[AD BREAK]
MEYER: Hi, I'm Robinson Meyer. I'm the founding executive editor of Heatmap News.
JESSE JENKINS: And I'm Jesse Jenkins, a professor at Princeton University and an expert in energy systems.
MEYER: And you are listening to Shift Key, the new podcast about climate change and the energy transition from Heatmap News. On today's show, we're going to talk about how the IRA, the Inflation Reduction Act, President Joe Biden's big climate law passed in 2022, how it's working, whether it's working. We have new data to shine light on this extremely important question. And we also are going to do as always our upshift and downshift, our thing that gave us hope this week and our thing that maybe has us feeling a little down. So Jesse, ready?
JENKINS: I'm ready. Let's dig in.
MEYER: Let's get into it. In August 2022, President Joe Biden signed the Inflation Reduction Act, the IRA. It's the largest climate law in American history and arguably in global history. And it threw the full financial power of the US federal government behind decarbonization, directing more than $500 billion in grants and tax credits toward replacing old dirty fossil fuel infrastructure with new clean zero carbon technologies. Now, when it passed, modeling, including from the REPEAT Project, which is a collaboration of ZERO Lab at Princeton University, led by my co-host Jesse Jenkins and Evolved Energy Research, a consulting firm, suggested that the law would cut US greenhouse gas emissions 37 to 41% by 2030. And I should say this research when it came out was a big deal. You don't have to take my word for it. The ZERO lab’s work was cited in the Guardian and the New York Times, by the Wall Street Journal, by legislators and by the White House itself.
And it wasn't the only kind of piece of energy modeling that we used to figure out how big a deal the IRA was. There were other reports, one from an organization called the Rhodium Group and another from a nonprofit called Energy Innovation. Now those reports really, I think at the time, helped us understand just how big a deal this law was going to be. We're now just about 18 months after the Inflation Reduction Act has been signed. And that means we're getting to a point where we can see the impact of this legislation. We can start to see whether it's working. And the REPEAT project, in conjunction with the Rhodium Group, MIT and Energy Innovation — all the groups that did this research last time have gone and conducted the first analysis of whether the law is working — our kind of first midstream assessment, 18 months in, of whether the IRA is actually reducing emissions and decarbonizing the economy like we hoped that it would. So that's what we're gonna talk about on the show. The first real analysis of whether Biden's climate law is cutting greenhouse gas emissions, with my co-host Jesse Jenkins, one of the researchers who helped us understand its potential in the first place. So Jesse, I actually want to start by backing up slightly. And before we get into this new data that you have that talks about, you know, whether the law is working, let's start with this: how is the IRA supposed to work?
JENKINS: The IRA is effectively putting clean energy on sale for all Americans. That's how it's supposed to work. It is a set of financial incentives that effectively drop the cost of just about any action you would want to take to help accelerate the clean energy transition by, you know, somewhere in the order of 20 to 50%. So it's a little bit like you know, Black Friday shopping deals or Cyber Monday or whatever your favorite sale is. It’s, you know, using the federal purse to make it easier and a smarter financial decision for households or businesses or utilities or whoever else to just make the greener investment or purchasing decision over the dirtier one.
And it's really quite comprehensive. It involves a set of incentives that cut across really all of the major emitting sectors of the economy. But in particular, all of our modeling from REPEAT Project and our colleagues at Energy innovation and Rhodium Group, indicated that the biggest emissions reductions over the next decade, in particular, would come from the power sector, electricity generation, and the transportation sector, particularly the uptake of electric vehicles.
These are two trends that were already underway before passage of the Inflation Reduction Act. And what we're looking for is evidence that those trends have basically been supercharged by the incentives provided in the act.
MEYER: And luckily my understanding is that those are exactly the two sectors we have new data on today. Is that right?
JENKINS:
That's right. So yeah, this should be a terrifying moment for any modeler — when we get to check our modeling projections against reality. But we did just that. We have data from 2023 now, courtesy of the Clean Investment Monitor Project. If you go to cleaninvestmentmonitor.org, you can check out this data yourself. This is a joint project of the MIT Center for Energy Economic Policy Research and the Rhodium Group. This is led in part by Brian Deese, who is one of the chief economic advisors to President Biden and one of the key architects of the series of laws passed in the last Congress. He was the chair of the National Economic Council and is now an innovation fellow at MIT in helping lead this project.
And what it's doing is, it's basically giving us as close to real time a look at the progress of the clean economy in the United States as I think we can get. It's basically updated every quarter and it's tracking all of the public and private investments in actuality as well as announced projects, that kind of as a leading indicator of what's coming in the future across most of the major sectors that we're talking about here. It's a really helpful data set to gauge our progress. So what we did was we took that data on zero emissions vehicle adoption — so EVs and fuel cell vehicles and plug in hybrids and clean electricity capacity additions — and compared that to what each of our three modeling groups were estimating was likely to happen after passage of the Inflation Reduction Act, and I should add the Bipartisan Infrastructure Law as well, which we were modeling you know back in 2022. So now we have year end 2023 data and the question is, how well are we tracking at least in this first year out from passage of those major laws?
