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Rising interest rates were hampering efforts to decarbonize energy supplies and electrify transportation, housing, and other key sectors.
Federal Reserve Chair Jerome Powell on Wednesday announced that the Federal Open Market Committee is lowering the federal funds rate by 50 basis points, yielding an effective rate of 4.88%. Finally. The Fed should have provided interest rate relief months ago. While this overdue move is welcome, we must reiterate that Powell’s deferral of interest rate cuts has hurt the clean energy transition and inflicted other economic harms.
I wrote at length about this problem in January 2024:
It has become ever more apparent over time that rising interest rates are hampering efforts to decarbonize energy supplies and electrify transportation, housing, and other key sectors. High interest rates have had the dual effect of rolling back productive investment and lowering consumer demand, causing substantial drops in the stocks of major solar, wind, and other renewables-based companies; undermining the deployment of offshore wind projects; delaying the construction of electric vehicle (EV) factories; and slowing the installation of heat pumps.
In effect, Powell is exercising veto power over the Inflation Reduction Act and ruining “the economics of clean energy,” as David Dayen explained recently in The [American] Prospect. President Biden’s signature climate legislation contains hundreds of billions of dollars in subsidies for green industrialization, but repeated interest rate hikes have driven up financing costs enough to outweigh them. As Dayen noted, this is especially the case because the law’s reliance on tax credits requires upfront investment decisions.
Last month, Dominik Leusder explained why rate hikes have been particularly destructive for the green transition. Leusder drew attention to the capital-intensive nature of renewable power projects, which “tend to trade lower operating costs (the input into wind farms and solar plants is ‘free’) against higher (in relative terms) up-front costs.” As he noted:
By one estimate, 70% of the expenditure for an offshore wind farm derives from capital costs, compared to 20% with a gas turbine plant. This means that the vast majority of IRA-related projects require a lot of debt-financed spending up front. As the cost of the debt increases with higher interest rates, so does the levelized cost of energy (LCOE), a measure of the average cost of producing a unit of energy (kilowatt- or megawatt-hour) over the lifetime of the plant. And it does to a greater degree with renewables, the swift adoption of which is premised on them being cheap and profitable for investors.
As a result, a lot of the much-needed expansion in renewables capacity and storage—which is highly time-sensitive given the escalating effects of the climate crisis—is offset until borrowing costs adjust to the point where new projects become viable. What is more, while rates are high, the larger and better capitalized firms can gain a higher market share. Their deeper balance sheets also make it easier to accept higher borrowing costs now in the hope of refinancing these loans at lower rates later. The concentration of market power in the renewables sector would have all the usual implications for consumer welfare and innovation, the latter being seen as key to the energy transition.
His essay goes on to detail the devastating global impacts of the Fed’s monetary austerity, which hits developing countries especially hard, and is worth reading in full. At home, Powell’s maintenance of a higher-for-longer interest rate environment has also exacerbated the housing affordability crisis.
Ironically, raising the cost of borrowing did little to alleviate inflation (the stated reason for the rate hikes). This should come as no surprise. The cost-of-living crisis of 2021 to 2024 wasn’t the result of a wage-price spiral of the kind that neoliberal economists like Larry Summers and Jason Furman said can only be contained through demand destruction (i.e., engineering higher unemployment). Instead, as I wrote earlier this year:
[I]t was fueled by sellers’ inflation, or corporate profiteering, and exacerbated by the elimination of the pandemic-era welfare state. When the onset of Covid-19 and Russia’s invasion of Ukraine upended international supply chains—rendered fragile through decades of neoliberal globalization—corporations bolstered by preceding rounds of consolidation capitalized on both crises to justify price hikes that outpaced the increased costs of doing business. That safety-net measures enacted in the wake of the coronavirus crisis were allowed to expire only made the situation worse.
Given that the recent bout of inflation “is inseparable from preexisting patterns of market concentration, progressives have argued against job-threatening rate hikes… and for a more relevant mix of policies, including a windfall profits tax, stronger antitrust enforcement, and temporary price controls,” I pointed out. “Unlike the blunt instrument that Powell has been wielding ineffectively, those tailored solutions—the last two of which are within the Biden administration’s ambit—have the potential to dilute the power of price-gouging corporations without hurting workers.”
