You’re out of free articles.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
Sign In or Create an Account.
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Welcome to Heatmap
Thank you for registering with Heatmap. Climate change is one of the greatest challenges of our lives, a force reshaping our economy, our politics, and our culture. We hope to be your trusted, friendly, and insightful guide to that transformation. Please enjoy your free articles. You can check your profile here .
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Subscribe to get unlimited Access
Hey, you are out of free articles but you are only a few clicks away from full access. Subscribe below and take advantage of our introductory offer.
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Create Your Account
Please Enter Your Password
Forgot your password?
Please enter the email address you use for your account so we can send you a link to reset your password:
To manage the clean energy transition, it may have to get into the leveraged buyout game.
The United States produces more natural gas and crude oil than any other country ― it isn’t even a contest. But these “molecules of U.S. freedom” aren’t free: They’re extracted and transported through a network of rigs, drills, pumps, and pipes that are, increasingly, controlled and operated by myriad private equity companies. As a society, we have a strong interest in winding down these climate-polluting assets in a swift yet orderly fashion. But as businesses, their private equity owners don’t.
Over the past decade, pressure from shareholders and activists has succeeded in pushing many fossil fuel majors to consider how best to reduce their emissions. (Although that, too, has come at a cost.) But rather than winding down or cleaning up their most polluting and least profitable assets, many have instead simply divested. Coal companies in West Virginia have sold off their mines to undercapitalized vulture firms, which rely on continued coal sales to (in theory) pay for expensive environmental remediation costs. The same is happening in the oil and gas industry, where private equity firms have rolled up many of the drilling sites and pipelines, the capillaries and veins of the country’s energy infrastructure.
Shielded from the scrutiny of public markets, private equity funds have thus become some of the country’s top methane emitters by asset ownership in the natural gas sector. These opaque owners, capitalizing on other companies’ disinterest in holding high-emitting assets, are betting that fossil fuel infrastructure will keep paying out for quite some time; recent massive increases in expected energy demand have only juiced this trend toward industry consolidation.
Private equity firms and private debt funds, with their short-term profit horizons, concealed balance sheets, and seeming imperviousness to tighter financial regulation and shareholder activism, work well with fossil fuel assets, particularly those sold at fire-sale prices by publicly traded fossil fuel majors. Despite those assets’ long-term market value instability, their near-term cash flow prospects are what matter.
But what’s been good for fossil fuel majors’ balance sheets has been bad for the planet. Many of these buyout firms — well-capitalized private equity funds and scrappy vulture funds, alike — are not budgeting anywhere near enough for environmental remediation. One company, Diversified Energy Co, has been purchasing the rights to operate almost-depleted natural gas wellheads at scale, extending many of their lifespans by decades; far too few wellheads are closed each year to stem the methane spewing unimpeded into the atmosphere.
Rather than accept a situation where utilities and fossil fuel majors toss their liabilities to unaccountable vulture funds, sustainability-conscious investors and shareholder groups have begun screening transactions for responsible asset phaseout plans. But the lack of a binding set of transition standards has revealed a huge coordination problem: What counts as a responsible phaseout, particularly when private asset owners get to decide? The federal government has put down guidelines, but not its foot. A disorganized drawdown of assets under a patchy regulatory framework, without a doubt, leaves vulnerable communities on the hook for the financial, environmental, and health damages.
Progressive analysts have long argued that nationalizing fossil fuel assets and folding them into a state holding company is the best solution to sidestep this particular problem. The federal government is well staffed with energy and electricity experts who, operating under a public mandate to preserve grid reliability, can phase out fossil fuel assets on a unified, coherent timeline responsive to community needs while continuing to operate those assets as the “peaker” or “reserve” capacity required to ensure grid stability. A series of climate shocks has even convinced conservative leaders in Texas of the importance of public power for grid resilience, achieved through state ownership of “peaker” gas plants. This course of action is far worse than investments in, say, battery capacity ― California, for instance, is now reaping the benefits of massive battery deployment, which reduces the state’s need for gas ― but the logic behind building public reserve capacity is sound.
What advocates of a state holding company-type model do not often discuss is how exactly a government goes about acquiring all these soon-to-be-stranded fossil fuel assets. As just one example, a recent proposal from the Roosevelt Institute suggests that a state holding company should be “free to engage in debt financing, make equity investments, and acquire assets.” Sure, proposals like these are meant to buttress the case for why nationalization is a far better way to achieve a managed phaseout than surrendering that process to yield-seeking investors, not to detail the financial mechanics of a buyout. But still: this is vague!
