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Daron Acemoglu and William Nordhaus have some disagreements.
This year’s Economics Nobel is not a climate prize — that happened in 2018, when Yale economist William Nordhaus won the prize for his work on modeling the effects of climate change and economic growth together, providing the intellectual basis for carbon taxation and more generally for regulating greenhouse gas emissions because of the “social cost” they impose on everyone.
Instead, this year’s prize, awarded to MIT’s Daron Acemoglu and Simon Johnson and University of Chicago’s James Robinson is for their work demonstrating “the importance of societal institutions for a country’s prosperity,” i.e. why some countries are rich and others are poor. To do so, the trio looked at the history of those countries’ institutions — laws, modes of government, relationship between the state and individuals — and drew out which are conducive to wealth and which lead to poverty.
Long story short, “extractive” institutions set up to reward a narrow elite tend to hurt economic development over time, as in much of Africa, which was colonized by Europeans who didn’t actually live there. “Inclusive” institutions, by contrast, arose in the United States and Canada, where there was significantly more European migration, thus incentivizing the ruling elite to set up institutions that benefitted a broader range of (again, European) residents.
While this research rests heavily on the climate (the reason Europeans avoided African colonies was because of the high rate of disease in tropical climates), it does not touch on climate change specifically. But Acemoglu especially is an incredibly wide-ranging scholar and has devoted some time to the specific questions of climate change — and in so doing has been a direct critic of Nordhaus, Stockholm’s preferred climate economist.
“Existing approaches in economics still do not provide the right framework for managing the problems that will confront us over the next several decades,” Acemoglu wrote in a 2021 essay titled “What Climate Change Requires of Economics,” referring directly to Nordhaus’s Nobel-winning work. “Although the economics discipline has evolved over time to acknowledge environmental risks and costs, it has yet to rise to the challenge of climate change. A problem as massive as this one will require a fundamental reconsideration of some of the field's most deeply held assumptions.”
His criticisms included that Nordhaus’s more gradualistic approach — the latest version of his model spits out that a 1.5 degree Celsius warming target is “infeasible,” and the “cost vs. benefit optimal” amount of warming as 2.6 degrees Celsius over pre-industrial levels with a carbon price that rises to $115 per ton by 2050 — ignores both the best way to reduce emissions and the risk of not doing so fast enough.
Acemoglu is far more optimistic about how policy can direct technological development and less sanguine about additional warming over and above the Paris Agreement limits. He argues that the possibility of theoretical “tipping points,” where exceeding certain climate thresholds by even a small amount may cause dramatic damages, make the risk of such overshoot far too great.
He also took issue with the discount rate applied to spending later vs. spending now in Nordhaus’s models. The basic idea is that a dollar spent today to mitigate the effects of climate change is more valuable than one spent in 2050. But the rates Nordhaus uses — which he derives from real-world investment returns — implies that in order for spending now to be worth it later, the benefits in 2050 or 2100 must be very, very large.
“There is a plausible economic (and philosophical) case to be made for why future essential public goods should be valued differently than private goods or other types of public consumption,” Acemoglu wrote in 2021, arguing that discount rates derived from investment returns, like the ones Nordhaus uses, might not be the best guide to public policy.
So what does the latest Nobel laureate want instead? Well, something like what the United States has been doing the past few years.
Accounting for the economic benefits of domestic or “endogenous” technological development, Acemoglu’s research finds that "the transition to cleaner energy is much more important than simply reducing energy consumption, and that technological interventions need to be redirected far more aggressively than they have been.” He explored how this process could work in papers he wrote over more than a decade, developing a model for this kind of directed technological change and applying it to the United States, starting as far back as 2012.
Across all his work on climate change, Acemoglu argues that a focus on pricing the “externalities” of carbon emissions — the harm emissions impose on everyone that isn’t reflected in the prices of fossil fuels — is myopic. Instead, the challenge is both restricting emissions and fostering clean technologies that can take the place of dirty ones, which have had a remarkable head start in investment.
In “The Environment and Directed Technical Change,” published in 2012 and co-written with Philippe Aghion, Leonardo Bursztyn, and David Hemous, Acemoglu argues that a mixture of carbon taxes and research subsides could “redirect technical change and avoid an environmental disaster” by imposing a cost on dirty technology and boosting clean technology.
Such an approach would probably rest heavily on positive subsidies and encouraging clean technology and less on a carbon tax, the four write (although a carbon tax would still help to “discourage research” into polluting technologies). It would also need to happen soon.
“Directed technical change also calls for immediate and decisive action in contrast to the implications of several exogenous technology models used in previous economic analyses.”