It’s noteworthy that during Powell’s August 2024 speech at the annual gathering of central bankers in Jackson Hole—where he signaled Wednesday’s pivot on monetary policy—the Fed chair excluded any mention of how the consolidation of corporate power contributed to rising prices in his explanation of the latest inflationary period.
This is significant because the Fed’s traditional inflation-fighting tool (i.e., raising interest rates to increase unemployment until demand and prices decrease) is ill-suited to confront our worsening polycrisis. It couldn’t effectively combat the supply shocks and corporate profiteering underlying the 2021-2024 cost-of-living crisis (disinflation occurred without mass joblessness despite Powell’s actions, not because of them). It also cannot solve cost-of-living struggles stemming from the fossil fuel-driven climate crisis.
The Roosevelt Institute’s Kristina Karlsson and Lauren Melodia showed in a 2022 paper that besides warming the planet, fossil fuel-based energy systems are inherently price volatile and a significant driver of inflation. The upshot is that shifting from coal, oil, and gas to renewables can permanently lessen inflationary pressures. Dovish monetary policy can help propel investment in wind, solar, and other green power sources.
"Our report clearly lays out the way carbon capture tax credits rig the system in favor of the oil and gas industry to the tune of billions of dollars," one expert said.
As the U.S. moves to invest in climate solutions, is the money going toward projects that will meaningfully reduce emissions and transition the nation's energy system away from fossil fuels?
A report released Wednesday by worker-owned corporate accountability and environmental justice research organization Empower found that just 34 carbon capture and storage (CCS) projects in Texas could receive between $3.2 billion and $33 billion in annual tax subsides.
At the same time, most of the carbon dioxide pipelines in the state are managed by the major oil and gas companies like Kinder Morgan, Occidental Petroleum, and ExxonMobil that played a disproportionate role in creating the climate crisis in the first place.
"Carbon capture and storage is the most expensive and least effective carbon mitigation solution. It's really not where we need to be investing our money," said Paige Powell, the policy manager at Commission Shift, at a press briefing announcing the new research. "And the public dollars coming from the federal government to fossil fuel companies are our dollars, our taxpayer dollars that could be better spent elsewhere."
"I think it's important for us to ask ourselves, if carbon capture is receiving so much public dollars, why is there little public input?"
For its report, Empower turned up 98 carbon dioxide-related projects in the state of Texas, including 47 pipelines and 13 Class VI Geological Storage projects. These projects are currently primarily funded through tax breaks and U.S. Department of Energy (DOE) subsides; the report authors found little evidence of any private investments.
"Our report clearly lays out the way carbon capture tax credits rig the system in favor of the oil and gas industry to the tune of billions of dollars," Empower's Samuel Rosado said in a statement. "Public funding and tax breaks are the largest sources of revenue for CCS projects. Without the massive federal investment, the private sector deems most CCS projects unprofitable."
The main tax credit for CCS is the 45Q tax credit, which assigns a dollar amount for every metric ton of carbon dioxide captured and permanently stored. While this credit was first created by the Energy Improvement and Extension Act of 2008, the Inflation Reduction Act expanded it, raising the credit to $85 per metric ton. At the same time, the Infrastructure Investment and Jobs Act earmarked more than $8 billion for the DOE's CCS programs.
"These are the key bills that were enacted that enabled CCS to be at least more financially available than it previously was," Rosado said in the briefing.
Yet climate and accountability advocates are concerned that the money is being misdirected.
Powell noted that CCS technology had been around for 50 years, but had failed to advance.
"All of these projects have been largely unprofitable, and they haven't expanded the way that renewables and other climate solutions have, primarily because the technology is problematic," Powell said. "It's unsafe, it's fraught with mechanical failures, and not to mention wildly expensive when compared to other climate solutions."
Dominic Chacon of the Texas Campaign for the Environment said that industry boosting of CCS amounted to a form of "greenwashing."
"It is essentially a marketing PR branding ploy to downplay the obvious risks associated with fossil fuels, to try and rebrand this industry as something that we need for the future," Chacon said.
