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It’s one of the biggest long-term threats to price stability.
People really hate inflation. Fortunately, prices are no longer rising nearly as rapidly as they were in 2021 and 2022. However, we may be on the cusp of a longer epoch of periodic inflation caused by climate change, one of the biggest long-term threats to price stability. The Federal Reserve should act accordingly.
America’s central bank has a dual mandate: It calibrates monetary policy to maximize employment while minimizing inflation. With unemployment reaching record lows, the Fed has been focused on controlling the spike in inflation we saw from 2021-2022. It quickly raised interest rates over the last two years in order to cool the economy and put downward pressure on prices. And voila, after peaking in the summer of 2022, inflation has steadily fallen to manageable levels.
However, the Fed’s rate hikes may not have been the primary driver behind disinflation. Inflation, it’s often said, occurs when there’s too much money chasing too few goods. The Fed’s higher-interest rate policy primarily hit the too much money side of the ledger, decreasing demand by making it more expensive for people and businesses to borrow. But there’s mounting evidence that the bigger macro-economic problem was too few goods. The Roosevelt Institute did a close analysis of inflation’s decline since 2022, and found that prices of goods have fallen even while demand has increased. That suggests that most of the decline in inflation has been from increased supply — that is, inflation was cured by recovering from pandemic-era supply chain bottlenecks. Supply chains that got snarled by COVID-19 production shutdowns and Russia’s invasion of Ukraine slowly sorted themselves out; as more goods came on to the market, prices eventually stabilized.
Indeed, the Federal Reserve’s own data found that supply chain pressure closely tracked inflation. Researchers at the San Francisco Fed found that supply chain issues account for 60 percent of inflation in 2021 and 2022.
In order to prevent future inflation flare-ups, we must guard against other foreseeable supply chain shocks. The pandemic may have been a once-in-a-lifetime (let’s hope) calamity, but it won’t be the last supply pileup. Climate change is also expected to wreak havoc on the global movement of goods. As the planet warms, droughts, floods, and other extreme weather will become more frequent and more severe. That will lead to a rise in the magnitude and frequency of supply-chain disruptions as factories are evacuated or shipping routes become untraversable.
For example, in August 2022, Chinese factories were closed not due to the pandemic, but because of a brutal drought. These closures in turn froze international supply chains for cars, electronics and other goods. Significant waterways for international trade, like the Panama Canal and the Rhine, have seen their water levels periodically dry up so much that shipping vessels cannot pass through, halting the shipment of goods.
We’ll see more of this as warming worsens. As the White House Council of Economic Advisers said, “As [supply-chain] networks become more connected, and climate change worsens, the frequency and size of supply-chain-related disasters rises.” The CEA found that over the last 40 years, the frequency of natural disasters around the world has tripled, and the number of billion-dollar disasters each year has risen from five to 20.
Food prices are among the most visible — and painful — forms of inflation for consumers. And we’ve seen climate-related weather events drive up food prices in the past. As the U.S. Department of Agriculture recalled in its 2022 supply chain report, a severe years-long drought in the southern plains states in the early 2010s dramatically culled the population of beef cows and caused historically high beef prices. And global heat waves in recent years have sent the cost of staple crops soaring.
While some amount of warming is locked in at this point, doing all we can to cut emissions as quickly as possible will help minimize future supply chain disruptions. That requires building massive amounts of new clean energy infrastructure. In 2022, the federal government passed major climate legislation as part of the Inflation Reduction Act to offer hundreds of billions of dollars in subsidies to encourage the development of wind farms, solar arrays, and other clean energy sources, as well as financial incentives for consumers to purchase electric vehicles, heat pumps, and other clean-energy home upgrades.
Unfortunately, the passage of the IRA has coincided with the Fed’s generationally-high interest rate policy. High interest rates have made it much more costly to build renewable energy projects in the U.S. and around the world — especially expensive projects like offshore wind farms, which have seen multiple cancellations and delays due to higher-than-anticipated financing costs. High rates are also a heavier drag on renewable energy projects than fossil fuel projects because the bulk of the costs for a wind or solar farm are in upfront construction.
The Fed expects to begin gradually cutting interest rates over the coming year if inflation continues to cool. That would ease borrowing costs throughout the economy, which will help more clean energy projects get built and make EVs more affordable to more buyers. That’s a win-win: A swift pivot to a clean-energy economy will reduce emissions, which will also mitigate future weather-related supply chain shocks. And that will make it easier for the Fed to fulfill its mandate to manage inflation in the future: Lower interest rates now will help support rapid decarbonization, which in turn will reduce climate-induced inflation down the road.
