Equilibrium/Sustainability — Tesla transplants to Texas to trot out trucks

by Sharon Udasin and Saul Elbein - 10/08/21 4:47 PM ET

Today is Friday. Welcome to Equilibrium, a newsletter that tracks the growing global battle over the future of sustainability. Subscribe here: digital-staging.thehill.com/newsletter-signup.

Tesla will be transplanting its headquarters from California to Austin, Texas, where it will be building a new manufacturing plant, a move away from Silicon Valley that The New York Times described as a “blow to California.”

The company’s CEO, Elon Musk, made the announcement at a shareholder meeting on Thursday, fulfilling a threat he issued about a year ago after pandemic lockdowns forced Tesla to pause production at its Fremont, Calif., plant, according to the Times.

While Tesla plans to keep the Fremont facility, Musk said that “there’s a limit to how big you can scale in the Bay Area,” the Times reported. The Texas factory, minutes from downtown Austin and near an airport, will be manufacturing Tesla’s Cybertruck, which the company hopes will rival Ford’s electric F-150 line, a second Times piece said.

Today we’ll take a look at another rivalry: the fierce competition among countries scrambling to procure a limited — and very expensive — natural gas supply. Then we’ll follow that global energy crunch to China, where it’s causing leaders to rethink their potential climate agreements and recommit to coal.

For Equilibrium, we are Saul Elbein and Sharon Udasin. Please send tips or comments to Saul at selbein@digital-staging.thehill.com or Sharon at sudasin@digital-staging.thehill.com. Follow us on Twitter: @saul_elbein and @sharonudasin.

Let’s get to it.

Europeans braces for cold winter as natural gas prices surge

European countries are bracing for a cold winter amid surging natural gas prices.

News of the anticipation comes as customers in Europe, Asia and Latin America are competing for a limited supply of the resource

Prices escalated to new records in Europe and Asia this week while natural gas supplies plummeted to “alarmingly low” levels around the world, The Wall Street Journal reported.

Demand for the resource has risen as economies recover from pandemic-related shutdowns, but that “squeeze has caught traders, shipowners and energy executives off guard,” according to the Journal.

Aren’t price hikes normal? Yes and no. Energy companies pay wholesale prices to purchase gas and electricity, and these prices that can go up or down depending on supply and demand, according to a Reuters explainer piece.

Price jumps in the winter are typically due to higher demand for heating and people turning on the lights earlier in the evening. But in the current situation, Reuters said “prices have sky-rocketed.”

That’s been driven by uncharacteristically strong demand for natural gas in China and Latin America while Russia is tightening its supplies, the Journal reported. And as a result, European economies are especially suffering.

What’s going on with Russia? Natural gas flow from Russia to Europe has been the subject of intense debate in recent months, as the country’s state-owned Gazprom has been slow to increase gas shipments there, another Journal piece said. Russian President Vladimir Putin has apparently been “flexing his geopolitical muscles by signaling that he could help tamp down a growing crisis in Europe,” according to the Journal.

“We can reach another record of deliveries of our energy resources to Europe, including gas” this year, Putin said, as reported by the Journal.

The New York Times described the situation for the Russian leader as “schadenfreude over Western European nations that he sees as unprepared.”

What have been some immediate effects? Shippers are now diverting gas tankers to the highest bidder, while high energy prices have led manufacturers to slow production, and China and Europe are firing up far dirtier coal and oil plants, according to the Journal.

“The system has gone haywire,” Øystein Kalleklev, chief executive of Flex LNG Ltd., told the Journal.

THE ONLY END IN SIGHT: A MILD WINTER, OR A SHIFT IN RUSSIAN POLICY

Has this affected the U.S.? Although the U.S. is now the world’s largest producer of natural gas, it competes in the same global market as everyone else. As a result, the “bidding war” across the Atlantic and Pacific has driven up prices to their highest in the past decade, a reality that has set “the stage for an expensive heating season,” according to the Journal.

About 61 million American households depend on natural gas to heat their homes, energy economist Mark Wolfe wrote in an opinion piece for CNN. Lower-income families will likely be the ones to struggle the most, being forced to make a choice among heat, food and medication, Wolfe said.

Approximately 29 percent of Americans had to decrease or forego basic household expenses to pay an energy bill in the last year, Wolfe wrote, citing U.S. Census Bureau data.

“And that was before natural gas prices started to rise,” Wolfe added.

Are there any practical solutions? The Journal, citing energy traders, identified two factors that “could take the heat out of European prices,” neither of which Europe has much control over: A lengthy spell of mild weather that would reduce demand, or an increase in gas flow from Russia.

Some analysts expect prices to remain elevated next year, although Russia has said that the certification of its Nord Stream 2 gas pipeline to Germany — which is awaiting authorization from a German regulator — could help hold down the rising prices, according to Reuters.

It may all come down to Putin. White House national security adviser Jake Sullivan told the Times on Thursday that Russia has a history of employing energy “as a political weapon.”

