Battery Storage Soars on U.S. Electric Grid

Falling costs and green mandates are boosting demand for batteries capable of storing large amounts of wind and solar power for later use

By Jennifer Hiller and Katherine Blunt

The Wall Street Journal, Dec. 21, 2021

Companies are poised to install record amounts of batteries on America’s electric grid this year, as government mandates and a steep decline in costs fuel rapid growth in power storage.

The U.S., which had less than a gigawatt of large battery installations in 2020—roughly enough to power 350,000 homes for a handful of hours—is on pace to add six gigawatts this year and another nine gigawatts in 2022, according to S&P Global Market Intelligence.

Demand for utility-scale storage is expected to keep rising world-wide for the next several years, driven by rapid growth in the U.S. and China, as new storage technologies and pressure to add renewable energy sources to stem carbon emissions reshape the electricity industry.

Giant batteries, often paired with solar farms, can charge when sunshine is plentiful, then send electricity to the grid later when the sun goes down or demand otherwise spikes and power is more valuable. The installations, most of which currently use lithium-ion batteries like the ones found in electric vehicles and laptops, resemble rows of boxy shipping containers, and usually provide up to four hours of backup power.

The surge in battery development has the potential to substantially change the power generation sector. Electricity discharged from batteries is increasingly replacing electricity generated by gas-fired power plants in certain parts of the country, especially those that only fire up during periods of peak demand. Already, utilities, power generators and investors are rethinking the need for conventional power plants, as batteries become cheaper and more viable.

Plummeting costs for lithium-ion batteries, which have become ubiquitous in smartphones and laptops and are increasingly in high demand for electric vehicles, have made utility-sized battery projects more economical. Lithium-ion battery packs, which cost more than $1,200 per kilowatt-hour in 2010, have fallen to around $132 this year, according to data from BloombergNEF.

California is driving much of the U.S. battery market’s expansion. It is racing to secure power to make up for the impending closure of several gas-fired power plants as well as a nuclear facility that provides nearly 10% of the electricity generated in the state. A California law passed in 2018 requires the state to decarbonize its power grid by 2045.

At least eight other states so far have storage mandates or targets, including New York, Virginia and Nevada, according to the U.S. Energy Storage Association. Goldman Sachs expects the U.S. market for stationary batteries to grow from about $1 billion in 2020 to $13 billion to $14 billion by 2030.

Storage developer Key Capture Energy now has 370 megawatts of battery projects in operation or under construction, up from 54 megawatts this time last year. The company is working on projects in New York, New England, Texas and elsewhere, including a 20-megawatt installation on the site of a Maryland coal plant that is set to retire in the coming years.

Jeff Bishop, Key Capture’s co-founder and chief executive, said declining costs have enabled the company to expand to Oklahoma, Michigan and other states where it has historically been economically challenging to build batteries.

“Five years ago, most energy storage developers were small shops like us that had a couple of people and PowerPoints and dreams,” Mr. Bishop said. “Now, it’s companies with real money behind them and billions of dollars for growth.”

Some states that lack storage mandates have had a boom in battery installations anyway, including Arizona and Texas, where batteries are being built alongside large renewable energy projects, but also as stand-alone projects that aim to take advantage of fluctuations in power prices.

The major Texas grid operator had 225 megawatts of utility scale battery storage operating at the end of 2020. Now one company, a subsidiary of Italy’s Enel, has 551 megawatts under construction in Texas. This month, it connected a 55 megawatt site to the grid southeast of Dallas.

Enel’s battery development plans include adding 1.4 gigawatts of storage to the U.S. grid between 2022 and 2024—accounting for more than half of its global plans. Much of it is in Texas or in PJM Interconnection, an electricity market serving 13 states from Virginia to Illinois.

“The U.S. is central in our development strategy,” said Alberto De Paoli, Enel’s chief financial officer. “We are almost doubling the level of investments in the United States versus what we had previously planned.”

The Biden administration’s support of renewables and the expected extension of existing renewables tax credits, have helped drive that decision, Mr. De Paoli said.

Higher raw materials prices are expected to stall further near-term declines in battery costs. But that is unlikely to be a drag on battery demand, and cost inflation could be more than offset by potential new tax incentives, said Steve Piper, director of energy research at S&P Global Market Intelligence.

U.S. lawmakers are considering what would be the first investment tax credit for stand-alone storage projects as part of the Biden administration’s proposed Build Back Better spending plan. Congress has delayed that debate until next year, and the bill as currently written is imperiled, though energy tax credits haven’t been the controversial parts of the legislation. Right now, many battery projects are paired with solar farms to qualify for solar’s current 26% credit. Developers can roll battery costs into project costs for the credit.

John Carrington, chief executive at energy-storage firm Stem Inc., said a stand-alone credit could spur projects in more states and cause some renewables owners to consider adding batteries to existing projects.