That’s not to say that the central bank needs to morph into a “Green Fed.”
“The Federal Reserve is not and will not be a ‘climate policymaker,’” Chairman Jerome Powell said in October, when the Fed and other agencies unveiled guidance for how banks should manage climate-related financial risk. “Decisions about policies to address climate change must be made by the elected branches of government.”
The Fed takes a thousand-foot view of the economy, and can’t set rates based on the needs of any one industry, no matter how important. But as climate change reshapes the world around us, all institutions will feel its effects, including the Fed. While environmental goals won’t drive Fed policy, managing long-term inflation will mean paying attention to how the bank’s actions affect the climate. Just as the Fed monitors how interest rate policy affects key sectors like the housing market, it should also pay increasing attention to how it affects the clean-energy sector.
When the Inflation Reduction Act passed, the law’s name drew some scorn as a supposed misnomer for what was fundamentally a climate bill. But over the long haul, combating climate change is a big part of what we need to do to ward off inflation. If we fall short, then missed decarbonization opportunities today will increase the threat of extreme-weather supply-chain bottlenecks tomorrow. And that means more inflation. Even if it’s not a “climate policymaker,” the Fed will come to care about climate change.The only question is whether that happens years from now, when climate inflation arrives in earnest, or now, when we still have a chance to do something about it.
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The agency provided a list to the Sierra Club, which in turn provided the list to Heatmap.
Officials at the Environmental Protection Agency remain closed-lipped about which grants they’ve canceled. Earlier this week, however, the office provided a written list to the Sierra Club in response to a Freedom of Information Act request, which begins to shed light on some of the agency’s actions.
The document shows 49 individual grants that were either “canceled” or prevented from being awarded from January 20 through March 7, which is the day the public information office conducted its search in response to the FOIA request. The grants’ total cumulative value is more than $230 million, although some $30 million appears to have already been paid out to recipients.
The numbers don’t quite line up with what the agency has said publicly. The EPA published three press releases between Trump’s inauguration and March 7, announcing that it had canceled a total of 42 grants and “saved” Americans roughly $227 million. In its first such announcement on February 14, the agency said it was canceling a $50 million grant to the Climate Justice Alliance, but the only grant to that organization on the FOIA spreadsheet is listed at $12 million. To make matters more confusing, there are only $185 million worth of EPA grant cuts listed on the Department of Government Efficiency’s website from the same time period. (Zeldin later announced more than 400 additional grant terminations on March 10.)
Nonetheless, the document gives a clearer picture of which grants Administrator Lee Zeldin has targeted. Nearly half of the canceled grants are related to environmental justice initiatives, which is not surprising, given the Trump administration’s directives to root out these types of programs. But nearly as many were funding research into lower-carbon construction materials and better product labeling to prevent greenwashing.
Here’s the full list of grants, by program:
A few more details and observations from this list:
In the original FOIA request, Sierra Club had asked for a lot more information, including communications between EPA and the grant recipients, and explanations for why the grants — which in many cases involved binding contracts between the government and recipients — were being terminated. In its response, EPA said it was still working on the rest of the request and expected to issue a complete response by April 12.
Defenders of the Inflation Reduction Act have hit on what they hope will be a persuasive argument for why it should stay.
With the fate of the Inflation Reduction Act and its tax credits for building and producing clean energy hanging in the balance, the law’s supporters have increasingly turned to dollars-and-cents arguments in favor of its preservation. Since the election, industry and research groups have put out a handful of reports making the broad argument that in addition to higher greenhouse gas emissions, taking away these tax credits would mean higher electricity bills.
The American Clean Power Association put out a report in December, authored by the consulting firm ICF, arguing that “energy tax credits will drive $1.9 trillion in growth, creating 13.7 million jobs and delivering 4x return on investment.”
The Solar Energy Industries Association followed that up last month with a letter citing an analysis by Aurora Energy Research, which found that undoing the tax credits for wind, solar, and storage would reduce clean energy deployment by 237 gigawatts through 2040 and cost nearly 100,000 jobs, all while raising bills by hundreds of dollars in Texas and New York. (Other groups, including the conservative environmental group ConservAmerica and the Clean Energy Buyers Association have commissioned similar research and come up with similar results.)
And just this week, Energy Innovation, a clean energy research group that had previously published widely cited research arguing that clean energy deployment was not linked to the run-up in retail electricity prices, published a report that found repealing the Inflation Reduction Act would “increase cumulative household energy costs by $32 billion” over the next decade, among other economic impacts.