MEYER: I wanna talk in a second about how confident we are that the signal that we're seeing in the data is actually the IRA or the Bipartisan Infrastructure Law, like how confident we are in the Bidenomics signal. But first, let's do the moment of truth. Let's just first get to the data. So in the power sector, what do we see?
JENKINS: What we see in the electricity sector is a new record set for zero carbon electricity generation and storage capacity additions. That's new power plant and battery storage construction. In aggregate, we saw over 32,000 megawatts or 32 gigawatts of new zero carbon generation and storage added to the US grid in 2023. That's about a 32% increase from the rate in 2022. And it edges out a previous record that we saw in 2021 of about 31.6 gigawatts.
So good news is we're setting new record growth rates in total in terms of wind and solar and battery additions. Unfortunately, that does fall on the lower end of what we were projecting in most of the modeling results. We were looking for on average about 46 to 79 gigawatts. So call it, you know, 40 to 80 gigawatts on average of additions in 2023 and 2024. And we fell short of the low end of that range right at 32.3 gigawatts. And so, unless the pace accelerates substantially in 2024, we're probably going to fall a bit behind schedule in terms of capacity additions.
MEYER: And do we have a sense of what's driving that? Because I think that's a very surprising finding, that we're behind schedule in the power sector where I think people feel pretty good generally about the pace of decarbonization or I think where the common wisdom at least is that the pace of decarbonization is like proceeding apace. What's driving this underperformance of the model?
JENKINS: So it's really the difference between solar and wind additions. The solar sector added about 18.4 gigawatts of capacity in 2023. That's up massively from just about 11 gigawatts in 2022. It's about double what we had seen in 2020 which was kind of our reference when we were doing our modeling as we started the REPEAT project in 2021. And so that's looking encouraging and in fact, is running ahead of schedule with the average pace of additions that we saw in REPEAT project results.
Batteries are growing way faster than we expected. And that helps really make the most of those solar capacity additions because solar and batteries are kind of like peanut butter and jelly, they go together quite well. And that's because solar has this nice, regular daily fluctuation, right? From the sun rising and setting. And that pairs really well with batteries, which today in a way lithium ion batteries are best suited for, you know, only a few hours of storage. So they'll charge for three or four hours in the middle of the day when we've got an abundance of sun. And then they'll discharge in the evening to help meet the evening peak of demand when everybody's coming home from work.
The batteries basically helped shift the solar output from the middle of the day to hit that evening peak. And that's, that's really helpful.
Where things are running behind schedule is really in the wind sector, where we only built about half of the peak rate, actually less than half, that we've seen historically in 2023. Additions of wind power in 2023 were only about 6.3 gigawatts, and that's down from nearly 15 gigawatts in each of 2020 and 2021.
So that's a step backwards at a time when we should be smashing new record growth rates across all of these sectors. And that's giving me the biggest concern as we look at in the next couple of years.
MEYER: And that's, I mean, last show we talked about offshore wind and the troubles in offshore wind and how it seems like some big offshore wind projects that we thought might be coming online in the middle of this decade might not be coming online till the end of the decade. But when we talk about wind underperforming in terms of the whole country over the past year, we're really still talking about onshore wind. This is like big turbines in the middle of the Great Plains, not big turbines off the coast of New York, New Jersey, right?
JENKINS: That's right. Yeah, I think I don't think we had any significant offshore wind capacity additions coming in 2024. You know, most of that we were expecting would come in between 2026 and 2030 or 2035. So this is really a story about onshore wind, where if we look at the economics of onshore wind across the country, there's a tremendous number of sites that look very economic given the incentives provided by the Inflation Reduction Act.
And unfortunately, we're just not building out at the pace that would be economically justified. And that is really an indicator that there are a substantial number of other non-economic frictions or barriers to deployment of wind in particular at the pace that we want to see.
MEYER: Before we go on, I just want to make it clear—
JENKINS: Maybe it's worth pausing and unpacking what those incentives look like. But the main one is what's known as a production tax credit that provides a payment of tax credits for every megawatt hour of clean electricity produced over the first 10 years of operations from a new facility. And that credit is worth about $28 per megawatt hour, which is getting pretty close to the average wholesale revenue that you would get just from selling your electricity. So it's basically doubling roughly, or maybe it's an 80% increase, the revenues that a wind or solar facility gets during its first 10 years of operation. And that is a huge boost in terms of the return on investment that people are seeing. And so that is the incentives that the IRA expanded and extended into the long term, you can increase it even further than that, if you meet domestic content requirements or build in so-called energy communities. And so it could be an even larger incentive worth up to 20% more than that if you meet both of those requirements.