“There’s a retrofit piece that is remarkable, because now you can go put storage into every location they have solar,” Mr. Carrington said.

Batteries can interact with the grid in a more dynamic way than wind or solar by releasing electricity when it is most needed.

“Developers and asset owners are learning how to economically use their battery to dispatch it into the market and make money,” said Vanessa Witte, senior energy storage analyst with Wood Mackenzie. “There’s a lot of different opportunities for batteries, where solar and wind have more set revenue opportunities.”

Like other lithium-ion batteries, the utility-scale battery projects can pose safety risks. Several have caught fire, including one using Tesla Inc. battery packs in Australia in July.

Large projects by utilities and developers dominate the storage market, with about 89% of installations this year, according to the latest market report from Wood Mackenzie and the U.S. Energy Storage Association. But the U.S. residential market for battery storage is on the upswing too, projected to surpass $1 billion next year as more homeowners pair storage with home solar installations.

“I think there’s also increasingly significant attention now for residential customers on the question of reliability and resilience, particularly in places that are experiencing things like public-safety power shut-offs or wildfires, hurricanes or other disruptions,” said Jason Burwen, interim chief executive of the U.S. Energy Storage Association.

Many customers in California and Hawaii can get incentives to add batteries to their homes, and those are the top states for residential storage. But storm-prone Florida is No. 3 for installations. “That’s not a fluke,” Mr. Burwen said.

https://www.wsj.com/articles/battery-storage-soars-on-u-s-electric-grid-11640082783?mod=hp_lead_pos11&utm_source=Daily%20on%20Energy%20122121_12/21/2021&utm_medium=email&utm_campaign=WEX_Daily%20on%20Energy&rid=209501&env=44366b7171d1d77be468727bc6de1f7bf5cea5b0aeed11c010f65be26f683635&stream=top

Battery Pack Prices Fall to an Average of $132/kWh, But Rising Commodity Prices Start to Bite

BloombergNEF’s annual battery price survey finds prices fell 6% from 2020 to 2021

Hong Kong and London, November 30, 2021 – Lithium-ion battery pack prices, which were above $1,200 per kilowatt-hour in 2010, have fallen 89% in real terms to $132/kWh in 2021[1]. This is a 6% drop from $140/kWh in 2020. Continuing cost reductions bode well for the future of electric vehicles, which rely on lithium-ion technology. However, the impact of rising commodity prices and increased costs for key materials such as electrolytes has put pressure on the industry in the second half of the year.

These prices are an average across multiple battery end-uses, including different types of electric vehicles, buses and stationary storage projects. For battery electric vehicle (BEV) packs in particular, prices were $118/kWh on a volume-weighted average basis in 2021. At the cell level, average BEV prices were just $97/kWh. This indicates that on average, cells account for 82% of the total pack price. Over the past two years, the cell-to-pack cost ratio has diverged from the traditional 70:30 split, a result of changes to pack design, such as the introduction of cell-to-pack designs.

On a regional basis, battery pack prices were cheapest in China, at $111/kWh. Packs in the U.S. and Europe cost 40% and 60% higher, respectively. This reflects the relative immaturity of these markets, the diverse range of applications and, for the higher end of the range, low volume and bespoke orders.

Prices continued to fall in 2021 as the adoption of the low-cost cathode chemistry known as lithium iron phosphate (LFP) increased, and as the use of expensive cobalt in nickel-base cathodes continued to slide. On average, LFP cells were almost 30% cheaper than NMC cells in 2021. However, even low-cost chemistries like LFP, which is particularly exposed to lithium carbonate prices, have felt the bite of rising costs throughout the supply chain. Since September, Chinese producers have raised LFP prices by between 10-20%.

Based on historical trends, BNEF’s 2021 Battery Price Survey, which was launched in time for the virtual BNEF Summit Shanghai, predicts that by 2024 average pack prices should be below $100/kWh. It is at around this price point that automakers should be able to produce and sell mass-market EVs at the same price (and with the same margin) as comparable internal combustion vehicles in some markets. This assumes no subsidies are available, but actual pricing strategies will vary by automaker and geography.

However, higher raw material prices mean that in the near-term, average pack prices could rise to $135/kWh in 2022 in nominal terms. In the absence of other improvements that can mitigate this impact, this could mean that the point at which prices fall below $100/kWh could be pushed back by two years. This would impact EV affordability or manufacturers’ margins and could hurt the economics of energy storage projects.

James Frith, BNEF’s head of energy storage research and lead author of the report, said: “Although battery prices fell overall across 2021, in the second half of the year prices have been rising. We estimate that on average the price of an NMC (811) cell is $10/kWh higher in the fourth quarter than it was in the first three months of the year, with prices now closing in on $110/kWh. This creates a tough environment for automakers, particularly those in Europe, which have to increase EV sales in order to meet average fleet emissions standards. These automakers may now have to make a choice between reducing their margins or passing costs on, at the risk of putting consumers off purchasing an EV.”