The tax credits “make clean energy even more economic than it already is, particularly for developers,” explained Energy Innovation senior director Robbie Orvis. “When you add more of those technologies, you bring down the electricity cost significantly,” he said.
Historically, the price of fossil fuels like natural gas and coal have set the wholesale price for electricity. With renewables, however, the operating costs associated with procuring those fuels go away. The fewer of those you have, “the lower the price drops,” Orvis said. Without the tax credits to support the growth and deployment of renewables, the analysis found that annual energy costs per U.S. household would go up some $48 annually by 2030, and $68 by 2035.
These arguments come at a time when retail electricity prices in much of the country have grown substantially. Since December 2019, average retail electricity prices have risen from about $0.13 per kilowatt-hour to almost $0.18, according to the Bureau of Labor Statistics. In Massachusetts and California, rates are over $0.30 a kilowatt-hour, according to the Energy Information Administration. As Energy Innovation researchers have pointed out, states with higher renewable penetration sometimes have higher rates, including California, but often do not, as in South Dakota, where 77% of its electricity comes from renewables.
Retail electricity prices are not solely determined by fuel costs Distribution costs for maintaining the whole electrical system are also a factor. In California, for example,it’s these costs that have driven a spike in rates, as utilities have had to harden their grids against wildfires. Across the whole country, utilities have had to ramp up capital investment in grid equipment as it’s aged, driving up distribution costs, a 2024 Energy Innovation report argued.
A similar analysis by Aurora Energy Research (the one cited by SEIA) that just looked at investment and production tax credits for wind, solar, and batteries found that if they were removed, electricity bills would increase hundreds of dollars per year on average, and by as much as $40 per month in New York and $29 per month in Texas.
One reason the bill impact could be so high, Aurora’s Martin Anderson told me, is that states with aggressive goals for decarbonizing the electricity sector would still have to procure clean energy in a world where its deployment would have gotten more expensive. New York is targetinga target for getting 70% of its electricity from renewable sources by 2030, while Minnesota has a goal for its utilities to sell 55% clean electricity by 2035 and could see its average cost increase by $22 a month. Some of these states may have to resort to purchasing renewable energy certificates to make up the difference as new generation projects in the state become less attractive.
Bills in Texas, on the other hand, would likely go up because wind and solar investment would slow down, meaning that Texans’ large-scale energy consumption would be increasingly met with fossil fuels (Texas has a Renewable Portfolio Standard that it has long since surpassed).
This emphasis from industry and advocacy groups on the dollars and cents of clean energy policy is hardly new — when the House of Representatives passed the (doomed) Waxman-Markey cap and trade bill in 2009, then-Speaker of the House Nancy Pelosi told the House, “Remember these four words for what this legislation means: jobs, jobs, jobs, and jobs.”
More recently, when Democratic Senators Martin Heinrich and Tim Kaine hosted a press conference to press their case for preserving the Inflation Reduction Act, the email that landed in reporters’ inboxes read “Heinrich, Kaine Host Press Conference on Trump’s War on Affordable, American-Made Energy.”
“Trump’s war on the Inflation Reduction Act will kill American jobs, raise costs on families, weaken our economic competitiveness, and erode American global energy dominance,” Heinrich told me in an emailed statement. “Trump should end his destructive crusade on affordable energy and start putting the interests of working people first.”
That the impacts and benefits of the IRA are spread between blue and red states speaks to the political calculation of clean energy proponents, hoping that a bill that subsidized solar panels in Texas, battery factories in Georgia, and battery storage in Southern California could bring about a bipartisan alliance to keep it alive. While Congressional Republicans will be scouring the budget for every last dollar to help fund an extension of the 2017 Tax Cuts and Jobs Act, a group of House Republicans have gone on the record in defense of the IRA’s tax credits.
“There's been so much research on the emissions impact of the IRA over the past few years, but there's been comparatively less research on the economic benefits and the household energy benefits,” Orvis said. “And I think that one thing that's become evident in the last year or so is that household energy costs — inflation, fossil fuel prices — those do seem to be more top of mind for Americans.”
Opinion modeling from Heatmap Pro shows that lower utility bills is the number one perceived benefit of renewables in much of the country. The only counties where it isn’t the number one perceived benefit are known for being extremely wealthy, extremely crunchy, or both: Boulder and Denver in Colorado; Multnomah (a.k.a. Portland) in Oregon; Arlington in Virginia; and Chittenden in Vermont.
