energy possibilities.

Julia Nesheiwat is a distinguished fellow with the Atlantic Council’s Global Energy Center, a member of the Atlantic Council board of directors, vice president for policy at TC Energy, and former US Homeland Security Advisor.

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Houthi attacks in the Red Sea hurt global trade and slow the energy transition

By William Tobin, Joseph Webster

Recent attacks on commercial shipping in the Red Sea are a reminder that a major disruption to freedom of navigation would hold many negative consequences.

Economy & Business Energy & Environment

New Atlanticist Dec 20, 2023

What’s behind the attacks on ships in the Red Sea

By Ellen Wald

Houthis have increased drone and missile attacks against commercial ships in the area, and companies are suspending routes through the Suez Canal.

Economy & Business Energy & Environment

Global Energy Agenda Feb 7, 2024

Energy security is global security

By Geoffrey R. Pyatt

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Energy & Environment Energy Transitions

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Charles Hendry: Russia’s invasion of Ukraine forced the West to confront lessons unlearned

The post Escalating Middle East conflict means North America must bolster global energy security appeared first on Atlantic Council.

Two years on, what the Russian invasion of Ukraine means for energy security and net-zero emissions

Atlantic Council experts — Wed, 21 Feb 2024 20:17:58 +0000

Russia’s full-scale invasion of Ukraine on February 24, 2022 has reverberated throughout the global energy landscape, significantly impacting both energy security and the ongoing transition towards sustainable energy sources. Swift action is needed to mitigate risks, strengthen resilience, and ensure that energy remains a driver of stability and prosperity in the face of geopolitical uncertainty. Our experts share their insights on the second anniversary of the war.

Click to jump to an expert analysis:

Ellen Wald: US LNG helped keep Europe’s lights on—future resilience isn’t guaranteed

Olga Khakova: Delays in aid to Ukraine could erase energy security wins from the last two years

Robert F. Ichord: Europe reduced Russian energy—but created a solar energy paradox

Joseph Webster: War dims Gazprom’s future as China doubles down on homegrown energy

Jennifer T. Gordon: Nuclear power remains a crucial pillar of global energy security and decarbonization

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Russia’s invasion of Ukraine forced the West to confront lessons unlearned

There’s a Winston Churchill quote for every occasion and as he (supposedly) said about energy: “Security comes from diversity and diversity alone.” That’s as true today as it was more than one hundred years ago. The harsh lesson from Russia’s illegal invasion of Ukraine was that Europe had allowed itself to be overly reliant on a single source of gas supply. The actions by European governments since then—and especially Germany—to end that reliance have been extraordinary, but the clear lesson is that we must never again allow such dependence.

The move in the last two years to bolster energy security had led to greater focus on indigenous sources of power and an accelerated commitment to low-carbon sources of generation. And for once, the answer to the questions of what is best for security, for climate, and for affordability is mostly the same —go low carbon. Our governments are rightly focused on how we can enhance our energy resilience, yet still meet our net-zero commitments.

In the longer term, we can also see where the next threat of over-dependence comes from. It is not healthy for the West to be so dependent on China for so much of the low-carbon supply chain—for example, around 90 percent of the lithium chemicals we need for electric vehicles comes from China. Such overreliance is not good for China either, so we need to act now to build up our own industries, to make sure that we have supply chain security. The United States is leading the way on this through the Inflation Reduction Act, and it is now for the EU and UK to respond accordingly.

–Charles Hendry is a distinguished fellow with the Atlantic Council Global Energy Center, a former member of the UK Parliament, and former UK minister of state for energy.

US LNG helped keep Europe’s lights on—future resilience isn’t guaranteed

The real story behind European energy security post-Russian invasion of Ukraine is the incredible growth of the US LNG industry. According to the US Energy Information Administration (EIA), the United States exported more liquefied natural gas (LNG) than any other country in the first half of 2023. US LNG exports to European countries in the first six months of 2023 more than doubled compared to pre-war exports in 2021. Without this incredible expansion, both in US LNG exports and in regasification terminals in Europe, the continent would not have been able to reduce Russian natural gas and oil, and maintain electricity and fuel supplies as it did.

The US energy industry’s role in ensuring European energy security cannot be stressed enough—no other LNG exporting country in the world was in the position to expand its exports as rapidly as the United States was when the Nord Stream pipeline was destroyed and sanctions against Russian energy were put into place. For this, among other reasons, the Biden administration’s decision to suspend authorizations for new LNG export terminals must be questioned. If the EU and the US do not foresee an end to the Russia-Ukraine war in the near future, how can Europe continue to secure sufficient natural gas to meet growing energy demands without more LNG from the United States?

Although sanctions against Russian crude oil and petroleum products caused temporary disruptions on the global oil trade, the market has responded in resourceful ways. Without European countries to purchase their crude oil, Russia expanded sales to China and opened a new market in India. According to data provided by TankerTrackers.com, India has become the second largest importer of Russian crude oil and the largest importer of Russian seaborne crude oil. In 2023, India imported an average of 1.7 million bpd of Russian crude oil, whereas prior to the invasion of Ukraine it imported next to none. Countries like India and Turkey have found new business opportunities importing Russia crude oil and refining it into petroleum products that European customers are eager to purchase. Russia has also developed its own shipping fleet and insurance network to work around the US-EU price cap policy that is designed to limit their oil revenue.

Two years later, it can be concluded that the energy sanctions and price cap policies are not hurting Russian revenue significantly enough to impact its ability to wage war in Ukraine. As US policymakers consider whether to continue aiding Ukraine, the efficacy of these sanctions and price cap policies should also be examined. At the same time, the resiliency of the global energy oil market to accommodate such major changes without incurring serious shortages should be applauded.

–Ellen R. Wald is a nonresident senior fellow at the Atlantic Council Global Energy Center and the president of Transversal Consulting.

Delays in aid to Ukraine could erase energy security wins from the last two years

For two years, Russia has carried out indiscriminate, exceptionally cruel attacks on Ukraine’s civilian energy infrastructure. Included in these attacks have been acts of ecocide, such as the destruction of the Kakhovka Dam. However, Ukraine’s energy system and the sector workforce have showcased unparallel resilience and innovation in withstanding Moscow’s aggression, with robust technical, financial, and capacity support from the allies.

Beyond Ukraine, the war also profoundly and rapidly reshaped energy throughout Europe. Europeans have optimized homegrown production and efficiency measures to reduce reliance on imports, built out additional interconnectors to secure alternative energy supplies, and spent billions to minimize economic hardships on businesses and households.

As the war drags on, the West must learn to see Ukraine not as a charity case—but as a symbiotic energy partner contributing to European energy security and decarbonization. Ukraine offers important lessons in repelling cyber security attacks, fixing destroyed energy infrastructure, operating energy markets under volatile conditions. It also has valuable expertise in oil and gas, renewables, and civil nuclear energy. Ukraine has integrated into the European electricity market in record time, houses a critical gas storage system that is currently utilized by European gas traders, and is taking bold steps on reform and regulatory changes necessary for EU integration. However, these advantages are at high risk. War and political uncertainties are keeping new large-scale investments away; human capital shortages are placing additional strains across all levels of Ukrainian systems; and the delay in aid from the United States is impacting the recovery and defense of Ukraine’s energy generation. Western support is needed more urgently now than ever to ensure that Ukrainians can continue defending European territories, democratic values, and energy security.

–Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

Europe reduced Russian energy—but created a solar energy paradox

The war in Ukraine has spurred profound changes in Europe’s energy system and fostered concerted efforts like REPowerEU to improve energy security. Not only has it reoriented and reduced dramatically Europe’s gas supplies from Russia and cut gas consumption, but it has boosted Green Deal transition efforts to develop renewable and zero-carbon energy (including nuclear) and improve energy efficiency. It has motivated the forging of stronger energy links both among European countries and with the United States, which supplied about 50 percent of the EU’s LNG imports in 2023.

But in doing so, these overall efforts have created a paradox. The rapid growth in solar energy that is reported to be 40 per cent higher in 2023 than the 41 GW of solar added in 2022, has made the EU dependent on China for over 95 percent of its solar photovoltaic (PV) modules and threatens domestic EU manufacturers due to the much lower price of Chinese modules. Renewables constituted 23 percent of the EU primary energy consumption in 2022, of which solar was about 6 percent and was the fastest growing share providing 12 percent of EU electricity in the summer months. The EU Council has raised the binding target to 42.5 percent in 2030 with the ambition to achieve 45 percent. The EU Solar Strategy aims to increase solar PV capacity to 320 GW by 2025 and up to 600 GW by 2030, compared with 260 GW in 2023.

The EU and its member governments are debating various options to increase domestic solar PV production and limit imports from China. There is some consensus on setting a 40 percent non-binding self-sufficiency target but there are divergent interests between the domestic manufacturing companies and installers and assemblers of systems. Faced with a similar situation, the US placed high tariffs on Chinese modules, diversified suppliers and temporarily waived tariffs on imports from Southeast Asia and provided credits for solar PV manufacturing under the Inflation Reduction Act. Such an approach by Europe would be expensive for Europeans, who are already experiencing high costs of energy. In his February 12 speech to the European Parliament, EU Council President Charles Michel stressed the importance of energy affordability in efforts to improve EU energy security, noting that EU energy prices were 4.5 higher than its main competitors.

But there is a path for reducing dependence on China’s solar supply chain. The market is currently flooded with solar PV panels as Chinese manufacturers overproduced in 2023 and European companies imported more than they installed. Stockpiling panels, for example, could be part of a less expensive strategy for reducing vulnerability to market manipulation or politically inspired supply cutoffs. Although the energy security implications from this growing dependence on Chinese solar panels are quite different from Russia’s use of gas as a political weapon against Europe, current overall geopolitical and trade tensions with China suggest that China’s global market monopolization of this important energy technology requires serious consideration and coordination among Western allies.

–Robert F. Ichord, Jr., is a nonresident senior fellow with the Atlantic Council Global Energy Center.

War dims Gazprom’s future as China doubles down on homegrown energy

Russian gas giant Gazprom will never recover from Putin’s invasion of Ukraine. Gazprom’s exports to Europe stood at just 28 billion cubic meters (bcm) in 2023, down from 200 bcm in 2019, before the invasion and COVID. The Russian pipeline export monopolist is exceedingly unlikely to offset this loss of demand via other markets, including China, as its long-planned Russia-to-China Power of Siberia-2 pipeline has gained little traction since the invasion despite Gazprom’s desperation to clinch a deal. The reasons for the delay are manifold and include high interest rates, financing disagreements, elevated steel costs, and geographic realities.

Perhaps more importantly, Putin’s invasion and the resulting shock to global energy prices reinforced Beijing’s energy security anxieties. China is constructing massive amounts of renewables while also doubling down on coal plant construction (although throughput across its coal fleet will likely decline in future years). China added nearly 300 gigawatts of wind and solar capacity in 2023 and could very well replicate that pace—or even accelerate it—for another decade. Chinese deployment of clean electricity generators, paired with batteries, heat pumps, hydrogen (eventually)—and, incongruously, coal—is sharply reducing its need for Russian natural gas. In sum, while Putin may yet prevail in Ukraine, Gazprom’s exports will almost certainly never approach pre-war volumes.

–Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and editor of the China-Russia Report. This article represents his own personal opinion.

Nuclear power remains a crucial pillar of global energy security and decarbonization

From the earliest days of Russia’s brutal invasion of Ukraine in February 2022, nuclear energy has been a flashpoint in the war. Russia shelled and subsequently occupied the Zaporizhzhia Nuclear Power Plant, and a key part of the response from the US government and non-governmental organizations has focused on efforts to provide relief to Ukrainian nuclear power plant workers.

Even while under attack, Ukraine has recognized that the nuclear energy sector is a crucial part of its power sector, its ability to rebuild its industrial sector, and its long-term economic prosperity. Even with the loss of the Zaporizhzhia Nuclear Power Plant, roughly “55 percent of all electricity production in Ukraine is still from [nuclear reactor] units at Khmelnytskyi, Mykolaiv and Rivne.” Furthermore, Ukraine has ended imports of nuclear fuel from Russia and has relied on US-based Westinghouse Electric Company for its nuclear fuel needs. With an eye toward eventual reconstruction in Ukraine, US Special Presidential Envoy for Climate John Kerry and Ukraine’s Minister of Energy German Galushchenko announced in November 2022 “a two-to-three-year pilot project aimed at demonstrating the commercial-scale production of clean hydrogen and ammonia from small modular reactors in Ukraine using solid oxide electrolysis.”

Ukraine’s regional partners—especially Poland and Romania, which are deeply involved in Ukraine’s energy future—also understand the extent to which the nuclear energy industry must play a crucial role in Ukraine’s reconstruction. Romania is currently the only country in Central and Eastern Europe that is operating North American reactors, with its Canadian CANDU reactors having generated electricity since 1996. Romania also plans to build a first-of-a-kind small modular reactor, in partnership with the United States. Poland is dedicated to establishing a civil nuclear program, with plans for large lightwater reactors and small modular reactors.

Finally, Russia’s unprovoked war in Ukraine has had a major impact on the global nuclear energy industry. Problems that may have been papered over prior to February 2022 have been brought to the fore. For example, US and global dependence on Russian enrichment and conversion capabilities for nuclear fuel is finally being addressed as the US has started ramping up domestic capacity for enrichment and conversion. However, more remains to be done. As Russia continues to make inroads into emerging markets for nuclear energy technologies, the United States and its allies must redouble their efforts to outcompete Russia, in order to ensure that new-to-nuclear countries are able to uphold the highest standards of safety, security, and nonproliferation.

–Jennifer T. Gordon is director of the Atlantic Council Global Energy Center’s Nuclear Energy Policy Initiative.

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European Energy Security Dec 7, 2023

Energy security as the foundation for Ukraine’s formula for peace

By German Galushchenko

Rebuilding Ukraine’s energy sector in line with the world’s best practices in sustainable development and decarbonization will help to finally break the grip of the fossil fuel dictatorship and strengthen the new energy model of the world.

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A Ukrainian energy hub will help Europe’s clean transition

By Mark Temnycky

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COP28’s legacy will be measured by emissions reduction, not ‘historic’ text

Landon Derentz — Fri, 15 Dec 2023 16:33:59 +0000

The final declaration from COP28, “the UAE Consensus,” is transformational in its reflections on fossil energy’s role in contributing to climate change, but with time this climate conference won’t simply be remembered for “landmark” text. If all goes to plan, the COP28 Presidency’s efforts to foster an inclusive platform for promoting private and public actions that reduce global emissions will be its legacy.

The “success” of COP28 was never going to be measured by unrealistic expectations around “phasing out” fossil fuels—a benchmark promoted by the European Union and small island nations severely at risk of global temperature rise. Despite over $3.5 trillion in financing for renewable energy over the past decade, oil, gas, and coal remain stubbornly anchored in the global energy mix, representing around 80 percent of energy consumed. The high reliance on conventional energy resources for their economic growth and political stability unequivocally placed China, India, and Saudi Arabia at the vanguard of a block of countries opposed to any negotiated outcomes at COP28 that locked in a “phaseout” or “phasedown” of specific energy sources.

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Behind the scenes, however, the feverish and ultimately successful push for a diplomatic compromise temporarily overshadowed what COP28 has already accomplished—a global reduction in energy-related greenhouse gas emissions by 2030 of around 4 gigatonnes of CO₂ equivalent. This achievement is the product of around 130 countries signing up to triple global renewable power capacity by 2030 and double the annual rate of energy efficiency improvements every year to 2030, coupled with commitments by the oil and gas industry to zero-out methane emissions and eliminate routine flaring.

Admittedly, the potential emissions reductions achieved during COP28 fall short of the ambitions outlined in the Paris Agreement (the International Energy Agency assesses commitments at COP28 represent 30 percent of what is necessary to “keep 1.5 alive”), but the fabric of the United Nations Framework Convention on Climate Change process has been permanently altered. Attendance at the conference exploded, growing to nearly 100,000 at COP28—a far cry from the approximately 4,000 participants in 1995 during the first COP and a more than threefold increase since the Paris Agreement was reached in 2015. The vibrant business environment in Dubai represented a growing subtext to the formal climate negotiations and, while met with mixed reviews, the inclusion of industry hints at the fact that the economics of the energy transition are beginning to catch up to policy.

As one senior European official expressed to me, COP is the “new Davos” for the energy transition. It took only one lap around Expo City Dubai, the venue for COP28, to confirm her intuition. COP28 was brimming with C-suite executives, technologists, financiers, and project developers—those who will have to deploy an estimated $150 trillion necessary to achieve the 1.5 degree Celsius goal by 2050 and whose support is critical in overcoming the infrastructure, regulatory, and workforce challenges inhibiting an accelerated energy transition.

