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On 100% tariffs, Canadian wildfires, and fossil fuel finance
Current conditions: Indonesia’s Mt. Ibu erupted this morning • Flash floods in Afghanistan killed at least 300 people • Gulf Coast states could see severe storms and hail today.
President Biden is expected to announce tomorrow that tariffs on electric vehicles made in China will quadruple – from 25% to 100%. The move is an attempt to stop cheap EVs from flooding the U.S. market. The news was reported by The Wall Street Journal Friday, and reaction has been mixed:
Despite the tensions on tariffs, talks between U.S. climate adviser John Podesta and his Chinese counterpart, Liu Zhenmin, concluded amicably last week. The nations agreed to “collaborate on phasing down coal consumption and boosting the deployment of renewable power,” Bloombergreported. “Even as our overall relationship between our two countries has increasingly been characterized by fierce competition, we have an obligation to our citizens and the people of the world to communicate, cooperate, and collaborate where we can to tackle the climate crisis,” Podesta told reporters.
The entire state of Minnesota is under an air quality alert today due to smoke from Canadian wildfires. The alert first went out yesterday as a band of very heavy smoke moved in, making the air quality unhealthy. Montana and the Dakotas were also affected. These are Canada’s first major wildfires of the season. Nearly 150 fires have spread over about 25,000 acres and prompted evacuations. Forty remain out of control as of this morning.
About 40 fires are out of control in Canada.CIFFC
Half of Canada is in a drought, with dry conditions expected to persist in many regions through the month of May. B.C. Wildfire Service official Cliff Chapman told reporters that the fuels surrounding one of the fires are “as dry as we have ever seen.” “The prospect of another active wildfire season simply drives the point home: we must take more action to combat and mitigate climate change and adapt to its very real and costly impacts,” said Steven Guilbeault, Canada’s minister of environment and climate change. “This is not a future problem. It is here now.”
A report released earlier this year from research group First Street found that, by mid-century, 125 million Americans could be exposed to unhealthy air due to wildfire smoke.
In the eight years since the adoption of the Paris climate agreement, the world’s biggest banks have funneled nearly $7 trillion into the fossil fuel industry, according to a new report from a coalition of campaign groups. The 15th annual Banking on Climate Chaos report, published today, found that U.S. banks were the biggest financiers, accounting for 30% of the 2023 total of $705 billion. JPMorgan Chase was the biggest lender, both last year and since the Paris agreement. Japanese bank Mizuho came in second, and Bank of America came third. Many of the banks on the list responded by highlighting their investments in clean energy while also pointing to the need for ensuring energy security. One interesting trend in the report, as noted by the Financial Times, was an overall shift toward more financing for companies focusing on liquified natural gas. Campaign groups behind the report include the Sierra Club, the Rainforest Action Network, the Indigenous Environmental Network, and others.
Trucks produce a quarter of Europe’s road transportation emissions, but that will soon have to change. A new CO2 emissions rule approved by EU countries today means manufacturers will have to sell mostly zero-emissions heavy-duty trucks by 2040, Reutersreported. In the nearer term, manufacturers will have to cut their fleets’ emissions by 45% by 2030, and 65% by 2035. Also by 2035, all new city buses sold in the EU must have zero emissions.
A new report finds that the growing regions for avocados could shrink by up to 40% by 2050 due to shifting climates.
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Core inflation is up, meaning that interest rates are unlikely to go down anytime soon.
The Fed on Wednesday issued a report showing substantial increases in the price of eggs, used cars, and auto insurance — data that could spell bad news for the renewables economy.
Though some of those factors had already been widely reported on, the overall rise in prices exceeded analysts’ expectations. With overall inflation still elevated — reaching an annual rate of 3%, while “core” inflation, stripping out food and energy, rose to 3.3%, after an unexpectedly sharp 0.4% jump in January alone — any prospect of substantial interest rate cuts from the Federal Reserve has dwindled even further.
Renewable energy development is especially sensitive to higher interest rates. That’s because renewables projects, like wind turbines and solar panels, have to incur the overwhelming majority of their lifetime costs before they start operating and generating revenue. Developers then often fund much of the project through borrowed money that’s secured against an agreement to buy the resulting power. When the cost of borrowing money goes up, projects become less viable, with lower prospective returns sometimes causing investors not to go forward .
High interest rates have plagued the renewables economy for years. “As interest rates rise, all of a sudden, solar assets that are effectively bonds become less valuable,” Quinn Pasloske, a managing director at Greenbacker, a renewable investor and operating company, told me on Tuesday, describing how the stream of payments from a solar project becomes less valuable as rates rise because investors can get more from risk-free government bonds.