Kwasi Ampofo, head of metals and mining at BloombergNEF said: “Prices for lithium have risen substantially this year as a result of constraints within global supply chains, rising demand in China and Europe and the recent production curbs in China. Although we expect demand to keep growing in 2022, other factors such as global supply-chain constraints and China’s production curbs should have been resolved by 1Q 2022. This will help to ease lithium prices.”

The path to achieving $100/kWh is clear, although the timing now looks more uncertain. In 2021, a wave of automakers released battery technology roadmaps outlining how prices can be reduced below $100/kWh. Companies like Renault and Ford have publicly announced targets of $80/kWh by 2030.

Continued investment in R&D alongside capacity expansion across the supply chain will help to improve battery technology and reduce costs over the next decade. BloombergNEF expects next-generation technologies, such as silicon and lithium metal anodes, solid-state electrolytes and new cathode material and cell manufacturing processes, to play an important role in enabling these price reductions.

[1] All prices are in real 2021 $, unless stated as nominal.

https://about.bnef.com/blog/battery-pack-prices-fall-to-an-average-of-132-kwh-but-rising-commodity-prices-start-to-bite/?utm_source=Daily%20on%20Energy%20113021_11/30/2021&utm_medium=email&utm_campaign=WEX_Daily%20on%20Energy&rid=24913499&env=4c48fcdbb12eee6826c7817244fc1960521df71996adb905afbfc4e36d0f936d#_ftn1

Utah economists: Carbon fee and dividend policy would be a win for climate and Utah’s economy

Carbon fee would be economically efficient, improve health and help the poor.

Salt Lake Tribune, Nov. 24, 2021

Temperatures in Utah have risen 2.7° F since 1900, risking longer and more severe droughts. Presently, Utah is in a state of emergency due to drought, with nearly 90% of the state in extreme or exceptional drought.

The economic toll of rapid changes to the climate risks Utah’s way of life. For example, Utah’s farming, ranching and outdoor recreation industries may face uncertainty with water scarcity and restrictions, unexpected extreme variations in seasonal temperatures/precipitation and wildfires. However, through smart economic policy, there is opportunity. We can significantly reduce our reliance on fossil fuels to help manage economic risk from climate change, while bolstering a strong economy.

In 2019, the “largest public statement of economists in history,” signed by all living chairs of the Federal Reserve, 28 Nobel Laureates and more than 3,500 other economists, was published in The Wall Street Journal. The statement advocates for a policy wherein a fee is put on carbon pollution and all funds raised are returned directly to households in the form of “carbon dividends.”

This carbon fee and dividend solution is favored as it offers a cost-effective lever to reduce carbon emissions efficiently and at a scale necessary to have meaningful impact. By providing a financial incentive to all consumers and producers, it “will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.” It will increase both GDP and job opportunities, and provide a financial benefit to the most vulnerable in our society.

A critical component of an effective carbon fee and dividend proposal is a border carbon adjustment on imports and exports. This will “enhance the competitiveness of American firms that are more energy-efficient than their global competitors” and “create an incentive for other nations to adopt similar carbon pricing.”

Because this policy intends to give consumers and producers the flexibility to reduce emissions in the way that is best for them, reductions are achieved at least-cost, and this is better for the economy. A climate report from the International Monetary Fund shows that a strong carbon fee and dividend policy will increase GDP somewhat in the near-term, and may improve it dramatically in future decades as climate-related damages to the economy are avoided. Further, the report indicates this type of market-based policy will have a “net positive effect” on employment.

As carbon and other pollutants are reduced and climate risk stabilized, the policy is likely to improve our health and could save tens of thousands of lives each year.

Finally, this approach provides a financial benefit to the poor. Simply by charging a fee for pollution and returning all funds to the American people, “The majority of American families, including the most vulnerable, will benefit financially by receiving more in ‘carbon dividends’ than they pay in increased energy prices.”

We agree: A national carbon fee and dividend policy is a clear win-win for Utah and America. Implementing this policy can stabilize climate risk, improve the economy, increase job opportunities, preserve our agriculture and outdoor recreation industries, improve our health and help the most vulnerable.