MEYER: I was going to say, the back of the envelope number I usually hear is like a 5% increase in interest rates, is like a doubling of project cost. But if you're doubling project revenue, that actually suggests that yes, we're seeing some big non-economic factors hold up offshore wind.
JENKINS: Yeah, so it's definitely true that the increase in interest rates is sucking up some of what would have been the kind of financial tailwinds provided by the Inflation Reduction Act. And that's why I'm eager to see what our new round of modeling results looks like. But the other, I think data point here is that, you know, batteries and solar are also 100% capital investments just like wind. And so interest rates would affect all of them equally in many ways. So there has to be something unique to the wind industry here that's holding the wind sector back while solar and batteries set new growth records. I have my speculation as to what that is, I think it's, you know, three factors and I have no idea, you know what proportion we can assign to each of them.
One of the first things that's I think unique about the wind sector is that it was facing the full expiration of that production tax credit that I was mentioning. So prior to passage of the Inflation Reduction Act, which extended this credit for the long term out through into the 2030’s. We've had this on again, off again history with the production tax credit of expirations every few years. It's been around since 1994 but it's not a permanent part of the tax code. And so every few years, it's up for renewal.
But unlike the ITC, the investment tax credit that was supporting solar previously, which was also on a ramp down but was still in place when the IRA passed, the production tax credit had entirely phased out for projects that commenced construction after the end of 2021. At that point, it had been reduced to only 60% of its full value. So if you wanted to get the full value, you had to finish or start construction by the end of 2019.
And I think we can see that in the data, what that did was that pulled forward the project pipeline, the development pipeline, and encouraged everyone if they could to start their construction by the end of 2019 in order to lock in the full value of that production tax credit. And that's why I think we saw record build outs in 2020 and 2021 because everybody was finishing projects that they commenced in 2019 in order to get the full value of the credit.
MEYER: You think the first factor here is like maybe a pipeline problem, so to speak, where a ton of projects started in the pipeline in 2019, they were completed in 2020 or 2021, and now we're in this fallow period where the projects that started after the IRA passed aren't complete yet, so we don't see them showing up.
JENKINS: That's exactly right. So that's the first factor. So if that's an issue, then what we would expect to see is that the project pipeline is large now and that we would see more projects coming in 2024 and 2025 that were started as the IRA was passed.
Now the other factor that's, I think, a little bit more unique to wind is also the impacts of the supply chain disruptions that we saw around COVID, and the increase in labor costs, particularly in Western countries. And that's because the solar sector and batteries are dominated by China and other Asian manufacturing bases. Whereas wind is really still a Western-produced technology, most of the wind manufacturing is in Europe or the United States.
That's partly because these are such big components, wind turbines, missiles and towers and blades are massive. And so there's less advantage of shipping them around the world. You want to build them closer to where you need them. And so we maintain more of a manufacturing base. I think something like two thirds of all of the content of wind turbines built in the US were manufactured here, whereas we only build about 5% of the solar PV modules in the US in terms of their domestic content right now. So I think that's important because what we saw was, you know, a very different pandemic response, right, in Europe and the US versus China where China largely kept its manufacturing going for most of the pandemic. Whereas the US had, you know, these disruptions and Europe had these disruptions from lockdowns.
We had more rapid inflation, you know, labor costs were going up. And so all of that I think hit the wind industry harder than it hit batteries and solar PV. We see that in the real costs of these projects. So for the first time, we saw real cost increases for all of the technologies we're talking about: wind, solar and batteries. But already in 2023 costs are back down for modules, solar PV modules and battery packs, but they're still up for wind. So I think that's an important factor too.
MEYER: It's not only that China kept the factories going, it's that even in the post pandemic moment— I feel like this is such an important aspect of how the global economy is working right now that hasn't been fully understood— the US did a ton of demand support macro-economically. Not electricity demand, but I mean, we sent checks to people, we did expanded employment, we made sure the consumers kept spending. China really did so much less of that. And so China's pathway to growing its economy to the level that it hopes to grow it right now is entirely through expanding exports and trade.
JENKINS: And so no wonder they were pumping the supply side up, right?
MEYER: All their support has gone to the supply side. And then furthermore, there's just like this structural support to the supply side because Chinese consumers are in such poor condition, basically, that they have to export things they make is their only possibility of breaking even and growing the economy.
JENKINS: Yeah, for now, at least. I'm sure we'll come back to talk about China's transition soon. So I would say those two factors are hopefully transitory, right? The sort of supply shocks are fading. The inflation is ebbing and we should be rebuilding the pipeline.
