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The Unregulated Podcast #115: Rocket Man

January 13, 2023 by Leave a Comment

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss recent events in Congress, California’s descent into chaos, this week’s crop of word salad, and Biden’s high-security garage.

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Biden Ensures Wealthy Luxury Car Buyers Receive EV Tax Credit

January 10, 2023 by Leave a Comment

To Senator Manchin’s dismay, Biden’s Treasury Department is allowing the tax credit for electric vehicles to be claimed if the vehicle is leased regardless of where the battery components and vehicle were manufactured. The intent of the Inflation Reduction Act was for the tax credit to be applied to electric vehicles that were manufactured from components made in the United States or its allies to develop those industries at home and not to be reliant on autocratic countries. Europe’s skyrocketing energy costs and inflation are, in part, due to its reliance on Russian energy supplies, which could occur again since China dominates the electric battery supply chain and President Biden is bent on electrifying the U.S. economy.

According to Senator Joe Manchin, Treasury’s guidance “bends to the desires of the companies looking for loopholes and is clearly inconsistent with the intent of the law.” Manchin plans to introduce legislation that “clarifies the original intent of the law and prevents this dangerous interpretation from Treasury from moving forward.” Part of the objection stems from very expensive foreign automobiles such as a Bentley Flying Spur hybrid and other vehicles which are now eligible for tax breaks. These vehicles can approach $300,000 in price and are clearly purchased by only the wealthiest of Americans.

Inflation Reduction Act (IRA) Tax Credit for Electric Vehicles

The intent of the legislation was to:

  • Take away the 200,000-vehicle cap on tax credits that made electric vehicles and plug-in hybrids from Tesla, GM, and Toyota ineligible for tax credits.
  • Do away with tax credits for expensive electric vehicles—such as the GMC Hummer EV, Lucid Air, and Tesla Model S and Model X.
  • Eliminate tax credits for vehicles not assembled in North America, including the BMW i4, Hyundai Ioniq 5, Kia EV6, Subaru Solterra, and Toyota Z4X that are purchased by individual consumers.
  • Add an annual adjusted gross income cap for buyers of $150,000 for single tax filers, $225,000 for those who file as head of household, and $300,000 for married couples filing jointly.
  • Restrict the full tax credit on new purchased electric vehicles to vehicles with battery minerals sourced from the United States or countries that the U.S. has a free trade agreement with, battery minerals that are recycled in North America, and battery components sourced from North America. Starting in 2024, if any minerals or components are sourced from “foreign entities of concern,” including China or Russia, the vehicle would not qualify for any tax credit.

Half of the $7,500 tax credit ($3,750) is tied to an increasing share of EV battery components being made in North America, and the other half to its minerals being extracted or processed in the United States or countries with which the U.S. has a free-trade agreement. Under the law as written, few EV models are expected to qualify for even half of the credit in coming years.

Treasury’s Guidance

Over the holidays, Treasury issued guidance that would help automakers circumvent the restrictions by letting electric vehicles leased to consumers qualify as “commercial clean vehicles,” which do not include North American manufacturing, material sourcing, income or price restrictions. The law’s commercial EV tax credit was intended for Amazon, UPS and contractors. But under Treasury’s interpretation, a BMW i7 (retail price of $119,300) leased to a consumer would qualify for the commercial vehicle credit whether or not it is used by a business. That is also true for other electric vehicles no matter their cost or their manufacturing location.

About 28 percent of new electric vehicles are leased. Many EV drivers prefer leases because they expect battery technology to improve and their resale value to fall quickly. Treasury’s guidance will encourage dealers to lease electric vehicles instead of selling them, and customers may find lease financing more attractive.

In the case of a lease, the dealer would receive the commercial credit, not the person leasing the vehicle, and dealer would need to pass the savings from the tax credit on to the consumer. If the dealer does pass the savings along, drivers could get the $7,500 tax credit on a car made outside North America as well as high-income consumers and those who lease a high-cost electric vehicle such as a Tesla Model S or X, or for that matter, a Bentley.

Conclusion

Biden’s Treasury Department is circumventing the intent of the Inflation Reduction Act with respect to the electric vehicle tax credit, allowing leased vehicles to be considered “commercial clean vehicles” so that restrictions in the law do not apply to them. This is all part of President Biden’s plan to electrify the U.S. economy and eliminate fossil fuels, despite whether sufficient electric resources exist to avoid rolling blackouts and outages as recently occurred due to the Arctic blast. Further, the movement from petroleum-based vehicles to electric vehicles puts the United States at the mercy of an autocratic country that controls the battery supply chain and the processing of critical minerals. A 2022 analysis of the EV supply chain from the International Energy Agency shows that the vast majority of minerals, components, and battery cells are currently sourced from China.