Brigham Frandsen, Ph.D., associate professor, Brigham Young University; Benjamin Iverson, Ph.D., associate professor, Brigham Young University; Joseph Price, Ph.D., professor of economics, Brigham Young University; Mark Showalter, Ph.D., professor of economics, Brigham Young University; David Berri, Ph.D., economics, professor of economics, Southern Utah University; David Tufte, Ph.D., professor of economics, Southern Utah University; Günseli Berik, Ph.D., professor, Economics Department, University of Utah; Haimanti Bhattacharya, Ph.D., associate professor, University of Utah; Gail Blattenberger, Ph.D., associate professor emerita, Department of Economics, University of Utah; Subhasish Dugar, Ph.D., associate professor, University of Utah; Korkut Erturk, Ph.D., professor of economics, University of Utah; Peter Philips, Ph.D., professor of economics, University of Utah; Codrina Rada, Ph.D., associate professor, University of Utah; Elizabeth Tashjan, Ph.D., professor of finance, University of Utah; Arthur Caplan, Ph.D., economics, professor, Utah State University; James Feigenbaum, Ph.D., professor of economics, Utah State University; Paul Jakus, Ph.D., professor emeritus, Department of Applied Economics, Utah State University; Matt Gnagey, Ph.D., associate professor, Weber State University; Alvaro La Parra Perez, Ph.D., economics, associate professor, Weber State University; Doris Geide-Stevenson, Ph.D., economics, professor, Weber State University; Jeff Steagall, Ph.D., economics, professor, Weber State University; James “Cid” Seidelman, Ph.D., distinguished service professor of economics, Westminster College

https://www.sltrib.com/opinion/commentary/2021/11/24/utah-economists-carbon/

Steel is back. Why a new U.S.-EU trade arrangement about steel is surprisingly important

By Robinson Meyer, The Atlantic, Nov. 3, 2021

If pith-helmeted archaeologists were to name our era like they name those of our ancestors—the Stone Age, the Bronze Age, etc.—they might very well dub ours the Steel Age. Steel is ubiquitous: It’s in cars, appliances, buildings, roads, infrastructure, and weapons, an essential input into virtually every large manufactured product. “As you go through your day, you pass steel every few feet,” Todd Tucker, the director of governance studies at the Roosevelt Institute, a progressive think tank, told me. “It’s sort of what chips are for the tech sector.”

Steel is also a major part of one of the world’s toughest climate problems. Although technologies now exist to generate electricity, or move people from place to place, without emitting climate pollution, many problems with heavy industry remain unsolved. Iron and steel production alone were responsible for more than 7 percent of annual greenhouse-gas emissions worldwide in 2016.

Yet in a momentous week for climate-change policy—in which Biden threw down a new framework for $555 billion of climate spending, the Supreme Court accepted a case that could severely restrict the Environmental Protection Agency, and the annual United Nations climate conference commenced in Glasgow, Scotland—it remains striking that one of the most significant news items, so far, concerned steel.

On Sunday, at a meeting of the Group of 20 countries, Biden announced that the U.S. and the EU were each dropping their steel and aluminum tariffs immediately, and had agreed to what they called “the world’s first carbon-based sectoral arrangement.”

This new arrangement—which will be negotiated in full over the next two to three years—will lead both countries to prefer trade in lower-carbon steel and perhaps, eventually, to close their borders to so-called dirty steel. The U.S. and EU will also agree to a shared methodology for counting the carbon emissions “embodied” in steel. And because the tariffs have been lowered, the arrangement should help lower prices for American consumers.

The arrangement represents a tacit recognition from Europe that American steel has lower emissions than steel from elsewhere in the world. Most American steel producers now use electric-arc furnaces, which allow for scrap metal to be recycled into new material, skipping carbon-intensive steps of the refining process, Tucker said.

This advantage led to perhaps the most important part of the deal: It has the full support of the American steel industry and its union. The Biden administration and Europe found a way to spin what I’ve called “the green vortex” faster, creating new coalitions that advance their shared economic, geopolitical, and environmental goals. The deal shows that, at least in this one sector, America and Europe can work together despite their—how to put it?—distinct approaches to climate politics.

For more than a decade, the EU has operated the world’s most robust carbon-trading market, in which companies bid on the right to emit climate pollution. Since 2017, the price of pollution has doubled, then doubled again, then doubled yet again. European manufacturers—including ArcelorMittal, one of its largest steelmakers—began to beg the EU to level the playing field against foreign competition, and over the summer, the EU moved forward with long-standing plans for a carbon border tax on cement, fertilizer, electricity, iron, steel, and aluminum.

This presented a major problem for the United States. Our approach to climate policy has been driven far more by standards and subsidies than by textbook carbon taxes; the nationwide patchwork of state laws and local electrical grids would have made it nearly impossible to calculate a fair or accurate carbon tax (assuming that EU technocrats even tried). John Kerry, Biden’s special envoy for climate, warned the EU that a carbon border tax should be used only as a “last resort.”

The conflict seemed to threaten a schism. At worst, Atlanticists worried that the EU might unify its market (or at least harmonize its border tax) with the world’s other enormous carbon market: China. As the historian Adam Tooze pointed out, China, not America, is the EU’s largest trading partner, and a Sino-European climate pact could look more attractive to Brussels than a partnership with the insular, polarized, and carbon-choked United States. The steel arrangement, if not foreclosing that possibility, at least forestalls it.

