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A glimmer of hope, courtesy of climate diplomacy.
The past couple years have seen escalating tensions between China and the United States. On the one hand, the brutally repressive nature of the Chinese government has become undeniable, with the crushing of protests in Hong Kong and the ongoing cultural genocide against the Uyghur people in Xinjiang. On the other, the Biden administration has tightened Trump-era technology controls intended to prevent China from developing cutting-edge expertise in semiconductors, as well as other trade restrictions. Chinese and Taiwanese fighter jets are routinely getting into squabbles over Taiwan’s airspace.
It sure looks like another cold war is developing. However, we saw an unexpected diplomatic bright spot during U.S.-China talks this week, when both countries agreed to take steps to triple the world’s renewable energy capacity by 2030, and to cut emissions from power production over the same period. As Lisa Friedman writes at The New York Times, “That appears to be the first time China has agreed to specific emissions targets in any part of its economy.” That is good, and might even help defuse a full blown second cold war.
Now, the agreement did not say anything about cutting coal use, which has previously been a core U.S request. However, this isn’t as meaningful as it might seem. China does use an ungodly quantity of coal — the main reason why it now emits more than 60 percent more carbon pollution than the U.S. and the EU put together — and that is no doubt why cutting coal is not mentioned.
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But Chinese coal will be phased out regardless of any diplomatic agreement, likely sooner rather than later, for two reasons. First, power from natural gas and renewables is now considerably cheaper than that of coal, and increasingly so in the latter case as technology continues to improve. Brute market forces are the primary reason why American coal use peaked in 2007 and has since fallen by 60 percent. Coal power is simply a poor business proposition in 2023 — continuing to use it is leaving money on the table.
Second, the filth spewed forth by burning coal imposes a terrific health burden on the Chinese population. Seemingly every few months a new study is published showing air pollution is even worse than we thought. The air quality in Beijing was an international disgrace for decades; it has since been greatly improved, in part by halting the use of coal for residential heating and cooking. But according to the World Health Organization, air pollution still kills some two million Chinese annually, along with untold cases of asthma, heart disease, high blood pressure, and so on.
All that sickness is extremely expensive — costing America about $2,500 per person annually, according to one study. That’s easily enough that ending the use of fossil fuels would pay for itself over the long term even if you ignore climate change altogether.
In short, the ever-declining price of renewables, and the advancing awareness of just how costly air pollution is, have made the task of climate diplomacy far easier. No great sacrifice is required; countries must simply agree to do what is already in their best interest.
Still, the push of diplomatic agreements have their place. Actually building out a fully zero-carbon economy pencils out on paper, but will require a lot of complicated, expensive, and annoying electricity transmission and storage upgrades to deal with the intermittency of renewable power. Formal commitments can help break through the inertia.
So what is actually happening on the ground? In America, we did finally pass a serious climate bill, four decades after the undeniable proof of climate change was brought to the attention of Congress, in the form of the Inflation Reduction Act. Solar and wind investment are indeed skyrocketing, along with the domestic manufacturing industry intended to buttress that investment politically. It isn’t enough yet, but it’s a good start.
On the Chinese side, it must be admitted that China’s renewable investment wildly outstrips what America is doing, even with the IRA. China has put up 25.6 gigawatts of offshore wind, as compared to America’s pitiful 30 megawatts, or about one-thousandth as much. This year alone China will put up more solar than the entirety of America’s extant installed solar capacity. Nobody on earth does big and fast better than China.
That said, China’s planning of renewables appears to be quite haphazard, particularly on solar. As David Fickling writes at Bloomberg, the amount of solar power actually produced relative to capacity is not far from the U.K. and France — temperate countries with a lot of cloud cover. This is because thus far the bulk of China’s solar has been placed in the temperate south and east, rather than in the dry north and west. So while the volume is about right, the execution isn’t there yet.
Incidentally, this might be a worthy topic for future climate talks — America can share best practices about getting the largest number of megawatts for your solar dollar, while China can share tips about how to build big projects without taking 15 years and going over budget by 500 percent.
So I return to the incipient U.S.-China cold war. To anyone with any sense, it is plainly obvious that neither party can actually defeat the other without also devastating itself. Both countries have nuclear weapons and enormous militaries, backed by equally enormous economies. Yet those economies are also profoundly intertwined — particularly when it comes to climate, as China is by far the largest producer of solar panels. Trying to stand up a domestic renewable industry as the Biden administration is doing is one thing, but total cessation of trade would wreck both China and America, and greatly hinder the global climate transition to boot.
Some kind of 1970s-style detente is obviously called for — a rough agreement where both countries can continue to develop internally and flex some diplomatic muscle abroad, but without blowing up the status quo or getting in a shooting war.
In the social media age, where blasting out the most inflammatory and unhinged message is greatly rewarded, propaganda has arguably never been more powerful or insidious. Vladimir Putin, for instance, was reportedly convinced of a conspiracy theory (originally invented by a segment of the Lyndon LaRouche cult) that the “color revolutions” of the mid-2000s, the Arab Spring, and the Euromaidan in Ukraine, were all secretly cooked up by George Soros and the CIA, which is one reason why he was so hostile to Ukraine joining the EU.
Heading off this kind of misunderstanding with China, which is an order of magnitude more formidable than Russia at least, is critical. And one good way to do that is just to keep diplomatic contact going. Top level officials meeting face to face, where relationships can develop and understanding grow, tends to defuse the grotesque distortions of propaganda lies. It’s no guarantee, of course, but it has worked in the past. The longer serious conflict can be put off, the greater the chance of settling into a live-and-let-live pattern, and the better chance the world has to carry out the energy transition.
Read more about China:
China Could Massively Juice Its Clean Energy Industry. The World Isn’t Ready.
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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.”