This framework does not precisely match United States policy — we have no carbon tax — but it does somewhat approximate it. The Biden administration’s approach to climate policy centers on large-scale investments in clean technologies, whether they’re tax credits for non-carbon-emitting electricity production or financing for clean energy projects from the Loan Programs Office, combined with a suite of Environmental Protection Agency rules that are intended to reduce pollution from fossil fuel power plants (along with an actual direct fee on methane emissions).
This approach is embedded within an overall industrial policy that’s supposed to make the economy more productive — a counter-argument to the idea that climate spending is an economic drag that trades off with environmental harms in the future. Acemoglu, too, questions the idea that there’s a tradeoff between economic growth and spending to combat climate change. Not only could renewables be cheaper than fossil fuels, “an energy transition can improve productive capacity and thus lead to an expansion of output, because transition to cleaner technologies can boost investment and the rate of technological progress,” he and his co-authors write.
Acemoglu has also weighed in on one the more controversial questions in climate policy and economics: the shale gas boom. In a 2023 paper written, again with Aghion, Hemous, and Lint Barrage, he weighed the effects of dramatic increase of domestically extracted natural gas, focusing on the importance of technological development. The Environmental Protection Agency attributes the decline in US greenhouse gas emissions since 2010 in part to “the growing use of natural gas and renewables to generate electricity in place of more carbon-intensive fuels,” due to natural gas replacing coal electricity generation. While this logic has come under fire from some activists and researchers who say the government’s models underestimate methane leakage from natural gas operations, Acemoglu took a different tack.
Yes, natural gas substituting for coal reduces short-run emissions, he and his co-authors concluded, but also, “the natural gas boom discourages innovation directed at clean energy, which delays and can even permanently prevent the energy transition to zero carbon.” They backed up this assertion by pointing to a decline in the total share of patents rewarded to renewable energy innovation between 2009 and 2016.
The way out is that same mix of carbon prices and technology subsidies Acemoglu has been recommending in some form since Kelly Clarkson was last on top of the charts, which “enables emission reductions in the short run, while optimal policy would ensure that the long-run green transition is not disrupted.”
If the Biden Administration’s climate policy works out, it will look something like that, and the prize will be far greater than anything given out in Stockholm.
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On Energy Transfer’s legal win, battery storage, and the Cybertruck
Current conditions: Red flag warnings are in place for much of Florida • Spain is bracing for extreme rainfall from Storm Martinho, the fourth named storm in less than two weeks • Today marks the vernal equinox, or the first day of spring.
A jury has ordered Greenpeace to pay more than $660 million in damages to one of the country’s largest fossil fuel infrastructure companies after finding the environmental group liable for defamation, conspiracy, and physical damages at the Dakota Access Pipeline. Greenpeace participated in large protests, some violent and disruptive, at the pipeline in 2016, though it has maintained that its involvement was insignificant and came at the request of the local Standing Rock Sioux Tribe. The project eventually went ahead and is operational today, but Texas-based Energy Transfer sued the environmental organization, accusing it of inciting the uprising and encouraging violence. “We should all be concerned about the future of the First Amendment, and lawsuits like this aimed at destroying our rights to peaceful protest and free speech,” said Deepa Padmanabha, senior legal counsel for Greenpeace USA. The group said it plans to appeal.
The Department of Energy yesterday approved a permit for the Calcasieu Pass 2 liquified natural gas terminal in Louisiana, allowing the facility to export to countries without a free trade agreement. The project hasn’t yet been constructed and is still waiting for final approvals from the independent Federal Energy Regulatory Commission, but the DOE’s green light means it faces one less hurdle.
CP2 was awaiting DOE’s go-ahead when the Biden administration announced its now notorious pause on approvals for new LNG export facilities. The project’s opponents argue it’s a “carbon bomb.” Analysis from the National Resources Defense Council suggested the greenhouse gases from the project would be equivalent to putting more than 1.85 million additional gas-fueled automobiles on the road, while the Sierra Club found it would amount to about 190 million tons of carbon dioxide equivalent annually.
President Trump met with 15 to 20 major oil and gas executives from the American Petroleum Institute at the White House yesterday. This was the president’s first meeting with fossil fuel bosses since his second term began in January. Interior Secretary Doug Burgum and Energy Secretary Chris Wright were also in the room. Everyone is staying pretty quiet about what exactly was said, but according to Burgum and Wright, the conversation focused heavily on permitting reform and bolstering the grid. Reuters reported that “executives had been expected to express concerns over Trump’s tariffs and stress the industry view that higher oil prices are needed to help meet Trump’s promise to grow domestic production.” Burgum, however, stressed that oil prices didn’t come up in the chat. “Price is set by supply and demand,” he said. “There was nothing we could say in that room that could change that one iota, and so it wasn’t really a topic of discussion.” The price of U.S. crude has dropped 13% since Trump returned to office, according to CNBC, on a combination of recession fears triggered by Trump’s tariffs and rising oil output from OPEC countries.