Autumn Hanna, the vice president of Taxpayers for Common Sense, noted that there was a history of fraud in past allocation of CCS subsidies.
"A Treasury investigation found that from 2010 to 2019, 90% of tax credit claimants failed to comply with IRS [Internal Revenue Service] and EPA [Environmental Protection Agency] requirements," Hanna said in a statement. "Instead of throwing good money after bad, we should focus our limited resources on climate solutions we know are safe and effective."
At the same time, most federal CCS subsides actually ended up going toward injecting carbon dioxide into depleted oil wells in order to extract even more oil, which is currently the only profitable use of the technology.
"Continuing to funnel these subsidies and tax breaks to the oil companies, which mostly use it to extract more fossil fuels, really weakens its supposed climate benefits," Hanna said in the briefing.
In Texas specifically, there are concerns about the safety of CCS infrastructure and its impact on ecosystems and communities, given the state's weak regulatory culture.
"We need to chart a new course here in Texas and in Washington to incentivize climate solutions that actually work."
"Our state oil and gas regulator, the Railroad Commission of Texas, is reluctant to oversee the industry in a way that protects people and the environment," Powell said.
The Empower report found that 19 CCS projects overlap with at least 24 million acres of water, threatening both coastal and river environments. The report authors also ran into a lack of transparency.
After filing Freedom of Information Act (FOIA) requests to the Environmental Protect Agency to access data about CCS projects, they received documents with entire pages redacted on the behest of the companies and with the permission of the EPA.
"This is very dangerous when it comes to corporate accountability and transparency on environmental issues, because entire pages were redacted from FOIA requests and public information requests that are incredibly important for communities and safety in these communities," Rosado said.
The advocates called for greater transparency and accountability around public financing for untested and expensive climate solutions.
"I think it's important for us to ask ourselves, if carbon capture is receiving so much public dollars, why is there little public input?" Chacon asked. "There is no public transparency on this technology."
Hanna called for putting "the breaks on the whole thing until we start to really answer some big questions that are out there instead of just autopilot expansions and extensions that carry huge costs and, again, leave us with these big questions and this lack of transparency and oversight."
Community organizations in the Lone Star State are petitioning the EPA to reject the Texas Railroad Commission's request to have primary oversight over CCS projects in the state.
"Allowing Texas to continue down this path is irresponsible and only serves oil and gas interests. That's why it's critical that the Environmental Protection Agency not hand over regulation of dangerous CCS projects to the Railroad Commission of Texas, which has shown that it's in the pocket of fossil fuel companies, which stand to profit while putting our communities at risk," Powell said in a statement. "We need to chart a new course here in Texas and in Washington to incentivize climate solutions that actually work."
To that end, Commission Shift is also urging concerned residents to comment on new EPA draft permits for CCS projects in the Permian Basin.
"Let them know we need an extension to review the permits and that we really just don't want these here in the Permian, it's not the right place for all these projects," Powell said.
Solar panels have, over the last months, suddenly gotten so cheap that they’re now appearing in massive numbers across much of the developing world.
Not perhaps a week for good news—not with former U.S. President Donald Trump trying to initiate a pogrom in Ohio (and the Secret Service protecting him from a crazy right-winger). Not with insane floods across Central Europe where the blue Danube is now a raging brown monster, or in the Lake Chad region where hundreds are dead.
But there’s something else going on behind the scenes—silently. And it’s happening in places where people need it most.
Solar panels have, over the last months, suddenly gotten so cheap that they’re now appearing in massive numbers across much of the developing world. Without waiting for what are often moribund utilities to do the job, business and home owners are getting on with electrifying their lives, and doing it cleanly.
This won’t just transform the climate, it will transform lives.