Actually thinking through the specifics suggests that, interestingly enough, a comprehensive state-led buyout program could work a lot like an existing private equity transaction, for two key reasons.
Before we get there, we should separate private equity’s deserved reputation as an opaque asset owner from the way the industry works. Private equity’s calling card, the “leveraged buyout,” is little more than the act of raising debt to 1) purchase equity in and, therefore, ownership over an asset, and 2) refinance the asset’s liabilities. To do so, private equity funds work with banks or, more commonly these days, private debt or private credit funds, to raise debt that is generally backed by the combined assets of the purchaser firm and purchased asset.
But leveraged buyouts themselves are technically something that any financial institution could do. Take the federal government, the country’s most liquid debt issuer, whose debt anchors the global economy and backstops private financial institutions. It could raise debt (leverage) to finance a buyout of fossil fuel assets at interest rates far lower than private investors could. And because private credit funds, like other institutional investors, already buy loads of government bonds to match their liabilities and hedge their risks, this kind of nationwide leveraged buyout ― which would require substantial new debt issuance ― could actually help stabilize the financial system against potential shocks from within notoriously inscrutable private markets. The government can do exactly what private equity does, only a lot better, and with wider benefits.
The government has already planted the seeds of a leveraged buyout program across the country’s coal ash heaps. The Loan Programs Office, thanks to the Bipartisan Infrastructure Law and the Inflation Reduction Act, now offers far-below-market-rate loan guarantees to developers, including state governments and utility companies, seeking to repurpose fossil fuel assets through its Energy Infrastructure Reinvestment program. This program’s authority allows borrowers to use their financing for “refinancing outstanding indebtedness directly associated with eligible Energy Infrastructure.” All policymakers have to do now is scrap the program’s 2026 end date and, ideally, endow a federal institution with the power to borrow from this authority to purchase and refinance fossil fuel assets, rather than leave that task solely in the hands of state governments and utilities, with their varying capacities for and interest in coordinating a coherent phaseout plan. And now that interest rates are poised to fall, this refinancing becomes much cheaper.
That’s reason number one. Reason number two has to do with private equity funds’ ability to shield the assets in their portfolio from valuation volatility on publicly traded stock markets. Private equity funds need not publicize how much their portfolios are worth, except at infrequent intervals and when they sell assets. But thanks to private equity’s reputation as a high-return investment, fund investors pay a premium for the illiquidity of not always knowing the value of their assets. Purchase assets, juice returns, sell, and repeat ― this is the conventional private equity playbook.
But macroeconomic conditions today are such that private equity companies are now struggling to sell their portfolios. High interest rates have made leveraged buyouts of new assets and refinancing debts on unsold assets much more costly, and have tempered rapid asset value growth. As this once-frenetic industry slows down, funds are anxious to get assets off their books ― hence the recent wave of consolidation.
This is an opportune moment for the Feds to step in. It’s not just that the government’s capacity for undertaking leveraged buyouts is the greatest; more importantly, it never needs to sell. The valuation volatility that first prompts fossil fuel majors to divest from dying, dangerous assets yet incentivizes private equity funds to pump as much as they can out of them to resell them later at a profit is simply not something the federal government needs to worry about. A state holdingcompany can siphon distressed assets off public markets and shut down the “merry-go-round” of asset sales and resales.
Objections to government intervention here are likely premised on the fact that, well, it’s the government. But the government would still be purchasing assets from private owners on financial markets, just like any market actor would. Today’s uncoordinated constellation of private fossil fuel firms and funds, on the other hand, cannot manage a coordinated phaseout, especially not under binding profitability constraints ― which the federal government does not share.
Local communities can’t finance phaseouts or cleanups themselves, and leaving hundreds of billions of dollars worth of stranded assets in the hands of under-regulated private firms will only accelerate climate catastrophe. The government must use the financial techniques that private equity funds have already pioneered to bring them to heel, in service of public goals.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
On the U.S. Postal Service’s wonderfully weird shift to electric cars
When you think of a gas-guzzler, what comes to mind is probably a gigantic pickup like the Ram 1500 TRX, which gets a combined 12 miles per gallon, or a sports car like the Ferrari Daytona, which manages a less-than-impressive 13 mpg. But you may not think about a vehicle you’ve likely seen a thousand times: the small trucks driven by most local mail carriers, known as the Grumman Long Life Vehicle. They lived up to their name, since they’ve been in service since the mid-80s; the newest of them were built 30 years ago. But they get an abysmal 9 miles per gallon, burning fuel by the tankful and spewing emissions as they go about their appointed rounds.