The U.S. installed 1,250 megawatts of residential battery storage last year, the highest amount ever and nearly 60% more than in 2023, according to a new report from the American Clean Power Association and Wood Mackenzie. Overall, battery storage installations across all sectors hit a new record in 2024 at 12.3 gigawatts of new capacity. Storage is expected to continue to grow next year, but uncertainties around tariffs and tax incentives could slow things down.
China is delaying approval for construction of BYD’s Mexico plant because authorities worry the electric carmaker’s technology could leak into the United States, according to the Financial Times. “The commerce ministry’s biggest concern is Mexico’s proximity to the U.S.,” sources told the FT. As Heatmap’s Robinson Meyer writes, BYD continues to set the global standard for EV innovation, and “American and European carmakers are still struggling to catch up.” This week the company unveiled its new “Super e-Platform,” a new standard electronic base for its vehicles that it says will allow incredibly fast charging — enabling its vehicles to add as much as 249 miles of range in just five minutes.
Tesla has recalled 46,096 Cybertrucks over an exterior trim panel that can fall off and become a road hazard. This is the eighth recall for the truck since it went on sale at the end of 2023.
This fusion startup is ahead of schedule.
Thea Energy, one of the newer entrants into the red-hot fusion energy space, raised $20 million last year as investors took a bet on the physics behind the company’s novel approach to creating magnetic fields. Today, in a paper being submitted for peer review, Thea announced that its theoretical science actually works in the real world. The company’s CEO, Brian Berzin, told me that Thea achieved this milestone “quicker and for less capital than we thought,” something that’s rare in an industry long-mocked for perpetually being 30 years away.
Thea is building a stellarator fusion reactor, which typically looks like a twisted version of the more common donut-shaped tokamak. But as Berzin explained to me, Thea’s stellarator is designed to be simpler to manufacture than the industry standard. “We don’t like high tech stuff,” Berzin told me — a statement that sounds equally anathema to industry norms as the idea of a fusion project running ahead of schedule. “We like stuff that can be stamped and forged and have simple manufacturing processes.”
The company thinks it can achieve simplicity via its artificial intelligence software, which controls the reactor’s magnetic field keeping the unruly plasma at the heart of the fusion reaction confined and stabilized. Unlike typical stellarators, which rely on the ultra-precise manufacturing and installment of dozens of huge, twisted magnets, Thea’s design uses exactly 450 smaller, simpler planar magnets, arranged in the more familiar donut-shaped configuration. These magnets are still able to generate a helical magnetic field — thought to keep the plasma better stabilized than a tokamak — because each magnet is individually controlled via the company’s software, just like “the array of pixels in your computer screen,” Berzin told me.
“We’re able to utilize the control system that we built and very specifically modulate and control each magnet slightly differently,” Berzin explained, allowing Thea to “make those really complicated, really precise magnetic fields that you need for a stellarator, but with simple hardware.”
This should make manufacturing a whole lot easier and cheaper, Berzin told me. If one of Thea’s magnets is mounted somewhat imperfectly, or wear and tear of the power plant slightly shifts its location or degrades its performance over time, Thea’s AI system can automatically compensate. “It then can just tune that magnet slightly differently — it turns that magnet down, it turns the one next to it up, and the magnetic field stays perfect,” Berzin explained. As he told me, a system that relies on hardware precision is generally much more expensive than a system that depends on well-designed software. The idea is that Thea’s magnets can thus be mass manufactured in a way that’s conducive to “a business versus a science project.”
In 2023, Thea published a technical report proving out the physics behind its so-called “planar coil stellarator,” which allowed the company to raise its $20 million Series A last year, led by the climate tech firm Prelude Ventures. To validate the hardware behind its initial concept, Thea built a 3x3 array of magnets, representative of one section of its overall “donut” shaped reactor. This array was then integrated with Thea’s software and brought online towards the end of last year.
The results that Thea announced today were obtained during testing last month, and prove that the company can create and precisely control the complex magnetic field shapes necessary for fusion power. These results will allow the company to raise a Series B in the “next couple of years,” Berzin said. During this time, Thea will be working to scale up manufacturing such that it can progress from making one or two magnets per week to making multiple per day at its New Jersey-based facility.
The company’s engineers are also planning to stress test their AI software, such that it can adapt to a range of issues that could arise after decades of fusion power plant operation. “So we’re going to start breaking hardware in this device over the next month or two,” Berzin told me. “We’re purposely going to mismount a magnet by a centimeter, put it back in and not tell the control system what we did. And then we’re going to purposely short out some of the magnetic coils.” If the system can create a strong, stable magnetic field anyway, this will serve as further proof of concept for Thea’s software-oriented approach to a simplified reactor design.
