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The industry is not doubling down on the future of fossil fuels. Far from it.
The oil industry is not telling a credible story about its own future. Far from doubling down on the future of oil — as they’d have us believe — and as climate action advocates fear – the most powerful oil producers are planning for obsolescence, but they’re hoping to do it on their own, lucrative, terms.
The end of more than a century of growth in oil use is almost here, but it’s not straightforward.
One of the world’s leading forecasters of energy trends is now emphatic that the amount of oil, gas, and coal used around the world each day will begin to taper off within a few years. According to the International Energy Agency, global oil consumption, currently just over 100 million barrels per day, will peak later this decade at around 102 milllion barrels per day even without any new climate policy measures. We are at “the beginning of the end of the era of fossil fuels,” IEA chief Fatih Birol wrote in September.
None of this is adequate to stay within safe climate limits, but it’s hard to overstate what it means for the oil industry, which has enjoyed almost uninterrupted growth for its 150-odd-year existence.
Oil producers vigorously pushed back on the IEA’s outlook. OPEC+, the oil producers’ cartel, accused the agency of being “ideologically driven.” Chief executives of Exxon and state-controlled Saudi Aramco insisted that demand will continue to grow for decades to come.
But while the biggest and most successful oil producers rail against the IEA’s forecast, hinting that the agency is some kind of woke climate activist, their own actions tell a different story. Oil producers know that their industry is on the cusp of an inexorable decline, and they are preparing for it.
That might seem counter-intuitive given the spate of merger and acquisition news this fall. Last month Exxon made an $65 billion bid for Pioneer Natural Resources, which owns a swathe of Permian shale, and a couple of weeks later Chevron offered $53 billion for Hess Corporation, which includes a chunk of deepwater oil fields off Guyana. “Fossil fuels aren’t going anywhere,” declared The New York Times after the Exxon-Pioneer announcement. Like many other stories, the Times’ article pointed out that Exxon is choosing to invest in more oil, but not renewable energy. Earlier this year Shell cut its target for renewable energy growth. It looks like another vote in favor of oil’s strong future.
But neither the oil industry’s protestations, nor the big U.S. acquisitions, nor the lack of enthusiasm for green investments by oil majors, tells us that oil’s rise will continue for decades. In fact some of these developments point in the opposite direction.
Let’s start with the acquisitions. They’re certainly big; Exxon is preparing to buy Pioneer for shares equivalent to a sixth of Exxon’s own market capitalization; and Chevron’s Hess acquisition is of similarly huge proportions. Big corporate takeovers, however, do not indicate a growing industry. In boom years anyone can raise capital; when things get tough it’s time for “consolidation” because only companies with scale can survive.
To understand how these deals are conservative bets on the future of oil, look at what in the commodities world is called the "production cost curve” — a way of analyzing the financial logic of anything that’s mined or pumped out of the ground.
The curve shows total oil production capacity, ranked horizontally from the cheapest to the most expensive to extract. (The colored dots represent different International Energy Agency scenarios, with the first more climate-aligned and the last being simply “business as usual,” but they’re not particularly important for our purposes.)
The oil industry consists of a panoply of producers, each owning assets with different geological features, chemical compositions, and financial flexibility that put them on different parts of the curve.
Now, the greater the world’s total oil consumption, the more likely it is that prices will be high enough that those at the highest end of the production cost curve — everyone on the steep incline on the curve’s right — can still make money.
But while prices for oil are currently high, the acquisitions are not counting on them remaining so. Wood Mackenzie noted that Chevron’s Guyana fields would have “highly competitive breakeven costs.” Another energy consultancy, Rystad, pointed out that Exxon-Pioneer would have the lowest breakeven costs of any Permian producer; whereas previously they’d only rank second and fourth, respectively. In other words, Chevron and Exxon are rationally trying to position themselves on the left-hand side of the curve — the safe demand zone — where they hope to outlast competitors whose breakeven costs per barrel are too high to survive a world weaning itself off oil.
So the beginning of the end of oil doesn’t mean game over for Exxon, Chevron, or Saudi Aramco – if they play their cards right. Some oil will be sold for the next couple of decades at least. The trajectory down, however, is unprecedented, and it’s not clear that even the canniest producers won’t get caught out by the speed of transition to electric vehicles, for example.
But what about backing away from green energy? If fossil fuels’ heyday is over, surely everyone should pile into the next big thing?
Not necessarily. Consider where their money comes from. Big oil companies like Exxon and Chevron have plenty of cash, but they have to keep shareholders happy. Those investors are in those companies for various reasons; but one reason some of them actively choose it is for its specific characteristics: long capital-intensive investment cycles and high profits when things go well.
Green energy investments are different. The rates of return can be lower, but risks are also lower, particularly over a longer time horizon.
In fact it’s a conventional tenet of investing that if companies see their entire industry shrinking, they should not necessarily pivot into a new sector that is replacing it. The principles of “shareholder value,” for example, holds that companies should return cash to shareholders if there are no credible investment opportunities, so they can divert that money into new sectors.
That’s exactly what those massive share buyback programs are doing. The world’s biggest oil companies ramped up purchases of their own shares — which returns cash to investors — to the value of more than $135 billion last year, according to investment manager Janus Henderson; Bloombergestimates it was a more than 10-fold increase on the previous year and many U.S. and European majors are extending or expanding their buybacks this year.
The buybacks, as much as they might be a repellent illustration of windfall profits arising from wars, are being conducted instead of investing in more upstream investment. Of course, this logic doesn't align with the much-repeated idea that “oil companies will have to be involved in the transition,” but neither do the actions of oil companies.
Finally, it pays to question the messenger. It would not be in oil companies’ interests to say out loud that demand is peaking soon, even if they and their investors all know it.
Imagine if Exxon or OPEC+'s secretariat said “yes, oil demand is probably close to peaking; it might plateau for awhile but the era of growth is over.” Money would flow out of the sector. Smaller, more expensive producers would stop investing in finding and producing more oil, which would lead to more volatile price spikes, driving the world to switch to clean energy even faster (JP Morgan says the recent high prices has already provoked “demand destruction” — in part explaining why prices haven’t spiked as much as recent world events might suggest.) Governments and other companies might even step up efforts to cut their dependency on oil. It would become a self-fulfilling prophecy with challenging implications for countries and companies whose existence is based on pumping oil and gas.
OPEC is typically optimistic about oil demand in its own publications. It predicted back in 2006 that oil demand in 2025 would be 113 million barrels per day — a number that’s 10 million above what has ever been reached. (It’s now forecasting that oil demand will reach a similar level — 116 million/day — only 20 years later, in 2045.) But OPEC, and particularly its most powerful member Saudi Arabia, has long been quietly anxious about demand destruction. With the IEA saying recent prices suggest that is already happening now, thanks to the rise of electric vehicles, OPEC has further reason to keep their fretting private.
Oil producers are — again, rationally — planning to extract the last bit of profits from a declining sector, while hoping that energy users everywhere remain dependent upon a volatile, expensive, and polluting – but very profitable – energy source. If newer sovereign producers try to get into the game late (such as Barbados, Senegal, and Mozambique) they might well get caught out by the shrinking oil market. That would leave the cheaper and better-capitalized producers — Gulf countries, or the U.S. majors — to continue selling at a comfortable profit, albeit slightly lower than they’d receive in the pre-peak era.
The oil majors are settling in for a long, comfortable decline.
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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.