The fact that steel is so essential to every other industrial process means that the global steel market is very weird. (If a market even exists at all: “Steel has never been a free market,” Tucker told me.) Many countries nurture their steel industry for economic-security reasons, which has led to perennial overcapacity. China, which produces half the world’s steel, may overproduce tens of millions of tons a year more than are needed. (Chinese steel is responsible for 60 percent of the global steel industry’s emissions, and about 4 percent of the world’s total annual carbon pollution.) The U.S., Europe, and Japan had been “talking about” the problem of Chinese steel overcapacity for decades, Tucker said, but did not act until President Donald Trump unilaterally raised steel tariffs on all imported steel in 2018. The EU imposed its own tariffs soon after. Ironically, those tariffs gave the U.S. and EU leverage to negotiate this “green steel deal.”

Under the new arrangement, the U.S. will import about 1 million tons of steel from the EU every year, according to Roy Houseman, a lobbyist for the United Steelworkers. Any imported steel must be “melted and poured” in Europe, which means that it can’t simply be reconstituted steel from China. Although the U.S. doesn’t export much steel to Europe today, the arrangement allows for the possibility that the EU could be a customer for clean American steel in the future.

What may be most important about the deal is its agreement that the U.S. and EU will decide on a shared way to measure the carbon pollution embodied in steel. This bridges an important intellectual gap. Historically, the American and European elite have conceived of climate change as a global free-rider problem: No country could make a dent in climate change alone, they believed, so no individual country had an incentive to do anything. To resolve that dilemma, the Nobel Prize–winning economist William Nordhaus called for a global carbon tax among willing nations along with a “climate club” that levies the tax on imports and exports.

Europe has adopted many of Nordhaus’s prescriptions wholesale. The United States has not. Congress has never managed to put a price on carbon or mandate explicit carbon-pollution reductions. So, lately, a new way of thinking about climate change has gained popularity. The political scientists Michaël Aklin and Matto Mildenberger have argued that climate change is not a free-rider problem at all, but actually one of “distributive conflict.” As I summarized their view in April:

The challenge of global climate action isn’t that other people will benefit from your emissions cuts; it’s that many interests actively oppose decarbonization. The key to passing climate policy is stitching together a coalition that will support and sustain decarbonization.

In a way, the steel deal unifies these two approaches. From one side, it’s a Nordhausian climate club, through which Europe can punish recalcitrant countries for carbon-intensive manufacturing. From the other, it’s a coalitional negotiation, with pro-decarbonization leaders in one country giving a leg up to supportive leaders in another—and recruiting the steel industry all the while. The U.S.-EU arrangement also defies Nordhaus, who always focused on carbon prices, in favor of focusing on the core problem: the actual carbon emissions going into the sky.

And it sets out a pattern for how the U.S., the EU, and other democracies can collaborate on the profoundly material crises that the world faces—a notion not so distant from the hope that unpins the European Union itself. In 1952, when France, West Germany, Italy, and the Benelux countries established the European Coal and Steel Community, Robert Schumann, then the French foreign minister, said that the market’s goal was to make war between France and Germany not only unimaginable, but materially impossible. The flywheel worked, spinning up a greater and greater integration, and the Coal and Steel Community eventually evolved into the EU. In our darker and more worrying time, such hope may no longer be imaginable. But integration has prevailed, and the rupture has been delayed, at least for now.

https://www.theatlantic.com/newsletters/archive/2021/11/bidens-biggest-climate-deal-yet/620593/?utm_source=twitter&utm_term=2021-11-03T10%3A01%3A56&utm_content=edit-promo&utm_campaign=the-atlantic&utm_medium=social

Tariffs to Tackle Climate Change Gain Momentum. The Idea Could Reshape Industries.

By Yuka Hayashi & Jacob M. Schlesinger, The Wall Street Journal, Nov. 2, 2021

Governments in the U.S., Europe and other developed nations are embarking on a climate-change experiment: using tariffs on trade to cut carbon emissions. The idea has the potential to rewrite the rules of global commerce.

Policy makers on both sides of the Atlantic are looking at targeting steel, chemicals and cement. The tariffs would give a competitive advantage to manufacturers in countries where emissions are relatively low.

It’s an idea that is gaining acceptance among U.S. businesses, particularly in those industries, as well as among politicians who see an opportunity to appeal to domestic manufacturers and their workers. Over the weekend, the Biden administration announced the first-ever trade agreement to incorporate such a concept. The pact with the European Union would jointly curb imports of steel that generate high levels of carbon emissions.

Carbon tariffs, also called border adjustments, are intended to plug a hole in domestic policies that discourage emissions. A country that imposes a carbon tax or some other regulation on a steel mill, for example, can raise that company’s costs and prices, making them less competitive domestically.

Such a move could also encourage buyers to import less expensive steel, potentially produced with higher carbon emissions, or encourage manufacturers to shift production to countries with less regulation—undoing the environmental benefits of the taxes and putting domestic companies at a disadvantage. Environmental economists call that leakage.