The inclusivity on display at COP28 marks the beginning of a new phase for climate action. Industry has the resources, finance, and technical prowess to realize the ambitions set out by policymakers. By acclimating the private sector to civil society’s expectations for transforming our energy system, a new social license to operate is beginning to form.

There is little doubt that, like the UAE, President Ilham Aliyev will welcome industry to the conference when Azerbaijan hosts COP29 next year. The onus is on businesses to demonstrate their sincerity about addressing global emissions, starting by matching their commitments with investments and projects that signal they belong at the heart of global climate dialogue.

It took twenty-one COPs for countries to universally commit to reducing greenhouse gas emissions, and twenty-eight to bring along industry. My suspicion is that between now and when COP35 is hosted in 2030 we’ll make progress in closing that gap, starting next year in Baku.

Landon Derentz is the senior director and Richard Morningstar chair for global energy security of the Atlantic Council Global Energy Center

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By David L. Goldwyn, Andrea Clabough

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By Robert F. Ichord, Jr.

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By Willow Fortunoff, Maia Sparkman

Centering cities as enablers of both climate adaptation and mitigation is absolutely critical. In light of this, COP28 will include, for the first time, a summit dedicated to localized efforts to curb climate change.

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The US and NATO must clamp down on Russian fossil fuels to end the war in Ukraine

Svitlana Romanko and Oleh Savytskyi — Wed, 13 Dec 2023 14:35:07 +0000

Last Wednesday, Russian President Vladimir Putin landed in the United Arab Emirates for a short visit before heading to Saudi Arabia. His trip outside of Russia, a rare occurrence since Russian forces began their full-scale invasion of Ukraine in February 2022, is evidence that Putin is strategically wielding his country’s influence among OPEC+ nations—this at a time when the United States and European Union are attempting to tamp down Russia’s fossil fuel exports that help fund its war. Efforts to do so have yielded mixed results, and with Russia’s military budget set to dramatically increase in 2024, the West must do more to staunch the flow of Russian oil and gas—and restore peace for Ukraine.

The connection between Russia and oil-and-gas-producing countries in the Middle East has undeniably strengthened in the nearly two years since the invasion of Ukraine and Russia’s hybrid energy warfare against Europe began. Following the imposition of a price cap on Russian oil by the Group of Seven (G7) and the subsequent reluctance of most Western nations to consume Russian crude, international traders seeking unhindered dealings with Russia flocked en masse to Dubai.

But preventing financial actors from capitalizing on these resources is imperative. Attempts to do so thus far have largely been thwarted. International sanctions on Russian exports of fossil fuels—its primary financial resource—aimed to deal an economic blow to the Kremlin. Initially impactful, these measures soon faltered due to various loopholes and insufficient enforcement, rendering them ineffective, with Russian fossil fuels ending up in unexpected places. Investigations by the Washington Post and Project on Government Oversight reveal that shipments of Russian oil have continuously made their way to a refinery that supplies fuels to US military bases in the Mediterranean Sea. And, as the authors found in their report, “The carbon war: Accounting for the global proliferation of Russian fossil fuels,” the share of tax proceeds from fossil fuel exports in Russia reduced this year but still represents nearly a third of all federal income.

Since February 24, 2022, Russia has amassed around $600 billion in profits from fossil fuel exports, and is rushing to develop Siberian and Arctic fields. If, however, international sanctions on Russia’s fossil fuel industry remain in place and are rigorously enforced, the International Energy Agency projects that the Kremlin’s profits from oil and gas could plummet by 40 to 50 percent by 2030.

Anything short of a unified approach among Western nations to curb the export of Russian fossil fuels and hinder the country’s expansion of LNG exports would reveal a vulnerability that the United States, EU, and all G7 nations cannot afford in a destabilized world. Reaping profits from oil and gas exports, the Kremlin has sponsored more than 112,000 registered war crimes in Ukraine since February 2022. Russia has alarming plans to escalate the brutal war in Ukraine even further. These plans are starkly visible in its recently adopted budget for the coming year. For the first time since the Soviet era, the Kremlin allocated almost a third of all expenditures to the army and the military-industrial complex. In 2024, the national defense budget will swell to 10.775 trillion roubles, which is 70 percent more than in 2023, 2.3 times more than in 2022, and three times higher than in pre-war 2021. The army and private military companies will account for 30 percent of the 2024 budget, with all security forces together receiving 40 percent.

Frankly put, for the United States and NATO to maintain credibility concerning international security, it’s high time they earnestly consider dismantling the Russian oil and gas business. Putin’s recent trip to Middle East shows that Russia is increasingly becoming politically and economically invested in the key region that stirs in Russia’s oil and gas into world markets. Controlling profit-driven traders, banks, shippers, refineries, and all intermediaries sustaining the Kremlin’s financial lifeline is no simple feat. However, it’s an imperative task that the Biden administration and other Western leaders can’t afford to dodge.

Svitlana Romanko is the Founder and Director of Razom We Stand.

Oleh Savytskyi is the Senior Campaigns Manager of Razom We Stand.

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Moldova has the opportunity to make good use of the lessons of its past by strengthening regulatory independence, increasing competition, and introducing transparent pricing.

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A Ukrainian energy hub will help Europe’s clean transition

By Mark Temnycky

Ukraine can become an energy and minerals hub for European. Investing in Ukraine’s renewable energy industry is vital for European decarbonization.

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John Kerry unveils a ‘critical’ new US strategy to expand fusion energy

Katherine Golden — Wed, 06 Dec 2023 07:03:51 +0000

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The eighth Forum will be held in Dubai as energy and climate decision-makers converge for COP28.

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US Special Presidential Envoy for Climate John Kerry on Tuesday announced a new strategy for international cooperation on the development of nuclear fusion, which he said would be—alongside other energy sources, such as wind, solar, and nuclear fission—”a critical piece of our energy future.” The strategy, Kerry explained at the Atlantic Council’s Global Energy Forum at COP28, focuses on research and development, supply-chain improvements, regulation, workforce development, and education.

If “all of our countries are threatened, and they are, [and if] all life is threatened, and it is, then we need to pull ourselves together with every strength we have,” Kerry said. “We cannot realize this grand ambition—perhaps not at all, but certainly not at the pace we need to—doing it alone.”

The need for alternative fuels such as fusion is apparent because “science clearly tells us, without any question whatsoever, that the cause of this crisis… [is] emissions. It’s the way we burn fossil fuels,” Kerry said.

Kerry noted that “we’ve had a little debate in the last few days about what the evidence shows or doesn’t show,” a reference to controversies during the United Nations Climate Change Conference in Dubai over what role oil and gas will play in the global energy future.

“We have two options,” Kerry explained. “Either capture the emissions or don’t burn [fossil fuels].”

Kerry explained that the evidence of warming across the planet makes it “clear” that the world needs to “move faster” to limit global temperature rise. “We need to figure out what we’re going to do at a critical pace,” Kerry warned.

Below are more highlights from Kerry’s remarks and the panel that followed, which touched upon the role fusion can play and how best to foster international collaboration on it.

The huge potential

Kerry recounted having heard, as a senator for Massachusetts, that nuclear fusion—which joins two atoms together, producing energy—would be thirty years away, only to talk with scientists a decade later and be told that it was still thirty years away. But “the cadence of new and exciting fusion announcements has obviously increased over time,” he added.

Now, he said, “there is potential in fusion to revolutionize our world and to change all of the options that are in front of us” for providing abundant clean energy to the world.

Former US Secretary of Energy Ernest Moniz, who moderated the panel that followed Kerry’s remarks, said that “in this decade, there is a very high probability that… the conditions for sustained fusion will be demonstrated.” This, he added, “is truly a game changer—assuming this all comes to pass.”

Designer Gabriela Hearst, former creative director of fashion house Chloé, noted the environmental impact caused by the garment industry. “We really need to focus on moving away from the fossil fuel addiction that we have,” she said. At Chloé, she explained, she had designed a collection inspired by visits to fusion labs. Fusion, she said, could help “the survival of our species.”

The accelerating pace

Several speakers pointed out how new technologies and materials are helping realize the commercialization of fusion at a faster pace than expected. Bob Mumgaard, chief executive officer of the commercial startup Commonwealth Fusion Systems, explained that new technologies are “accelerating innovation.”

“It’s just going faster and faster” with the help of technologies such as artificial intelligence and machine learning, Mumgaard explained. “In the last five years, it’s unrecognizable.”

Six decades of government research and development has helped too, explained the White House’s Costa Samaras. “Now,” he added, “the challenge here is [that] energy technologies have long taken decades to get from the starting place to the market; and we do not have decades.”

“International collaboration,” Samaras argued, will “supercharge” fusion energy development and quicken the pace toward establishing a commercial fusion plant. “That enables the advancement of fusion power… along the timeline that we need to deal with climate change.”

The remaining challenges

Michelle Patron, senior director of global sustainability policy at Microsoft, noted that in order to meet growing energy demand, and to do it in a decarbonized way, “we need a multi-technology approach” that includes fusion and other renewable energy sources, including wind, solar, and geothermal. She added that electricity grids are local, so the mix of energy sources that countries deploy will depend on local political, economic, and social circumstances.

Youth Survival Organization Chairman Humphrey Mrema, who is from Tanzania, said that if he were an African leader approached about supporting fusion development, he would “say no.” That’s because fusion is “hard to start” and “difficult to maintain” with the financial architecture across the continent, which has invested heavily in fossil fuels, he explained.

In Africa, “we have to change the investment and channel it to renewables,” Mrema said. In addition, for Africa to pursue fusion, he explained, it will need technology, capacity building, and more financial resources.

For Hearst, part of the challenge is awareness. “We live in a silo community,” she explained. “The science community has this information” about fusion’s potential, “but not the fashion community or other communities. So it’s time to cross-pollinate information to bring more hope.”

Katherine Walla is an assistant director on the editorial team at the Atlantic Council.

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The world’s biggest energy exporters plot out the next steps toward net zero

Nick Fouriezos — Wed, 06 Dec 2023 07:01:35 +0000

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A day after more than fifty oil and gas companies pledged to cut methane emissions to nearly zero by 2030, key leaders of the Net-Zero Producers Forum laid out a significant collaborative vision from some of the world’s largest energy exporters for making significant progress on the world’s sustainability goals.

“We have a lot of what we need to make the progress that is essential,” Rachel McCormick, director general of International and Intergovernmental Affairs at Natural Resources Canada, said at the Atlantic Council’s Global Energy Forum at COP28.

“My hope is that the next time we’re together on this stage, we’ll say that we’ve gotten where we want to go: to 75 percent reduction. That there is no question on whether or not we’re on that pathway [to net-zero emissions] by 2030.”

McCormick wasn’t alone in that belief. She was joined at the Global Energy Forum in Dubai by Andrew Light, assistant secretary of International Affairs at the US Department of Energy, and Khalid al-Mehaid, chief negotiator for the climate agreements for the Kingdom of Saudi Arabia.

Their nations, plus Norway, Qatar, and the United Arab Emirates, comprise the Net-Zero Producers Forum, a not-yet-three-year-old collaboration of six nations that collectively represent more than 40 percent of global oil and gas production. The group is designed to work together on pragmatic net-zero emission solutions—everything from methane abatement to clean-energy and carbon capture/storage technologies to advancing the circular carbon economy approach.

Their work is particularly meaningful in light of Monday’s launch of the COP28 Global Methane Pledge Ministerial, which announced more than one billion dollars in new grant funding for methane action (more than triple current levels of spending). plus new data tools and new membership that grew participation to 155 governments worldwide.

Read on for more highlights from their conversation with Angela Wilkinson, secretary general and chief executive officer of the World Energy Council.

The challenge and opportunity of tackling methane

Light said that the pledges made at the ministerial wouldn’t have been possible without the relationships built through the Net-Zero Producers Forum, which forged unlikely partnership opportunities between the six energy-exporting nations. “Bringing our countries together was a necessary condition for something like that making it over the finish line just a few years later.”

One of the key efforts of the Net-Zero Producers Forum, originally launched at US President Joe Biden’s first Climate Leaders Summit in April 2021, has been the creation of the Upstream Methane Abatement Toolbox. The toolbox provides information on measures taken so far, and lessons learned, in implementing methane-abatement technologies and policies, creating a roadmap for others to follow.

Establishing a global framework around addressing methane emissions is particularly difficult. Past initiatives to curb extreme pollutants were plugged into ready-made global frameworks, such as the efforts to eliminate hydrofluorocarbons (HFCs): “There we were very lucky because we had the [1987] Montreal Protocol that was already tailor-made,” Light said. “Reducing methane is a way you can get near-term relief on global warming, but… we don’t have a working agreement, and so it’s much more difficult to take on from a global political perspective.”

Weighing economic competitiveness against net-zero goals

The stakes around sustainable energy couldn’t be higher, Light said: “If we get it right, then we get a solution to the biggest problem that we all face today. We get the creation of hundreds of thousands, if not over a million, new jobs. We get a cleaner planet. We get a more sustainable future.” And if they get it wrong? “We lose everything we have gained. We lose all developmental gains we’ve had since World War II.”

Particularly when it comes to major energy-exporting economies, it’s important to craft widely inclusive climate change strategies. “If it wasn’t for the way that the Paris Agreement was inclusive enough and wide enough for all of us to manage our national circumstances, we wouldn’t have been party to that dream,” al-Mehaid, the Saudi Arabian chief negotiator, said.

Saudi Arabia and other oil-rich nations like it have adopted broad diversification strategies that innovate how oil and gas are used, including diverting those resources into noncombustion-focused products, such as replacements for cement and aluminum. “It gives you a long-term hedge,” al-Mehaid said, against the uncertain energy economy that a net-zero future could bring.

Other advances for fighting global warming

Canada has passed tax credits and other financial incentives for companies willing to reduce their emissions, from a carbon price set across its entire economy to 65 percent expenditures returned for carbon-dioxide removal (CDR) efforts and 35 percent returned for energy-efficient transportation and other measures. “Carbon capture is really important because we know it works, we just need to scale it,” McCormick said.

She added that it was important for the Net-Zero Producers Forum to consider its strengths when working together, rather than trying to tackle every climate-related challenge all at once. “There is a reason these countries came together. You don’t want to do everything. You want to do what is special to you. What are the results that can drive actions [and] send signals to the international market? The fact that we are all net exporters is important.”

That mindset is one reason why all the countries in the Net-Zero Producers Forum have agreed to support direct air capture initiatives that extract CO2 from the atmosphere, but may not necessarily work together on proposing nature-based solutions, such as protecting forests or wetlands—particularly since the six nations have significant geographic and environmental differences. “Everything that comes together has to justify itself in this incredibly crowded landscape we see now on cooperation. The virtue here is that we have a similar approach,” Light said.

Nick Fouriezos is a writer with more than a decade of journalism experience around the globe.

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The Oil and Gas Decarbonization Charter is a start, but more work remains

David L. Goldwyn, Andrea Clabough — Tue, 05 Dec 2023 17:19:40 +0000

A cornerstone of the United Arab Emirates’ COP28 presidency has been its proposed commitment to meaningfully bring the oil and gas industry to the table for the first time in order to negotiate a comprehensive, concrete strategy for emissions reductions in the controversial sector. The Oil and Gas Decarbonization Charter is the scorecard for that gambit. Does it succeed, and what can (or should) come next?

What it accomplishes

Perhaps most notable in the charter is the aspiration to “reach net-zero CO₂eq emissions (Scope 1 and 2) for operations under our control…by or before 2050.” In addition, signatories publicly pledge to eliminate routine flaring and achieve “near-zero” methane emissions by 2030. The charter achieves corporate commitments to methane reductions that theoretically parallel the country-level commitments of the Global Methane Pledge. It requires each company to sign the charter, a public (albeit voluntary) commitment that includes “required mechanisms” for transparency. Among these are the development and publication of company strategies to achieve scopes one and two emissions reductions by 2030. If not already published, companies must do so no later than 2025, with an update and potentially increased aspiration by 2028, adoption of a to-be-determined “measuring, monitoring, reporting, and verification” system to score progress, and annual publication of their emissions levels.

As of now, fifty oil and gas companies have signed the agreement, publicly committing to its net-zero and other aspirations, representing about 40 percent of global production. Among these are a number of international oil companies (IOCs) such as ExxonMobil, BP and Shell but also several major national oil companies (NOCs) which, as a broad category, have historically been hesitant to make overarching climate commitments. NOC signatories include Saudi Aramco, ADNOC, Petrobras, Sonangol, Libya National Oil Company, and Petronas.