The Biden Administration released its new rules over the holidays hoping people would not be paying attention to their departure from clear intent expressed in the law by Congress. So, if you have ever wanted to drive a Bentley hybrid for almost $300,000, now is your chance.  American taxpayers will help pay for your whim, and your car has plenty of space to put a bumper sticker stating that you are saving the climate.

*This article was adapted from content originally published by the Institute for Energy Research.

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The Unregulated Podcast #114: Outrageous Demands

January 6, 2023 by Leave a Comment

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the ongoing battle for Speaker of the House, America’s holiday spending habits, and the first headlines of 2023.

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Rumors of Coal’s Demise are Greatly Exaggerated

January 5, 2023 by Leave a Comment

Coal generation worldwide is expected to increase to a new record in 2022, driven by robust coal power growth in India and the European Union and by increases in China. In Europe, high natural gas prices led to fuel switching to coal in electricity generation. However, both natural gas and coal generation increased due to lower hydroelectric and nuclear power production, low wind speeds in some European countries and insufficient growth in wind and solar power. Many thought global coal generation would peak in 2018, but it has been increasing each year since its decline in 2019. Despite spending trillions of dollars subsidizing renewable energy sources such as wind and solar power, the world is nevertheless burning record amounts of coal to keep the lights on and to generate warmth.

While most of the world is increasing its coal generation, the United States continues with its coal decline, according to the International Energy Agency (IEA). In the United States, coal generation peaked in 2007 and started its decline during the Obama Administration as coal plants began to retire due to onerous regulations and low cost natural gas, which made coal uncompetitive. U.S. coal generation in 2021 was 45 percent of its 2007 peak level. IEA expects coal use in the United States to maintain its downward trajectory, despite its reserves which are the largest in the world.

Global Coal Demand

In 2022, fossil fuel prices rose substantially, with natural gas prices increasing the most, prompting a wave of fuel switching away from gas and pushing up demand for more price-competitive alternatives, including coal.  Despite coal prices increasing, coal demand is expected to grow by 1.2 percent, reaching an all-time high and surpassing 8 billion metric tons for a new record. Coal used in electricity generation is expected to increase by just over 2 percent in 2022, while coal consumption by industry is expected to decline by over 1 percent, primarily driven by falling iron and steel production due to the economic crisis arising from large energy price increases. Russia’s invasion of Ukraine sharply altered the dynamics of coal trade, price levels, and supply and demand patterns. IEA expects global coal demand to plateau around the 2022 level of 8 billion metric tons through 2025.

Global Coal Consumption 2000-2025

Source: International Energy Agency

China accounts for the majority of global coal consumption (53 percent). Droughts and heat waves this summer increased the demand for air conditioning and hence coal generation in China. In August, coal power generation in China increased by around 15 percent year-on-year to over 500 terawatt-hours. However, Covid-19 lockdowns lowered economic activity and offset somewhat the increase in coal generation from the summer’s air conditioning demand. China’s power sector accounts for one-third of global coal consumption. IEA expects coal consumption in China to average a growth rate of 0.7 percent a year to 2025 because of an expected increase in renewable power generation. Between 2022 and 2025, China’s renewable power generation is expected to increase by almost 1,000 terawatt hours–equivalent to the total power generation of Japan today.

In India, coal consumption has doubled since 2007 at an annual growth rate of 6 percent, and it is expected to continue to be the major growth area of global coal demand.

In Europe, lower hydroelectric generation due to weather conditions and technical problems in French nuclear power plants put additional strains on the European electricity system along with reduced supplies of natural gas from Russia. In response, some European countries increased their coal generation and extended the lifetimes of nuclear plants. Some coal plants that had closed down or been left in reserve were brought back on-line. Germany, for example, is operating with 10 gigawatts of coal capacity, increasing coal power generation in the European Union, which is expected to remain at higher levels for some time. IEA expects coal generation and demand in the European Union to return to a downward trajectory in 2024 in its forecast, but remain high in 2023.

Global Coal Production

China and India, besides being the world’s largest coal consumers, are also the world’s largest coal producers and the world’s top two coal importers. In response to price increases, supply shortages and growing demand, China and India increased domestic coal production after the summer of 2021. In March 2022, Chinese production reached a new monthly high, which is expected to increase to a new annual record, with expected growth of 8 percent for the year, reducing the need for imports and replenishing stocks.