The third factor is the one that keeps me up at night. And that's just that I worry that wind is just much more difficult to site and much more transmission-dependent than solar and batteries are.
And that's kind of a function of the physics of wind power, which is interesting. Wind speeds and solar radiation, you know, kind of vary about proportionally. The best wind sites in the country are about twice as good as the worst wind sites. And that's true for solar too, like the best solar sites in Arizona or New Mexico have about twice the resource quality as you know, Maine or, you know, somewhere else in New England. And that makes sense because the physics of the wind is driven largely by the impacts of the sun heating different parts of the planet differentially and that moves pressure and temperature around and that drives the wind.
The big difference is that solar panels convert sunlight or insulation into electricity kind of proportionally to the resource quality. So a linearly one for one kind of relationship, whereas wind turbines convert wind speeds to wind power at the wind speed cubed. So if you double the wind speed, you get about an 8x increase in the wind power generation. And what that does is it makes wind much more site-dependent than solar, right? If you have a good wind speed site, you're not just a little bit better than a bad wind speed site, you're way better. And so the best, most economic, you know, attractive projects, they have to be where it's really windy.
And that means they don't have as much flexibility about where to build and those windy locations, you know, right up and down the middle of the Great Plains, for example, tend to be a lot further from where most people live. And so they're also much more dependent on transmission to site those projects than solar projects, where you can kind of move around pretty freely across a broad area without really sacrificing much in terms of resource quality. And therefore you can pick a site that's easier to build, that has less local opposition, that happens to be closer to a transmission line. Maybe you lose 3-5% of your, you know, power output by picking that easy-to-develop-site over maybe the best one around. But it's just not that big a difference whereas for wind, it really could make or break a project.
MEYER: Last question, then I want to move on to EVs, because that's so interesting. But how much does solar and batteries need to overperform to make up for this issue we're seeing with wind?
JENKINS: So if wind can't really get back on the same track as it was in 2020 and 2021 where we're building at least 15 gigawatts a year and kind of growing steadily from there, then it's true that solar and batteries are going to have to step up and kind of fill the gap.
And I think there's a chance that could happen if we look at the results kind of extrapolating out a bit further beyond 2023. We in the REPEAT project are estimating about 26 gigawatts a year of solar additions between now and 2026. So 2023 through 2026, and about 15 gigawatts a year of wind. And so if wind can only do eight or seven, you would have to see solar growing at maybe 35 or 40 gigawatts a year.
And that's actually exactly what the US Energy Information Administration is projecting for the solar sector over the next couple of years. They're projecting that in 2024, we'll build about 44 gigawatts of utility scale solar, of both utility and distributed solar, I should say, and about a similar amount in 2025. And so there's a chance that we actually could see solar kind of over-performing and making up for wind being a laggard and that kind of gets us through the next couple of years. But the growth rate just has to keep smashing new records every year from here on out. And I don't think we can really do that if we're dependent only on solar and batteries, we need both wind and solar pulling their weight. And if the wind industry can't pick things back up, I think we're probably gonna fall short of the targets that we were seeing in our modeling.
[AD BREAK]
MEYER: I want to move now to the other sector that your new research looked at, which is EVs, transportation, vehicles. What is happening in the US vehicle sector?
JENKINS: Yeah, this is one where it's funny, you know, you mentioned that I think most people have pretty good vibes about the power sector but maybe there's some warning signs that wind is lagging. I think we've seen a lot of bad vibes on the EV sector as I wrote for Heatmap a while back.
MEYER: It’s nothing but bad vibes right now!
JENKINS: Yeah, it's just all bad vibes. And yet this is the sector that is unequivocally on track, at least compared to our modeling— maybe not compared to Ford or GM’s sales growth projections— but as a sector, compared to our modeling from REPEAT project, as well as Rhodium and Energy Innovation, the EV transition is actually moving at about the pace that we expected. And that's probably likely to be true for the next several years also, not just for 2023.
MEYER: I just wanted to pause and put a pin in this point because it shocked me when I saw the initial report and I think it is so important. In the power sector, I feel like it's mostly good vibes right now. Like people have a sense that the power sector is decarbonizing at roughly the pace we need. That seemingly is not true! In the electric car sector, in EVs, there's a sense that like EVs are in trouble, the transition is in danger, things aren't going well, it's not going as well as the Biden administration wants or thought it would. And in fact, it's going basically at the pace we thought it would happen.
I just think this is such an important, interesting thing because it is completely the opposite of, if you're just reading the paper, it's completely the opposite of what you would think.