Given the vast diversity of the global oil and gas industry (and challenges/incentive structures therein), this is a significant accomplishment. In this respect, the charter has materially broadened the level of commitment of the upstream oil and gas industry to emissions reductions, both carbon dioxide and methane. While these commitments are voluntary, they are public and now subject to measurement and verification.

What it does not accomplish

Despite an impressive effort to coalesce a wide range of industry stakeholders around a shared ambition, there are significant shortcomings to the charter as it stands. These areas represent opportunities for strengthening the agreement as the Global Decarbonization Accelerator (GDA) takes clearer shape. The GDA is a plan launched by the COP28 presidency to speed up system-wide emissions reductions across a range of key sectors, including the oil and gas industry.

Limited breadth

Unfortunately, the charter only addresses a part of the oil and gas value chain and a minority share of oil and gas production. Despite the dozens of signatories, dozens more companies have not signed on to this initial charter; some of these include major developing country NOCs (such as Qatar Petroleum or Mexico’s Pemex) as well as some Western majors including American companies Chevron and Conoco-Philips.

Undoubtedly, there are manifold reasons why individual companies were unable or unwilling to agree to this first iteration of the charter; reluctance to sign on may not necessarily represent a repudiation of its goals or sentiment. However, it is in the interest of the oil and gas sector writ large, as well as major consumers of oil and gas industry products and services, to incentivize those companies not yet aligned with the charter’s laudable goals to reconsider.

Limited commitments

The charter itself places a relatively limited commitment on its signatories that leaves important areas minimally or not addressed at all. For example, the charter addresses the emissions of “upstream” or producing companies, not including the “midstream” companies that transport hydrocarbons or the “downstream” or refining and processing companies that turn them into products (such as liquefied natural gas exports). Within this framing, the agreement only addresses scope one and two emissions and is silent on “scope three emissions” (i.e., emissions from the use of oil and gas products) altogether—for both carbon dioxide and methane. For the oil and gas industry, the use (overwhelmingly combustion) of its products constitutes the vast majority of the industry’s carbon footprint.

In another example, signatories pledge to work with partners (such as technology companies and data centers) that consume massive amounts of power, but those partners make no commitments under this particular agreement. Likewise, charter members address “operations under their control” but pledge to work with their partners on non-operated projects, ones where NOCs or non-signatories control operations. This is a recognition of the massive volume of oil and gas production by companies that, so far, have refused to spend what would be required to achieve significant reductions (e.g., such as tools to prevent flaring).

A differentiated approach

Importantly, the charter speaks to “differentiated approaches” many times, a recognition that the IOCs that signed the agreement are already on a faster track to emissions reductions than many of their NOC peers. The charter also understandably refers to the need for supportive governmental policies, the importance of a full suite of emissions reducing technologies from direct air capture to carbon capture and sequestration, and the need for permitting reform to expedite the siting and construction of infrastructure. It also speaks to the importance of energy security and alleviating energy poverty in line with the UN Sustainable Development Goals, which remains a significant challenge in many low-income countries. All of these are key acknowledgments given the salience of the energy trilemma in a world attempting to fundamentally transform its energy systems.

Is this meaningful?

The charter achieves three meaningful contributions. It significantly broadens the commitment to emissions reductions, especially methane, by bringing a wider range of companies into the fold. It has secured highly public commitments by fifty companies, a commitment weighty enough to have given pause to many IOCs and NOCs that might be concerned that the targets are out of reach. It unequivocally extracts recognition by major members of the oil and gas industry of responsibility to address emissions quickly while meeting obligation to provide security of supply.

Although laudable, the pace of change for this industry (as represented in this charter) is not fast enough, deep enough, or broad enough to materially address the yawning gap between the Paris commitments and the present Dubai reality. After months of negotiations to achieve this charter, it is now time for governments, consumers, and other stakeholders worldwide to push even further. The oil and gas industry is, after all, a business; it responds to its buyers. The mounting pressure on this industry to begin to change, combined with the perseverance of the COP28 leadership, resulted in this important step forward in addressing its role in climate change. But this charter should be the beginning of a conversation since we are nowhere close to its end.

Andrea Clabough is a senior associate at Goldwyn Global Strategies, LLC, and a nonresident fellow with the Council’s Global Energy Center.

Note: Three companies mentioned in this article—ExxonMobil, BP, and ADNOC—are donors to the Atlantic Council’s Global Energy Center. This article, which did not involve these donors, reflects the authors’ views.

EnergySource

Dubai, United Arab Emirates

Global Energy Center at COP28

The 28th annual United Nations Climate Change Conference takes place from November 30-December 12, 2023 in Dubai, United Arab Emirates. The Atlantic Council Global Energy Center will be on the ground to work alongside government, industry, civil society, and public stakeholders to discuss key issues and outcomes.

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Beyond promises: Pathways to deliver on methane commitments

By David L. Goldwyn, Andrea Clabough

The Global Methane Pledge has committed over one hundred adherents to collectively reduce their methane emissions by 30 percent by 2030. The challenge however, seems as intractable as ever.

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New Atlanticist Nov 30, 2023

Expert analysis: The successes and shortcomings in the fight against climate change at COP28

By Atlantic Council experts

Our experts dispatched to Dubai, where they analyzed how global leaders responded to the greatest challenges posed by climate change.

Climate Change & Climate Action Energy Transitions

Check out all our COP28 programming here.

The post The Oil and Gas Decarbonization Charter is a start, but more work remains appeared first on Atlantic Council.

Expert analysis: The successes and shortcomings in the fight against climate change at COP28

Atlantic Council experts — Thu, 30 Nov 2023 20:21:06 +0000

This year, the world has seen a slate of devastating weather events—and geopolitical tensions that have raised global concern about access to reliable energy. Did global leaders at the United Nations Climate Change Conference, also known as COP28, respond with enough to meet this moment?

Experts from across the Atlantic Council, from on the ground in Dubai and elsewhere around the world, analyzed how global leaders responded to climate change’s greatest challenges and offered expert insight on the biggest developments in everything from climate finance to the energy transition to the global stocktake.

Get a sense of whether negotiators have proven COP’s value, courtesy of our experts below.

THE LATEST AFTER NEGOTIATIONS

COP28’s legacy will be measured by emissions reduction, not ‘historic’ text

The takeaway from COP28: Gas and nuclear are part of the energy transition

The final report card for COP28

Don’t chalk this conference’s success up to text alone

COP28 gave nuclear power a seat at the table

See day thirteen analysis

DECEMBER 15 | 10:02 PM GMT+4

COP28’s legacy will be measured by emissions reduction, not ‘historic’ text

By Landon Derentz

Behind the scenes, however, the feverish and ultimately successful push for a diplomatic compromise temporarily overshadowed what COP28 has already accomplished.

EnergySource

Dec 15, 2023

COP28’s legacy will be measured by emissions reduction, not ‘historic’ text

By Landon Derentz

Climate Change & Climate Action Energy & Environment

DECEMBER 15 | 9:58 PM GMT+4

The takeaway from COP28: Gas and nuclear are part of the energy transition

By Ana Palacio

Standing at the epicenter of the United Nations Climate Conference in Dubai, also known as COP28, it was clear that this year’s event was qualitatively different from previous ones. What started in Berlin in 1995—convened by Angela Merkel, then the German environmental minister, as a private meeting of experts seeking to draw the attention of leaders and the media to the increase in global average temperatures—has become a prominent and massive gathering. Over the course of two weeks, more than 150 heads of state and government walked the halls of Expo City Dubai, compared to 112 who attended COP27 last year in Sharm El Sheikh, Egypt. There were also reportedly more than 90,000 participants at COP28, compared to less than 50,000 at COP27.

With the increase in size, COP’s center of gravity shifted away from the formal management structure of the convention. Instead, the focus was on disparate and scattered initiatives in which nonstate actors—including from the private sector—play a prominent role. There are several ways to interpret this conference: a holy pilgrimage for those who are devoutly green, a new Davos attended by executives of the same corporate giants who frequent the World Economic Forum gathering in Switzerland, a photocall of politicians from around the world, a theater with armies of lobbyists, a mix of consultants and media. “Inclusion” was an oft-repeated theme this year. And although it may seem provocative, the meeting’s most notable decision may have been to include the oil and gas sector, which had been previously sidelined—a decision that spotlighted a larger confrontation at COP28 between ideology and pragmatism.

New Atlanticist

Dec 15, 2023

The takeaway from COP28: Gas and nuclear are part of the energy transition

By Ana Palacio

The concept of a “transition” in the energy transition is too often lost: specifically, the idea that it will extend over time and require overlap.

Climate Change & Climate Action Energy & Environment

DECEMBER 14 | 1:48 AM GMT+4

The final report card for COP28

After fourteen days in the desert, it ended with a “beginning.” On Wednesday, the 2023 United Nations Climate Conference in Dubai, also known as COP28, concluded with nearly two hundred countries agreeing to “transition” away from fossil fuels. UN Climate Change Executive Secretary Simon Stiell called the decision the “beginning of the end” of the fossil fuel era. But the agreement text was only one of many outcomes from the conference, including the activation of the loss and damage fund and pledges to abate methane emissions and triple renewable energy. Atlantic Council experts who were on the ground in Dubai share their insights on the agreement and the road ahead.

Fast Thinking

Dec 13, 2023

The final report card for COP28

By Atlantic Council

Atlantic Council experts who were on the ground in Dubai share their insights on the agreement and the road ahead.

Africa Climate Change & Climate Action

DECEMBER 13 | 11:43 PM GMT+4

Don’t chalk this conference’s success up to text alone

By Reed Blakemore

COP28 finally came to a (late) conclusion today, following a frenetic race to the finish.

The final agreement managed to address nearly all of the key items on the COP28 agenda—the loss and damage fund, tripling renewable energy deployment, and global carbon markets with varying levels of strength. But debate over whether this COP was a success or failure will gravitate toward the agreement’s treatment of fossil fuels.

Despite early optimism from the climate community earlier in the week that “phasedown” in some form or fashion might be an ultimate landing spot, the final text on Wednesday, settled on “transitioning away from fossil fuels in energy systems.” That language reveals not only how hard it is to find consensus on the oil and gas industry’s role in climate action; it also shows the complexity of interests that are often misunderstood by climate observers and played out over successive drafts leading up to the final agreement. On one hand, major oil-producing delegations at the COP have been unwilling to accept sweeping or overly broad language that undercuts their still-transitioning economies. Relatedly, many developing economies (particularly in Sub-Saharan Africa) see a phasedown or phase out, in the absence of financing for alternative energy sources, as an unfair deal. They make this point by criticizing how Western countries built their own economies by consuming fossil fuels for decades (and at the same time that many Western countries still produce and use fossil fuels themselves). Meanwhile, small island nations have been adamant that fossil fuels cannot be omitted from COP text, whether this one or in the future.

The result is a bit of a word salad that may not meet the expectations many in the climate community brought to Dubai. But expecting the United Nations Framework Convention on Climate Change (UNFCCC) to address the tricky issue of fossil fuel emissions in one fell swoop may actually be unhelpful for efforts to drive multilateral climate action.

Indeed, the treatment of fossil fuels and their role in global emissions is an urgent area of attention—and it will remain so for COPs to come. But when evaluating the success of this gathering in Dubai, don’t put too much faith in the power of the COP’s signaling abilities through its text. Unlike loss and damage funds or carbon market rules, for which multilateral structures or mechanisms are created through UNFCCC agreement, it’s harder to draw a straight line between strong phaseout language in the text and the drawdown of a resource that remains an intrinsic part of the global economy. This perhaps is what made the alternative phrasing to a “phase out” proposed over the weekend—which listed several options for countries to cut emissions including upping renewable energy capacity—an imperfect but more thoughtful way to use the signaling power of the COP. (This wording, for example, is similar to what was used in the Sunnylands agreement in November between the United States and China). The final COP28 agreement, though also imperfect, is an important starting point to build from.

Regardless, the increasing utility of the COP to build an inclusive ecosystem that effectively integrates industry, civil society, and policy is something to celebrate. Numerous accomplishments—from nuclear energy commitments to a new renewables fund—highlight COP’s value as a necessary platform to align action and commitment.

Bringing the oil and gas industry into this platform is a tricky but necessary part of that process, and an area in which this COP will leave a legacy even outside of the official text. The United Arab Emirates’ (UAE) establishment of Global Decarbonization Accelerator and its Oil and Gas Decarbonization Charter provided that, and while it needs to both grow in participation and ambition, it can be a space where the UAE can push for shared action even once its COP presidency concludes. Holding the oil and gas industry accountable for their role in the climate crisis begins with bringing that industry into the fold, in order to hold it accountable for providing solutions rather than for existing. This COP managed to do that.

What remains to be seen, however, are the tricky bits of climate action. Major tasks ahead for the UNFCCC include effectively de-risking private investment in clean energy projects; establishing clarity on how to allocate “shared pools” of funding for resiliency efforts, such as the loss and damage fund; and navigating the nuance of a trade system that is evolving rapidly in response to energy transition. Arguably, these are just as (if not more) “make or break” for the energy transition and climate action than the language chosen to articulate the future role of fossil fuels.

The ink may still be drying on the final agreement, but much more work remains.

—Reed Blakemore is director for research and programs with the Atlantic Council Global Energy Center.

DECEMBER 13 | 10:43 PM GMT+4

COP28 gave nuclear power a seat at the table

By Jennifer T. Gordon

From the start, it was clear that this COP could justifiably be called “the nuclear COP.” COP28 kicked off with the pledge of more than twenty countries to triple nuclear energy by 2050, which was soon followed by an industry pledge. Additionally, the US Export-Import Bank (EXIM) and the US Department of State announced a “suite of EXIM financial tools” to jump-start small modular reactor deployments around the world. The United States, Japan, Canada, France, and the UK pledged to mobilize at least $4.2 billion in government-led investments to “enhance uranium enrichment and conversion capacity over the next three years.”

Perhaps just as important as the specific announcements on nuclear energy at COP28 was the unprecedented centrality of nuclear energy in conversations at the conference. The International Atomic Energy Agency (IAEA) and the Nuclear Energy Institute hosted a pavilion in the Blue Zone called “Atoms4Climate,” while the Emirates Nuclear Energy Corporation and World Nuclear Association hosted Net Zero Nuclear pavilions in the Blue Zone and Green Zone, along with a two-day Net Zero Nuclear Summit in downtown Dubai. Nuclear energy was present in all these platforms, and conversations around nuclear energy took place in spaces that were dedicated to the energy transition writ large (for example, at the Global Decarbonization Accelerator Connect pavilion, run by the Atlantic Council). The United Nations Framework Convention on Climate Change’s Draft Decision on the Outcome of the Global Stocktake included nuclear energy in its list of “zero- and low-emission technologies,” a move that the IAEA praised for making history.

The importance of nuclear energy becoming part of the climate conversation goes far beyond rhetoric. As countries move to unlock financing for technologies that are considered green, the inclusion or exclusion of nuclear energy could determine whether the industry succeeds or fails. For example, Canada’s inclusion of nuclear energy in its Green Bonds framework is enabling greater funding for nuclear and faster deployment of nuclear technologies. As a zero-emission energy source, nuclear deserves a seat at the table at the world’s premier climate conference, and COP28 was a watershed moment for the inclusion of nuclear in the climate discussion.

—Jennifer T. Gordon is the director for the Nuclear Energy Policy Initiative at the Atlantic Council’s Global Energy Center.

Note: The Emirates Nuclear Energy Corporation is a sponsor of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here.

DAY THIRTEEN

Watch how final negotiations balance energy opportunity with climate insecurity risks

Will the findings of the global stocktake unite or divide the world?

See day twelve analysis

DECEMBER 12 | 11:45 PM GMT+4

Watch how final negotiations balance energy opportunity with climate insecurity risks

By Thammy Evans

As COP28 draws to a close, the usual frantic bargaining is taking place. This year’s conference has seen several innovations and firsts that show an evolving global and societal response to the climate crisis at hand. More than ever before, themes beyond climate change are attracting more focus, which was seen in announcements such as the launch of the Alliance of Champions For Food Systems Transformation. The day 11 Majlis organized by the United Arab Emirates aimed to bring a more inclusive feel to the negotiations, while the conference’s many official gatherings have earned this COP the name “Conference of Partners.” The findings of the global stocktake, although still not finalized and released, is a first attempt at a comprehensive, transparent inventory of climate action, but gaps remain.