In India, the government is increasing coal production to reduce imports. In 2021, coal production reached over 800 million metric tons for the first time. India’s coal production is expected to surpass 1 billion metric tons by 2025. Indonesia, the world’s third-largest producer, is also expected to expand production to reach a new high in 2022, with exports playing a more important role than domestic demand.

Conclusion

Global coal is not going away despite what environmentalists and politicians wish and display through their “green” policies. In fact, the renewables they are forcing onto electric grids worldwide are generally supplementing existing sources. China and India will remain the largest coal producers and consumers since the United States with its largest in the world coal reserves will be inundated with “green” policies to cause coal’s demise under Biden’s “all of government” approach to climate change, which he insists is “an existential threat.”

China is building coal plants around the world, with the latest in Afghanistan where they will be obtaining future riches from the country’s critical mineral supply needed for renewable technologies, electric vehicle batteries and weapons production. China dominates the supply chain of critical minerals through its worldwide investments and its processing capabilities. Clearly, while Europe got caught relying on Russian energy, Western countries will soon be dependent on another autocratic country—China.

*This article was adapted from content originally published by the Institute for Energy Research.

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Europe Trades Dependency on Russian Gas for Chinese Solar Panels

January 4, 2023 by Leave a Comment

The European Union added 41.4 gigawatts of solar capacity in 2022, increasing 47 percent from the 28.1 gigawatts added in 2021. It was led by Germany with 7.9 gigawatts of solar capacity added and Spain with 7.5 gigawatts. Other European countries also added solar capacity in 2022 as follows: Poland (4.9 gigawatts), the Netherlands (4 gigawatts), France (2.7 gigawatts), Italy (2.6 gigawatts), Portugal (2.5 gigawatts), Denmark (1.5 gigawatts), Greece (1.4 gigawatts), and Sweden (1.1 gigawatts), rounding out the top 10 European buyers of solar power. It seems that Europe has not yet learned from the foibles incurred from its energy dependence on Russia, as it is now turning to China to buy solar panels–the largest solar panel producer in the world–as the continent continues with its energy transition to renewable generating technologies.

Source: PV Magazine

The increase in E.U.’s solar capacity is due to taxpayer-funded incentives for solar power. For example, Italy introduced its Superbonus 110% incentive scheme in 2020. Under the program, homeowners are entitled to a tax credit of up to 110 percent on the cost of upgrading their home, such as installing insulation systems, heat pumps and solar panels or replacing an old boiler, or undertaking other projects that reduce the risk of damage from seismic activity. People claim the subsidy by subtracting the costs of the projects from their tax returns over a five-year period, or pass the credit on to the building contractor, who subtracts it from its taxes or sells the credit to a bank, which in turn is refunded by the government. The extra 10 percent covers bank interest. So far, the Italian government has paid out about €21 billion ($22 billion) since launching the program in July 2020 as part of the country’s post-pandemic recovery strategy.

Poland took third place in solar capacity additions despite switching from net metering to net billing this past spring. The new provisions established that all new PV “micro-installations” up to 50 kilowatts had to operate under a new net billing system. The new net billing system replaced net metering that was in place since 2016. Under the old net metering rules, owners of PV systems with capacities up to 10 kilowatts could supply up to 80 percent of their power to the grid, and PV systems ranging from 10 kilowatts to 50 kilowatts were allowed to supply up to 70 percent of their electricity to the grid. Under the new net billing rules, a bill is prepared that includes the energy generated. The price is calculated according to a model related to the price of a kilowatt-hour during the “day-ahead trading.”  The new net billing provisions also allow PV system owners who submitted correct grid-connection applications by March 31 to have access to the country’s rebate program, launched in July 2019, for the next 15 years.

E.U.’s Total Solar Capacity

The E.U.’s total solar power capacity increased by 25 percent, from 167.5 gigawatts in 2021 to 208.9 gigawatts in 2022. SolarPower Europe forecasts annual PV growth in Europe to be 53.6 gigawatts in 2023 and 85 gigawatts in 2026, with the E.U. solar market more than doubling within four years, reaching 484 gigawatts by 2026. There are five key areas for getting Europe ready for increasing solar power: expanding the pool of solar installers, maintaining regulatory stability, improving grid stability, streamlining administrative procedures, and strengthening European manufacturing.