JENKINS: Yeah. And maybe this reflects just that our modeling groups were a little bit more conservative than individual car companies were in their sales growth projections. But we look at new technology adoption and we typically apply an S-curve to that adoption where they're growing at double-digit compound annual growth rates at the beginning. But then they hit, usually, a linear phase where they're growing at a pretty steep rate but it's a straight line rather than continuing to bend upwards like an exponential curve. And what that means is that you would expect the annual growth rates, the percentage growth, to be declining even as the absolute sales growth is increasing because you're building on a much bigger base, right? You know, adding 20% to a million vehicles is easier than adding 20% to 5 million vehicles, right?
MEYER: I mean, this is like a version of the Facebook problem, right? Where eventually just enough humans are Facebook users that Facebook has to find other ways to make money. It can't just keep adding new humans every quarter.
JENKINS: Exactly. So we all modeled these uptake rates pretty similarly as this kind of S-curve where we expected growth to be strong. We expected, I think, supply chain constraints on the production side to persist a bit longer than they did in reality. So that's an interesting divergence from at least our kind of underlying thinking at REPEAT. We thought that it would be harder to ramp up manufacturing capacity as quickly as the auto industry has.
MEYER: Huh!
JENKINS: But in general, you know, we are expecting to see what we saw. Actually it’s interesting, in 2023, we actually saw the annual growth rate go up. In 2022, the growth rate for zero-emissions vehicles, and that includes EVs and plug-in hybrids as well as fuel cells (although they’re a rounding error) went up by about 43%, 44% in 2022. And that growth rate accelerated in 2023 to 52%. So despite all the vibes about slowing growth, there's actually no evidence of that, at least on an annual basis. 2023 grew faster in compound annual growth terms, percentage growth terms, than 2022. But we would expect that growth rate to decline. None of our modeling is expecting a 50% annual growth rate from every year. We would hit 100% sales in just a matter of a few years if that were the case.
Instead, we're expecting the growth rate in 2024 to 2026 to be somewhere between 30 and 44% and to fall even further to somewhere between about 15 and 27% from 2027 to 2030. You know, exactly following that S-curve where the annual growth rate is declining as we hit that linear phase.
MEYER: I just want to be clear, this is in the absence of any technology-forcing policy, like new EPA rules that say you have to sell a certain number of EVs per year.
JENKINS: We do include the states that have been following California in adopting the Advanced Clean Cars to standard, which is their requirement that by 2035, 100% of vehicles need to be zero-emissions vehicles, vehicles sold, I should say in 2035 need to be zero-emissions vehicles. And so we had included at the state level, some states like that, there's about a dozen that are following in that direction. That's maybe 30% or so of the overall vehicle market in the US. So it's not inconsequential, but it's not the only thing going on. I think we all expect that 2024 will see a slowdown from 2023. But again, that's in line with what we expected in our modeling.
What's actually really interesting, at least from the REPEAT side, is that hybrids, both plug-in hybrids and just regular hybrid electrics, are far outselling our projections from our modeling.
MEYER: The IRA has incentives for some plug-in hybrid vehicles, but it has no incentives for regular hybrid vehicles. Is that right?
JENKINS: That's right. Yeah, that's right. And that's kind of what we expected was that basically hybrids would kind of give way to EVs, and that seems to be not what we're seeing. We're seeing that actually, they're kind of additive, particularly hybrids. Where last year, I think we mentioned this on an earlier show, we sold about as many hybrid electric vehicles as we did battery electric vehicles about 1.1 or 1.2 million of each of them, and that is way higher than what we expected. I think we only expected about a 1 or 2% sale share, which is about where we were in 2019.
And instead hybrid electric vehicles have just grown right alongside EV growth, and that's encouraging from an emissions perspective because those hybrids are emitting about 40% less per mile traveled, probably, than an equivalent sized internal combustion car.
MEYER: They're also going to then go have a long life as a used car, continuing to reduce emissions.
JENKINS: So from a climate perspective, every internal combustion engine vehicle that's sold that's a hybrid instead of a regular one, that's a win.
MEYER: It is funny because I feel like on the one hand, this is surprising. And on the other hand, I can think of multiple new car consumers, like in my life, friends I know, who were buying a new car in the past two years and were EV-curious, they looked at EVs. They kind of quickly decided there were none in their price range or there were none that needed exactly what they needed them to do. And so then they bought a hybrid.
Why did they buy a hybrid? Well, because they wanted to buy an EV, and they couldn't find one they liked. So they bought a hybrid because they felt like that was on the path of the transition, which is not really a rational consumer behavior as I think you would expect from a model. But on the other hand, kind of makes sense from a certain flavor of like, “Oh, well, I wanna help with this, but I can't buy an EV yet, so I'm gonna buy a hybrid.”
JENKINS: Yeah, I mean that was my mental model too because I think that's how you think about it. If you're segmenting the market, there's a certain amount of consumer who cares about the environment, they care about the cost of fueling their vehicle or both. And so they're looking at a hybrid versus a plug-in hybrid versus an EV, and they're going to fall in that range. And our expectation was that the large incentives provided for EVs would basically shift the consumer from a hybrid to the EV. But it looks like either that's not what's happening or there's a larger market out there for EVs than even we anticipated, and it's just that right now that market is still being split between hybrids and EVs.
