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Carbon removal would seem to have a pretty clear definition. It’s the reverse of carbon emissions. It means taking carbon out of the atmosphere and putting it somewhere else — underground, into products, into the ocean — where it won’t warm the planet. But a new kind of carbon removal project shows how this formula can conceal consequential differences between approaches.
A few months ago, Puro.earth, a carbon removal registry, certified a small ethanol refinery in North Dakota to sell carbon removal credits — the first ethanol plant to earn this privilege. Red Trail Energy, which owns the facility, captures the CO2 released from the plant when corn is fermented into ethanol, and injects it into a porous section of rock more than 6,000 feet underground. Since Red Trail started doing this in June of 2022, it’s prevented some 300,000 metric tons of CO2 from entering the atmosphere, according to data published by the North Dakota Department of Mineral Resources.
There are two ways to look at what’s happening here.
If you just follow the carbon, it started in the atmosphere and ended up underground. In between, the corn sucked up carbon through photosynthesis; when it was processed into ethanol, about a third of that carbon went into the fuel, a third was left behind as dried grain, and the remainder was captured as it wafted out of the fermentation tank and stashed underground. “That is, in a broad sense, how that looks like carbon removal,” Daniel Sanchez, an assistant professor at the University of California, Berkeley who studies biomass carbon removal, told me.
But if you zoom out, the picture changes. For the carbon to get from the atmosphere to the ground, a few other things had to happen. The corn had to be grown, harvested, and transported in trucks to the plant. It had to be put through a mill, cooked, and then liquified using heat from a natural gas boiler. And this was all in service, first and foremost, of producing ethanol to be burned, ultimately, in a car engine. If you account for the CO2 emitted during these other steps, the process as a whole is putting more into the atmosphere than it’s taking out.
So, is Red Trail Energy really doing carbon removal?
Puro.earth takes the first view — the registry’s rules essentially draw a box around the carbon capture and storage, or CCS, part of the process. Red Trail has to count the emissions from the energy it took to capture and liquify and inject the carbon, but not from anything else that happened before that. So far, Puro has issued just over 157,000 carbon removal credits for Red Trail to sell.
This is, essentially, industry consensus. Other carbon market registries including Gold Standard, Verra, and Isometric more or less take the same approach for any projects involving biomass, though they haven’t certified any ethanol projects yet. (Isometric’s current rules disqualify ethanol plants because they only allow projects that use waste biomass.)
But the nonprofit CarbonPlan, a watchdog for the carbon removal industry, argues that it’s a mistake to call this carbon removal. In a blog post published in December, program lead Freya Chay wrote that because the carbon storage is “contingent upon the continued production of ethanol,” it’s wrong to separate the two processes. The project reduces the facility’s overall emissions, Chay argued, but it’s not “carbon removal.”
This debate may sound semantic, and to some extent, it is. As long as an action results in less pollution warming the planet, does it matter whether we label it “carbon removal” or “emission reduction”?
The point of carbon credits is that they are paying for an intervention that wouldn’t have happened otherwise. “You have to look at, what part of the project is being built because they receive carbon removal credits?” Marianne Tikkanen, the co-founder and head of standard at Puro told me. “In this case, it was the capture part.” Previously, the emissions from the fermentation tank were considered to be zero, since the carbon started in the atmosphere and ended up back in the atmosphere. If you just look at the change that the sale of credits supported, those emissions are now negative.
But the logic of carbon credits may not be totally aligned with the point of carbon removal. Scientists generally see three roles for technologies that remove carbon from the atmosphere. The first is to reduce net emissions in the near term — Red Trail’s project checks that box. In the medium term, carbon removal can counteract any remaining emissions that we don’t know how to eliminate. That’s how we’ll “achieve net-zero” and stop the planet from warming.
But those who say these labels really matter are thinking of the third role. In the distant future, if we achieve net-zero emissions, but global average temperatures have reached dangerous heights, doing additional carbon removal — and lowering the total concentration of CO2 in the atmosphere — will be our only hope of cooling the planet. If this is the long term goal, there is a “clear conceptual problem” with calling a holistic process that emits more than it removes “carbon removal,” Chay told me.
“I think the point of definitions is to help us navigate the world,” she said. “It will be kind of a miracle if we get there, but that is the lighthouse.”