A look at the themes of each COP across the years is a stocktake in itself that shows how negotiations have developed and the topics that have made it into negotiations over time. To date, much of the negotiations (on topics such as food, agriculture, oceans, tourism, health, finance, gender equality, indigenous peoples, youth, nature, land use, urbanization, fashion, adaptation, and loss and damage) have been attempts to make progress on climate mitigation via indirect sectors and to create a means to make it up to developing countries that are suffering the most from climate change. But much of the negotiations have also fallen short on the real elephant in the climate-mitigation room: fossil fuels.

This conference, however, marks the first time the term “fossil fuels” made it into the end-of-COP deal—or at least the draft text of it. Inclusion of the term “fossil fuels” is a sign of how much traction climate science has finally made. It is also recognition that discussions around climate security have adequately—and powerfully—conveyed the risks at stake. If the term “fossil fuels” remains in the final text, and depending on how it is mentioned, it could be a win for the COP28 president, Sultan al-Jaber, who has advocated for the need to have buy-in from all parties and partners, even (and especially) the oil industry.

Efforts to turn global focus toward turning the tap off for fossil fuels (i.e. a complete phase out), on ecosystem and economic regeneration and on a policy switch to regenerative capitalism (rather than merely mitigation, resilience, and adaptation) have not yet succeeded. Some sectors in many developed countries, with a sense of optimism for technological determinism, argue that technological innovations will somehow help achieve climate goals, just in time to keep hard-to-abate sectors alive for just that bit longer. But climate modeling simulators don’t show any scenario in which global warming can be kept to 1.5 degrees or even 2 degrees Celsius by keeping fossil fuels alive (by supporting fossil fuel infrastructure and production) while offsetting by innovation scale up, offsetting, or abatement by 2100, or even by 2050.

It is true that a gradual phase down will keep certain transition challenges more tolerable, especially for those countries whose economies have yet to put a realistic economic transition diversification plan in place. But the lack of a fast enough phase out plan will exacerbate physical climate insecurity risks for the 3.5 billion deemed already to live in climate hot spots. The resulting increased risk of violent conflict, forced migration, and death will raise humanitarian disasters to a level unseen, keeping government institutions, emergency services, and the option of last resort—the armed forces—ever more occupied with responses to climate hazards. As the COP28 negotiations draw to a close, watch this balance of energy opportunities and insecurity risks.

—Thammy Evans is a nonresident senior fellow of the GeoTech Center of the Atlantic Council. She is also a senior research fellow of the Climate Change & (In)Security Project, a collaboration between the Reuben College of Oxford University and the UK Army’s Centre for Historical Analysis and Conflict Research. Her co-authored chapter entitled Ecological Security: The New Military Operational Priority for Humanitarian and Disaster Response, was published in Climate Change, Conflict, and (In)Security: Hot War on December 1.

DECEMBER 12 | 8:14 PM GMT+4

Will the findings of the global stocktake unite or divide the world?

One of the most pivotal items being discussed at COP28 is the global stocktake, a “report card” of the world’s progress on climate action and a key indicator of the implementation of the Paris Agreement.

Two years ago, countries began assessing their progress on climate targets, or nationally determined contributions (NDCs), and submitted their findings to the United Nations (UN) Framework Convention on Climate Change. According to the UN Environment Programme’s Emissions Gap report, with current NDCs and climate targets, the world has little chance of keeping below the 1.5-degree-Celsius warming limit and could see temperatures rise by 2.9 degrees Celsius above preindustrial levels by the end of the century.

Under a three-degree warming scenario, the Amazon rainforest could dry out and ice sheets would melt at exponential rates. To meet the 1.5-degree warming threshold, countries will need to cut their greenhouse gas emissions by at least 42 percent by 2030, the UN says. According to the World Meteorological Organization, the world is slated to reach 1.4 degrees Celsius of warming above preindustrial levels in what remains of this year, making it the hottest year on record. “Greenhouse gas levels are record high. Global temperatures are record high. Sea level rise is record high. Antarctic sea ice is record low,” the World Meteorological Organization’s secretary general warned. Scientists have said that next year could be worse, with an El Niño weather pattern that is expected to cause temperatures to rise.

COP28’s success depends on the global stocktake’s ability to push countries to implement three changes.

First, drastically cutting emissions and having countries increase the ambition of their NDCs, including by committing to reduce emissions by 43 percent by 2030 and by 60 percent by 2035, as recommended by the UN.

Second, a complete phaseout of unabated fossil fuels with a clear timeframe that keeps global warming below 1.5 degrees Celsius. Going forward, countries should set their ambitions even higher than this recommendation by phasing out all fossil fuel use: “abated” fossil fuel, achieved with the help of carbon capture and storage, can take away from the real action that needs to be done. All countries must also commit to triple renewables, double energy efficiency, and make clean energy available to all by 2030.

Third, increasing climate finance to ensure that the Global South doesn’t struggle to reach climate targets and that developing countries are not devastatingly impacted by climate-related disasters they did not cause or only minorly fueled. As negotiations on the way forward come to a close, it is important that countries are acutely aware of the consequences of their shortcomings and the need to ensure climate justice for all.

—Lama El Hatow is a nonresident fellow with the empowerME Initiative at the Atlantic Council’s Rafik Hariri Center for the Middle East. She is also a professor and program coordinator at Johns Hopkins University in the Environmental Science and Policy and Energy, Policy, and Climate departments.

DAY TWELVE

The Inflation Reduction Act set off waves still felt at COP28

COP28 is talking about how to finance Africa’s green transition. Green banking is a big part of that.

See analysis from day eleven

DECEMBER 11 | 5:41 PM GMT+4

The Inflation Reduction Act set off waves still felt at COP28

By Charles Hendry

The introduction of the Inflation Reduction Act (IRA) in the United States has transformed European thinking about the industries Europe needs if it is to achieve net-zero emissions by the middle of the century.

Political leaders in Europe and elsewhere had long been encouraging the United States to do more to tackle climate change and bring forward the industries needed to do so. But when the IRA was announced, the initial reaction in European capitals was one of shock. The IRA was criticized as being unfair in subsiding companies to invest in the United States and making it more difficult for Europe to compete.

As time has progressed, harsh words have changed into measures that would also attract investment into the United Kingdom and the European Union. Governments realized that their only response was to raise their game and make Europe as attractive a place to invest in low-carbon industries as the United States. Game on!

The mistake in those early reactions was that it suggested that this is a battle between the United States and Europe. But the reality is that if both are to deliver the changes that are needed, and do so in the timeframe needed, then this needs to be the United States and Europe—and China and other countries across the world. This is not a zero-sum game in which if one country does well, then other countries have to do badly. It is one where we all need to win.

The same is true of Chinese dominance of supply chains. The West needs to secure more of those supply chains, as businesses want their supplies closer to them and as they look to have stricter control over manufacturing processes, environmental sustainability, and transparency. Sometimes that is seen as a threat to Chinese industries, but the reality is that China will need the output from those factories to supply its own fast-growing clean industries.

The mood of businesses present at COP28 has been one of realizing ambition, a sense that more can be done, that the necessary funding is there, that the right skills can be developed, and that companies can do all this faster than previously thought. In every panel I took part in, business representatives said that they are ready to deliver on the ambition.

There will be much debate about government policies to reach the United Nations Climate Change Conference commitments, but there has seemed to be little debate at COP28 about the enthusiasm of the business community to rise to the challenge. Sixteen months on from the signing of the IRA, the United States and Europe and countries around the world are starting to realize that they have to deliver together.

—Charles Hendry is a distinguished fellow of the Atlantic Council Global Energy Center. Previously, he was a Conservative member of the UK Parliament for Wealden from 2001 to 2015, the minister of state for energy from May 2010 to September 2012, and the Conservative Party’s spokesperson on energy issues from 2005 to 2010.

DECEMBER 11 | 9:25 AM GMT+4

COP28 is talking about how to finance Africa’s green transition. Green banking is a big part of that.

By Jean-Paul Mvogo

On the ground at COP28, the issue of climate finance, particularly in Africa, has been a big topic of discussion. This is due in part to the magnitude and urgency of the issue. Even with the commitments made here in Dubai and earlier, the amount Africa needs to face climate change—three hundred billion dollars per year, at least—is around ten times the amount of disbursements and pledges made to African countries so far for this purpose.

Beyond the amount of financing needed, the discussions at COP28 have also focused on the topic of the green financial architecture—that is, the logistics to bring green financial services and products closer to African households, businesses, and communities. A major question is how to provide climate insurance to the millions of African farmers, including farmers in Sub-Saharan Africa, who could lose 5-17 percent of their crop yields by 2050 due to climate change and who live on the fringes of traditional financing circuits. Another concern is how to finance the upgrade of African businesses to greener standards, when today only 18 percent of their financing needs are covered. There is in addition the question of how to provide greener transport, energy, and housing solutions to the hundreds of millions of young, urban workers, who earn their living on a daily basis and do not have collateral.

If the need for deployment of climate finance for all is self-evident in countries with developed financial systems, these questions highlight the importance of green financial architecture for Africa to achieve a successful green and inclusive transition. Hence the decision of the Atlantic Council’s Africa Center to launch a reflection on that topic in a new report that I wrote and presented at COP28.

Report

Dec 5, 2023

How green banking can unlock climate solutions in Africa

By Jean-Paul Mvogo

In order to succeed in its transition to a green and inclusive economy, Africa must ramp up its green banking ecosystems and mobilize resources needed to finance climate mitigation and adaptation while also addressing deforestation, pollution and biodiversity loss.

Africa Economy & Business

This report explains how green financial systems can turn Africa into a champion of the green economy by mobilizing its ecosystems. Africa’s ecosystems are among the most efficient carbon sinks on the planet. African countries represent an exceptional renewable energy technical potential that accounts for a little less than half of worldwide capacity. And the continent contains large deposits of numerous critical minerals essential to the green revolution.

The report presents cooperative models for creating alliances of financial intermediaries able to mobilize their respective advantages to efficiently deliver green financial services to the “last mile”—to local communities and small businesses, for example. It also emphasizes issues that the international community must quickly address to resolutely engage Africa in the transition to a green and inclusive economy that would be a benefit to all as a source of stability.

To unblock the African green intermediation pipeline, the report advocates finding solutions to the difficulties faced by African financial actors when they wish to access international green funds. The dysfunctions of African carbon markets, which hinder the rise of pan-African green finance engineering initiatives, also call for resolute action. Finally, the report pleads for curbing the debt bottleneck that prevents African countries from devoting more resources to capacity building and training, which are needed to structure countries’ green ecosystems and attract more private investment. Indeed, private investment represents just 14 percent of green financing in Africa, highlighting a strong growth potential.

With the end of COP28 nearing, these issues, and the report’s twenty-one recommendations, deserve more attention. As COP28 attendee said to me, action, in addition to discussions, is needed to prevent the international community from heading toward “a climatic and societal hell” and allow the construction of a more desirable alternative.

Jean-Paul Mvogo is a nonresident senior fellow with the Atlantic Council’s Africa Center.

DAY ELEVEN

For the global stocktake and beyond, accessible and trusted data are the foundations for progress

Is carbon capture and storage a solution to emissions—or is it a ‘carbon bomb’?

See analysis from day ten.

DECEMBER 10 | 8:15 PM GMT 4

For the global stocktake and beyond, accessible and trusted data are the foundations for progress

By Lloyd Whitman and Raul Brens Jr.

Negotiations on the highly anticipated COP28 global stocktake have already started for the nearly two hundred countries gathered at the climate change conference. This stocktake, the first in a five-year cycle, will determine how far the world has come in trying to meet the goals of the Paris Agreement and where it has come up short. To quote the United Nations Framework Convention on Climate Change (UNFCC), “It means looking at everything related to where the world stands on climate action and support, identifying the gaps, and working together to agree on solutions pathways (to 2030 and beyond).”

During the first week of COP28, a theme heard again and again across discussions on climate science, mitigation, and adaptation is the importance of data and the challenges to making accurate, comprehensive, and trusted data easily accessible to all stakeholders. While the Enhanced Transparency Framework is the foundation for the UNFCC’s data collection and reporting, there is a rapidly growing array of public and private sector resources being devoted to data collection, sharing, and use, including artificial intelligence (AI)-enabled applications.

The power of data was vividly illustrated at COP28 in a presentation by former US Vice President Al Gore and Gavin McCormick, co-founder of the Climate TRACE coalition. They revealed how comprehensive data on sources of greenhouse gas (GHG) emissions can provide actionable insights into how to target emissions reductions more effectively. This global-scale monitoring system uses satellites and other remote sensing methods, combined with ground-truth measurements and AI, to provide an open and accessible global inventory of emissions.

The data from Climate TRACE also demonstrate the importance of space for providing critical climate-related data—the topic of a discussion at COP28 moderated by one of the authors. The panel was hosted in the Blue Zone by the World Green Economy Organization and titled “Space for Sustainability: Contribution of Space-Based Capabilities to Sustainability Research and Climate Science.” It featured Aarti Holla Maini, director of the UN Office of Outer Space Affairs; Salem Butti Salem Al Qubaisi, director general of the UAE Space Agency; Andrew Zolli, chief impact officer at Planet; and David Roth, director of international public policy at Amazon. This discussion made clear that whether looking inward at the Earth, outward at other planets and beyond, or providing global network connectivity, space should not be an afterthought and, instead, should be embedded into climate policy making.

These are just two of a multitude of conversations at COP28 on the importance of trusted and accessible data for the entire climate ecosystem. Some of the other data-related projects and resources discussed include:

A partnership between UNFCCC and Microsoft to use AI and advanced data technology to track global carbon emissions and assess progress under the Paris Agreement.
A partnership between the UAE Space Agency and Planet Labs to use satellite data to construct a loss and damage atlas to inform the Loss and Damage Fund first announced at COP27.
A tool developed by Google to forecast life-threatening floods up to seven days in advance using publicly available data sources and AI.
A centralized and open source private sector climate data repository co-developed by France and Bloomberg enabling investors and regulators to track and compare climate commitments for hundreds of companies.
The full launch of the Methane Alert and Response System, a satellite detection and notification tool to accelerate data gathering and notification to countries of this potent GHG.
The Global Renewals Watch, a longitudinal atlas observing solar and wind renewable resources on Earth and how they are growing to better inform the transition to clean energy.

A diverse set of data collection methods are important to accurately assess emissions across different sectors, but data sources also offer opportunities beyond tracking emissions. Data collection methods across different areas are crucial to our growing understanding of holistic impacts of climate change, including that of deforestation, biodiversity loss, and impact assessments of natural resources such as melting ice caps, oceans, and water systems. It is key to transparency in government and business commitments related to sustainability and to reveal “greenwashing.” To ensure a global benefit and ease of utility across data sets, it is important to underscore robust data and reporting standards. Data need to be trustworthy, accessible, and interoperable to ensure access and ultimately action. Standardized reporting can breathe transparency into a system mired with distrust, and it can facilitate global collaboration, allowing for an acceleration of insights and ideas on how to address climate change.

The effective use of climate-related data requires global collaboration and cross-sector engagement, even where geopolitical tensions hinder other bilateral activities. The democratization of data will be a requirement to ensure that data sets are not only available but also accessible in usable formats for those who need it the most across sectors and countries. The effort will require the involvement of governments, international organizations, the private sector, philanthropic foundations, and civil society. They must work together to build capacity for knowledge-sharing and facilitate the strategic deployment of resources necessary to optimize the use of cross-functional data. A multi-stakeholder approach is the best way to prioritize and implement the most effective and economical solutions.

As the negotiations for the global stocktake move closer to the finish line, it is important to highlight one thing everyone should agree on: Accessible and trusted data are the foundations for progress on decisive climate action and achieving a sustainable future.

—Lloyd Whitman is the senior director at the Atlantic Council’s GeoTech Center.

—Raul Brens Jr. is the deputy director and a senior fellow at the Atlantic Council’s GeoTech Center.

Note: Amazon is a sponsor of the Atlantic Council’s work at COP28.

DECEMBER 10 | 12:29 PM GMT+4

Is carbon capture and storage a solution to emissions—or is it a ‘carbon bomb’?

To meet the Paris Agreement’s goal of limiting the global average temperature increase to 1.5 degrees Celsius, the world will need to cut fossil fuel production by an estimated 40 percent within this decade, according to the International Energy Agency. In an effort to reach the Paris Agreement goal, several countries—including Saudi Arabia, the United Arab Emirates, Canada, and the United States—have proposed the use of carbon capture and storage (CCS) technologies to abate carbon emissions from fossil fuels and heavy industry, and store them back in the ground, either offshore or on land.

