The Leaves Turn Over
Monday 2 October 2023
The Federal Reserve’s rate hike campaign appears to be over. While it’s too soon to forecast when rates will fall again, investors in renewables projects should probably have an eye open now to that eventuality. The FOMC’s last rate hike occurred on July 27th, after holding rates steady at the prior meeting in June. At the September 20th meeting, they once again held. That lack of further action has landed forcefully into the fed funds futures market, with the probability of any further rate hikes diminishing quickly. To put a cherry on top of the emerging consensus, the always hawkish John Williams of the New York Fed commented that the peak in fed funds has finally arrived.
Critics of direct air capture technology makes a number of valid points. But, the position of The Gregor Letter is that we should invest and pursue DAC regardless. It’s true: oil and gas companies and other industrial sectors could adopt DAC technology as a means to greenwash their own emissions. Worse, if the US offers poorly designed subsidies and incentives around DAC, this greenwashing would proceed with tax payer support. And that’s not good. Finally, there is the very sobering fact that because DAC uses so much energy to operate, we risk running in place if we launch a bunch of machines that capture CO2, but burn CO2 all the while through their demand-pull on the powergrid.
These considerations are particularly salient at the moment because the US government is making moves to support the technology. Last month, the Energy Department announced prize money of $1.3 million, out of a $3.7 million dollar total, to 13 semifinalists who produced solutions for CO2 removal. This follows a more substantial $1.2 billion announcement to fund DAC demonstration projects in Louisiana and Texas.
The missing element however in current DAC discourse (and this mirrors other faulty framings) is the vision of how DAC would look in its optimal state, in the future. Simply put, if we can affordably build DAC installations, and, we can run those installations on 100% clean energy from wind and solar, then we will take DAC capacity growth all day long, and why not?
Driving an electric vehicle in any US state now creates less pollution than an ICE car. Because duh, of course. Yale Climate Connections has a nice chart up that assesses the fuel mix in each state’s electricity grid, and then compares how the energy mix shakes out for a typical EV against an ICE vehicle. The results are hardly surprising.
To be clear, this is the narrower pump-to-wheel (PTW) accounting rather than the broader well-to-wheel accounting (WTW). In PTW analysis, no consideration is made of all the upstream mining and CO2 emissions required to product an EV. But neither is all the upstream mining to produce natural gas and coal in powergrids, nor oil production, that stands behind the ICE vehicle. Oil and ICE vehicles lose to EV under both accountings, because as you expand analysis from PTW to WTW it blows out the oil/ICE side of the equation also.
The Gregor Letter has serially presented the far more comprehensive WTW accountings for years, updating the data annually from Argonne National Labs. Subscribers can review the archives under that search term to see how this data has evolved.
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