But there's basically twice as many consumers interested in one of those than we thought, right? Because we sold about 2.2 million hybrids and battery electric vehicles, you know, whereas we were only expecting, you know, a few 100,000 hybrids and then around that many EVs. So, you know, there's a million extra consumers out there that we didn't think would be there in the market in 2023. And again, my thinking was, look, a plug-in hybrid vehicle is always going to be more expensive than a battery electric or an internal combustion car because it's just, both drivetrains crammed into the same vehicle.
MEYER: Right.
JENKINS: It's got a pretty big battery, not as big as an EV, but it's a pretty good size one. It has to keep the internal combustion drivetrain and add the electric motors, you know, and so it's gonna be relative. It's always gonna be a cost premium over an internal combustion car. Whereas a battery electric vehicle, they're getting cheaper and cheaper every year and there's gonna be a point before too long where even the upfront cost is lower. I think the cost of ownership is already at parity, but you're gonna go to the dealership and it's just gonna be cheaper to get in a battery electric car than a internal combustion car because they're simpler to build and they have less parts and batteries are the biggest chunk of the cost and batteries keep getting cheaper year after year.
MEYER: Yeah, there's this argument you hear from Toyota executives, which I've always taken as like 70% cope. Where they say, “Oh, well, actually, you know, plug-in hybrids and regular hybrids make more sense because as long as lithium and these minerals we need for the batteries are scarce, you get more emissions reductions per ton of lithium or per ounce of lithium or per ounce of cobalt, whatever, than you do with, with a plug-in hybrid or a regular hybrid than you would with a pure battery electric vehicle. Do you think that a plug-in hybrid is this range anxiety security blanket where you're able to do a lot of your trips plug-in but, whenever you need—
JENKINS: It depends on the size of the battery. Yeah, in some ways, the plug-in hybrid is the ideal vehicle, right? If you had, you know, a 40 or 30 mile range, that covers most people's daily commute, the all year around town, driving to pick up the kids at soccer, school or whatever. And then when you need to go on a road trip, you've got your gasoline engine and you can go for as long as you want. So in some ways, it's kind of the ideal American car if you didn't think about charging infrastructure.
But of course, as we build out the charging infrastructure and as batteries get cheaper, you know, BEVS get cheaper. I think it will make sense for more and more people to just get rid of the gas part and you don't need the range extender. You know, we are a single car household. We have one EV only and our second car is an e-bike, for riding around town. You know, we put 20,000 miles on our car since we bought it in November of 2022. And we've been on many road trips and we had maybe one or two charging experiences that were suboptimal.
MEYER: [laughs]
JENKINS: But like that is such a small part of my overall driving experience on those 20,000 miles. Most of them, I just wake up in the morning and my car is full with 280 miles, 290 miles of range. That's like enough for a week. And I never have to go to the gas station! The convenience of that so outweighs the one or two frustrating experiences in a long distance trip every year, that I think most people, once they're in a battery electric vehicle, they don't miss the gas at all. We've seen actually in recent consumer reports, trends that consumers who have bought EVs are far more likely to buy a second EV than to go back to internal combustion cars.
Toyota's argument about lithium, I think is intellectually correct, I should say, if you think that lithium is in finite supply. But go look at lithium prices on the market right now. They're in freefall. We are not lithium constrained, right? So, I don't know, it's a good, nice ex post justification for Toyota’s strategy. But basically what Toyota did was they bet big on fuel cell vehicles and they've lost massively. So they're trying to recoup their position by doubling down on the one area where they do have advantage, and that's in hybrids and plug-in hybrids.
MEYER: How would you look at this big— is Paris any good or not? Yes or no, is the IRA working?
JENKINS: I would say yes, I think that we're still within the cone of growth for these sectors that we projected. So I don't think there's any evidence that we're off, you know, way off base yet. Emissions did fall in 2023 as the economy expanded for the first time since the pandemic hit, it’s lower than what we projected in our modeling. So, you know, again, it's early. We should have mentioned this much earlier on, but it's hard to know— I think you alluded this actually in your setup— how much signal there is here from the IRA.
MEYER: Yeah.
JENKINS: Because we spent most of the last 18 months writing tax credit guidance and setting up new grant programs and issuing RFPs and reviewing those and most of the money hasn't actually gotten out the door yet. And so, whatever we're seeing now is just sort of like the early stages of influence from these policies and where the real signal is going to show up is in particularly 2025 and 2026 and 2027. When you have time to build a new factory, to install a new wind farm, to expand our charging infrastructure, and really take advantage of the credits and grant programs and others that were enacted by these laws, which are really just starting to get out the door.