E.U. Buys Solar Panels from China

As Europe pivots from Russian fossil fuels, the Chinese solar industry is expected to gain—potentially at the expense of E.U.’s energy security. Chinese solar panels have increased in popularity among European consumers in addition to electric blankets, hand warmers, candles and wood as they face a cold winter with less access to natural gas.

The E.U. depends on China for the bulk of its solar panels. Chinese customs data show a steep increase in its exports of solar panels to Europe with the value of solar panels sales to the E.U. more than doubling. Solar panel sales to the E.U. from January to August this year were over $16 billion compared to $7.2 billion over the same period last year.

According to the International Energy Agency, in 2021, China accounted for 75 percent of global solar panel production, compared to only 2.8 percent for Europe. And, China has an even greater market control on the components and materials required to make solar panels, such as solar cells, silicon wafers, and polysilicon. At one time Germany was the leader in solar panel production, but China with its cheap energy and “slave” labor overtook Germany in solar panel production in 2015.  According to Clean Energy Wire, “the overall drop in employment has been mostly due to the collapse of Germany’s solar power industry over the past decade, as many companies were forced out of business thanks to cheaper competitors from China scooping up most of the market.”

From January to August, China’s solar PV exports reached $35.77 billion, exceeding the value of solar PV exports in all of 2021. The soaring demand stretched supplies and raised the prices of silicon, the raw material for PV products, to a high of 308 yuan ($42.41) per kilogram, the highest in a decade. China’s production capacity for silicon is expected to exceed 1.2 million tons at the end of this year, and to double to 2.4 million tons next year. Silicon products are largely made in Xinjiang, the world’s most important production base for polysilicon where Muslim Uyghurs are used as labor and coal-based electricity is generated at an extremely low cost of 3 cents per kilowatt hour.

Europe needs caution in rushing from Russia to China for energy. China, like Russia, uses economic relations for political goals. For instance, after Lithuania showed support for Taiwan, Chinese customs blocked Lithuanian goods and China led a corporate boycott of multinationals with ties to Lithuania.  Similarly, in 2010, China cut off rare earth mineral exports to Japan (which are critical to renewable technologies and in which China dominates) because of a territorial dispute.

Conclusion

Europe is continuing with its transition to intermittent renewable energy by increasing its solar power capacity additions by almost 50 percent this year. Germany and Spain led the additions with each adding over 7 gigawatts of solar capacity. Germany was once a leader in solar panel manufacturing, but has been replaced by China because of China’s cheap energy and “slave” labor. Now that Europe has moved away from buying energy from one authoritarian government, Russia, it is turning to another, China, who dominates the solar market and its components. Europe should be worried more about energy security than it has shown in the last decade when it turned away from its own production of oil, natural gas and coal, shuttering fossil fuel generators, cutting lease ales, and banning hydraulic fracturing and horizontal drilling.

America should not follow–but is–following in Europe’s energy transition footsteps and can look forward to energy price increases in the future, along with less secure energy supplies. The West’s preoccupation with renewable energy sources as a “solution to global warming” does not stand up to the tests of its own interests in energy, economics, and national security.  Despite the clear writing on the wall, it has chosen to ignore all the signs and plunge ahead.  It appears there are still lessons that need to be learned.

*This article was adapted from content originally published by the Institute for Energy Research.

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The Unregulated Podcast #113: Predictions

December 31, 2022 by Leave a Comment

On the last episode of The Unregulated Podcast for 2022, Tom Pyle and Mike McKenna discuss how their predictions for the year panned out, and boldly predict how 2023 will unfold.

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The Unregulated Podcast #112: Grain of Salt

December 16, 2022 by Leave a Comment

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the latest inflation numbers, the last hurrah of the 117th Congress, Mike’s candidacy for RNC chair, and Secretary Jenny’s “major” announcement.

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China Strengthens Its Energy Security As Biden Weakens America’s

December 13, 2022 by Leave a Comment

It is not enough for China to be the dominant economy in the electric vehicle battery supply chain and the biggest processor of critical minerals, but it is now making inroads in the liquefied natural gas (LNG) tanker business with nearly 30 percent of this year’s record orders. Local and foreign ship owners turn to China’s shipbuilders because shipbuilders in South Korea are fully booked by orders to service Qatar’s massive North Field expansion. Three Chinese shipyards, with only one of them having experience in building large LNG tankers, won almost 30 percent of this year’s record orders for 163 new LNG carriers, making gains in a sector where South Korea usually captures most of the business. LNG tanker orders for Chinese yards tripled as China’s gas traders and fleet operators sought to secure shipping after freight rates soared to records following Russia’s invasion of Ukraine. Chinese yards also attracted more foreign bookings, including the first overseas orders for some ship makers only recently certified to build membrane-type LNG carriers.