So after a long and winding journey to a replacement for the LLV, the first of the Postal Service’s Next Generation Delivery Vehicles — most of which will be electric — just hit the road. And they are beautiful.
Oshkosh Defense
This may not be a widely shared opinion. Indeed, some will find the NGDV downright ugly, and they won’t exactly be wrong. But the new postal truck’s weird appearance — many have remarked that it looks like a duck, or something from a Richard Scarry book — is what, I predict, will make it iconic. In addition to bringing a touch of whimsy to your neighborhood, the NGDV will advance the cause of vehicle electrification much more than you might expect.
Postal delivery vehicles were always a no-brainer for electrification: They do a lot of stopping and starting, they follow fixed routes so they can charge at a single location, and since the existing fleet uses so much gas, electrifying them will make a real dent in the nation’s emissions.
The old trucks didn’t just add to our nation’s carbon emissions, they got no love from the workers who drove them. If you’ve noticed your mail carrier sweating profusely as they bring letters to your door in the summer, it’s not just because they have to carry that heavy bag up and down the street. It’s also because their creaky, uncomfortable vehicles have no air conditioning. In 2024.
“It felt like heaven blowing in my face,” said one carrier after trying out the NGDV, which does indeed have air conditioning, along with many of the safety features, including backup cameras, antilock brakes, and airbags, that are common in modern cars but the LLVs lacked. The new truck also looks unusual because it solves many of the problems the old vehicles pose for letter carriers. The truck had to be tall enough to allow them to stand up in the back, so they won’t have to hunch over the way they do now. It had to be low to the ground so they can get in and out easily dozens of times in a shift. It had to have a big enough windshield for the shortest and tallest carriers to see out comfortably.
Oshkosh Defense
All that meant that the NGDV wound up looking like no other vehicle. Once they are fully deployed — the current plan is to put 60,000 into service over the next few years — their unique profile will become familiar to everyone. And it’s important that this strange electric vehicle will be associated with the Postal Service. Because people love the Postal Service.
That might be a surprise given familiar complaints about lines at the post office. But it turns out that when surveys are taken, the Postal Service always ranks at or near the top of public approval among federal agencies. A recent Pew Research poll put the USPS’s approval at 72%, behind only the National Park Service. Gallup polls show them at the top. A 2020 survey by the department’s Inspector General found 91% of respondents saying they had a positive view of the USPS.
Perhaps people have a sense that what the Postal Service accomplishes is nothing short of miraculous. They move over 300 million pieces of mail every day, and deliver to 167 million addresses. They’ll pick up a letter at your door, take it anywhere in the country by land or air or water, and deliver it right to your Aunt Myrtle in the space of a few days — and not for $50 or $100, but for 73 cents. It costs the same whether that letter is going to Atlanta or Alakanuk. As U.S. law states, the purpose of the Postal Service is “to bind the Nation together through the personal, educational, literary, and business correspondence of the people.” The USPS is nothing less than a national treasure.
Maybe people appreciate that, or maybe it’s just that most of us like getting mail, and our mail carriers are part of our communities (and usually friendly). In any case, the new electric vehicles will be associated with all the positive feelings people have about the USPS.
Which is why it’s fine — and maybe even better — that the NGDV is odd-looking, or even ugly (but in a charming way). One prevailing theory about EV adoption — advanced by Tesla’s Elon Musk and embodied in other vehicles like the Ford F-150 Lightning — is that the way to get people to buy EVs is to make EVs that are cool. It’s a valid perspective, but another way to think about the long-term goal of transportation electrification is that EVs ought to be in as many places and as many forms as possible. If you want to normalize them, what better way than to have a funky-looking EV rolling down your street every day, delivering mail to your door?
It may be a while before you spot an NGDV in your neighborhood; among other things, it will take time to install the charging infrastructure at all the postal facilities necessary to electrify the entire delivery fleet. After all, one of the things that makes the Postal Service such a vital part of our national life is that it touches Americans, and delivers to them, no matter how far-flung they are. At least at first, we may be more likely to see electric delivery vehicles in big cities than in remote rural areas.
But before long, the NGDV could become the most widely recognized EV in the country, and one that people associate with service, community, efficiency, and patriotism. And yes, they look weird. Which is part of what makes them great.