On environmental justice grants, melting glaciers, and Amazon’s carbon credits
Current conditions: Severe thunderstorms are expected across the Mississippi Valley this weekend • Storm Martinho pushed Portugal’s wind power generation to “historic maximums” • It’s 62 degrees Fahrenheit, cloudy, and very quiet at Heathrow Airport outside London, where a large fire at an electricity substation forced the international travel hub to close.
President Trump invoked emergency powers Thursday to expand production of critical minerals and reduce the nation’s reliance on other countries. The executive order relies on the Defense Production Act, which “grants the president powers to ensure the nation’s defense by expanding and expediting the supply of materials and services from the domestic industrial base.”
Former President Biden invoked the act several times during his term, once to accelerate domestic clean energy production, and another time to boost mining and critical minerals for the nation’s large-capacity battery supply chain. Trump’s order calls for identifying “priority projects” for which permits can be expedited, and directs the Department of the Interior to prioritize mineral production and mining as the “primary land uses” of federal lands that are known to contain minerals.
Critical minerals are used in all kinds of clean tech, including solar panels, EV batteries, and wind turbines. Trump’s executive order doesn’t mention these technologies, but says “transportation, infrastructure, defense capabilities, and the next generation of technology rely upon a secure, predictable, and affordable supply of minerals.”
Anonymous current and former staffers at the Environmental Protection Agency have penned an open letter to the American people, slamming the Trump administration’s attacks on climate grants awarded to nonprofits under the Inflation Reduction Act’s Greenhouse Gas Reduction Fund. The letter, published in Environmental Health News, focuses mostly on the grants that were supposed to go toward environmental justice programs, but have since been frozen under the current administration. For example, Climate United was awarded nearly $7 billion to finance clean energy projects in rural, Tribal, and low-income communities.
“It is a waste of taxpayer dollars for the U.S. government to cancel its agreements with grantees and contractors,” the letter states. “It is fraud for the U.S. government to delay payments for services already received. And it is an abuse of power for the Trump administration to block the IRA laws that were mandated by Congress.”
The lives of 2 billion people, or about a quarter of the human population, are threatened by melting glaciers due to climate change. That’s according to UNESCO’s new World Water Development Report, released to correspond with the UN’s first World Day for Glaciers. “As the world warms, glaciers are melting faster than ever, making the water cycle more unpredictable and extreme,” the report says. “And because of glacial retreat, floods, droughts, landslides, and sea-level rise are intensifying, with devastating consequences for people and nature.” Some key stats about the state of the world’s glaciers:
In case you missed it: Amazon has started selling “high-integrity science-based carbon credits” to its suppliers and business customers, as well as companies that have committed to being net-zero by 2040 in line with Amazon’s Climate Pledge, to help them offset their greenhouse gas emissions.
“The voluntary carbon market has been challenged with issues of transparency, credibility, and the availability of high-quality carbon credits, which has led to skepticism about nature and technological carbon removal as an effective tool to combat climate change,” said Kara Hurst, chief sustainability officer at Amazon. “However, the science is clear: We must halt and reverse deforestation and restore millions of miles of forests to slow the worst effects of climate change. We’re using our size and high vetting standards to help promote additional investments in nature, and we are excited to share this new opportunity with companies who are also committed to the difficult work of decarbonizing their operations.”
The Bureau of Land Management is close to approving the environmental review for a transmission line that would connect to BluEarth Renewables’ Lucky Star wind project, Heatmap’s Jael Holzman reports in The Fight. “This is a huge deal,” she says. “For the last two months it has seemed like nothing wind-related could be approved by the Trump administration. But that may be about to change.”
BLM sent local officials an email March 6 with a draft environmental assessment for the transmission line, which is required for the federal government to approve its right-of-way under the National Environmental Policy Act. According to the draft, the entirety of the wind project is sited on private property and “no longer will require access to BLM-administered land.”
The email suggests this draft environmental assessment may soon be available for public comment. BLM’s web page for the transmission line now states an approval granting right-of-way may come as soon as May. BLM last week did something similar with a transmission line that would go to a solar project proposed entirely on private lands. Holzman wonders: “Could private lands become the workaround du jour under Trump?”
Saudi Aramco, the world’s largest oil producer, this week launched a pilot direct air capture unit capable of removing 12 tons of carbon dioxide per year. In 2023 alone, the company’s Scope 1 and Scope 2 emissions totalled 72.6 million metric tons of carbon dioxide equivalent.