“Whether that’s what’s happening here now is something I’ll leave to others,” he added.

Energy shortage pushes China back to coal

The United States and European Union are pushing the Chinese government to commit to more aggressive emission cuts, a move the Chinese have been hesitant to do, according to The New York Times.

In fact, the Chinese are going in the opposite direction — They’re ordering their main coal mining provinces in Shanxi and Inner Mongolia to kick up production, as Reuters reported.

Why aren’t they cutting emissions? First, let’s be clear that no one involved in this debate has made meaningful cuts in emissions.

But in terms of commitments, the E.U. has committed to reach net zero by 2050, with around 55 percent cuts below 2005 levels by 2030. That’s roughly in line with what Biden and the Democrats are pushing for in the U.S., according to a White House fact sheet.

So far, China won’t match them: China’s Xi Jinping, by contrast, has said that Chinese emissions will not peak until 2030 and will not reach net zero until 2060.

That’s far too late, according to U.S. climate envoy John Kerry. “We hope China will join us in this effort to have serious enough reductions,” he said, according to Reuters.

That’s hard for the Chinese to do, in light of rolling blackouts that have sparked a rural backlash against China’s proposed climate aims, and have pushed the country back toward coal, Bloomberg Green reported.

Let’s break it down: Agreeing to total emissions cuts is particularly hard for China because, to an even greater degree than the rest of the world, China runs on coal, which powered its rise since the 1980s from a heavily rural economy to its current industrial power.

Coal also helps sustain China’s current rapid growth, which is expanding middle class life to millions.

Hasn’t every country made that trade? Yes, but other countries have more wiggle room when it comes to energy demand. The U.S. and Europe, which are growing more slowly, can more easily conceive of switching that capacity to renewables, according to the Times.

A CHINESE ENERGY CRUNCH RIPPLES OUTWARDS

Tight fuel supplies: Usually when gas is expensive — which, as we noted above, the whole world is currently bidding for — China fires up the coal plants. What complicates matters is that even coal has been in short supply, in part because of a diplomatic spat with its main supplier, Australia, and in part because the world is turning back to coal in a perennial cycle as economies reboot, The Wall Street Journal reported.

In recessions, “coal demand slows and everyone thinks we’re transitioning away from coal, but as soon as growth comes back, coal use accelerates again,” Rory Simington, an analyst at energy researcher Wood Mackenzie, told the Journal.

That has come to a head over the last two weeks: The blackouts across China have led to traffic lights and elevators being shut off in some residential areas, while factories have been throttled back to save power, as the Journal reported.

The factory reductions are leading to business disruptions that could may be “bigger than anything we’ve seen in our business careers,” — potentially leading to 15-percent price hikes in many products next spring, as Mike Beckham, who produces his insulated backpacks in China, told the Journal last week.

Big picture: But the problem raised by the U.S. and E.U. climate envoys was greater in scope. Without firm Chinese commitments, the climate talks in November would begin under a cloud of uncertainty, Reuters reported.

To make things more uncertain: The U.S. and Chinese are glaring at each other over Taiwan, The Hill reported.

Follow-up Friday

Closing up loops from earlier in the week.

Conservation group will sue if Biden does not re-evaluate offshore California oil

We wrote on Wednesday about how the oil spill off the coast of California has spurred calls to retire that state’s oil industry.
On Friday, a conservation group filed paperwork to sue the Biden administration if it “does not immediately reexamine the offshore oil industry’s threat to California’s endangered species and their habitats,” according to a press statement.
The notice of intent was filed by the Center for Biological Diversity, a nonprofit with 1.7 million members.
The Center argued that the permits currently being issued offshore in California were based on assumptions by the Trump Administration that “an oil spill is unlikely and that if it did occur it would be limited to 8,400 gallons.”
Since the existing spill was 17 times as large, the Center demanded that those assumptions must be reassessed.

Pollution from freight traffic disproportionately impacts communities of color: study

On Thursday we took a look at how prolonged exposure to air pollution and noise from traffic may increase the risk of heart failure in women.
Another new study, from the American Geophysical Union, has determined that pollution from freight traffic is disproportionately affecting communities of color across 52 U.S. cities.
Communities of color and low-income populations in American cities encounter an average of 28 percent more nitrogen dioxide pollution than higher-income and majority-white neighborhoods, the study found.
This disparity, according to the researchers, is mostly due to their proximity to rucking routes on major traffic arteries, where diesel trucks emit such air pollutants.

Heat deaths may be disappearing in the data, report finds

On Monday we reported on a study that found that urban exposure to lethal levels of heat had tripled in recent decades.
But the deaths caused by heat may be hidden, even though this is the most common form of climate-related death, according to an analysis by the Los Angeles Times.
The state of California may have undercounted heat-related deaths between 2010 and 2019 by a factor of six — a difference of about 3,200 deaths, the Times found.
This discrepancy between real and official numbers suggests that California has “ignored years of warnings from within their own agencies that heat was becoming more dangerous,” the Times reported.