However, several groups have criticized the technology and its implications on the wider project of achieving climate goals. A report by the Center for International Environmental Law (CIEL), for example, states that the oceans are already plagued with ocean acidification and pollution from offshore oil and gas installations, and the seabed should hence not be turned into a storage site for carbon dioxide (CO2) waste. In addition, the CIEL report mentions that CCS projects have repeatedly fallen short of capture targets and encountered financial and technical hurdles, raising doubts about their feasibility and safety. Offshore CCS experience has been limited so far to only two projects in Norway, both of which encountered unpredicted problems, raising questions about the technology’s risks.

Similarly, another report by Climate Analytics states that a reliance on CCS could be dangerous for the planet, since its impacts and ramifications are still not well known or studied. The report argues that for the world to achieve the Paris Agreement’s 1.5 degrees Celsius limit, a near-complete phaseout of fossil fuels is needed by the middle of the century. The Intergovernmental Panel on Climate Change, too, has stated that a fossil fuel phaseout is necessary to meet the 1.5 degrees Celsius limit target, but that a small amount of CCS can be utilized in this pathway with capture rates of 95 percent. The Climate Analytics report suggests, however, that if carbon capture rates only reach 50 percent rather than 95 percent, and upstream methane emissions are reduced to low levels, this outcome would pump 86 billion tons of greenhouse gas emissions into the atmosphere, equivalent to more than double the global CO2 emissions in 2023. The report calls this a “carbon bomb.”

Some scientists and climate experts have raised concerns that the use of CCS to abate fossil fuels would reduce pressure to completely phase them out, shifting the focus instead to “phasing down” their use. The concern is that, as a result of CCS, both emissions mitigation efforts and an energy transition to renewables would be slowed considerably, and that the technology would therefore in effect promote the expansion of oil and gas projects globally instead of limiting them. The Climate Analytics report, for example, states that CCS is “heavily promoted by the oil and gas industry to create the illusion we can keep expanding fossil fuels with dismal capture rates to count as climate action.”

Here at COP28, as countries are reportedly discussing the wording of an “abated” versus “unabated” fossil fuel phaseout in the text, the consequences of allowing a technology with unknown risks to make its way into the calls for “climate action” remain a concern.

—Lama El Hatow is a nonresident fellow with the empowerME Initiative at the Atlantic Council’s Rafik Hariri Center for the Middle East. She is also a professor and program coordinator at Johns Hopkins University in the Environmental Science and Policy and Energy, Policy, and Climate departments.

DAY TEN

Getting private capital off the sidelines for the Global South

COP28 turns out the private sector to solve the climate crisis

Ukraine’s path to victory and European integration is paved through war-insured decarbonization investments

COP28 is different from every other COP. Here’s why.

AI is generating a lot of attention at COP28—and predictions about the climate’s future

See analysis from days eight and nine

DECEMBER 9 | 11:47 PM GMT+4

Getting private capital off the sidelines for the Global South

By Racha Helwa and Hezha Barzani

Check out this untapped opportunity: Africa has 60 percent of the world’s best solar resources, but only 1 percent of installed solar capacity. That lack of commitment from the private sector is due to perceived and real investment risks, stemming from concerns about weaker institutions in these countries.

But for the world to meet its energy-transition objectives, the private sector must increase its investments fourfold, according to the Independent High-Level Expert Group on Climate Finance.

One mechanism available to help minimize those investment risks—whether real or not—is the global suite of multilateral development banks. These banks can take on this challenge by offering insurance or guarantees to investors, or through other means. But, as discussed in a GDA Connect event we hosted today, those de-risking instruments appear insufficient to many investors.

That’s why there’s so much chatter about sovereign wealth funds and green funds. They are equally crucial when it comes to attracting investments for renewables in Africa, parts of the Middle East, and other countries facing similar challenges. It could be argued that, out of the variety of funding initiatives and deals to take place here at COP28, the Alterra fund is the one most likely to have an immediate and significant impact on climate action.

At the GDA Connect event, UAE Minister of State for Foreign Trade Thani bin Ahmed Al Zeyoudi unpacked the new $30 billion climate-focused fund, highlighting that it aims to mobilize an additional $250 billion globally by 2030 and increase investment flows to the Global South. What’s important here is that the fund could radically alter the dynamics and pace of the energy transition in Africa and the Middle East, helping to sustain momentum over time.

But with much more financing needed—in the trillions, not the billions—it will take additional bold initiatives to push the energy transition in the Global South to where it needs to go.

—Racha Helwa is the director of the empowerME Initiative at the Atlantic Council’s Rafik Hariri Center for the Middle East.

—Hezha Barzani is an assistant director at the Atlantic Council’s empowerME Initiative.

DECEMBER 9 | 10:38 PM GMT+4

COP28 turns out the private sector to solve the climate crisis

By Frederick Kempe

This entry is part of the “Inflection Points Today” newsletter. To receive more quick-hit insight on a world in transition, subscribe here.

There are different theories about how this city, the most populous in the United Arab Emirates, got its name. My favorite is that it came from an Arab proverb that says “Daba Dubai,” meaning, “They came with a lot of money.”

Dubai was established in the eighteenth century as a fishing village, where a good living could be made from trade and pearl diving. By the time the COP28 climate conference kicked off here, it had become one of the world’s richest cities, with the world’s tallest building and more five-star hotels than any city except London, the result of oil revenue, tourism, real estate, and sovereign investment.

Dubai was host to climate action over the past week, gathering almost one hundred thousand people from nearly two hundred countries. The public and private sectors drew closer than ever before to a consensus that addressing the perils of a warming planet was both a matter of urgency and business opportunity.

That does not fix the problem, but there is no solution without vast amounts of private-sector financing and investments in climate solutions from renewables to nuclear energy, and from decarbonization to green tech.

Many climate activists opposed opening the doors to industry, particularly those producing fossil fuels, but the result has been a flurry of unprecedented agreements that, if executed and sustained, have the potential for tens of billions of new dollars to address the climate crisis.

For example, there is the $700 million in loss and damage support for the Global South. There is also the $30 billion “Alterra” fund, launched by the United Arab Emirates—and with private-sector giants Blackrock, Brookfield, and TPG—whose aim is to generate $250 billion of capital by 2030 for climate investments in the Global South.

Some fifty oil and gas companies, including Saudi Aramco and twenty-nine national oil companies, agreed to reduce their emissions to zero by 2050 and to reduce methane emissions to zero by 2030. At other points of the convening, countries joined together in agreeing to triple renewables, also by 2030, and to triple emissions-free nuclear energy by 2050. Achieving both goals will require the participation of the private sector.

Negotiators are squabbling over the text of the final COP28 agreement. Politico reports that a draft it has seen has expanded to twenty-seven pages and includes five different options on how to manage disputes over “phasing down” or “phasing out” fossil fuels. The battle could get ugly before the conference closes Tuesday.

Whatever the outcome, veterans of the UN climate process believe this year’s sharply increased level of private-sector engagement could be the game changer to address challenges beyond the capacity of governments alone. Says Jorge Gastelumendi, a veteran of sixteen COPs who runs the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center: “After twenty-eight COPs, we have finally seen the private sector arrive in the climate space with full force and commitment. Without them, we will not be able to solve the climate crisis.”

DECEMBER 9 | 3:55 PM GMT+4

Ukraine’s path to victory and European integration is paved through war-insured decarbonization investments

By Olga Khakova

Ukraine’s COP28 pavilion hosts sobering evidence that Russia’s full-scale invasion of the country has included an environmental assault on Ukraine’s nutrient-rich soil, interconnected watershed systems, and diverse wildlife, in addition to Russian forces’ attacks on civilians and their communities. But Ukraine’s COP28 pavilion is also a stage for showcasing the country’s resilience, innovation, and resolve to decarbonize, despite ongoing Russian attacks. Allies from around the world stopped by to demonstrate their support, including US climate envoy John Kerry and European Commissioner for Energy Kadri Simson. Victoria Hallum, New Zealand’s deputy secretary of multilateral and legal affairs, and Marco Vinicio Ochoa, Guatemala’s vice minister of natural resources and climate, also stopped by the site. Continued engagement from international partners will be critical to rebuilding the country and transforming its energy systems toward net-zero emissions.

Ukraine is already making strides to cut carbon emissions and strengthen energy security, from local small-scale initiatives to record developments. One of the news-making announcements at the Ukrainian COP28 pavilion was the signing of a memorandum of understanding between DTEK, Ukraine’s biggest private energy company, and Vestas, a company with more than a hundred gigawatts of wind turbine installation and service under its belt. They agreed to expand the Mykolaiv wind farm in southern Ukraine into the biggest wind project in Eastern Europe. Cities across Ukraine are also doing their part to meet climate targets. In the North, Nizhyn (which was covered in a death blanket of Russian rockets at the onset of the Russia’s February 2022 invasion) is now installing photovoltaic cells and storage at local utilities and maternity wards, as well as ramping up heat pump integration ahead of the winter.

But to reach momentum and scale, Ukraine will need war risk insurance for Ukrainian and foreign investors and project developers. Initial efforts are on the way through the World Bank’s Multilateral Investment Guarantee Agency; the US International Development Finance Corporation; and the European Bank for Reconstruction and Development; as well as national insurance solutions from Poland, Germany, and France for protecting exports and investments in Ukraine. However, a comprehensive war risk mechanism is missing for clean energy projects that could be accessible to global companies of all sizes seeking to invest in the transformation of Ukraine’s energy system. Such mechanisms could be partially funded through state guarantees combined with support by allied governments and bolstered by engagement from private sector insurance companies and reinsurance schemes.

Ukraine is showcasing unwavering commitment to decarbonization even in the midst of war. Sufficient war risk insurance would unlock private sector investments in the clean energy economy. Moreover, these efforts will contribute to defeating Russia, to Ukraine’s economic development, and to closer integration with European energy systems.

—Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

DECEMBER 9 | 9:50 AM GMT+4

COP28 is different from every other COP. Here’s why.

By David L. Goldwyn

After twenty-eight official gatherings, the Conference of the Parties to the UN Framework Convention on Climate Change has evolved to the Conference of the Partners. Whatever the result of the final communique, the more lasting contributions will come from what is happening outside the tent. The real tests of this COP boiled down to a handful of crux issues: whether meaningful reductions in methane emissions would be accomplished, whether real money would be committed to promote the energy transition in the Global South, and whether credible pathways to net-zero emissions would be charted given the dismal results of the global stocktake. The Emirati leadership of COP28 has largely met this test.

First, the Oil and Gas Decarbonization Charter (OGDC) has done what governments could not: gotten 40 percent of global oil production committed to measurement and verification of their greenhouse gas emissions and near-zeroing of methane emissions, complete with public reporting and transparency guarantees. While the OGDC has not really deepened the commitments of the international oil companies that have signed on, it has greatly broadened these commitments to many more companies, especially national oil companies. If the OGDC proves a transformative effort, those companies that do not participate will miss out on the opportunity to have their environmental, social, and governance qualifications significantly improved.

Second, the announcement of the United Arab Emirates’ Alterra Fund commits thirty billion dollars to hard-to-finance projects in the Global South. This is nowhere close to closing the universally acknowledged climate finance gap between the needs of developing countries and emerging markets to meet their climate goals and the current financing for these needs. Theoretically, the Alterra Fund could spur as much as $250 billion in investments by 2030 to close this gap—a force multiplier by any definition. Moreover, these funds are likely to be more flexible and credible than the commitments of governments and some other private institutions thus far, as well as more effective than the sclerotic Global Environment Fund.

But the greatest legacy accomplishment may be to transform the COP process itself. For years, COPs have been caught within unrealistic and polarized debates, such as how fast net-zero emissions can be achieved, how fast renewables can be scaled up, and what role (if any) fossil fuels should play in a decarbonizing world. It seems that COP28 has, for the first time, brought a wide breadth of fuels and technology types to front-and-center roles: nuclear energy, various “colors” of hydrogen, carbon sequestration and carbon removal (as well as more ambitious renewables pledges). Even US climate envoy John Kerry is speaking positively for the first time about the need for carbon management—strongly implying that governments are recognizing that all of these strategies will play a role in reaching net-zero emissions.

While some stakeholders will be understandably skeptical of this “all of the above—and more” approach, it is a welcome recognition of the heterogenous pathways most countries (especially emerging economies) will take to reach net-zero emissions. This historic presence of diverse investors, technology companies, and even oil and gas companies that will develop and deploy these tools is what makes this (and hopefully future COPs) a gathering for partners, not just a gathering for parties. All of this, to be sure, is just a first step—but it is a hopeful one.

—David L. Goldwyn served as special envoy for international energy under President Barack Obama and assistant secretary of energy for international relations under President Bill Clinton. He is chair of the Atlantic Council’s Energy Advisory Group and a nonresident senior fellow with the Council’s Global Energy Center.

DECEMBER 9 | 9:30 AM GMT+4

AI is generating a lot of attention at COP28—and predictions about the climate’s future

Here on the ground, there’s been a lot of chatter about the role technology, including artificial intelligence (AI), plays in the climate crisis. One event at the Technology for Innovation Hub highlighted how 4 percent of global emissions come from the tech industry, which can be attributed mostly to data centers and devices (such as smartphones and computers). For countries to meet climate goals, tech leaders will need to find efficient ways to reduce these emissions.

But tech can also be used in various applications to assist in solving the climate crisis. AI could be especially useful, for example, for monitoring irrigation, offering insights into how to conserve water. AI could also help map the ocean environment and aquatic ecosystems to assess how warming seas are impacting aquatic life.

There’s more: For example, a new chatbot called ChatNetZero can help determine whether decarbonization plans designed by corporations, governments, and other institutions are credible. Scientists have been calling for sustainability reporting and corporate transparency in climate data, which often has been met with opposition due to claims of privacy and security concerns—AI may offer a way to satisfy the needs for transparency and security. Google’s DeepMind, an AI research lab, has recently uncovered 380,000 new stable materials, which have the potential to be used to power electric-vehicle batteries, superconductors, and supercomputers.

AI, with the help of data from sensors, can also help cities predict water leakages in city distribution networks in cities to avoid water losses, which account for an average of 20 percent of water losses globally in the networks.

AI, with its predictive capabilities, could be a resourceful tool in fighting climate change. But the question is how to get it to everyone. As participants have been able to glean at the Technology for Innovation Hub, organized by the COP28 Presidency, there is an urgent need to strengthen the Global South’s climate-tech ecosystems, democratize access to knowledge and capacity building, and spur climate-tech innovation. There is hope: For example, showcased at the Hub, four Palestinian startups have overcome hurdles, such as lack of access to funding and support systems, even under the dire conditions of war.

DAYS EIGHT AND NINE

What the Global South needs for a just energy transition

The White House’s Amos Hochstein on ensuring energy security amid global crises

Global consensus on climate action is harder amid geopolitical strife

Faith at COP, or faith in COP?

City-led solutions have power—but they need funding

Fusion is the future (these energy experts mean it this time)

See day seven analysis

DECEMBER 8 | 2:35 PM GMT+4

What the Global South needs for a just energy transition

By Katherine Walla

Achieving a just energy transition for the Global South may require a complete reversal in the way the world has operated for centuries.

According to Caribbean Development Bank President Hyginus Leon, who spoke at the Atlantic Council’s Global Energy Forum in Dubai on Thursday, the Global North has long benefitted from being the destination for flows of goods, money, and people from the south. “Now,” he explained, “you need a reversal” to “generate equity” and “allow the Global South to grow.”

Herbert Krapa, Ghana’s deputy minister of energy, explained that despite African countries being the source of both fossil fuels and vast critical mineral deposits—both crucial for meeting energy demand—the continent hasn’t been able to leverage them for its own development. “A just transition,” he explained, will require “taking advantage of these resources.”

But for the sake of the climate, he added, it will also require “significant financing” for renewable energy.

Read more highlights from this discussion

New Atlanticist

Dec 8, 2023

What the Global South needs for a just energy transition

By Katherine Golden

Achieving a just energy transition for the Global South may require a complete reversal in the way the world has operated for centuries.

Africa Climate Change & Climate Action

DECEMBER 8 | 12:22 PM GMT+4

The White House’s Amos Hochstein on ensuring energy security amid global crises

By Daniel Hojnacki

Energy security is “not just something we talk about in the context of Russia and Europe on gas,” said Amos Hochstein, senior advisor to the US president for energy and investment, on Thursday. Speaking at the Atlantic Council’s Global Energy Forum in Dubai, he explained that the priority of energy security “has to be the same when it comes to EVs [electric vehicles], lithium, solar panels, and wind turbines.”

Hochstein, who was formerly the US assistant secretary of state for energy resources, discussed the United States’ vision for the future of energy security, the importance of building supply chain resilience as part of the energy transition, and the path forward for regional integration in the Middle East.