Red Trail may have been the first ethanol company to get certified to sell carbon removal credits, but others are looking to follow in its footsteps. Chay’s blog post, written in December, was responding to news of another project: Summit Carbon Solutions, a company trying to build a major pipeline through the midwest that will transport CO2 captured from ethanol refineries and deliver it to an underground well in North Dakota, announced a deal to pre-sell $30 million worth of carbon removal credits from the project; it plans to certify the credits through Gold Standard. In May, Summit announced it planned to sell more than 160 million tons of carbon removal credits over the next decade.
Decarbonization experts often refer to the emissions from ethanol plants as low-hanging fruit. Out of all the polluting industries that we could be capturing carbon from, ethanol is one of the easiest. The CO2 released when corn sugar is fermented is nearly 100% pure, whereas the CO2 that comes from fossil fuel combustion is filled with all kinds of chemicals that need to be scrubbed out first.
Even if it’s relatively easy, though, it’s not free, and the ethanol industry has historically ignored the opportunity. But in the past few years, federal tax credits and carbon markets have made the idea more attractive.
Red Trail’s CCS project has been a long time in the making. The company began looking into CCS in 2016, partnering with the Energy and Environmental Research Center, the North Dakota Industrial Commission Renewable Energy Council, and the U.S. Department of Energy on a five-year feasibility study. Jodi Johnson, Red Trail’s CEO, answered questions about the project by email. “Building a first-of-its-kind CCS project involved significant financial, technical, and regulatory risks,” she told me. “The technology, while promising, required substantial upfront investment and a commitment to navigating uncharted regulatory frameworks.”
The primary motivation for the project was the company’s “commitment to environmental stewardship and sustainability,” Johnson said, but low-carbon fuel markets in California and Oregon were also a “strategic incentive.” Ethanol companies that sell into those states earn carbon credits based on how much cleaner their fuel is than gasoline. They can sell those credits to dirtier-fuel makers who need to comply with state laws. The carbon capture project would enable Red Trail to earn more credits — a revenue stream that at first, looked good enough to justify the cost. A 2017 economic assessment of the project found that it “may be economically viable,” depending on the specific requirements in the two states.
But today, two years after Red Trail began capturing carbon, the company’s application to participate in California’s low-carbon fuel market is still pending. Though the company does sell some ethanol into the Oregon market, it decided to try and sell carbon removal credits through Puro to support “broader decarbonization and sequestration efforts while awaiting regulatory approvals,” Johnson said. Red Trail had already built its carbon capture system prior to working with Puro, but it may not have operated the equipment unless it had an incentive to do so.
Puro didn’t just take Red Trail’s word for it. The project underwent a “financial additionality test” including an evaluation of other incentives for Red Trail to sequester carbon. For example, the company can earn up to $50 in tax credits for each ton of CO2 it puts underground. (The Inflation Reduction Act increased this subsidy to $85 per ton, but Red Trail is not eligible for the higher amount because it started building the project before the law went into effect.) In theory, this tax credit alone could be enough to finance the project. A recent report from the Energy Futures Initiative concluded that a first-of-a-kind CCS project at an ethanol plant should cost between $36 and $41 per ton of CO2 captured and stored.
Johnson told me Red Trail does not pay income tax at the corporate level, however — it is taxed as a partnership. That means individual investors can take advantage of the credit, but it’s not a big enough benefit to secure project finance. The project “requires significant capital expenditure, operating expense, regulatory, and long-term monitoring for compliance,” she said. “Access to the carbon market was the needed incentive to secure the investment and the continuous project operation.”
Ultimately, after an independent audit of Red Trail’s claims, Puro concluded that the company did, in fact, need to sell carbon removal credits to justify operating the CCS project. (Red Trail is currently also earning carbon credits for fuel sold in Oregon, but Puro is accounting for these and deducting credits from its registry accordingly.)
All this helps make the case that it’s reasonable to support projects like Red Trail’s through the sale of carbon credits. But it doesn’t explain why we should call it carbon removal.
When I put the question to Tikkanen, she said that the project interrupts the “short cycle” of carbon: The CO2 is captured during photosynthesis, it’s transferred into food or fuel, and then it’s released back into the air in a continuous loop — all in a matter of months. Red Trail is turning that loop into a one-way street from the atmosphere to the ground, taking more and more carbon out of the air over time. That’s different from capturing carbon at a fossil fuel plant, where the carbon in question had previously been trapped underground for millennia.