This year, Chinese shipyards won 45 LNG tanker orders worth an estimated $9.8 billion–about five times their 2021 order values. By late November, Chinese yards had grown their LNG order books to 66 from 21, giving them 21 percent of global orders worth around $60 billion. In comparison, Chinese shipyards have only built 9 percent of the existing global LNG fleet.

Source: Reuters

LNG tankers, like aircraft carriers, are among the most difficult ships to build, taking up to 30 months. LNG is natural gas that has been cooled to –260° F (–162° C), changing it from a gas into a liquid that is 1/600th of its original volume for shipping. For membrane-type containment tanks, 200 workers spend two months welding barrier walls made of paper-thin steel and 130 kilometers (81 miles) of connecting lines. Workers on these systems have to be certified by Gaztransport & Technigaz, a French engineering company that holds the patents and licenses its designs to shipbuilders.

Shanghai-based Hudong-Zhonghua Shipbuilding is the only Chinese yard with experience building large LNG carriers, having built dozens since 2008. This year, it received 75 percent of China’s new orders, of which 26 orders were from local owners, compared to nine in the last two years. Two other shipyards–China Merchants Heavy Industry and Yangzijiang Shipbuilding–were certified to build large LNG carriers this year and received interest from both local and foreign shippers. Chinese shipyards received 19 foreign orders for LNG tankers this year and that number is likely to grow.

China needs about 80 vessels to ship 20 million metric tons a year of LNG from the United States, which will be part of the 33 percent increase in the global LNG fleet over the next five years. The tankers may also be used to trade cargo on other routes.

Source: Reuters

Qatar LNG

Qatar is already the world’s top LNG exporter and its North Field expansion project will enlarge that position and help guarantee long-term supplies of LNG to Europe as the continent seeks alternatives to Russian natural gas. The North Field expansion of the world’s largest liquefied natural gas project includes six LNG trains that will increase liquefaction capacity from 77 million metric tons per year to 126 million metric tons per year by 2027. Qatar signed deals for stakes in the first phase of the expansion project, North Field East, with TotalEnergies, Shell, Exxon, ConocoPhillips and Eni. For the second phase, North Field South, TotalEnergies is investing around $1.5 billion. The North Field South project will have three partners, part of the same group as North Field East, with signing ceremonies expected soon.

LNG prices rose from record lows below $2 per million British thermal units (mmBtu) in 2020 to highs of $57 in August. This increased spot LNG cargo prices to $175 to $200 million, from around $15 to $20 million two years ago, and has consolidated trading in the hands of a few major traders. QatarEnergy is expected to become the world’s largest trader of liquefied natural gas over the next 5 to 10 years, a position that is currently held by Shell. Following Russia’s invasion of Ukraine, Europe became a major market for LNG, where massive amounts are being purchased to replace Russian natural gas that used to make up almost 40 percent of the continent’s imports. Europe is estimated to need to import around 200 million metric tons of LNG over the next decade to phase out Russian natural gas.

Shell and TotalEnergies are estimated to have a combined portfolio of 110 million metric tons of the current estimated market of 400 million metric tons. QatarEnergy’s portfolio is estimated at 70 million metric tons, and BP’s is estimated at around 30 million, with these four players accounting for more than half of the market. Traders estimate Qatar’s nameplate LNG export capacity to be around 106 billion cubic meters with about 90 to 95 percent in long-term contracts and 5 to 10 percent in spot contracts.

Conclusion

China is ensuring that it will be able to ship LNG from the United States by building LNG tankers. Despite its new entrance as a major LNG shipbuilder, it is getting almost 30 percent of the new tanker orders, both domestic and foreign, due to South Korean shipbuilders being fully booked by Qatar’s expansion in the North Field. China is clearly ensuring that it will be able to get energy of all kinds in the future, while it uses the demand for LNG to enhance its already-strong shipbuilding capability. China’s energy policy is in sharp contrast to the climate and energy policy of the United States under the Biden administration, which is pursuing only intermittent renewable energy (wind and solar power) that is very expensive once the storage batteries to back-up the intermittency periods are taken into cost consideration.

*This article was adapted from content originally published by the Institute for Energy Research.

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The Unregulated Podcast #111 Too Many Mikes

December 9, 2022 by Leave a Comment

On this week’s episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the Georgia runoff election, Vanguard’s withdrawal from ESG commitments, and the leadership race for the RNC chair.

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