Atlantic Council CEO and President Frederick Kempe asked Hochstein whether he thought the United Nations climate change conference known as COP28 in Dubai was divisive or inclusive for its large number of participants, including members of the oil and gas industries. “It’s okay to have disagreements,” Hochstein said. “I don’t think that we should expect that if somebody came here and didn’t agree, then that’s a failure. I think it’s a success that we’re having a conversation.”

Read more highlights from this discussion

New Atlanticist

Dec 7, 2023

The White House’s Amos Hochstein on ensuring energy security amid global crises

By Daniel Hojnacki

At the Atlantic Council Global Energy Forum in Dubai, Hochstein discussed the United States’ vision for the future of energy security.

Economy & Business Resilience & Society

DECEMBER 7 | 9:48 PM GMT+4

Global consensus on climate action is harder amid geopolitical strife

By William Tobin

At COP28, hundreds of countries have gathered to work together to address the climate crisis. Seeing them, here on the ground, one might momentarily forget about much of today’s geopolitical friction and global fragmentation.

But for the sake of the planet and humanity, we must not forget that reality: Meaningful progress on climate goals will only be feasible by accounting for our global context and important issues such as economic and national security.

To achieve the financial infrastructure, investment environment, and supply-chain resilience required to achieve net-zero emissions—all hard to come by with geopolitical friction—it will be important to quickly and widely deploy the full suite of decarbonization technologies that are available: from solar and wind to carbon capture, utilization, and storage. That was a big takeaway from the second day of our Global Energy Forum in Dubai today. On that stage, the White House’s Amos Hochstein argued that such a vast deployment will require both cooperation and economic competition—the latter achieved by better trade systems—ultimately lowering prices and fostering resilience.

There’s more to the context that must be considered, too. High interest rates and persistent inflation around the world are creating headwinds, slowing the deployment of (capital-intensive) clean energy tools. As financial experts and leaders from the Global South explained today at the Forum, counteracting those headwinds—and expanding access to affordable and reliable energy—will require more climate finance.

There is reason for optimism. Every COP is rightly branded as a moment with existential consequences, and COP28 was widely anticipated as the last best chance for action in key areas such as reducing methane emissions, spurring political momentum for the deployment of carbon-management technologies, improving energy finance, and more. There has been progress across these areas, such as the UAE’s launch of a thirty-billion-dollar fund (which aims to, in part, incentivize further investment into the Global South) or through the launch of the Oil and Gas Decarbonization Charter, which has significant potential for emissions reduction (equal to that of the global aviation sector), but does not address emissions from fossil fuel end use.

With war in Ukraine, the Middle East, and Sudan, and with tense relations between countries such as the United States and China, it is clear that consensus among the 198 parties at COP will be elusive. Against this frayed backdrop, the urgency to employ inclusive, science-based climate solutions is higher than ever.

—William Tobin is an assistant director at the Atlantic Council Global Energy Center, where he focuses on international energy and climate policy.

DECEMBER 7 | 6:32 AM GMT+4

Faith at COP, or faith in COP?

For the first time ever, the COP presidency launched a Faith Pavilion this year. This decision signals the responsibility of religious leaders to promote efforts to care for the environment through their faiths. Although absent from COP28 for health reasons, Pope Francis helped set the tone for the Faith Pavilion in a message inaugurating it, stating that “climate change is a religious problem.” Additionally, representatives from various faiths produced the “Interfaith Statement for COP28,” in November, which expressed their shared concern over escalating climate impacts, as well as a joint commitment to address the crisis.

The Faith Pavilion aims to bring together religious leaders, officials, and scientists to discuss the role of faith communities and religious institutions in addressing the climate crisis. Several side events in the Faith Pavilion have demonstrated how various religions, including Islam, Christianity, and Judaism, enforce the notion of being “stewards of the earth.” Other panels looking into faith-based communities globally, including into indigenous communities, spoke about the spiritual connections to nature as humans’ teacher, and humans as nature’s protector. These panels also expressed the idea that nature should have a voice, and that including nature as a stakeholder with legal and legitimate claims is imperative for equity.

The application of these beliefs can have practical consequences; several countries and their lower courts have passed laws ascribing legal rights to nature or individual lands and bodies of water, including Mexico, New Zealand, and India. Ecuador enshrined the rights of nature, or Pachamama (a goddess worshipped by indigenous peoples of the Andes) in its constitution. Other countries are calling for this to be done internationally. Giving nature legal rights internationally would open greater possibilities for holding actors responsible for devastating the environment through pollution from fossil fuels and suing perpetrators for ecocide and crimes against nature.

Religious leaders have also weighed in on some of the most important issues in ongoing climate negotiations. For instance, a group of Catholic nongovernmental organizations came together to create a joint statement calling on leaders of all faiths across the world to show their support for action on loss and damage. The statement stressed the moral case for action on loss damage, drawing on church teaching, scriptures, and ancient wisdom.

This first-ever inclusion of faith at COP in this way is a positive step toward inclusion of all impacted communities and helps provide a voice to the environment through faith and through the communities that aim to preserve it. However, one must pose the question: Have people turned to faith to save them, as they lose faith in the COP process and their governments to do so?

DECEMBER 7 | 4:56 AM GMT+4

City-led solutions have power—but they need funding

By Katherine Walla

Over the course of the first days of COP28, the Local Climate Action Summit took place and the leaders approved plans to operationalize the loss and damage fund—including a commitment to allocate some of the resources to subnational governments.

Those two events are exciting for cities; but they “will never be able to effectively tackle climate change without proper access to finance,” argued Mauricio Rodas, senior advisor for city diplomacy and heat at the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center and former mayor of Quito, Ecuador.

“Now, we need to make sure that cities will be participating in the discussions and decisions about how to make the loss and damage fund operational,” Rodas said.

Get up to speed on the role of mayors and city leaders

In recognition of the power of locally-led solutions, @BloombergDotOrg and the COP Presidency hosted the #LocalClimateActionSummit. @MauricioRodasEC explains its impact and what it means for city-led solutions. https://t.co/AuunaoGlz7 pic.twitter.com/pLkKxAxMMt
— Arsht-Rock Resilience Center (@ArshtRock) December 5, 2023

—Katherine Walla is the associate director of editorial at the Atlantic Council.

DECEMBER 7 | 1:26 AM GMT+4

Fusion is the future (these energy experts mean it this time)

By Frederick Kempe

This entry is part of the “Inflection Points Today” newsletter. To receive more quick-hit insight on a world in transition, subscribe here.

Charles de Gaulle is reported to have wryly said, “Brazil is the country of the future and always will be.” Energy tech geeks have long said the same about fusion—a miraculously clean and safe potential energy source whose breakthrough was always an unchanged thirty years in the future.

But here at the eighth annual Atlantic Council Global Energy Forum (at COP28 in Dubai this year), I witnessed that longstanding claim change in real time as John Kerry, the US special presidential envoy for climate, declared that fusion’s time had come, when the dangerously warming world needs it most.

He announced what he called a US International Engagement Plan for Fusion Energy, which he said would involve thirty-five nations and would focus on research and development, the supply chain and future marketplace, regulation, workforce issues, and public engagement.

“There is potential in fusion to revolutionize our world,” Kerry said, adding, “We are edging ever closer to a fusion-powered reality.” Though no one was willing to set an exact time frame for that, the panel of experts that followed Kerry’s remarks shared his optimism that the time for “the holy grail” of clean energy—as Commonwealth Fusion Systems CEO Bob Mumgaard called it—was growing closer.

As I understand it, fusion (the melding of two or more atomic nuclei to create energy) powers the sun and other stars, so the theory is that earthly scientists and investors ought to be able to replicate that with heat, pressure, lasers, and magnets, producing massive energy. “We are really entering a new era,” said Costas Samaras, who champions this work in the Biden White House; according to him, the private sector has spent six billion dollars trying to take fusion from the lab to the world.

One former fusion skeptic, former US Secretary of Energy Ernest Moniz, told the Global Energy Forum that he has been “blown away by the progress.” At the very least, he said smiling, “I believe the word ‘fusion’ was pronounced from a stage at COP for the first time.”

—Frederick Kempe is the president and chief executive officer of the Atlantic Council.

DAY SEVEN

Why COP28 is right to prioritize global methane and flaring reduction

Climate change and national security can’t be disentangled

Empowering women leaders can open a gateway to cooling solutions

The loss and damage fund is a step forward, but far short of what climate justice demands

John Kerry unveils a ‘critical’ new US strategy to expand fusion energy

How countries are gearing up to cool the planet down

The declaration on climate-smart agriculture is a crucial—but underfunded—step forward

John Kerry unveils a ‘critical’ new US strategy to expand fusion energy

See day six analysis

DECEMBER 6 | 10:50 PM GMT +4

Why COP28 is right to prioritize global methane and flaring reduction

By William Tobin

COP28 has yielded major announcements on lowering methane emissions, particularly from the oil and gas sector. The attention placed on methane at this COP is prudent, because methane is a far more potent greenhouse gas than carbon dioxide, and abating it is cost-effective with current technologies and business models. There is a clear pathway and a necessity to take action now.

Listen below and here for more on methane, then read this recently published report.

—William Tobin is an assistant director at the Atlantic Council Global Energy Center, where he focuses on international energy and climate policy.

DECEMBER 6 | 9:03 PM GMT +4

Climate change and national security can’t be disentangled

By Jonathan Panikoff

It was fitting that both COP27 last year—and now COP28—were hosted in the Middle East. The region is likely to be hit harder by climate change and its impacts than potentially any other across the world. Since 2000, on average, Middle East temperatures have risen by 1.5 degrees Celsius, twice the global increase of 0.7 degrees Celsius. And given the region’s initially hotter and drier climate, in parallel with dwindling water access and rising sea levels, that rise in temperature reflects that the mean global temperature increase of 1.5 degrees Celsius that COP has long highlighted and is fighting to avoid has already hit the Middle East.

Threats to security in the Middle East are often thought of first in the context of Iran or terrorists such as Hamas, Hezbollah, or Shia groups in Iraq and Syria. That is unlikely to change, yet climate change is also coming into the spotlight as a significant.

On Monday and Tuesday, the Atlantic Council’s Scowcroft Middle East Security Initiative joined with Abu Dhabi-based Trends Research and Advisory for our third annual conference, but this iteration was unique. Held in the Green Zone of COP28, this year’s conference was entitled “Sustainable Security: The Soft and Hard Implications of Climate.” The resounding theme that panelists kept coming back to was the fundamental link between climate and the future of US and allies’ national security.

Over the two days of panels and insights from keynote speakers, the impact of global warming on the military, war fighting, operational capabilities, and broader strategic national security was abundant. Sessions that started broad, by addressing political and strategic issues challenging international climate action, and those that delved into the future of climate-financing and the energy transition, all led back to the same result: a need to fundamentally recognize climate change as a broad strategic threat, not just an environmental one.

Changes in weather patterns that are creating stronger, more frequent, and more dangerous hurricanes and storms are a threat to both facilities and operations in the Middle East. The erosion of coastlines is a threat to both US and allied naval facilities. And climate change could drive changes to great power competition with China as Indo-Pacific tensions rise over potentially climate-related changes to fishing stocks, river basins shared by China and a variety of southeast Asian countries, and the requirement for greater humanitarian assistance due to increasing numbers of weather-related natural disasters; assistance that will be fiercely competed for and required by Middle East states as well.

As a result, while US national security is directly impacted by climate change, so too is the economic and national security of Middle East allies who will have to confront rising temperatures and, by extension, dwindling resources, such as storms and drought that create unstable food supply chains, something that Middle East leaders are quite cognizant from recent history can lead to political consequences and even revolutions.

The insights from our conference broadened our understanding of the impact of climate change on national security, but also enabled us to contribute to strengthening efforts aimed at elevating for policymakers the need for sustainable security.

—Jonathan Panikoff is the director of the Scowcroft Middle East Security Initiative at the Atlantic Council’s Middle East Program.

DECEMBER 6 | 2:01 PM GMT+4

Empowering women leaders can open a gateway to cooling solutions

By Katherine Walla

As countries and cities hurriedly search for cooling solutions to protect their populations amid extreme heat, North Dhaka, Bangladesh, is employing a tree planting program in neighborhoods of predominantly informal settlements.

Bushra Afreen, chief heat officer of North Dhaka at the Adrienne Arsht-Rockefeller Foundation Resilience Center, explained that these areas are densely populated, often hosting climate migrants. “These people are already very vulnerable; they have limited resources [and] limited access to shade, income, and trees.”

“Women,” Afreen continued, “are the most vulnerable in these communities; they are on the frontlines of their families when facing extreme heat because they are taking care of everybody else and then themselves.”

“So, I wanted to make them the front line of the solution,” Afreen said. North Dhaka worked with women, she explained, to decide which trees to plant and where to plant them—and to find ways to motivate the community to grow and protect the trees.”

“In doing so,” she said, “we opened a gateway to more cooling solutions and more strategies that will eventually be implemented.”

Dive into how North Dhaka is cooling its community.

Hear from our Chief Heat Officer for Dhaka North Bushra Afreen. She explains how community-led afforestation can protect the neighborhoods most exposed to heat.

Want to hear more? You can watch our Chief Heat Officers talk about climate resilience now: https://t.co/AuunaoGlz7 pic.twitter.com/fa3dSmpUMm
— Arsht-Rock Resilience Center (@ArshtRock) December 5, 2023

—Katherine Walla is the associate director of editorial at the Atlantic Council.

DECEMBER 6 | 1:01 PM GMT+4

The loss and damage fund is a step forward, but far short of what climate justice demands

By Lama El Hatow

On the first day of COP28, the parties agreed to operationalize a loss and damage fund, with initial pledged contributions reaching $725 million as of December 5. While the decision to operationalize the fund was historic, it remains to be seen whether this plan, hurriedly agreed to on the first day of the conference, will provide the necessary support to the affected communities it is meant to help. There is much to be done going forward, including holding polluters accountable and establishing a mechanism for reliable long-term funding that meets the scale of loss and damage that must be addressed.

Much of the language in the decision was watered down by developed countries to escape their responsibility for historical emissions. Going forward, it is essential that polluters be held accountable. There were no references to equity or to Common but Differentiated Responsibilities in the decision. The decision also places developed countries—those most responsible for the emissions changing the climate—in control of almost 50 percent of the fund’s board. Moreover, the pledges for developed countries’ contributions to the fund are “voluntary” rather than obligatory, as the fund only “urges” developed countries to contribute. This raises serious questions about how the fund will be replenished once the initial contributions are disbursed.

Even if developed countries meet their voluntary commitments to the fund, however, it must be noted that the millions pledged for loss and damage so far are a mere drop in the bucket. Billions are needed globally to ensure climate justice to vulnerable communities facing the most severe loss and damage. A report from the International Institute for Environment and Development estimates that up to $580 billion will be needed to help countries facing extreme weather by 2030. Developing countries have argued that the new fund should provide at least one hundred billion dollars annually by 2030. To raise funds more commensurate with the scale of the problem and help ensure this financing can be replenished, Barbados Prime Minister Mia Mottley proposed taxing polluting industries as a source for the fund. She has estimated that her proposed tax rates would provide two hundred billion dollars from oil and gas profits, seventy billion dollars from the value of international shipping, and forty to billion dollars from the international air travel industry annually for the fund. She has also argued that a financial transaction tax could help build resilience in frontline communities.

The fund’s operationalization is a step toward progress, but still falls short of promoting climate justice and placing human rights at the forefront of the climate debate.

DECEMBER 6 | 11:27 AM GMT +4

John Kerry unveils a ‘critical’ new US strategy to expand fusion energy

By Katherine Walla

“We have two options,” Kerry explained. “Either capture the emissions or don’t burn [fossil fuels].”

Read more highlights from Kerry’s remarks

New Atlanticist

Dec 6, 2023

John Kerry unveils a ‘critical’ new US strategy to expand fusion energy

By Katherine Golden

“We need to pull ourselves together with every strength we have,” Kerry said on the first day of the Global Energy Forum.

Africa Climate Change & Climate Action

DECEMBER 6 | 9:35 AM GMT+4

How countries are gearing up to cool the planet down

By Katherine Walla

On Tuesday, sixty-three countries signed a pledge to raise the level of ambition on cooling, as the planet’s temperature continues to rise, and heatwaves become more frequent.

The pledge commits countries to cutting cooling-related emissions and improving access to cooling for people across the globe.

“Cooling is not a luxury. It is a life-saving necessity,” explained Owen Gow, associate director of the Extreme Heat Initiative at the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center.