How do we know? Basically by good sleuthing. The first account I saw came from Azeem Azhar and Nathan Warren. They were looking at Pakistan, where power prices in the wake of Russian President Vladimir Putin’s Ukraine invasion have soared so dramatically that sales of electricity have gone down 10% in the last two years. That should cripple a country—”yet somehow it’s economy grew by 2% anyway.” Again, that should have been impossible: if there’s a truism, especially in the developing world, it’s that growth in energy use is tied to growth in economies. So what was happening? Basically, Pakistanis were buying huge quantities of very cheap Chinese solar panels and putting them up themselves. Pakistan, they reported, “has become the third-largest importer of Chinese solar modules, acquiring a staggering 13 gigawatts in the first half of this year alone.” This is particularly astonishing because the country’s entire official electricity generating capacity is only 46 GW. In other words:
in just six months, Pakistan imported solar capacity equivalent to 30% of its total electricity generation capacity—an absolutely staggering amount.
Energy analyst Dave Jones has gone to great lengths to track this spread on Google maps, finding building after building across the country with big new solar arrays on the roof. For middle-class Pakistanis, they can pay off the investment in a few years selling back power to the grid; in poor areas, things like tube wells for irrigation are now increasingly run on solar. This means not just a decline in natural gas use for centralized generation; it also means many noisy, dirty, and expensive diesel generators that used to provide backup power are being turned off. The great solar analyst Jenny Chase at BNEF has found much the same thing. As Azhar and Warren point out:
by the end of the year, Pakistan’s distributed solar system could be nearing half the capacity of its entire grid! This isn’t just growth; it’s a silent revolution in energy production.
Were it just Pakistan, it would be a wonderful story but perhaps not definitive. But I had a long talk last week with Joel Nana, an analyst at Sustainable Energy Africa in Capetown who told a very similar story. He’s been leading a project to help countries across the continent deal with the increase in distributed generation, and he reports something similar happening in country after country—Zimbabwe, Eswatini, Lesotho, Madagascar, on and on.
“In Namibia we uncovered they have about 70 megawatts of distributed generation—that’s rooftop solar pv that’s about 11% of Namibia’s installed capacity. Eswatini, it’s an old figure, but they’re already at 30 megawatts and it’s a very small country. That’s about 15% of Eswatini’s installed capacity. South Africa is the biggest market, and it has five gigawatts of distributed solar—about 9% of South Africa’s installed capacity.”
“You will not see these numbers anywhere,” he said. “They’re not reported in national plans, not anywhere in continental statistics. No one knows about them. It’s only when you speak to the utilities,” and even they know mostly about the larger installations—there are doubtless far more hut-scale systems across Africa. People are driven by the high cost of electricity, but also by its unreliability—in much of the continent “load-shedding” is endemic, with diesel generators roaring on to compensate, at least at businesses solvent enough to afford it. But diesel fuel is expensive, and generators are hard to maintain. PV is “a no-brainer for most businesses if not all,” he said. “The prices just make sense. The African market is a huge market for some of the Chinese manufacturers, so we have availability—huge availability. The market is flooded with panels from China.”
All this, he points out, is happening without any help from governments, and except for South Africa without financing from banks, who haven’t yet learned how to evaluate the credit risk. The continent needs more trained solar installers, and coordinated standards. On the other hand, many nations probably won’t need the big and expensive increases in bulk electric supply they’ve been predicting. And Nana and his colleagues are working hard to figure out how to make the most of this—how to turn solar pv into real economic assets for entire communities, through practices like net metering.
This is extraordinary news, in large part because it’s happening in places where people most need power—I’ve spent a fair amount of time in Africa looking at communities getting their very first power thanks to the sun. (And I’m headed back as soon as the election is over, so watch this space for more). This won’t just transform the climate, it will transform lives.
It comes on top of more visible good news—the IEA said this weak that oil demand around the world is softening because of “surging” sales of electric vehicles. In China, demand for gasoline will peak this year or next and then decline sharply. Britain, where the coal era was born, will close it’s last coal-fired power plant at the end of this month, while California—arguably Earth’s most modern economy—has managed to weather its worst heatwaves ever without blackouts this simmer thanks to ever-growing batteries of… batteries. (The state’s one big recent blackout came when a gas-fired plant went down in Pasadena). Hey, photovoltaics are getting so sensitive that they’re starting to be useful indoors, where they could replace small disposable batteries.
But nothing beats the idea that solar panels are suddenly sprouting, as if by magic, precisely where they’re needed most. If we can get there fast enough—before we’re overwhelmed by droughts and floods—then a sunny new world is entirely possible.