The risks of carbon tariffs are similar to those that come with regular trade barriers. A carbon tariff could push up production costs and prices, hurting businesses buying those products as well as consumers. They would hit the economies of developing countries that depend heavily on exports. And they could undermine world trade rules and trigger trade disputes. Some countries say the proposals are really protectionism in disguise.

An estimated one-quarter of global greenhouse gases are produced by goods that cross borders, according to a 2018 report by economic and environmental consulting firms KGM & Associates Pty. Ltd. and Global Efficiency Intelligence LLC. In effect, the report said, the emissions that many developed countries claim to have eliminated were “outsourced to developing countries,” which generally have fewer resources to invest in cleaner and more advanced technology.

“America has an advantage from a lower carbon footprint,” Jim Fitterling, chief executive of chemical giant Dow Inc., said. “We want to continue to expand that advantage and I believe a carbon border-adjustment mechanism will help.”

Economists and policy makers have been exploring the idea of carbon tariffs over the past 20 years, to level the playing field for domestic companies and to encourage trading partners to toughen their own emissions rules. When Yale University economist William Nordhaus accepted the Nobel Prize for his work on the economics of climate change in 2018, he proposed a global “climate club” of low-polluting countries that would impose a 3% tariff on imports from higher-polluting non-club members.

The idea took on new life as nations looked to intensify their greenhouse-gas reduction plans ahead of the United Nations climate conference that opened Monday in Scotland.

The plan unveiled Saturday came as part of an effort to curb global overcapacity for steel and aluminum, which U.S. officials have attributed largely to China. Under the arrangement, governments can restrict imports of products made using methods that produce more carbon dioxide. The two sides didn’t provide details on how and when to implement the plan, but said that they would develop it over the next two years. President Biden told reporters that the new agreement would help “restrict access to our markets for dirty steel from countries like China and counter countries that dump steel in our markets.”

The Chinese Embassy in Washington didn’t respond to a request for comment.

Texas Rep. Kevin Brady, the top House Republican for trade policy, criticized the agreement as “enormously complex managed trade.”

The European Union has taken the lead in carbon tariffs, unveiling its proposed plan in July. It currently has a cap-and-trade system in which domestic companies must obtain a permit to emit carbon, capped at a set amount. Permits currently change hands for around 60 euros, or $68, per metric ton of emissions.

Under its proposal, the EU would charge producers outside the area a fee similar to what domestic companies pay, based on the carbon content of their products sold in Europe. The border adjustments would initially apply to four heavily polluting sectors: steel, aluminum, cement and fertilizer. European officials hope to implement the program by 2025 as part of a broader deal to cut continental emissions 55% by 2030.

British, Japanese and Canadian governments have begun exploring similar plans. In the U.S., more than a dozen bills have been introduced in Congress since 2015, by both Democrats and Republicans, that include some kind of carbon tariff, usually linked to a carbon tax on domestic products.

“Other countries, Europe and Canada, are being very aggressive,” said Rep. Scott Peters (D., Calif.), who introduced carbon tariff legislation in July. “What we don’t want is for our companies to be at a competitive disadvantage.”

A carbon tariff could quickly shift advantages across borders, including by significantly altering the global steel trade, the Boston Consulting Group wrote in a report about the EU’s proposal last year. Chinese and Ukrainian steel made with high-polluting blast furnaces would lose market share to more efficient mills in Canada and South Korea, it said.

The report added that Saudi Arabian oil producers, with their easy access to crude oil found near the earth’s surface, could gain European market share, because their carbon tariff would be at little as half that of Russian and Canadian competitors, which use more energy to extract their oil.

U.S. companies have invested heavily and taken advantage of technological improvements in recent years to reduce their carbon footprints, often driven by environmental regulations. While a boost in domestic manufacturing could potentially add to local pollution, the area is highly regulated in the U.S.—and overall would decrease the total global output of greenhouse gases.

The Climate Leadership Council, a business-backed group lobbying for economywide carbon pricing and border adjustments, said that products manufactured in the U.S. in major sectors such as metals, chemicals, electronics and vehicles generate 40% less carbon dioxide in their production than the global average.

It estimates that one of the largest beneficiaries of U.S. carbon tariffs would be the politically powerful steel industry. American steelmakers are more likely to use a more-efficient production method that recycles scrap metal, while many Asian producers rely on a different method that converts new iron into steel. The result: 50% to 100% more carbon dioxide is emitted in the production of imported steel than U.S.-made steel.

A carbon tariff of $43 a ton could reduce steel imports into the U.S. by half and completely eliminate purchases from the least carbon-efficient countries, including China and Brazil, the Climate Leadership Council said.

Supporters say a carbon tariff has the potential to rewrite the politics of climate regulations, softening resistance from conservatives skeptical of the need and worried about the cost.