Robert Hoglund, a carbon removal advisor who co-founded the database CDR.fyi, had a similar explanation. He told me that it didn’t make sense to categorize this project as “reducing emissions” from the plant because the fossil fuel-burning trucks that deliver the corn and the natural gas boilers cooking it are still releasing the same amount of carbon into the atmosphere. “If we say only processes that, if they're scaled up, lead to lower emissions in the atmosphere are carbon removal, that's looking at it from a system perspective,” he said. “I can understand where they come from, but I think it does add some confusion.”
Red Trail Energy and Summit Carbon Solutions defended the label, noting that this is the way carbon market registries have decided to treat biomass-based carbon sequestration projects. “The fact that emissions remain from the lifecycle of the corn itself is not the focus of the removal activity,” Johnson told me. “The biogenic CO2 is clearly removed from the atmosphere permanently.”
Sanchez, the Berkeley professor, argued that Puro’s rules are adequate because there’s a path for ethanol plants to eventually achieve net-negative emissions. They will have to capture emissions from the boiler, in addition to the fermentation process, and make a few other tweaks, like using renewable natural gas, according to a recent peer-reviewed study Sanchez authored. “That's not what's happening here,” he told me, “but I view that as indicative that this is part of the basket of technologies that we use to reach net-zero and to suck CO2 out of the air.”
(Red Trail is working on reducing its emissions even more, Johnson told me. The company is finishing engineering on a new combined heat and power system that will improve efficiency at the plant.)
In addition to teaching at Berkeley, Sanchez is a principal scientist for the firm Carbon Direct, which helps corporate buyers find “high quality” carbon removal credits. He added that he felt the project was “worthy" of the dollars companies are designating for carbon removal because of the risk it involved, and the fact that it would blaze a trail for others to follow. Ethanol CCS projects will help build up carbon storage infrastructure and expertise, enabling other carbon removal projects in the future.
Though there is seeming consensus among carbon market participants that this is carbon removal, scientists outside the industry are more skeptical. Katherine Maher, an Earth systems scientist who studies the carbon cycle at Stanford University, said she understood the argument for calling ethanol with CCS carbon removal, but she also couldn’t ignore the fact that capturing the carbon requires energy to grow the corn, transport it, and so on. “You really need to be conscious about, what are the other emissions in the project, and are those being accounted for in the calculation of the CO2 removed?”
Carbon180, a nonprofit that advocates for carbon removal policy, shares that perspective. “When it comes to ethanol with CCS, we want to see the actual net negativity,” Sifang Chen, the group’s managing science and innovation advisor, told me.
In the U.S. Department of Energy’s Road to Removals report, a 221-page document that highlights all of the opportunities for carbon removal in the United States, the agency specifically chose not to analyze ethanol with CCS “due largely to its inability to achieve a negative [carbon intensity] without substantial retrofitting of existing corn-ethanol facilities.”
It’s possible to say that both views are correct. Each follows a clear logic — one more rooted in creating practical rules for a market in order to drive innovation, the other in the uncompromising math of atmospheric science.
At times throughout writing this, I wondered if I was making something out of nothing. But the debate has significance beyond ethanol. Sanchez pointed out to me that you could ask the same question about any so-called carbon removal process that’s tied to an existing industry. Take enhanced rock weathering, for example, which involves crushing up special kinds of rocks that are especially good at absorbing carbon from the air. A lot of the companies trying to do this get their rocks from mining waste, but they don’t include all the emissions from mining in their carbon removal calculation.
Similarly, Summit Carbon Solutions noted that CarbonPlan supports claims of carbon removal by Charm Industrial, a company that takes the biomass left behind in corn fields, turns it into oil, and sequesters the oil underground. In that case, the company is not counting emissions from corn production or the downstream uses of corn.
Chay admitted that she didn’t have a great answer for why she drew the boundaries differently for one versus the other. “We don’t claim to have all the answers, and this back-and-forth illustrates just how much ambiguity there is and why it’s important to work through these issues,” she told me in an email. But she suggested that one point of comparison is to look at how dependent the carbon removal activity is on “the ongoing operation of a net emitting industry, and how one thinks about the role of that emitting industry in a net-zero world.” There is no apparent version of the future where we no longer have mining as an industry, or no longer grow corn for food. But there is a path to eliminating the use of ethanol by electrifying transportation.