MEYER: One more observation, which is, it is crazy that hybrids especially— I don't want to keep going back to this and I feel like again, we're just seeding topics for a future conversation— but it is crazy that hybrids are popping off during a year when gas prices did not go up.
JENKINS: Yeah!
MEYER: Because I feel like in the past, what we've seen is the only years where Americans don't buy more SUVs, let's say, than they did the previous year, is in years like 2007 or 2022, when gas prices spike to really high, you know, previously unprecedented levels. 2023, gas prices went down.
JENKINS: Maybe the memory is still in people's minds, maybe it's the inflation and the cost of living overall is still very salient for people. And so the ability to save some money on your gas bill is still helpful even if gas is not at its peak inflation levels.
I think the other factor is just that the upfront cost of buying a hybrid has fallen so much that for many models, it's just like a total no brainer. I spend a few $100 more and I get a better car that has more power and less fuel consumption. You know, it just makes a ton of sense from an economic perspective.
MEYER: And I was thinking earlier that in some ways, the presence of battery electric vehicles really defangs conventional hybrids because it is no longer the “lib car.” I mean, I don't think that cultural politics are the entire driver here, but the presence of battery electric vehicles as kind of the new “Democrat car” for lack of a more elegant way of phrasing that particular cultural idea. Okay, what I've learned from this is we need to do like 15 more episodes on cars and we need to do another 15 more episodes on China's macroeconomy and green transition.
JENKINS: Alright, we got the next season lined out.
MEYER: Yeah, let's do Upshift and Downshift. But first, let's take a break.
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MEYER: Okay, let's do Upshift/Downshift. Jesse, what is your downshift for the week?
JENKINS: So my downshift is one of the things that I think flew under the radar for a lot of people, is that on February 15th, the US Federal Energy Regulatory Commission approved a new pipeline from Texas to Mexico that will export about 2.8 billion cubic feet of natural gas for the purposes of supplying a new liquefied natural gas plant on the Pacific coast of Mexico. You know, we talked in our first episode about the pause that the Biden administration has put on the review of new LNG export terminals in the US.
This is an export pipeline which I think falls under the same criteria of, you know, having to decide whether it's in the public interest or not. And we just approved another 2.8 billion cubic feet of exports. That's like a quarter of all of our LNG exports today! And this is going to go out as a pipeline, not as LNG, right. It'll leave the US in a pipeline but it will then go to the Pacific coast of Mexico where it will supply a new $15 billion LNG terminal that is meant to supply Asian markets, right? So the ability to get the gas to the Pacific Ocean and then go from there to Asia is, you know, quite advantageous relative to the Gulf coast terminals that we're mostly talking about in the US.
So I just thought this was really interesting, I mean, we've had this big debate in our first episode and across the energy sphere about the role of exports in the US economy of natural gas exports, and here's this really massive pipeline that just kind of snuck in under most people's radar. I almost didn't catch it. But you know, big approval last week of a 2.8 billion cubic feet per day gas export pipeline to Mexico. What’s let you down this week?
MEYER: I feel like I'm about to use a downshift that I will have to use sparingly over the next few months. The presidential election, Jesse! I'm not sure you've heard about it, but there's a presidential election in the United States of America in 2024. And it has me down. Ezra Klein published a really interesting audio essay this past week about calling for Biden to step aside and for a Democratic Convention, an open Democratic Convention later this summer to select a candidate. I think he counseled something in that, which I thought was quite wise, which was that it's February and a lot of Democrats are acting very fatalistically about their candidate, and that's kind of absurd.
It's February, it's too late to get on the primary ballot in a lot of states. But there's still many months to go before the presidential election and nothing is written. There’s still a lot of different possibilities that could happen. It’s just that the outcome of the presidential election is not yet secure. However, at this point, I think it is important to say Biden is losing, which from a strictly climate policy lens would be a really bad thing for climate policy.
And I think what has me most worried about this presidential election and, and which I think, I hope that folks listening to this and folks who were very angry at me when I posted the Ezra Klein essay— I don't know whether I agree with it, I'm not gonna take an advice standpoint here— I will say that what has been so noticeable about the campaign so far is the reluctance to use Biden and the reluctance to put Biden out in public. And that the way to dispel public concerns, which seem to be extremely widespread, understandably, about the president's age, are to have the president out there a lot, talking! Showing that he can campaign, showing that he's up to the task, and the fact that that has not happened as much over the past two weeks and the fact that the president is so unavailable— he's done fewer press conferences than both of his predecessors— I think should give a lot of folks who are interested in US politics, even solely because of climate policy, a lot of pause.
Well, let's turn this around, and what's your upshift?
