Manchin’s Climate Catchphrase Is Complete Nonsense
(Bloomberg Opinion) -- Senator Joe Manchin of West Virginia has a catchphrase that sums up his approach to combating climate change: “innovation, not elimination.” It’s a marriage of near-rhyme with complete nonsense. Innovation ultimately begets elimination. (Anyone reading this on a BlackBerry?)
But that “ultimately” counts for a lot; the time left to eliminate greenhouse-gas emissions and the things that emit them is short. And innovation is easier to sell than elimination — especially in a state synonymous with coal mining. Manchin’s soundbite neatly captures the problem of incumbency: those embedded hard assets, economics and politics that resist decarbonization. The issue dogged this year’s UN climate conference and negotiations over President Joe Biden’s reconciliation package now sitting in the Senate.
The sense of anticlimax from COP 26 owed a great deal to the way the language in its climate pact around eliminating coal was diluted. The world’s commitment to “phasing out” unabated coal-fired power was tweaked to “phasing down.” Getting to net-zero emissions from our energy systems means either replacing fossil-fuel sources with non-fossil ones, such as renewables and nuclear power, or capturing the emissions. (The latter is envisaged in many net-zero scenarios but mostly as an adjunct to the former.)
Among the fossil fuels, coal is the No. 1 target both because of its high emissions and the availability of alternative types of power generation. Under the International Energy Agency’s “Net-Zero by 2050” scenario, released earlier this year, unabated coal-fired power — meaning plants without carbon capture — zeroes out by 2030 in advanced economies and by 2040 elsewhere. This will mean closing down and replacing the equivalent of more than a third of current global electricity generation, even as demand more than doubles due to development in emerging economies and electrification of all sorts of things, including vehicles.
Such a colossal undertaking, which would rely on some carbon capture, is unlikely to happen on schedule without placing a firm sell-by date on coal. India’s coal-fired fleet, for example, is relatively young; more than half of it will be no more than 30 years old by 2040. Renewables are expected to become more competitive over time. But simply encouraging their expansion won’t displace existing coal plants quickly enough. Even the oldest, most inefficient plants can find new life in the right circumstances; just look at how a combination of weird subsidies and Bitcoin production has revived several of Pennsylvania’s otherwise moribund waste-coal plants.
This challenge of incumbency pervades the energy system. Consider transportation. BloombergNEF projects sales of battery-electric vehicles to grow at 19% a year, compound, from 2020 to 2040, in a global auto market that’s growing at just 1% annually. Those numbers are transformational — an epic clash of the exponential with the linear.
Now factor in the enormous existing fleet — about 1.2 billion passenger vehicles in 2020 — and the lifespan of a vehicle that is sold and resold perhaps several times. By 2040, all that growth stands to take electric vehicles from less than 1% of the global fleet to 38%. It’s a big increase, but EVs would still be outnumbered by vehicles with internal combustion engines. Indeed, BloombergNEF calculates that in order to meet a goal of net-zero emissions by midcentury, “the last internal combustion vehicle will need to be sold around 2035.”
There are encouraging signs that electric vehicles are gaining market share more quickly than anticipated, from recent sales figures for Germany to the popularity of Ford Motor Co.’s electrified Mustangs. Transforming the existing fleet in a growing auto market, however, will require much higher scrappage rates. Cheaper, better electric vehicles are the primary way of achieving them, but restrictions or fees imposed on traditional vehicles will probably also be needed.
Now consider Manchin, the de facto Democratic Senate gatekeeper on energy-related matters. He’s been reshaping the Build Back Better Act along the lines of allowing tax credits and other carrots for clean tech but stripping out sticks wielded against fossil fuels.
The most consequential stick was the Clean Electricity Performance Program, which would have used the threat of fines to force electric utilities to use a lot more renewable power. This would effectively mandate the quick closure of coal-fired plants and potentially push the share of low-carbon power from 37% in 2019 to almost 70% by 2030 (see this). Indeed, analyzing six climate-related elements of the original $3.5 trillion Build Back Better proposal, analysts at Rhodium Group found the CEPP to account for the single biggest reduction in emissions.
But the CEPP was dropped from the smaller bill ultimately passed by the House last month. Manchin has also pushed back against a carbon fee, penalties for methane leaks and proposals to shrink or eliminate longstanding tax breaks for fossil-fuel producers.
His stance is hardly surprising. The Senate math makes him powerful, but as a blue senator from a red, fossil-fuel-heavy state, he is vulnerable. Manchin also exemplifies the dismal failure of America’s political institutions to grapple properly with climate change. By now, even many Republican politicians have acknowledged that the problem is real, but the dominant tendency in Congress is still the quasi-Augustinian “make me net-zero, but not yet.”
This leaves the door open for alternative measures. From the get-go, the Biden administration has shadowed the meandering process in Congress with executive efforts ranging from tightening leasing on federal lands to embedding carbon costs in the economy via federal planning and financial regulations. In doing so, Biden potentially faces other resistant incumbents in the form of judges and Supreme Court justices appointed by his predecessor.
His best hope, as is that of any legislation eventually passed, is to spur more momentum in investment toward the energy transition. That carries a risk of inflation, as multiple governments incentivize clean tech spending on the proviso that most of the money gets spent at home. And pressure is building; BloombergNEF’s latest battery survey showed a 6% price drop last year, just one-third the pace of the prior decade, as raw material costs rise. Just as coal-fired plants have capitalized on high gas prices in recent weeks, so any slowdown in the decline of clean-tech costs provides an opening for incumbent assets to live on. To shower money on innovation but also delay the concomitant elimination is to work against ourselves.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.
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