It’s worth mentioning that this niche debate about carbon removal is taking place within a much larger and longer controversy about whether ethanol belongs in a low-carbon future at all.
Red Trail told me the company sees the adoption of electric vehicles as an opportunity to diversify into making fuels for aviation and heavy-duty transportation, which are more difficult to electrify. But some environmental groups, like the World Resources Institute, argue that a more sustainable approach would be to develop synthetic fuels from captured carbon and hydrogen. I should note that experts from both sides of this debate told me that carbon credit sales should not justify keeping an ethanol plant open or building a new one if the economics of the fuel don’t work on their own.
In Chay’s blog post, she presented real stakes for this rhetorical debate. If we call net-emitting processes carbon removal, we could develop an inflated sense of how much progress we’ve made toward our overall capacity to remove carbon from the atmosphere, which in turn could warp perceptions of how quickly we need to reduce emissions.
Peter Minor, the former director of science and innovation at Carbon180 who is starting a company focused on measurement and verification, raised the same concern. “When the definition of what it means to remove a ton of CO2 from the air is subjective, what happens is you get a bunch of projects that might have quite different climate impacts,” he told me. “And you may or may not realize it until after the fact.”
There’s also a risk of diverting funding that could go toward scaling up more challenging, more expensive, but truly net-negative solutions such as direct air capture. This risk is compounded by the growing pressure on carbon market players like Puro and Carbon Direct to identify new, more affordable carbon removal projects. Over the past several years, influential groups like the Science Based Targets initiative and corporate sustainability thought leaders like Stripe and Microsoft have decided that old-school carbon credits — the cheaper so-called “offsets” that represent emissions reductions — are not good enough. Now companies are expected to buy carbon removal credits to fulfill their climate promises to customers, lest they be accused of greenwashing.
As a result, the industry has backed itself into a corner, Minor told me. “We have come out as a society and said, the only thing that is worth it, the only thing that is allowed to be used is carbon removal,” he said. “So if that's the only thing with economics behind it, then yeah, like, magic! Everything is now all of a sudden carbon removal! Who would have predicted that this could have happened?”
The success of carbon removal depends, ultimately, on integrity — the industry’s favorite word these days. From the companies trying to remove carbon, to the carbon credit registries validating those efforts, to the nonprofits, brokers, and buyers that want to see the market scale, everyone is talking about developing transparent and trustworthy processes for measuring how much carbon is removed from the atmosphere by a given intervention. But how good is good measurement if experts don’t agree on what should be measured?
“There hasn't been a way to standardize the climate impacts that are being promised,” said Minor. “And so I think unless we solve that problem, I just don't see how we're going to build the trust we need, to create the economics that we need and justify an industry that can’t really exist outside of the millions or billions of tons scale.”
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Current conditions: In the Atlantic, the tropical storm that could, as it develops, take the name Jerry is making its way westward toward the U.S. • In the Pacific, Hurricane Priscilla strengthened into a Category 2 storm en route to Arizona and the Southwest • China broke an October temperature record with thermometers surging near 104 degrees Fahrenheit in the southeastern province of Fujian.
The Department of Energy appears poised to revoke awards to two major Direct Air Capture Hubs funded by the Infrastructure Investment and Jobs Act in Louisiana and Texas, Heatmap’s Emily Pontecorvo reported Tuesday. She got her hands on an internal agency project list that designated nearly $24 billion worth of grants as “terminated,” including Occidental Petroleum’s South Texas DAC Hub and Louisiana's Project Cypress, a joint venture between the DAC startups Heirloom and Climeworks. An Energy Department spokesperson told Emily that he was “unable to verify” the list of canceled grants and said that “no further determinations have been made at this time other than those previously announced,”referring to the canceled grants the department announced last week. Christoph Gebald, the CEO of Climeworks, acknowledged “market rumors” in an email, but said that the company is “prepared for all scenarios.” Heirloom’s head of policy, Vikrum Aiyer, said the company wasn’t aware of any decision the Energy Department had yet made.