JENKINS: My upshift is from Jeff Stein at the Washington Post who is an economics reporter there and has been doing some really interesting on-the-ground reporting as to the impacts of the Inflation Reduction Act and other incentives in these climate bills on, you know, local economies around the country. And so he spent some time last week in Michigan with the United Association Union of Plumbers and pipefitters in central Michigan. So this is, you know, a union that does plumbing and HVAC technicians and welding and pipe fitting. And what he found is that the demand for union jobs there is just booming, driven largely by two massive new EV battery plants that are under construction in Michigan, driven by the Inflation Reduction Act and the incentives for domestic battery manufacturing that the law provides, that includes both direct subsidies for manufacturing EVs in the US, as well as tying some of the EV tax credits to the sourcing of domestic or North American assembled batteries.
So it’s a straight line from the passage of the Inflation Reduction Act to the employment boom that they're talking about. He noted that typically this union in central Michigan has fewer than 1000 members and that these two plants alone could hire about 500 full time jobs each from their union. So the entire union would be employed building these two battery plants. And clearly that's gonna create new jobs and new opportunities for union work and well-paid family-supporting jobs in Michigan. I think that that story is playing out across the country. That’s hopefully encouraging in the long term for the politics of the clean energy transition because when people see the clean energy transition as something that's fueling their economic future and not just as about avoiding scary future climate outcomes, I think that has a strong amount of durability and a lot of political salience.
MEYER: I am so curious though to see whether these— I mean, unions are now, the federal government has passed a ton of policy that increases demand for union workers, and like a lot of these unions have to grow in a way they have not been asked to grow in a long time. And I'm so curious to see how that happens.
JENKINS: So, what about you, Rob? Do you have something to close us out on and keep us a little bit more positive than that electoral news?
MEYER: There's a really interesting study that came out earlier this month in the Journal Earth's Future by Mallory L. Barnes et al, she's a scholar at Indiana University in Bloomington, that looked at this question that I think has kind of hung over some climate data for a long time, which is when you look at these global maps of temperature rise and how much different parts of the planet have experienced global warming, often the least amount of warming has happened in the Eastern United States. And you'll sometimes even hear this called “a warming hole” that while the rest of the planet seems to be experiencing, you know, varying levels of global warming and especially at the poles, quite extreme levels of global warming, the Eastern US, which of course, is this extremely important area, if you're talking about global climate policy, the Eastern US isn't experiencing as much warming, at least compared to other places in the world.
So what this study found, the study is called “A Century of Reforestation Reduced Anthropogenic Warming in the Eastern United States.” What the study found is that basically in the Southeast US, especially, a lot of land that used to be tillage or farmland has since become reforested. And that reforestation drives local cooling and that has mitigated a lot of the global warming we'd otherwise expect to see, and that’s why recent temperatures have been cooler than we might have expected with global warming. And so the abstract says, “Ground and satellite-based observations showed that Eastern United States forests cool the land service by 1 to 2 °C annually compared to nearby grasslands and crop lands, with the strongest cooling effect during midday in the growing season when cooling is 2 to 5 °C.”
I just found that really fascinating. Of course, it raises lots of adaptation questions like should we be doing more reforestation in other places in order to generate local cooling in those places? Reforestation has, while not a silver bullet by any means, does also have climate benefits as well. You know, carbon cycle benefits. And so I just thought that was such a cool study and while it might not be kind of encouraging in the conventional sense in the same way that maybe yours was, I just found it to be so engrossing. It made me think about processes being connected to each other in ways I maybe hadn't thought about before. I thought it was really cool.
JENKINS: That is really fascinating. Those are not small effects. Those are quite substantial. So that's really quite interesting. I'm glad you shared that. I've heard a lot of conversation about urban forestation as an adaptation measure, right? Adding urban tree canopies does have appreciable impacts on local heat island effects that you see in cities, and that's maybe an important area of adaptation policy. Some of my colleagues here at Princeton are exploring those kinds of dynamics and there's a lot of interest there. But this is interesting. This is almost continental scale effects, right?
MEYER: Exactly.
JENKINS: Across a broad region for reforestation, not just in cities. So, wow, that's, that's really interesting. Thanks for sharing.
MEYER: Well, Jesse, I feel like we have so much here. There's just like 10 different things we could talk about next week. And I know I want to talk about China, I know I want to talk more about electric vehicles, I want to talk about transportation policy, maybe reforestation.
JENKINS: Yeah, there is so much to unpack here on Shift Key. I hope you all join us again next week as we dive in again.
MEYER: Thank you for listening to Shift Key.
[AD BREAK]
MEYER: Shift Key is a production of Heatmap News. The podcast was edited by Jillian Goodman. Our editor in chief is Nico Lauricella, multimedia editing and audio engineering by Jacob Lambert and Nick Woodbury. Our music is by Adam Kromelow. Thanks so much for listening and see you next week.