On strange vibrations, a White House heat summit, and asthma inhalers
Current conditions: Extreme rainfall in the Czech Republic could trigger some of the worst flooding in decades • South America has recorded more than 346,000 fire hotspots this year • A 4.7 magnitude earthquake rattled Los Angeles yesterday, followed by several aftershocks.
Back in September of last year, seismic sensors all over the world began detecting strange signals, the source of which researchers couldn’t identify. For nine days, the whole Earth appeared to vibrate at regular 90-second intervals. Now, scientists say they’ve figured out what happened: A massive landslide in Greenland, caused by a melting glacier, sent huge volumes of debris plummeting into a fjord and triggered a mega-tsunami. The energy from the wave remained trapped in the fjord for nine days, the water sloshing back and forth and sending vibrations rippling out across the entire globe. Here you can see before and after pictures of the glacier and the mountain:
Science / Danish army
In a study published yesterday in the journal Science, the researchers explicitly link the event to climate change. Warming global temperatures caused the glacier to become too thin to support the mountain, so it collapsed. And they say there will be more events like these. “As we continue to alter our planet’s climate, we must be prepared for unexpected phenomena that challenge our current understanding and demand new ways of thinking,” the researchers wrote. “The ground beneath us is shaking, both literally and figuratively. While the scientific community must adapt and pave the way for informed decisions, it’s up to decision-makers to act.”
The White House today will host its first-ever Extreme Heat Summit, where President Biden’s National Climate Advisor Ali Zaidi will issue an “Extreme Heat Call to Action,” urging leaders to step up their efforts to protect communities from the dangers of rising temperatures brought on by climate change. The summit comes on the heels of the hottest summer ever recorded in the Northern Hemisphere, and as the West Coast reels from wildfires made worse by drought and a record-breaking heat wave.
The summit will gather a variety of stakeholders – including emergency responders and health-care workers – to share takeaways and lessons from 2024’s extreme heat season, discuss how the government is helping and could help more, and identify gaps and opportunities for building extreme heat resilience ahead of next year. The White House will also announce a new “Community Heat Action Checklist” to serve as a roadmap to help leaders develop extreme heat plans.
“Climate-fueled extreme heat waves are showing up like wrecking balls in our communities, silently wreaking havoc on lives and livelihoods,” Zaidi said in a statement. “We recognize that this is climate change in action, and in response are taking a comprehensive approach to protecting both our people and infrastructure.” Investments from the Inflation Reduction Act and Bipartisan Infrastructure Law for helping states adapt to the effects of climate change, including extreme heat, total more than $50 billion.
The U.S. Department of Energy’s Office of Clean Energy Demonstrations has committed up to $500 million to help Occidental Petroleum’s carbon capture and sequestration unit 1PointFive develop its South Texas DAC Hub, Reutersreported. The hub will host Oxy’s first large-scale removal facility, which will aim to remove 500,000 metric tons of CO2 per year to start, ramping up to more than 1 million metric tons annually. “Occidental’s first large-scale DAC facility represents a pivotal economic trial for a technology that the International Energy Agency says will play a key role for global industrial decarbonization, despite its high costs in initial tests,” Reuters added.
Get Heatmap AM directly in your inbox every morning:
A new report takes stock of state efforts to ditch diesel-powered school buses for electric fleets. Both federal and state funding is available to help with this transition. The report, from the Environment America Research and Policy Center and U.S. PIRG Education Fund, finds that California has the most “committed” electric school buses – that is, buses that have been awarded, ordered, delivered, or are already operational. The state has 1,777 e-buses up and running or ready to deploy, and is still waiting on nearly 2,000 more. These buses will serve more than 63,000 students. Also in the top five are New York, Illinois, Florida, and Pennsylvania, but they each trail California by quite a lot. Wyoming and Idaho are the only states with zero electric school buses. The report has lots of recommendations and tools to help school districts upgrade their fleets. It also urges students to pressure school boards to commit to making the switch.
Pharmaceutical companies are racing to get harmful pollutants out of their asthma inhalers, according to the Financial Times. Typical inhalers rely on propellants made from hydrofluorocarbons, or HFCs, to deliver life-saving drugs to users. But HFCs are potent greenhouse gases that are more effective than carbon dioxide at trapping heat in the atmosphere. Pharma giant GSK estimates its Ventolin inhaler accounted for nearly half of the company’s global carbon footprint in 2022, releasing the equivalent of 4.6 million metric tons of CO2. It’s developing a new inhaler that could have a 90% lower carbon footprint. Similarly, AstraZeneca has a new inhaler in the works that could cut 1.3 million metric tons of CO2 equivalent emissions annually. Both companies are trying to file for regulatory approval either by the end of 2024, or early next year.