While the list floated last week showed the Trump administration’s plans to cancel the two regional hydrogen hubs on the West Coast, the new list indicated that the Energy Department planned to rescind grants for all seven hubs, Emily reported. “If the program is dismantled, it could undermine the development of the domestic hydrogen industry,” Rachel Starr, the senior U.S. policy manager for hydrogen and transportation at Clean Air Task Force told her. “The U.S. will risk its leadership position on the global stage, both in terms of exporting a variety of transportation fuels that rely on hydrogen as a feedstock and in terms of technological development as other countries continue to fund and make progress on a variety of hydrogen production pathways and end uses.”
Remember the Tesla announcement I teased in yesterday’s newsletter? The predictions proved half right: The electric automaker did, indeed, release a cheaper version of its midsize SUV, the Model Y, with a starting price just $10 shy of $40,000. Rather than a new Roadster or potential vacuum cleaner, as the cryptic videos the company posted on CEO Elon Musk’s social media site hinted, the second announcement was a cheaper version of the Model 3, already the lower-end sedan offering. Starting at $36,990, InsideEVs called it “one of the most affordable cars Tesla has ever sold, and the cheapest in 2025.” But it’s still a far cry from Musk’s erstwhile promise to roll out a Tesla for less than $30,000.
That may be part of why the company is losing market share. As Heatmap’s Matthew Zeitlin reported, Tesla’s slice of the U.S. electric vehicle sales sank to its lowest-ever level in August despite Americans’ record scramble to use the federal tax credits before the September 30 deadline President Donald Trump’s new tax law set. General Motors, which sold more electric vehicles in the third quarter of this year than in all of 2024, offers the cheapest battery-powered passenger vehicle on the market today, the Chevrolet Equinox, which starts at $35,100.
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Trump’s pledge to revive the United States’ declining coal industry was always a gamble — even though, as Matthew reported in July, global coal demand is rising. Three separate stories published Tuesday show just how stacked the odds are against a major resurgence:
As you may recall from two consecutive newsletters last month, Secretary of Energy Chris Wright said “permitting reform” was “the biggest remaining thing” in the administration’s agenda. Yet Republican leaders in Congress expressed skepticism about tacking energy policy into the next reconciliation bill. This week, however, Utah Senator Mike Lee, the chairman of the Senate Committee on Energy and Natural Resources, called for a legislative overhaul of the National Environmental Policy Act. On Monday, the pro-development social media account Yimbyland — short for Yes In My Back Yard — posted on X: “Reminder that we built the Golden Gate Bridge in 4.5 years. Today, we wouldn’t even be able to finish the environmental review in 4.5 years.” In response, Lee said: “It’s time for NEPA reform. And permitting reform more broadly.”
Last month, a bipartisan permitting reform bill got a hearing in the House of Representatives. But that was before the government shutdown. And sources familiar with Democrats’ thinking have in recent months suggested to me that the administration’s gutting of so many clean energy policies has left Republicans with little to bargain with ahead of next year’s midterm elections.
Soon-to-be Japanese prime minister Sanae Takaichi.Yuichi Yamazaki - Pool/Getty Images
On Saturday, Japan’s long-ruling Liberal Democratic Party elected its former economic minister, Sanae Takaichi, as its new leader, putting her one step away from becoming the country’s first woman prime minister. Under previous administrations, Japan was already on track to restart the reactors idled after the 2011 Fukushima disaster. But Takaichi, a hardline conservative and nationalist who also vowed to re-militarize the nation, has pushed to speed up deployment of new reactors and technologies such as fusion in hopes of making the country 100% self-sufficient on energy.
“She wants energy security over climate ambition, nuclear over renewables, and national industry over global corporations,” Mika Ohbayashi, director at the pro-clean-energy Renewable Energy Institute, told Bloomberg. Shares of nuclear reactor operators surged by nearly 7% on Monday on the Tokyo Stock Exchange, while renewable energy developers’ stock prices dropped by as much as 15%
Researchers at the United Arab Emirates’ University of Sharjah just outlined a new method to transform spent coffee grounds and a commonly used type of plastic used in packaging into a form of activated carbon that can be used for chemical engineering, food processing, and water and air treatments. By repurposing the waste, it avoids carbon emitting from landfills into the atmosphere and reduces the need for new sources of carbon for industrial processes. “What begins with a Starbucks coffee cup and a discarded plastic water bottle can become a powerful tool in the fight against climate change through the production of activated carbon,” Dr. Haif Aljomard, lead inventor of the newly patented technology, said in a press release.