When expanding access to cooling, countries will need to ensure that it is “sustainable and efficient cooling,” Gow added. “If we increase access to cooling, we need to make sure that it doesn’t accelerate climate change at the same time.”

Eleni Myrivili, global chief heat officer with UN-Habitat and Arsht-Rock, noted that the pledge incorporates subnational governments as well “to make sure the type of cooling they do in their cities is sustainable and efficient.”

Get up to speed on the Global Cooling Pledge.

The pivotal moment for cooling has arrived! @COP28_UAE Presidency, supported by @UNEP & @ActOnCooling, launched the #GlobalCoolingPledge, a commitment to reduce cooling-related emissions. Learn what the Pledge means for #COP28: https://t.co/vkCyErMsCL pic.twitter.com/SWfhJ34YRT
— Arsht-Rock Resilience Center (@ArshtRock) December 5, 2023

—Katherine Walla is the associate director of editorial at the Atlantic Council.

DECEMBER 6 | 5:52 AM GMT+4

The declaration on climate-smart agriculture is a crucial—but underfunded—step forward

By Raul Brens Jr.

While everyone was fixed on the loss and damage breakthrough, few headlines mentioned a global commitment, signed just a day later, to address global food systems and their impact on the climate. Over 130 world leaders signed the COP28 UAE Declaration on Sustainable Agriculture, Resilient Food Systems, and Climate Action; the leaders represent countries that, altogether, are responsible for 76 percent of global food systems emissions. Also announced: a $2.5 billion fund to support food security while the climate-change fight continues.

That there isn’t more attention on this declaration is surprising, considering that the agri-food system counts for a third of all human-induced greenhouse gas emissions. But it is worth noting: The declaration is only the latest sign that the topic of food systems, and the role they play in the climate crisis, is becoming more and more prominent at COPs.

In addition, the declaration has managed to unite countries despite geopolitical tensions today, showcasing global solidarity around the health of the planet and the wellbeing of future generations. For example, the United States and China are signatories—however, some key significant emitters, such as India, have not signed on, indicating that challenges remain in ensuring broader alignment.

Succeeding in the commitment to future-proof the food system will require countries to focus on climate-smart agriculture techniques that improve crop and land resilience and reduce greenhouse gas emissions from farming—all while increasing agricultural output. Climate-smart agriculture harnesses technologies ranging from Earth observation satellite systems (to monitor crop conditions) to genome editing tools that help develop resilient crop varieties.

Deploying these climate-smart technologies raises challenges around access and cost, especially for low- and middle-income countries. The signatories must work together to ensure that technology is shared and developed fairly and collaboratively. It is especially important that developed and developing nations join in this work, to achieve truly sustainable and resilient global food systems.

But the declaration may need to reassess one thing: its funding. While $2.5 billion is a noteworthy start, it doesn’t accurately match the scale of the challenge the world faces in reforming global food systems—especially if the sum winds up being spread over several years. In comparison, a United States and United Arab Emirates joint initiative called Agriculture Innovation Mission for Climate (AIM for Climate) has mobilized over eight billion dollars in investment across fifty-five partner countries.

The declaration represents a crucial step forward in global climate efforts. However, the journey ahead demands sustained commitments and increasing financial investment to truly realize the goals of the Paris Agreement.

—Raul Brens Jr. is the deputy director and a senior fellow at the Atlantic Council’s GeoTech Center.

DAY SIX

A familiar concern—but with new urgency

See day five analysis

DECEMBER 5 | 5:14 PM GMT+4

A familiar concern—but with new urgency

By Jorge Gastelumendi

COP28, with its many pledges and announcements, certainly has plenty that is new. But there’s also a sentiment here on the ground that is rather familiar: Concern about the fact that public finance is not even close to covering worldwide needs for adaptation funding.

Reaching the levels of financing necessary to do so will require “unlocking global capital markets.” Putting all those technical terms aside, what it really comes down to is having policies that support the development of adaptation and resilience markets and having policymakers and private finance leaders that talk to each other. Bringing together these actors will drive transformative collaboration.

Yesterday, with our partners, the Adrienne Arsht–Rockefeller Foundation Resilience Center launched the first-ever Call for Collaboration, calling upon policymakers and the banking, investment, and insurance sectors to work together to improve the investment environment and, in so doing, mobilize more private finance. It is backed by five governments from developed and developing countries; on top of that, leaders and thinkers from private finance, academia, and over thirty governments helped shape this call.

Like many issues related to the changing climate, adaptation and resilience funding requires all hands on deck. Fortunately, with all the momentum on this issue that I’ve seen here in Dubai, there has never been a better moment to collaborate and advance urgent action on this front.

And here’s a sneak peek at next year’s COP: We will mobilize even more players in the climate finance space—private finance actors, regulators, policymakers, and philanthropic organizations (who launched a Call to Action at this COP for accelerating climate adaptation). Their participation will be needed to create public policies that support adaptation finance and set much-needed standards.

—Jorge Gastelumendi is the interim director of the Atlantic Council’s Adrienne Arsht–Rockefeller Foundation Resilience Center.

Get up to speed on the Call for Collaboration

DAY FIVE

Trade is starting to have its say in the COP process—at last

A big idea to address the biggest killer of the climate crisis

Solar is surprisingly out of the spotlight at COP28, as Saudi Arabia and China show

See day four analysis

DECEMBER 4 | 11:12 PM GMT+4

Trade is starting to have its say in the COP process—at last

By Reed Blakemore

If you want a “watch this space” recommendation coming out of COP28, look no further than Monday’s theme, “Trade Day”—the first time a COP thematic day has been devoted to the role of trade in the energy transition. Smatterings of urgently needed conversations on critical minerals and decarbonizing trade value chains have begun to find their place this year.

These “operating system” features of a Paris-aligned world are going to demand more attention. Yet outside of these issues being highlighted through panels and discussion (an important start), the inaugural Trade Day yielded few real action items.

It’s still the early days of the conference, but the trade space must be front and center, as World Trade Organization President Ngozi Okonjo-Iweala said on Saturday at COP28. Global trade is directly responsible for 20 to 30 percent of global CO2 emissions (strictly as a reflection of international freight), while embodied carbon in widely traded goods (specifically energy-intensive trade-exposed goods) remains a huge challenge for industry to curb. Reaching climate targets requires the development of a new resource base to build clean energy technologies, demanding that markets in which those resources are traded mature. International carbon markets, meanwhile, remain a long-awaited, but unfulfilled ambition of the Paris Agreement.

The challenge, however, is that the economic opportunities of the energy transition have overlaid a competitiveness agenda on top of the climate action imperative. Many in the United States and the European Union are wary of what China’s dominance in mineral supply chains means for economic and national security in a net-zero world. In the absence of global markets for carbon, countries are seeing carbon border adjustments (or similar mechanisms) as ways to nominally support low-carbon industries, but in doing so, they are throwing up barriers to trade. The opportunities inherent in the “global green economy” are creating a race for countries to lead in clean tech industries to seize both emerging labor and export markets, bringing an increasingly protectionist hue to energy policy.

Perhaps most critical is whether the lack of attention to these issues is complicating efforts of a “just and equitable energy transition.” Concerns that Europe’s Carbon Border Adjustment Mechanism, and the proliferation of other similar measures, might undercut the economic development of the Global South where many energy-intensive trade-exposed goods are manufactured, but decarbonization is still very much underway. Many mineral-rich nations are eager to shed the “resource-client” relationship with the Global North, yet they are concerned (if not frustrated) with the possibility that they will end up exporting cheap ores that are transformed and re-imported as expensive renewable energy technologies.

Simply put, whether the energy system is being transformed or built anew, geoeconomics matter. And even if it doesn’t take center stage at COPs to come, trade will have its say in the climate future.

—Reed Blakemore is director for research and programs at the Atlantic Council Global Energy Center, where he is responsible for the center’s research, strategy, and program development.

On Tuesday, December 5, at 2:00 pm in Dubai (GMT+4) (5:00 am ET) check out “Remaking trade for a clean energy future,” a discussion on this topic live from the Green Zone at COP28.

DECEMBER 4 | 10:56 PM GMT+4

A big idea to address the biggest killer of the climate crisis

By Frederick Kempe

This entry is part of the “Inflection Points Today” newsletter. To receive more quick-hit insight on a world in transition, subscribe here.

Where former US Secretary of State Hillary Rodham Clinton goes in Dubai this week, she draws a crowd.

People from all corners of the world packed the room, and it was standing room only at our COP28 Resilience Hub, where she held court as the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center (Arsht-Rock) ambassador for heat, health, and gender.

“Extreme heat has to be viewed as one of the most dangerous results of the changing climate,” she said, recounting a trip to India, where she saw the harm done to livelihoods, particularly those of women working outdoors as farmers, street vendors, waste collectors, and salt pan and construction workers. “This is not just a health issue,” Clinton warned. “It’s an economic issue, a social issue, [and] a political issue.”

Working with Clinton and with Reema Nanavaty, director of the nearly three-million-member Self-Employed Women’s Association, the Atlantic Council has been implementing a parametric insurance program as a part of Arsht-Rock’s Extreme Heat Protection Initiative. This program protects women working in India’s informal sector from having to make an impossible choice: pausing their work during heat waves (to protect their health) or continuing to work and earn money, while putting their wellbeing at risk.

What has been winning the headlines here so far at this twenty-eighth United Nations Climate Change Conference has been the announcement on the first day of a landmark, $400-milllion loss and damage fund, a mechanism that provides financial assistance to the countries most affected by, but often least responsible for, the climate crisis. There has also been media attention on the hydrocarbon companies that have come to this conference in greater numbers than ever before—many with concrete commitments and plans to reduce emissions.

With over seventy thousand delegates and observers at COP28, actions that aim to improve lives—such as insurance programs to support workers in the informal economy, many of them women—deserve notice. For these workers especially, “their lives and livelihoods are at stake,” said Eleni Myrivili, the global chief heat officer for United Nations-Habitat and Arsht-Rock.

—Frederick Kempe is the president and chief executive officer of the Atlantic Council.

DECEMBER 4 | 10:10 PM GMT+4

Solar is surprisingly out of the spotlight at COP28, as Saudi Arabia and China show

By Joseph Webster

Until recently a star at climate-focused conferences, solar energy is being upstaged at COP28 in Dubai by other decarbonizing technologies: namely, nuclear energy and methane abatement. Deploying more nuclear energy and cutting methane emissions will help reduce carbon emissions, but the world should not lose sight of solar’s transformative potential. The global glut of solar panels and the Middle East’s lack of solar deployment presents an enormous opportunity to quickly achieve huge climate benefits. While government leaders at COP28 pledged to triple the world’s renewable energy capacity by 2030, it will be very difficult to reach this target without Middle Eastern participation, especially from Saudi Arabia, the region’s largest economy.

Saudi Arabia is arguably one of the world’s best places to build solar, given its abundant solar irradiance, deep financial reserves, and significant land mass. Yet the country has traditionally been a laggard at deploying the technology.

Saudi Arabia generated only 0.8 terawatt hours of solar electricity in 2022, about as much as the US state of Iowa. Saudi Arabia will not even approach its modest 2023 renewables capacity target of 27.3 gigawatts (GW) (20 GW of solar photovoltaics and 7 GW of wind), according to S&P Global, as less than 3 GW of renewables capacity were operational in August 2023.

The obstacles to Saudi solar deployment appear to be political, not technical. While deploying solar in the desert is not without challenges, including distance from demand centers, transmission siting, and dust storms, these obstacles have not prevented desert projects from taking shape across the world—including in China. Earlier this year, the first phase of a massive solar project in the Tengger Desert started generating power.

If Saudi Arabia turned to solar, the kingdom and the world could reap immense benefits. Solar farms tend to require little water after installation, especially compared to other resources; renewables don’t produce air pollutants; and some studies show that utility-scale solar in the desert can increase precipitation and vegetation coverage. Finally, Saudi Arabia’s failure to deploy solar harms its own economic interests, as it could allow fuel oil to be exported rather than burned for the domestic power market. Astonishingly, fuel oil accounted for 39 percent of Saudi Arabia’s power mix in 2021. At the Green Initiative Forum at COP28, the Saudi Minister of Energy identified carbon capture technology and renewables, apparently in that order, as the kingdom’s net-zero priorities.

There is some movement. For example, Saudi Arabia is launching more utility-scale solar and is in advanced talks to open a solar factory. Still, the kingdom’s solar ambitions remain very limited. The region’s dawdling pace of solar deployment comes at a huge cost—most of all for itself, but also for the world.

Even more surprising is that the lack of buzz around solar at COP28 extends to major solar producers. Despite its own dominant position in solar value chains, China doesn’t appear to be advertising its solar exports at COP28 in Dubai. China’s pavilion at COP features the China State Construction Engineering Corporation, which has weak ties to solar project development. The pavilion at COP doesn’t prominently showcase China’s solar suppliers, and so far, the author hasn’t seen Chinese solar companies represented (although the convening is very large).

—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center, where he leads the center’s efforts on Chinese energy security, offshore wind, and hydrogen.

DAY FOUR

This is the biggest COP ever—for more reasons than one

Fifty oil and gas companies just announced plans to cut methane emissions. Can they do it?

A plan to triple nuclear energy was just announced. Here’s what to know.

Hillary Clinton, Reema Nanavaty, and Eleni Myrivili on gender-responsive solutions for extreme heat

See day three analysis

DECEMBER 3 | 11:24 PM GMT+4

This is the biggest COP ever—for more reasons than one

By Aubrey Hruby

On the fourth day of COP28, I can’t help but notice how big the convening has become. Over seventy thousand people (me included) have descended on Dubai for a week of meetings—official and unofficial—on climate and the future of finance. This is about a 40 percent increase from COP27 in Sharm el Sheikh, Egypt, and about an 80 percent increase from COP26 in Glasglow, Scotland.

There’s some irony to the fact that so many people who gathered here to talk about global climate change and environmental damage arrived by plane (some even by private jet) and are now sitting in cars in heavy traffic and squinting through pollution in Dubai. On the ground, it has been suggested that countries—particularly big ones with large populations (and COP delegations)—should limit the number of representatives they bring so as to not overwhelm and disadvantage the smaller nations that cannot field such large teams.

Another thing that is big about this COP: The United Arab Emirates’ (UAE) announcement yesterday of a thirty-billion-dollar fund that will invest in climate-resilient infrastructure projects with a focus on the Global South. This will likely help offset criticism the UAE received in the leadup to the convening for planning to use COP as a platform to discuss future oil deals. But, importantly, the new fund overshadows the smaller commitments made by developed countries to help developing countries address the loss and damage caused by climate disasters

In addition, at this COP, the list of topics is bigger. For example, more than twenty countries committed to triple nuclear energy production, and discussions about the future of critical mineral supply chains are currently underway, highlighting the critical role that African countries play in ensuring that green-energy industries are more resilient and diversified globally.

In global climate discussions, the issues of justice and hypocrisy are at the forefront as those countries that have emitted the least greenhouse gases historically—particularly African nations—are suffering the most from the carbon-intensive growth that fueled wealth accumulation in developed markets. Calls to completely phase out fossil fuels fail to recognize the economic and social realities of many developing countries that have a dual imperative: They must grow green while somehow simultaneously reducing poverty through job creation and increasing reliable access to electricity for hundreds of millions of people. It’s a complex challenge that requires respect, reframing, and massive resources.

—Aubrey Hruby is a nonresident senior fellow with the Atlantic Council’s Africa Center and leader of the Center’s work on climate and energy issues.

DECEMBER 3 | 10:41 PM GMT+4

Fifty oil and gas companies just announced plans to cut methane emissions. Can they do it?

By William Tobin

At the opening of the COP28 conference, United Nations Framework Convention on Climate Change Executive Secretary Simon Stiell said this was the “most significant COP since Paris,” referring to COP21, where 196 parties signed a legally binding treaty to address climate change and keep global warming levels to below 2 degrees Celsius.

In order to keep the vision of Paris alive and reach net-zero by the middle of the century, COP28 is being viewed by many here in Dubai as the absolute last opportunity available to tackle one of the most potent contributors to global warming: methane, particularly from the oil and gas sector.

Methane is responsible for at least 30 percent of global warming in the past two hundred years, and perhaps more. Cutting methane emissions from all sectors—including oil and gas, agriculture, and waste—could avoid over 0.2 degrees Celsius of warming by 2050. This is because methane is a short-lived climate pollutant, meaning its shelf life in the atmosphere is rather brief, but its warming impact is more than eighty times that of carbon dioxide in a twenty-year time span.