George David Banks, a veteran Republican environmental policy official who worked in the Trump White House and is now promoting carbon tariffs, said, “Once Republican voters recognize that this is the way of getting our supply chain back to the U.S., I think people are going to see the climate agenda very differently.”

Carbon tariffs may also appeal to lawmakers as a way of blunting economic and security threats from China, the world’s largest carbon emitter.

Among the groups that could find the idea less appealing are companies that end up paying more for carbon-intensive imports.

The Boston Consulting Group’s report on the EU proposal estimates that European paper manufacturers, big importers of wood pulp, could see profits cut 65% on those imports. Importers of semi-manufactured gold—used in jewelry, electronics, dentistry products and other goods—could see profits fall by 10%. Companies would then face the choice of absorbing the costs or passing them on to customers, the report said.

Some trade experts warn that the reshuffling might not curb total global emissions. An industry trade group representing European aluminum makers said China could evade the EU’s carbon tariff by exporting to Europe the 10% of its aluminum made with hydropower, while keeping metals made with coal in Asia. Russian aluminum maker Rusal PLC has announced plans to create a new low-energy subsidiary aimed at European sales, while focusing the rest of its factories for domestic demand.

Carbon tariffs are “a perfect tool in economic theory, but we are not living in an economic theoretical world, unfortunately,” said Markus Zimmer, an environmental economist for Allianz SE in Germany. “Once all the politicians and the lawyers work through the regulations, you can get the opposite of what you intend.”

Carbon tariffs can be a potential channel for protectionism, with governments designing them to benefit domestic industries rather than to simply level the playing field. World trade rules allow border adjustments that are intended to impose the same costs on foreign as domestic manufacturers, rather than to block import competition.

“It will be hard to avoid accusations of green protectionism, given how the starting point clearly is concern about low-cost foreign production,” Michael Mehling, deputy director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology, said of the U.S.-EU steel trade agreement.

The risk is exacerbated by the lack of international consensus on quantifying the carbon embedded in goods, and whether to include the full carbon footprint, from the mining of raw material to transporting the product to final users.

Governments have submitted data on the average carbon intensity of basic products like steel and cement as part of the 190-nation Paris Agreement to curb greenhouse gases. They didn’t include data for individual manufacturers, so a low-carbon producer could be hit with a tariff calibrated to a higher national average.

Counting and verifying emissions at individual facilities will be difficult and costly, and could create the potential for manipulation, said Stefan Koester, a senior analyst specializing in climate policy at Information Technology and Innovation Foundation, a nonpartisan Washington think tank. Rather than border adjustments, he supports a climate club similar to the kind Mr. Nordhaus proposed, in which nations that commit to climate-change policies would trade freely with each other and impose tariffs on imports.

Nearly every version of a carbon tariff designed by academics or lawmakers is twinned with some type of domestic carbon price. That makes it easier to make the case to trading partners that the purpose is to create a level playing field, so that producers all over the world pay the same fee.

In the U.S., carbon pricing—whether a carbon tax or a European-style emissions-trading scheme—remains deeply unpopular. Congressional Democrats are looking at ways to calculate “implicit costs that come from regulation” of U.S. companies and imposing an equivalent cost on foreign competitors, said Mr. Peters, the California congressman. “It’s not a simple thing.”

For nations, attempts to balance green pledges with a free-trade agenda haven’t had much success. The World Trade Organization has repeatedly declared illegal member environmental policies, such as subsidizing domestic renewable energy production, saying those improperly discriminate against foreign competitors.

The WTO tried and failed to create a global “environmental goods agreement” that would have cut tariffs and quotas on products designed to expand the world market for products helping reduce carbon emissions, such as wind turbines and solar panels. The talks collapsed in 2016 when China made a last-minute demand to include bicycles, and the Europeans refused.

“The WTO is considered by many as an institution that not only has no solutions to offer on environmental concerns, but is part of the problem,” Mr. Biden’s trade representative, Katherine Tai, said in an April speech.

“The WTO is only as decisive as its members,” said WTO spokesman Keith Rockwell, who stressed that the group can only make a decision with a consensus among its 164 members.

In a meeting of the WTO’s market access committee in November last year, officials from 19 countries raised concerns about the EU’s plans for its carbon border-adjustment plan, according to meeting minutes. Russia’s representative criticized “protectionist objectives,” noting that the EU intends to use the tariff as a new source of budget for powering its economic recovery after the pandemic.

“Tackling climate change should…not become an excuse for geopolitics, attacking other countries or trade barriers,” Chinese leader Xi Jinping said of Europe’s tariff plans in an April call with then-German Chancellor Angela Merkel and French President Emmanuel Macron, according to Chinese state media.

The WTO’s legal system is crippled by a stalemate between the U.S. and other countries over the proper mission and power of its trade courts. That heightens the risk that carbon tariffs will trigger retaliation by countries imposing their own countermeasures, rather than prompting more global cooperation.