Last week’s Energy Department grant cancellations included funding for a backup energy system at Valley Children’s Hospital in Madera, California
When the Department of Energy canceled more than 321 grants in an act of apparent retribution against Democrats over the government shutdown, Russ Vought, President Trump’s budget czar, declared that the money represented “Green New Scam funding to fuel the Left's climate agenda.”
At least one of the grants zeroed out last week, however, was supposed to help keep the lights on at a children’s hospital.
The $29 million grant was intended to build a 3.3-megawatt long-duration energy storage system at Valley Children’s Hospital, a large pediatric hospital in Madera, California. The system would “power critical hospital operations during outage events,” such as when the California grid shuts down to avoid starting wildfires, according to project documents.
“The U.S. Department of Energy’s cancellation of funding for [the] long-duration energy storage demonstration grant is disappointing,” Zara Arboleda, a spokesperson for the hospital, told me.
Valley Children’s Hospital is a 358-bed hospital that says it serves more than 1.3 million children across California’s Central Valley. It has 116 neonatal intensive care unit beds and nationally ranked specialties in pediatric neurology, orthopedics, and lung surgery, among others.
Energy Secretary Chris Wright has characterized the more than $7.5 billion in grants canceled last week as part of an ongoing review of financial awards made by the Biden administration. But the timing of the cancellations — and Vought’s gleeful tweets about them — suggests a more vindictive purpose. Republican lawmakers and President Trump himself threatened to unleash Vought as a kind of rogue budget cutter before the federal government shut down last week.
“We don’t control what he’s going to do,” Senator John Thune told Politico last week. “I have a meeting today with Russ Vought, he of PROJECT 2025 Fame, to determine which of the many Democrat Agencies, most of which are a political SCAM, he recommends to be cut,” Trump posted on the same day.
Up until this year, canceling funding that is already under contract with a private party would have been thought to be straightforwardly illegal under federal law. But the Supreme Court’s conservative majority has allowed the Trump administration to act with previously unimaginable freedom while it considers ruling on similar cases.
Faraday Microgrids, the contractor that was due to receive the funding, is already building a microgrid for the hospital. The proposed backup power system — which the grant stipulated should be “non-lithium-ion” — was supposed to be funded by the Energy Department’s Office of Clean Energy Demonstrations, with the goal of finding new ways of storing electricity without using lithium-ion batteries, and was meant to work in concert with that new microgrid and snap on in times of high stress.
That microgrid project is still moving forward, Arboleda, the hospital’s spokesperson, told me. “Valley Children’s Hospital continues to build and soon will operate its microgrid announced in 2023 to ensure our facilities have access to reliable and sustainable energy every minute of every day for our patients and our care providers,” she added. That grid will contain some storage, but not the long-term storage system discussed in the official plan.
Faraday Microgrids, formerly known as Charge Bliss, didn’t respond to a request for comment, but its website touts its ability to secure grants and other government funding for energy projects.
In a statement, a spokesman for the Energy Department said that the grant was canceled because the project wasn’t feasible. “Following an in-depth review of the financial award, it was determined, among other reasons, that the viability of the project was not adequate to warrant further disbursements,” Ben Dietderich, a spokesman for the Energy Department, told me.
The children’s hospital, at least, is in good company. On Tuesday, a Trump administration document obtained by Heatmap News suggested the Energy Department is moving to kill bipartisan-backed funding for two direct air capture hubs in Texas and Louisiana. And although California has lost the most grants of any state, the Energy Department has also sought to terminate funding for new factories and industrial facilities across Republican-governed states.
Editor’s note: This story initially misstated the number of neonatal intensive care unit beds at Valley Children’s Hospital. It has been corrected.
Rob and Jesse break down China’s electricity generation with UC San Diego’s Michael Davidson.
China announced a new climate commitment under the Paris Agreement at last month’s United Nations General Assembly meeting, pledging to cut its emissions by 7% to 10% by 2035. Many observers were disappointed by the promise, which may not go far enough to forestall 2 degrees Celsius of warming. But the pledge’s conservatism reveals the delicate and shifting politics of China’s grid — and how the country’s central government and its provinces fight over keeping the lights on.