Thankfully, methane emissions from oil and gas can be brough to near-zero with available technologies and business models—in fact, around 40 percent of reductions can be achieved at no net cost.

The opening weekend of COP28 presents a moment for celebration, as perhaps the most impactful initiative in years of pledges has been launched: the Oil and Gas Decarbonization Charter (OGDC).

While the value of such a charter may be counterintuitive, remember that emissions from oil and gas operations account for 15 percent of all emissions—more than all emissions from cars globally, for example—roughly half of which is methane. The OGDC, through its fifty signatories, covers 40 percent of global oil production, offering a window to make substantial, tangible, and verifiable greenhouse gas emissions reductions. The OGDC commits signatories to end routine flaring (wasteful combustion of methane gas) and achieve near-zero upstream methane emissions by 2030. Achieving these emissions reductions from charter signatories would be approximately equivalent to zeroing out emissions from aviation worldwide. Furthermore, the OGDC signatories have committed to being transparent through monitoring, reporting, and independent verification of emissions.

The OGDC is no less significant in the substance of its commitments, however, versus its reach. Critically, the group of fifty signatories includes twenty-nine national oil companies. These entities control more than half of global oil production and a higher proportion of methane emissions. Through signing this pledge, the national oil companies are articulating a desire to play a constructive role in emissions mitigation, several for the first time. Having these companies at the table is a significant expansion in ambition within the sector. It paves a way to constructive engagement and sharing of best practices to realize the goal of bringing methane emissions to near-zero, as is required to reach net-zero by the middle of the century.

Achieving net-zero emissions will require the deployment of vast amounts of renewable and clean electricity generation, the electrification of end uses, reform of land use, rapid increase in carbon capture and removal, increases in energy efficiency, and much more. However, in the short term, slashing methane emissions from oil and gas is a highly constructive deliverable, and this announcement at COP28 has shown a reason to be optimistic. However, as is always the case with ambitious plans, implementation is what matters most.

—William Tobin is an assistant director at the Atlantic Council Global Energy Center, where he focuses on international energy and climate policy.

DECEMBER 3 | 8:28 PM GMT+4

A plan to triple nuclear energy was just announced. Here’s what to know.

By Jennifer T. Gordon

With energy demand projected to triple by 2050, the recent pledge at COP28 by the United States and more than twenty countries to triple nuclear energy is a welcome development in the fight against climate change. Although nuclear energy only accounts for 10 percent of global electricity generation, it provides 30 percent of global low-carbon electricity. The amount of nuclear energy generation will have to increase in order to meet increased energy demand through clean, baseload power. Looking beyond the grid, nuclear energy has a crucial role to play in decarbonizing so-called “hard-to-abate sectors”—areas such as hydrogen production, desalination, process heat, mining, and shipping—in which it is particularly difficult to reduce emissions.

Furthermore, the significance of this announcement occurring at COP28 cannot be underestimated. Previous COP meetings have tended to leave nuclear energy on the sidelines, and an announcement of this magnitude in the early days of the world’s premier climate conference can be interpreted as recognition of nuclear energy’s tremendous decarbonization benefits. This international recognition could help gain support in various countries for technology-neutral policies that incentivize the use of zero-carbon energy, with nuclear energy continuing to be included in legislation such as the Inflation Reduction Act in the United States or the European Union’s Green Taxonomy.

However, while the pledge to triple nuclear energy is a positive step, more needs to be done in order to deploy nuclear reactors globally and at scale. For example, the United States and like-minded countries will need to cooperate on financing to compete effectively against state-owned nuclear enterprises in Russia and China; regulatory collaboration is also key to minimizing time and costs. Ultimately, for the fight against climate change to succeed, more barriers to nuclear energy deployment must fall.

—Jennifer T. Gordon is the director for the Nuclear Energy Policy Initiative at the Atlantic Council’s Global Energy Center. She was a co-director of the Atlantic Council Task Force on US Nuclear Energy Leadership, and she currently runs the Atlantic Council’s Women in Energy and Climate Fellowship.

DECEMBER 3 | 5:17 PM GMT+4

Hillary Clinton, Reema Nanavaty, and Eleni Myrivili on gender-responsive solutions for extreme heat

By Daniel Hojnacki

“Extreme heat has to be viewed as one of the most dangerous results of the changing climate,” said former US Secretary of State Hillary Clinton on Sunday at a COP28 Resilience Hub discussion on the need for gender-responsive climate solutions to address extreme heat. The panel was hosted by the Atlantic Council’s Adrienne Arsht-Rockefeller Foundation Resilience Center (Arsht-Rock).

Clinton was joined by Reema Nanavaty, director of the Self-Employed Women’s Association (SEWA), a trade union promoting the rights of independently employed female workers in India. In February, the Clinton Global Initiative and SEWA, along with several other organizations, launched the Global Climate Resilience Fund to empower women to combat climate change and adapt to extreme heat. The panel was moderated by Eleni Myrivili, the global chief heat officer for United Nations-Habitat and Arsht-Rock.

Clinton said that as the world works to advance climate mitigation efforts, “we have to worry about what’s happening on the ground with so many people, in particular women.”

Hillary Clinton, Reema Nanavaty, and Eleni Myrivili on gender-responsive solutions for extreme heat

By Daniel Hojnacki

At an Atlantic Council event at COP28, the former US secretary of state discussed the importance of empowering women to develop innovations for extreme heat resilience.

Economy & Business Resilience & Society

DAY THREE

Africa’s priorities at COP28, from climate finance to a brand-new narrative

A landmark thirty-billion-dollar fund for global climate solutions

See day two analysis

DECEMBER 2 | 9:47 PM GMT+4

Africa’s priorities at COP28, from climate finance to a brand-new narrative

By Africa Center experts

On the first day of the United Nations Climate Change Conference (also known as COP28) in Dubai, global leaders reached a deal on where to house and how to fund loss and damage costs for the countries most vulnerable to climate change. It’s an important development for African stakeholders, who are concerned about the escalating impact of climate change on the continent. As African heads of state and government wrote in their Nairobi Declaration—adopted at the Africa Climate Summit in September—the continent is warming faster than the rest of the world, despite it being responsible for a small fraction of global carbon emissions. These changes will gravely impact the continent’s economies and societies.

But will COP28 give Africa the attention it deserves on other climate needs? Our experts, some of whom are headed to Dubai, outline what is at stake for Africa.

Read our experts’ responses

AfricaSource

Dec 2, 2023

Africa’s priorities at COP28, from climate finance to a brand-new narrative

By the Africa Center

Our experts outline what is at stake for Africa at the UN Climate Change Conference in Dubai.

Africa Climate Change & Climate Action

DECEMBER 2 | 8:16 AM GMT+4

A landmark thirty-billion-dollar fund for global climate solutions

By Mahmoud Abouelnaga

On Friday, COP28 host, the United Arab Emirates, launched a thirty-billion-dollar climate fund to bridge the climate finance gap globally and facilitate climate investment flows into the Global South. The new climate fund will aim to stimulate $250 billion by 2030.

This thirty-billion-dollar private investment fund, Alterra, is now the world’s largest private investment fund dedicated to addressing the climate crisis. For comparison, it took the United Nations’ Green Climate Fund (GCF) almost ten years to mobilize less funding through the initial resource mobilization in 2014, the first replenishment in 2019, and the second replenishment in 2023.

Alterra will be split into a large fund of twenty-five billion dollars that will deploy capital globally with the aim to accelerate the transition to a net-zero economy by scaling climate investments, and a smaller fund of five billion dollars that can remove barriers and incentivize investment flows into the Global South.

This announcement came after countries agreed on the operationalization of the loss and damage fund to help the adversely vulnerable developing countries cope with climate impacts. While the $420 million loss and damage pledges gave a good signal for progress, they are not commensurate with the scale of the costly climate disasters borne by poor countries. Unlike the loss and damage pledges, the new private investment commitments are proportional to the needed scale to address the climate crisis.

Going forward, the new climate fund will need a rigorous and transparent climate impact framework to ensure that these investments are deployed at the needed speed and scale to align with global climate targets. This framework should establish clear criteria for these investments (such as emissions reductions, impacts on local communities, deployment of large-scale projects, and the reducing of costs of innovative climate solutions) to align with global climate targets.

—Mahmoud Abouelnaga is a nonresident senior fellow at the GeoTech Center of the Atlantic Council and leads the carbon management portfolio at the Center for Climate and Energy Solutions (C2ES).

Note: This piece was edited to provide more detail on the author’s recommended framework.

DAY TWO

Why India could play a pivotal role as climate mediator

Can climate leaders maintain the momentum?

See day one analysis

DECEMBER 1 | 10:12 PM GMT+4

Why India could play a pivotal role as climate mediator

By Rachel Rizzo and Théophile Pouget-Abadie

As Indian Prime Minister Narendra Modi prepared for a historic visit to Washington, DC this year, Apple CEO Tim Cook made a journey in the other direction: He flew to Mumbai to celebrate Apple’s twenty-five-year presence in the South Asian nation. “I really feel that India is at a tipping point,” Cook declared, joining the ranks of business leaders and economists who have spent the last three decades forecasting that the twenty-first century will belong to India.

If it’s true that this is the “Indian century,” it is not just because the country is now the most populous on Earth and on track to become the world’s largest economy; it is because India will play a central role in the global energy transition.

India’s success in this area will be measured by a few obvious targets: its ability to bring down emissions domestically, the example it sets for how other nations of the Global South can undergo their own successful energy transitions, and India’s ability to partner with other nations on climate solutions.

But there may be another just as important, but less obvious, role for India to play: an unofficial mediator between the United States and China to ensure global international decarbonization targets remain in reach amid intensifying competition. The United Nations (UN) Climate Change Conference, also known as COP28—taking place only months after India hosted the Group of Twenty (G20) Summit in New Delhi—is a good opportunity for India to begin to flex its climate muscles on the world stage.

New Atlanticist

Dec 1, 2023

Why India could play a pivotal role as climate mediator

By Rachel Rizzo, Théophile Pouget-Abadie

COP28 is a good opportunity for India to begin to flex its climate muscles on the world stage.

China Climate Change & Climate Action

DECEMBER 1 | 3:35 PM GMT+4

Can climate leaders maintain the momentum?

By Landon Derentz

After a year of painstaking negotiations and debate, COP28 kicked off with a breakthrough.

That’s because on day one of COP28—and only one year since countries agreed at COP27 to establish a “loss and damage” fund—countries raked together more than $425 million to help developing economies cope with the adverse effects of climate change. The United Arab Emirates and Germany, most notably, each pledged $100 million.

The news of the funding signals that real progress remains possible within the confines of the formal negotiation process. Yet, the fund remains well short of the hundreds of billions—not millions—of dollars that the United Nations estimates will be necessary to address the fallout of inevitable near-term climate disasters. It’s a stark reminder of why it is important to pursue all pathways to keep the global temperature rise within 1.5 degrees Celsius.

With that breakthrough behind us, all eyes should now turn to December 2. Saturday’s announcements are likely to be big: Don’t be surprised to see declarations on tripling the deployment of nuclear and renewable energy, progress on the formation of a global methane fund, and momentum in the establishment of an Oil and Gas Decarbonization Charter. This charter will outline how over fifty oil and gas companies intend to spur climate action for the sector. It’s the best chance for the United Arab Emirates—which has faced skepticism about its ability to galvanize action to reduce the energy sector’s greenhouse gas emissions—to prove the veracity of its vision for COP28. That vision: Industry can breathe new life into the COP process by helping to catalyze action towards achieving national climate goals.

The next few days are an important litmus test for the United Arab Emirates’ credibility in hosting the climate conference.

—Landon Derentz is senior director and Morningstar Chair for Global Energy Security at the Atlantic Council Global Energy Center.

DAY ONE

An early deal brings signs of hope for COP28

Long-term climate financing remains elusive. A NATO-style spending target could help.

Kicking off with a bang on loss and damage

COP28 is here. These are the Global South’s demands and expectations.

NOVEMBER 30 | 8:12 PM GMT+4

An early deal brings signs of hope for COP28

By Sabrina Nagel

The first day of COP28 has opened with a historical deal: The parties agreed on the implementation of the loss and damage fund that was first announced last year at COP27. While parties agreed at COP27 to create the fund, it was unclear where the fund would be located and how much money developed countries would commit to it.

Now, with this new announcement, countries are beginning to commit to the fund. The United Arab Emirates and Germany each committed one hundred million dollars, while the United States and Japan have also contributed. The fund is central to climate justice for the countries that have contributed the least to climate change but are the most vulnerable to its effects.

Only weeks ago, negotiators and world leaders expected COP28 to be a difficult climate conference with uncertainty and disagreements about how the fund should be implemented and operationalized. Nevertheless, this early deal on the loss and damage fund will set the scene for hopeful negotiations as the week continues.

—Sabrina Nagel is senior advisor for global policy and finance at the Adrienne Arsht-Rockefeller Foundation Resilience Center

NOVEMBER 30 | 7:45 PM GMT+4

Long-term climate financing remains elusive. A NATO-style spending target could help.

By Francis Shin and Théophile Pouget-Abadie

At the 2006 Riga summit, NATO leaders made a pledge to spend 2 percent of their gross domestic product (GDP) on defense. This moment marked a significant shift for the alliance, offering a way to both measure political will and ensure that existing and new members meaningfully contributed to the Alliance’s efforts. The target is remarkably simple: It essentially tracks members’ defense ministry budgets. Could the establishment of a spending target for the energy transition spark a similarly significant global shift?

Decarbonizing has emerged as one of most important tools for the European Union (EU) to ensure its long-term security and sovereignty: both to address the physical risks stemming from climate change and to reduce oil and gas dependencies, particularly on Russia. So far, European member states have committed insufficient funds to meet their decarbonization objectives. The European Commission estimates that an additional seven hundred billion euros of combined public and private investment is needed each year across the entire EU bloc to meet its energy transition targets and combat climate change.

Europe is currently far off track, with a spending gap equivalent to 0.73 percent of the EU’s GDP for non-transport investment and public spending, or about 101 billion euros. All but two EU countries (Lithuania and Czechia) have national spending gaps incapable of being filled by EU spending alone due to these members not having enough grants available to them. While the EU has set ambitious energy-transition goals through programs such as NextGenerationEU, the European Green Deal (and the associated Fit for 55 package), and the REPowerEU Plan, it now needs the means to finance them.

To turn the tide, EU members and like-minded allies should set national-level climate spending targets, based on a percentage of their respective annual GDPs, to address these deficits. Within Europe, a climate spending target would put pressure on countries that have expressed reservations about joining in EU-level decarbonization goals. Poland, which retains the most reliance on coal for its energy needs, suggested that it would appeal against the Fit for 55 program, raising concern among other EU members on how staunchly committed Poland might be to cut carbon emissions.

Agora Energiewende and the European Commission concluded the overall annual GDP percentage investments required for hitting existing 2030 carbon emissions targets was 2.5 percent. That’s where discussions should start.

Of course, EU members’ needs will vary. Countries that haven’t spent as much on their energy transitions—or that are still reliant on fossil fuels—will need to spend more to address decarbonization deficits and improve electricity grids. And while some countries have already spent significant amounts and are closer to reaching their decarbonization goals, they should still seek to meet the 2.5 percent target, instead directing the funds to developing countries or international climate-change mitigation projects. This would express solidarity with fellow EU members as well as encourage decarbonization beyond Europe itself.

—Francis Shin is a research assistant at the Atlantic Council’s Europe Center. Théophile Pouget-Abadie is a nonresident fellow with the Atlantic Council’s Europe Center and a policy fellow with the Jain Family Institute

NOVEMBER 30, 2023 | 6:27 PM GMT+4

Kicking off with a bang on loss and damage

What should climate watchers take away from day one of COP28? “Movement and progress,” Jorge Gastelumendi, interim director of the Adrienne Arsht-Rockefeller Foundation Resilience Center, tells us from Dubai.

Before the first day closed, countries were able to reach a deal on a loss and damage startup fund, with both the United Arab Emirates and Germany pledging one hundred million dollars to offset disaster-induced costs in vulnerable countries.

It will also create an “open window” for insurance companies to support developing countries, Gastelumendi notes.

Watch more

WATCH | On the ground in Dubai, @ArshtRock’s @Gasteluj shares the latest insights from #COP28 about the launch of a new loss and damage fund for developing nations on the first day of the conference. #ACatCOP28 pic.twitter.com/rdVUJmj8N5
— Atlantic Council (@AtlanticCouncil) November 30, 2023

NOVEMBER 30 | 10:37 AM GMT+4

COP28 is here. These are the Global South’s demands and expectations.