The world is trying to kick fossil fuels, but governments can’t afford to give up on them just yet.
On Tuesday, President Joe Biden announced the U.S. government would release 50 million barrels of oil from the nation’s strategic oil reserves to try and tame rising gas prices. But analysts suspect Biden’s motives for the release are more political than economic.
For starters, according to Goldman Sachs, the amount of oil the U.S. is pumping into the market isn’t enough to make a significant dent in global oil prices. The total volume is just “a drop in the ocean,” the bank says.
Yet U.S. consumers, feeling the pinch of inflation, are hopeful the strategic release will cool prices at the pump. Biden’s plan is a “clear…effort to send a signal to American drivers (and voters) that the White House is responsive to economic pain,” analysts at ClearView Energy Partners LLC said in a note.
Wary of the upcoming midterm elections, the Biden administration has tried for weeks to lower consumer gas prices by lobbying OPEC to increase oil production and ease global supplies. But OPEC, plus Russia, has refused to accelerate its production schedule to meet Biden’s short-term goals.
Frustrated, Biden has turned to countries outside of the OPEC cartel for help, in a move designed to rattle OPEC’s faith that it can dictate global prices. India, the U.K., Japan and South Korea have all agreed to back Biden and tap strategic reserves.
But the move might backfire if OPEC, during a meeting next week, decides to curtail oil production further seeing as how the U.S. and its allies have now injected excess supply into the market.
Investors appear to have priced in an expectation of OPEC’s salty response, as the price of oil shot up on the Brent benchmark, Tuesday. Biden’s attempts to rally international support has also handed Beijing some fresh leverage over Washington.
The U.S., which led an international tapping of oil reserves once before during the Obama administration, has never asked China to release reserves before now. Biden has asked China to join in the fray this time and Beijing appears to be relishing the moment.
“China does not have to help the U.S., considering the two countries’ friction, but we can consider what China should prioritize: its own economic interests or the two countries’ disputes?” Huo Jianguo, a vice chairman of the China Society for World Trade Organization Studies in Beijing, told the state-run Global Times this week.
Relations between Washington and Beijing, shredded by the Trump administration, remain fraught. Biden chastised China for not doing enough to reduce carbon emissions during the COP26 conference earlier this month, while also asking Beijing to pump more oil.
Beijing has yet to announce whether it will answer Biden’s ask for help but, considering other analysis that the volume of oil Biden is targeting is too little to move markets, China’s decision will likely be based on politics rather than economics, too.
Senate Majority Leader Chuck Schumer, in a statement following Biden’s announcement, suggested the global transition away from fossil fuels will at least provide opportunity for the U.S. to end this awkward political wrangling in the future by building a “robust green energy economy” at home.
Switching to green energy so would be better for the planet, but global power struggles won’t end alongside fossil fuels.
CARBON COPY
Careful with chemicals
The chemicals industry consumes more than 10% of fossil fuels produced globally and accounts for more pollution than the entirety of India, but decarbonizing the sector is a daunting challenge that many policymakers would rather ignore. Electrifying Europe’s petrochemical industry, for example, requires twice as much electricity as the continent produced in 2019 and one of the industry’s most enduring products, plastic, is embedded in the global economy. One solution? Being more selective about what we use so-called forever chemicals for. The Guardian
Welcome to Smogtown
This choose-your-own-adventure game from Bloomberg, where you are the mayor of Smogtown and have to enact policy measures to eliminate the polluted city’s carbon emissions while boosting your own popularity to 100, is oddly satisfying. Simply changing the city’s name is not an option. Of course, all decisions have downsides but, that’s rather the point. The transition won’t be painless. Bloomberg
Resilient architecture
Climate change is bringing extreme weather and extreme heat to the world’s most vulnerable nations, posing a challenge to local architects. In Burkina Faso, mud bricks have served as the country’s dominant building material for millennia. Mud is a better coolant than concrete, and its production is much less polluting. But, as heavy rains erode the foundations of mud houses, more people are turning to concrete, which is seen as a sleeker and safer alternative. Yet some designers, and environmentalists, are trying to preserve tradition. National Geographic
Australian gas
Australian gas producer Woodside is pushing ahead with a $12 billion pipeline that is billed to provide 8 million tons of liquified natural gas annually for the next twenty years. Woodside says building more gas capacity is the best way to help coal-dependent industries decarbonize, since gas has a lower carbon intensity when burned. Climate campaigners say the investment is just locking in a future 20 years of carbon emissions. Bloomberg
China, cobalt and the Congo
The U.S. sacrificed decades of investment in the Democratic Republic of Congo and allowed China to take ownership of one of the country’s leading cobalt mines, the Times reports. As the world shifts from a petroleum-led economy to one based on electrification, the U.S. has been slow to recognize the importance of resources like cobalt, which are vital for building batteries. China, meanwhile, has strengthened its grip on the resources that will power the world’s future economy. NYT
IN CASE YOU MISSED IT
ESG investing needs standards to prevent fraud and greenwashing by Brad Preber
Meet the unsung heroes of climate change by John Doerr
Shell’s decision to leave the Netherlands is about keeping investors on its side in difficult times by Katherine Dunn
Europe’s new push to halt deforestation could make it harder to find many food treats—and furniture and car seats too by Vivienne Walt
The green economy is poised to create an immense amount of prosperity—but will everyone benefit? by Lance Lambert
CLOSING NUMBER
$11.8 trillion
In 2019, the International Renewable Energy Agency (Irena), an intergovernmental organization, reported that policies put in place to secure a net-zero global economy by 2050 would produce $11.8 trillion of stranded assets—sunk investments that can no longer yield returns. Over $3 trillion of those stranded assets will belong to the energy industry. Irena says, the value of lost investments could grow to almost $20 trillion if the transition to net-zero is delayed by, for example, oil and gas companies investing in the exploration of new fields. But, the WSJ reports, even after governments pledged to phase down carbon emissions, major companies remain reluctant to write off their investments in fossil fuels.