The company is still years away from producing actual fusion power though. Like many others in the space, Thea hopes to bring fusion electrons to the grid sometime in the 2030s. Maybe this simple hardware, advanced software approach is what will finally do the trick.
The Chinese carmaker says it can charge EVs in 5 minutes. Can America ever catch up?
The Chinese automaker BYD might have cracked one of the toughest problems in electric cars.
On Tuesday, BYD unveiled its new “Super e-Platform,” a new standard electronic base for its vehicles that it says will allow incredibly fast charging — enabling its vehicles to add as much as 249 miles of range in just five minutes. That’s made possible because of a 1,000-volt architecture and what BYD describes as matching charging capability, which could theoretically add nearly one mile of range every second.
It’s still not entirely clear whether the technology actually works, although BYD has a good track record on that front. But it suggests that the highest-end EVs worldwide could soon add range as fast as gasoline-powered cars can now, eliminating one of the biggest obstacles to EV adoption.
The new charging platform won’t work everywhere. BYD says that it will also build 4,000 chargers across China that will be able to take advantage of these maximum speeds. If this pans out, then BYD will be able to charge its newest vehicles twice as fast as Tesla’s next generation of superchargers can.
“This is a good thing,” Jeremy Wallace, a Chinese studies professor at Johns Hopkins University, told me. “Yes, it’s a Chinese company. And there are geopolitical implications to that. But the better the technology gets, the easier it is to decarbonize.”
“As someone who has waited in line for chargers in Pennsylvania and New Jersey, I look forward to the day when charging doesn’t take that long,” he added.
The announcement also suggests that the Chinese EV sector remains as dynamic as ever and continues to set the global standard for EV innovation — and that American and European carmakers are still struggling to catch up. The Trump administration is doing little to help the industry catch up: It has proposed repealing the Inflation Reduction Act’s tax credits for EV buyers, which provide demand-side support for the fledgling industry, and the Environmental Protection Agency is working to roll back tailpipe-pollution rules that have furnished early profits to EV makers, including Tesla. Against that background, what — if anything — can U.S. companies do to catch up?
The situation isn’t totally hopeless, but it’s not great.
BYD’s mega-charging capability is made possible by two underlying innovations. First, BYD’s new platform — the wiring, battery, and motors that make up the electronic guts of the car — will be capable of channeling up to 1,000 volts. That is only a small step-change above the best platforms available elsewhere— the forthcoming Gravity SUV from the American carmaker Lucid is built on a 926-volt platform, while the Cybertruck’s platform is 800 volts — but BYD will be able to leverage its technological firepower with mass manufacturing capacity unrivaled by any other brand.
Second, BYD’s forthcoming chargers will be capable of using the platform’s full voltage. These chargers may need to be built close to power grid infrastructure because of the amount of electricity that they will demand.
But sitting underneath these innovations is a sprawling technological ecosystem that keeps all Chinese electronics companies ahead — and that guarantees Chinese advantages well into the future.
“China’s decisive advantage over the U.S. when it comes to innovation is that it has an entrenched workforce that is able to continuously iterate on technological advances,” Dan Wang, a researcher of China’s technology industry and a fellow at the Paul Tsai China Center at Yale Law School, told me.
The country is able to innovate so relentlessly because of its abundance of process knowledge, Wang said. This community of engineering practice may have been seeded by Apple’s iPhone-manufacturing effort in the aughts and Tesla’s carmaking prowess in the 2010s, but it has now taken on a life of its own.
“Shenzhen is the center of the world’s hardware manufacturing industry because it has workers rubbing shoulders with academics rubbing shoulders with investors rubbing shoulders with engineers,” Wang told me. “And you have a more hustle-type culture because it’s so much harder to maintain technological moats and technological differentiation, because people are so competitive in these sorts of spaces.”
In a way, Shenzhen is the modern-day version of the hardware and software ecosystem that used to exist in northern California — Silicon Valley. But while the California technology industry now largely focuses on software, China has taken over the hardware side.
That allows the country to debut new technological innovations much faster than any other country can, he added. “The comparison I hear is that if you have a new charging platform or a new battery chemistry, Volkswagen and BMW will say, We’ll hustle to put this into our systems, and we’ll put it in five years from now. Tesla might say, we’ll hustle and get it in a year from now.”
“China can say, we’ll put it in three months from now,” he said.“You have a much more focused concentration of talent in China, which collapses coordination time.”
That culture has allowed the same companies and engineers to rapidly advance in manufacturing skill and complexity. It has helped CATL, which originally made batteries for smartphones, to become one of the world’s top EV battery makers. And it has helped BYD — which is close to unseating Tesla as the world’s No. 1 seller of electric vehicles — move from making lackluster gasoline cars to some of the world’s best and cheapest EVs.
It will be a while until America can duplicate that manufacturing capability, partly because of the number of headwinds it faces, Wang said.