The new inflation data is “consistent with our call of an extended Fed pause, with only one rate cut in 2025, happening in June,” Morgan Stanley economists wrote in a note to clients. Bond traders are also projecting just a single cut for the rest of the year — but not until December.
Federal Reserve Chair Jerome Powell told the Senate Banking committee Tuesday, “We think our policy rate is in a good place, and we don’t see any reason to be in a hurry to reduce it further.”
The yield for the 10-year Treasury bond, often used as a benchmark for the cost of credit, is up 0.09% today, to 4.63%. While this is below where yields peaked in mid-January, it’s a level still well above where yields have been for almost all of the last year. When Treasury yields rise, the cost of credit throughout the economy goes up.
Clean energy stocks were down this morning — but so is the overall market. Because while high interest rates are especially bad for renewables, they’re not exactly great for anyone else.
Current conditions: Los Angeles is bracing for a massive rain storm that could trigger landslides in areas recently charred by severe wildfires • About 90% of districts in India have received little or no rainfall since the start of the year • Schools are closed in Kansas City, Missouri, where up to 6 inches of snow is expected today.
California’s state-backed insurance plan of last resort is short on funds to pay out claims from the Los Angeles wildfires. As a result, California Insurance Commissioner Ricardo Lara is asking private insurers that operate in the state to give the program, known as the FAIR Plan, $1 billion. The FAIR Plan is for people who can’t get private insurance coverage because their properties are considered high risk. As weather disasters get worse and private insurers pull back from the state, more people are relying on the FAIR Plan, and its policy load has doubled since 2020 to more than 452,000. The plan has received some 4,700 claims related to last month’s devastating fires, and paid out more than $914 million. But that’s not enough. The program expects a loss of $4 billion from the fires. This is the first time in 30 years that the program has needed to ask for more money. The fee will be divided between the private companies according to market share, and they’ll have 30 days to pay. Up to half of the cost can be passed on to their own policyholders. Even so, there are concerns that this will push private insurers to leave California to avoid further losses, exacerbating the state’s insurance crisis. State Farm, the state’s largest insurer, recently asked regulators to approve a 22% rate increase.
The U.S. added nearly 50% more clean energy capacity last year than in 2023, according to a new report from energy data company Cleanview. Most of the 48.2 gigawatts of new capacity came in the form of batteries and solar, with solar additions rising by 65%, mostly in southern states like Texas and Florida. As for battery storage, four states (California, Texas, Arizona, and Nevada) accounted for 70% of new capacity. Meanwhile, wind power missed out on growth, with capacity additions dropping by nearly a quarter year-over-year. The report says solar growth will likely slow down in 2025, battery storage could grow by nearly 70%, and wind capacity could grow by 80% if all planned projects manage to reach completion. One interesting tidbit is that Indiana is emerging as a solar hot spot. It ranks third on the list of states with the most solar additions planned for 2025, below Texas and California, but above Arizona. Of course, a lot will depend on the Trump administration.
Cleanview
Global air traffic rose by 10% to an all-time high last year, according to recent data from the International Air Transport Association. This means more aviation pollution. Air travel already accounts for 2.5% of global energy-related carbon dioxide emissions, and has contributed an estimated 4% to global warming. As Ben Elgin at Bloombergnoted, the rise in air travel comes as airlines fail to adopt “sustainable” aviation fuel at meaningful levels, with SAF accounting for a paltry 0.3% of commercial jet fuel production in 2024. “SAF volumes are increasing, but disappointingly slowly,” the IATA said in December. “Governments are sending mixed signals to oil companies which continue to receive subsidies for their exploration and production of fossil oil and gas.” Airlines are relying on SAF to curb their emissions, with many pledging to consume 10% SAF by 2030. But “even if airlines can somehow replace 10% of their fuel with lower-emitting alternatives by the end of the decade, those climate benefits would be wiped out by the industry’s expected growth,” wrote Elgin. Yesterday the Trump administration released a $782 million loan for a plant in Montana to turn waste fats into biofuel. The loan was originally finalized under the Biden administration.
The CEO of Ford Motor yesterday warned that the company could be forced to lay off workers if President Trump raises tariffs on Mexico and Canada, and guts Biden-era legislation that supported electric vehicle production. “A 25% tariff across the Mexico and Canadian border will blow a hole in the U.S. industry that we have never seen,” Jim Farley said at a conference. He added that ending loans and subsidies for EV manufacturing projects would also put many Ford jobs at risk. The New York Times noted that his comments “offered a rare example of a corporate executive calling into question Mr. Trump’s policies or statements.”