On this week’s episode of Shift Key, Rob and Jesse talk to Michael Davidson, an expert on Chinese electricity and climate policy. He is a professor at the University of California, San Diego, where he holds a joint faculty appointment at the School of Global Policy and Strategy and the Jacobs School of Engineering. He is also a senior associate at the Center for Strategic and International Studies, and he was previously the U.S.-China policy coordinator for the Natural Resources Defense Council.
Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap, and Jesse Jenkins, a professor of energy systems engineering at Princeton University.
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Here is an excerpt from our conversation:
Robinson Meyer: Your research and other people’s research has revealed that basically, when China started making capacity payments to coal plants, in some cases, it didn’t have the effect on the bottom line of these plants that was hoped for, and also we didn’t really see coal generation go down or change in the year that it happened. It wasn’t like they were paying these plants to stick around and not run. They were basically paying these plants, it seems like, to do the exact same thing they did the year before, but now they also got paid. And maybe that was needed for their economics, we can talk about it.
Why did coal get those payments and not, say, batteries or other sources of spare capacity, like pumped hydro storage, like nuclear? Why did coal, specifically, get payments for capacity? And does it have to do with spinning reserve? Or does it have to do with the political economy of coal in China?
Michael Davidson: When it came out, we said exactly the same thing. We said, okay, this should be a technology neutral payment scheme, and it should be a market, not a payment, right? But China’s building these things up little by little. Over time we’ve seen, historically, actually, a number of systems internationally started with payments before they move to markets because they realize that you could get a lot more competitive pressure with markets.
The capacity payment scheme for coal is extremely simple, right? It says, okay, for each province, we’re going to say what percentage of our benchmark coal investment costs are we going to subsidize. It’s extremely simple. It does not account for how much you’re using it at a plant by plant level. It does not account for other factors, renewables, etc. It’s a very coarse metric. But I wouldn’t say that it had had some, you know, perverse negative effect on the outcome of what coal generation is. Probably more likely is that these payments were seen, for some, as extra support. But then for some that are really hurting, they’re saying, okay, well then we will maybe put up less obstacles to market reforms.
But then on top of that, you have to put in the hourly energy demand growth story and say, okay, well you have all these renewables, but you don’t have enough storage to shift to evening peaks. You are going to rely on coal to meet that given the current rigid dispatch system. And so you’re dispatching them kind of regardless of whether or not you have the payment schemes.
I will say that I was a skeptic, right? Because when people told me that China should put in place a capacity market, I said, China has overcapacity. So if you have an overcapacity situation, you put in place a market, the prices should be zero. So what’s the point? But actually, when you’re looking out ahead with all of this surplus coal capacity that you’re trying to push down, you’re trying to push those capacity factors of those coal plans from 50%, 60%, down to 20% or even lower, they need to have other revenue schemes if you’re not going to dramatically open up your spot markets, which China is very hesitant to do — very risk averse when it comes to the openness of spot markets, in terms of price gaps. So that’s a necessary part of this transition. But it can be done more efficiently, and it should done technology neutral.
And by the way that is happening in certain places. That’s a national scheme, but we actually see that the implementation — for example, Shaanxi province, we have a technology neutral scheme that would include other resources, not just coal.
Mentioned:
China’s new pledge to cut its emissions by 2035
What an ‘ambitious’ 2035 electricity target looks like for China
China’s Clean Energy Pledge is Clouded by Coal, The Wire China
Jesse’s upshift; Rob’s upshift.
This episode of Shift Key is sponsored by …
Hydrostor is building the future of energy with Advanced Compressed Air Energy Storage. Delivering clean, reliable power with 500-megawatt facilities sited on 100 acres, Hydrostor’s energy storage projects are transforming the grid and creating thousands of American jobs. Learn more at hydrostor.ca.
A warmer world is here. Now what? Listen to Shocked, from the University of Chicago’s Institute for Climate and Sustainable Growth, and hear journalist Amy Harder and economist Michael Greenstone share new ways of thinking about climate change and cutting-edge solutions. Find it here.
Music for Shift Key is by Adam Kromelow.