“Climate change is not a scientific or technical problem – it’s a political problem. And political problems can be solved by voting.” –Andrew Dressler, a climate scientist at Texas A&M, writing at The Climate Brink.
Want to understand what’s happening to electric cars? Look at the Golden State.
As California goes, so goes the American car scene. This sentiment has long been true, given that the Golden State is the country’s biggest automotive market and its emissions rules have helped to drag the car industry toward more efficient vehicles.
It is doubly true in the EV era, since California is where electric vehicles first went big and where electric adoption far outpaces the rest of the nation. A look at the car sales data from the first half of 2024 shows us a few things about what the electric car market is and where it’s headed.
Electric cars went mainstream in a hurry here, growing from 5.8% of California car sales in 2020 to 21.5% in 2023. Then the graph flattens out: For the first half of this year, EVs made up 21.4% of new registrations. That would seem to support the gloomy narrative of a supposed EV sales slump. The truth, as it tends to be, is more complicated.
Look at the numbers broken down by quarters, rather than years, and the chart looks a little different. EV sales reached a peak in the third quarter of 2023, dipped a bit, and then jumped back up in April to June 2024 to the second-best quarter ever. That’s a blip, not a crisis, as EVs appear poised for slow growth but growth nonetheless.
Consider the context for a moment: California reached a place where 1 in 5 new cars sold are electric even with the EV affordability problem. That trend wasn’t going to continue unabated up to 30, 40, or 50% of auto sales without the industry putting out vehicles that can compete on cost with a $25,000 Honda Civic or a $30,000 Toyota RAV4. In its summary of the numbers, the California New Car Dealers Association blames inflation and rising monthly car payments for suppressing all vehicle sales at the moment, EVs included. Money matters will decide where things go from here.
The flipside of this year’s EV doomerism is the notion that drivers are turning to hybrids instead. The numbers bear out that sentiment for the moment in California. Traditional hybrid vehicles (excluding plug-in hybrids) more than doubled their market share from 6.1% in 2020 to 13.2% in the first half of 2024. Not too surprising, considering their wide availability and how appealing they are for California drivers who buy some of the nation’s most expensive gasoline.
Plug-in hybrids accounted for 3.4% of sales in the first half of this year, not far from the number they posted back in 2021. That might sound odd, given automakers’ rumblings about turning to these vehicles instead of true EVs, but a new wave of PHEVs is still in development. For now, the difficult calculus remains: Plug-in hybrids are a great choice for a lot of drivers, but they are significantly more expensive than combustion cars for not much electric range, and PHEVs can be hard to come by.
Take all these electrified powertrains together, however, and the picture is clear. Compared to 2018, when gas- and diesel-burners made up 88.4% of auto sales, that number is down to 62% for the first half of this year. Combustion-only is sinking fast, a trend that will spread from the West Coast to the rest of the nation.
My eyes don’t deceive me. Since the start of 2024, it has felt like Rivian’s trucks and especially SUVs are all over Los Angeles, driven by the kind of people who used to own Range Rovers. It turns out RJ Scaringe’s company is the fastest-growing car brand of any kind in California, with sales up nearly 77% in the first half of 2024 compared to the same period in 2023.
Now, that number is deceiving. It’s easy to grow by big percentages at the beginning, and Rivian’s sales numbers are relatively small: It moved just shy of 7,000 vehicles through June, which pales in comparison to the 100,000 Teslas and 150,000 Toyotas registered in California during the same period. But Rivian’s early success in California suggests the brand is finding traction and that it might pick off plenty of drivers from Tesla's bread-winning Model Y once the more reasonably priced R2 and R3 arrive.
After all, the story of the supposed EV slump is actually the story of Tesla squandering its huge halftime lead. Ford, Toyota, Mercedes, Rivian, BMW, and Hyundai/Kia EV sales are up this year, but Tesla’s slump wipes out much of their gains.
The Model Y and Model 3 remain California’s best-selling EVs by far, with the second-place Model 3 selling three times the volume of the third-place finisher, Hyundai’s Ioniq 5. Yet Tesla sales in California are down 17% from the first half of 2023, and its market share dropped from 64.6% to 53.4%. Its only new model, the Cybertruck, sold 3,048 in the first half of this year. Californians bought nearly a thousand more Chevy Bolts — and GM isn’t even building that car right now.