“Either they find a way to deal with it collectively,” said Alan Wolff, who recently retired as WTO deputy director general, “or there’s going to be the world’s largest trade conflict over this issue.”

https://www.wsj.com/articles/tariffs-climate-change-greenhouse-gases-manufacturing-steel-11635862305

The climate won't wait. We need a carbon tax now

Column by Tim Harford, Financial Times, October 28, 2021

A friend recently wrote to me agonising over an ethical question. He was pondering a long-haul trip to see his family but was all too aware that the flight would have a huge carbon footprint. Could the journey possibly be justified?

I suggested that my friend find out what the carbon footprint was (a tonne of CO2, it turns out) and then imagine a hypothetical carbon tax. Would he still be willing to travel if he had to pay the tax? If not, the trip wasn’t worth it.

My advice raises the question of what this carbon tax should be. At a carbon tax of £5 per tonne of CO2 — plenty of carbon global emissions are taxed at less than that — the extra tax on that one-tonne return flight would be trivial. At a more serious £50, it would be noticeable but perhaps not decisive. (The emissions trading systems in the EU and the UK until recently implied a carbon price of around £50 per tonne of CO2; the UK price has since leapt. US Democrats are pondering their own carbon tax.) If the carbon tax were a deep-green £500 per tonne of CO2, my friend would have to be missing his family more than most of us ever do.

I realise it is quixotic to advise checking one’s personal consumption decisions against a completely hypothetical tax, but it gets to the core of what a carbon tax is for. It isn’t just an incentive to change behaviour; it’s a source of information about which behaviour we most urgently need to change.

That information is currently obscure. The world’s supply chains are formidably complex, delivering products with a carbon footprint one could only guess at. The big picture is obvious enough: flights are bad, cycling beats driving, double glazing is a good idea. But should you buy the British tomatoes, possibly grown in a heated greenhouse, or the Spanish variety, with more food miles on the clock? Even for the attentive, these questions are difficult.

About a decade ago, Mike Berners-Lee published How Bad Are Bananas?, a book that explained the carbon footprint of various everyday products. (Bananas are fine.) The title hints at the hopelessness of waiting for consumers to voluntarily vanquish climate change. How bad is red wine? How bad is an iPhone? Collectively we make many billions of decisions every day about what to buy, how to travel and where to set the thermostat. We cannot be expected to do so with Berners-Lee at hand.

The brilliance of a carbon tax is that we would not have to.

The price of everything we buy is tied to the cost of resources required to make and deliver it. If something requires acres of land, tonnes of raw materials, megawatt-hours of energy and days of skilled labour, you can bet that it won’t come cheap. The link between price and cost is fuzzy but real.

Yet carbon emissions have not been reflected in that cost. A carbon tax changes that by making the climate impact as real a cost as any other. It sends a signal along all those supply chains, nudging every decision towards the lower-carbon alternative. A shopper may decide that a carbon-taxed T-shirt is too costly, but meanwhile the textile factory is looking to save on electricity, while the electricity supplier is switching to solar. Every part of the value chain becomes greener.

Large changes might well be achievable with a surprisingly subtle carbon tax. The International Monetary Fund has suggested that a tax of $75/ton of CO2 might be required, but even with a £100/tonne tax — nearly twice as much — the day-to-day pain would be less than most people expect.

In the UK, carbon dioxide emissions are less than six tonnes per person per year, plus two or three tonnes more to reflect the carbon footprint of imported goods. A £100/tonne tax that covered those emissions would raise the cost of living by just over £2 a day, and cover more than 5 per cent of UK tax revenue. That’s not nothing: the government would be wise to send everyone a monthly lump sum in compensation. The burden would fall unevenly: those who spent a lot, flew a lot, drove a lot or heated big, draughty houses would pay more. It is unlikely that you would notice much impact on the price of bananas.

Coffee provides an instructive example of how much of the change would be imperceptible. According to Mark Maslin and Carmen Nab of University College London, a kilogram of coffee beans delivered to the UK has a typical footprint of about 15 kilograms of CO2. If farmed and shipped more sustainably, the footprint is 3.5 kilograms. With a £100/tonne carbon tax, that’s either £1.50 or 35 pence. You can make dozens of coffees with a kilogram of beans, so coffee drinkers might not notice, but you can bet that behind the scenes farmers and shippers will be looking to push their costs away from £1.50 and towards 35 pence.

My colleagues Gillian Tett and Simon Kuper have been writing about the risks of “greenflation” and the pain that a serious carbon tax would cause. They’re right to be wary of the political damage that a botched tax might do.

But one can also worry too much. It seems like a huge leap to decarbonise the world economy, but it is better understood as a trillion tiny steps. From frugal shopping to efficient logistics to renewable sources of electricity, carbon taxes gently steer us towards the greener solution every time, whether we are racked with guilt or blithely unconcerned. They should be at the centre of our fight against climate change.