Sales of electric vehicles were up 18% in January compared to the same time in 2024, but growth is slowing, according to research firm Rho Motion. Last month, 1.3 million EVs were sold worldwide. That’s down 35% from December’s numbers, and marks the third month in a row of slowing growth. China’s sales were down last month because of the Chinese New Year. Meanwhile, sales were up in Europe as new emissions standards came into effect. And in the U.S. and Canada, sales rose 22%. Rho Motion expects more than 20 million EVs will be sold this year.
$160 million – The amount raised in a Series B funding round by Chestnut Carbon. The startup focuses on planting trees and vegetation, and improving forest management practices to better remove carbon from the atmosphere. Chestnut will use this latest funding to build out afforestation projects — that is, planting trees in areas where, at least in modern times, forests have not existed.
Editor’s note: This story has been updated to clarify the nature of the Trump administration’s actions on funding for a Montana biofuels plant.
Chestnut Carbon announces a major new funding round on the heels of its deal with Microsoft.
The embattled nature-based carbon removal market got a significant show of support today as Chestnut Carbon announced a whopping $160 million Series B funding round, led by the Canada Pension Plan Investment Board. The startup focuses on planting trees and vegetation as well as on improving forest management practices to better remove carbon from the atmosphere.
This announcement comes on the heels of the company’s recent deal with Microsoft to remove over 7 million tons of carbon dioxide from the atmosphere over a 25-year period. That involves planting about 35 million native trees over about 60,000 acres. It’s Microsoft’s largest carbon removal contract in the U.S., and one of the largest domestic carbon removal projects period — including those that rely on engineered solutions such as direct air capture.
Chestnut aims to fill a void in the forest carbon removal space by employing a rigorous measurement, reporting, and verification framework that it claims leaves little room for accounting errors and greenwashing, offering a solution that, hopefully, the market can finally trust. So far it seems, investors are buying it.
Chestnut will use this latest funding to build out afforestation projects — that is, planting trees in areas where, at least in modern times, forests have not existed. “We’re buying this farmland — this is marginal pasture land — and we are turning that back into a native forest,” Chestnut’s chief financial officer, Greg Adams, told me. The company buys land that is ill-suited for farming due to factors such as acidic, alkaline, or nutrient-poor soil or a climate that’s hostile to food crops but works for certain tree species.
The startup began planting native tree species in Arkansas and Alabama in 2022, and has since expanded into Mississippi, Louisiana, Texas, and Oklahoma. There are a number of benefits to planting in the Southeast, Adams told me. For one, the region’s climate allows trees to grow particularly fast, leading to more immediate carbon benefits. Also, the area isn’t very wildfire-prone, but is extremely biodiverse — so if one species of tree falls victim to disease or blight, much of the forest is likely to remain unscathed. “We look to build a forest that, if you had a time machine and you went back 100 years, would look very similar to what was there 100 years ago,” Adams told me.
While planting trees isn’t particularly expensive, land acquisition is, and that’s what the majority of Chestnut’s Series B funding will go towards. Adams told me that owning the land also helps to “reinforce the permanent nature” of Chestnut’s carbon removals, since the company has 100% control over land management decisions.
Forest-based carbon offsets are famously prone to fraud and other accounting improprieties. A 2023 investigation showed that many rainforest carbon credits approved by Verra, a leading credit certifier, for instance, were essentially bogus.
Chestnut is well aware that past scandals have eroded trust in nature-based removal efforts and aims to counteract the industry’s dubious reputation. While Verra does certify Chestnut Carbon’s “improved forest management” credits, another entity called Gold Standard certifies the company’s afforestation credits.
In addition to aligning with Gold Standard’s methodology, Adams told me the team uses a number of tools to verify the amount of carbon that its trees remove, including one that the company invented itself, which has plotted every parcel of land in the lower 48 states. This tool uses public and private data to inform Chestnut whether a plot of land is suitable for afforestation. Then, given a hypothetical mix of trees and their space relative to each other, an algorithm determines how much CO2 they would capture and sequester over a 50-year period. After the digital work is done, foresters visit the proposed site and develop a more nuanced analysis that takes into account factors such as expected yield over a given period of time and various mortality risks.
“We sell carbon credits, but we ultimately sell reputational risk insurance, because these are voluntary,” Adams told me, saying he recognizes the fragile nature of the market at this stage. “I want to make sure that what we do is seen differently, in a positive way, and ultimately it’s not going to blow back in our customers’ faces.”